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Recession Can Open Up Good Opportunities For Businesses, Says Zoho Finance’s Global Head Sivaramakrishnan Iswaran

A conservative business approach focusing on mindful saving and heavy investment in R&D has helped Zoho Corporation weather recessions in the past. The unicorn hopes this tactic will hold it in good stead as fears of slowdown loom yet again

Recession Can Open Up Good Opportunities For Businesses, Says Zoho Finance’s Global Head Sivaramakrishnan Iswaran
Zoho Finance’s Global Head Sivaramakrishnan Iswaran
POSTED ON November 26, 2022 3:53 PM

Since being founded in 1996, the Chennai-headquartered Zoho Corporation has always held a conservative business approach, especially when it comes to conserving cash. It prefers to funnel its profits into research and development (R&D) rather than high-decibel marketing activities.  

This has helped the company stay growth-oriented from its inception and even weather the dot com bust in 2000 and the great financial recession in 2008. In fact, Sivaramakrishnan Iswaran, global head for Zoho Finance and Operations Suite, tells Outlook Business that the technology company actually emerged stronger during these challenging times because it was able to pivot its business models. 

Edited excerpts: 

How has Zoho Finance platform evolved over the years? 

We launched our first product, Zoho Invoice, in 2008, which automates a company’s receivables. Later, we doubled down on our investments in R&D and introduced Zoho Books in 2012. This accounting solution takes care of receivables and payables.  

Initially, we faced a lot of competition because each country had one dominant accounting software player. Fortunately, our product enhancements helped us gain good customer base.  

The Zoho Finance platform achieved 50 per cent year-over-year (y-o-y) global growth, supporting more than half a million businesses across 160+ countries. The growth is led by Zoho Books, which supports 180 currencies and 17 languages, including Hindi. In India, Zoho Books is growing at 81 per cent y-o-y.  

What factors are propelling this above-average performance globally and in India?  

There are several factors, starting with our focus on continuous R&D. Companies that do not invest in innovation are forced to move out of the market if they are unable to keep pace with rapid change, which gives us a momentum. 

The other aspect is the introduction of tax-related regulation like that of Goods and Services Tax (GST) in India and Value Added Tax in the UAE. Similarly, e-invoicing in India is giving us a forward push because it calls for companies with an annual turnover of over Rs 5 crore to follow certain compliance criteria.  

How do you know that your R&D is paying off? 

We recently conducted a survey of our business customers, and three things stood out. While 88 per cent of the accountants and financial advisors said they were able to save up to 10 hours a week, more than 85 per cent reported being able to provide more advisory services because of the time saved on performing crucial accounting tasks. 

 Zoho invests three times its marketing spend on R&D and has received 25 patents in the last three years

Besides accountancy professionals, we surveyed customers of Zoho Books separately to understand the benefits accrued by businesses using our online accounting software. It was found that 75 per cent were able to collect payments on time, follow up with customers automatically and improve cash flow with Zoho Books, which is our GST-compliant cloud accounting software.  

Incidentally, with 13 country-specific tax editions, and a global version, Zoho Books has seen 81 per cent annual growth in India in 2021, and is among the top five solutions leading the company’s growth in the country. 

What is Zoho Finance’s customer base globally? 

Around the world, about 5 lakh active business users use Zoho Finance products. This number does not include those who have signed up for our products but might not be using it regularly.  

We are also seeing growth in our new revenue over and above our recurring revenue. The new revenue for Zoho Finance in India has tremendously grown by around 63 per cent y-o-y.  . 

Why do you provide some of your products, including your flagship Zoho Invoice, for free? 

Because we always operated with a long-term goal where we know we can monetise our products in the future. If our customers are deriving value and we can offer the product for free for a long time we are fine with it. We don’t urge them to buy it.  

For instance, under our tie-up with GST network (GSTN), we have made Zoho Books free for registered businesses with less than Rs 1.5 crore annual turnover. We did this to help smaller business comply with GST regulation.  

Chennai-based Zoho Corporation claims to have over 75 million users

The reason is that we don’t think short-term from a quarterly sales perspective. We have a decent number of customers using our paid products and are confident of acquiring more. So, whenever these free users want to opt for the paid version, we are okay with it.  

For instance, we offer our billing solution for free and then launch a payment gateway. It is likelier that our customers will buy the Zoho payment gateway since it complements their existing suite of solutions.  

Do you track the conversion rate for business users who sign up for free and then buy the paid version? 

While our sales team do have their business targets, there is no pressure about converting free users into paid ones. That is not the Zoho way of doing business.  

Moreover, since we are a privately held company, we can afford to do a lot of things that a public limited cannot think of doing.  

While policy changes can give a springboard to augment your revenues sporadically, how do you ensure uniform growth? 

If you look from a long-term lens to provide value to customers, you can consider hundreds of opportunities. However, if you consider making the most of the introduction of GST or e-invoicing, then it will not sustain you in the long run.  

For instance, with the National Logistics Policy, the government wants to lower the cost of logistics from its current 14 per cent of GDP (Gross Domestic Product) to less than 10 per cent by 2022-end. We are evaluating this closely to see how Zoho can help the government and industry stakeholders to achieve this goal. That is an example of long-term thinking.  

Another example is the Open Network for Digital Commerce (ONDC). We are exploring how to bring customers currently using our accounting or commerce products onto this network more efficiently. Any Zoho Finance customer can automatically use the ONDC network and we don’t charge for it. That is how our company envisions long-term business strategies. 

Companies are now holding back their tech investments fearing a looming recession. How will this impact Zoho’s future business projections? 

All organisations are likely to be impacted by macroeconomic challenges, and this could include Zoho. Fortunately, we have been conservative throughout when it comes to conserving cash, though not when it comes to spending on innovation. We have been profitable from our first year and have been investing our profits in R&D instead of spending extravagantly. 

Zoho Corpoation's annual revenue in India increased by 77 per cent in 2021

Moreover, when conditions are bad, one doesn’t talk about growth. Instead, you look at surviving that phase. Based on how the situation unravels, our policy, growth rate and ambition will change.  

Also, whenever the macroeconomic conditions are bad in the past, things have worked to our favour. During the economic downturn of 2000 and 2008, we grew as a company.  

The reason is that when conditions are tough, businesses want to see how to derive more value for their investment. Since Zoho offers the best value proposition, many can migrate from their expensive and extravagant software to our products.  

How was Zoho able to profit during the past recessionary times? 

We did this by adapting to market realities and changing our business model. In the early 2000s, we provided network management software for a lot of telecom original equipment manufacturers (OEM). Many start-ups brought our software back then and later vanished during the dotcom bust.  

Even back then, given our conservative nature, we were conserving cash. So, we quickly pivoted our business model to focus on enterprise IT companies since they have a larger total addressable market (TAM) instead of concentrating on OEMs.  

Similarly in 2008 and 2009, we started investing heavily on cloud. Those strategic bets made almost 14 years ago are helping us now. So, recession can open up good opportunities for businesses as it makes them look at avenues that they might not have considered earlier.  

If you had to do some crystal-ball gazing, what is the next big opportunity for Zoho Finance? 

Currently, we are only focusing on business finance, while the fintech space, including payment, credit, wealth-tech and insure-tech related solutions, is huge. We have very limited penetration in these areas. So, this would be an evolution for our business finance software.   

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