The 1M/1M Incubation Radar: Freshdesk, Chennai, India

A part of 1M/1M initiative of Sramana Mitra

A finalist in the Microsoft BizPark India Startup Challenge, Freshdesk is a SaaS company that provides small and medium businesses with on-demand customer support software that offers multi-channel social support. Freshdesk introduces itself as a kind of Salesforce.com for customer support so to speak. Small- and medium-business owners can set up online customer support platforms that combine the backend help desk system used by agents (ticketing, knowledge management) with an online customer portal (self service, forums, idea management, voting, etc) on the front end.

Freshdesk was founded in 2010 by CEO, Girish Mathrubootham and CTO, Shan Krishnasamy. Before starting Freshdesk, Mathrubootham worked as a vice-president of product management and Krishnasamy as a technical architect for the Manage Engine division of Zoho Corporation. Mathrubootham successfully built products such as the Manage Engine Service Desk Plus, an ITIL service desk software used for internal IT support. It generated millions of dollars in revenues in 2010. Mathrubootham, with help from Krishnasamy, also built Op Manager, a network monitoring software that also generated several million dollars in revenues in 2010. Krishnasamy wrote the 1.0 version of the Manage Engine Netflow Analyzer, which is now a multi-million dollar product.

A post in Y Combinator’s Hacker News gave Mathrubootham the idea for Freshdesk. The post in question talked about how a major player in the space had raised its prices. That’s when the Freshdesk CEO decided to take advantage of the opportunity to provide small businesses with credible customer support software. Mathrubootham funded the company with money from his own savings. In addition, the founders raised $25,000 each from two friends as a convertible note with another $25,000 commitment on the way in July 2011. They hope to raise an additional $500,000 from investors in Series A. The company operates on an absolute shoestring, a philosophy that we admire in 1M/1M.

Mathrubootham and Krishnasamy manage a team of six, including themselves. The other members of their team are the senior rails developers, Shihab Mohammed and Kiran Darisi; UI/UX developer, Parsuram Vijayshankar; and pre-sales and tech support consultant, Vijay Shankar. The team has extensive experience from having worked together at Zoho, a company we’ve reviewed and lauded consistently.

Freshdesk competes in a mature market replete with traditional vendors; however, the advent of cloud computing has created a wealth of opportunity. According to Mathrubootham, the majority of today’s customer support software buyers opt for cloud based support solutions.

The main value proposition of Freshdesk is the ability to support a customer from anywhere, at anytime, regardless of the channel via which the customer is reaching out for support. One is not tied down to their customer service desk. One could be sitting at an airport or a Starbucks and supporting customers. “Support from anywhere” is their main differentiation.

Also, Freshdesk provides a platform that engages multiple channels. For example, a customer support request could come via an online community, Twitter or Facebook. These requests can be picked up and added to a single support and ticketing system that helps the company keep track of all support requests, provides a comprehensive history and logs events related to the customer received via multiple channels.

As a result of the social web trend, more and more customers prefer using social media as opposed to traditional channels like phone and email.

Freshdesk is primarily focused on the small and medium size businesses. Customer support is an important function of these businesses and at the same time they do not have the financial resources or technical expertise to set up an elaborate customer service desk, integrating multiple channels.

Freshdesk gives small and medium business a means to set up their account in no time. With a few clicks and 5-10 minutes of set up, a small business is up and running and open to accept customer support requests and enter and track in a ticketing system.

Small businesses traditionally maintain their customer service records in excel spreadsheet and email chains. Freshdesk not only gives them a sophisticated way to keep track and but also helps them serve their customers better.

Freshdesk has plans to integrate VOIP services in their platform at a later stage for customers to provided branded phone support integrated with the ticketing system that the company currently provides.

What sets Freshdesk apart from its primary competitors, ZenDesk and Assistly is that Freshdesk has built a well-rounded solution with multiple incoming and outgoing support emails, multiple support portals, a different support group for each brand, support for separate forums, solutions for each brand, and a separate knowledge base and community platform. Zendesk lacks a separate knowledge base, and Assistly lacks a community platform. In addition, Freshdesk has translated both the customer facing (frontend) and agent facing (backend) sides of the product into several international languages, while ZenDesk and Assistly have only translated the frontend of their products, leaving non-English speaking agents at a loss. This, said Mathrubootham, will give Freshdesk “an early mover advantage in the non-English speaking markets.”

Mathrubootham said he prefers a bottom-up total addressable market (TAM) to a top-down one, and based on a set of pricing model assumptions (average $12-19 per user per month), estimates the TAM to be $1 billion to $2 billion.

Nearly two-thirds of Freshdesk’s beta customer base consists of small and medium IT service companies, ISVs, Web design companies, managed service providers, Web hosting companies, domain registrars, SSL certificate vendors, Web 2.0 startup companies and ecommerce companies, among others. The value proposition that Fresdesk offers its customers is the ability to “get a cloud customer support system with the backend ticketing functionality and a customizable front end web customer portal for an affordable monthly cost.”

The founders gained traction for their company by posting their story on Hacker News, advertising on Google and placing banner ads on Web 2.0 directories and design sites. They currently use Google Apps and receive steady traffic from the Google Apps Marketplace. Freshdesk averages six to seven signups per day at a cost of $250 to $400 per customer acquisition. The revenue they expect to earn, per customer is $50 per month. They offer their customers three subscription plans ranging $9, $19, $29 per user per month. They have plans to include an annual subscription plan at a discounted rate and a plan for occasional users.

Freshdesk launched in the first week of June and already has five paying customers. The company has had more than 700 signups for the beta and around 500 evaluations. As they work through the lead nurturing process, conversion rates would become clearer, but for now, even if we assume the standard 2% to 4% conversion rate, Freshdesk can expect to see 10 to 20 paying customers from the evaluation pool in relatively short order. Working closely with this group of early customers would definitely help them fine-tune the product, and get a better understanding of the customer needs.

Meanwhile, the good news is that the product is resonating with customers, and early indications validate that customers are willing to pay for it.

What I find exciting about Freshdesk is that they may be able to do the same thing in customer support that Zoho did in CRM: a drastic downshifting of the price-point of a full-functionality, differentiated, cutting edge customer support solution. For the uninitiated, Zoho introduced a CRM system that was one-tenth the price of Salesforce.com, and penetrated the lower end of the market using an Indian cost structure.

In the case of Freshdesk, their main competitor, Zendesk, is operating with a San Francisco – Copenhagen cost-structure, and will find it harder to compete with this strategy. Zendesk is heavily financed by Benchmark and Charles River and has 10,000 customers. They charge $9, $29 and $59 per agent per month, and I am eager to see bootstrapped, scrappy Freshdesk morph their pricing structure to aggressively compete with them. Higher end players like ServiceCloud charges $65, $135 & $260 per agent per month. RightNow’s per agent price starts at $110 per agent per month.

The space is validated. The game, now, is to push the envelope on price, performance and functionality – a game that 1M/1M looks forward to helping Freshdesk play!