A Conversation with Sridhar Vembu, Co-Founder & CEO of Zoho, On Bootstrapping from Launch to over US$ 1 billion.

A Conversation with Sridhar Vembu, Co-Founder & CEO of Zoho, On Bootstrapping from Launch to over US$ 1 billion.

Sridhar Vembu is the CEO and Co-founder of Zoho Corp, which he describes as “…a state-of-the-art tech company with a very old-fashioned approach to company building.”  

Founded in an apartment, in 1996, Zoho now has over 15,000 employees, more than US$1 billion in annual revenues, and over 100 million users. All of this ‘bootstrapped’ as a private business, with no external or public investors. In 2005, he launched the Zoho University (now called Zoho Schools of Learning) programme with six rural high-school students, trained for two years in computer science, maths and communication before being absorbed into the company. Today, around 15% of Zoho’s workforce is made of ZU Graduates who benefit from the business wishing to open offices in small towns, suburbs and rural locations rather than metros.   

Today, Zoho continues to scale, and Sridhar Vembu is a self-made billionaire, recognised as one of the world’s most successful entrepreneurs & philanthropists. In 2021, he was recipient of the Padma Sri (one of India’s highest civilian honours).  

In this interview, I speak to Sridhar Vembu, CEO and co-founder of Zoho Corp, recognised as one of the world’s most successful technology entrepreneurs who has bootstrapped his business from launch to over US$1 billion in revenues, whilst making huge social impact. 

Q: How did entrepreneurship come into your life? 

[Sridhar Vembu]: I initially planned to become an academic professor. Holding a PhD in electrical engineering, it never crossed my mind to become an entrepreneur. My entire educational journey, from school to graduate school, did not involve any inkling of entrepreneurship. However, from an early age, around 10 years old, I’ve been intrigued by economic matters, particularly poverty. I used to ponder why poverty exists and various related economic issues. 

Despite these considerations, my plan was to delve into research and take up a professorship. Yet, as I approached the end of my PhD, I began to feel disillusioned with the academic landscape. The whole “publish or perish” mantra bothered me. I observed, even in prestigious institutions, a rush to get studies published and often these studies were oversold or exaggerated. It dawned on me that in academia, there is a lot of salesmanship involved, promoting your own research. If I was selling research, why not genuinely sell something in the business world? 

Consequently, I shifted my focus to the private sector. Within a year or two, everything became clearer. The thought of starting something in India resonated with me. I realized that entrepreneurship might be the key to growth and economic solutions. That is how my entrepreneurial journey began. 

Q: What is the reality of bootstrapping your business to scale? 

[Sridhar Vembu]: When you choose not to raise funds… think of it in terms of stages or ladders. Let us say you begin at year zero, or even year minus 5. During those initial 5 years, some entrepreneurs might raise money for several reasons. Essentially, raising funds is about accelerating growth. However, if you are seeking a more sustainable approach, you might consider starting at year minus 5. While there could be some missteps along the way, those 5 years equip you with essential capital for the subsequent phase. 

I am not just talking about financial capital. These years give you knowledge capital, valuable relationships both within and outside the company, and other vital assets. All these elements, developed over the 5-year period, then set the stage for the launch. From there, think of bootstrapping like a multi-stage booster rocket, where each stage propels and prepares you for the next, and the momentum continues building. 

Certainly, choosing not to rely on outside funding offers greater freedom overall. While there’s significant sacrifice upfront, about 10 years down the line, you begin to truly value the autonomy it provides. This freedom extends to exploring different business avenues and making long-term investments, especially in areas like R&D. Some R&D projects have extended payback periods, and they often are not the focus for VC-backed companies. While tech giants like Google might have the capacity to fund these projects, many VC-funded companies simply cannot. 

