Leadership Fieldnotes #3: Margins, productivity, and competitiveness — Vijay Sundaram
(Welcome to Leadership Fieldnotes, a series that draws from the Zoho leadership's notes to the organization on Connect, our workplace intranet platform and knowledge base. The following is an edited and annotated version of a note from Vijay Sundaram, chief strategy officer at Zoho, originally posted on 29 June 2024. This has been lightly edited to be relevant today.)
Last week1, I had a long interview with a senior professor (and his team) at Harvard Business School who knows about Zoho and has talked to Sridhar2 and some of the leadership already. We talked across a vast range of topics (most relating to Zoho) and I could see how surprised he was at how exactly we do many things, being so different from most of the companies that he normally engages with.
One of the topics he asked me about was how we maintain high margins in our competitive business.
His (reasonable) presumption was that we do this in two ways: First, we spend a lot less on marketing and sales. Given that most SaaS companies are spending more than half their revenues on this, there's a lot of room there. Second, he assumed that since we are set up in India, we must have much lower costs for everything and so that must be a core cost advantage. This is standard business thinking about companies like us, based in India.
I agreed with him on the first. That we do indeed spend less on sales and marketing, leaving us with more margin headroom that can be put back in as reinvestment into the business (most public companies may choose redistribution to shareholders). I also talked about two other factors that drive performance and how these are actually more sustainable over the long term than discretionary decisions like sales and marketing, that can change from year to year.
1. Focus on productivity
I explained that Zoho has far smaller teams. We are a company of 16K employees3, serving dozens of products, across the world, both directly and indirectly, through our partner sales channels. I compared this with other global companies that also sell across multiple geographies. I took the example of a few single product companies and the bloat they have with thousands of employees and other cost infrastructure, often for products that run the massive structural risk of their markets being swallowed up by other larger markets (e.g., think of Box and how their capabilities are subsumed into broader solutions that offer document management and more; companies offering electronic signature as their single product offering face the same threat when this capability gets built into other broader ones, like Google Docs).
Standalone products have more and more difficulty commanding revenue streams in a world where customers want to reduce operational complexity, and where suites replace products. Meanwhile, the companies making them have already got bloated, so you wind up with mergers for the lucky ones and layoffs or oblivion for the others.
I explained that our teams are much smaller and have no choice but to punch above their weight. I told him that many of our products have teams in the tens of people, or in the hundreds for a few, competing with companies whose teams number in the thousands for similar products. This allows us to stay competitive even with small market share, while we can continue to work our way up in the market, as long as we continue to innovate.
Productivity comes from the use of smaller teams that build and retain expertise over long periods of time. It also comes from not over-investing in single products, creating the bloat that actually awaits dwindling competitiveness.
2. Diligent use of capital
Zoho is a private company that has never raised external capital. I discussed how we are forced to use our capital carefully since we can only generate it through our own cash flow and profits. So, we have no choice but to treat capital as a rationed quantity. Marketing and sales costs, discussed earlier, are just a part of this. Poor use of capital can make companies very sloppy, very quickly, creating significant inelastic cost structures.
It's easy to raise capital when there's a glut of it, often more than you need, and there are many reasons to do this. The "growth imperative", or growth-at-any-cost, feeds into the winner-take-all narrative. This forces all the other companies to operate from limited length runways before they can really take off. So, their executives and financial backers look to get acquired and need to post massive growth to paper over unprofitable economics. These reasons often work in concert rather than in unison, thereby magnifying bloat—in marketing and sales, people, overheads, etc. Productivity drops and this was my point to the professor.
Many software companies are liberal with their capital while they ration their software. We try and be the opposite. We try to ration our capital and be liberal with our software. (I just came up with this line and wish I had used it with the professor!)
One obvious issue for us is that with smaller teams and smaller investments, we will tend to have small market share in already highly competitive markets. Contrary to classic business advice to exit markets where you don't have dominant share, Zoho has learned to remain afloat, be profitable, and play the long game.
But does this impact our competitiveness over the long term? It will, if we don't have staying power. If we can stay long enough and continue to innovate constantly, particularly in areas that matter to customers, we will get noticed. We can then make bigger investments—across multiple areas—on the back of mature products and a long list of paying customers. This is far more sustainable and now all business growth is profitable growth. At least this is how I see it and this is the part we are still learning.
Footnotes:
The week of June 16-22, 2024.
Sridhar Vembu, co-founder and former CEO of Zoho Corporation, currently serving as chief scientist.
As of January 2026, Zoho's employee count has grown to over 18,000.
