Regular readers of this blog know that I’m a long-time admirer of Seth Godin. He’s one of those “big thinkers” that has the added talent of being able to articulate high-level concepts in an immensely approachable way. That’s a very rare, and dare I say remarkable intersection of abilities.
The following is a list of short, pithy insights that I’ve been collecting from Seth’s Blog over the past few months. They were not all written specifically for startups, but I found them to be particularly relevant for entrepreneurs. I, like many, think Seth's ideas deserve to be spread.
Enjoy.
If you find any of these particularly resonant, there’s a convenient link to tweet it.
23 Tweetable Startup Insights From Seth Godin
1) Reliance on the tried and true can backfire. [tweet]
2) Sell the problem. No business buys a solution for a problem they don't have. [tweet]
3) Every activity worth doing has a learning curve. [tweet]
4) As the world gets faster, the glacial changes of years and decades are more important, not less. [tweet]
5) Cultural shifts create long terms evolutionary changes. [tweet]
6) Being 1st helps in the short run. Being a little more right pays off in the long run. Last is the worst. [tweet]
7) Build in virality. [tweet]
8) Subscriptions beat one-off sales. [tweet]
9) Treat different customers differently. [tweet]
10) Generate joy. Don't just satisfy a need for a commodity. [tweet]
11) Plan on remarkable experiences, not remarkable ads. [tweet]
12) Don't build a fortress of secrets, bet on open. [tweet]
13) You can get even more done if you give away credit, relentlessly [tweet]
14) Create scarcity but act with abundance. [tweet]
15) Competition validates you. It creates a category. It permits the sale to be this or that, not yes or no. [tweet]
16) There are lots of good reasons to abandon a project. Having a little competition is not one of them. [tweet]
17) It's not who can benefit from what you sell. It's about choosing the customers you'd like to have. [tweet]
18) The customers you fire and those you pay attention to all send signals to the rest of the group. [tweet]
19) 100 people doing something at the same time has far more power than 300 people doing it over time. [tweet]
20) Are you chasing or being chased? Are you leading or following? Are you fleeing or climbing? [tweet]
21) Get it right for ten people before you rush around scaling up to a thousand. [tweet]
22) Highlighting what's working helps you make that happen more often. [tweet]
23) Perfect is overrated. Perfect doesn't scale, either. [tweet]
Which is your favorite? Any that I missed that you have in your secret stash?
By the way, you can follow me on twitter @dharmesh.
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I am thrilled to announce my most recent — and most ambitious — startup project to date.
My wife Kirsten and I are now expecting our first child — I’m going to be a dad!
New Ambitous Startup Project: The Details
1. Funding: Unlike my current startup HubSpot (which has raised $33 million in venture capital), this particular project will be self-funded. Hopefully, it won’t be quite as capital intensive.
2. Founding Team: Though both founders are new to the domain, we hope to make up for the inexperience with passion and perseverance.
3. Launch Date: Scheduled for January, 2011.
4. Branding: We haven’t kicked off a branding project yet — will do that as the scheduled launch date approaches. Meanwhile, we'll use the term, NewBay, Inc. (inspired by that fantastically inspired name, NewCo, Inc.)
5. Management: Luckily, we have many people interested in helping with this project. Some will be helping grow the effort on a volunteer basis.
6. Parallel Startups: Generally, I’m not a fan of working on multiple startup projects simultaneously. But, in this case, it was not avoidable. HubSpot hasn’t quite hit adulthood yet (and still wants the car keys every Friday night), and this new project couldn't really wait.
7. Distribution: We believe there is a market need as evidenced by some recent survey respondents: “Quit working so hard and focus on life a bit. You’re not getting any younger -My Mom”. “Listen to your mom.” -My Dad. Though the sample size for these surveys is not statistically representative, seems like finding early interest in the project will be easy. Then, using lean startup principles, we’ll iterate from there based on what we learn.
As is the case with any new, early-stage effort, we’re likely to make mistakes. The hope is that in the the long run (and in this case, it’s a
really long run), we will have created something great and made the world a tad better. Wish us luck! Exciting times!
By the way, you can follow me on twitter @dharmesh.
