Sudheer Koneru has raised over $200M for his latest startup, Zenoti. A big software company that powers brands in the health and wellness space. Sudheer has acquired funding from top-tier investors like Advent International, Steadview Capital, Tiger Global Management, and Accel.
In this episode, you will learn:
- Removing the hurdles between you and getting funded
- The number one key skill for all entrepreneurs
- The one tweak that boosted their revenues by 40%
For a winning deck, take a look at the pitch deck template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Moreover, I also provided a commentary on a pitch deck from an Uber competitor that has raised over $400 million (see it here).
Remember to unlock for free the pitch deck template that is being used by founders around the world to raise millions below.
About Sudheer Koneru:
Sudheer Koneru is an engineer, who did his engineering in computer science from the Indian Institute of Technology, Madras. Later, he went to pursue a post-graduation in computer science from The University of Texas at Austin.
Over the years, he has gained vast experience as an engineer and as well as at the corporate level. He started his career with Microsoft and spent about 8 years with the company. Then, he became the CEO at Intelliprep. The company later merged with Click2learn Inc, making Sudheer the COO of the company. After that brief period, he went on to work for SumTotal Systems.
Sudheer and his brother, Dheeraj, co-founded Latitudes Health Club and Tangerine Spas, a chain of fitness centers, spas, and salons, in Hyderabad. Upon realizing the loopholes in the health and fitness industry, Sudheer conceptualized Zenoti, which is a cloud-based solution that addresses the needs of spas, salons, medical spas, yoga studios, and other service businesses in the beauty and wellness space.
Connect with Sudheer Koneru:
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FULL TRANSCRIPTION OF THE INTERVIEW:
Alejandro: Alrighty. Hello everyone, and welcome to the DealMakers show. We have a super exciting guest today. We’re going to be learning the transition from corporate to building your startup to going from technical to business and now to a tremendous journey that he has embarked on that we’re going to be learning about today. So without further ado, let’s welcome our guest today. Sudheer Koneru, welcome to the show.
Sudheer Koneru: Thank you. I’m glad to be here.
Alejandro: Originally born in India, actually in quite a small town, so how was life growing up there?
Sudheer Koneru: It was nice. It was more about family and close connections and bonds. Being in a small-town atmosphere, appreciating relationships, and being well-bonded to my family was something which I grew up with.
Alejandro: How small was the town?
Sudheer Koneru: It was maybe 400 people. That’s all.
Alejandro: Wow. So everyone knew everyone.
Sudheer Koneru: Yes. I knew everyone. So if you go out into the town, then you have to stop at everybody’s house. And you’re to say hello. You go to the next house, so it was not easy to get away.
Alejandro: Wow. If you ever go back there, they must be asking you for photographs and autographs and all types of them. You’re like the rock star. In this case, for you, it was a pivotal moment. Your father decided to go to the city, and that definitely got you guys to get in motion, so to speak. Tell us about it. That was perhaps like a shocker or quite a difference for you and what you were used to. hole to leave the
Sudheer Koneru: Yeah, it was very different because my dad was the first person in our whole family to leave the village and go to a city and work there. So growing up, for me, I came from very simple rules, whereas in the city, they were families and people who were very flamboyant, very different in how they used to be. So I had to fit in and learn to say, “Okay. I’m here.” It was an interesting gradual experience, but some of those shape you and stay with you. You always tend to think simple, whereas you know that everybody around you is maybe smarter, but they talk a lot. You learn to live with that. I think it shapes you.
Alejandro: For you, your father played a really important role for you. He ended up coming to the U.S. You finish your school in India. I’m sure that put the U.S. on your map and on your radar. As a result of this, you even ended up coming to the U.S. to do your Master’s. My question here is, why engineering? Why is every single person that I meet from India has an engineering background? Are you guys born with an engineering degree under your arm, or what?
