Silicon Valley has been up in arms of late over burn rates. With private companies raising larger rounds at higher valuations than ever before and chasing broader market opportunities than possible in the past, it’s no surprise that entrepreneurs are spending at an unprecedented rate to grow as fast as they can. But, despite these understandable circumstances, several of the industry’s most respected investors have raised a red flag on the issue, arguing that it’s a symptom of good times company building that could leave a ton of companies dangerously exposed when market conditions inevitably shift.

For those arguing that spending with reckless abandon is the only way to build the kind of massive, high value businesses that the venture model demands, there are counterpoints available across the Valley. One such business is Zoho, the 18-year-old enterprise software company that has bootstrapped itself to hundreds of millions in revenue, and profitability.

“At the beginning, we were a bunch of guys with no experience so there was really no opportunity for us to raise capital,” says Zoho founder and CEO Sridhar Vembu. “But we started to enjoy operating profitably. What started as a compulsion, became a commission. We’ve had the freedom to think and act and invest long term – with five to 10 year horizons, rather than quarterly. And unlike most people you read about in the Valley today, we’ve had to balance this vision with the financial discipline of having to pay for that freedom.”

Started in a similar era to Yahoo, and shortly before Google, Zoho may not be the standout company of its generation. But the company now employs 2,500 people and continues to grow revenue 40 percent year-over-year. That is to say, Zoho remains a highly attractive technology operation even late into its life.

“We have a broader product suite and better position in market than most companies in our cohort. We’re closing in on $1 billion in revenue,” says GM and founding employee Raju Vegesna.

The most amazing thing about Zoho’s path to this point, is that the company has survived two tech bubbles and broader economic recessions without the cushion of tens of millions in venture capital. The company entered the year 2000 with $10 million in revenue –for reference, Yahoo had about $100 million – and 300 (mostly telecom) customers. Seemingly overnight, the vast majority of these customers and the resulting revenue vanished.

“We supplied a crucial piece of software to these companies, 99 percent of which vanished,” Vegesna says. “We had to scramble to adapt. We had a good engineering team and fortunately we had some cash in the bank – from profitable operations and a conservative spending plan. We were able to reorient to a broader enterprise software focus. It took us 1.5 to 2 years to redo the product line, which eventually took off in 2004.”

Zoho did only one round of layoffs during this period, but found other ways to conserve cash. When everyone in the Valley was signing 10 year leases at $10 per square foot – a bubble indicator that we’re seeing again today – the company relocated to Pleasanton, where it remains today, and instead invested in keeping its headcount up. It may have been the decision that saved the company.

The lessons from this first trip through the economic ringer prepared Zoho for the 2008 crash, which the company navigated with far less carnage. With less customer concentration and even more financial firepower stocked away this time, the company never retrenched in this latest down-cycle, even expanding and introducing new product lines in 2008 and 2009.

Zoho’s founders weren’t seasoned operators or managers, they were technologists. And yet, they managed to navigate these uneasy markets and to lead a rapidly growing team without the benefit of that experience. And because the company never raised venture capital, it never built the kind of board of directors that we typically associate with well-run companies. It may be a stretch to point to this as a cause of Zoho’s success, but it’s definitely meant building the company in a more thoughtful way.

“When companies grow too fast they never figure out management and cultural issues, they just pile on layers of management,” Vembu says. “We just learned on the job – trial by fire. We made lots of mistakes, but no major ones. That’s the good thing, when you’re small, you can correct them. And the process of making mistakes is crucial to the process of learning. Besides, most VCs today have never built a company. They’re mostly MBAs, with at best one exit. And survivorship bias means they’ve probably never navigated a recession anyway.”

Zoho is almost religious about its bootstrapping approach. The company has and continues to be the object of VC desire and could easily choose to IPO if it wanted to. But with no investors in need of liquidity, the company’s founders are in no hurry to change what’s working. The question with this approach, is how do you attract and incentivize the best talent in an ecosystem trained to seek out “rocketships” and secure as much ownership for yourself as possible?

“We don’t really agree that a short-term, mercenary mindset and incentive structure is required to hire the best talent,” Vegesna says. “We issue cash bonuses at the end of a good period, whether it’s a month, quarter, or year. It actually ends up being a better outcome for most employees. And, of course, we have free lunch and all the other typical perks. We have had extremely low employee churn. Of our 100 PMs, the average tenure is 10 years. I think it goes back to culture. Good culture keeps people sticking around. VC money actually changes that mindset. Hyper-growth expectations subtract from enjoyment of work. The same can be said for immaturity of management. Everyone needs a certain amount of money to live and be happy, but beyond a certain amount, you lose the motivation to work. Our founders have all reached that point a long time ago, but do it because they enjoy it, and I think it shows and trickles down through the organization.”

Over the years, Zoho has grown into something akin to an incubator, building and launching parallel brands and product lines to address different market opportunities. The company is still selling its original telecom network management product, WebNMS, but has since added enterprise IT management in ManageEngine and a productivity and collaboration in Zoho to the mix, while renaming the parent company in the process.

“You won’t see a lot of vendors out there with a broader product portfolio,” Vegesna says. “This is in part because we spend more on R&D than typical. Most enterprise companies today spend more on sales and marketing than they do on R&D. That means customers are essentially paying to be acquired. This overspending on sales and marketing is driven directly by the hyper-growth VC model.”

This is a drastically different attitude than we’ve come to expect from high-growth software companies. The classic example of the current generation is Box, which, despite massive revenue growth, continues to hemorrhage cash and had to delay its IPO and raise high-risk private debt following a less than stellar market reaction to its preliminary S-1 filing. Similarly, Groupon was routinely touted as the fastest growing tech company in history, despite the fact that the company's daily deals model proved wholly unsustainable and required new management and a business model pivot, for which the verdict remains out.

Bootstrapping a company to tens (or hundreds) of millions in revenue is a small and elite club. It’s surely not the right path for everyone. But those who take this approach tend to emerge more resilient and flexible as entrepreneurs as a result. In this case, the “what doesn’t kill you” mantra surely holds true.

Even for founders who do decide to raise outside capital to fuel growth, there are lessons to be learned from Zoho and other businesses who take a more conservative and thoughtful approach to spending. The economy goes in cycles and those who operate their companies as if customers will always be flush with cash and raising the next funding round is a sure bet will eventually pay a price for that hubris.

As (Pando investor) Marc Andreessen said as part of a recent Tweetstorm on the burn rate issue:

When the market turns, and it will turn, we will find out who has been swimming without trunks on: many high burn rate co's will VAPORIZE.

High cash burn rates are dangerous in several ways beyond the obvious increased risk of running out of cash. Important to understand why:

First: High burn rate kills your ability to adapt as you learn & as market changes. Co becomes unwieldy, too big to easily change course.

Second: Hiring people is easy; layoffs are devastating. Hiring for startups is effectively one way street. Again, can't change once stuck.

Third: Your managers get trained and incented ONLY to hire, as answer to every question. Company bloats & becomes badly run at same time.

Fourth: Lots of people, big shiny office, high expense base = Fake "we've made it!" feeling. Removes pressure to deliver real results. “Entrepreneurship is about thinking outside the box,” Vegesna says. “Too many people today are stuck thinking inside this one-square-mile Sand Hill Road box.”