Zoho – Coming From an Emerging Market Has Its Advantages

Several weeks ago, I had the opportunity to talk with Sridhar Vembu, CEO of Zoho Corp, a strong player in the SaaS software market. The company’s corporate headquarters are in Pleasanton, California and the majority of its about 1000 employees are based out of India and China. These and other characteristics make Zoho and Sridhar, who has spent half his life in India and half (presently) in the states, an excellent model for digital innovation in Latin America.

First off, what really struck me about Sridhar after our chat was the balance of three key characteristics of his personality that came across: 1) His passion for the “people aspect” of building a business, 2) his practicality and incisive thoughtfulness and, finally, 3) an underlying, intense pride (in his people, what they’ve accomplished, etc.) and competitiveness.

I won’t go into a ton of detail about the company because there’s a wealth of information on their site and in other articles. In a nutshell, Zoho bet on cloud computing and the SaaS delivery model early and are just now really hitting their stride in the market with about 2M users. As a recent article in BusinessWeek Magazine states, Zoho competes with behemoths such as Google, Microsoft and Salesforce.com. All this from a point in 1999 when, as Sridhar mentioned, they had one key goal: survival. Now that’s a goal many small business people can identify with, but particularly, those in emerging countries such as in Latin America where capital is in even shorter supply.

So what happened after 1999 to garner them so much success? It had nothing to do with getting Venture Capital (VC) funding since they’re a private company which has bootstrapped itself since the beginning. Sridhar mentioned that their strategy has focused on depth of functionality, breadth of offerings, integration and support. The integration focus is a boon to usability because they are able to integrate key functionality from their applications into the work processes of their customers. Through “contextual information integration” things like email (even Gmail) are integrated with the CRM product so that customers can get their work done faster.

In terms of support, at least one person I referred Zoho to here in Latin America, has had an incredible experience in this regard. Sridhar mentioned that part of their engineers’ training entails alternating time on the support lines as well as monitoring the support database helping them into the customer mindset from the outset. In order to execute such a strategy, Sridhar mentions a trait that the company must possess: patience. Patience to develop employees straight out of high school into productive professionals, patience to solve what Sridhar describes as the small business “IT problem” and patience to build an organization for the future.

What a terrific model for Latin American companies to follow. There’s a ton of talent down here and, Sridhar and Zoho’s journey can be a lesson for many. As he mentioned, Sridhar himself looked to a number of Japanese companies such as Honda as models to follow. After WWII, Japan was a developing country (like India or all of Latin America) and through patience and dedication, they were able to achieve the economic and technological feats we take for granted today. It’s important to note that modeling yourself after someone doesn’t mean cloning them and Sridhar has certainly adopted some characteristics of the Japanese model, but not all.

This last point is an important one. Just this week I was in a meeting with some entrepreneurs when someone asked me if Colombia’s path to success was, among other things, in finding an instantiation of a Stanford University (the context of the conversation was the lack of an ecosystem in these countries such as exists in Silicon Valley). I feel that Zoho’s example shows that you don’t need a carbon copy of another country’s ecosystem, you need to build on the strengths you have and, in Zoho’s case, that was patiently sticking to their strategy and building their organization.

Sridhar made a great point about the fact that in Silicon Valley there’s quite a bit of talent to choose from no matter what expertise you need. It seems to me, Sridhar has taken a disadvantage in emerging markets (scarce talent pool with world-class expertise) and converted it into an advantage. By giving young people without a college degree a chance to successfully prove their mettle and compete with international powerhouses such as Google and Salesforce, Zoho benefits from the resulting highly committed, passionate and dedicated group of employees it is nurturing. Aside from this, such a highly motivated group of collaborators injects much energy into the company and, according to him, “keeps [him] young”

While I was speaking with Sridhar, I was reminded of John Hagel’s book, The Only Sustainable Edge. In it, Hagel mentions two important areas touched upon by the Zoho CEO. The first one has to do with Zoho’s ability to offer customers value at an affordable cost which is in synch with Hagel’s assertion that technology innovations are opportunities to “create more value at less cost.” Zoho’s location, recruiting, training and company culture paired with its bet on cloud computing make are certainly aligned to a goal of creating more value at less cost for their customers. Additionally, Hagel points out in his book that managing across two cultures “can create new opportunities to enhance performance by drawing on the best of both cultures.” Certainly, this is not news to Sridhar who lives and breathes it every day.

In Latin America, many discussions on entrepreneurship center upon the disadvantages of the region when compared to the U.S. This runs the gamut from lamenting the scarcity of investment capital; the lack of the right human capital and other ecosystem and infrastructure components that are missing. However, anyone from Latin America who could listen to Sridhar speak about his particular voyage, would actually start to feel as though companies coming out of emerging regions such as Asia or Latin America are at a distinct advantage when compared to US companies. What a great perspective!

While players such as Salesforce.com, Microsoft and Google have solid and focused SaaS offerings, Zoho has been adding applications to its suite at a blistering pace. Though the company’s user base also continues to grow, it’s only a fraction of Google’s user base. Sridhar has heard this observation before and I’m sure can read between the lines of the sometimes veiled (sometimes not) insinuation that this means that they will eat Zoho’s lunch some day. Nevertheless, I believe Sridhar is correct (at least for the time being) in asserting that Google’s rising tide can lift all boats floating in the SaaS “sea” since they are helping to educate customers on the value of these new SaaS offerings.

The company is profitable and is free to follow its long term strategy. While the Google threat (and others) will probably get more palpable as time goes by, I agree with Sridhar’s view that companies don’t get killed by competition; they commit suicide. Nevertheless, one area where I believe that the company needs to improve is in its customer messaging or marketing in general. For instance, instead of a list of applications on the homepage, it would make more sense to quickly set up customers depending on their specific vertical or business process. Fortunately, this is precisely one of the areas for improvement that the company has targeted and openly acknowledges that it could do better on the marketing front.

I think it’s obvious that I truly enjoyed my conversation with Sridhar on a number of levels. He mentioned that he is quite passionate about the topic of how emerging market companies can compete with companies based in developed markets, which is also a strong passion of mine. During our talk, I got the sense that Sridhar has a firm conviction that companies from emerging countries can truly compete on equal footing with “marquee companies” and actually possess advantages that they need to leverage. Hopefully, at a later time, I can speak a bit more in depth with Sridhar about the topic of digital innovation in emerging markets.

As a VC in my previous life, I had the opportunity to speak with extremely intelligent and capable entrepreneurs and investors. After my conversation with Sridhar, I’m as impressed with him as with any other person I’ve met. Different people are remarkable for different reasons. For instance, Google’s founders had the insight to understand the need for organizing the world’s information with the oncoming, accelerated adoption of the Internet. Even more importantly, before they fully saw how big and successful they could become as a company with an actual business model, they jumped in and started solving the problem.

Solving such grandiose and ambitious problems is something that is handsomely rewarded and rightly so. Nevertheless, there are a number of dynamics, which are creating the need for new types of companies: ones that offer digital innovation at a lower cost. New technologies such as cloud computing, virtualization and SaaS delivery provide the digital foundation. Also, as it turns out, emerging markets such as Asia and Latin America, actually offer advantages that astute entrepreneurs can leverage. As Zoho’s trajectory points out, to execute this correctly takes a number of competencies such as a clear vision, competent leadership, focused development of human capital and above all…patience.