Sudheer Koneru: No, I think it’s about the times. In those times, I think the opportunities in India were more around engineering and medicine where you could get a good career. Whereas if you went down the journalism path or other hard work, you may not make material money. But today, that has changed in India. In those days, that was the case. If you were really good at your education, it was natural to get into the best engineering school. Even though I chose computer science, it’s not like I chose computer science because I knew I wanted to be in computer science. It was the most aspired discipline in those days because it was the most emerging category. It was hardest to get into. If you get a good rank, a good grade, then you could get a shot at it. I picked it because I got a shot at it.
Alejandro: Talking about taking a shot at it, you graduate from your Master’s, and here you are, you start in a village with 400 people, and now, all of a sudden, you find yourself in one of the biggest tech companies on the planet. How much of a shocker was that, and how did you land on Microsoft?
Sudheer Koneru: Yeah, I think so. Microsoft was a very accidental thing. When I was in college, all of my friends were going off and saying, “We’re doing internships,” and all that stuff when they were in grad school in Austin, Texas. I say, “Okay. I’m going to sit around doing nothing for summer. Maybe I’ll learn something. I was late looking, but I got into Microsoft. I loved it; it was very friendly and very family-like. I joined as an intern. I loved the place so much that I went back as a full-time employee. Though my job offer from Microsoft was—they were paying me in those days something like $35,000 a year. But at IBM, I had a job for $55,000 a year. I still chose to go to Microsoft. It didn’t make any logical sense. This is what I mean about choices that we make. I somehow made that choice. It was my gut reaction. I wasn’t thought through; I wasn’t that passionate about money, but I loved the place. Of course, it worked out beautifully because—I remember that I was negotiating with my recruiter, “Can you reduce my options and give me some more money in my stock options.” She was like, “No, we’re not going to do that.” I am so happy that she didn’t do it because it would have meant a difference of millions of dollars.
Alejandro: Yes, 100%. We’re talking about the early ‘90s where the company was blowing up in a really nice way. For you, how was the experience of being able to work and see and meet people like Bill Gates, while at the time was very involved with Microsoft?
Sudheer Koneru: Microsoft was a very defining time of my career in those days. People were very driven in their jobs to do well. The standard, the bar of excellence was so high that I kept learning like crazy every year. It was like I never was in the shoes of feeling like I knew it all. They kept me in the shoes of “I have so much to learn and so much to grow.” I ended up in a very good area of growth at Microsoft and did very well in terms of leading a very large part of the Windows team when I was leaving Microsoft.
Alejandro: Definitely, it was your segue into launching your first baby, Intelliprep. Here, you get together; you put the band together. It was a group of former colleagues, as well, from Microsoft. And here you go. You started your first thing. How was that experience with Intelliprep, and what were you guys doing there?
Sudheer Koneru: We built what was an online learning solution: learning management systems. We started off with some high principles. Because we came from Microsoft, we were guys who knew how to build great products. We thought like Microsoft because Microsoft can choose to think and solve any big problem because they’re Microsoft. Whereas, when you’re out in the world on your own, you have to quickly learn and realize, “We can aspire to solve conflict.” We would be very specific about solving specialty problems, and get customers quickly, and learn how to get customers. It was a big wake-up call in the learning exercise that though we were great technologists and product designers, we didn’t know what it meant to do business. We learned very fast. I think it was the best decision. It was a tough decision to leave Microsoft at the time.
Alejandro: Yeah, I can imagine, but definitely quite a ride. What ended up being the business model of Intelliprep. What were you guys doing there?
Sudheer Koneru: We were building talent management solutions, learning management solutions for large businesses. We had the top 60% of the SMP Finder as customers in the category. The product we built became the leader in Gartner Magic Quadrant, etc. It was a leading solution. Eventually, the company was called SumTotal Systems through some name change.
Alejandro: Yeah, because the company was merged into Click2learn, which was a Palo Alto company. You keep getting the Microsoft vibes in your career. Then, like you were saying, that translated into becoming SumTotal. The company ultimately ended up being a $100 million business by the time that you decided it was time for you to leave. But, for you and the team, it probably was quite an interesting journey because you were able to learn, as well—it’s like they say: you don’t know what you don’t know. At this point, what you really knew that you didn’t know was the business side of building a company. What happened there? How did you realize that, and how tough was that figuring that you guys were too techy for the business requirements that the business had?