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Of the several conferences I attend or speak each at each year, my favorite is the Business of Software conference organized be Neil Davidson (of Red Gate) and Joel Spolsky (of Fog Creek). There are several reasons for this. The speakers are great and have enough stage time to really get into the topic they’re passionate about. There’s no no “sponsor fluff”. You can’t pay your way into a speaking spot. There are no booths. No panels. It’s single track so you don’t have to make hard decisions around which sessions to attend. But, most importantly, the attendees are awesome. Even when the conference was in Boston (where I live), I rented a hotel room where the conference is held just so I could spend more time with the people there. I plan to do that again this year.
The 2010 conference is in Boston Oct 4th – October 6th. It’s a beautiful time of year to be in Boston and the speaker lineup is once again, awesome. Folks like Seth Godin, Eric Ries (Lean Startup Guy), Scott Farquhar (of Atlassian) and of course, Joel Spolsky himself. Check out the schedule, and if you can go, you should go. Just ask someone that’s attended in prior years.
The 2009 conference was held in San Francisco and the title of my talk was “Ideas For Building Better Software Businesses”. There are essentially two parts to the talk — the first half is about inbound marketing (how to pull customers in using Google, social media and blogs). The second half (which starts at about 37 minutes) is about customers and sales. If you enjoyed my talk in 2008 titled “Everything I Know About Startups”, you’ll likely enjoy this one too.
Ideas For Building Better Software Businesses
Some notes from the video, for your convenience:
1. My objective for this particular presentation was to improve the odds of your survival and your success if you're growing a software company.
2. Types of risk: Development risk (given an idea, can you actually build the product?), Market risk (if you do indeed build it, will anybody pay for it?), financial risk (will you have the necessary capital to build a business?) and execution risk (assuming you’ve mitigated the other risks, will you manage not to screw it up?).
3. Introducing the concept of smarketing (sales + marketing).
4. Charge early. Like pre-alpha early. Like it sucks so much I’m surprised people don’t go running out of the room, early.
5. Sell early not because the revenues are going to amount to anything (they’re not), but because the data from paying customers is exceptionally valuable.
6. Sell often, because you want reliable, negative feedback too. Selling early tells you whether people will buy — selling often (i.e. charging smaller amounts in regular intervals) tells you whether they’ll stay. Let customers vote with their dollars (by giving them the option to cancel their subscription).
7. Don’t hire sales people too early. In the early days at a startup, regardless of what your title is, you should be bringing customers on board.
8. Consider creating a sales waterfall chart that shows you daily, how the business is tracking against your sales goals. This proves invaluable as you scale and surfaces problems in the business early.
9. Keep pricing simple in the early days. You’ll have plenty of time to make it more complicated later.
10. In most big markets, you can afford to get pricing wrong in the early days. If your potential market is thousands of customers, then selling the first hundred at a “sub-optimal price” is not fatal. If you end up getting thousands of customers, getting pricing wrong for the first 100 won’t matter. If you end up getting just 100 customers, getting pricing wrong for those 100 won’t matter.
11. You should Implement something like the HubSpot Customer Happiness Index (CHI). It’s a quantitaive method for measuring how happy your customers likely are using available data (like their product usage pattern).
12. Things that you can likely include in your CHI: Frequency of product usage, breadth of product usage and actual benefit received.
13. The CHI can be used for many things, the most important of which is predicting which customers are likely to cancel (because they have a low CHI score and are likely unhappy). Other uses include compensation for sales people, calculating the quality of leads that marketing is generating, and making product roadmap decisions.
If you attended this talk or took the time to watch the video, would love to hear your feedback I can make my talk this year more valuable. Hope to see you at Business of Software 2010!
By the way, you can follow me on twitter @dharmesh.
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The following is a guest post by David Mytton founder of Boxed Ice, which provides software for server monitoring. Deep down inside, many software entrepreneurs really dislike selling. This article provides some practical tips for “selling without selling”. That is, ways to avoid having to be that stereotypical "sales guy". - Dharmesh
"Sales" is sometimes perceived with an aura of mystery. As a developer, it's something I always assumed was reserved for a "real salesperson" and even though I was selling our products, I thought it was because the customer had come to us directly. Whilst there is an aspect of "sales" that involves cold calling and making visits to prospects, I actually recently realised that many of the things I'm doing on a daily basis are all part of what might be called "sales".
