Indian start-ups are having a watershed moment. With the third-largest start-up ecosystem in the world after the United States and China, India had an estimated 60,000 start-ups, including 90 unicorns, in 2021.
In many ways, Freshworks, a software-as-a-service (SaaS) firm headquartered in San Mateo, California, has become the poster child for India’s thriving digital start-ups. In September 2021, Freshworks, which helps businesses with customer management, raised $1.03 billion in its Nasdaq IPO and reached a $10.1 billion valuation. In doing so, Freshworks, which has about 4,300 employees, became the first India-born SaaS firm to trade on a US exchange.
For Girish Mathrubootham, Freshworks’ CEO and cofounder, the IPO is a dream come true. It is also a vindication of how the 47-year-old has gone about building the company with fellow founder Shan Krishnasamy: with a focus on inclusive growth and “heart-led” leadership that places emphasis on compassion, empathy, and intuitive thinking. In Mathrubootham’s own words, such an approach is all about “putting humans first and doing the right thing by them over business motives.”
Around two-thirds of Freshworks’ employees were shareholders in the firm at the time of its listing. Mathrubootham has often spoken about employee wealth creation and how the IPO resulted in more than 500 of its Indian employees becoming crorepatis [a person with assets worth at least $131,500]. Today, the firm runs several initiatives to attract and build diverse talent, including a software academy that provides training for low-income high-school children in India and a career restart program
in the United States and India for women returning to the workforce.
In this edited interview with McKinsey’s Noshir Kaka, Mathrubootham talks about the Freshworks journey and why he thinks this is the decade for India as a product nation. He also provides rare insight into what Indian and Western start-ups can learn from each other.
McKinsey: You often talk about this being the decade of India as a product nation. What are the key growth drivers and where are the biggest opportunities?
Girish Mathrubootham: Some fundamental changes have happened in India over the past several years, setting this up as the perfect decade for India. Despite our background in IT services, we did not have many [homegrown] product companies and people with product experience. Over the years, we have [developed] experienced product talent, both homegrown and people who moved back to India.
That was the key raw material, or ingredient, needed to kick-start the growth. The second is the abundance of venture capital funding today. When we started Freshworks, in 2010, venture capital activity was only beginning in India. The third ingredient is the growing demand for products due to the digital transformation of nearly every business. Some 15 years ago, for example, technology and software were used only by large enterprises; whereas today, even a small restaurant or an apparel store is selling on e-Bay and Amazon.
We now have talent, funding, and demand. The last missing piece of the puzzle in my mind is how can we build in India but acquire customers all around the world? When you look at it from inside out, it is called online customer acquisition; from the customer’s point of view, it is called product-led growth. Users are now coming online, demanding and buying the software they need.
The growth opportunities exist in several broader categories. We initially saw horizontal play as the big winner in SaaS, so companies like Freshworks went after help-desk software, customer service, CRM [customer relationship management], or IT service management. Now, we are seeing [the rise of] vertical SaaS. About 20 years ago, our vertical software within SaaS used to be capped at $50 million to $100 million in revenue, but now we are seeing multibillion-dollar vertical SaaS businesses being built. There is a new playbook in town on how to enter a vertical with just one entry-level product that customers like. A great example is the US restaurant-software provider Toast. Developer tools is also becoming a popular emerging category in India, with great homegrown examples like BrowserStack, Postman, and Hasura, which recently became a unicorn.
We now have talent, funding, and demand. The last missing piece of the puzzle in my mind is how can we build in India but acquire customers all around the world?
McKinsey: Freshworks, too, has had quite a journey over the last year, including its IPO. Tell us a little bit about what this period has meant to you personally.
Girish Mathrubootham: In 2017, we realized that no Indian product start-up had gone public globally, and that we could be the first one. From then on, it was a dream for us. Last year was truly a dream-come-true moment. And it wasn’t just about Freshworks; all the [Indian] founders felt like it was their triumph that India celebrated its own IPO.
One of the biggest investor concerns about India has always been whether it is possible to make exits. The first pivotal moment was when Walmart acquired Flipkart,
which was proof that investors could get a good exit in India. Freshworks’ global IPO was the second pivotal moment. Around the same time, there was also the IPO of Zomato,
so investors could finally see that everything was good from an India standpoint. One could have a local exit, an acquisition, or an IPO on Nasdaq, which was actually quite impactful for the Indian investing ecosystem itself.
Personally, for me, I feel like I’ve created a currency. Everyone who believed in Freshworks, be it the venture capital investors or early employees, now have a tradable currency. The [stock] price could be anything, which is not in my control. But if they want to enjoy fruits of their labor, or take returns from their investment, they can now do it profitably. This has given me a sense of satisfaction and happiness that one set of responsibilities for me as a CEO is over. While I say that, I also understand that I am taking on a new set of responsibilities from the public investors who bought at the IPO. So now we must continue executing, and make sure that they can get value from Freshworks as well.