Sudheer Koneru: The first thing was that we were thinking: “If you build it, they will come,” kind of attitude. Whereas that’s Microsoft’s attitude. We have to first figure out what the pain point is and who the buyer is in the organization specifically and navigate the decision, and then build exactly what the market wants; not what I think is ideal. Big problems can be solved by the Google’s and the Microsoft’s because they have resources, and they can come at it with a huge idealistic philosophy. As a startup, you can’t have idealistic philosophy. You have to have oxygen to breathe, which is money. That’s one kind of learning. Another is in terms of creating wealth for the people who are with you. I think I would have done things differently, but though we did have some good investors at that time during the early stage. In fact, by the way, Satya Nadella was a good friend at the time, and he was also an investor and advisor for my company at the time. We could have done better in terms of making sure our employees had more capitalization of those things. This time around, I learned quite well, so I made sure our employees are well set up.
Alejandro: Now that you mentioned Satya, what an incredible leader. What he has done with Microsoft is remarkable. What do you think makes Satya Nadella such a great leader since you’ve had the opportunity of having that good relationship with him?
Sudheer Koneru: I think it is about the whole notion of looking at the world. First, of course, it’s the business position, being aligned with what’s happening in the industry in terms of the cloud, so this is where the world is going and aligning Microsoft in that direction. It was very important. The second, from a cultural perspective, what does it mean to build a high-performance culture at that scale? I think Satya did a good job of navigating the organization into returning back to its roots of high-performance culture. So, both: aligning with what’s happening with market trends. Microsoft is at an amazing speed right now, and I think it has a great future ahead.
Alejandro: In your case, after the old transactions happened, the change of names from Intelliprep to Click2learn, from Click2learn to SumTotal—you became tired, and you understood that you were more of an entrepreneur versus an employee doing the 9 to 5. And, here you go. You decide to leave; you do a little bit of soul searching, and you take two years off. That gives for a lot of time thinking. Sudheer, what went through your mind during those two years? What happened?
Sudheer Koneru: I learned a lot. One of the big things was that I was busy working all of my career, and I think that’s what happens to most people. They’re so busy working that they forget where they are in life in terms of awareness of the choices we’re making. Why are we making these choices? It seems logical that when you get to a certain point, you get married; you have kids; you do a job; you buy a house, etc. I think I had a wake-up call in those windows through some of the workshops, meditation, yoga, and other things that I suddenly became more present to things about myself, and we all die eventually. At the end of the day, how do we use our time and what choices do we make?
Alejandro: Along the way, what have you learned? We’re going to talk about Zenoti in just a little bit, but in terms of life—I think that two years gives you a lot of time to reflect and to take a look at what you’ve done in the past, where you are in the present, and how you can project those reflections and realizations into a brighter future. What did you learn about choices?
Sudheer Koneru: One thing is, I first learned about wellness. I spent a lot of time thinking about what is wellness? What is wellbeing? I realized that our innate nature of human consciousness is to work toward our full potential. If I’m feeling healthy and if I’m feeling good, I will naturally go and solve the most complex problems that I’m able to solve, whatever it is. If I’m a basketball player, I play basketball amazingly well. Wellbeing is about getting to a state where you are operating to your full potential in all walks of life, as a father, as a husband, as a professional, etc. That awareness of saying, “What is your potential,” and working toward that potential is the way of being more present.
Alejandro: In this case, you came across what ended up becoming your involvement with Latitudes Pro, and definitely a different way of interpretation of wellbeing and wellness, and this got you excited. It was your next rodeo to a certain degree. Obviously, not at the scale and level of Zenoti, which we’re going to be talking about now, but how was the journey with Latitudes Pro?
Sudheer Koneru: It was all about being passionate about helping people with wellbeing and wellness. I used to get very excited about the whole thing. It was not a job; as such, it was more like passion, spending time with people, writing articles, thinking about how to create workshops for learning, mindfulness, wellbeing, and everything as part of this ecosystem. It was a great journey in learning. But then, I realized there were huge problems with running the business because of the lack of good software systems when I had marketable stores in the cities and everything. That’s how I realized: there’s a problem here in software. I wasn’t planning to do a startup, by the way, yet again in software. I was happy doing what I was doing, and my life was just fine. But once the problem became too apparent, I had no choice. I felt like I should do this, and that’s what led me to start Zenoti.
