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8/16/2011
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4 Ways SMBs Can Compete With Larger Companies

Zoho treads regularly on the same turf as Microsoft and Google. Its CEO explains how they thrive in the midst of huge companies with the wallets to match.

What's a smaller company to do when shadowed by larger competitors that can outspend them many times over? Plenty.

In fact, to hear Zoho CEO and co-founder Sridhar Vembu tell it, being smaller is itself a big advantage. Vembu's 15-year-old company has recently outgrown the SMB moniker--it now has some 1,500 employees spread across Zoho's three business units. The corporate entity (formerly known as AdventNet) was renamed in 2009 for its youngest but best-known division, Zoho.com, which continues to operate very much like a midmarket firm; its team currently numbers around 550 people.

Like many other startups and SMBs, Zoho has forged its path on the same terrain as some much larger competitors. Much, much larger in Zoho's case: its cloud-based productivity, collaboration, and business applications occupy the same market as Google and Microsoft. Google's was approaching 30,000 employees at midyear; Microsoft has more than 90,000 people on its global payroll.

In an interview, Vembu hit upon four key ways his private, bootstrapped company--Zoho has shunned venture capital and other outside investments--succeeds in the face of intense competition. All four have relevance for a variety of startups and SMBs, even if you're not necessarily playing in the same pool as Google and Microsoft.

1. Build a killer company culture. Vembu said Zoho emphasized a strong, people-oriented culture from the outset 15 years ago, and he's a big believer that SMBs have an edge in developing successful corporate mindsets. Their relative size--and in some cases, relative youth--enable culture-minded ideas to have a greater impact.

"Culture is not something that you can create overnight; it is not something that you can just turn on an off," Vembu said. "You become who you become as a company over time."

For Zoho, that has much to do with its organizational approach to hiring--read on for more on this--and retaining talented employees. Zoho makes significant investments in training and skills development, for example. It sees a return in the form of very low turnover--around 3% annually, according to Vembu. That's not too shabby for a tech firm, particularly one in a booming segment like cloud computing. That pays additional dividends in the form of high organizational IQ and stable, finely tuned teamwork.

"People know each other well--that's actually essential and gives us an advantage," Vembu said. "We are able to move on opportunities very quickly in the marketplace. That's very important when you're competing with much larger companies, because you have to adapt and evolve quickly."

2. Think long-term; act now. That culture combined with Zoho's strategic decision to remain private fuels one of Vembu's refrains, which he notes sounds a bit odd: "Think very long term, but act very quickly on opportunities."

The stable, innovative culture enables speed and agility. Exhibit A: Zoho.com first became known for its Online Office suite--at the time of its launch, there wasn't much like it for cloud productivity. Then Google entered the market about six months later.

"People predicted a smaller company like Zoho would not survive," Vembu said. "[With] Google--and course there's Microsoft always waiting in the wings, they're going to enter the cloud any time--there's no real room for a smaller company. That's the conventional wisdom."

So Zoho adapted--fast. Its office suite is still a key part of its product portfolio, but it quickly added a much wider range of applications such as CRM, accounting, and collaboration software--and the ability to integrate those tools. It focused primarily on SMB customers, too, rather than casting a wider net. The diversified product lineup has turned Zoho.com into the fastest growing of the three business units; Vembu said it will eventually become the largest, too.

The company's closely held structure allows it to make product decisions on its own terms and timelines--not those of its board members or investors. That's the foundation for taking the long view while moving rapidly.

"[Staying private] is part of how we operate," Vembu said, adding that it increases Zoho's appeal to potential partners. (Stay tuned for #3.) "You're so flexible, so nimble. You can turn on a dime."

3. If you can't beat 'em, partner with 'em. While Google is indeed a competitor, it's also one of Zoho's key partners. Zoho is a big player in the Google Apps Marketplace--Zoho CRM was one of its top installed apps at the end of 2010. Zoho also integrates with Microsoft Office and SharePoint.

The partnering strategy need not be limited to competitors, either. Identify other big businesses that could be a good fit. An example: Last year, Zoho did a deal with 1&1 Internet to offer its office productivity apps to the web hosting giant's 10 million-plus customers. Vembu points to it as a good example of how large and small can work well together: 1&1 was able to offer new products to its customers; Zoho, of course, gets a cut of the revenue. Vembu advises looking for larger partners that can clearly benefit from what your smaller company can bring to the table--there's a good chance they'll listen.

"That is actually a very crucial element for any smaller company's survival: the ability to partner and to complement a larger partner," Vembu said.

4. Hire the diamonds in the rough. Recruiting and retaining sharp talent--core to a robust company culture--is a common challenge for SMBs, particularly in the tech sector. Google has its pick of the MIT and Stanford alumni rolls, notes Vembu. And Microsoft can bankroll a company-wide raise if it gets nervous about turnover. The hungry SMB? Not so much.

"For any small business, or anyone who's not Google or Microsoft, the problem is: How do you attract good talent? It's a constant problem," Vembu said.

One big mistake companies make, in Vembu's view, is to treat it as a marketing challenge. In other words, don't tell the world why yours is a great company to work for--show it. Vembu takes a Moneyball-like approach to recruiting. He's a big proponent of hiring people fresh from college or even high school--many of Zoho's engineers are based in India--as well as others who might be overlooked by other employers. Meanwhile, he steers clear of the rapid-hire-and-hire mentality.

"We hire people who otherwise may not have had a chance, and we invest heavily in their training," Vembu said. "We add slowly and like to keep people."

You can't afford to keep operating without redundancy for critical systems--but business units must prioritize before IT begins implementation. Also in the new, all-digital InformationWeek SMB supplement: Avoid the direct-attached storage trap. Download it now. (Free registration required.)

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