Freshworks: Dream in Increments To Create Products That Scale

Freshworks, which just listed on the NASDAQ Stock Exchange, has become the poster child for Indian SaaS startups that want to build global businesses. Mohit Bhatnagar, Managing Director at Sequoia India, talks with Freshworks co-founder and CEO Girish Mathrubootham about the early design choices on product, pricing and positioning that made the company so successful. The conversation took place in July 2021 during an AMA at Surge, our rapid scale-up program for early-stage startups.

Show Notes

  • Everything begins with framing the customer problem well (2:19)
  • Dreaming in increments to create a wedge (4:36)
  • Sharpening product differentiation to support outbound sales (6:16)
  • Using pricing as a weapon, and landing the first set of customers (10:33)
  • How churn is a killer in product-led growth (13:05)
  • Building a global company with its soul in Chennai (15:23)
  • Increasing your standard of giving (18:45)

Introduction

Dewi: The story of how Girish Mathrubootham launched Freshworks after his television set was damaged during a move from the US to Chennai is now part of India’s startup folklore. After six months and 28 email threads with his insurance provider, he realised how broken the customer service process was and launched a product called Freshdesk. Since then, Freshworks has added a ton of other software products to its offerings and amassed customers all over the world. Freshworks, which just listed on the NASDAQ Stock Exchange, is now something of a poster child for Indian SaaS startups that want to build global businesses.

On this episode of Moonshot, Girish chats with Mohit Bhatnagar, Managing Director at Sequoia India, about the early design choices that made Freshworks so successful. The conversation took place during an AMA at Surge – our rapid scale-up program for early-stage startups.

Everything begins with framing the customer problem well

Mohit: Hi Girish. Good to see you again, wonderful to have you with us. You know, today, we really want to reach deep into your mind and pull out some of the insights that we can share with a first-time founder who’s building a SaaS company from India for the world. I want to start with this notion of India being a ‘product nation’. There are so many engineers who are getting started and building their companies. What advice would you have for a young engineer starting up, as they design their product roadmap to ensure that they actually meet the customer’s needs?

Girish: If I were to tell you what some of the things are that I really look for from a product management standpoint in terms of product-market fit, I think we have something called I to P, ‘idea to product’. I think a lot of time needs to be spent on the problem. So, framing the customer problem is the most important step. The first thing is you have to really understand the customer problem in the customer language. A lot of times, when we see startups, we get excited by the technology, right? If you have cookie tracking, you want to do user behaviour tracking on the website or inside the app. If you have webRTC, you want to immediately build video or session browsing or co-browsing, or you want to build audio. So, getting excited by technology into one area of adoption is not really the way to get to product-market fit. Technology is important, but spending enough time on the customer problem, framing the customer problem, studying how they are solving the problem today [is equally important]. If we don’t have a solution, what other alternatives could they potentially use? Are there other tools, or are there alternatives like Excel and things? So, I think it all starts with framing the customer problem really well and spending enough time on the problem because the solution, all of us can build. Once you have the problem clearly understood and how you want to solve it, then the other important thing is how mission-critical it is for the customer? Prioritising which problem to solve first, right?

Dreaming in increments to create a wedge

Mohit: Now, you are one of India’s most successful founders, but you are also one of India’s most prolific angel investors, and now with the Together Fund, you are an institutional investor. I want you to reflect, and, as you’ve sat on both sides of the fence, is there a big difference in the investor and the founder mindset?

