Spas and SaaS: How Zenoti Launched in the Global Wellness Market, Building Incrementally on Early Lessons
Many startups begin by trying to find a problem to solve. However, our learnings from Zenoti show that big problems worth solving are often the ones experienced first hand. From inception to finding product-market fit in new markets, Sudheer and his team provide practical insights into customer research, pricing & GTM strategies.
Sudheer Koneru’s 40th birthday party was meant to be more than just that. His expansive career in technology had spanned a Directorship at Microsoft, a CEO role at Intelliprep/Click2Learn and finally, C-level leadership at HR solutions firm SumTotal which he grew to a $100-million business. He was ready for a break from entrepreneurship, he announced to family and friends. It was settled. Or, so he thought.
Today, you’d find Sudheer busy building Zenoti — an end-to-end SaaS solution for managing enterprise wellness chains.
Abhinav Chaturvedi from Accel first discovered ManageMySpa, an early version of Zenoti, in a salon in late 2014. Impressed by the seamless checkout experience and its product capabilities, he got in touch with Sudheer and soon after, convinced Shekhar Kirani to fly to Hyderabad to meet the team. At this time, vertical SaaS products like spa management software were still basic and companies were vying to improve the sales engine and distribution, instead of focusing on product experience. Globally, the shift of power from the distributor to the customer was already underway, and the people behind Zenoti understood the potential of focusing on the product.
By 2016, Zenoti raised $21M in investment, with Accel leading their Series A and participating in the Series B round. Today, Zenoti has over 5000 paying customers distributed over 50+ countries worldwide, with a majority of its customer base located outside India.
Recently, we spoke to Sudheer to understand the trajectory of an idea that has changed the way wellness enterprise chains operate across the world. He shares his experiences in building a product in India and taking it to its primary market, in this case the US.
Finding the Right Problem to Solve
After his announcement to retire, Sudheer and his brother Dheeraj found themselves doing something completely unrelated to technology: running a chain of spas and salons in Hyderabad. And it wasn’t proving to be an easy job.
At a time when the wellness industry was saddled with legacy desktop-based software from the 90s to run operations, Sudheer and Dheeraj were going through the same problems every multi-outlet salon and spa was facing. They had co-founded the Latitudes Health Club and Tangerine Spas, but little in their careers so far had prepared them for the chaos of running several outlets from one location with no centralised software.
They found it frustrating and difficult. There was no way to compare the performance of employees and the salons across locations or keep track of billings in a single report. Customer experience was unsatisfactory too. For instance, if you were a regular at one salon outlet, but stepped into another of the same brand — you’d find that the service was different, you had to provide your personal information again and you wouldn’t even be able to redeem a coupon you received at your regular salon.
‘In the Spa Salon industry, more often that not, businesses were forced to switch between several software systems and interfaces cobbled together. It was clunky, expensive and error-prone as all the data was duplicated and siloed.’
But it got Sudheer thinking about a solution that could enable wellness chains to maintain consistent records, manage all their outlets and activities from one place and provide a consistent customer experience. With his background in technology and product building, he could envision a cloud-based solution that would solve all their problems and his own.
It sparked a simple ‘what if’ question that led to Zenoti’s inception:
‘What if we build it for ourselves?’
In 2010, Sudheer and Dheeraj co-founded the all-in-one enterprise cloud software for multi-outlet wellness businesses that could handle both back office and front office operations. Everything from managing payroll, reporting, inventory and marketing to appointment management and billing
From enterprise technology to spas to SaaS, the trajectory of their idea wasn’t a straight line but an organic evolution of their combined experiences. And whatever else they were unsure about when they began, with their understanding and deep knowledge of the customer’s business, they knew that they were solving a real problem.
Early Days — Building Product For India Market
Contrary to popular imagination, a ‘Eureka!’ moment is not how all effective ideas begin. With Zenoti, Sudheer spent years running the spa and understanding the challenges involved from an insider perspective before attempting to build a solution. He quips with a smile that he’s been the front-desk receptionist at the spa and shadowed personal trainers at the gym, as needed.