What sales activities consist of will differ depending on what you're selling, who you're selling to (consumers, smaller businesses or enterprise) and how large your organisation is, but there are a few things that can be used universally and to great effect. Here are a few that I use with my own SaaS product.
1. Signup followups
Getting a customer to sign up is a major step but it's not the end of the process - you need to make sure they're actually using the product. E-mail them the next day to remind them of a few of the cool features or recommend things to try. Being smart about it helps - you can easily track whether they have logged in and performed various tasks so include those in an e-mail.
In our case, the e-mail subject is "Have you tried our iPhone app?" and the e-mail highlights the advantages of the free app, with a link to the iTunes Store, plus a reminder of the web UI URL for their account.
In the early days, I used to phone every one of my signups to see how they were doing. We don't collect the phone number as part of the signup process but many customers add it because our product allows for SMS alerts. This helped get early feedback and users were often surprised to get a call before they'd even paid anything.
2. Trial followups
All our users sign up to a 2 week trial before they have to pay. An e-mail is sent to remind them the trial is expiring 2 days before, and we e-mail them again on the day of expiry. The key thing here is to ensure the user has time to upgrade, sometimes requiring internal approval. All our trials are set to expire on a Thursday i.e. mid-week. This means expiry notifications go out on a Tuesday. This avoids being lost in the Monday e-mail overload from the weekend and avoids Fridays when people just want to go home.
And because most of our users are in Europe or the US, we time the e-mails to arrive during the afternoon/late morning rather than overnight. Users will clear out their inbox in the morning so this leaves them clear to receive our e-mails!
3. Mixing automation with real people
I think you're more likely to look at an e-mail that's from a real person than one obviously from a machine "From: David Mytton" vs "From: Boxed Ice Mailer". I mix these up so the day after signup followup comes from "me", is written in a casual style and signed off by me. It also comes from my company e-mail so replies go directly to me and because I'm asking a question about using our iPhone app, I often get replies with feedback or questions.
But our trial reminder e-mails come from the system. You'd expect these to be automated whereas an e-mail asking how things are going is more personal.
4. Making automation interesting
Our signup e-mail with the user's login details and the trial e-mails are sent by the "Boxed Ice Robot Llama". This makes it a little different from other automated systems and we've had some good feedback from users enjoying this differentiation. It all goes towards making the service a little more friendly and has been used to good effect by the guys at Moo, who use "Little Moo" as their order processor.
5. Highlighting the higher value customers
Our product is a server monitoring service so the more servers you monitor, the more you pay. We run a script to highlight users on the trial with more than 3 servers and add a task to our customer system to get in touch with them directly before their trial ends. This will be a phone call if they have provided their details, or we'll e-mail them. This comes directly from me as a real person, asks how they've been getting on, whether they're going to upgrade and includes volume
discount pricing.
I've found that some users do plan to upgrade their accounts but haven't had time to, or have a few questions first. Often these will get pushed to the end of the todo list so getting in touch directly allows you to speed up the sale. You can also be flexible with your
pricing to offer discounts if the customer agrees to a minimum number to get access to the volume discounts in anticipation of future growth, or if they're willing to pay in advance for a discount.
6. Convert With Newsletters
All our signups get subscribed to our monthly newsletter which contains not just product news but interesting links from our blog, Twitter and around the web. We've had many cases where the user has not converted from the trial immediately, but months later they come back when a feature they wanted has been implemented having found out from the newsletter.
Wrap-Up
Although this doesn't fit with the stereotype of the hard sell from the sales guy who just won't give up, these are all legitimate "sales" activities that can be done by any software startup and can easily scale as the customer base grows. We've only recently started highlighting the higher value trial users but this has already proven to be worthwhile. So let me know what you think and what's worked for you in the comments.
By the way, you can follow me on twitter @dharmesh.
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At a startup dinner I had with a bunch of really smart software entrepreneurs in Austin, Texas during SXSW earlier this year, something really struck me. Of the 8 founders at the dinner, half of them had a design/ui/ux background. This got me to thinking: What would the ideal founding team at a web startup look like?
[Note: I'm experimenting with a new feature that allows inline tweeting from the article. Please click one of the twitter buttons in the article to try it out. Thanks.]