Yet, when you have that independence, even if you are a medium-sized company—say around 50 to 100 million—it is feasible to allocate profits towards ambitious R&D initiatives. For instance, we were able to support initiatives like the Zoho Schools of Learning, formerly known as Zoho University. Such undertakings would be challenging if you are constantly racing against quarterly expectations. In our case, we have the liberty to plan 3, 4, or even 6 years into the future. That is a tangible advantage. 

Q: You chose rural villages to site your development centres; how did that work strategically? 

[Sridhar Vembu]: When you ponder on the reasons people initially migrated from Europe to America, it becomes clear that there is truly nothing new under the sun. I often humorously remark that they were in pursuit of affordable real estate! Indeed, many left cities like London, Ireland, or Germany in search of inexpensive land. The allure of affordable real estate remains to this day, especially for entrepreneurs. One major overhead entrepreneurial business often grapple with is the exorbitant rent in cities like London, San Francisco, or New York. Moving to a smaller town or city offers a significant reduction in these costs. 

High rent not only influences entrepreneurs but also cascades down to other aspects of life. It drives up retail prices and salaries since everyone needs to afford the high real estate prices. Relocating to areas with more affordable real estate can have a profound levelling effect. It not only brings a fresh perspective and allows diversification from metropolises but also promotes regional economic balance due to the shift in income distribution. 

For entrepreneurs, this strategy has a two-fold advantage. First, it is an approach that truly resonates when you are investing your own money. Second, it is a long-term efficiency play. While inexpensive rent might not guarantee immediate success, over a span of 5 to 10 years, its impact becomes significantly evident. Hence, a long-term vision is vital. 

[Vikas: and is this where philanthropy plays a role?] 

[Sridhar Vembu]: Precisely. It is almost like a karmic cycle. When you invest in training individuals, they often become more devoted to your organization. They feel that the company has invested in their growth and in turn, they aspire to contribute to its success. When they witness the company making similar investments in various locations, it adds to their motivation. So, when you venture into economically challenged regions, especially smaller towns, there is a need to discover and nurture talent. Once you invest in these individuals, they tend to stick around longer, which benefits the company. As the company thrives, it leads to further investment, creating a virtuous cycle of growth and loyalty. 

Q: Does the culture of business in India play a role in how businesses are building resiliently? 

[Sridhar Vembu]: The situation in India mirrors how things once were in the US, UK, and many other places. Over time, a sort of business and management doctrine has emerged which prioritizes everything in financial terms. When people say the finance sector is ‘less mature’, what they are suggesting is that every tangible and intangible asset, moving or stationary, is converted into financial metrics, set to be included in gains or losses. I have often humorously remarked that we’re near to a scenario where even personal items are evaluated for their market potential. Imagine assessing the current market value of the shirt I am wearing – that is what trading might boil down to! However, I hesitate to push this joke too far lest someone believes it to be a viable investment idea. 

[Vikas: I am seeing a lot of startups here in the UK & USA, which are planning over fleeting time horizons!] 

[Sridhar Vembu]: The core issue is that there has been an excessive financialization and securitization of everything, and it ties back to a fundamental business philosophy. This is not about short-term metrics. Not every asset should be quantified. Consider “good will” for instance. While it’s a recognized accounting term, its real essence lies beyond balance sheets. True goodwill is cultivated over time through building customer relationships, fostering employee bonds, and nurturing ties with the community. It is the collective perception of what the broader community thinks of the company. But trying to pin a numerical value on goodwill, expecting it to annually increase or decrease on a balance sheet, is where the essence gets lost. Some might argue that it is an immature way of looking at things, but honestly, if that is what maturity entails, then I would rather we remain evergreen! 

Q: Do you think multi-generational businesses have a bigger stake in the community? 

[Sridhar Vembu]: Companies can be pillars of their communities. Take Tenkasi district, where I currently reside; it’s home to about 1.4 million residents and rural. Despite having just around 1000 employees here, our presence has already made a significant impact. Over the next five years, I envision an even deeper positive change. We have actively engaged in various community initiatives, be it supporting the local hospital or the police station, providing technological assistance and more. Our local impact is hugely significant, and that is what truly matters. 