‘I had the luxury of not having to build a business overnight. Zenoti’s beginnings were slow, incremental and structured.’
Zenoti was created after a lot of careful thought and its first few years were spent almost entirely on product development. But while the early team started by building a product for India and actively explored the markets in South East Asia and the Middle East, they were laying the groundwork to enter the US market.
The thought grew over the years as Accel, amongst others, pointed to its potential. There was strong support from Shekhar to go for big outcomes, and it was clear that the US market had to be a central focus for that to happen. Early exploration by the founders had also shown a high possibility of finding product market fit there. Large, full-service wellness chains in America were facing the same fundamental problems as their counterparts in Asia because of clunky desktop-based operations and PoS software. These chains were expanding globally as well, and suffered when desktop systems limited their ability to do so.
But Sudheer knew that taking a product to a mature market wouldn’t be as easy as it seemed on the surface. A host of factors would drastically change, like time differences, customer expectations, company workflows, internal mindset and credibility. In typical fashion, they paused without rushing headlong into an attractive market. Instead, they took 3 years to build a strong base and find product-market fit first in India and then in Asia.
‘We were very passionate about building a product in India, refining it and making it successful — we had a meaningful focus. It was important we built a robust product there first, before taking it to new markets.’
Their steady and incremental approach to product building paid off once more: they entered the US market with a well-defined Minimum Viable Product (MVP) around 2015.
Baby Steps — Launching in US Market
While the Middle East and South East Asian markets were similar to India in many ways, Zenoti encountered a stark difference while entering the US market.
They learnt that there was no silver bullet when launching a new market and one has to go through the grind. What worked before may not work again.
Although the founders had extensively researched how spas, salons and fitness centers in the US were run from India, they had only factored in full-service businesses. After launching Zenoti, they were surprised at how operations differed in niche verticals like barbershops and waxing salons. In the 5 years since Zenoti’s inception in India, the US market had expanded to single-service salons that only offered blow drys, lashes, massages and so on.
Zenoti may have had little idea about this new customer base when they came in, but quickly began learning by:
#1 Doing ground research
They researched business demographic data about the size, health, revenue, current software usage, etc of wellness chains in the US.
#2 Picking up the phone
Once they knew that this data wasn’t enough to form a full picture of these businesses, they made phone calls from India to chains in the US as a customer to gather information about walk-in policies, wait lists, outlet-specific services, etc.
#3 Making location visits
After the launch, sales personnel undertook location visits to find out if Zenoti understood pain points in the same way that they were experienced by its customers. For example, how a screen is presented to get a tip (10%, 15% or 20%) is important in the US, but the feature wasn’t required in India or South East Asia because of how businesses worked.
#4 Learning from the inside
Once a customer chose Zenoti, they were able to learn far more about them based on their requests and requirements. According to Sudheer, in the early stages, initial discovery of customer pain points was half the scope as it took a big chunk of time and heavily informed product changes for the new market.
There were other behavioural nuances as well. They found that within the US market, businesses headed by their original founders were much more open to trying Zenoti than those that weren’t. The former was willing to work with new products that could help them grow. But the latter often operated with a risk reduction mindset and didn’t prefer taking on a product with no brand awareness yet.
In terms of support, businesses in India wanted the solution provider to handle the whole gamut of integration and maintenance, whereas businesses in the US wanted to be enabled to do it on their own.
The Zenoti team was also cautious about the cost of expansion and their approach, using local businesses to understand the customer better instead of employing a spray-and-pray strategy.
‘We first went after businesses that were right next door in both India (Hyderabad) and the US (Seattle), rather than arbitrarily going after say, New York, because it’s there.’
Sudheer believes it’s important for startups to ask these questions when they’re looking for early adopters in a new market,
‘Do I have the profile of the person sitting in front of me? Are they the decision maker? Do they fit into the bucket of buyers who will be open to listen and collaborate, if they see that the product is well thought-out?’
Eventually, as Zenoti grew in the US market, their personas became far more well-defined. Even to the point where employees didn’t always need to do a lot of ground research — they knew from experience that if it was a company of a certain size, from a specific location, using a particular software, they could zero in on the exact problems they were facing.