Magical Web Startup Founding Team
#1. Developer. If a web startup has only one founder, it should be a brilliant developer. And by a developer, I mean a developer — someone who can produce, release and maintain working code. Not a CTO or “architect”. Not someone who thinks they can recruit developers or someone who knows someone who runs a development shop in Croatia. An actual developer.
#2. Designer / UI / UX person. If the startup has two founders, the other founder should be a brilliant designer-type. By this, I mean someone that can take a problem that humans have and come up with a software solution that humans want to use — repeatedly and delightedly. I think great design talent has always been useful in a software company — now, it’s become crucial.
#3. Inbound Marketer. If the startup has three founders, the third one should be an inbound marketer. An inbound marketer is someone who is good at pulling people in (vs. pushing a message out). I decidedly don’t mean someone that’s good at spending a marketing budget on advertising to try and find people that are interested. I mean someone that will create remarkable content that will attract traffic, users and customers.
#4. Sales Person. If there’s a fourth founder on the team (which I’m not a big fan of by the way), it might be useful to have a sales person. And, remember, startups don’t need a VP of Sales — they need actual sales. 
The reason I put the designer above the inbound marketer is simple: If the designer is exceptional, half the marketing battle is already won. Ecstatic users do much of your marketing for you. Today, a great product with good marketing usually wins over a good product with great marketing. This makes me happy, because it is as the world should be.
And, if you have an exceptional product and exceptional marketing, you often don’t need sales. Of course, in certain kinds of busineses, sales is critical — but I’m talking about the ideal case here. In my ideal world, it’s nice to not to have sell. [Note: No disrespect to all the great sales people that work at HubSpot — I’m sure in your ideal world, you’d love for there to be a magical machine that produced working code and there was no need to deal with quirky programmers.]
Now one thing that might trouble many of you reading this is that I don’t include a “visionary” business person in the mix. There are a couple of reasons for this: First, it’s near impossible to know if a vision/idea is good one until after someone does something about it. Lots of really smart, competent people have mediocre ideas all the time. Second, no amount of great vision is going to obviate the need to manifest it. It comes back to creating a product humans like. Humans don’t care about other people’s visions.
Finally, it’s entirely possible (and quite desirable) to have some of these traits in a single individual. Some of my favorite combinations are developer/designer (what I call a devigner) and developer/marketer (which I call developer/marketer because I never came up with a more clever name for it).
So, what do you think? Take your current startup out of the picture for a second. If you were betting your life savings on a startup, what would you think the magical mix of founders should be? Would you reorder my list? Add someone? Take someone out?
How would you define the perfect webs startup founding team?
By the way, you can follow me on twitter @dharmesh.
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The following is a guest post by Brian Halligan, my co-founder at HubSpot. Brian recently released a new book titled “Marketing Lessons From The Grateful Dead”. The book is a brilliant condensation of some strategic insights that should be useful to startups. Brian is currently the co-author of 2 of the top 10 marketing books on Amazon (the other one is “Inbound Marketing”).
The following article is excerpted from one of the chapters of the book.
Create a Unique Business Model
Before the Internet, bands promoted their new albums by scheduling tours across the U.S. and around the world. Fans paid huge bucks to attend sold-out shows where they were treated to pyrotechnics, light shows, and of course the music. Concerts were the same every night and included the bands’ “best of” songs, with cuts from the new album mixed throughout the set. The goal of these concert tours was to sell as many records as possible to ensure your album went gold, platinum or multiplatinum.
Fans bought albums at their local record store where they would find the list of top albums for that week taped to the wall next to the cash register. For an album to go to gold in 1975, a band had to sell 500,000 of them and hit $1 million dollars in sales. To be awarded the coveted platinum certification, bands had to sell 1 million albums and hit the $2 million dollar sales mark.
Doing concert tours to promote these moneymaking albums was the fundamental business model for bands, the record labels and sundry hangers on. The Grateful Dead turned this business model on its ear: rather than focus on selling albums like other bands, they focused on generating revenue from live concerts, and in doing so created a fan “experience” that was unlike any other. Because the concert tours themselves were the main source of revenue, the Grateful Dead ran their concerts in a very different way from other bands. For example, each show had a unique set of songs and each song was played in a unique way, giving fans a strong incentive to see the show for several nights in a row (or weeks, months or years) because every night you were treated to a different musical experience. This is the exact opposite approach taken by other bands.
