I have heard Zoho talk about doing business in UAE and Nigeria. That is so different from other cloud vendors which tend to mostly focus on N. America and Europe. Over the last decade, their US revenues have steadily declined to now about 40%. Not because the US, is not growing, because other regions have grown up quicker.
So, I caught up with Raju Vegesna, Chief Evangelist at Zoho on how they have grown globally, and how they have done it in their own unique way
Extracts from our conversation
How is your global footprint evolving?
We started in India and U.S. at the same time. In U.S, we started in New Jersey and moved to California, now we are making another transition to Austin, TX. Early on, when we launched our initial set of products, we noticed good interest from few markets like US and from some unexpected countries like Japan. Back then, interest came from printer manufacturers in Japan. So in the late ’90s, we said, “We need to have an office there given the interest from the printer manufacturers.” We set up an office in Japan in the late ’90s and we have had it since then. Over the last two or three years, the global expansion accelerated. On top of India, US and Japan, we have had our presence in China for about seven or eight years now. We have around 100 employees in China. Few years back we started our Singapore operations. Our Mexico office has been growing silently for about a year now, but it became official last month. Our Australia office went live earlier this year. UAE is another country where we have had offices for a few years now, but recently accelerated our efforts there. In Europe, we did not have significant presence in the past. But once we got going couple of years back we quickly ramped up operations in Netherlands and now expanding to other countries like France (where we have employees) and Germany (where we will be adding employees). There are a few additional countries in which we have people present, but didn’t evolve yet into offices yet. We expect these to expand moving forward. In the near future, this trend of adding local presence will likely continue.
When we pick a country, we typically do not set up an office downtown in a big city. For example, we didn’t open our office in Tokyo, Japan. We did it in Yokohama, a calm and beautiful city. Similarly, in Mexico, we chose Queretaro, not Mexico City. It’s about two and a half to three-hour drive from Mexico City. The same thing in the Netherlands. We set it up in Utrecht, not Amsterdam. Same in China. Of course, in US, our expansion is in Austin, not downtown San Francisco (where large number of tech companies are based). One of the key reasons for picking these cities is quality of life for our employees. Our employees get to have a good life, good cost of living, good education, healthcare facilities, less traffic/commute and less pollution. All of these contribute to quality of life and happiness at work.
How do you prioritize your geographic growth?
It varies. It could be because 1) the markets pulling us – like noticing a spike in customers from a country or increase in signups, consistently high number of logins/activity, partners pulling us in certain markets etc or 2) We are being proactive in certain markets seeing a long term potential.
In Mexico, for example, we started attending events. We noticed significant interest. During our first Zoholics we had 200 attendees. Since then, every year, it has been doubling. Zoholics typically is a way we enter some of these markets to understand the customers, their usage, their requirements, expectations, requirements and feedback from partners, interest level in the market etc.
Just in the past year or so, we hosted Zoholics in 25 countries (that’s about one event every 2 weeks). We have offices in 9 of those 25 countries. This also means we are addressing the user/customer needs in other countries. If we notice some strong signals from the market, we end up opening an office and expanding our presence from there. Before we make that call, a question we ask ourselves is, are we going to continue to invest in these markets for decades to come. If the answer is yes, we move forward. Even before we go and set up an office, we put in some ground work. Like making sure that the entire website is translated or we have local partners in place etc.
Apart from the usual signals, we also look at long-term potential of a country. Looking at demographic information for example. Nigeria for example where the median age is around 19. Fertility rate is around 5.5. This means, in the next couple of decades, this is going to be an important country with long-term potential.
If we observe the demographic information, there is a correlation between demographics of a country and GDP growth. Typically when the GDP of a country accelerates when the median age is between 25 and 40. During that period, there is generally business formation and this helps economic activity and offers opportunity for various businesses including technology vendors.
Now, if you list down all the countries that have a median age around 25 or 30 and a decent population, a few hundred million or higher, then you can create a short list of countries that are going to do well 10 years, 20 years, 30 years from now. Then, based on that, we can make some educated guesses on where to expand/invest.
What we sell also matters/varies in some of these countries. In the U.S., we are known as a CRM company for the most part because that has been a popular product. In UAE, we are known as an accounting company instead. Kind of similar in India. In Brazil, we are known as the email company. In pockets, depending on what the interest is, we try to pitch those products and expand from there. Given that we have close to 50 products, it helps.
