Zenoti’s Sudheer Koneru on redefining the beauty industry with SaaS

Zenoti and Tiger Global share something in common. Both the startup and the investment firm had been keeping a low profile since 2016 before making a splash this year. On Wednesday, New York-based Tiger Global continued its recent resurgence by leading a $50 million Series C investment in Zenoti, which offers software solutions to the beauty & wellness industry. 

Zenoti, which is headquartered in Seattle and has a large presence in India, is also backed by the likes of Norwest Venture Partners and Accel India.

Co-founder and chief executive Sudheer Koneru spotted the market opportunity by chance nine years ago after investing in a salon chain. After gaining a better understanding, he started Zenoti with his brother Dheeraj. 

Operating on the software-as-a-service (SaaS) model, Zenoti now offers a full stack of services catering to the beauty & wellness industry that includes booking appointments, billing & payments, customer relationship management, staff management, inventory control and analytics.

In an interview with TechCircle, Sudheer Koneru spoke about how Tiger Global joined Zenoti’s investor pool, why India is not a lucrative market for its solutions, and the game plan for the future.

Edited excerpts:

How did Tiger Global come on board and how do you plan to leverage its expertise?
They reached out to us directly. Tiger Global comes across as a very committed investor that is willing to make big bets around industry themes. I believe they enter a segment when they believe it needs to be redefined. They have built a lot of expertise in understanding how certain business models work.

We gather that Tiger Global partner and managing director Scott Schliefer led the talks directly.
Scott is a very passionate and hands-on investor and it is true that he was instrumental in this deal. 

How do you plan to use the fresh capital?
Our product has reached a level of maturity where we work with the larger businesses in the beauty & wellness industry. We are in a fairly strong position in multiple territories now. That is clear proof that our product has been scaling well.

We will now invest more in sales & marketing in the US. We will also expand our UK operations further with more hires. Besides, we will also be looking to invest quite a bit in R&D and double down on the engineering team. We are also going to build a lot of predictive analytics and marketing automation based on artificial intelligence and machine learning for our product.

What is the size of your client base and what is Zenoti’s roadmap for the future?
We have on-boarded around 1,000 brands representing more than 7,000 outlets.  As for the roadmap, we are currently recording 100% year-on-year (YoY) growth. Our goal is to reach revenues of around $120-150 million in three years. However, there is a lot to be done on the execution front in order to achieve that.

Can you give us an idea of your operations in India?
While we have been a US-headquartered company since day one, our engineering and R&D functions have always been based out of India. Around 250 of our 350-odd employees work out of Hyderabad. We also tested out our product and signed up the first set of customers in India before we went to the US. The US centre has about 40 employees while the rest are in the UK, Australia and New Zealand.

The Indian operations account for around 15-20% of our revenues. With the latest funding, we will also double down on the engineering team, hire more sales & marketing personnel and enhance our focus on the Indian operations That said, the universe available for our expansion in terms of consumer base is relatively lower here.

In what way has Zenoti has changed the market?
We brought in a comprehensive cloud-based solution for the segment. Before us, brands pretty much used desktop-based solutions (most of them still do) and they were using multiple software platforms for different functions.

Our product takes care of every process and functions more like an end-to-end ERP (enterprise resource planning) and CRM (customer resource management) platform for salons and spas.

In the US, though the available market opportunity is much larger, a lot of brands still use the old solutions. In India, the brands took to our solution much faster leaving behind even the US in terms of adoption.  

Any plans to test new waters in terms of markets and products?
Our primary focus is to deepen and consolidate our operations in the existing markets. Having said that, our potential new markets could be the English-speaking regions in Europe.

In terms of trying out other interesting industry verticals, we have slotted that for next year and we find segments like car spas and pets spa very interesting. 

What is the market opportunity?
As per our estimates, providing software solutions and services to the beauty & wellness segment is a $10-billion market opportunity globally. A large chunk of that -- around 30-40% -- is in the US while India could account for about 5-6% at the most. This is simply because the per-store earnings are much higher in the US.

Also, in terms of the monthly revenue comparison, what is considered a very good monthly turnover in India for a salon/spa is a rock-bottom figure of what a salon in the US makes. Hence, the willingness to pay for a software that addresses their complexities and needs is much higher.

Has Zenoti priced its products in such a way that only the larger brands can afford to sign up?
The product is mostly meant for players of a certain size and scale who have at least more than 5-10 outlets. However, most of our clients have more than 20 stores and some of them have around 100-200 outlets.

A lot of the value proposition that our product offers can be better acknowledged and realised only by the bigger brands. For example, a single-outlet brand will at most require only a software for billing and there are a lot of players out there catering to their needs.