How a philosophical technologist shaped the arc of India’s most successful software products company
V Shoba | 30 Jul, 2015
Watching his goats graze contentedly on his ranch in California, Sridhar Vembu likes to chew on what it is to be human. Why do we work? “If you can figure out why people go to temples and churches, you can draw conclusions about why they would want to work. It is not for the money, not after the basic needs are met,” he says. “It is a spiritual quest. But sometimes, while all the rituals may be there, there may not be a god.” Vembu-isms like this one instantly hit your bloodstream, inspiring an unqualified enthusiasm for his ideas. An IIT-Madras and Princeton alumnus, he hung up his admittedly useless academic credentials to found a company in 1996 that has, over the years, become the perfect vehicle for his social, financial and philosophical musings. There is a reason Zoho Corporation is India’s most successful software products company serving the global market. For the nearly 3,000 people who work here, Zoho is a religion. And 47-year-old Vembu is the prophet—a reclusive CEO inclined towards Zen Buddhism, he would strongly disapprove of the tag—whose message resonates through the company, in the reams of code its engineers generate, in its wide-awake dynamism and positive outlook, in liberal HR policies and a flat organisational structure.
As I go about Zoho’s new office in Guduvanchery on the outskirts of Chennai, I am handed wildly different business cards—an overly simple one without even a phone number on it, another with a playful font and watercolourish daubs, and yet another with an uncharacteristic corporate identity. Most do not come with designations. It was in 2007 that a young engineer expressed concern in an internal forum about Zoho’s policy of not issuing business cards to its employees: his prospective father-in-law wouldn’t believe he worked there. Vembu wrote back, giving everyone carte blanche over their designations. Write whatever you want on your business cards, he said, as long as you can essay the role. His own role, he believes, is to help further the march of ideas and to dream big enough to take technological moonshots.
The growth trajectory of a typical Indian Infotech company shoots across the graph, rising predictably against the axis of the time and the effort taken to build the business. At the other extreme is the impossibly right-angular path of life-changing products like Google Search, the grim flat line of hard work and zero returns that abruptly soars to greatness, making the world believe in the infinite possibility of technology. Between these very different linear stories are the growth arcs of most software product companies. They rise in exponential curves, slowly at first, the ones that embrace the bigger idea and take the longer view eventually tracing a steeper plot line. Ask Vembu to explain his vision for the business and this is the graph he draws for you. “As we grow, we will invest in products at a deeper level. We will place bigger and longer term bets- -that is where the heart is–say on technologies like self-driving cars,” he says. Zoho’s cloud software business, which started with relatively easy-to-sell products like a customer relationship management (CRM) tool, now includes a suite of applications like mail and office that are harder to get right. At any given time, there are about a dozen ongoing experiments within the company, with 400-500 people working on products and ideas that are yet to ship. “If you’re a hit movie director, will you make a tele-series? You will not see Zoho falling back into a safe, secure business model,” Vembu says.
He has an almost painterly sense of what the future may look like. It was his infallible foresight that made him bet on software-on-a-cloud long before it became fashionable to do so. Named Zoho only in 2009—after Zoho.com, which encompasses its growing suite of products on a cloud–the company was earlier called AdventNet and it started out building network management tools for telecom companies. It was a lucrative business to be in before the turn of the century, when disaster struck Silicon Valley. Vembu remembers thinking that an optic fibre bubble must be on its way. “I personally sold software to about 120 optic fibre companies, but I wondered how many of them would survive. Turns out only a third did,” he says. An existential crisis was upon AdventNet and Sridhar Vembu decided to build his business far from the bubble. “In 2005- 06, I saw the US housing bubble coming. I rented a house; I didn’t buy one. Sometime later, property prices fell 40 per cent,” he says. Building affordable, high-quality products for small and medium enterprises and investing in cloud-based software were his way out of the rut. Even as Zoho clocks a yearly growth of 25-30 per cent, Vembu is now betting on the next wave of technology, including secure software and an ‘Internet of Things’ platform.
“I am a techno-optimist. I believe in the accelerating progress of technology. But I am also a financial pessimist,” says Vembu, who has repeatedly warned against the blubbery excess of venture capital floating about in India. He never borrowed money or accepted funding— a trait he inherited from his mother, who swore to be debt-free even in times of need—preferring to bootstrap the company all the way to a $300 million-a-year revenue stream. “I call it the fundamental axiom of financialisation. There is an assumption that every asset, whether it is real estate or a mortgage, when traded, adds some value. It may create short-term value but it cannot build durable things,” he says. “A culture of innovation, on the other hand, is a lasting source of value that isn’t liquefiable.”
