The pandemic has induced business leaders to reshape their organizations for the future. Through distributed work, capacity building, and crafting a more inclusive society. Zoho’s journey offers some important lessons.
Sridhar Vembu is the founder and CEO of Zoho Corporation and holds a Ph.D. from Princeton University. He is widely recognized for his commitment to the cause of employability and growth in rural India.
Sharad Sharma is the co-founder of iSPIRT Foundation (Indian Software Product Industry Roundtable), a non-profit technology think tank devoted to making India a product nation.
This conversation was part of Beacon 2022, a month-long ideas festival brought to you by BITSoM & Founding Fuel.
A big company that media doesn’t cover
- Zoho is India’s largest SaaS (software as a service; or software product running on the cloud) company. It is much bigger than Freshworks that went public recently.
- You don’t hear much about Zoho because it is bootstrapped and not funded by VC money.
- How big is it? It serves more than 50 million employees across many businesses. For comparison, the Big 4 IT services companies—TCS, Infosys, Cognizant and Wipro—together have roughly 5,000 clients (if you deduplicate), and serve 50 million employees of all their customers. Something that Zoho does all by itself.
- Zoho represents a new wave of tech companies, and also a new way of management.
- Sridhar Vembu is an archetype of the generation of CEOs that India needs, if it is to reach its fullest potential.
What shaped Sridhar Vembu’s thinking
“If you are sitting only in Bangalore or NCR and only thinking about those problems, I’d say there’s a much bigger India out there.” - Sridhar Vembu
- I grew up in two places at once. My parents were from Thanjavur district, both came from villages, and were recent migrants to Chennai. I spent a lot of time in the village. About 12 kn from there is a 1000-year-old grand temple built by Rajendra Chola. I’d think, we built this a 1000 years ago, but if you look at the countryside, it is so poor (this was in the 1970s). I know we can’t build this today. Why would a culture have it and lose it?
- I wanted to understand what makes some societies rich and others poor.
- Business is applied economics, where your goal is to create prosperity.
- We stayed deeply rooted as a company. Our purpose was not to go public, but solve some problems here.
- I don’t accept something as the revealed truth. I like to understand things from first principles, and sometimes a new pathway emerges.
- India is a country of opportunity now—much more than Western countries. There’s a lot of talent.
- Smaller cities like Gwalior have even more abundant opportunities than the metros. What does an entrepreneur need? Market and resources—and also you need a place and people for all of that. All those are abundant in most parts of India.
- We could easily be a $30 trillion economy.
Challenge the obsession with EPS and core competence
“The really champion companies from America are not following the business school ideology” - Sridhar Vembu
- GE’s Jack Welch is a false idol. GE was a top class engineering company, but Welch financialised the company. He created GE Capital, which became a primary driver of earnings. He didn’t invest in core engineering and R&D. GE has been paying the price ever since.
- IBM’s 15% EPS growth was achieved through buying back its own shares and reducing its shares in the market—and with no growth in the underlying business.
- India is tempted to follow—not invest in R&D, manufacturing prowess, and basic capabilities, and instead go for cheap finance. India should be careful not to copy this approach.
- Even the idea of core competence should be challenged. It has kept, for example, the software industry in India from investing in semiconductors or cloud infrastructure.
- What is the core competence of Amazon? How is it that a retailer is the leading cloud infrastructure company today? Or why is that they are also making movies?
- Is it Apple’s core competence to build the M1 chip?
- We have not been sufficiently imaginative, and have uncritically applied certain buzzwords and metrics like EPS.
Creating core capabilities within the country, that could be strategic in nature
“We’ve done it for vaccines, space, payments etc. But we need to think much more deeply. Else we will be an economy of assemblers, of people who do job work.” - Sharad Sharma
- Given the size of our nation, there isn’t a sector or technology that we should not aspire for.
Where do VCs fit in the innovation ecosystem?
