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Jason talks with Dharmesh Shah, Founder and CTO of HubSpot
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Jason: Hey, everybody. It’s Jason. I’m here in Boston and I’m meeting with a lot of great companies and doing a couple of ThisWeekIn Startup episodes while I’m here. I would be remiss if I didn’t meet with the founder and CTO of HubS pot. Dharmesh Shah is with us. We’re going to have a great hour long discussion about how he built HubSpot, angel investing, the Boston scene. All of these great things. Stick with us.
TWiST title sequence.
Jason: Hey, everybody. Hey, everybody. This is a great interview. Hey look. Our partner for today’s program is MailChimp. As you guys know I’ve been using MailChimp for all of the Launch Festival, for ThisWeekIn Startups even for Inside.com, my new startup. 2,000 subscribers and 12,000 emails a month free. You pay as you go. Mobile friendly email templates. Version 8 is out with multi user access. This is something I have been waiting for. Boy is it really well done. Actually Aaron, their designer, who wrote a lot of great books on design is going to be here at the Launch Festival. We’re here cleaning up the whole mess from the Launch Festival right now. While I’m reading this ad. They do a great job with MailChimp. 2,000 subscribers and 12,000 emails per month for free. They’re constantly releasing all these new features which is great. I gotta tell you, this ability to have multi user access. You may want one person to send emails and another person to handle unsubscribes and subscribes. You may not want the person who’s handling the customer support stuff to be able to actually send to the list. Right? Kind of dangerous. Now you get that multi level user support. Where you can say this person can do this. This person can’t do that. You start figuring out who in your organization you want to have access to these features. Not cause they’re going to do something bad. You know some people do steal mailing lists and stuff like that. You gotta be careful. You want to make sure no one makes any mistakes that’s most of all. The software now with version 8 has multi-user access. That’s going to be great for us. So the free plan is always free. You have the ability to manage up to 2,000 subscribers and 12,000 emails per month. You’re seeing this all over the place. Facebook is sort of losing favor with young people and certain demographics. Then Instagram becomes popular. Before that it was MySpace. Next is SnapChat. If you’re investing your marketing dollars in social networks, I gotta tell ya you’re a dope. That’s what I feel about it. Everybody spends a dollar to get a like or $2 to get a follow. Forget all that. Get the goddamned email address. You have that email address and it’s for life. What email did you sign up with Twitter with? What email did you sign up with Facebook with? What email did you sign up with MySpace or SnapChat? It’s the same goddamned email. It’s probably your Gmail or your Yahoo Mail or maybe your AOL Mail if you’re my mom. Who sent me an AOL mail this morning. Really mom? Get on Gmail please. I’m waiting for that day she gets hacked so I can put her on Gmail. The point is the world runs on email. If you’re not collecting emails of all of your constituents, your customers, your fans you are a dope. I don’t mean to make this a very negative commercial but how many times I gotta tell you people get these goddamned email addresses. They’re worth like $25 each, $100 each depending on what business you’re in. Collect email addresses and use MailChimp for it. I love MailChimp. I just want to say thank you @mailchimp for supporting, essentially, everything my team does for entrepreneurs. MailChimp is the first to step up and say, “Hey. We’ll support the Launch Festival. We’ll support ThisWeekIn Startups. Whatever you need Jason. Whatever your team needs. I really do appreciate that from the heart. On behalf of all the startups that you helped us support. Most of all this is a tool that startups can use for free. You’re going to get to 2,000 emails on your database maybe in 6 months or 3 months or 9 months. They’re not going to charge you. You need to save every penny. When they do start charging you it’s because you’re getting tremendous value from it. So thanks again MailChimp. Let’s get back to the program. It’s a great episode. If I do say so myself.
Jason: Hey, everybody. It’s Jason. As you know I made a trip to Boston to go to one of the board meetings for the company Dyn that I’m on the board of. I thought that I would swing by on my way to New Hampshire and Boston and do a couple of ThisWeekIn Startups. So you could meet some of the founders and companies here in Boston. One of them that has been a rocket ship of course is HubSpot. Everybody has been talking about that. Buzzing about it. Software as a service. I was actually… I didn’t understand the business. I think that’s probably a pretty good sign, Dharmesh, that it’s a good business when people don’t understand it. Isn’t it?
Dharmesh: Yeah. I guess so. Although we’re in the marketing business you would so you would think that we would be better at telling the story. But yeah.
Jason: But in the beginning it was a little bit confusing as to what you were doing. So explain to the audience what is HubSpot, when did you start it and what was the mission?
Dharmesh: Sure. So HubSpot’s about 6 and half years old. The idea behind HubSpot was to create a marketing platform. The idea was we were looking at… We’re both grad school students. My co-founder and I met at MIT. The observation was that this thing called the internet was happening and the old school marketing methods weren’t working. Like advertising and direct mail and all those things. We’re like, “Oh. There’s this thing called the internet. Everybody should be benefitting from it. Why aren’t more businesses particularly small businesses doing it. Like it’s so obvious, why aren’t more people doing it?” We’re like, “OK. Let’s see what it would take to actually do this for like a mere mortal, for a small business.”
Dharmesh: It’s like, “Oh.” Use MailChimp you get Google analytics. You wire it up to WuFoo for your forms and you kind of pull all this stuff together. All great products and great businesses. But the reality is most small businesses don’t even know all those various kind of players in each of that category. They can’t pull it all together.
Dharmesh: So the idea of HubSpot was to kind of be this integrated platform that allowed mere mortals, small businesses to kind of do what we call inbound marketing. To be able to pull customers in instead of doing outbound marketing, advertising and that kind of stuff.
Jason: Yeah. At that time, six years ago, boy software as a service that was a new category as well. So I’m guessing when you started this people were talking about hey maybe there were desktop applications to do this kind of thing. Before MailChimp you would have a downloadable mail client on your desktop. Right?
Dharmesh: That’s absolutely right. One of the things that makes the market exciting, both HubSpot and all the SaaS businesses is that now we can get to a body of customers that was really impossible to even reach. That’s one of the reason’s why we haven’t really seen a lot of software success in the small business category. Intuit’s the only really big… Up until relevantly recent times… the only big software like multi-billion dollar software company in the small business category. The reason was it was just too hard to reach customers, too hard to deploy, too hard to support and the economics just didn’t work. SaaS now kind of makes that possible.
Jason: Yeah. People needed QuikBooks. In the small business/home office they need Intuit. They need QuikBooks. They need these kind of things. So they absolutely had to spend the $300 or $400 for those solutions. But for marketing it was like, “Ahh.” Marketing for small business was sort of the yellow pages just 10 years ago.
Dharmesh: It was. That was when we started one of the things we were kind of thinking about was, in terms of just market opportunity… We raised a ton of capital at this point. We can talk a little bit more about that. But the opportunity that we saw was that if you look at the P&L of any business, any normal size business, every line item on the P&L there is a multi-billion dollar revenue household company, software company attached to that line editor. There’s SAP, there’s CBold back in the CRM days. Except marketing. The largest marketing software company we’ve ever seen was like Omniture. A billion and a half. Big.
Dharmesh: But not like $10B, not SAP, not CBold, not that kind of thing.
Jason: Yeah and Omniture was really analytics.
Dharmesh: It was really analytics. Exactly.
Jason: Google really came in and changed that market huh? With their free product offering.
Dharmesh: They did. So the question we asked ourselves was… This is the things that VCs ask all the time. “What’s different now? Why this business? Why now?” The answer to the why now was 10 years ago the marketing discipline wasn’t one that software could really help a lot with. Like if you were a 5 person marketing team you had a budget for marketing, you create some creative, you outsourced a bunch of stuff and you bought inventory to get that message out, essentially.
