#088: The Growth Equity Path, vSaaS Founder Profiles, The Story Of Zoho
One vSaaS breakdown. One biz story. One 'how to'. In your inbox once a week.
It’s my birthday, so I’m doing something special and giving you all a gift :-)
Grab the Vertical SaaS Bible (1,000+ pages of industry analysis and scorecards, playbooks, operating lessons, & more) for 50% off.
Use the code BIRTHDAY.
Offer ends September 2nd.
Alright, let’s get to it…
One ‘How To’:
Growth Equity Is A BEAUTIFUL PATH For Most vSaaS Companies
For the first ~8 years of building my business, I thought the only path to build something really big was the classic venture capital path.
You know what’s tough about the traditional VC route?
Acquisitions are almost never a lever. Nine times out of ten, VC’s just don’t do them or really know how to do them.
I’ve come to find that in a lot of industries, GTM is just really, really HARD. And even with a shit ton of venture dollars, you can’t really sell *that* much faster.
So if you’re selling vSaaS, and your industry has a tough GTM motion, a beautiful way to scale is through acquisitions.
You know who knows the M&A playbook? Growth Equity firms.
You need to be as close to ~$10M ARR to bring on the right partner, but my friend Todd illustrates this point beautifully here:
So don’t forget about Growth Equity.
If your finding yourself not meeting the VC scorecard of Triple, Triple, Double Double ARR there IS another really intriguing path to explore…
One vSaaS Breakdown:
Do You Have To Come From Industry To Build A vSaaS?
The Folks over at Euclid Ventures, a new VC firm exclusively focused on Vertical SaaS did a great deep dive on whether or not you have to have industry expertise to build a vSaaS.
You can check it out here, but the punchline is…
It definetly helps your chances of success.
One Biz Story
The Story Of Zoho
A bootstrapped company founded in a remote village in India recently crossed $1B in revenue. This is the underdog story of Sridhar Vembu & how he built Zoho:
Sridhar is a Princeton graduate and entrepreneur who believes that small & viable businesses can scale & become highly profitable WITHOUT venture capital. Chasing customer satisfaction is more fruitful than chasing investors. Sridhar & Zoho PROVED it.
Being the CEO of a multi-billion-dollar company isn't what makes this story intriguing. It's his vision that got him from a remote village in India to the leader of a global technology company.
Let's dive in…
It all started back in 1996 when Sridhar’s brothers, Kumar & Shekhar, along with a friend Tony Thomas, created a company called AdventNet, which was a network management company. They built a good technology business but were failing at sales.
Sridhar was in the US at that time & was not actively involved in the business, but his brothers asked him to join and lead their sales function. He printed business cards, gave himself the title of VP of Marketing & Business Development, and got to work.
Sridhar began signing up major firms in the US as clients but at terrible margins. The reason? Self admittedly, he wasn't a great salesman. Some clients told Sridhar that they would have paid him 10X more for their software.
Regardless, they continued forward, reinvesting their revenues in a new product called Web NMS, an IoT platform, rather than pay themselves salaries. In 1998, they crossed $1M in revenue and were finally able to pay themselves and hire a sales team. Things were looking up.
In 1999, three major events transpired:
Zoho crossed $10M in revenue
Sridhar became CEO
They declined a VC investment offer of $10M at a $140M valuation They were kicking ass.
UNTIL...
The dot-com bubble burst in 2000 causing thousands of companies to go bankrupt and were unable to pay their bills. In the midst of all the chaos, Zoho had 3 distinct advantages:
Cash in the bank
No investors
Low operating costs (most of their employees were in India)
They leveraged these three advantages to launch a new product, ManageEngine - an IT management software - in 2002. But there was CHAOS brewing at the Zoho executive level...
As a result of the difference in opinion regarding the company strategy, Sridhar's brothers Kumar, & Shekhar, & their friend, Tony left the company. That decision would cost them BILLIONS. Sridhar was the only executive left & said it was the most depressing time of his career.
Sridhar fought through, surviving the dotcom crisis, and decided to launch a new division. This division would ultimately make them a global leader. The CLOUD division launched in 2005, called Zoho.
Sridhar and Zoho began developing a whole suite of business software - word processors, spreadsheets, and CRM, among other tools. They continued adding more and more, but their biggest hit came with the launch of a project management SaaS that grew rapidly.
With an aggressive approach to creating more and more business applications, they reached 1 million users in 2008. At that time, they decided to go all-in on cloud software, changing the name from AdventNet to Zoho Corporation.
But as they scaled, Sridhar and Zoho found themselves with another big problem. There was not enough quality engineering talent in India. Their cash-efficient, low-cost model would FALL APART if they had to hire engineering talent in the U.S.
So they launched Zoho University, a 100% FREE university targeting young, hungry, folks from rural India. Students would be trained in 24 months in English, Mathematics & Computer Science. ALL FOR FREE.
Zoho University solved Sridhar's talent problem while enabling thousands of people from RURAL INDIA to launch into technology careers. Abdul Alim is one such example, he went from a security guard to a software engineer, all thanks to Zoho University.
During the course of this program, the students are not charged anything but instead, they are given a basic stipend per month. Once they complete the program, they are hired by Zoho. Today, Zoho has 10,000+ employees & the majority of them come from this program. Brilliant!
Zoho has gone on to launch 35+ business apps like Zoho Mail, Zoho CRM, and Zoho WorkDrive. Despite the current economy, they recently crossed a BIG milestone. $1B in revenue. A 77% increase in annual revenue from 2020 (!!)
More impressively, they operate Zoho, a billion-dollar technology empire, from a REMOTE VILLAGE in India, 300 miles away from the nearest city. He believes that village offices are the FUTURE OF WORK. Why?
In rural villages, you can take hard-working and hungry talent and quickly upskill them. It's a win-win. They achieve an incredible life and financial security. The business can operate with LOWER COSTS than its peers in Silicon Valley or other major metropolitans.
Sridhar shows us that you don't need to be in Silicon Valley or raise BILLIONS of dollars of funding to create a successful technology business. Sridhar recently said, "Taking somebody’s money and promising someone what they want to hear looks like a gamble to me."
Sridhar is an inspiration for all entrepreneurs. You can DO it. Anyone can DO it. It just takes GRIT and RELENTLESSNESS. Most won't be willing. But if you are, you'll be amazed at what can happen.
In summary, here area a few things we can all learn from Sridhar:
You can bootstrap your way to a unicorn
Financial fundamentals matter
Scaling businesses requires a long-term commitment
Employees are the key to success, take care of them
Seek satisfaction from customers, not investors
Have a product or service that would be great for our audience of vertical SaaS founders/operators/investors? Reply to this email or shoot us a note at ls@lukesophinos.com
Thanks for launching the vSaaS Teachable course! Would love to sign up with the special offer — can you double check to see if coupons are also enabled?