‘We’re not surprised by market reaction, just disappointed’
After the management rejig that spooked the market, Freshworks lays out the map that will help it navigate the SaaS market riding AI
On May 1, Freshworks Inc, the $597-million Chennai/US-based IT company made a surprise management rejig as founder and CEO Girish Mathrubootham became Executive Chairman and current president Dennis Woodside was appointed the CEO. This shocked the SaaS world and the company’s stock price tanked by nearly 25 per cent on Nasdaq. In their first joint interview to Indian media, the duo tells businessline that it was a planned move to help Freshworks emerge a winner in the AI race:
What was your first message to your employees after you decided to pass on the baton to Dennis?
Girish: The first message was that I am not going anywhere. Many did not understand the dierence between Executive Chairman and non-Executive Chairman.
If I wanted to go away from Freshworks, I would have become non-Executive Chairman and this option was available.
I am executive chairman, get paid and will get stock options. The transition is for me to focus on working on products, which is where I can add most value for Freshworks.
Many are still curious about your next move...
Girish. It was the most important question in the employees’ mind. Everybody was getting emotional that G is going to go and do his next venture.
I told people that there is no farewell party for me. You will not miss me and I will spend more time in Chennai and with the product teams.
But, why this transition?
Girish: I started as a software trainer, became a product manager and then a product CEO. Everytime, I changed my game, I was learning new stu.
When I started Freshworks, building products was not hard because I had already built several products at the previous company.
However, being a CEO was new. As a start-up CEO, I had done reasonably well; hired a team; got VC funding; and scaled the company to over $100 million in revenue. The next game was could I be a public company CEO? The last two-and-a-half years was a phenomenal journey. Now, the question is should I continue spending time there or where I enjoy spending time. The answer was clear that I wanted to build products. That’s why I had a conversation with the board saying when the timing is right, I would like to move into building products and find a successor.
Why now though?
Girish: There is no perfect time to do this. We are at a time when artificial intelligence is transforming every industry. In enterprise software, we are going to see a lot of transformation. We have led the change in customer service automation right from the day we introduced Freddy in 2018. Today, customer service automation is one of the first use cases for AI, which is like a monster wave. Companies that ride the waves will emerge stronger.
There is an emotional bonding between you and your employees. Will the transition lead to attrition?
Girish: I am continuing as Executive Chairman and continue to be with the employees. I am going to be with Dennis as his advisor and his co-pilot. I will take it as a compliment that I have been a good manager and people have that emotional connection with me.
However, there is no reason for an employee to quit Freshworks because G is not there. It is not about who is the CEO, but about the environment, the culture, colleagues and how much are they learning, valued and respected and how their managers are keeping their employees inspired.
But, what’s spooking the markets?
Dennis: Based on our calls with analysts and investors post earnings where the questions are mainly around generative AI, we believe that the reason for the stock to fall was about how GenAI will aect customer support and software business. Every small business is being impacted by interest rates and we took our guidance down marginally, just by around $5 million after adjustments. So, I don’t think we were surprised but only disappointed. We will demonstrate that we will be the beneficiaries of AI.
Are you monetising AI?
Dennis: We have two ways of monetising AI today. In case of co-pilot, we charge $29 per seat for access to the AI features. Customers see 30 per cent productivity when they deploy that.
We have just started monetising it in the middle of Q1 and we have seen good adoption. In the case of Freddy Self Serve, we automate responses to common customer questions for companies to handle customer tickets.
There, we charge on a per session basis. We are a little bit early in the monetisation journey but we have made sure customers are able to see the return on their investment.
We are not beholden to short-term swings and focus on the long-term, and can invest in opportunities that can take years to play out
GIRISH MATHRUBOOTHAM,
Executive Chairman, Freshworks
Today, customer service automation is one of the first use cases for AI, which is like a monster wave. Companies that ride the waves will emerge stronger
DENNIS WOODSIDE,
CEO, Freshworks
Is your goal of $1-billion revenue by 2026 still on track?
Dennis: Absolutely, no doubt. Look at our momentum and our growth. We generated $38 million in cash just the last quarter and have forecasted to generate over $100 million in cash in the year.
This means that we are not beholden to short-term swings and focus on the long-term and can invest in opportunities that can take years to play out. We have good economics, serve huge markets and an incredibly talented team.