On Fresh Turf
How can a start-up be sure that it has arrived? One way is to look at profit and revenue numbers. Another is to look at the response from competition. So, when Freshdesk, which sells software that companies use to resolve consumer complaints (in short, a helpdesk), was called "a freaking rip off" by Mikkel Svane, the CEO of global market leader Zendesk, the Chennai-based company - which is estimated to have touched $98 million revenue in 2015, just five years after starting out - knew it must have done something right (see Giant Slayer?). This was in 2012, just two years after Freshdesk was launched.
Girish Mathrubootham, the CEO of Freshdesk, hit back and asked if Zendesk owned the word 'desk'? "Making an unsolicited attack on our nationality reflects badly on you, not us. We're Indian and we're proud of that," he said. Citing Mahatma Gandhi's aphorism, "First they ignore you, then they ridicule you, then they fight you, then you win," he said. "Kepes had been blogging for Zendesk since 2010 and was being paid by it," he added.
Such aggression has stood Freshdesk in good stead. The software as a service (SaaS), product company has grown from four to 633 employees in six years, bought five companies on the way, and may soon touch the much sought-after $1-billion valuation. The last funding round, in April 2015, had valued it at more than $500 million. Google Capital, Tiger Global and Accel Partners have pumped in $94 million into the company. SaaS is a model in which software is centrally hosted and licensed on a subscription basis.
Genesis: A broken TV set
In June 2009, after working for nearly a decade in the US with Zoho, another Chennai-based company, Mathrubootham decided to return to India. He hired a reputed shipper for transfer of possessions. But when he got the goods, he saw his television set was broken. He filed a claim with the insurer. For five months, he was made to run from pillar to post. He also had to make several calls and write tens of mails. Out of frustration, he wrote about his experience on an online forum used mostly by people of Indian origin. Viola! The claim was settled within 24 hours. "The company president called me up and apologised. Thats when I realised the power of social media and how power had shifted from firms to customers."
Most of us would have forgotten about the incident after getting the money. Not Mathrubootham. At Zoho, he had worked on a digital helpdesk where customers could seek help through toll-free numbers, websites, instant messaging and email. It was time to make the idea work again, this time for himself.
"I realised my experience was not unique and that existing helpdesks had failed in the era of social media. We saw an opportunity," says Mathrubootham.
Freshdesk spotted three trends it could tap. First, modern consumers were not necessarily using phone/email for addressing an issue. They were using social media too. Two, helpdesk software was undergoing a shift from being a legacy system installed on office premises to SaaS where, instead of one-time payment, people pay on monthly/per-use basis. Third, explosion of smartphones and tablets meant helpdesk could be accessed from anywhere, anytime. So, Mathrubootham gathered some people, including some who had worked with him at Zoho, to re-imagine what a helpdesk could do. Freshdesk was launched a year later, with three differentiators. Unlike the legacy players, it had social media built into it from the start, was a SaaS offering, and focused on the small & medium business, or SMB, segment.
Why couldn't Mathrubootham have done the same thing at Zoho, another SaaS company where he worked for a long time? While Mathrubootham says he was happy at Zoho "and is thankful for the opportunities I got there", Freshdesk and Zoho compete today (though Zoho is much bigger, with operations in several other segments of the IT market too). While Mathrubootham is evasive, Sridhar Vembu, the CEO of Zoho, is not. "The vibrant cloud ecosystem in Chennai shows the importance of the role played by an anchor company such as Zoho in nurturing local talent that can address global markets. We are happy to see Girish and Freshdesk benefit from the broad ecosystem created by Zoho."
The Business
Freshdesk today has 50,000 customers in 145 countries. In India, they include Ola, Zomato, BookMyShow, Goibibo, HDFC Life and OYO Rooms. Some well-known international customers are Cisco, Xiaomi, Macmillan, Toshiba, 3M, Honda, Pearson and Bridgestone.
One of the satisfied customers is Bill Caroll, President of Bridgemetrics, an integrated marketing company. "After the switch to Freshdesk, our agent productivity has increased and we have been getting fewer tickets. They are thinking about serving customers in different ways instead of being mired in tickets."
In October 2015, Freshdesk announced the appointment of Nishant Rao as Chief Operating Officer or COO. Rao was earlier the India Managing Director of Linkedin and credited with doubling the company's user base. Also a co-founder of Epicenter Technologies, India's first voice-based call centre, he has been asked to oversee all non-R&D work. Rao says his mandate is expanding the SMB base. "Everybody, including our large competitors such as Zendesk and Salesforce, is chasing Fortune 1,000 companies. We want to chase the millions of SMBs out there."
The general manager of a large multinational who does not want to be identified as he is not authorised to speak to the media says Freshdesk's focus on SMBs is not out of choice. "They may have a good offering for small organisations, but if somebody has a few thousand employees, they have no solution. They are making a virtue out of necessity."
Mathrubootham dismisses such criticism. "We have successfully fought the large players, gone head-to-head, and won," he says.
The COO is more circumspect and says that while Freshdesk's offerings may not have all the bells and whistles required by very large enterprises, it offers compelling value for a big market segment. It has also gone on an acquisition spree to plug some of those perceived gaps.
"Everybody is chasing Fortune 1,000 companies. We want to chase the millions of SMBs out there"
Gene Frantz, General Partner, Google Capital, says, "Our experience demonstrates three attributes. First, Freshdesk is one of the few SaaS companies in the world successful in serving small and medium sized (and increasingly larger) customers with an attractive business model. Second, it is singularly focused on delivering a great product to its customers. As Google shares this core principle, we have tremendous respect for the success this can create. Third, Freshdesk is run by a superlative management team."
It is usual for investors to talk up the positives of portfolio companies, but why did Freshdesk raise so much money? After all, in SaaS products, investments are upfront and revenues are recurring. Also, in the helpdesk segment, gross margins are 80 per cent and net margins 35-40 per cent.
Mathrubootham admits they have raised more than they needed. "One never knows the funding environment. So, when money was available, we decided to take it." The other reason seems to be the five acquisitions Freshdesk has made in the past nine months.
Rao has been tasked with taking the company public, "most likely in 18-24 months", says Mathru- bootham. Zendesk, which has about twice the revenue of Freshdesk, has a market cap of $2.1 billion. Freshdesk says it is looking at listing in the US. But before that, the Freshdesk team will have to ensure that the company continues the momentum and becomes the first SaaS product software Unicorn from India.