Early Customers And Getting to Product-Market Fit In US
There’s no way around it. When there’s low brand recognition in a new market, considerable effort needs to go into acquiring the first few customers and co-building the product.
In the first 3 months since the launch, Zenoti hired local sales professionals to sell the product and realized it was a mistake. The first few customers needed direct selling from the founders. But for the next 6–9 months, Sudheer and Saritha moved to the US to be closer to the business and focus on sales. Dheeraj stayed in Indonesia and Australia to build those markets, and moved to the US two years later as traction in the US market increased.
What tended to work best were personal, curated emails sent to the founders of wellness chains. No more than a few succinct sentences, these well-researched emails summarized the customer’s pressing problem and captured attention.
They also tried creative approaches to getting large brands to pay attention, like sending iPads pre-loaded with personalised videos. As soon as the prospective client turned it on, the video would auto play with a short, but compelling message — another tactic that received positive responses and successfully earned them their valuable first customers.
Their first marquee customers also helped them shape the product.
This co-creation played a big part in enabling Zenoti to quickly build out key geography-specific features and move closer to product-market fit.
And as they got better at research and understanding the buyer personas and decision makers within enterprise wellness chains, they further understood the proportions of a channel mix that worked for Zenoti. Sudheer says,
‘Today, 20% of our customers come in through referrals, 30–40% are organic and inbound, and the rest come in through direct sales and account-based marketing.’
Eventually, they started directing marketing resources towards building awareness through trade shows and are now exploring new avenues like channel partnerships. But in 2015, it was all elbow grease and late nights. This enabled them to conserve marketing resources until they reached the right threshold of customers and then ramp up efforts.
Product Pricing Evolution in the US
Zenoti started with traditional SaaS pricing tiers and experimented with competitor-based pricing, but neither aligned with the value the product actually provided. Zenoti’s marketing head and co-founder, Saritha Katikaneni, says:
‘It took us time to internalize just how much our platform offered, and that no other player really fit the enterprise space. We offered so much more value than any other player, it didn’t make sense to compete on price.’
They also started seeing that multi-outlet chains valued an end-to-end solution that didn’t just function as a PoS software, but also took care of all the other aspects of managing a spa. Single-outlet spas or salons, on the other hand, had little need for features like loyalty program support and Zenoti’s wide range of offerings overwhelmed them.
But it would be a full year from the time they entered the US market before they shifted the customer focus entirely to the enterprise segment. They re-branded themselves with a new tagline ‘Beyond the Basics’ to drive the message of how Zenoti differed from other solutions.
Zenoti removed the tiered plans from their website and aligned pricing with their target customers by moving to a single enterprise plan.
Today, their pricing is entirely value-based. And because the platform delivers on value, Zenoti says it consistently sees low churn rates and good Customer Lifetime Value (CLV) — indications of a healthy product-market fit.
But their pricing journey didn’t begin there. It was a step-by-step cycle of implementing different tactics, asking critical questions, learning to see pricing in the context of the whole and often, failing. “It’s quite a departure from where we started and what are peers do. Initially we weren’t sure but then we realized this is the best pricing strategy for our product” quips Sudheer.
Summing It Up
Sudheer firmly believes that the reasons for Zenoti’s early success in US was their strong grasp of customer context and slow, incremental and well-thought out approach of building a product that customer really wants.
Over period of time, Zenoti is now a sophisticated solution with multiple revenue streams, productized migrations, integrations and self-onboarding, with global headquarters in Seattle. Baking many crucial requirements like effective customer onboarding and training into the product, Sudheer is in the process of establishing more efficient processes and stronger relationships with customers in their primary market.
The path of global scaling now lies before them, and Zenoti is building on their early learnings to drive revenue during the next phase of their growth.
Getting to product-market fit is an iterative process and there may not be one solution to get you there. But there is a wealth of knowledge in real experiences by founders who have attempted it and succeeded. We explore these stories and insights through the #LearnAtAccel series.