Zoho: Why We Haven't Taken Venture Capital | Hacker News Reader

Zoho: Why We Haven't Taken Venture Capital

blogs.zoho.com

88 pointsrajuvegesna25 comments

Ultimately it comes down to the question of "exit". As a founder, I have no interest in exit or liquidity. I am in business to run a business, not to run away from it. Or as Warren Buffet puts it: Our favorite holding period is forever.

I often get the impression that many people in the tech industry have not internalized that it's possible to make a successful business (and a lot of money) without taking investment. Or that it may be desirable to run and grow a business over a long time period like decades.

While I don't have hard facts on this, I would expect that more entrepreneur wealth has been created through running businesses instead of exiting. Of the wealthy people that I personally know, this statement holds. But it seems reinforced regularly, for example with Gabriel's post yesterday analyzing how an entrepreneur would go about pocketing $5 million pre-tax on an exit.

Fully agree.

I wonder if the McDonald's Vs. the local restaurant model applies here. To me it seems like quite a few local restaurateurs are wealthy and they don't have to scale massively to become millionaires. If you are just interested in running a small business and to serve a small section of the society you could still become wealthy, no? And the Web 2.0 (and the accompanying lower barrier of entry) brings perfect opportunities to follow this scheme. I know at least one friend who has a regular income from the App store following this model. But he is not a millionaire by any means. I am curious if there are really people out there who are wealthy simply by serving 20-50K people on the web with no potential/plan to scale.

PS: This is not to say zoho follows this model by any means.

Zoho had the good fortune (and foresight) to venture into an area that no one took seriously. Namely Web Apps. Because of that they’ve had time to slowly build, not take VC money and experiment. But I don’t think that’s true of every company and to be honest I don’t think it will be true of Zoho for much longer.

Because while I still consider Google’s products inferior that gap is closing quickly. The drive for profit often runs hand-in-hand with innovation and companies whose competitors innovate quicker than they do tend to die.

I’m someone who has always been a fan of both Zoho the company and their products. So much so that I actually sent a fairly embarrassing e-mail pleading with Zoho to implement a feature I needed so I could steer my company in their direction.

But instead I’m planning to role out Google Docs to a first round of users next month. The feature I needed was reasonably obscure so I don’t think this spells doom for Zoho but it’s still alarming when one of their most ardent supporters is pushed into the hands of their competitors for lack of features. It makes me wonder whether they could have implemented that feature if they’d taken VC money.

Being privately funded, they have much higher chance of satisfying obscure customer request. Once companies are loaded with VC funds, they generally focus towards 'big-picture' features etc to impress the board members, VC's.

I think you’re right about the big picture at first but I think it all comes back around in the end.

So even if the smaller company fills more obscure gaps at first the bigger company will continue to gain steam and continue to need growth. That need for growth will eventually lead them back around to the obscure customers once they’ve gained all the mainstream customers they think they can. When that happens the company with the VC money will have grown much larger than the private company and will be able to put more resources into getting those obscure customers.

In my case Google (the ultimate example of a company that grew off VC money) actually sent a representative out to our company to sell us on Google Docs. Having the money to send someone out to an obscure little agency like mine is exactly what I mean by “more resources”

Tom, thanks for your kind words.

I am sorry we lost your business. Do you remember what the feature was?

Now to address your broader point, we are at a stage in Zoho (over 1200 people in the company Zoho Corp, check zohocorp.com, with Zoho.com division alone having around 400 people) where venture capital would not make a difference to the way we operate (except that we would necessarily have to worry about an exit for the VCs). So I can say with confidence it was not lack of financial resources that led to us not adding the feature. It is most likely due to competing priorities in our product teams, and the fact that you simply cannot keep adding people (however qualified), bloat a team, and still expect results.

It was HIPAA compliance and apparently you are working on it but I'm in LA County where there's already a pilot program. And for the record you did not lose my personal business for what it's worth.

On the point I clearly hope Zoho continues to thrive but if you do I think it will be because of a lack of skill on the side of your competitors. Because while I have no doubt a privately funded company can beat a badly run competitor my point is just to say if you take two equally skilled competitors than the one with more money is going to win out in the end.

So if Zoho is managed better than Google Docs or Microsoft's Office than you'll win but it will be because you had so much skill that you managed to overcome the fact that they have more money.

I think this idea of winners in business is a little over simplified. Has Microsoft "lost" now? Everybody agrees that they have lost something but they are still very profitable and like Apple, it's possible that they will have a completely different product as their primary revenue generator in a couple of years. But they will hardly go bankrupt and neither will zoho.

Google Docs is HIPAA compliant?

No it isn't:

http://www.google.com/support/forum/p/Google+Docs/thread?tid...

Very impressive, sir. I would like to learn from your ideas on how you did this efficient strategy of "lean startup" teams while being able to scale to over a thousand employees. Reading more zoho blogs soon.

"The drive for profit often runs hand-in-hand with innovation"

Try telling that to Linus Torvalds, Richard Stallmann or even Steve Jobs who faomusly said: Being the richest man in the cemetery doesn't matter to me ... Going to bed at night saying we've done something wonderful... that's what matters to me.

often

Torvalds, Stallman or Jobs aren't exactly average.

Well, maybe they should be. The rest of us need to step up ;)

I thought zoho was started by a company with 9 figure revenue already? It's not like they started zoho out of a bedroom.

I.e. they are the same people behind www.manageengine.com www.webnms.com etc.

Yes, it is the same people, and it is the same company which used to be called AdventNet until about a year ago, when the popularity of the Zoho brand made us change the name to Zoho Corp to avoid confusion. AdventNet itself was bootstrapped, started in a bedroom, never took any outside capital. ManageEngine and Web NMS are our other divisions.

As a founder, I have no interest in exit or liquidity. I am in business to run a business, not to run away from it

Great line.

Sridhar - what would you have done had you been in Tony Hsieh's shoes?

Also, it is a bit easier for you since you're SaaS business and so don't need VC or a line of credit to maintain inventory like Zappos did...

Honestly, I don't know what I would have done; I agree their situation is quite different. I probably would have done what he had to do. Amazon is a great company that I respect.

Thanks and I am totally rooting for Zoho, you're building an amazing company and culture quite like Apple, Zappos and Netflix.

It's strange how VCs always want to try their luck to hit up startup who are already doing well. They an't stupid too, no way they are going to sell out now. Why not be an angel instead? So much easier, stuffs like video, mobile and advertising will definitely be huge in the years to come still. Go out do some homework and approach those founders instead. Or even better, with all your VCs funding, start your own labs. U have no idea how many smart people are there in USA for hire still.

Sridhar, thanks for being an inspiration to those of us trying to follow in your footsteps.

I would have guessed with 90% "assurance" that they have; guess it goes to show how much I think they've done without any funding. Very Impressive.

Reminds me a little of craigslist.

kudos.

its nice to see this attitude. :)

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