How Rajesh Jain built a $100m Profitable SaaS Company

Bullet points on why Rajesh Jain is the best person to talk about building a Profitable SaaS
This is part of our AMA series with top SaaS founders and operators. If you’d like to join live, apply to FounderLed here.

How does a SaaS founder make over $100m in profits in the last 12 years, yet very few people know of him? Netcore Cloud CEO Rajesh Jain, the marketing automation innovator, should be on the cover of every entrepreneurial magazine out there for his success building a profitable SaaS company.

He joined us for an exclusive “Ask Me Anything” session for FounderLed members last week to discuss his success, how he bootstrapped his first start up to a $115m sale, and how he’s growing Netcore to a $100m “Profitcorn.”

See below for a lightly edited recap of the top questions Rajesh answered.

I’m a first time solo and self-funded entrepreneur launching my SaaS business. The typical advice I’ve received says to go easy in the beginning, get a few customers, and then try to scale marketing from there. What are your thoughts on that?

I think that’s always good advice.

One good thing is that you’re building this out of your own personal experiences. When I did India World, it came out of my own experiences in the US in the mid-90s, when I wanted to return back to India and I couldn’t get content.

That’s what really differentiated me from many others who created similar websites after me. But because I had lived through those experiences, I think that’s why I was always ahead.

I knew the problems well. I knew exactly what Indians in the US wanted at that time.

I think that’s a very good way to build out.

How do you make the jump to being an entrepreneur?

I’ve failed about 30 times in my life.

Everyone looks at the two successes, India World and Netcore, but in between there are lots of failures. It’s always hard.

I tell people that entrepreneurs must believe they have a 70% chance of success. The reality is 99% plus percent ventures fail, but you absolutely need the optimism to get going. You need a business plan to get going.

What advice do you have for first time founders on building a profitable SaaS?

One thing which I did in the early days of India World, which I think would be very helpful for you also, is that I ensured that I would personally handle all of the feedback that came in.

As people start using your product, I think it will be very important for you to see what the feedback is, maybe even talk to early customers, see what pain points they have, because people have the best suggestions.

Whatever we make, once they start using it, I think it makes a huge difference in just talking to them, because they will use it in ways, probably which you have not intended.

Try and do that in the first maybe at least two, three months. Rather than delegating it to customer success or customer support, make sure you’re on top of the feedback.

The best would be having conversations with some of the early users. think you’ll get first-hand feedback, which cannot ever be documented.

They give you great inputs on what’s working, what’s not working, what you can do better.

You’ve defined your profitable SaaS as a “ProfitCorn.” What does that mean?

Private, bootstrapped, profitable and highly valuable.

Lots of companies can get started without raising capital. In fact, the reality is probably 99.99% of companies, and I’m not just saying tech companies, they all tend to stay small. 

So the key is how do you scale? How do you build it into something which is highly valuable? A highly valuable roughly say $100 million in valuation, maybe $10, $15 million in revenue.

I contrast it with unicorns.

If it’s a billion in valuation, founders end up owning about 10%, which is worth $100 million.

And if you can build a company to $100 million in valuation and you don’t have external capital, you’re pretty much doing as well financially as someone who’s built a unicorn without having lost a lot of equity to investors who control the destiny of the company.

So I think the choices that one has to make as a, if you’re bootstrapping, I think are very different advantages and disadvantages.

But to me, through the two companies, the best thing which I’ve found really was the freedom that I got.

I don’t have to worry about some investor breathing down my neck. A story I heard last week was that investors in a company in Southeast Asia forced the founders to do a pivot about six months ago.

And then later they realized the pivot was not working. They forced the founders to shut the company and return $70 million, which was there in the bank.

And until the pivot, which was forced on the company, they were doing about $30 million in revenue. But because the founders had very little equity in the company, we’ve seen that story happen multiple times.

So I think if one thinks about that if I’m going to essentially grow the company bootstrapped, then the focus comes right away on building a profitable SaaS.

Because that’s the only way you’re going to build the business. You’re going to take the profits, invest it back into the company.

 A year ago, this would not have made sense, but now I think everyone wants profits. And, according to me, that’s the only way to really build an enduring great company.

So that’s the sort of Profitcorn mentality. And I’m hoping, in a couple of years’ time, I can make Netcore into what I call a Profitpoly – the ultimate profitable SaaS company.

You can have a profits monopoly in a vertical. But that’s the best way to build a company which sort of has exponential forever profitable SaaS growth.

What is a Profitpoly?

A profitpoly is the next theme I want to build on. I’m using that with e-commerce brands in India. I gave a talk to one of the large MNCs there. The CEO read my book and got me to speak to his team last week.

And I said, what you have to be thinking is, how do you find the blue ocean in the red ocean because every space is hyper-competitive now? And how do you think about building a profits monopoly?

Otherwise, profits are ephemeral. In one day, a competitor comes in and they disappear and then you’re in trouble.

But one of the things that you can do to build a moat and the best moat is really the profits.

Given the hyper-competitive environment in SaaS, what do you think are the types of businesses that fit to be a bootstrapped Profitcorn and the balance between needing money to take on the competition?