Alejandro: Let’s talk about Zenoti, but before getting into that, you ended up doing an exit of Latitudes Pro. The company got acquired by Apollo Health. I think this gave you an overview that you didn’t have before because you had the overview of perhaps doing a business, merging it, and then you say goodbye, and you do your own thing. In this case, you actually saw Latitudes Pro going all the way to the finish line because it got acquired. It was literally the full cycle as an entrepreneur. How was that experience for you that now, from a 30,000-foot view, you see everything, and you understand what it takes from Point A to Point C?
Sudheer Koneru: It gave me the confidence that starting a new business—the first time I started a business, I would definitely acknowledge I had a lot of fear. Coming out of Microsoft was like, you made this tough choice, and you’re scrambling to get your business back like no Gs going into it. But now, with the wellness, it was like, “Hey, if you focus; if you execute; if you make the right choices, things come together.” I didn’t have any fear around doing another startup. It was more like, “I can approach this in a more methodical way. I don’t need to get afraid if things don’t go well.”
Alejandro: Tell us about Zenoti, how you come across the idea of Zenoti because, as they say, ideas are dormant for a while, and then they incubate, and then it’s time to bring them to life. How was that process for you?
Sudheer Koneru: Zenoti came about because I spent a lot of time trying different software to run my whole business. I tried one; it didn’t work out. I did more research. Tried another one. After a time, I said, “This is what all the people must be doing. I have only seven stores. What about somebody who has 40 stores? How are they running their business? Then I realized that everybody is struggling to run their business. There’s no good software. They’re just managing without it. So I think I just ran into a problem by being in the system. I understood the industry really well because I was so passionate about working. I worked at the reception, met with every guest, worked with the personal trainers. I know how concentrating happens. I know how spas, medspas, and salons run. I was so hands-on, and it was very weird that somebody with my kind of tech background had learned so much about this kind of a business that it was easy for me to make the transition and say, “I know exactly what this mystery needs in terms of software.”
Alejandro: Tell us about the business model of Zenoti so that our listeners get it. What has ended up becoming the business model of Zenoti?
Sudheer Koneru: Zenoti provides end-to-end. It’s like a CRM plus ERP integrated for the spas and on, maybe spa wellness like yoga studios, businesses, etc. We run everything for key brands. If you take a brand like CorePower Yoga or European Wax, which has 800 stores in the U.S., everything from the front desk to how the consumers make bookings with them, to their back-office operations, marketing, the employee payroll. Everything is managed by Zenoti. It’s a comprehensive end-to-end solution for these businesses in the wellness space.
Alejandro: Now, you are entering a business where you have fully transitioned from the technical side to the business side and to combining both. How is it now to be on a different seat with a different lens, with a different perspective, where you’re able to own both aspects of the equation?
Sudheer Koneru: I feel that across the journey of Zenoti, what I would say is that I have been able to be aware and present to the fact that building a business is all about choices we make. Earlier, I have made those choices in haphazard ways. Now it was deliberate conscious awareness saying, “You know what? Life is all about the choices we make. At every point in time, we have different paths to go.” The example I would give is like a Harry Potter movie where Harry Potter could have ended up in Slytherin house or Gryffindor house, but somehow, he ends up in Gryffindor because he asked saying, “I want to be in Gryffindor.” Otherwise, he would have ended up being in Slytherin. Then Dumbledore tells him, “It’s our choices, Harry, that show what we truly are far more than our abilities.” I also believe in how you do may be different than our abilities and how good we are. But what we do and how we achieve all depends on the choices we make and the values we have in each step. In Zenoti, I think I also went through tons of key choices, which were critical along the way for us to get to where we are today.
Alejandro: How big is the company today? How many employees do you guys have?
