Truly Zoho - How capitalism and doing right coincide

The past 9 months have seen quite a rollercoaster in the tech industry. We have seen staggering profits, we continue to see stock buybacks, we have seen consolidation, mergers and acquisitions – and we have seen mass layoffs. Few of them were well handled or communicated. Even fewer showed any sign of executives taking accountability besides stating that they made mistakes during the pandemic and that they feel sorry for what they need to do now. They had simply over-hired and now need to take corrective action to stay on a ‘growth path’. One of these executives arguably took the prized company culture of regarding the employees as family to grave.

What do these layoffs have in common? They were initiated to please the capital markets, i.e. shareholders and venture capitalists. The idea behind this is that layoffs is the fastest way to solve or avoid impending financial problems. However, there is mounting scientific evidence that this idea is a myth, as e.g., expressed here, here or here as summaries. There is often no financial benefit, even not after 3 years; instead, some scientists look at these layoffs as “the result of imitative behaviour [that is] not particularly evidence based” and that there are other, better ways that businesses can pursue.

But, as Raju Vegesna says “customers are inherently loyal, employees are inherently loyal, investors are not. Yet, businesses are most loyal to this least loyal group of stakeholders”.

Ouch!

One of these better ways

And, indeed, one company that pursues other avenues is Zoho. Zoho CEO and co-founder Sridhar Vembu pledged that there will be no layoffs for economic reasons, no matter what.

But this isn’t all. Vembu’s pledge is rooted in a deep belief that permeates the corporate culture. The belief is that doing good to the communities that surround a business does not harm business. On the contrary, it is good for business. As a company, one cannot only sell to people, one also needs to buy from them. Else, the selling will no more be possible over time. Zoho does this by setting up presence in rural areas that are underserved, underserved with education and opportunity. Why opportunity? Because people in rural areas usually are at the beginning of the value chain, which is where least of the profits of the value chain remain. The starting idea is two-fold: Firstly, bring education to where the people are, which is in rural areas, instead of making people move into metropolitan areas. Secondly, cut out the middle men, so that people at the beginning of the value chain are able to make a living. Cutting out middle men works in business operations and services, too. It means insourcing instead of outsourcing.

Doing all this is a job that businesses can and should do, as they benefit from it.

I really like this thought, having been brought up in Germany.

Why does this matter, you might ask. It matters, because this belief is also rooted in the German constitution.

Article 14 paragraph 2 of the German constitution says: ‘Property is an obligation. Using it should serve the public good at the same time.‘ This is a very good commandment and far from being socialistic.

Unless you want to consider Germany a socialist country, that is.

Zoho invited me as a member of a group of fellow analysts to a week-long immersion into its corporate culture, Truly Zoho, to show us that this is not lip service.

The proof is in the pudding

Now, what did we see? Let me briefly describe three of our experiences.

Loyalty is bi-directional

I want to start with an extremely moving story about fierce corporate loyalty to employees. As part of its strive for independence, Zoho has an inhouse group of highly talented artists. About four years ago, one of these artists drew a portrait of analyst Brent Leary. Shortly after, the artist was involved in a car accident that was near-fatal for him. He barely survived and was told that it was highly unlikely that he would ever again be able to use his talent and passion. Luckily, after three years of rehabilitation and physical therapy, he is able to draw again. And this is, where the fierce loyalty of Zoho to its employees becomes exemplified. Throughout his suffering, Zoho kept him on the payroll and also covered the medical expenses. He was kept involved. This culminates in his hand being made the logo for Truly Zoho.

Corporate loyalty like this shows employees that they matter, that they are not mere ‘resources’. This creates employee the loyalty that is evidenced by Zoho’s very low attrition rate of six percent. The talent, skill, knowledge and experience that stay inside the company this way, and the attractiveness to prospective employees, are invaluable.

Investment in education benefits all parties

The next example is Zoho Schools. For about a decade now, Zoho is running an education program in its headquarters. It started with business, arts and technology for college aged teenagers. This program is extending into other locations. The teenagers are not enrolled here for their previous academical achievements but for their drive and passion. The enrolment process is set up accordingly. As it is the most ‘visual’, we had the chance to see some of the work that these students create. Suffice it to say, it was truly amazing (pun definitely intended).