I think software businesses, especially SaaS businesses, can be built with a very limited capital, especially the B2B SaaS space that we are also very familiar with.

I think if you are smart about it, there’s not much required capital. I think there’s a very good book that came out a few months ago by Uri Levine, the co-founder of Waze: Fall in Love with the Problem, Not the Solution.

What he talks about are very cost-effective ways you can actually test out your idea rather than building out the full product and then wondering whether it’s going to work or not.

So how do you get quick feedback? Because typically the money is spent initially in getting that product market fit.

If there are ways by which it can be brought down, I think that’s a good thing because then the founder’s time is not spent with investors trying to raise capital but with customers, trying to figure out what are the problems, how to make it work with them.

Of course, there are some businesses, where if there’s some sort of manufacturing or a B2C business involved, then it is entirely possible that there’ll be some initial capital required.

I think the problem, what has happened with hundreds of our B2C customers – what I find is that many of them are on a treadmill of just constantly raising capital. They give no attention to profitability metrics. The marketer basically thinks that profits are not their business.

One of the themes I’ll be writing about soon on my blog is that in the world of digital, what has happened is that the last mile – the profits problem – has largely happened because of the high cost of customer acquisition.

The folly has been about ignoring existing customers. The money primarily gets spent, if you leave the sort of G&A aside, it’s really on sales and marketing.

That’s the bulk below the gross margin line, that’s where all the money is getting spent. And that determines whether you can be a profitable SaaS or not.

And the problem is that in the quest for just showing top line growth because the investor wants it because they’re comparing you with some other company in their portfolio. They’re just spending money acquiring new customers, but then it’s a leaky bucket because the customers are not being taken care of. 

If we can think of how to build deeper relationships with existing customers, maximize their lifetime value, without chasing new customers, I think it’s possible to bring down the capital required for a company very, very significantly.

So I’d say two things:

One is, how do you test the product out quickly? So getting the product market fit. And there are lots of good ideas in Levine’s book.

And the second is, how do you ensure you take care of existing customers where they become the advocates. The metric in the B2C world, which Fred Reichheld talks about, is something called “Earned Growth” for the B2C community.

It’s the NRR equivalent for B2C companies. So exclude the pay-back positions, how much you’re getting from your existing customers plus referrals.

I mean, I think we also underuse, and I am guilty of doing the same thing – we don’t ask our existing customers, who do you know that can be new customers?

Referrals are basically zero-CAC. So, some of these ideas can really bring down the cost of starting a business and therefore you don’t require as much capital.

When you are building a moat, what are the capabilities at an early stage or growth stage that you focus on building that you believe will create a long-term competitive advantage for your company?

There are three things when I look back in Netcore, which I think helped us. One was the early focus on email, and that stayed with us.

As an email service provider, a lot of our competitors have been bought through the years. Email is still a very core business for us.

And for a long time, there was no innovation on email, and now Google has launched this technology called AMP for email. No one’s bothered about it worldwide, and we are seeing phenomenal uplift with customers in India and Southeast Asia that we are doing.

So the email strength, really then email created a very good cash flow because emails got fantastic gross margins. I mean, we operated at close to 85% gross margin, excluding data center costs, basically, not the sales cost, excluding the external cost.

And that’s created a very good cushion for us in terms of money.

Then we started building out the full stack MarTech. And the combination of these two helped us get into larger and larger companies over the years.

Created a cushion, which we have then used for four acquisitions in the last about five years to augment things that we were missing

Some of them were very large acquisitions. Especially a year ago we paid almost $100 million in pretty much all cash to add the search capability for onsite search for e-commerce companies.

I didn’t have to worry about investors. I didn’t have to worry as much about competitors breathing down my neck because there were not many email companies in the world.

And in the last few years, they’ve been bought by SMS and voice companies who have very little or no idea about what to do in email.

So there’s no innovation happening, which gives us a very good blue ocean in otherwise what’s a competitive space. 

I like to think, what is the first profit engine that you can create? That’s key to building a profitable SaaS company.

And that’s where this idea of a blue ocean and red ocean comes in. If you’re just competing with everyone, then it’s very hard.

You need a lot of capital, you need a lot of investors. My belief is that if we think enough, there will always be that small area, that one starting point for us.

You need that first profit engine. You get that going, and everything else starts falling into place, because you’ve got the cash cushion.

Now you don’t need to worry about investors. All your time can be focused on customers. After nine months, one year, you’re out fundraising again, half your time goes out talking to VCs and investors.

That then takes away the momentum of the business, because you’re focused externally with money people, rather than with the wrong money people.

Customers are also money people, but with the wrong sort of people. I hope that answers partly your question.

How did you identify that as the first profit engine at Netcore? What’s a signal of a good profit engine? Is it key to building a profitable SaaS?

I think there are two ways to do it. One, if you live through some experiences, if you view certain products and you find the problem – it’s very likely that others are going to have that problem too.