Our customers tend to be local companies or international companies with local offices. Several global companies with local presence in multiple countries tend to standardize on our apps. There’s a travel company called Agoda. They belong to the Bookings.com group. In the Asia region, Agoda uses Zoho. But at the global level, not yet. There are other international companies like Grab using our apps across countries and they are supported by regional offices. When we say we have local support in each of these regions, that helps a lot.
You also have a different philosophy on how you staff your regions. Can you elaborate?
The key to expansion in a country is the “anchor” executive for a region/country. We do this differently than other companies. We identify a person, typically someone who has been with us for a very long time, who knows and understands the company, its culture deeply and we relocate them to a region/country to be the anchor. Once we have an anchor, we then hire locally to build and expand around the anchor.
If we take our European office in the Netherlands, Sridhar Iyengar, who leads that office, has been with the company for 23 years now. Similarly, Gibu Mathew, who heads our Singapore office, has been with the company for around 20 years. Same with the head of our offices in UAE. The main reason we do that is we do not want these individual country offices to be silos. We want them as part of the company fabric. To do this, these offices should have the same culture. The best way we believe we can maintain the culture of the company is by having someone there lead that office who understands the culture of the company and then makes sure that he/she sets up the company in a similar approach. That is the reason we would pick an anchor from within. Apart from setting the culture, if that office has a need, this regional head knows who to contact throughout the company because they know the company inside out and they know who to contact to get something done. Because each of these regional heads have been working together for 20 years and there is no friction. It becomes more like calling a friend. You just pick up a call any time and talk to them.
We basically go global but hire local. Apart from the anchor, everyone else is locally hired. It’s the anchor that moves from our core team, but our preference for hiring has been to hire freshers, for the most part, and train them locally in each of our regions. In Mexico, we hired 15 kids fresh out of college. We trained them for four months. In six months, we were able to run an entire Zoholics in Spanish. We said no English speakers are allowed at the event,” which meant I was not allowed to speak.
We run a very flat organization globally. Any person, including new hires, can reach another employee globally using our own tools. Our tools like Cliq and Connect play a crucial role in flattening our organization. All our global communication happens through our own tools. We truly run Zoho on Zoho.
Locally, the regional head runs what we call “open houses” where every month they just spend an hour or two talking to all the employees within the region. Any employee can ask any question, even anonymously. Some of it can also be online.
Our CEO, Sridhar Vembu runs open houses globally, on Connect. We have built a feature called ‘Town Hall’ because of this. Anyone can ask any question on Connect. This can come in from multiple regions. It can be anonymous questions, and it can be any question. We don’t have a lot of rules there. Such free form communication flattens the organization.
This far flung global footprint must also require a global data center strategy?
We have two in the U.S. When we set up an office in Europe, we set up two data centers in Europe. We have two in China, given their own restrictions and challenges, we needed to have the data behind their firewall. India now has two data centers. Those are eight data centers in these four regions.
Then there is the more coming that are in the works. We will soon be launching two new data centers in Australia. Should be live fairly soon to serve the Australia/New Zealand market. We will keep adding to this list depending on interest.
Given the geopolitical climate, I think every major region will likely mandate that data stay within their region or within their country and that’s generally the direction of the industry. We’ve invested over $100 million in data centers, and it’s an ongoing thing.
Why do so many technology vendors have problems expanding globally?
There are several technology companies in the technology industry who built good products, but with bad economics. A quick look at financial statements across tech companies reveal this. If they are not profitable in developed countries, they are unlikely to be profitable in developing countries. If the economics are bad for developed countries, then they are going to be worse in developing countries.
If we take a suite like Zoho One where we pack incredible value at $30/employee/month….in US, it sells like hot cakes and they love the price points. But in India for example, $30 is considered expensive. In fact, in India we sell it for Rs. 1000 instead, which comes down to around $15. Even at $15, companies still negotiate with us.
That’s the reality of some of these markets. If we don’t have our economics optimized to serve at those price points, there is no point focusing on that market.
I think that is the reason majority of tech companies don’t enter other markets. Lot of companies don’t have the right economics. Bloat is built into the system. Bloat from expensive downtown offices, bloat from over-priced acquisitions, technical bloat etc.
During bubbles, like the current one, profits don’t matter. As Sridhar Vembu puts it, economics don’t matter, until they do.
We are trying to build good software with good economics. Our users around the world love that.
(Cross-posted @ Deal Architect)