“Where is our equivalent of the M1 chip, our fighter jet, the next version of MRI machines?” - Sridhar Vembu
- The search engine came from venture capital. But the M1 chip, AWS—these came from established companies. Many cloud companies would not exist without AWS. Amazon created a new category of infrastructure. Both kinds of innovation are critical.
- The M1 chip or AWS kind of innovation can only be done by established companies, because they are very long-reach R&D projects. Even the payments system in India. You cannot create these in 3 years—the VC type financing, which is exit focused.
- Zoho is investing in an MRI machine. It has trouble attracting venture finance; it will be a 5-10 year project and there’s no shortcut.
- Similarly, only an established company can build 5G infrastructure in India (the Tatas are doing that). Reliance acquired a cell chemistry company that makes sodium-ion batteries, which could be a disruptive battery technology.
- None of the VC money is going into deep tech. It is going into consumer-oriented companies with weekly growth rates.
Choosing to bootstrap, against taking venture financing
“Choose your friends carefully. If they are putting peer pressure on you, have the guts to fire your friends.” - Sridhar Vembu
- The problem is peer pressure and the fear of missing out.
- Gwalior has none of the pressures you find in Bangalore or NCR. It is still unexplored territory as far as tech startups are concerned. If you are sitting in Gwalior, you’ll have a different world view—you will not be comparing yourself with other startups.
What I learned from the pandemic
“A principled form of localism is important. We have to be rooted and connected… If every screwdriver has to travel halfway across the world to reach here and your supply chain is so complicated, it’s a lack of resilience.” - Sridhar Vembu
- Resilience requires a principled form of localism. We have to be more self-reliant.
- The social lesson—the rootedness—is important. In March 2020 I asked all our staff to go back to their hometowns. I didn’t think of it as a lockdown, but I thought ‘you are better off staying with your friends and family at this time.’ We are now creating offices wherever our employees are.
“Your thing was, even if people leave Zoho and set up new companies, it’s ok. Freshdesk emerged in that fashion.” - Sharad Sharma
- Take Tenkasi, we have about 500 people here now. There is a strong ecosystem of talent here. Or in Coimbatore or Madurai. All these places have that youthful talent and tech awareness. This can only be a good thing.
- Chennai has 1000 startups that came from Zoho.
The ethos of an Indian multinational
“The Indian multinational culture is a faithful replica of the American culture.” - Sharad Sharma
“I see India as the indispensable spiritual mother of all nations.” - Sridhar Vembu
- We are still a nation of low self esteem. We still haven't gotten over the colonial hangover—we switched from the UK to the US.
- We are not rooted in our own history and culture. We can only be successful if we are rooted. The German and Japanese firms are uniquely German or Japanese.
- The core of our culture is spirituality that teaches us contentment and humility.
- We talk about issues like global warming. If each of us doesn't have a contented mindset, if endless, reckless consumption is how we are going to define ourselves, there is no solution to this problem. This has to come from India.
- East and West meet here. We combine elements of the East with exposure to the West, including the Middle East which is West to us.
- This is also why Indian CXOs are so universally sought.
- There far is more diversity of viewpoint within Indian philosophy than in any other philosophical system—our philosophers endlessly disagreed and debated each other.
Self knowledge and purpose—What shapes Sridhar, the individual
“My son is fighting autism. What that [shows you] is social isolation. I now understand what it means to be untouchable.” - Sridhar Vembu
- Families with kids with autism cannot go to a restaurant, a movie or even a temple—all the normal things you take for granted become practically impossible.
- This experience made me identify even more with our rural people—especially those at the bottom of society.
- Zoho wants to hire people to whom our existence will make a difference in their lives. Someone with fancy credentials will anyway get a good job. If we didn’t exist, they’d be fine. In a lot of the places we go to, we are the only employer of note.
- Money is an instrument—I can point it in useful directions.
Read NS Ramnath’s deep dive into how Sridhar Vembu built Zoho by questioning the conventional wisdom. For the longest time, no one took much notice. But now people are curious about what makes him—and Zoho—tick