Dharmesh: Now with the internet we have all this data about our marketing. All this information about… So now it looks like an industry that software was designed to help or should be able to help.
Dharmesh: So our thesis at the time was a $10B company does not exist in marketing software because it didn’t need to exist before.
Dharmesh: It was very artsy, craftsy kind of discipline. Now it’s a data driven discipline. So someone will create a massive SAP, CBOLD style software company in the marketing category.
Jason: That’s a fascinating observation because it is true that when you’re buying, let’s say, newspaper ads or classifieds or even doing local television spots if your small business was that big, there was no click through rate. There was no… Maybe people picked up an 800 number or something like that. But when you shifted online, whether it’s Craigslist or a local newspapers classified ads or adWords or Facebook ads now. My Gosh, that is all quantifiable.
Jason: So that’s an interesting premise. Look for a world where things weren’t previously quantifiable and then build software. I wonder if there’s another example of that. Quantified self.
Dharmesh: Yeah. Like a lot of the health care business. Things we just didn’t know before because the records were either weren’t distributed and fragmented. They’re starting to come together into things that people can analyze.
Jason: That’s interesting. Google Health was launched what 5 years ago, 6 years ago and they shut it down.
Jason: I guess the premise was, that we wound have digital records. Now we actually have it. If Google Health existed today and it pulled in your FitBit and your Nike plus and all of those things it actually could be quite valuable.
Dharmesh: Could be. Yeah.
Jason: Interesting premise. Then that is a really interesting test. Is there a market there? So you were at MIT getting what graduate degree?
Dharmesh: It was an MS degree. It was out of the business schools. It was little strange.
Jason: They have a business school with Harvard’s business school? Is it like a sharing thing?
Dharmesh: No. It’s its own… It’s a top 5 business school here, part of MIT. Unaffiliated with Harvard which we call the other business school.
Dharmesh: No. That’s OK. So it’s an MS in the Management of Technology.
Jason: Ahh. Got it.
Dharmesh: Which is this weird kind of engineering mixed with like an MBA kind of thing.
Jason: IT or MBA?
Dharmesh: An MBA. Essentially an MBA with some technical geeky stuff thrown in.
Jason: That’s a great combination. But when you started the company social media didn’t exist as a tool to a large extent. You had MySpace but it wasn’t looked at as a business tool.
Jason: Boy did that change. Was that the accelerant that made this business grow so fast?
Dharmesh: Part of it. I think it helped. The thing that really helped was blogging helped. What it did… Essentially what blogging demonstrated was that if you had something useful to say, if you created content, if you were actually able to pull people in and get access to prospects and leads and eventually customers just by saying something useful. It was a much more efficient way to kind of do that. Blogging as a tool as the technology evolved people didn’t think of this as this radical kind of thing. Like millions of businesses were starting to do it. So that helped. Then social media essentially took it to a new level because in a way it was an easier way to do content publishing and get messages out there. So social media has helped immensely.
Jason: Blogging is fascinating because… It’s interesting, my brother-in-law runs a company called Causecast. Then they’re a client of yours. But you wouldn’t know. I guess it’s a self-serve client. I was always telling him, he was always asking about blogging and exactly your premise, pulling people in to their company. One day I started getting a Google+ from him, a tweet from him, even an SMS message and an email all about these different blog posts he’s doing. They were kind of interesting. I was like, “Wow. I guess you guys started publishing.” He says, “Yeah. I got this thing HubSpot. It sucks in all of your contacts, all of your lists then it shows you your SEO of your blogpost, suggest key words, and suggest what you should blog about. Then you blog about it and it shows you what leads you’re getting. So really the product has taken it that far at this point?
Dharmesh: It has. That’s part of the canonical use case. Which is you put a website up there. Let’s say you’re a 10 person law firm. Which is generally a great example. Normally you would put a website up there and maybe if you’re really sophisticated you found some form tool that let’s you put a ‘Contact Us’ so you could get feedback.
Dharmesh: So we kind of carry it all the way through. We have a content management system, we’ve got the blogging app, built in forms for getting leads essentially. You can ask custom questions. Those leads go into your CRM system. Let’s say you’re using SalesForce.com. Then you can set up automatic email campaigns to say, “Oh. I want to send everybody that fits this particular profile this email.”
Jason: Oh wow.
Dharmesh: So nurturing campaigns. Then track all of the analytics that says here’s how many leads you got through your blog based on authored and just tracked it all the way through to the revenue.
Jason: Holy cow.
Dharmesh: You can say, “I made…” So we can tell you, through SEO we saved… The equivalent PPC you spend would have would have been $250K or something like that. Here is the actual economic value of the actual various online channels are for you. It’s very hard to pull that off. Big businesses do it all the time. But for a 10 person law firm that’s unheard of to be able to know that I wrote this blog article and here’s not just how many leads and customers I got. Here’s who they are. I know which customer read which blogs all the way through.
Jason: Boy does that allow a small business to have a little more confidence in investing in marketing.
Dharmesh: Totally. Yup.
Jason: Just closing that ROI loop.
Jason: So people… If this law firm was using HubSpot, they write the blog post. If they’ve already got a mailing list it informs the thousand clients they have. “Here’s a new article on the changing laws around trademark.” Let’s say.
Jason: But then once you’ve signed up for more information on that post it knows you’re interested in trademarks. So, whatever, three days after you sign up it sends you a, “Hey. Here’s a trademark primer?”
Jason: Seven days later it sends you another one that this is…
Dharmesh: Then the other great example… We can talk… I get a little bit passionate about this. But the example is…
Jason: I love the examples.
Dharmesh: So if you think about… Let’s say you’re a B2B. Let’s say you’re Dyn. Who’s a customer.
Dharmesh: What ends up happening is you have an inside sales team, like people that are selling. What happens within HubSpot now is that people are coming to your website. They may come back 3 weeks later because it’s considered purchase. They’re not going to buy. It’s not an ecommerce transaction. Right? It could be a larger buy.
Dharmesh: So the inside sales team now has access to that individual person’s profile. Like here’s when they first visited our website. This was 2 months ago. They were searching on this particular keyword. Then they came back three weeks later, read this blog article, then left this comment on this other blog article, downloaded this white paper. It gives them a Facebook timeline style view of the entire history of that individual person. Which kind of arms the salesperson to say, “OK. I know the background. I know what brought them here. I know everything. All the interactions they’ve had with my business I know. Because it’s…” This is the value of having everything in one place. That’s literally impossible to pull off if everything is disconnected. You’ve got analytics over here, your forms are over here, your blog is somewhere else. So it’s just hard.
Jason: Yeah. What are the other amazing examples of a win? I guess if you’re taking it that far then dumping the contacts into Salesforce, which obviously a big company over 50 people might have, but a small company is not going to have that. So in HubSpot can you also do the actual CRM in the system?
Dharmesh: Yeah. We have essentially a lite weight CRM, like a contact system.
Dharmesh: A lot of our small business customers just use as their CRM because they’re just moving up from spreadsheets essentially and it’s good enough.
Dharmesh: We have a mobile client and it’s been reasonably popular.
Jason: What are the other examples of just hitting it out of the park, uses that people came up with? Cause the street does find its own use for technology. I’m sure things you didn’t intend for it to be used for it was used for with great efficacy.
Dharmesh: Yeah. One interesting example… Although this is in the non-profit although it applies to for-profit organizations as well. Let’s say you have a nonprofit and they have a 20,000 person email list that they’ve kind of accumulated over the years. They can pull that… they do. They pull email list into HubSpot and we have a social media tool inside of HubSpot. So the first thing we’ll do is we’ll do look ups and say, “How many of these people that you have on your mailing list are on Twitter?” Let’s say. Of those how many people have more than 5,000 followers?
