Exclusive | I am not building Girish’s company, I’m building a global products company: Freshworks founder Girish Mathrubootham

Girish Mathurbootham, founder and executive chairman at Freshworks

A month ago, Nasdaq-listed SaaS firm Freshworks said that it will be announcing its Q1 results on May 2. However, the company had more than just the numbers to share with investors, shareholders, and employees.

There was an announcement. Its founder Girish Mathrubootham, who was the chief executive officer (CEO) would now be the executive chairman, handing over the CEO reins to President Dennis Woodside.

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As Mathrubootham was settling in his office in San Mateo, California, to speak to Moneycontrol, his phone was constantly buzzing. “My employees are sending me messages about the new developments,” he said, appearing somewhat emotional.

“The emotion has not set in yet, it will take some time. But I always believe that one should play the game, according to one’s strength,” Mathrubootham said.

Since founding the startup in 2010, Mathrubootham has been a key force for Freshworks to move from a small startup in Chennai, which he calls as a ‘garage startup’, into a Nasdaq-listed software firm in the US.

Apart from being a storied founder, he is also credited with building and mentoring the next generation of SaaS startups from Chennai, through initiatives such as SaasBoomi and his Together Fund.

Right after the announcement, Freshworks' share price fell sharply by 25 percent to trade at $13.75 apiece.

In a candid interview with Moneycontrol and the only one with Indian media, Mathrubootham said that he will focus more on AI strategy and the long-term vision of Freshworks. Mathrubootham will also be traveling more frequently to India, particularly Chennai.

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He added that, if time permits, he will focus more on his investment journey and take time to coach young entrepreneurs through SaaSBoomi.

Mathrubootham also shared some outlook for 2024 and on the company’s Q1 performance. Edited Excerpts:

What’s going on in your mind now, as the new executive chairman? How have your employees reacted to this?

With more and more employees reaching out, I can feel that the emotions are not fully settled in yet. It’s hard to describe the emotion. It has been 14 years since founding Freshworks as a tiny garage startup in Chennai to building it as a global SaaS company today.

There are many emotions and I’m happy. Even in 2015, I told my employees in an ‘all-hands’ meeting that "I am not building Girish’s company, I’m building a global products company". This means that we should be able to hire talent from anywhere, and they should be able to do the work.

My aspiration has always been to build a global products company. This is probably that moment, where we see that being applied to my role. I’m excited about this transition because I have always believed in optimising for people to play to their strength. I’m a product manager at heart, and with AI being transformative across the industry, I think this is the right time for Freshworks to undergo this transition.

A world-class operational leader like Dennis will be running the company and he will focus on the go-to-market strategy, while allowing me to focus on long-term product development and AI.

Was this decision planned or was it sudden? Why did this move happen now?

From the outside, it might seem sudden. But this has been in the works. When we hired Dennis, the plan was that he would eventually succeed me. This has been the conversation I had with the Board as well. We practised this for some time now, like 'two in a box running the company'.

In terms of how we split our work, over the last six quarters or so, we have been practising this. I was spending more time on products and travelling more to India, and Dennis was taking care of go-to-markets. There is no right time to do something like this. I think this was the plan. We had been working on it for some time and we reached a good point where the business is at a stage where market opportunities are also growing. It just felt comfortable to go ahead with this now.

You have been the face of the company as the CEO from the very beginning. Now, moving to an executive chairman's role looks like a downgrade. How do you see this?

One example I would like to quote is Deep Kalra from MakeMyTrip. He founded the company, he was the CEO, and after a while, he became the Executive Chairman and is still very active with MakeMyTrip, even today.

Where I would focus my time is within Freshworks. We are driving customer service automation by using AI, and I will be making sure that the customer service business is growing. I’m also personally spending time on our sales and marketing business where we want to improve the in-bound experience and focus on winning in the CRM market. I’m excited about all the things we can do around IT Asset Management and IT Operations Management. We recently acquired a company in this space. I would be advising Dennis and the Freshworks product team on what we can do with the acquisition, and, in general, in the ITSM (IT service management) space.

How do you think markets and investors will react to this decision?

