Freshworks can go well beyond a billion dollars: Dennis Woodside

Dennis Woodside, president of Freshworks. Image: Tony Avelar/Bloomberg via Getty Images

Dennis Woodside, who will soon complete a year as president at Freshworks, sees ample opportunity for the company to step up its growth by tapping AI and winning larger customers. He recently spoke to Forbes India about the strategies and initiatives they have been implementing and sustaining profitability. Edited excerpts.

Q. Tell us about what you see as the opportunity for Freshworks’s next stage of growth?
We operate in three major markets, developing software for customer support teams, IT teams, and other departments like HR, Finance, and Legal, as well as software for sales and marketing teams.

Our journey began with FreshDesk, our first product, which focused on providing a world-class customer interaction platform that was fast, user-friendly, and cost-effective for businesses of all sizes. Initially, we catered primarily to small businesses, but as we've grown, our products have evolved to handle larger customers, including those with millions of their own customers.

For example, Purplle, a well-known company in India, has around 7 million customers who frequently require support and have their questions addressed. We offer technology like automated bots to answer questions or direct users to FAQs.

Expanding our product suite, we now address the IT needs of large customers such as Viessman in Europe and S&P Global, the latter being a major player in the financial services industry. We’re steadily entering larger accounts as our product matures and becomes more versatile.

These markets represent multibillion-dollar opportunities, so our potential for growth is significant. However, our challenge lies in increasing our brand recognition within the IT and customer support communities and becoming the preferred vendor.

Q. Can you give us a sense of some of the specific strategies and initiatives you've been implementing since you came on board?
One of our company's core strengths is our ability to generate demand through inbound marketing. However, in recent years, we have also established a more traditional field sales team. This team operates globally, primarily in the US, Europe, and some parts of Asia, and focuses on selling to larger customers.

Selling to companies with several thousand employees involves a more complex process compared to smaller companies. While some of our larger customers do go through the trial evaluation process, many also require legal and security reviews. To navigate these complexities, experienced sales professionals are crucial in assisting customers through the entire sales process.

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During the Covid-19 pandemic, we built our field sales team, but the distinction between the roles of the field team and the inbound team became blurred. Field representatives were receiving leads that could have been converted through our well-established inbound engine.

To address this, we made a couple of changes. First, we redefined the line between the field and inbound teams, allowing the inbound team to handle customers with up to 500 employees. Second, we separated the responsibilities within the field team, distinguishing between acquiring new business and growing existing accounts. Each requires distinct skills, and we aim to excel in both areas.

To support our growth ambitions, we brought in experienced leaders from companies like Salesforce and Zendesk. These leaders joined us in various regions, such as North America, France, Benelux, and Apnea, to mentor and coach our teams, ensuring their
success in securing larger deals and expanding our global footprint.

Q. We're getting the sense that you want to focus on the larger enterprise customers.
Our core customer base primarily consists of companies with up to 5,000 employees, while our software can scale to serve very large companies like Mahindra Group with 250,000 employees.

Many successful businesses have followed a similar trajectory from small to large, recognising the importance of designing a product that offers fast time-to-value and ease of use. Companies like AWS and Atlassian started by targeting smaller businesses or specific teams within larger organisations, gradually expanding their reach.

Also read: Girish Mathrubootham on how to stay hungry amid a carnage

So we talk publicly about two thresholds. One is $5,000 in ARR, which is annual recurring revenue. And then the second is $50,000 in annual recurring revenue. Our growth is increasingly being driven by the larger accounts.

Those spending more than $50,000 are growing faster than those spending more than $5000. And that's important because it shows that our product is delivering real value for businesses both small and large. Part of our stated strategy is to continue to serve larger and larger customers.

Q. After reporting a non-GAAP profit for Q1 this year, can you sustain that momentum?
We are confident of sustaining our performance and have provided guidance for profitability on a non-GAAP basis and positive cash flow for the full year.

Our business operates with high gross margins, and as long as we manage our costs effectively, we can achieve strong bottom-line results. Despite some challenges in the customer support sector due to companies reducing their agent count, we achieved 23 percent growth on a constant currency basis last quarter. On the other hand, our IT business is performing exceptionally well and driving robust growth.

We believe that both growth and profitability can be sustained. Our focus has shifted towards improving efficiency while continuing to drive growth. We are now more strategic in our spending, ensuring that we can see a return on investment. Additionally, we have a healthy balance sheet with $1.2 billion in cash reserves.

Q. We often ask you about the billion-dollar target. Do you think Freshworks can go even bigger?
Definitely, there's no doubt that we are positioned to become a billion-dollar company. We have provided guidance for reaching $580 million in revenue for the full year, and the markets we operate in are quite substantial.

Our competitors, such as Zendesk and Salesforce's Service Cloud, have achieved this and become bigger, on the customer support side. On the IT side, BMC and Cherwell are such businesses. If you look at HubSpot, which primarily focuses on sales and marketing for small businesses, they have grown into a $2.5 billion revenue company within a few years.

Also read: Freshworks is spawning new-age entrepreneurs

The markets we serve are large and still fragmented, with many companies emerging and gaining momentum.

Our strong customer base, consisting of 65,000 proud customers who advocate for us, creates a positive reputation and referral cycle. We recently organised a customer event where they shared their experiences and were open to advocating on our behalf. This kind of momentum, particularly in the software business, can lead to significant growth over time.

Furthermore, our profitability and positive cash flow allow us to invest in R&D, driving innovation and growth. To achieve our goal of becoming a larger company, continuous innovation is paramount. Our focus is on bringing AI to the masses, empowering the Fortune 5 million rather than just the Fortune 500.

This step-change in technology can potentially propel us to multiple billions of dollars in revenue. We have a launch event coming up where we'll unveil our product portfolio changes, heavily emphasizing AI. Our customers desire scalable interactions with their own customers, as well as efficient communication with their IT departments, and our software enables precisely that.

Q. You’re planning on releasing new AI software soon. Give us a sense of your approach to AI.
In terms of AI, we approach it from three perspectives: Leveraging open data from the web (like how ChatGPT was trained), utilising our own customer-specific data, and incorporating data specific to individual customers. We believe all three are necessary for training models effectively.

While publicly available software can serve the broader generative aspects, we've developed our own technology to search and learn from both company-wide and customer-specific information.

Also read: Superstar, Villain and Freshworks: How Girish Mathrubootham is fighting the brutal tech meltdown

From a functional standpoint, AI enhances the effectiveness of our agents in several ways. We can provide suggestions for complex questions, help summarise interactions with customers, and empower agents to better serve clients.

However, we recognise that AI isn't currently suitable for direct customer-facing roles due to the need for moderation. Instead, we focus on enabling agents to deliver exceptional customer experiences.

Additionally, AI can streamline manual processes, such as code development and software integration, saving time and effort for users in those areas. Lastly, we aim to provide insights to leaders and managers, offering them valuable information to optimise their business operations.

To delve deeper into our vision and the role of AI, our upcoming event on June 22nd, led by Girish [Mathrubootham, founder, Freshworks], will be an excellent opportunity. If you're interested in learning more about us and hearing directly from Girish on this subject, I highly recommend attending.