Sudheer Koneru: We have about 650 employees. We are the leading solution today in the spa, salon, the high end of the market where all these big brands would say there’s nobody even one-tenth the size of Zenoti in the 80-odd big brands.
Alejandro: Nice. And in terms of capital raising, how much capital have you guys raised to date?
Sudheer Koneru: To date, we have raised more than $200 million. I think $230 million or so. Our last round was about $150 million.
Alejandro: You were talking about choices earlier. Obviously, when you’re raising that kind of money, you need to choose wisely for the investors because, as they say: it’s harder to divorce an investor than divorcing your husband or wife. So why did you make the choice that you made with the investors that you decided onboard?
Sudheer Koneru: Good question. Initially, we were lucky enough that we didn’t need capital to start our business because in Microsoft and my previous companies, I had enough money, and there were too many friends and family who wanted to invest in my business. I never raised any capital outside of myself and some close friends and family. But Accel Partners found us, and they reached out to us. I wasn’t looking for money or anything. They researched us. The reason I chose Accel first, of course, is the connection with the person who came to talk to me. He was so passionate. He understood the SaaS space very well. He had the broad perspective and exposure in how to grow a SaaS business, and he made me aware of the one big choice I had to make. He said, “Look, Sudheer, you can keep doing what you’re doing today.” We were selling to Southeast Asia, the Middle East, Australia, all markets, and all of India. “Or if you want to build a big business, do you realize that you have to go to America if you want to build a big business? You’re not going to build it from here.” I thought he had a very insightful point. It was a big inflection point where I literally moved my whole family, my company, and everything to Seattle because I did spend a lot of time growing up here. I thought he had made me aware of a choice that I had to make, and I did make that choice.
Alejandro: Again, going to choices, one of the things that was another breakthrough moment for you guys was adding the payment processing. When you come across initiatives of this nature, what is the process of listening, analyzing, and then being able to make the choice that is going to help everybody?
Sudheer Koneru: That’s a good point. See, this is one thing which you mentioned about listening. When I started my first company, [23:34], one of my key investors and board members use to beat the crap out of me that I was not a good listener. “Sudheer, you’re not listening.” I’m like, “What do you mean I’m not listening?” “No.” I’ve learned that listening is a very specific thing, and that is the biggest tip that somebody gave me in my life about listening. I think I was very much listening to my customers, to the topic of where am I making money? Where is the money that my customers are also spending that I’m not getting, etc.? That’s what led us to realize, “We should do payment processing because if you do payment processing, you get to make almost 40% more money from every company, and there’s no reason why they won’t go with us in all that I’ve listened to the customers about. We chose, along the way, to do payment processing as a big investment for the company, and it was one of the most important choices because today, 40% of revenue comes from payment processing. I’m glad we could get on early when we took on the U.S. market, etc. Even after I made that choice, we didn’t have the topic. [24:40] so that when we launched with a partner, we had some problems with the partner’s software, and things were not going well. Some of our large customers were extremely upset with me. I had to literally fly down, listen to the CEO of this Waxing the City, Brian, who is a very good friend of mine today, but at that time, he was so upset, and he was like, “Sudheer, you are totally ripping apart my business. You’re embarrassing me.” I think the first thing I could do was just empathize with him. “I totally know I’m breaking down, but I think this is a big civil problem. This is separate from the poor software you’re using. He gave me a chance to address it because I listened. If I had not listened to him, and I had not responded, he would have thrown me out of the room. That worked out enough to be fixed on those problems. Not only was that my biggest fan as a company, the CEO of Waxing the City, and he will always tell everyone that he loves us because of how well we avoided that crisis and disaster, and [25:43] turned out to be a huge revenue generator for us, and we would have been 40% smaller as a company if I had not made that choice.
Alejandro: Talking about, as well, the customer, for Zenoti, the first couple of years were very difficult because you were developing for two years. That’s like two years in the desert before you’re able to start putting everything into the market and see the reaction. How was that experience, and how did you end up adding some critical data points on understanding what the customer needed versus what you thought was cool or what you thought would make sense. How was the development process in those two years for you?