I don’t think they will see it as something surprising . They have seen both of us on every call and markets react to how the company will perform in the longer term. If there are any emotions, it will come from our employees' side. I think for those who have been with us for several years, there are so many memories and that is where emotions will happen. I expect the market to react to our performance, which has been steady.

Have Freshworks’ employees welcomed this decision? What were the conversations between you and them?

I’m still getting messages from my employees. India has still not woken up (it's 2AM IST, May 2nd). It is just more about congratulating me and thanking me for this journey. Those are personal messages and I will treasure it.

Who will Dennis Woodside be reporting to?

He will report to the Board. I’m a member of the Board of Directors and Chairman of the Board. The chairman will be reporting to the Board as well. I will be taking care of the long-term vision and areas like AI and product development and Dennis will be taking care of the day-to-day operations and the go-to-market strategy.

Will there be any change in your compensation now?

There will be no change, this year at least. And just to be clear, the compensation is decided by the compensation committee and needs to be approved by the Board. All of this is public information and there is no change in compensation as I shift to this role. Every year, compensation is fixed for the year and that doesn’t change.

You have reduced your overall revenue forecast for 2024. What’s the reason ?

Q1 numbers came above our revenue guidance to $165.1 million. We surpassed our operating free cash flows (FCFs). We generated over $38 million in FCF. For the full year, we have guided that we will be generating $120 million of FCFs, which has been revised upwards. Our IT business is really strong and doing very well.

We brought down the guidance number by a few million dollars for the whole year for a few reasons. We expect currency fluctuation to impact around $2 million, which is also added. We also saw that there is still pressure in the SMB segment, where hiring has not picked up again. Due to this, our expansion revenue is under pressure. Usually, Q4 for the SMB business is a seasonally slow quarter. In Q1, we generally see a bounceback, but I think overall, in the market, there is macro pressure from SMB, and when guiding for the full year, we had to be more prudent.

The operating profit (non-Gaap) went up this quarter to $21 million. Were there any restructuring or efficiency exercise?

We were able to drive efficiencies. A tax benefit of $1.3 million helped a bit for operating profit. However, there were no layoffs or headcount reductions. The number of people impacted due to the reorganisation exercise were minimal. From the management team's standpoint, we have a fantastic new team. The management team is very well-settled and will focus more on execution this year.

When can we expect Freshworks to report a net profit?

First, we said we would deliver FCF, and we are demonstrating that. This is followed by non-GAAP operating profit, which is happening. This will be followed by GAAP-based profitability. You will see these things play out one after the other. The line of sight for profitability is very clear and we will get there as planned.

The net dollar retention rate is maintained around 108 percent. Is this a cause for concern for a large company like Freshworks?

Net dollar retention has to do with expansion revenue and churn and it has to go hand-in-hand. However, expansion revenues are currently under pressure due to macroeconomic slowdown. What we have done is that we have leveraged AI. Freddy Copilot has received good traction among customers, both SMBs and enterprise customers. We focus on what is controllable from our end and that is exactly what we are doing presently.

Have you monetised your AI offerings?

We have had our co-pilot in the market since Q1 last year and the adoption has been great. We are not revealing how much it has contributed to revenues, but it is happening. Enough customers are adopting Freddy AI today.

From an investor point of view, is it true that many VCs are writing off non-AI SaaS companies. Is there any future for non-AI SaaS in the world?

From a Freshworks standpoint, we are an AI company now. We own the workflows and customer data. We are coming up with newer products in this area. If you think about the markets we operate in, like, IT, Customer Service or CRM, people still need the workflow tools to work at customer data and that is not going away. However, AI is something we are adding on top of our current set of products. It is not AI or a workflow tool, but it has to go hand-in-hand.

The strategy remains the same, the markets that we operate on is the same, we want to make sure that we AI-enable our products. Priorities are very clear as to how we drive the automation happening in the customer service and how do we continue to have the momentum in Freshservice. We are a most credible alternative to ServiceNow.

Are you moving to India and what are some things that you want to focus your time and energy on, moving forward?

My family is in Seattle, so I’m not moving to India. But I will be spending more time in India and Chennai. Even as CEO of Freshworks, I had been spending time on Together Fund, SaaSBoomi, and even my football club. That will continue to happen. If I get some more free time, I will be able to spend more time in these other initiatives.