Every tech vendor these days has a corporate mission statement that sets the tone for its culture. But is culture really a factor when customers make their tech buying decisions? I couldn't help pondering this question the past few days while attending ZohoDay, the business software vendor's annual summit with industry analysts. This is a company with a highly distinctive culture.
Zoho is deliberately atypical of enterprise cloud application vendors, apart from a surging 38% annual growth rate and half-a-million-strong paying customer base. It remains entirely self-funded and privately owned, with no desire to seek outside funding or to list as a public company. Headquartered in rural southern India, its user base of more than 80 million ranges across individuals using its free email service up to global midmarket and very large enterprises that run some or all of their business on its portfolio of 50+ applications. While others dither about hybrid working, it has forged ahead with a strategy that it started developing before the pandemic called transnational localism, in which it is devolving its operations to a network of hub-and-spoke local offices embedded in their local communities. In the past few years, it moved its US headquarters from a Pleasanton office block on the outskirts of Silicon Valley to a farm on the outskirts of Austin, Texas, where it entertained analysts Tuesday evening, as pictured above.
Zoho prides itself on thinking differently than its SaaS competitors, which include Salesforce, Hubspot, Freshworks and others. It argues that its stance of retaining its independence through self-funded private ownership has been vindicated by the recent reversals in the share prices of tech vendors and consequent knock-on effects on venture-backed equity valuations. While other fast-growing vendors have funded that growth by negative margins, Zoho continues to build up cash reserves and keeps its margins above 20%. Sridhar Vembu, Zoho's CEO and a long-term skeptic of Silicon Valley's love affair with cash-burning growth, is scathing about the prospects for vendors that have overstretched themselves and no longer have easy access to additional funding, at a time of rising input costs and a still competitive market. He says:
Most of these companies are not profitable — we call them 'post-IPO non-profits'. There was no margin left to compress, or they were operating at negative margin. This is the reason why a lot of the SaaS companies' stocks saw 60-70% drops, in some cases 80% drops, in the last six months.
He argues that this margin pressure will lead to mergers and acquisitions, often funded by private equity — as he puts it, "shotgun weddings and Frankenstein bundles, midwifed by private equity" — which in turn will lead to price hikes or reduced service for customers, as their new owners seek to extract value from their investments. Zoho's approach will then win through, he believes. He explains:
I want Zoho to offer customers a life raft and a shelter during the storm.
As an example, he cites the subscription assistance program that Zoho ran during the height of the pandemic, when it suspended subscriptions for several months for customers whose revenues had slumped due to the lockdown. That was funded by cutbacks on marketing spend, but has proven effective in retaining customer loyalty for this cohort, he says.
This is typical of Zoho's philosophy that it will thrive if its customers thrive. That's not dissimilar from the customer success ethos that's spread throughout the SaaS industry, but Zoho defines it far more broadly than other vendors. Nowhere is this more visible than in its commitment to investing in the communities where it operates, out of which its concept of transnational localism has emerged. Vembu says:
I'm going to create high paying jobs, technology jobs, in locations where they're scarce. That's important because jobs create economic balance, and address inequality, which is a pressing issue.
He argues that the only way the world can take co-ordinated action to address global issues such as climate change is if everyone has a shared sense of being in it together. But if businesses simply sell their wares to communities and take money out without putting anything back in, there is no incentive for those communities to play their part. So the concept of transnational localism is about being not only globally connected but also locally rooted. By investing in creating and nurturing local talent in all the communities that Zoho sells to, it is investing in the long-term prosperity and success of its customers, who serve those communities.
Learning from farming
Out of this has come the company's interest in farming, whose relevance to a business software vendor bemused several analysts this week. The idea of encouraging Zoho staff to learn about farming and give them opportunities to try out growing their own crops was part of the philosophy of a tech-enabled rural revival that originally spurred the notion of transnational localism. This week, Vembu emphasized the wellbeing benefits for staff, as well as the contribution agricultural self-sufficiency might make to the resilience of communities where Zoho operates. He sums up:
It's long-term thinking. It's not like it's going to move the needle this quarter on some big deal. But it promotes wellness among our employees and resilience. That's why we do it.
The learnings from the company's early forays into farming have had an unforeseen side-effect too, helping to inform its recent venture investments in AI and autonomous electric vehicles. The company this week revealed several investments in automotive, robotics, and health care technology, including smart electric utility vehicles and powertrains manufacturer Boson, which is initially focusing on making light utility vehicles suitable for agricultural use.
While Boson is based in Silicon Valley, other investments are in Indian companies, including electric motorcycle company Ultraviolette Automotive, a startup called Genrobotics which is building robotics and AI-powered solutions to help alleviate hazardous working conditions in fields such as scavenging, sanitation and oil and gas, another startup called Voxelgrids that builds Magnetic Resonance Imaging (MRI) scanners, and a new consortium of local tech companies based in the Kongu region of India which will focus on technologies for capital goods manufacturing. The investments particularly target underserved workers and industries, but will also strengthen Zoho's understanding of emerging technologies in applied AI, robotics and Internet of Things.
There's no doubt that customers like Zoho's emphasis on value-for-money, with several who spoke at this week's event saying that its solutions had proven significantly cheaper to buy and maintain than well-known alternatives, while others praised the attentive support the company provides. Reflecting the growing importance of sustainability considerations, one praised Zoho's commitments to cut carbon emissions from its data centers, which it operates itself rather than relying on public hypercloud providers. To that extent, the impact of its culture is clearly felt.
Concepts such as transnational localism and the importance of farming have a far less substantive impact, but I can't help feeling that Zoho's refusal to follow the crowd lets it find opportunities that others are missing, whatever your own views on economic balance and inequality. In many ways, culture is incidental to tech buying decisions, which ultimately come down to product fit and affordability. But under the surface, I think it may be helping Zoho do a better job of helping customers find success with its products, albeit indirectly rather than as a direct consequence.