Dharmesh: So then you can actually do an automated email campaign that says, “These people if they have more than 5,000 followers on Twitter chances are they’re writing. They’re influencers. They saying something. Someone somewhere is… You don’t accidentally wind up with 5,000 Twitter followers. That’s rare.
Dharmesh: So instead of sending them the classic ‘Please Donate Money’, ‘Please Volunteer’. Why not have a specific ask that says, “I’m going to send those people, those 800 people, can you please retweet this? We have this blog article that we think is life changing. It really kind of defines… Could you please share this with your audience essentially?”
Dharmesh: That’s something that wouldn’t have been possible before. You wouldn’t have known who they are across your 20,000 list.
Jason: Fascinating. When you look out at the different channels for acquiring customers, obviously content is a wonderful one because it is so targeted.
Jason: I would say that you would agree that’s the number one?
Dharmesh: It’s the number one. Yeah.
Jason: What’s number two? Is it buying Google traffic, Facebook, Twitter? What’s the number two small business marketing technique today?
Dharmesh: I think it’s PPC.
Jason: Pay Per Click?
Jason: Is Google still the reigning dominant king there?
Dharmesh: They are. Like by far. Yeah. They are.
Jason: Why is that?
Dharmesh: They have the inventory. Most people still use Google. The market share on the search engines has not changed meaningfully in… ever actually. Long, long time. So that’s where customers are going. Google has done a great job. The original model kind of worked.
Dharmesh: It’s trackable and small businesses kind of get it. You get immediate feedback. That’s why small businesses do it.
Jason: So then people make some content and then buy some traffic…
Jason: … through HubSpot?
Jason: It’s automatically done?
Dharmesh: Yep. We don’t support PPC within HubSpot.
Jason: Oh. Really?
Dharmesh: We don’t support paid marketing actually because we’re maniacally passionate about… This may change over time… but around inbound marketing. Which is for all the money being spent on things like PPC and billboards and trade ads and those kinds of things we think businesses are much better off just investing in content and pulling their customers in vs. kind of blasting their massage out.
Jason: We’ve seen Facebook try to court small business with ‘Pages’ over the last couple of years with mixed success. They obviously asked people to put the ‘Like’ button up. Then they asked people to pay for followers. Now they’re asking people to pay a third time which is to reach the followers that they’ve already paid to acquire. What’s your take on a small business’ approach to Facebook, which seems to keep changing the rules of the game?
Dharmesh: Facebook’s a partner. I’m a fan of the company. I use the product. But from a small business marketing perspective I think there’s still a fair amount of work to be done. For reasons that you have already outlined which is it’s changing… You really don’t know when you’re investing… Let’s say you say, “Oh. I’m going to go off and invest to acquire 10K, 50K fans.” Then they kind of change the rules on you as time goes kind of as they see fit.
Dharmesh: So it’s really hard to make that investment. Because in terms of just accruing fans or whatever you do all the ROI calculations and you have to throw it all out because you’re only going to get to 15% of your audience without having to kind of pay to reach them again. The thing that I think gives me hope longer term is it can’t be just about fan accumulation. It has to be about intent. So I think the search within Facebook now, the new news does come out.
Jason: Yeah. They’re sort of delving into search it seems like. Because I think the initial premise of their pay per click network was going to be demographics and the social graph.
Jason: But it doesn’t seem like that is as powerful as somebody putting what they’re interested in right now into a search box.
Dharmesh: I think the intersection is what is really interesting. I think why Facebook has a really decent chance is they have this entire social graph data set. Right? But if you intersect that with intent which is, “OK.” I think the most common thing, people use Facebook search today for searching for people. It’s a social network right? I want to find my college buddy from India. The next evolutionary step in my mind would be people based services. So if you’re looking for an interior decorator for your condo.
Dharmesh: Yeah. You might go to Google and you might find people that are particularly good at content creation. They’ve done kind of all the right things and their website is great. But someone that is like a friend of a friend that they used or whatever it might be a better result set as a result of that. So if you could combine the intent with someone searching for this with here’s what we know about them. We know who they like, we know who they’re interacting with. They have a weighted graph. It’s not just a who follows who but are you actually responding to that person in that particular context? I think they have massive opportunity actually.
Jason: Yeah. It seems that just knowing I don’t know… These are females between this age and males between this age, not super powerful. But like you’re saying if you’re in the market for an electrician or a plumber or a designer. Oh my goodness. Knowing which ones your friends interact with on a regular basis. Or which ones have the most interactivity or engagement. It’s a pretty good signal.
Dharmesh: Totally. It’s a different function to calculate trust. Google uses inbound links and authority from like… Oh you got a link from The New York Times.
Jason: Page rank.
Dharmesh: Page rank. What Facebook has essentially is a different style of trust calculations. Is this individual or individual business page trust worthy or not? It’s just a different data set. Which I think can be better for some classes of searches.
Jason: People pay on a subscription basis for HubSpot.
Dharmesh: They do.
Jason: What do the prices range from? I know it’s really cheap to get into.
Dharmesh: Yep. It starts at $200 a month and goes up to about $3,000 or so. Up from there.
Jason: Yeah. The majority of the clients towards the $200, $300? How does it break down?
Dharmesh: The average is probably around $500 or $600. Somewhere in that range.
Jason: Wow. So that’s not an insignificant spend for a small business. But it’s an insignificant spend for a medium size business.
Dharmesh: Yeah. So our sweet spot customer is someone, a company with between 20 and 200 employees or in that range. Definitely SMB.
Jason: Got it.
Dharmesh: We’ve got some really big customers in there as well.
Jason: Yeah. So reoccurring revenue and pay as you go… People can cancel at any time? You’re not locking them into multi year contracts?
Dharmesh: No multi year contracts. We do have annual contracts now. That’s the standard. This is actually a good startup topic. So one of the things when we started the company one of the things… It was all month to month, every single customer. The reasons we did it were very… I was calculating probably is a good word. We’re like OK. Our board was asking us, “Could you get annual contracts? Can you get the cash up front?” We’re like, “Yeah. We think we can but the data that we get from someone who didn’t cancel is worth much more to us than the cash value of someone who’s paying us upfront.”
Dharmesh: Because if they paid us for a year and they signed a contract if they really thought the product sucked we wouldn’t know that for another 12 months. That information, knowing that the product sucks and the customer doesn’t like it was much more important than the actual cash even though we could have gotten it.
Jason: Oh. I see. So the cancellation almost forced you to not suck.
Dharmesh: Exactly. Both my co-founder and I came from enterprise software where kind of drive-by sales is kind of… You know you’re going to get…
Jason: The hard core sales.
Dharmesh: … the hard core sales. The kind of old Oracle model. Part of what we wanted to do was build a culture around like you have to earn the customers business every time. It just breeds good behavior.
Jason: Earn it every month or they cancel.
Dharmesh: Exactly. They can vote with their dollars and just walk essentially.
Jason: Then you moved to yearly eventually when the product was great?
Dharmesh: Yeah. The product’s getting better. So the data obviously is worth less to us. We have lots of data that we know exactly the determine rates. By cohorts, by type of customer, by day of week that they signed up. Every possible way. We have customers that are on annual contracts. We have customers that are on monthly. Yeah.
Jason: Oh. They choose what they want?
Dharmesh: They choose.
Jason: Some people are like, “I want the discount. Give me the full year.”
Jason: How many people now at the company?
Dharmesh: Let’s see. A little over 450.
Jason: Wow. So to grow that large how have you maintained the culture here? How have you scaled the company? You’re a first time entrepreneur?