Sudheer Koneru: I think we had been so immersed in the business that we had a fairly good understanding of what the customers may need because we were hands-on. That helped us a lot, but it was a long window of time where we were spending time building the whole product because we were coming to market with more like an enterprise product. But working with some key brands really helped us. Choosing to go talk to the largest of brands—again, it’s about the choice that we said, “No, we are going to focus on the high-end of the industry. We’re not going to go for the small guy. The small guy is easy to sell to. You can get lots of sales very quickly, but the big guy is not going to agree so easily, but we still chose the hard part of focusing on the big guy. This needed the big guy partnering with them because they did have a problem, so they were willing to listen and share their feedback and inputs so we could evolve our software to reach large brands who were ready to deploy. The choice of saying, “No, let’s go solve the hard problem which this industry has and partner with the right kind of customers. We chose big businesses, which were founder-led businesses. You can always say the market is—well, it is, but even with not slicing it and choosing the right customer helps you because they become good partners.
Alejandro: We’ve been talking about the past. Now, I want to take a look at the future, Sudheer. Imagine that you go to sleep tonight and you wake up five years later—a tremendous snooze. You wake up in a world where the vision of Zenoti is fully realized. What does that world look like?
Sudheer Koneru: At Zenoti, we believe fundamentally what I said earlier, which is when people feel good, they go on to find their greatness. They do well in their everyday life. We think this is an industry around wellbeing, which touches people’s lives in person. No other place do you allow someone to come touch your head, touch your skin, Yoga, the workshops, and all of that. We are very passionate about the space. When we say we are passionate about this space, we want people in this industry to excel at what they do while Zenoti takes care of the rest. If you ask me five years fast-forward, I would say everybody is only focused on doing what they do best: cut beautiful hair, do skincare, and leave everything else about their day-to-day work to Zenoti. It’s like being Uber. Uber says, “You drive. I’ll tell you when to pick up. I’ll tell you when to drop.” You go home, and you’re done. Your money will be in the bank. You don’t have to worry at all about anything other than driving, and I will give you the right—same way as Zenoti should be saying, “You cut hair? I’ll bring you the customer; you help the customer; you go home. Trust me. Your money is in tips. If you need to make more tips, I’ll figure out how to make more tips, how to bring those customers back. Leave everything else to Zenoti, but you keep doing a wonderful job of helping people to feel good when they walk out of your store.”
Alejandro: Very cool. Now, imagine that I put you into a time machine, and I bring you back in time, and you’re able to have a chat with your younger self, with that younger Sudheer. You’re able to give that younger Sudheer one piece of advice before launching a company. Imagine that it’s right before you give your notice at Microsoft, right before you actually started Intelliprep, your first baby, and you’re able to be right there and to give one piece of business advice before launching a company. What would that be and why, Sudheer?
Sudheer Koneru: I would say to learn to listen. It is: listen very well, and many people don’t understand what listening really means. Listening is about all the data points that are coming into you and asking and being open to listening and asking questions in response to listening to people. I think listening is our key skill, not just in terms of doing well, but even in terms of building relationships when people feel you listen to them, you hear them out, they trust you, they want to work with you whether it’s customers, employees, and you make the right business decisions when you listen well. If any entrepreneur who listens very well to all of the data coming at him will do very well, so that’s what I would advise myself is, “Please make sure you understand what it means to listen and maybe do a small exercise or workshop to make the little me understand what listening means.
Alejandro: Yes, 100%, and I’m right there with you. I think, for example, in fundraising, listening is everything because these are people that have formed an investment thesis around your business, and it’s the ultimate concerns that separate them with deploying capital, so it’s about not listening for even the best answer or listening for looking good is listening for removing the concerns that are in-between you and the money.
Sudheer Koneru: Yes.
Alejandro: I’m right there with you. For the people that are listening, what is the best way for them to reach out and say hi?
Sudheer Koneru: They can email me. My mail is SKoneru@zenoti.com. I’m pretty prompt with most of my mail all the time.
Alejandro: Amazing. Sudheer, thank you so much for being on the DealMakers show today.
Sudheer Koneru: Yes, thank you. I’m glad to be here.
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