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How many entrepreneurs do you know of that have built a unicorn without a cent of external funding?
Well, here’s one: Sridhar Vembu, co-founder and CEO of Zoho Corporation.
His India-born software-as-a- service (SaaS) company quietly surpassed US$1 billion in annual revenue in 2022, defying the global economic downturn- and proving that it is possible to grow in the absence of capital. Today, the bootstrapped company boasts 80 million users around the world across hundreds of thousands of companies.
“Our world of technology today is highly impatient,” Vembu tells Entrepreneur Middle East. “But patience is required. Whether it’s databases, compilers, or cloud software, it takes a certain amount of time to become an expert on anything. You cannot produce a global expert in three months, to build that technology, make it all work together, and make sure the customer is able to adopt it.”
Vembu founded Zoho in the mid-1990s, after ditching his career with Silicon Valley chipmaker Qualcomm to return to India, and become an entrepreneur. “So much of top-level talent at Qualcomm was from India,” he recalls. “Yet, India could not produce a global technology company. So, I felt why don’t we go build one? I knew this would be a 25- to 30-year project, because I had studied Japan- companies like Honda, Sony, Canon, and Toyota didn’t become overnight multinationals. Nobody thinks in those terms anymore, but that doesn’t change the fundamental rules.”
Here in the UAE, Zoho has grown 10x over the last five years. The Chennai-based global tech firm’s UAE revenues were up 45% in 2022, which made it the second-highest growing market for the company globally for the year. Zoho’s growth in the UAE has also been accelerated by its partnership with the Dubai Department of Economy and Tourism to make enterprise technology available to businesses of all sizes. Since 2020, Zoho has steered more than 3,500 small businesses in the UAE into its cloud, investing some AED20 million in wallet credits.
Image courtesy Zoho.
Now, as tech headlines shift from tales of record-setting raises to plummeting valuations, piling losses, and round after round of layoffs, there is plenty of blame to go all around. Vembu, however, attributes the brunt of the problem to easy money policies. “It’s not the startups or the venture capitalists (VCs)– it’s the central banks,” he says. “It’s the Federal Reserve, it’s the European Central Bank, it’s the Bank of Japan… They kept money too easy for too long, which fueled all these bubbles, that were inevitably followed by a bust.”
The bootstrapped billionaire added that the era of startups spurred by hundreds of millions of cheap dollars from VCs has “culturally destroyed” nascent ventures by driving them to hire too many people at once and overgrow. “There’s only a certain rate at which you can grow,” he explains. “Raising money is not the issue. It’s inflated valuations and raising much more than you can handle. If somebody gives a company $100 million for a 10% stake, it’s not easy to spend that money wisely. You end up spending it wastefully, and those habits get ingrained in the culture. So, when money becomes tougher -and eventually it does- you don’t have the cultural habits of how to be frugal.”
Vembu also notes that while it was, of course, easy to get lost in the euphoria of fast-moving deals as investors poured in the millions, leaders have no excuse for remaining oblivious to the inevitable market cycles. “Startup founders should understand the history of technology and economic cycles,” he points out. “The Japanese bubble of 1989. The telecom bubble in Silicon Valley in 1999. History is our only guide. That’s how we can develop perspective.”
According to a Crunchbase tally, more than 140,000 jobs were slashed from just American public and private tech companies last year -and another 100,000 or so this year- as they were forced to confront slowing revenue growth, higher interest rates to battle inflation, stock price plunges, and the chilly funding landscape. The likes of Google, Microsoft, and Salesforce -which Zoho competes with- have each laid off nearly or more than tens of thousands of employees, citing overhiring during the boom period.
“A certain type of corporate management has come to believe that people are an expendable resource,” Vembu says. “We don’t agree with it at all. That approach is not good for technology. It’s too easy to think, ‘I’ll hire a bunch of people when I need them, and let them go when I don’t,’ but research and development (R&D) requires very long investment timeframes. This is a high-context industry. We work on a lot of our products for five or 10 years before we achieve a state of perfection, where the customer likes the product. For this, employees have to be vested and committed, and that means the company has to be committed to them. I cannot ask employees to focus on long-term technology while they have a sword hanging over their heads. Insecurity is not good for innovation.”
Source: Zoho Corporation
Vembu adds here that Zoho has not axed jobs, despite a “substantial” slowdown in the company’s growth. “We have never resorted to layoffs due to market conditions, and we won’t [because] it would destroy morale,” he says. “In the boom followed by the COVID-19 crisis, we were growing 35-40%. Now, it’s at 20%, or below.”
According to American venture capital fund Bessemer Venture Partners, SaaS revenues in India are growing at a 20% annual rate. The SaaS business in India is expected to be worth $50 billion by 2030, the fund said.
And Vembu’s approach has certainly helped Zoho created a strong foundation for long-term advancement. Zoho has its own tech stack built in-house from the ground up, spanning apps, platform and network, to even running its own data centers. “We use our own frameworks,” Vembu explains. “We believe deep integration is important to offer an incredible user experience. In particular, we are not using public clouds like Google Cloud or Microsoft Azure. I work on our back- ground technologies myself. We are also one of the very few companies that know how to run structured query language databases on graphics processing units (GPUs), and that’s a very hard technical problem. The benefits of this highly specialized technology are immense. Queries run faster, and data center expenses are much lower.”