Dharmesh: It’s my third company.
Jason: Third company. OK.
Dharmesh: The biggest of the three that I’ve done. The culture… It’s interesting. The first three years of HubSpot like the word culture was not spoken in the halls of HubSpot. We just never talked about it. Never thought about it. It just kind of happened. In about three years then we first got religion. We did our first kind of employee survey. Just like, “The company’s doing pretty well. We love the team that we have around us. Are people happy?” We decided to do a survey. We did a net promoter score which asks exactly two questions. Question #1 is on a scale of 0-10 how likely are you to refer HubSpot as a place to work to your friends and family? It’s the classic… There’s an entire methodology behind that promoter score. The second question is why do you respond like that? The qualitative… The thing we learned was people were exceptionally happy at HubSpot and the most common reason given was the other people at HubSpot. That’s what made them happy.
Dharmesh: We’re like, “You know what? Business is going pretty well. Whether we designed it or not we have a culture here.”
Jason: Was that helpful though? “I like being here because I respect my co-workers.” Well if you’re at the company you… If you didn’t respect the co-workers you would leave. Is there any indication that you just hired really smart people who are similar to each other? Or is it an indication that a culture is there? How did you parse that?
Dharmesh: It’s funny. The next step once we kind of came to this realization and the “Oh. I love my co-workers.” wasn’t particularly helpful. There’s not a whole lot other then we’ll keep doing what we’re doing.
Dharmesh: So the next step was we want to analyze what we call the people patterns. What is it about these people that makes them successful at HubSpot?
Dharmesh: We’re very much into this geeked out data analysis kind of thing. So we came up with these are the attributes of people that tend to correlate with long term happiness and success at HubSpot.
Jason: Got it.
Dharmesh: That was our first like passive defining culture.
Jason: Ah. So you’ve been here for two years and you said you’re a 9 or 10 in terms of referring people to work here?
Jason: So what did those people say? Or who were those people actually? Not what did they say but who were they you’re realizing?
Dharmesh: Yeah. The patterns that we kind of discovered is that… This is what we think or like to talk about it as core values. We think of them just as raw patterns. It’s like the data shows these kinds of people tend to be happier than these kinds of people. One was transparency. They just love the fact that the company is transparent. We have this roughly rare thing at HubSpot. So we have a wiki at HubSpot. Which we’ve had from year one. On that wiki we post just about everything. Cash balance, board decks, notes from the board deck.
Dharmesh: The only thing that’s not shared are things that we don’t believe it’s our data to share. An example would be salary information. Because we think it’s partly owned by the company partly by the employee.
Dharmesh: Then where we’re legally bound or it would do harm to somebody… Let’s say we’re thinking about acquiring a company. We wouldn’t put that on a wiki because we’re not at liberty to share. But everything else is shared.
Jason: So people can see the bank balance?
Jason: They can see how profitable the company is.
Dharmesh: Burn rate. Like what was the burn rate before? How are sales doing? This is all 450 employees in the company have access.
Jason: So these folks love the transparency. So a person of any level of intelligence would deduce from transparency loving people are what? They’re intelligent people? They’re detective like people? They’re empowered people or they’re just…
Dharmesh: Open people. It’s not as much of a value judgement. People just like to share in our open. This is one of the things. Once we discovered this we made all of the core attributes or patterns that we found we made them part of the recruitment process. So we would ask them, we’d give them examples. Would you be comfortable sharing this? Or do you think of yourself as a transparent person? There is no good or bad. You either are or you are not.
Dharmesh: We just found that people that are tend to do better here. Because the company’s just very, very transparent.
Jason: So when you make this decision your board or your management team, somebody must have said, “Hey. Wait a second. It’s going to freak people out if they see we’re burning half a million dollars a month. That’s something that founders or VCs might be very comfortable with cause they’ve done it but that’s going to scare the hell out of people if they think that we only have 9 months of runway in the bank or 12 months whatever it is. Do we really want to do that?”
Dharmesh: You’re right. It’s uncomfortable.
Jason: People did say that right? How did you get past it?
Dharmesh: They did say that. The way we got past it is we did it very early and we just kept doing it.
Dharmesh: It was just what we think of as gravity. This is how our little ecosystem has built up. It’s working so far and so it continues to this day even at 450 employees.
Jason: Wow. The other response must have been, “Well people are just not going to be able to handle the wild profitability they see in our business. They’re going to come in here and say, ‘I want a raise. Why can’t I have a raise if we did so well last month?’ What was the response to all of that?
Dharmesh: It’s interesting. There definitely are people that might react that way. But… This is going to sound overly trite but in our minds that people that would think that way… we made a bad hire.
Dharmesh: That’s like a cultural non fit essentially. If you’re really worried about that, if you’re going to use that information against us.
Jason: Yeah. If you’re petty or cutthroat in that way you’re not a team player.
Dharmesh: Exactly. We don’t want that. It’s like you know what…? Part of the reason we have this… There’s two reasons for the transparency. One is people value it. They like it. But we also think it breeds better behavior. There’s this old phrase, sunlight is the best disinfectant. Like really stupid things happen in the dark, behind closed doors. But if everything is out in the open… We’ve had wiki posts where my co-founder or I would get blasted by the employees. LIke, “We think that was the stupidest idea ever.” We’ll have 100 comments on an internal wiki post.
Dharmesh: Because it’s just out there. People value that. I think that it’s one of the things that’s made HubSpot be the modest success it is so far.
Jason: Oh. Modest success. 450 people You’ve raised a ton of money. Perhaps one of the biggest web and enterprise companies in Boston. How much have you guys raised?
Dharmesh: A little over $100M.
Jason: Wow. And it’s easy to raise that money for a predictable, reoccurring revenue product? It’s easier to deploy money from a product that’s so predictable I think. Yeah?
Dharmesh: Yeah. That’s totally true. This is my first venture backed startup. When we started I’m like, “OK.” When we raised our series A we raised $5M. The thought in my head at the time was this is a software business. I have no idea how I am going to spend $5M.
Dharmesh: It was like unfathomable to me. $5M. There was only like 3 of us in the company.
Jason: Right. I gotta hire 20 developers.
Dharmesh: Right. Even then… It’s hard to spend that kind of money. But what we learned… We did some research. We were like, “OK.” Then we raised another $12M within a year after that. So, “OK. Why are we raising so much capital?” So we did some research. We looked at all the publicly traded SaaS companies that have ever gone public. Then we looked at the kind of median raise… How much money did they raise before going public?
Dharmesh: Cause these are the successful outcomes. The weird thing was it was like $42M median. The reason is that in a SaaS business you have this kind of subscription model. You’re essentially financing your customers. You might make $20K-$30K from a customer but it’s going to come over 3 to 4 years.
Dharmesh: All your acquisition costs are front loaded. All the sales costs, all the marketings costs. So the weird ironic thing about SaaS is that the more successful you are, the faster you’re growing, the more cash you consume. It’s a great business. Very, very predictable but it’s exactly the kind of thing that should be capitalized. LIke, “Oh. We know that we can spend a dollar in the sales and marketing machine and we’re going to get $3 plus out. I would make that bet everyday of the week as long as that math continues to work and it continues to work.
Jason: But it is a little scary for somebody who’s coming from a non-venture backed background to all of a sudden say, “OK. It costs us $500 to acquire a customer. Let’s acquire ten thousand of them.”
Dharmesh: Yeah. Totally.
Jason: That’s what you went and did.
Dharmesh: Yes. We’re about 8,500 customers now. But it’s been a very predictable growth curve.