Girish: See, I can understand the investor mindset and the entrepreneur mindset. So, I’ll tell you, Mohit, as an investor, you want to see ambitious founders who want to go and conquer the world, but I can tell you, as an entrepreneur, we start with a small idea where we want to get a wedge into the door. Like, we may want to enter into the pre-sales function or enter into the sales function. So, most of the time, entrepreneurs are not thinking about, “How can I expand and build an empire?” And, it’s not like one person is right or wrong. Sometimes what happens is investors end up backing crazy founders who just keep dreaming big but are not executing. And, sometimes founders, good founders get stuck at $5 million, $10 million, and India has seen a fair share of those where they’re not able to expand their vision. So, I talk about dreaming in increments, right? Basically, we all have to understand that the founders will start with something, but do they have a path to expand? So, the entrepreneur has to focus on solving something small really well because that’s the wedge through which you grow, and the founders should not get stuck into this quarter or this year. As a product founder, you have to always be thinking, “How is the growth going to come in 2023 and 2025?” But product-market fit is – you have to first get one growth engine going, but then you find people who can take care of this year’s growth, while you are planning for the future. I think it’s a balance. So, there are lots of things, but I would say, “Everything starts with really understanding the problem well.”

Sharpening product differentiation to support outbound sales

Mohit: Love it. I absolutely love it, Girish. ‘Dreaming in increments’ is something you’ve always said. Only once you get to $10 million ARR, can you actually see the journey to $100 million; and once you get there, then you can see the journey to a billion [dollars]. So, that makes complete sense. One more product question though, when you first started Freshworks, it was just one product, Freshdesk, with full focus. And then, fairly early on, you launched Freshservice, and then you went on to launch seven or eight new products. More recently, you’ve actually simplified it, so that the customer can understand your proposition, into three different packages. So, could you talk a little bit more from a product roadmap standpoint, as to when is the right time to focus on a single product versus to focus on a suite of products

Girish: See, our initial GTM (go-to-market) was all about inbound motion. Go online, search-driven lead generation, bring people to the website, let them sign up for a trial, let them play around and go and close with their credit card on file. So, that is what we call the inbound engine. Now, when we were in this inbound engine, we had Freshdesk launch. So, what we found out was one out of every four Freshdesk customers was using Freshdesk for internal employee support, as an IT help desk, because the keyword that they were searching for was ‘help desk software’. So, they were coming for an internal IT help desk and using it. And, rather than taking the same product and putting a marketing face to say, “Okay, here is Freshdesk for IT,” we actually custom-built an IT product because we knew that the market is big. That product today is north of a $100 million ARR product for us, [called] Freshservice. Also, what happened was, we had chat – a synchronous chat – but then we had social media, and we were seeing that the market and the technology had progressed in terms of ‘asynchronous chat’, which is what everybody wanted. If you know, earlier there was live chat, now it was all about asynchronous chat like WhatsApp, but businesses wanted it. Then we also saw the emergence of cloud telephony, and people wanted to do customer support from anywhere rather than being chained to a contact centre desk. So, we actually built Freshchat and Freshcaller as separate products. Again, the go-to-market was, “Hey, if somebody is searching for a phone, if somebody is searching for cloud telephony or chat, let’s go and sell them Freshchat, let’s take them to Freshcall.” And then the number one integration was a sales CRM, so we said, “Okay, Salesforce is really big and not really suited for the high-velocity motion that we wanted, so, let’s build our own CRM. So, we built Freshsales and so on and so forth. But in 2015 and 2016, we started an outbound motion. We started hiring sales teams in the US, UK, Europe, and we went outbound to customers – today, that is approximately half of our business, or slightly more. So, what you have to understand is when you’re going outbound, it’s a very different dynamic. You have to suddenly convince the customer, the buyer, “Hey, why change? Why now? And, why Freshworks?” And, that is very different. See, if somebody is searching for help desk software – they’re coming to our website, and they are signing up for a trial, I don’t have to tell them, “Why change? Why now?” They have already told me that they want to change. So, I just have to sell to them, “Why Freshworks?” Now, here, if I am going outbound, and let’s say somebody is using Zendesk, or Salesforce, or ServiceNow, I have to convince them with “Why change? Why now?” And only then, “Why Freshworks?” comes into the play. So, for that, I need strategic positioning differentiation, and that comes with the combination. So, that is why we went back into bundling with omnichannel customer support. We saw that many customers were struggling with eight different support tools. They had a different email help desk, a different chat system, different telephony, a different bot system, and different social media listings. So, we said, “Hey, your customer experience is broken, come to Freshworks, and we will give you an omnichannel seamless customer service solution.” That is the Freshdesk omnichannel-suite. So, that’s it in short. I mean, it’s not a short answer, but that’s the reason why today, with mid-market, the differentiation comes from the bundle.