Since the concert tour was at the heart of their business model, the Grateful Dead didn’t tour periodically to promote an album; with few exceptions, they were permanently on tour. The Grateful Dead invested heavily in their light show and sound systems, both of which were the best in industry, and in doing made the musical experience much more powerful for their fans. Due to these factors and others, the Grateful Dead developed a following of people who would see show after show. These followers became part of the concert experience, especially as you waded through them in the parking lot where you were exposed to tasty food such as veggie burritos, all sorts of exotic drugs, unique clothing, and all the other crazy stuff that went along with a Dead tour. By changing that one fundamental assumption in a typical band’s business model, the Grateful Dead created a cascading effect of benefits for themselves and their fans. Imagine for a moment if the Grateful Dead had put themselves in the care of a manager focused on selling records and increasing the profits of a record company. If they had conformed to “industry best practices,” the Grateful Dead might be one of the thousands of bands on the dead heap of music history. The concert-as-business-model worked, and the Dead created a passionate fan base that became an underground cult that catapulted the Grateful Dead into the rock and roll stratosphere: the fan base grew from thousands to hundreds of thousands to millions with the Grateful Dead selling out shows around the globe.
It’s much easier to follow what other companies are doing and mimic their business model than it is to innovate. Don’t do it! Watch your competition, but avoid the temptation to follow them with every fiber of your soul. Today’s big winners typically win because of unique business model assumptions, rather than some new technology or complicated product improvements. A few common examples include Netflix (versus Blockbuster), Zipcar (versus Hertz), eBay (versus yard sale), Google AdWords (versus Yahoo), iPod + iTunes (versus MP3 + downloading), Southwest Airlines (versus driving a long way), and Walmart (versus the country store). Like the Grateful Dead, these companies turned the core assumption of how their industry works on its head to create an unlevel playing field for themselves. Their rejection of core assumptions in their industry allowed them to really stand out from their competition and create a cascade of benefits for their customers.
The Grateful Dead teaches us that business model innovation is just as important, if not more so, than product innovation.
Rue La La Creates Online Buying Destination for Luxury Goods
An exclusive, invitation-only online destination, Rue La La is a website where members can purchase high-end fashion goods at discounted prices. What’s different about Rue La La from a TJ Maxx or other discount retailers is its business model. Rather than offer last year’s items that didn’t sell in the stores at heavily discounted prices, Rue La La developed partnerships with designers and by working closely with them, offers current merchandise and one-of-a-kind items at discounted prices – items which can only be purchased during limited time periods. Here’s how it works: Each day, Rue La La features a designer boutique, say Villeroy & Boch or St. John, that opens at 11:00 AM Eastern and remains open for 48 hours or until merchandise sells out – with a blinking clock counting down the time. Because merchandise can sell out in a matter of minutes, members often set calendar reminders so that they can be at their computers a few minutes before 11:00 AM. The company sends out email reminders a few days in advance that let people know which designers will be featured on the site.
Since its inception in April 2008, Rue La La has built a passionate fan base of 1.6 million members using viral methods. To become a member, you must receive an invitation from another member. Once a member extends an invitation, he/she receives a $10 credit when each friend places their first order, with no limit placed on the number of credits one can receive. Credits can then be used against any boutique purchase.
You would think that the limited availability of fashion items would frustrate people and turn them away. Instead, the opposite is true: Limited availability of items reduces over-exposure of brand partners and their merchandise as well as customer fatigue at seeing the same brand or fashion items over and over. It also creates a sense of urgency – if shoppers don’t buy something immediately, they’ll lose out and will kick themselves for days after for missing a good deal. This is different from the typical shopping experience where if you’re not sure about an item you can go home and “think about it,” which usually means a no sale for the retailer as your ardor cools and you realize you don’t really “need” the item.
Rue La La helps people make fast purchases with its “Quick! Buy It” feature: a member enters her credit card number and billing / shipping information on the account settings page, and when shopping can click the “Quick! Buy It” button, eliminating clicks for hot purchases. Members can even shop via smart phone – making it easy to purchase items while on the run. If a member has a problem with any purchase, she can Tweet Rue La La’s Concierge, who responds immediately.