Q: How have you fought off such large competitors? 

[Sridhar Vembu]: I do not approach challenges with the sole aim of targeting the largest customers in established markets to replace current players. Instead, I focus on the overlooked, marginalized customers who often find the products of big players unaffordable. By catering to them, that is how we initially found our foothold. As we grow, so does our experience. Our team improves, our support strengthens, and our systems enhance. This naturally catches the attention of larger clients who recognize our potential. Over a decade or so, this approach sees a compounding effect where even the bigger customers start gravitating towards us. 

Q: How have you kept culture consistent, at scale? 

[Sridhar Vembu]: The recruitment process speaks volumes about a company’s values. Some organizations have a conventional approach where they advertise a job opening, list the responsibilities, and from numerous interviews, pick one candidate. However, I have always believed in the principle that what comes easily can leave just as easily. Instead of merely ‘buying’ talent, which could later be ‘bought’ by another company, it is more impactful to create opportunities for potential talent.  

We need to see talent in more humanistic terms. It is not merely a commodity to be bought or sold, and it is unfortunate that terms like ‘human resources’ propagate that viewpoint. It is about nurturing and fostering growth in individuals. No matter where we operate, be it Dubai, London, or the Netherlands, we have maintained the same nurturing approach. We start with a few individuals who establish our culture and ethos. Over time, as we onboard more people, they assimilate and integrate into our existing culture. There is a consistent exchange between our teams across global locations, which helps us in maintaining a cohesive culture. We do not have a designated ‘chief culture officer’; our culture evolves organically. 

Q: What does success mean to you? 

[Sridhar Vembu]: In the rural district where I reside, our per capita GDP ranges between $2000 to $2400, which is slightly above the national average. But the challenge and opportunity lie in leveraging this. My personal ambition for the next 10-15 years is to uplift a few of these districts to attain a middle-class standard of living. This, to me, would be the epitome of success. 

Entrepreneurship should be about creating wealth, but not just for personal gain. After all, how many cars can one desire? There is a limit to personal wealth, but the real value of wealth is its potential to elevate the communities around me. India has 833 districts, with many of them being rural. The average per capita GDP in these areas ranges from $1000 to $3000. Each district houses around 1.5 to 2 million people, and collectively, these districts represent a massive portion of India’s population. 

In my lifetime, I aspire to see tangible improvements in at least a couple of these districts, where my efforts have made a difference. Success, for me, isn’t about personal riches; it is about creating employment opportunities, introducing modern technologies, imparting skills, and most importantly, enabling these populations to solve their challenges. 

Q: What do you wish you knew at the start of your career? 

[Sridhar Vembu]: When I first embarked on this journey, I had little to no knowledge about business – sales, marketing, the works. I often wish I had a decade more under my belt, some hands-on experience to guide me. I frequently point to the example of the Mormon church. Their missionaries venture into various countries, connecting with people, even when faced with challenges. This relentless effort, going door-to-door, meeting strangers, instils in them a sense of fearlessness. It is why Utah stands out as one of the most entrepreneurial states. At the heart of it, entrepreneurship is about possessing the confidence to initiate change, to sell – be it ideas, a vision, or a product. I truly wish I had been trained in that art early on. 


Thought Economics

About the Author

Vikas Shah MBE DL is an entrepreneur, investor & philanthropist. He is CEO of Swiscot Group alongside being a venture-investor in a number of businesses internationally. He is a Non-Executive Board Member of the UK Government’s Department for Business, Energy & Industrial Strategy and a Non-Executive Director of the Solicitors Regulation Authority. Vikas was awarded an MBE for Services to Business and the Economy in Her Majesty the Queen’s 2018 New Year’s Honours List and in 2021 became a Deputy Lieutenant of the Greater Manchester Lieutenancy. He is an Honorary Professor of Business at The Alliance Business School, University of Manchester and Visiting Professors at the MIT Sloan Lisbon MBA.