Mohit: Hmm, that makes a lot of sense, Girish. So, in the early days, Freshworks was all about the inbound engine, which allowed you to basically service customers who knew what they were looking for, but as you shifted to the outbound motion, it became more important for you to sharpen the differentiation for Freshworks so that you could sell against a lot of established competition in your customers. That makes sense.

Using pricing as a weapon, and landing the first set of customers

Mohit: Some startups are creating brand new products and categories that have never existed before, but you at Freshworks went after a market that already had some incumbents. Customer service was broken, but a lot of companies were already trying to fix it. So, talk about what you did in the early days for the product roadmap to differentiate Freshworks.

Girish: See, there were 600 help desks when we started Freshdesk. So, we were not the first mover by any chance. It was very hard to differentiate in the early days. As a founder, I’m sure all of you dread the question, “What makes you different, right?” So, we used pricing as a big strategic weapon. We thought, “We are an Indian startup. We don’t have a brand name, and we have a good product. So, let’s go and bet on the customer, who doesn’t have the money. If they like the product, they will buy it.” So, our initial price plans were $9, $19 and $29. Zendesk’s starter plan was $1, but that is only for one agent or three agents. The lowest plan at Zendesk was $29. So, we put our highest plan at $29. We said, “The market is big, so we can always increase prices, we can build more features, and do more packaging.” So, we were not afraid to enter the market with low pricing, and we used pricing as a competitive weapon. But you have to understand – if you look at most of our early day customers, they were all like non-profits, educational institutions, people who can’t go and do business with Salesforce, or ServiceNow, or Zendesk. And that’s why I even say, “Some people build software for the Fortune 500. We build software for the not-so-fortunate five million.” So, that is how we actually grew.

Mohit: Hmm, so, in the early days, it was all about using pricing as a weapon. What did you do to actually build awareness for your product? How did you find your first set of customers? 

Girish: So, we just exhausted all the low-cost and free ways of marketing by literally – we would be on Twitter to see if somebody is unhappy about Zendesk, and our support guy will go and say, “Hey, I’ll invite you to try Freshdesk.” So, we were hustling, like a startup. So, we used all the social channels, whether it’s Quora, LinkedIn, Reddit, Twitter, everything. Whenever people were evaluating or talking about competition or searching for a help desk, we would be in the conversation. We inserted ourselves into the conversation and tried to be genuinely helpful, but invited them to try the product because our belief was, “We have a good product at a good price point. If customers experience it, they will buy it.” And, that’s how we got it. So, we were not into consultative selling at all. In fact, till May 2012, I did not hire a single salesperson.

How churn is a killer in product-led growth

Mohit: Everyone’s talking about PLG or product-led growth. Is PLG the only way to do it, or are there multiple GTM strategies that you would recommend?

Girish: If there was a way for Freshworks to get to a billion dollars in four or five years with only the inbound strategy, I would not have started the outbound experiment at all. But, that is the problem with product-led growth. If you look at any product-led growth company – and there’s a great article on TechCrunch, where somebody wrote recently about the hamburger model of sales. So, they say, “The patty is your product. The bottom bun is the product-led growth. The top bun is the sales-led expansion.” So, if you look at any product-led growth company, whether it’s Atlassian or Zoom or Stripe, you have to see that at some point they use product-led growth for acquisition, but then they actually layer on sales-led growth to build lasting customer relationships. Think about Asana, Trello, all these products we have all used. And, we suddenly also stopped using them because we don’t have a relationship with the company. So, that is a double-edged sword. And, it’s no different for Freshworks. When people can come in online – super easy products, put their credit card, don’t have to talk to anybody, you can start using it. Tomorrow, they can cancel the credit card, there’s a nuclear button [through which] they cancel, and they go. So, churn is a killer in product-led growth, in the SMB space specifically, or if your product is not mission-critical. Depending on the category, depending on the segment, churn becomes a real issue. So basically, it becomes like you’re filling the bucket at the top, but you are leaking revenue at the bottom.