Jason: So is there a cap to this business? Is that what keeps you up now? You know now that you’ve established there’s a business here, people love the product, what comes after that for an entrepreneur? Of course the first thing is can we even make this product and does anybody want it? Then will people pay for it. You’ve answered all those questions. What then becomes the question for a company like this?
Dharmesh: In my mind the thing that keeps me up is not competitive forces, it’s not are we going to hit some ceiling? Cause the marketing industry’s huge. We have 8,500 customers. There are millions of businesses that should be doing… Whether they buy HubSpot or something else. Should be doing something.
Jason: Is it really millions.
Dharmesh: It’s millions. It’s millions.
Jason: So you predict you haven’t hit one percent?
Dharmesh: Not even close. We haven’t even scratched the surface. So the thing that keeps me up is that if we end up crashing and burning it won’t be murder. Essentially it will be a form of suicide. It would be self imploding. It will be like the culture didn’t work. Something broke. It wasn’t… Someone else would have done something to us.
Jason: You would have F’d it up?
Dharmesh: Yes. We would have F’d it up.
Jason: You would have F’d it up somehow. So it’s like your game to lose. You’ve got the lead. So routing against the mistakes, how do you even do that as a manager? As a management team how do you keep yourself from making some huge blunder?
Dharmesh: We don’t know.
Dharmesh: The thing is like it’s entirely possible that we’ve already planted the seeds of our own destruction and don’t know it yet. It’s possible.
Jason: Being an entrepreneur is fun, huh?
Dharmesh: It is.
Jason: The Psychology of Entrepreneurship.
Dharmesh: Exactly. You have a Psyche degree so you should know.
Dharmesh: That’s exactly it. No. So the thing we stay up and i personally stay up thinking about is around kind of the culture issues. What kind of things… There’s a few things we kind of got lucky on with the culture things. Like with the transparency. It’s worked out really well but it’s helped us continue to scale. We’re looking for more of those things. So… I’m working on what I call culture 2.0 at HubSpot now. It’s like the first pass at it was supremely useful. It’s been a couple of years since we’ve done that. So I’m spending over 80% of my time over the last couple of months just thinking about that. How do we scale the culture? How do we minimize the chances that we ‘F’ it up essentially and continue to grow?
Jason: Interesting. Yeah. So the concern is how do I keep this place a great place to work? How do I keep it from devolving into a boring place or a political place? All those places that none of us ever want to work?
Dharmesh: Yeah. That’s exactly it.
Jason: How do you manage your own psychology? We’ve seen a lot of discussion around the pressure of being an entrepreneur. Questions about Jody Sherman’s suicide, Aaron Swartz’s suicide. Obviously it was not because of founder pressures. It was for another reason. But other… Ilya, the Diaspora co-founder. We’re seeing this dialog start about pressure. You felt the pressure I’m sure in the 6 years. How do you manage that massive pressure there is as a founder?
Dharmesh: It’s interesting. This is my third startup so I’ve had… Probably the darkest days were in my first one. It’s like didn’t know what I was doing at all. Which I know a little bit more now.
Jason: Well you must know a lot more now.
Dharmesh: Yeah. So the classic kind of roller coaster things. We haven’t had those kinds of issues. So we haven’t had to worry about meeting or hitting payroll. Which is classic entrepreneurial stuff. The thing that I worry about is… Sometimes it’s a matter of how you define success. For us it’s like living up to the potential of the team that’s here.
Dharmesh: That’s what really keeps me up. Yeah. Up until this point most startups, especially in my early days, this is a pretty successful startup. We can… Wow. We did OK.
Jason: Wildly successful. How about let’s go back to it’s earlier days. What was the darkest moment and how did you get through it?
Dharmesh: Darkest moments are always when you hire first employees. The scariest moments. Now like someone other than me and my co-founder are depending on the company now. The darkest ones are always around cash flow issues. Well you’re living literally like week to week. You’re just 48 hours from missing payroll. So I’ve had… That’s one period of that and I’ve had that multiple times in the first one. You kind of go to the employees like here’s what’s going on.
Dharmesh: We’ve had people take pay cuts voluntarily. We’ve paused salaries and I mean it’s…
Jason: And that’s hard stuff…
Dharmesh: It is hard stuff.
Jason: … to go to an employee that you’ve recruited and say, “We may not be able to pay you next week.” That’s got to be the most brutal moment for an entrepreneur.
Dharmesh: I think so. It’s like way up there. Another one is… This one actually is less brutal because when they’re so bought into the company and they’re so there and things are going so well. You kind of have to balance this being truthful without scaring the bejesus… like becoming this self fulfilling prophecy of like people getting scared.
Jason: Right. We’re going to hit the wall.
Jason: Then everybody is looking at the wall. Then you drive into the wall.
Dharmesh: Exactly. So it’s debatable. I’ve always tended towards more on the transparency side. Just telling here’s what’s going on.
Dharmesh: But it’s hard.
Jason: You don’t want to panic everybody and show weakness either as a leader.
Dharmesh: Totally. Then the other ones the classic cliché like letting people go is always hard.
Jason: Oh. The worse.
Dharmesh: To me that’s less hard though. The reason is… At least in the tech sector we’re very fortunate. Even as the economy goes up and down no one would have a hard time go getting a… The demand far exceeds the supply of the talent demand.
Jason: Right. So it’s not like you’re feeling a level of profound guilt as a founder firing somebody who’s not a cultural fit or say just not performing.
Dharmesh: It’s not worth it. Exactly.
Jason: Because they’re not going to be able to feed their family.
Dharmesh: Exactly. They’re not going to miss meals. They’re going to be fine.
Jason: But even if you know that, it’s a little bit hard?
Dharmesh: It’s always hard. It’s always hard.
Jason: Yeah. Earlier in your career you took it a lot heavier though? I get the sense.
Dharmesh: I did. A lot of it is… Insecurity is probably one of the worse disfunctions. Right? Like bad things happen through insecurity. One of the things I think about in terms of culture is how do you… If you could manage to take insecurity out of a team amazing things happen. Right?
Dharmesh: If you could take insecurity out of yourself amazing things start to happen.
Jason: I never thought about that. Expand on that.
Dharmesh: When people are worried or just not feeling secure they tend to take less risks. They’re making worse decisions. They may not be knowingly doing it. That’s the thing that makes first time entrepreneurs life so hard is because if you’re self aware at all you’re insecure for a reason. You’re insecure because you don’t know what the heck you’re doing essentially.
Jason: Right. You’re a neophyte.
Dharmesh: Yeah. We got 50 people in the company. I have no idea what I’m doing. Then you kind of power through it. It’s like you grow.
Jason: Yeah. If people feel more secure they can be more creative?
Jason: Take more risks? All those wonderful things start to happen.
Dharmesh: That ends up becoming the issue I think. Every company feels it. HubSpot will feel it as well. One of the things I think about on culture, I think as you grow… This has been well documented… you just have this risk aversion. Like successful companies… “This is what’s working.” The stakes get higher and mistakes are more expensive. At least in theory. You actually have to actively push people to take risks. You can’t just say, “Oh. We accept risk and we’re OK with failure or whatever.” Like we’re going to start rewarding failure. Like it’s my new thing, my culture 2.0 thing that I’m talking about with the company.
Jason: Oh. Rewarding failure. So we want to try a couple of stretch goals, a couple of stretch ideas. Who has the best ideas? Now you have to go do it.
Jason: The riskier in a way the better.
Dharmesh: Yeah. So the other thing we’re doing as far as the culture hack… We’ll write this as a blog post. We’ll want to share it. Which I think is pretty good. Lots of companies track the things that they’ve tried. Here are the things that we tried and didn’t work. Right? Which is great. We documented. But the things that you essentially failed to try, you deliberately said, someone in their head said, “Ah. We’re not going to do that.”
