How Zoho became a $1B company without a dime of external investment…

…and kept its soul intact in the process

The traditional startup fever dream goes something like this: You come up with a revolutionary idea for a startup in your dorm room. You quit school and take your idea to Sand Hill Road, where VCs shower you with cash. Your company grows quickly. You eventually get a valuation of over $1 billion and you go public to great fanfare.

That’s the mythology anyway, but what if there were another way? What if you could grow a $1 billion company without the outside investment, the crazy sales and marketing spend, the pressure to grow ever faster?

Zoho, a company that has a broad set of front- and back-end business software, has defied that growth and investment stereotype to great success. Zoho reports that revenue last year exceeded $1 billion — although as a private entity, it didn’t supply an exact number. Yet it has never taken so much as a penny of external investment.

By developing the company on its own terms, Zoho has been able to build a strong internal culture steeped in R&D and product development, growing slowly but steadily without having to deal with any investor interference whatsoever.

Zoho’s product catalog, which exceeds 50 products, covers everything from a traditional office suite to business intelligence, finance, sales and marketing, customer service and too many other software categories to list here. Using a freemium model to drive usage, it competes with giants like Salesforce, Google, Microsoft and Oracle yet has found a way to thrive in spite of such a harsh competitive landscape.

I spoke to founder and CEO Sridhar Vembu, along with some industry experts, to get a better sense of how Zoho has grown on its own terms, and how this “little engine that could” keeps rolling along.

Why Zoho is different

Back in 2005, Zoho launched with Zoho Writer, a product that caught the attention of TechCrunch founder Michael Arrington. Vembu said that Arrington’s article was the earliest coverage of the company. Since then, Zoho has released dozens of products, and he said the vision from the start was to slowly expand the set of applications.

“That was the plan from the beginning. We actually wanted to build a full suite. In other words, when we started Zoho Writer, we knew we’d be building a spreadsheet, a presentation application [and all of that],” he said. “But we had a sequence. We knew we could not build it all at once.”

Laurie McCabe, co-founder and partner at SMB Group, a research and consultancy firm that focuses on technology geared toward small and medium businesses, said Vembu’s vision is a big reason for the company’s success.

“Zoho has a very visionary founder with deep convictions that have put it on a very different path than its competitors,” she told TechCrunch, adding that on the product side, Zoho provides “sophisticated yet easy-to-use and integrated software for lots of functions, at a low price.”

Brent Leary, founder and principal analyst at CRM Essentials, who keeps a close eye on Zoho, said that the company has taken its own unique route to success.

“Zoho’s ability to stay to true their core principles without being swayed by outside forces is why I think they’ve been able to be as successful as they have been,” he said. “Not taking VC money or going public allowed the company to do things in a manner and time frame that didn’t erode the culture and heart of the company.”

From a numbers perspective, Zoho has over 11,000 employees spread out across the world working with a whopping 80 million users overall. More than 600,000 businesses pay the company.

Early on, Zoho concentrated exclusively on SMBs, but it’s moved up to midmarket and even the enterprise in recent years.

“SMBs still drive the business,” Vembu said, “but now as the whole platform is maturing, larger enterprises are coming to us. And so we have a very good midmarket to enterprise business that’s growing on top of the whole SMB business.”

While it offers free products that appeal to small business users who can test the product without paying, the company can funnel these users into paying customers as they reach certain user-number thresholds or require more sophisticated features. Companies that want access to the whole Zoho product catalog can sign up for Zoho One or access certain app bundles around CRM, finance, human resources and so forth.

Vembu said that while the market is shifting, SMBs remain key:

If you asked me five years ago, SMBs would have been the vast majority of our business. Today, a good 25% to 30% of our business is coming from the midmarket and enterprise. And that part is growing faster, too, so we are growing to be an enterprise company with a very strong SMB base.

Leary said the slow pace of change is consistent with the way Zoho operates more generally — not paying attention to how other tech companies operate.

“It may not be moving at the speed you typically see from most enterprise software vendors taking this path, and Zoho may do things (or not do things) in a way that is very nontraditional as they move upstream, but they have thought it out and have decided they’d prefer to do things that are more aligned with their culture than to stay true to any Silicon Valley [growth] playbook,” he said.

Capitalism with a conscience

One of the things that consistently comes up about Zoho is that it has a unique culture. Marc Benioff certainly talks a lot about responsible capitalism, something that Vembu tries to live by with his company, whether it’s how he operates internally or how he gives back to the community (and the world at large).

In particular, Vembu sees his company as a vehicle for addressing inequality in the world, either through education or jobs, even if he doesn’t see it through a political lens.

“I don’t consider myself from the political left, far from it, but I do feel strongly about issues like inequality. We need a social contract. We need to have a social compact between the rich and the poor, between the companies and the employees, all of that,” he said.

These are not just words for him. Vembu now lives in India, where he helps the local community in a variety of ways. “I moved to a rural village [in India]. I like rural living, and I also want to do projects to create jobs, create talent, all of that. So we run a school. We run a health clinic here. We are building a hospital and we also have a program called Zoho Schools of Learning (formerly Zoho University),” he said.

Zoho CEO Sridhar Vembu

Zoho CEO Sridhar Vembu. Image Credits: Zoho

The latter is a program that has been running for 17 years. It’s designed to give students the knowledge to work at a company like Zoho, which recruited 250 students last year. Zoho pays them a stipend and teaches them about various aspects of technology like programming and design. If students make it through the program — and Vembu said most do — they get a job offer from Zoho.

The company also puts its employees front and center as part of this overall philosophy. As an example, Vembu said that when the pandemic hit in 2020, he vowed to avoid layoffs no matter how it played out. He acknowledged that if the economic impact dragged out, Zoho might eventually need to cut salaries, but it never came to that. And he said his attrition rate stayed low during the “Great Resignation,” something he attributed to the way his company operates.

Leary agreed that Zoho’s employee-focused policies could lead to a more loyal workforce overall. “Zoho takes a long-view approach and lets its employees develop in a way that not only allows them to grow professionally but also as a close-knit team that seeks to impact their community in a variety of meaningful ways.”

Vembu said this is all consistent with his overall beliefs about running a company — pouring money into developing products while taking some of the profits and giving back — and he sees that as being directly related to staying independent.

“It’s also coming from us staying private because a lot of our profit we earned from business is going into this. It’s going into R&D. It’s going into more figuring out complicated technology. And it is going into all these charitable activities. One thing it is not going into is buying a private jet for myself. That’s right; it’s not going into that because I’m not interested in it,” he said, chuckling.

No company is perfect, but Zoho has managed to grow over the last 17 years without having to answer to outside investors while trying to stay true to its internal core philosophy. And that’s a pretty unusual path for tech companies to take.