Mohit: You make a super important point that PLG growth is great, but you’ve got to watch for churn, especially in the SMB segment.

Building a global company with its soul in Chennai

Mohit: Girish, from the time I’ve known you from the very beginning, Freshworks has had its soul in Chennai. You built Freshworks based in Madras, and then more recently, there came the point in time where you had to pack up your bags and move to the US. That must’ve been really hard for you. How did you get to that point? How did you reconcile the thought of moving from Chennai to the US, and how did you explain that to all your employees who had been with you building this company in Chennai?

Girish: Accel invested in us in 2011, and in 2012, there were conversations about, “Will I move to the US?” I said, “No, I have to be in India and build the company.” Somewhere around 2016, there was a conversation, “Hey, will Girish move to the US? The company is becoming big.” And I said, “No, I have to build it from India. I want to…” I was stubborn, and I think everybody had given up saying, “This guy, you cannot move him from Chennai.” And, then I surprised everybody by telling them in 2019 that, “I’m going to move to the US.” So, the question was very valid, but, in my mind, I think the answer that I gave at that time was based on two main concepts. The first answer was – why am I doing it personally? Like, I’m doing it for three reasons. So, one is me, and one is you – I mean, when I say “you”, I mean employees – and one is India. So, when I talked about ‘me’, I said, “Hey, personally, what is happening in India? We were being celebrated as a really successful startup from India. We were almost at $100 million ARR in 2018. I was getting awards, and everybody thought we were a success, but for me, I said, “Is that what I want to do? Do I want to be celebrated and just get awards and become complacent?” So, in that sense, for me, the next level for my game was to really look at other world-class companies and see, “Hey, can we actually take Freshworks from a $100 million to a billion in say three, four, five years? And if others have done it, what does it mean?” And, that is what I wanted. So, I didn’t want to be celebrated for 100 million, I wanted to go and try, and if I fail, that’s fine. I told all my employees that, “This is true at whatever level you are. So, what’s your game, what’s your level?” Think about any sportsperson. You could be playing for Trichy or Bangalore. So, you may want to go to the state, and then you may want to go national, then you may want to go international. So, sometimes you get to change your sport also, like MS Dhoni was in football first before he went into cricket. So, the reason why I wanted to move to the US was, there are only very few companies that have done that, and if I want to learn from others who have done it, I have to go to the US. So, that was my personal reason – on what’s my game, what’s my level. The next phase was clearly, “I cannot learn from anybody here.” So, the number one reason that I wanted to do it was for me. Very selfishly, I wanted to learn, I wanted to step up my game and go. The second reason I said, was “for you” – which is the employee. So, I saw an opportunity that if I can go and run hard and win this as an Indian athlete running in the Olympics, I can create tremendous wealth for our employees. And I also told them, “What happens when instead of 2,500 crores if employees have 25,000 crores?” The third is for India. So, if we show that it is possible to create such a company from India – and this is already happening, you will turn the world’s attention towards global SaaS startups from India. So, you will create investor interest, which is already happening, you can see more and more companies coming in, and that is something that India needs because IT services are on […] and the growth has slowed down. We need more job creation for Indians and, so that is for the country, right? And, so that was my answer. It was a spontaneous answer, not a prepared answer.