Dharmesh: That never gets documented. We’re going to start tracking those things. The reason is… Once again it goes to transparency…
Jason: Your misses?
Dharmesh: No. You didn’t even try.
Jason: That’s the worst thing right? Wow.
Dharmesh: It’s a negative data set that should be tracked.
Jason: To see if somebody else made it work?
Dharmesh: That and are we misguidedly avoiding certain kinds or classes of things we don’t even try essentially.
Dharmesh: The best kind of corollary which I love is… So Best Merv Ventures, one of the VCs has the anti portfolio. Here are the companies that we had the opportunity to invest in and we didn’t.
Jason: The anti portfolio?
Dharmesh: The anti portfolio. Right?
Jason: How did that perform against the ones that they selected?
Dharmesh: Exactly. So then if patterns emerge like in our anti portfolio, let’s just say, we never funded a woman entrepreneur let’s say or something like that.
Dharmesh: You know what? That kind of stuff starts to surface. When you’re doing stuff wrong the data starts to show it. Otherwise we’re losing this entire body of data when we track the things that we only actually tried. Whether they succeed or fail.
Jason: Speaking of gender and expanding it to race… You’re indian?
Dharmesh: I am.
Jason: So you’re not a white male who went to an Ivy League school. You’re an indian male who went to an Ivy League school.
Dharmesh: Eventually went to an Ivy League school indeed.
Jason: That was good. What are your thoughts on race in our industry? You’ve been in our industry for a while. You’ve got a couple of decades under your belt. Do we have a bias in our industry against minorities or for minorities? What’s your take on it? It’s a big topic of discussion.
Dharmesh: It is. My personal take on it. When I first came over my first company that I started in Birmingham, Alabama. I was there for a while.
Dharmesh: The heart of the south so…
Jason: There’s a place with complete racial equality.
Dharmesh: Exactly. So if one were to plot the distribution curve… If I was going to experience racism that’s probably one of the places I would experience it essentially.
Dharmesh: I was there for 8 or 10 years. This was very early… I didn’t feel it. Not that it didn’t exist. Not that other people didn’t experience it. My personal experience was at least in the tech ecosystem…
Jason: In the tech ecosystem you didn’t hit it?
Dharmesh: I didn’t hit it.
Jason: So you’re not saying that it’s impossible that it existed just you didn’t experience it.
Dharmesh: Yeah. My general take on it is the tech industry tends to be much more meritocracy based. It’s like do you want to grow a company… I don’t know. I could be completely off.
Jason: Well you’re running a 450 person company so when you hire people you’re generally not coming to the table saying, “What is your ethnicity or gender?” Or any of these kinds of things. You’re very much looking at what impact they could have on the company’s performance.
Dharmesh: Totally. Right. That could be silly for… Particularly for small businesses and startups. It’s such a transparent environment you get to think about every hire as your growing or whatever.
Dharmesh: So from raw economics perspective it’s just bad business.
Jason: Right. It does seem like bad business. Do you think there’s a bias towards immigrants? I’ve heard VCs say… Then you’re an angel investor. Yeah?
Dharmesh: I am.
Jason: So do you think on some level when you meet somebody who has immigrant parents or who is an immigrant who’s had to work hard and suffer through stuff that you say, “Hmm. That person has had to struggle more. Therefore they’re more likely to have a good outcome.” Do you have a bias towards the people who struggled?
Dharmesh: I may have a bias. I don’t think I do but… I’m trying to think through…
Jason: I kind of think I do.
Dharmesh: As an angel investor you look for scrappiness to some degree.
Jason: Yeah. I do look for scrappiness.
Dharmesh: The other thing… Maybe I do have a mild bias. One of the things that I look for is like some of the entrepreneurs in my mind who end up being really successful are the ones that have like a point to prove. To some degree have like a small chip on their shoulder like they’re out to kind of just…
Jason: “I’ll show somebody.”
Dharmesh: Yeah. Exactly. It’s like it’s… they’re…
Jason: It’s interesting because some people would say, “Oh. The industry was biased towards people from Harvard, MIT and Stanford etc… and a Harvard MBA.” I recently had somebody who has an MBA tell me they don’t put it on their bio anymore cause they feel like they’re less credible as a Harvard MBA in terms of entrepreneurship.
Jason: Certainly in the Fairchild and Intel days, whenever, the 60s and the 70s. It would be lauded. That would be what you would be… Even into the 80s. But it seems like somewhere around the 90s the Ivy League schools became maybe not as important.
Dharmesh: That’s interesting. An inside story on HubSpot. One of the funny things people say is the valuation of a tech startup is $1M for every engineer then subtract $250K for every MBA that’s on the team.
Jason: I actually haven’t heard that one as part of the equation.
Dharmesh: Yeah. It’s nice.
Jason: That’s so genius.
Dharmesh: But my co-founder and I and all of the first eight people on the management team all had MBAs.
Dharmesh: It was weird. We were all just doomed to failure from the beginning.
Jason: Right. You’re down $2M.
Jason: You’re $2M in debt. Take $2M off of your valuation.
Dharmesh: It’s worked out well for us. We have a predisposition to MIT. Most of the early team came from there but it’s… We like the kind of geeked out, you think and analyze problems part of it. So if you intersect that… Across MBAs there’s other things. There’s a digital distribution curve. So the people who are really, really good are really, really good. The average doesn’t change that much.
Jason: What’s your thesis if you have one? What have you invested in?
Dharmesh: I’ve done 38, 39 deals so far.
Jason: Wow. Over what period is that? 3 years, 4 years?
Dharmesh: No. Over five, five and a half. I started when I was a student at MIT, a graduate student. That’s where I’ve made my first few investments. My motivation for doing this is completely self serving. So I had sold my last startup. I went back to grad school to try to figure out what I wanted to do next. My wife and I have been together for a long, long time. I told her I wasn’t going to do another startup. I was going to do something different essentially. I had worked startup hours for a long time. I was like, “I know. I will live through the pain of other entrepreneurs vicariously by making angel investments.”
Dharmesh: I get all of the fun and excitement but then I get to go home and sleep.
Jason: Sleep at night.
Dharmesh: I can pontificate and this will be awesome.
Dharmesh: That’s exactly it. So I just started writing checks essentially. “That’s what I’ll do.” It didn’t work out that well in terms of like HubSpot started while I was in my first year at MIT.
Jason: You couldn’t help yourself could you?
Dharmesh: I could not help myself. It’s just a genetic flaw.
Jason: You just love the action too much. So when you look back on your portfolio what successes, were there a pattern? Does that pattern inform you today?
Dharmesh: Yeah. There is a pattern. So I have a few constraints. When I first started angel investing one of my constraints, especially as HubSpot was growing, is I wasn’t going to be able to spend time. That was my biggest constraint. It wasn’t money it was time. As an entrepreneur I think focus is so like important. Right? HubSpot is growing really, really fast. I’m like I can’t do the angel investing thing and be the co-founder in a really fast… It’s not fair to my team. It’s not fair to my investors. So on and so forth.
Dharmesh: So the only way this is sustainable is if I don’t commit the time essentially. If I don’t do due diligence. Over half the entrepreneurs I’ve ever invested I’ve never met or talked to on the phone. Which is weird.
Dharmesh: Yeah. I know. It’s crazy right. Crazy.
Dharmesh: I’m not saying this is like… By no means should people follow that pattern but for me it was either that particular model or not invest at all.
Dharmesh: That was the choice essentially.
Jason: So you had limited resources you had to put the money to work and you didn’t even talk to them on the phone. You just did email or they came referred through somebody greater.