At Zoho, this culture is fostered by a spirit of swaraj, stemming in part from Vembu’s fiercely independent streak. Growing up in the Dravidian ferment of 1970s Madras, he found himself inspired by the climate of questioning that existed around him. “I felt I did not have to accept received wisdom,” he says. “I was 13 when I first realised there was no such thing as security in life. I found it oddly liberating.” During his time at IIT-Madras, he was a full-blown intellectual rebel, walking out of classes and even penning a damning diatribe in the college magazine, of which he was the editor, about all that was wrong with the IITs. His classmates say the magazine stayed banned for two years lest another student should decide to pick up where Vembu left off. Vembu went on to do a PhD in electrical engineering, but came out of Princeton’s hallowed halls even more disillusioned. “I found myself studying abstract mathematical theorems, which had little to do with reality. My years of formal education were entirely wasteful,” he says. Thus were sown the seeds of the Zoho model of recruitment, which challenges the hegemony of impressive college degrees to hire freshers from little-known institutions across Tamil Nadu. Parallelly, an inhouse training programme based on video modules called Zoho University has till date produced 300 viable employees originally drawn from government schools and polytechnics. Vembu is excited about how the internet has changed the paradigm of advanced learning. “Just like the invention of the printing press made the Bible readily available to the faithful, creating a personal relationship between them and god without the need for liturgy, the internet has undercut the repository of formal knowledge. Today, we are learning to solve our own problems.”
Shadow puppets, the stringing of a taanpura, the humble handloom weave. The simple beauty of Indian craft blends into a lilting classical mandolin score to set the stage for a radical product positioning: software as art, the ultimate product of the creative mind, made in India. Zoho’s first video ad challenges the perception, freighted with prejudice, of software as an industrial product of factories. “A boisterous person’s product may have brighter colours; the language of the dialogue boxes may vary with the developer’s personality,” says Rajendran Dandapani, Vembu’s brother-in-law, fellow-IITian and evangelist-at-large at Zoho. “We don’t have a Zoho standard. Each team, each developer is different.”
Spaces, Vembu believes, are catalysts in the alchemy of the human mind and writing software in the clinical silo of a tech park may indeed seem like drudgery. “We like to give our people the space to think and we wanted to create the right environment for it. Our office in DLF IT Park (in Porur) was too corporate, so we decided to build our own campus outside the bustle of the city and its artificially high real estate prices,” Vembu says, pointing to a pond—“not a fancy pool”— in the making and the area beyond where he has planned a mini-forest with banyan trees. As evening falls, employees appear like ants swarming the benches around the glass building. In just four months, the new campus is already a lived-in space. Vembu, however, is partial to their smaller centre in Tenkasi in southern Tamil Nadu, which houses a team of over 100.
In sharp contrast to other Infotech companies, Zoho employees are free agents collaborating with one another in small groups, governed and motivated by a pervasive sense of ownership. A majority of them are in their mid-20s and they dress casually, conversing mostly in Tamil. Their design and development sensibilities, though, are truly global. The company inspires a staggering volume of code, notes Raghu Ramanujam, a former Zoho employee who went on to launch PoolCircle, a car pooling startup based in Bengaluru. “There is an amazing level of autonomy. This, along with efficient communication methods and the absence of formal structures, inspires you to produce world-class products,” he says.
“I am the CEO for the product that I manage. There is absolutely no interference from anyone in how I pitch my product or how I hire,” says Rajesh Ganesan, in-charge of the flagship product under ManageEngine, the company’s traditional enterprise software business and cash cow that has funded its more glamourous expedition into the cloud market. Like many early hires, Ganesan has spent close to 18 years at Zoho working in various capacities and reinventing his role every few years. “I have never felt a sense of stagnation. Honestly, it will be difficult to work in another company after Zoho. The only options are entrepreneurship or moving abroad,” he says.
Girish Mathrubootham seconds this. After almost a decade at Zoho, he left in 2010 to co-found Freshdesk, a cloud-based customer support software company that is among the fastest growing infotech product startups in India. “At Zoho, there is a sense of learning by doing, of trying different things and learning from mistakes. The world only knows about the successes of Zoho, but they also fail all the time. They are a lab, running products and different business models and some of them, like Zoho.com, click, while others don’t,” Mathrubootham says.
Vembu says he is always prepared for failure, not just of pilot R&D projects but in the real cutthroat world of business. “The important thing is to move on to the next thing, to realise that there are always opportunities. People love that culture.” Zoho refuses to be bullied by Salesforce, a leading San Francisco-based cloud computing company that it directly competes with. In fact, Zoho is ceaselessly gnawing at its marketshare, and may one day overtake the company, which is publicly listed and employs six to seven times the number of people. “Zoho is the underdog in this David vs Goliath battle, but it is undaunted by companies with more money and muscle who are trying to out-hustle it,” says Sharad Sharma, former Yahoo India CEO and co-founder of software product think tank iSPIRT. “Zoho is a classic example of Indian entrepreneurship making it big.”