Increasing your standard of giving

Mohit: You know, Girish, this notion of giving back to the community, giving back to the country is a passion that we both share. I think it’s so important for any successful person in India to find ways to not just commercially succeed, but to find ways for their companies and their firms to be able to help our communities as they succeed. Talk a little bit about what you’ve been doing to try and help the Chennai community and India more broadly.

Girish: When you become rich, it’s not about increasing the standard of living. It’s about increasing the standard of giving. So, that’s what we all want to do. We want all founders to grow into super-rich founders, but increase your standard of giving, because the purpose of money is to serve society. Of course, we need to keep as much as we want for family and stuff. I think I’m a fundamental believer in all of these. One of the biggest learnings I’ve had is – money doesn’t really change a person. It only amplifies who you really are. I believe that success is in the big things, and happiness is in the small things. So, if I play a game of tennis, or have a beer with a friend, I think that’s enough to be happy. You don’t need a lot of money to be happy. So, that’s what you want to optimize your life for. I would encourage all of you to optimize life for happiness, and find happiness every day. So, with all of this in context, when you have money, what do you do? You pick a cost. For me, I’m a football fan, and I always wanted to say, “Hey, we are all football fans of Manchester United and Chelsea, but we don’t see India anywhere”. India, with one billion people, does not celebrate its sportspeople. Education is the enemy of sports in India. We applaud our children for scoring well in math and science, but if a kid plays sports well, we actually discourage them from playing, because parents as well-wishers think, “Hey, there’s no career opportunity here.” So, somebody has to do something. If you want a kid to be an artist, somebody has to buy paper and crayons. That is what my responsibility is here. So, we are building a world-class soccer academy for young children under 13 and under 15 – kids in Chennai. My only thing was it has to be called FC Madras. It’s like we are giving back to the city. It will take seven to 10 years for these kids to grow up, and probably blossom into football players. For all these years, the US has one or two players in the Premier League now. So, it’s a very hard journey, but that’s what a startup founder’s journey also is, right? Who thought you could build a global software firm from Keelkattalai in Chennai and win. So, let’s try. The worst thing we will lose is money. But, if we are able to produce some champions, we’ll inspire a whole generation. And, all you need is one or two champions.

Feeling like an Indian athlete that has a chance to run at the Olympics

Mohit: Goosebumps Girish, goosebumps. You truly are mission-driven, and it’s amazing to see what you’re doing for Chennai and for the country. I want to close by pointing out that you’re now the CEO of a US publicly listed company. You’ve inspired an entire generation of new founders. You’ve inspired us all to dream big and think globally. Not many have been where you are today. What does it feel like? What’s going through your head right now?

Girish: I think, Mohit, your question is, “How do I feel and what’s going on in my mind?” I think I can summarise it in one sentence, “I feel like an Indian athlete has got a chance to run in the Olympics.” That’s it. You know the pressure, you know the competition and how world-class everybody else is, but you just want to try and run to the best of your ability. It’s like thinking about all the sports movies that you like, whether it’s Dangal or Chak De or whatever. So, it’s like wanting to go there and play your heart out and whatever happens, it’s a win, right? So, I come from a very normal middle-class family background. My father was a Bank of India retired officer – he is no more. And, the way I look at life today is, tomorrow, whatever happens, there is going to be a small newspaper article in Tamil, and my uncles and aunts are going to read it – whether it’s a $1 billion IPO or a $10 billion IPO or a $5 billion IPO, nothing matters to them. They will feel happy that “Girish has done something”, and they will feel happy for me, and I would feel happy. So, I think, I like to take it simply. I’m not stressed too much. I would like to go and play to my heart and do it to the best of my ability, and see what happens and go with that. So, that’s how I feel, but truly that is the sentiment. So, it’s like an Indian athlete wanting to run in the Olympics. So, we are on the tracks. Let’s see what happens.

Mohit: Chak De Girish, Chak De! Godspeed, man. I wish you all the best and go change the world.

Girish: Thank you and all the best to all the startups. Go big!