Dharmesh: Both. So the Onstartups blog was getting some popularity then. I would get folks through that network, people that I knew online. Like Rob May.
Jason: Right. Backupify.
Dharmesh: Backupify. Exactly.
Jason: Great startup. Was out of Alabama, moved to Boston.
Dharmesh: Yeah. Kentucky actually.
Jason: Kentucky. Sorry.
Dharmesh: He has a blog at the time, I had a blog. We just knew each other online.
Dharmesh: He was like, “I was thinking about this idea.” I just wrote the check. You should go do that. That sounds like a good idea.
Jason: So you wrote it before he started.
Jason: And I was the angel after he started.
Dharmesh: Right. Exactly.
Jason: You were the first. I guess I was the second.
Dharmesh: You were. Yes.
Jason: I saw a review of Backupify and i immediately said, “Wow. Backup your Flickr account in case Flickr loses your photos.” That is genius.
Dharmesh: It’s brilliant right?
Jason: It’s so brilliant. It’s a cloud backup of a cloud backup.
Dharmesh: It’s cloud to cloud backup.
Jason: Cloud to cloud backup. I emailed webmaster@rob, @rob.may, @robmay, @rmay, @backupify. Just saying, “I love this idea. Have you considered taking investments? What’s the state of the company?” He emailed me. Sure enough we invested. Now this is a tremendous business.
Dharmesh: Huge success story. It’s been awesome.
Jason: Yeah. In that case you just met him through your blogs?
Jason: Which dovetails pretty nicely with HubSpot’s mission.
Dharmesh: It does. Yeah.
Jason: How efficient are your leads from your blog? Your blog is…?
Jason: Which also has a Q&A forum powered by StackOverFlow.
Dharmesh: It does. Yeah.
Jason: That was I guess back when they offered their software as a service. Do they do that anymore or not anymore?
Dharmesh: They don’t do that anymore.
Jason: Right. So they had to grandfather you?
Dharmesh: They did. I’m an investor in StackOVERFlow as well. So that’s…
Jason: Oh. That’s gone well too. Joel…
Dharmesh: That has gone well.
Jason: Who else have you invested in that’s done well? Broken out?
Dharmesh: Let’s see. A bunch of them. So Shareaholic done locally.
Jason: Oh, yeah. Shareaholic. Of course.
Dharmesh: I’m an early investor in that.
Jason: The little thing you put on your blog post to share to all different places.
Dharmesh: Yep. Buffer. Which I think is doing really well.
Jason: Oh. Buffer app.
Jason: You know it’s interesting they pitched me and I was like, “This is really nice but it’s just really simple.” Now I’m addicted to it. It’s a perfect example of me missing because I could’t conceive of the product that they eventually built.
Dharmesh: I almost skipped it as well. The reason I didn’t they’re just great entrepreneurs. I still haven’t met them. I still have not met them to this day.
Jason: But they’re great entrepreneurs because they iterate relentlessly.
Dharmesh: Iterate relentlessly. Get marketing.
Jason: Yeah. They do.
Dharmesh: It’s funny. This is one of the things I feel like I have… I won’t call it unfair advantage but I have a roughly good filter for two things. One is like do you actually understand marketing. I can look at someone’s website, look at their blog or whatever and say, “OK.”
Dharmesh: I have a bias because of HubSpot. But Onstartups begat HubSpot. The reason HubSpot exists is because the Onstartups blog started. That was kind of seeding the fact that this model works. But you have to be good. You should… If you’re a tech entrepreneur, if you’re a software entrepreneur you should be writing content the day that you start writing code. You should start building up that audience. You need casino to be able to get to people. It’s going to be really really hard to succeed if you don’t have some sort of reach. It’s just so painful to kind of get going.
Jason: Yeah. What’s the scene like here in Boston? We read it’s perennially in the top three markets, top four markets.
Jason: But the Valley is growing very fast. Building a company here has been tremendous for you guys. What’s it like here today in 2013?
Dharmesh: A lot of the stereotypes that people talk about in the Boston area are founded in some amount of fact and reality. Which is we have had a disposition against consumer startups. Against kind of the riskier things cause like the legacy and the history of the Boston area tech scene has been hardware, big enterprise software. Startups are like a generational kind of thing. So it takes time to kind of build. People have done consumer startups then they go off and fund things. Then the VCs notice.
Jason: Right. If they’ve made their money in a consumer business they would invest in consumer. But here you don’t see too much consumer you do see a lot of enterprise.
Dharmesh: That’s interesting. I’ve been in Boston for like 12, 13 years. The last two years has been this kind of weird… I don’t know what happened actually. I can’t trace it back to any particular moment but the consumer scene has really started to pick up. There’s earlier stage investing. A lot of the local VCs are doing smaller deals now in consumer startups. Like 5 years ago would have been impossible unless you actually knew someone really well. You weren’t going to get a consumer startup funded that easily here in Boston. Not like you would on the west coast but it’s changing. That particular part of the market is becoming much more vibrant.
Jason: Many people have made so much money off of their enterprise startups they want to go blow it on consumer.
Dharmesh: Could be.
Jason: Consumer is much harder isn’t it?
Dharmesh: Consumer is much more riskier right? It takes a … skill.
Jason: With HubSpot you knew there was a market.
Jason: So the only question was how much are you going to get?
Dharmesh: That’s interesting. HubSpot, since we started… the reason we started in the small business space, the reason my co-founder and I came together, before we were even a software marketing company, the conversations we were having in class were… We had both done enterprise software before. Hated it. Hated it, hated it.
Jason: What was so loathsome about enterprise previously?
Dharmesh: A couple of things. One is…
Jason: Cause I’ve heard that many times.
Dharmesh: Yeah. It’s particularly bad now. Back in the 90s it wasn’t so bad. It’s revenue concentration so you have a few number of customers that are writing you really big checks. Which then impacts your product road map. Because OK if they’re writing big enough checks you do what they ask you to do. We can not do that.
Dharmesh: Blue Cross and Blue Shield now bought 25,000 seats. Guess what? You’re the IT department for Blue Cross and Blue Shield.
Dharmesh: Or the product rolls out and, “Ah. I know you guys want to build that feature, that’s in your long term vision or whatever, but we really want this.” Right? It’s hard to say no. Especially as a startup. So that’s one. The other one is… People don’t realize this but the feedback loop and the shortness of it has such a high impact on your overall success and happiness. If it takes you 12 months to get a release out into a customers hands that’s painful. That’s no fun. The best thing about SaaS in my mind is that you can get some software out there and you can watch and see whether people are actually using it. Back when I was doing enterprise software we would have a new release. We would have no idea whether… Did 10% of our customers install the upgrade? Or zero percent. We just didn’t know. It’s hard. There’s a bunch of things. Their sales cycles are so long it’s just not fun. I just like the quick action. So we’ll talked about our collective or our shared despise for enterprise software. Then we thought about consumer software and that’s just not us. The reason is consumer tech companies tend to be very… What we call kind of binary outcomes. Either it’s like super successful and…
Jason: Instagram, Facebook, Twitter.
Dharmesh: Exactly. Those kinds of things or it’s nothing at all. There’s very little shades of grey in between, generally.
Dharmesh: This is a simplification but that’s generally true.
Jason: It’s generally true.
Dharmesh: It’s like a lottery ticket kind of. If it works great.
Jason: Either it absolutely delights the customers. In which case they tell all their friends about it.
Jason: Or they don’t. Where in enterprise software you sell a couple of individuals on corporations on it and now you’re in business.
Dharmesh: Yep. This is why we got into the small business. We decided on the small business as a customer before we decided on marketed as the actual…
Jason: Really. You said small businesses. You could have been in the small business back up space.
Dharmesh: Or something else. Exactly.
