The hard choices Zenoti made to win in the US market

Zenoti, a SaaS unicorn in the beauty and wellness space, was called ManageMySpa eight years ago. Why manage only spas? Why not salons, fitness centers, et al?

The choice of name was deliberate. Founder and CEO Sudheer Koneru wanted employees to be narrow-focused at the outset, instead of chasing every opportunity in the industry. 

Then, as it expanded one vertical at a time in SaaS for beauty and wellness, the Hyderabad-and-Seattle-based company was renamed Zenoti. Today it is a category leader with over $100 million ARR. But the thesis has remained the same: pick a specific vertical and within that vertical, be sure who you want to sell to. 

“Choose your customers, don’t let them choose you,” Koneru tells his salespeople. Saying ‘no’ to sales leads is as important as following them up. Sales and marketing were directed towards large enterprise scale wellness chains.

The product team is similarly focused on solving complex problems for the chosen customers that other software-makers are not tackling. 

The road less traveled is hard to take, because it escalates upfront costs and slows down GTM (go to market) at the outset. But there are pay-offs. One is the competitive edge it gives. 

Secondly, when you have a differentiated product for a particular type of high-value customer, you get traction with other customers similar in design. So the product investments made for the first customers pay off for the next set who buy it.

“My biggest learning in the early days was to focus our company on the right set of customers. People from the outside looking in think salons and spas must be all the same. But as we worked through it, we realized that barber shops to high-end spas to luxury salons are very different businesses and their needs are very different,” says Koneru.

He was influenced by a book first published in 2014 in the early stages of Zenoti: Crossing the Chasm, by Geoffrey Moore. The marketing model described in that book, to stay focused on the early adopters before crossing the chasm to the mainstream market, has guided many companies over the years. Zenoti was one of the first to apply its principles.

#1 Choosing vertical SaaS

The choice of vertical SaaS for the wellness space was counterintuitive back in 2010 for a founder with a background as a director at Microsoft. That was as much by accident as design.

Koneru had founded Intelliprep for the learning industry after leaving Microsoft. It merged with Click2Learn which in turn merged with Docent to become SumTotal Systems, where Koneru was the VP of international sales. He quit after it crossed $100 million in annual revenue to go on a journey of inner discovery through yoga and meditation.

Koneru started going to retreats and became passionate about evangelizing the importance of personal well-being while pursuing a busy professional life. He invested in a spa chain and ended up running it. That’s how he became aware of the lack of suitable software to manage these wellness chains.

A product person at heart with a problem-solving mindset from his computer science student days at the Indian Institute of Technology, Madras, and the University of Texas at Austin, it wasn’t long before he moved from managing his brick-and-mortar business to launching ManageMySpa. He liked to drill deep into a problem and vertical SaaS suited him. 

#2 Hooking the big fish

The beauty and wellness space is replete with boutique-style establishments that are fashionable and sophisticated, but small. A tough call for Koneru was to resist the temptation to go after those opportunities to scale revenue fast and stay focused on enterprise-scale chains.

“We were very selective. Firstly, the customers had to be the larger enterprises. Then, when we went to the US, we wanted not just the larger enterprises but those who would make faster decisions,” says Koneru. “We found that founder-led businesses make fast decisions and there were enough cases where the original founder was still running the chain.”

The focus got even narrower in choosing the kind of business where the software would make a bigger impact. For example, membership spas have more requirements for efficiency in recurring payments, loyalty programs, sharing benefits with guests or family members, scheduling of appointments, filling liability waiver forms, and so on. The software can also streamline inventory management, marketing, and business operations.

#3 Leveraging India’s enterprise software edge

“I came from enterprise roots. So it was natural for me to build software designed for large enterprises,” says Koneru. 

Like many other well-qualified engineers from India, he had worked for a tech giant serving global enterprises in the early years of his career. So, when he looked at the problems to solve for a wellness chain, he knew the complexity involved in digitizing and connecting everything. And that would be the USP of Zenoti.

“Ten years ago, building beautiful, elegant software was hard to do from India. Now it’s changing, but back then there was less of a UX paradigm,” recalls Koneru. On the other hand, India had a legacy of IT services and lots of project managers who were used to listening to the broad requirements of large enterprise clients to build software. Thus Zenoti’s choice to do enterprise software for the beauty and wellness space played to India’s strengths.

It became the differentiator when Zenoti went to the US market and competed against bigger and better-funded companies. “There were a lot of companies in the US who did software for the wellness industry, but didn’t solve the enterprise problem, because it involved a lot of work to do everything digitally. So they would do a piece of the whole problem,” says Koneru. “Being from India, the costs were low enough that we could afford to solve the entire spectrum of problems for those enterprise customers.”

For example, a wellness brand could have a chain of franchise stores. A member should be able to go to any of the stores and access her profile and credits. And the franchisee claims a share of the brand’s revenue based on members served and other parameters.

“Both on the backend and consumer side, the experience had to be uniform. And the whole periodic cross-center settlement was automated. Even to this day, we are the only ones who solve that scale of enterprise problem,” says Koneru. Other players do the software store by store and the cross-linking has to be done separately, which is painful.

This applies to every aspect of the business. A marketing campaign can be done with a single click across all the stores, instead of pushing out the data individually to every store which has to then configure it. “One of the first reasons why brands bought Zenoti was because of our claim that we unify the brand across all outlets,” says Koneru.

#4 Cheap is not best

When Zenoti forayed into the US around 2015 with backing from Accel, it went head-on with some big players, including a Nasdaq-listed SaaS provider for the wellness industry with over 50,000 stores on its roster. And yet the Indian upstart had the gumption to charge its customers as much as three times what its main competitor was charging. 

The reason it could do that was its value proposition of aggregation which brought down the total cost of ownership for a large enterprise level customer. The rival software was very good for individual stores but lacked the enterprise class of bringing it all together. So, choosing to go after the big fish from the outset made Zenoti the leader in that segment and also the premium, most expensive solution. 

This is a far cry from the usual perception that if it’s from India, it must be cheaper. Of course, bucking that perception in the US market wasn’t easy in the early days, especially in an industry that was yet to adopt enterprise scale software. But then, when has Koneru ever chosen the easy path?

Part 2: Zenoti’s playbook for expansion

About the author

Sumit Chakraberty

Writer, Independent
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