Instead of competing with retail discounters or high-end department stores, Rue La La has created an innovative business model that targets a distinctive demographic. With passionate fans around the world, the company grew from around $25 million in sales in 2008 to $28 million in the 3rd quarter alone for 2009. Their innovative business model “paid off” as the company was purchased by GSI Commerce, Inc. in early 2010 for $350 million.
Create a Remarkable Business Model
Products that are highly differentiated can still win today, but it’s much harder to win if your business model is the same as your competitors’. Your job is to do research about your industry in order to build a killer business model. You want to break free from the competitive landscape and create a cascade of unique benefits for your customers.
Action: Creating a unique business model is very difficult and no free lunch exists on how to do it. Rather than tell you how to create a unique business model in your industry, we thought we would give you some hard questions to ask yourself that will get your juices flowing on how to create one:
What are you three times better at than you competitors? What are you three times worse at than your competitors? If the answer is “nothing” to both, you are not unique enough to really break out. And “no,” you can’t be better than your competition at all dimensions – you need to rethink the dimensions.
In addition to thinking about your industry competitors, what are the “alternatives” to your product? Can you find ways to erase the traditional “boundaries” of your industry by incorporating or subsuming some of the alternatives? Southwest Airlines, for example didn’t compete with other airlines, they competed with a long car drive.
What new technology is emerging that might enable you to upset your industry’s apple cart? Could the Internet be a new distribution channel? Could an iPad application catapult you past the competition? Could you use Amazon’s mechanical turk system (an online arena that connects those who have relatively small tasks with people who can perform them) to dramatically lower costs or deliver new value?
Are there societal changes happening that you might take advantage of in your industry, such as empty nesters moving back into cities, more people working from home, a shift to outsourcing to rural America than overseas, or increased interest in low carbon footprint lifestyles for companies and families, etc.?
Do you have someone who’s really smart from outside your industry that you can ask to help you with this? The problem with creating a unique business model in an industry you grew up in is that you naturally get bogged down in the industry assumptions you’re trying to break.
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If you liked this article, you'd also likely enjoy a free upcoming webinar titled "How To Market Your Business Like The Most Iconic Band In History". You should also buy the book. It's a quick, easy read. You'll like it even if you're not a Deadhead (I'm not).
So, what do you think? Any other examples of companies that you think did this particularly well?
By the way, you can follow me on twitter @dharmesh.
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The following is a guest post by Brian Halligan who is my co-founder and CEO at HubSpot (which means he gets to do most of the really hard work).
I recently did a lecture at a Babson MBA summer class on Entrepreneurial Leadership. I got a lot of questions from students about how and why HubSpot won the Boston Business Journal’s #1 place to work award….hmmm….good question.
At the highest level, we are trying to create a “post-modern culture” (I just came up with that term…too high falutin?). Believe it or not, this post-modern culture was inspired by the TV show Mad Men. The show is set in an advertising company 50 years ago and it pokes fun at corporate culture in that era. For example, almost all of the women in the office are secretaries, many of the married men are sleeping with these secretaries, everyone boozes heavily during work hours, etc. While watching Mad Men, I couldn’t help but wonder what a show might look like 50 years from today that poked fun at current working conditions and company culture. That led us to think a bit about what just didn’t make sense anymore given the realities of the Gen Y worker, broadband in the home, constant connectivity via mobile devices, the modern market for hiring exceptional people, etc.
Here are some of the more interesting features of working life at a post-modern company that have come out of that Mad Men inspired thinking.
1. Vacation Policy = No Policy: In our father’s era where people needed to come to the office to collaborate and do real work, a vacation policy made a lot of sense. The reality is that today I get emails from HubSpotters at all hours of the night and have a steady flow during the weekend. No one asks for vacation credit for being on their iPhone while sitting on the beach on the Cape, so why should they have to ask for permission to take vacation during the week.