McKinsey: What are the biggest differences between the start-ups in India, or start-ups founded by someone of Indian heritage, versus the Western start-ups?
Girish Mathrubootham: There are many places where the Indian [start-up] approach has been very successful. If you look at leadership and management, for example, we have a heart-led approach, which puts employees and customers first. There are times when the heart-led approach works like magic, especially if you are a company that is learning by doing. Looking back to ten years ago, India didn’t have experienced SaaS talent, so the industry hired young, smart, fresh-out-of-school talent who were willing to learn on the job. That created a lot of motivation to be a coach and allow people to experiment and fail. Whereas in the West, even a young start-up can hire been-there, done-that talent; for example, a $2 million company can hire a chief financial officer from an established company.
The context has also changed over the years. When we began, start-ups in India were seen as a big risk and not many people wanted to join them. Now, the risk profile is well understood because the reward profile is well understood. More people in India want to work for start-ups.
Indian start-ups and founders should also learn how to think big and understand that the opportunity is really big. Most of our founders come from a middle-class background. I have seen so many promising start-ups take the quick route out and jump the moment something comes their way that allows them to take an exit. It is understandable only if you understand the context. The Silicon Valley companies have the ability to have a grander vision, to be more hungry, and to dream big.
When Freshworks became a $50 million and then $100 million company, for example, we were celebrated in India as a very successful start-up. But every time I would go to the US, I would see companies worth $200 million to $300 million that still wanted to do more.
The other thing to learn from US companies is the importance given to design and product management.
[Indian companies] are good at engineering and technology, but what will help start-ups win customers is delivering world-class design and making sure that customers have an easy experience. Founders need the curiosity to learn from the best globally.
McKinsey: What does a heart-led approach look like in practice? Could you share some examples when using such an approach worked well for your business?
Girish Mathrubootham: The only thing that works in Freshworks for a leader is earning trust through a heart-led approach, which focuses on putting humans first, over business motives, and doing the right thing by them.
In the early years of Freshworks, for example, one employee working in our support function made a manual configuration error that brought down the whole system.
I remember he was a young engineer, with just around a year of experience. He looked terrified and thought he would be fired for his mistake. I walked up to him, gave him a pat on the shoulder, and said: “How long is it going to take to bring us back up? Let’s make sure this doesn’t happen again, and let’s learn and grow.” That employee is still working at Freshworks. I see that as a win of a heart-led approach. One key principle of a heart-led approach is that you understand that when somebody has made a mistake, they are vulnerable. At that time, the wrong thing is to pounce on them and punish them.
The other principle [of a heart-led approach] is about believing in people and unlocking their true strength. I have always believed that there are no bad employees; there are only wrong fits for a role.
McKinsey: Freshworks has a young and dynamic workforce. But you’ve also spoken about how the biggest challenge for the SaaS ecosystem is finding experienced talent. How do you go about both acquiring and building the talent profile for the country?
Girish Mathrubootham: Our parents always focused on job security and job satisfaction, but the millennials don’t care about these things. They want faster progress and learning. They are an impatient generation. Like the author Simon Sinek said, you push a button, you get food. You push a button, you get a cab. They want to push a button and get a career promotion.
Building talent as a nation is a whole different challenge. Everyone talks about India having a billion-plus people, but do we really have industry-ready people? We need help from everybody—the private sector, public sector, and government—to make sure that we are investing in employable talent. We have something called the Freshworks School of SaaS, where we have partnered with one university in India to introduce SaaS courses like programming, and writing scalable secure code and deploying it on public cloud software like Amazon Web Services. All this is part of the [academic] curriculum where we train engineers in their second and third years over four semesters to help them graduate as SaaS-ready, employable engineers.
For companies to prosper, you also need to inspire employees to stay. You do not want talent that is just moving around; you want people who can drop their anchors, build careers, and really contribute. For that, you need to create a compelling vision and inspire people to stay.
McKinsey: You are seen as an icon for many of the aspiring next generation of entrepreneurs. What is some advice for them?
Girish Mathrubootham: When you see everything happening around us and the state of business in India, I sometimes feel like building a successful business with the right value system and ethics is an accomplishment by itself. That is my advice to younger founders. Being a role model means that you do the right things in a responsible way, without taking shortcuts to growth. It is not just about throwing money. Unicorn, decacorn—these things are secondary.
There is also an unconscious bias in India that a rich businessman means he has to be a bad guy. We need to break that bias. We need to show people that one can win the right way also.