Whoever graduates from this school has a good education for their future life, with great employment perspectives. Not only at Zoho but in other companies, too, as the reputation of Zoho School is very high. And this investment is also good for Zoho itself. Not only will many of these students become Zoho employees after not only having gained valuable education in the course of which they already did some contribution to Zoho, but they also have learned about the workings of Zoho itself, know the culture and are ready to run.

This way, Zoho identifies and builds its own talent, thus staying independent, shaping its own destiny instead of being reliant on external parties.

Even, if the students end up working for another company, there is a wider benefit. The Indian per capita GDP of 2022 was around $2,500 US. If the investment into a student is about ten thousand dollar over four years, they will conservatively contribute with around $15,000 US to the Indian GDP – per annum. This helps building the Indian economy and to generate wealth for the people. It is also part of what Vembu thinks of as a regenerative economy by giving back to the communities that surround any business. He answers the question whether there is a social contract between a business and the communities with a solid yes.

Think global – act local

Last, but not least, there is the Zoho farm and the school Kalaivani Kalvi Maiyam in Tenkasi. It is a part of the endeavour of setting up Zoho locations in underdeveloped areas. The school tends to children from preschool through highschool age. It started off the idea that education must be available where the people are instead of making people move to where education is available. The school follows a Montessori concept and enables the children who complete it to visit a college – or Zoho School. Some of them choose to not attend a college but to be more ‘hands-on’, e.g. repairing machines. This developed into a thriving repair workshop for vehicles and will lead to the creation of a factory for electric tuk-tuks on the farm. This is another example for how Zoho ingrains itself into the rural economy, not by focusing on the core business but by developing and using opportunities. Skills are built in a region where it has high impact.

The farm itself is another example for this concept. Being an organic farm, it is quite labour intensive. At retail prices, organic produce is fairly expensive, yet normally the biggest part of the retail price and the profits remain at the retail and wholesale stages. Consequently, the farm sells its produce directly, to Zoho, for use in the Zoho canteens. This way, Zoho shapes its own destiny, Zoho employees are served with quality food, the farm workers get paid a better salary and have a perspective. Finally, the money spent on food pays for the farm.

My analysis and point of view

Capitalism and caring for a greater good are not mutually exclusive.

Make no mistake, Zoho is a for-profit company and not a charity. This means, capitalism is behind most of what the company does, although there are charitable parts, too. Still, the company has developed a quite unique form capitalism. This form is based upon the conviction that extracting from the surrounding environment is not sustainable. Instead, a business needs to buy of the local community as well as sell to it. A second conviction is that it is important to be able to shape one’s own destiny. A third one is that it is not necessary to maximize the own revenue or profitability. This is, indeed, a corollary of the first one. A fourth one that is worthwhile mentioning is decentralization – decisions need to be taken as close to where they need to be implemented as possible.

All this, along with the firm belief that employees are not a commodity, forms a unique culture that is enriched by the combination of Indian and US/European education that many members of the leadership team have.

Zoho and its leaders have a far wider notion of capital than commonly used. Capital also includes intellectual property, assets, environment and last, but not least, people and their skills.

This position, and a dogged view of innovating as a series of small experiments has made the company one of the most prolific and innovative business applications vendors. Zoho offers a breadth, width and depth of functionality that is unrivalled, barring a few far bigger companies. A good example to support this is: Zoho recently managed to increase the performance of Postgres, the database underlying its applications, by a factor of fifty. This astounding achievement is thanks to one single engineer who spent five years solving the problem of how to leverage the power of GPUs for the database engine. It is the result of passion work, giving this employee the space for an experiment, and not the result of pouring nine digits of dollars into it.

The consequence of the Zoho philosophy has tangible positive results for customers. Customers can work with a company that is viable, because it is profitable, a company that offers rich solutions, a company that is innovative, a company that can and does offer these solutions at highly competitive prices, a company that cares.

Truly, Zoho: be loyal to employees and customers; more companies should read and apply a few (or more) pages of the Zoho playbook.

 

In full disclosure, at the time of writing this, Zoho is a customer of mine. In addition, Zoho paid for my trip to, accommodation and expenses at Truly Zoho. Zoho did not influence me nor expected me to write this post. All opinions are mine and mine only