Jason: Or small business accounting space.
Dharmesh: The reason we went small business was it had the appeal of enterprise software. Which is you could kind of charge money. Make money the old fashioned way. Solve a problem, take money. But it had the overall wide reach of consumer right? Cause there were millions of these businesses to sell to. So it was like the best of both worlds to us.
Jason: Ah. I see.
Dharmesh: We could build a real business. If there were shades of grey we could grow the business, watch the business grow. We could grow it pragmatically. But then there was no ceiling in our grow. We didn’t have all the downsides of enterprise software.
Jason: We’re in a very bottom up enterprise world. Not top down anymore. Has your product started to infect, if you will, the large, large, large multi-national corporations? How does somebody charging $3K a month interface with IBM or Blue Cross Blue Shield if they were to adopt the products? They want $30K in support a month.
Jason: They don’t want a $3K product. They want a $1M a month product.
Dharmesh: We have a series of good healthy animated debates at HubSpot long running. One of them has for the longest time… It’s still true thru today. So we started in the small business sector. One of our thesis we have is that we think the winners in the software category are going to be the ones that kind of start lower end and then move up. Cause we have this thesis that in software you have this reverse gravity kind of thing. The market always pulls you up, always pulls you towards more complexity, more revenue per customer and that you have to actually resist it. Otherwise naturally you’re going to get pulled up. So we’ve been actively resisting it. We resisted through product road maps. We don’t have a lot of the features that the large multi-national would have. We don’t want to do that.
Dharmesh: We know that eventually we will continue to get pulled up. That’s natural and that’s… You wanna do kind what Salesforce did. Kind of get in very, very cheap. Very, very low end. Then over time get pulled up. It’s a tricky balance that we have. We big customers now. We sell big deals now.
Jason: I would be remiss if I didn’t bring up the fact that you matched my $25,000 for the Launch Festivals’ first hackathon.
Jason: Thanks for doing that.
Dharmesh: Well thank you.
Jason: It’s an amazing thing. What makes you tick these days that you would do something so awesome like that? I wonder.
Dharmesh: A couple of things. One is I’m a hackerpreneur myself. I write code everyday. To this day.
Dharmesh: It’s like if two days go by and I haven’t written code I get a slow twitch and if three days go by I’m like what’s wrong with my life. Like where did I take this wrong turn. I love it.
Jason: No dopamine.
Dharmesh: Exactly. It’s like something’s wrong with my life. Some of the best entrepreneurs I know, some of the most successful investments I’ve had are what I think of as hackerpreneurs. OK. You’re doing all the hard work of pulling together a bunch of these really, really smart people. You’re going to filter them. Then one of them is going to get picked as being the one or whatever. That’s easy money.
Jason: So you’re like me. You understand exactly how easy… Yeah. This is like we’re…
Dharmesh: It’s not a hard decision.
Jason: We’re filtering pretty well here.
Jason: Did you know that over a hundred teams already is… hundreds of people have signed up.
Dharmesh: That’s awesome.
Jason: I put it towards the two of us putting up those prizes. Now. Really inspiring people. What’s the hardest thing today you think about being an entrepreneur? You’ve been to the show, the rodeo as it were a couple of times. It’s certainly have changed. What is the biggest change from the first company, the second company and now the third. How has things changed in the last 20 years for starting companies for founders?
Dharmesh: A couple of things. I think this is both good news and bad news. The good news is that there is so much literature and content and knowledge that’s out there shared around venture term sheets and just about every startup topic you can imagine. There’s a lot of…
Dharmesh: But the downside to that is now things that the entrepreneur could have legitimately used as excuses like, “I just didn’t know about that.” Or whatever. That is no longer… There is this entire body of stuff that you’re supposed to know. Because that’s like the table stakes have gone up, essentially.
Dharmesh: Because the concept is out there… If you’re not reading it I guarantee you don’t know what the other one is.
Jason: You don’t know what a liquidation preference is?
Dharmesh: Exactly. We need to know these things.
Jason: Do you know how to do the viral loop?
Dharmesh: So it’s just harder to stand out. The other thing is it’s easier, not easy but easier to start a company. Not easier to build a company but easier to start a company.
Dharmesh: Just the raw competition for talent. To some degree competition for capital. Although that seems to be rather plentiful. Not the seed stage kind of capital but that’s hard. The stuff that I think most… Most problems most startups have fundamentally come down to people. They’re all people issues. They’re not…
Jason: Do we have the right people on the bus?
Dharmesh: Do we even know what the right people are? Can we attract them? If they’re not the right people would we know it? Would we be able to act on it? How do we scale that? How do we continue to fill the bus up with the right kinds of people? As you grow it’s harder because everybody wants to hire like scrappy entrepreneurial types.
Dharmesh: We’re a 450 person company now. It’s a different recruiting process today then when we were 10 people.
Jason: And if you bring a scrappy person in they might not be as appreciated as much as when you were a 20 person company.
Dharmesh: Yeah. I’ll tell you an insider secret. So I have the CTO title but I think of on just about every other week the ‘T’ in my title stands more for talent than it does for technology it seems. I’m passionate about raw recruiting and pulling people in. But the secret I think to kind of recruiting at scale is you’re competing with everybody doing they’re own startup because it’s so much easier right now. Lots of times the great startup people I want to hire can just go off and do they’re own thing.
Dharmesh: So the secret for us has been to essentially offer them… OK if you have a great idea, awesome. I’m happy to consider investing in it or whatever. If you’re like kind of there this is like a startup MBA. Like we don’t expect you to stay here for five years. We’d love it if you did.
Jason: Put in your two or three years.
Dharmesh: It’s our responsibility. We will expose you too. We have the transparency thing. You can even walk into one of the marketing meetings. We have all these things… We want to build entrepreneurs not just build a company. It’s not just a great marketing slogan it also works.
Jason: You’re an angel investor in almost 40 companies… It’ll be 40 when the Launch Festival happens. When they leave you’ll be their first angel investment potentially. Has that happened yet?
Dharmesh: It’s already happened about 3 or 4 times. Yeah.
Jason: Wow. It happened to me twice already. Yeah. It’s one of those wonderful things. Listen this has been an amazing episode. I think we’re going to get a lot out of it. Everybody go check outHubSpot.com. Dharmesh what is your Twitter handle? I guess I should write it down.
Jason: @dharmesh. Wow. So you’re old school.
Dharmesh: I am.
Jason: There are a lot of people in India right now who are pretty bummed that they don’t have @dharmesh.
Dharmesh: That’s true.
Jason: It’s a popular name.
Dharmesh: Popular enough.
Jason: I have @jason. You’re part of the first name club.
Dharmesh: That’s actually more impressive.
Jason: @ryan, @veronica, @brook. I know a lot of first name people. It’s a good cohort that you’re in. So everybody follow @dharmesh. Everybody check out HubSpot. If you’re a small business, honestly, and you’re not using it you’re going to get your ass kicked by somebody who is. You really don’t have much of a choice at this point. That’s sort of what happens now. It’s an arms race isn’t it? If a small business uses your product or MailChimp or one of these solutions and the other person’s not loosing it they’re just going to get their butt kicked by the person across the street.
Dharmesh: Yeah. Whether it’s HubSpot or not they should be doing more inbound marketing.
Jason: That’s a gracious way of saying it but I’ll say it pretty clearly. If you’re not using HubSpot and you’re a small business you’re crazy and you’re going to get your butt kicked. So get in there and check it out. It’s going to be super affordable and awesome to use. The people I know who’ve used it have had an amazing outcome. Dharmesh thanks for being on the program.
Dharmesh: Thanks for having me. Great to see you.
Jason: My pleasure.
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