With customers leapfrogging to cloud- based software, especially in developing economies like India where Zoho wants to make a mark—it is building its first data centre in Chennai—Vembu says revenue from the cloud business is poised to overtake revenue from traditional software products in a couple of years. He is proud of making in India, and now wants to make for India. “One in every four babies born today is Indian. It only stands to reason that we should make other things too…” he says. “For the first time, we have a cohort of youth unconstrained by the past. I am bullish on India.”
Zoho is gradually ramping up its marketing spend but the company will remain wary of expanding its sales team, that numbers under 100. “We do not believe in the Eureka Forbes model of door-to-door sales. It is easy to grow when you have a thousand extra people to go out there and get customers, but that is not our style. We believe in adding value by investing in better technology,” says Manikandan Vembu, Sridhar’s youngest brother and chief operating officer at Zoho. While Mani keeps a low profile, Sridhar is stridently critical of the desperate marketing strategies that abound in the market. His attacks on Salesforce, while rooted in his love for quality products, smack of a bitter rivalry with a company that once made a bid to acquire Zoho. He is also scathing about the Oracle model of “gotcha salesmanship”. Zoho, Sridhar explains, was a customer of MySQL, a database management system, when Oracle acquired it. “When it was time to renew the contract, the sales team hiked the price a hundred times. We had anticipated something like this and had already moved to PostgreSQL by then,” he says. “To some extent, we are in business to destroy these business models. They are an aesthetic problem and they pollute the industry,” Vembu says.
The eldest of five siblings, Sridhar was an academic wiz at school and ranked fourth in the state in the Class 10 boards. His father, however, had an administrative job at the High Court that he hoped would be Sridhar’s after him. “He wanted his second son Kumar to be a farmer and Shekhar to be a priest. Radha was just supposed to get married. As for me, Sridhar calls me ‘The Mistake,” says Mani Vembu. All five siblings went on to start their own companies or to play major leadership roles in others. Mani remembers how Sridhar ‘found’ IIT all on his own. “We had never heard of it. He prepared for the exam without telling our parents.” Right from the beginning, Sridhar Vembu has carved his own path, not just making the right decisions, but making his decisions right. “Zoho.com was born over lunch. We talked about making a cloud- based word processor and the next day, we moved two people to start work on the project. A week later, we knew we could do it,” Mani says.
Almost all of Zoho’s milestones are triumphs of the human will. In 1999, when the team needed a tech writer, no such profile existed in the market and a front office assistant was hired for the job. To this day, she writes for Zoho Creator, an online tool for building custom business apps. “Around the same time, we started doing tele-sales and people said it wouldn’t work. We stuck on, and two guys trained themselves to handle American accents; a Balaji became a Peter. But recently, we did a million-dollar sale on tele-call. In 1998, nobody would have believed you could do this,” Mani says. Zoho was among the first companies to make its products available online for download online—the inside joke was that if someone was really going to pirate any software, let it be Zoho’s—and to explore the freemium model. Each of Zoho.com’s products has since been available as a free version.
Zoho is also a repository of wisdom that has come with experience. For instance, when the company realised there was no market for its new wi-fi management product, it made no bones about it, quietly assigning another project to the development team. They would go on to built Zoho Books, an accounting package with no connection whatsoever to their previous product.
It is easy to see why longevity is important to Zoho. Longer tenures mean you can reapply your knowledge to several problems and avoid repeating mistakes. “Long-term thinking is built into the circadian rhythm of Zoho employees. We want them owning products, including the canteen that is run by our employees and not outsourced. This is one of the pillars of the culture here,” says Dandapani. Zoho University, which is one of the receptacles of this enigmatic culture, cannot yet produce endless squads of employees to fuel its growth. But the current capacity of about 60 a year can easily be doubled in the new campus, Dandapani says.
In a class of 30 without a teacher, Deepak Raj, a feisty 19-year-old from a Corporation school in Chennai, says a four-year engineering course is a waste of time and money. “It would not have taught me more than what I have learned in my four months here,” he says. Eight months later, he will be embedded in a Zoho team as an intern on probation. Most Zoho University recruits tend to do well in their careers, says Veera Selvam, a Java developer who was hired upon completing the course seven years ago. “In those days, people hadn’t heard about Zoho. Today, my friends want to work here. They keep asking about openings,” Selvam says. Software, he says, is a reflection of one’s state of mind. “When you are in a bad mood, you will keep getting lost in code.”
Sridhar Vembu articulates it better. All thought is software, he says, and Buddha the original software engineer. “The suffering we inflict upon ourselves by playing the same thought over and over is called ‘looping’ in software,” he says. “We must break free of that and load new code into our minds.”