The second is just listening to customers.I’ve found the best ideas come when I’m having conversations with customers. Typically, what I do is this habit of writing on the blog has been very, very helpful for me because I now get people writing in to me.

I was writing for 12 years from 2000 until 2012, and then I restarted in 2020.

There’s discipline in writing every day. And then I find people coming in. The book came out because of these blog posts, because the publisher read some of the posts and said, hey, that’s great.

So you start getting inbound interest coming in, and then you can have conversations. Because I’m writing stuff, I’m also making decks, which I can talk to customers about.

And you put the story to them and then listen. The words that they use, the phrases that they use will not be exactly what I’ve written, but you need a conversation starter.

If I just go to someone and tell them, look, tell me your problems. It’s not always easy to get them or you won’t get the most relevant ones. But if I put forth my hypothesis, saying, look, these are the fictions that you are facing in your business according to me, are they right?

Then you get a much sharper and better response. And that and the words that they use help you identify where the gaps are.

What are the products that they are using? And it’s a great conversation starter when I go out and talk with some ideas of my own. I send them links to what I’ve already written.

So one of the themes which I’m talking about now, again, which is resonating quite a bit is the idea of inbox commerce.

That you can move the conversion funnel for at least B2C customers right inside the email inbox, and no one else is talking about that.

And that phrase came at a conference at a trade show in February and March. Actually at e-tail when I was there and I was talking at round tables.

And someone said, “oh, so what you’re talking about is doing commerce in the inbox.” I’ve never framed it like that.

I used to call it email shop or something. But then “Inbox Commerce” came out of that conversation, because a prospect basically came back with a better phrase, but if I had not used email shop, I would probably not have gotten another better phrase back.

You’ve built a few companies – one in 1999 and one more recently. What have been the differences in building those companies in different time frames?

There’s a nice Chinese quotation, it says, ‘You can never step in the same river twice, for it’s not the same river and you are not the same man.’

It’s always a different experience. The first time around, for me at least I was just trying to prove that I could succeed in life. I’d come back from the US. I thought I was God’s gift to this nation, to India, and then I failed for two and a half years.

All I wanted was one success in my life, and that turned out to be quite good.

I think the difference, and I started Netcore in 2000, but the last 10 years or so have been very good growth.

I think the big difference is that there are a lot more entrepreneurs, there are a lot more playbooks around, there’s a lot more people you can turn to for advice. There’s a lot more expertise really in building and scaling companies, which was not there, at least for me when I was in India in the late 90s.

Now you have accelerators, incubators, you have investors, there’s a lot of capital also available for companies. Also very important is is that now the digital spread in the world is now so large.

Every company, I mean, is digital. Of course, now you’ve got to be AI first, but the digital is there.

Yet what I find is that many times entrepreneurs miss out on some of the basics. I still find a lot of entrepreneurs coming at it for the money saying that, okay, I’m, here’s my business plan in three years.

I want to sell this for like $10 million or $15 million dollars or something. And I said, “it doesn’t work like this.”

You know, you are in business, you’ve got to think you’re going to be running this company for the rest of your life.

If an exit happens, it’s great, but you’re on the highway where there are no exits. Okay, you’ve got to have that mentality.

You’re coming into work every day to reduce the risk of failure. You’re not coming in to succeed because a company has a 99.99% chance of failure.

And many people still don’t get that. That entrepreneurs are not risk takers, but risk reducers. The odds are that you’re going to fail.

So we’re going to go in there and work hard to ensure that we don’t fail. That’s the first job before you think of success.

No one really teaches, I mean, even the courses on entrepreneurship and all are sort of, you know, very academic in that sense.

I really believe that irrespective of success or failure, I think a lot of people should just try to become an entrepreneur. Because it makes you a better person. It teaches you a lot of humility, it eliminates ego in your life. It helps you have better relationships with people.

Because, you know, every day is a near-death experience. You come into work and there are so many challenges, are fires to be fought. The buck stops with you. There is no one above you.

There’s a lot to learn from being an entrepreneur. But if we can keep the fact that the success part is sort of incidental. A lot of luck. Smarts is just not enough.

I’ll tell you a small story. Two months before I sold India World, I had a valuation of $13 million, and Bank of America, which was to invest in my company, said that, oh, we can only put in $4 million, so we can’t do the deal right now.

I’d signed the term sheet. The term sheet was on their table. And they said, no because they wanted me to go get another investor.

Two months later, I sold the business for $115 million.

Nine times that $13 million valuation. And when I think back on that element of luck, if Bank of America had put in the $4 million, the dot com crash happened right after that.

I have no idea what I would have done if I had gotten the capital. I would probably have a very different life.

There was a book by Bo Peabody, the co-founder of Tripod where he said, “a lot of people asked me this question, if you’re smart or you’re lucky. I said, “I was smart enough to benefit from luck at the right time.”

Some things don’t change. At the end of the day, take everyone’s advice, but no one knows the business better than the entrepreneur. Every business is different. You have to make the call. That’s the only way to really make it happen.

More places to find Rajesh:

This is part of our AMA series with top SaaS founders and operators. If you’d like to join live, apply to FounderLed here.

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