The company continues to work on core technologies like compilers, databases and operating systems, Vembu adds. It is also investing significantly in artificial intelligence (AI), and, perhaps more importantly, making it affordable. This March saw OpenAI announce that it is launching developer application program interfaces for its viral AI chatbot, ChatGPT, to be integrated into numerous apps and services. Commenting on this development, Vembu draws attention to an in-house tool that’s already in use at Zoho. “We already have our Zoho Intelligent Agent (ZIA) search,” Vembu says. “Fundamentally, natural language models are very similar, but it’s about the scale in terms of the number of parameters. ChatGPT is the largest of those very large number of parameters that are trained, but that also makes it very expensive to run. The question now is can we make the technology more affordable to run with fewer parameters, but some other smart [features], which is where a lot of our R&D is going.”
As ChatGPT -and Google’s rival to it, Bard- stun users and evolve at breakneck speed, fears have mounted over whether the bots could take over jobs, particularly in fields like content creation or customer service. But Vembu disagrees with this notion. “AI is going to accelerate the technol- ogy creation process,” he says. “The first thing that people see is that ChatGPT can summarize and write text well, and then people think, ‘Oh my god, all the writing jobs will go away.’ But I believe these tools will have much more impact on programming than writing. It’s going to make developers much more productive. You can maybe get 10 times more productivity from programmers.”
However, he dismisses the idea that creating software faster will slash coder roles. “Cultural adoption of technology requires human support,” he says. “The job shift will occur where maybe fewer people are programming directly but a lot more in helping people adopt the technology.” When asked what he thought about the botched Bard demo last month that saw parent company Alphabet’s shares dropping by more than 9%, Vembu likens the scenario to being “not much different than a star cricket player scoring a duck.” “All the time in technology, we joke about the demo gods punishing you,” he says. “You can never take any demo for granted. It could happen to anyone. It has happened to me too. It’s just that we are not so high profile, so we can recover. I know the stock market melted down, but a launch-day glitch is not evidence that the technology is bad. We have to look long-term.” It’s also another reason for him to keep his business bootstrapped, Vembu jokes. “It’s freedom really,” he says. “The operational and philosophical freedom for our rural expansion, for example.”
Zoho’s “technology-enabled” rural revival includes empowering villages to be self-reliant with deep tech know-how through its schools, and setting up multi-point distributed workplaces in remote areas across the country. Vembu says the definition of running a profitable business means different things to different people. But Zoho’s goals and philosophy go beyond short-term, flashy gains. “I’m talking about 10- or 20-year life cycles, so it’s a different mindset,” he adds. “But stock markets reward quarter-to- quarter performance, and I really don’t care for those day-to-day swings in stock prices. I don’t want to be distracted by it. Like Steve Jobs said, to truly think different, you have to be brave. Even Jobs essentially ignored the stock market. But most CEOs cannot ignore that pressure. I want to retain my job. If I go public, I won’t retain my job.”
Source: Zoho Corporation
Future talent is a major challenge the tech world should be thinking about today, Vembu stresses– which is also why he’s so passionate about the cause. Vembu, who graduated from the Indian Institute of Technology in Chennai before he went on to do his Ph.D. at Princeton in the United States, is fervent about recognizing the “deep despair” in India’s rural areas arising from struc- tural economic changes caused by agricultural hardship, as well as the decline of rural craftsmen and artisans. “With 1.4 billion people, with 60% in rural areas, I am not sure there is any way forward for an India that simply accepts rural decline,” he said on Twitter earlier this year.
The founder, who is among the few business leaders in India to receive a Padma Shri (the country’s fourth-highest civilian award), is also focused on fixing the dichotomy between the rural and the urban. “I’m here in Dubai, which is one of the most happening cities in the world today,” he says. “It’s a beautiful city, but I also see the mirror image of the rural areas of places I live in. These two are not separate. We cannot just draw everyone from rural areas into giant cities. It won’t work for either side. Just the cost of real estate in Dubai is sky-high, which means that we have to find a balance where cities thrive and rural areas thrive. That integration is very important. These are the things that startups and the tech world aren’t thinking about.”
To bridge the gap, Vembu is simultaneously expanding across both rural India and in cities like Dubai. Zoho has committed AED100 million in investment for expansion in the UAE, which will go toward local hiring, growing its partner network, adding Arabic support to its products, and integrating with local payment gateways to adapt solutions for the local market.
Meanwhile, Vembu, the 55th richest person in India according to Forbes in 2021 with a net worth of $3.75 billion, has shifted his home to the village of Mathalamparai in the Indian state of Tamil Nadu– not only because he prefers the simple life, but also to encourage more businesses to look at villages as talent pools. Perhaps it’s his preference for the humble life that keeps the soul of his company grounded despite its growth. “Nothing at all changed,” he replies, when quizzed about how fame and fortune has affected him. “Fundamentally, how I live hasn’t changed from when I was an employee earning a salary. If anything, my lifestyle has simplified. I probably spend less money than I was 10 or 15 years ago. I still work with engineers. I still code. I don’t enjoy the jet-set life, truly. I am just doing what I enjoy.”