2. “We don’t care which 80 hours you work”: In the early days of HubSpot, people used to ask us about working unusual hours or working part of the day at home and Dharmesh and I used to always say, “We don’t care which 80 hours a week you work, so long as you put in your 80.” The reality is that most of us don’t work 80 hours, but you get the idea…
3. Extreme Transparency: Other than salaries, there are few secrets at HubSpot and I wonder whether we should just expose those too. One manifestation of this extreme transparency is on the wiki where I personally write a new wiki article a couple of times a week about what is on my mind about the future of the company, problems I see that need to be solved, opportunities that I’d like folks to look into, board meeting notes, etc. The articles are widely commented on and some of our best initiatives get spurred by these discussion threads. Among my favorite articles written by other HubSpotters have the title “If I Were CEO Of HubSpot, I Would…”
4. No door policy: Many companies have an “open door policy,” but we have a “no door policy.” No HubSpotters have an office – we all sit out in the open next to each other. I am currently writing this article wedged between two developers, Michael and Andrew, whose work I’ve gotten to know quite well when I otherwise would have been out of touch in a corner office.
5. Seat rotation: If have been sitting next to Andrew and Michael for about two months, but we are about to do one of our quarterly seat rotations where we pull numbers from a hat to see who we will be sitting next to. This ensures folks get to know different people from around the company. I’m looking forward to seeing whom I’ll be sitting next to next week!
6. HubSpot Fellows: We hired Professor Andy McAfee from MIT Sloan to help us start the HubSpot Fellows Program, which is like an MBA for HubSpotters. Courses offered so far: Strategy HubSpot Style, Statistics, Learning Leadership From Legends, and Improving Written and Verbal Communications. The courses are open to any HubSpotter and are taught by Andy and me. …We did this because we want our employees to learn and we want to attract employees who like to learn.
7. Free beer: I can’t remember how it got started, but we always have free beer in our fridge. I’ve noticed folks seem to wander around and drink a beer or two at the end of the day to unwind. We are up to about 170 people and I’ve yet to see someone do something stupid. HubSpotters seem to be rewarding the trust we put in them here.
8. Friday 4pm Happy Hour: We are certainly not the only ones who do a Happy Hour on Friday, but we have our own unique twist on it. Every Friday at 4pm ET, we film HubSpot.tv live in our office and encourage employees (and community members) to watch the show, play a little ping-pong or foosball, and hang out.
9. Games: We have a west coast style games room where people can play ping-pong, foosball, hang out on the couch, or hit the beer fridge. We do this because it is a good way for folks to get to know each other and refresh their minds.
10. Tournaments: We have frequent tournaments, including ping-pong, foosball, iron chef, and softball. All of these are just plain fun and bring folks together across groups.
11. Dress code = no dress code: Doesn’t made sense to me to tell people what to wear…we’re not in a boarding school -- we are in a company where we want people to be as productive as possible.
12. Big Hairy Mission: Our mission is to “transform the way the world does marketing.” At least to me, that mission is big enough that I can really get psyched about it and be proud to tell others I’m working on it. I don’t know for sure that other employees feel the same way, but I suspect it is the case. Modern workers are more like cathedral builders than brick layers if you give them the right mission.
13. Social media policy = we trust you: Any of our employees can post an article on our blog, can tweet, can blog privately, etc.
This last point of “trust” is a common theme that runs throughout a post-modern culture. If you are hiring exceptional people who have lots of good options, you should trust them to make good decisions that will improve the enterprise value as your interests are strongly aligned.
What aspects of corporate culture do you think are passé? What creative corporate culture things are you doing at your company that you think we could emulate?
By the way, you can follow me on twitter @dharmesh.
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It’s been a little over 4 years since I officially launched my internet marketing software company, HubSpot. (The “official” date is June 9th, 2006 — for those that are curious about such things). So, I’ve had about 4 years on the “inside” of a fast-growing, venture-backed B2B SaaS startup. Quick stats: ~2,900 customers, ~170 employees and $33 million in capital raised. But, this is not an article about HubSpot, it’s an article about things I’ve learned in the process of being a part of one of the fastest growing SaaS startups ever. (I looked at data for a bunch of publicly traded SaaS companies, and the only one that grew revenues faster than HubSpot was Salesforce.com). 
In any case, let’s jump right in.
7 Non-Obvious SaaS Startup Lessons From HubSpot
1. You are financing your customers. Most SaaS businesses are subscription-based (there’s usually no big upfront payment when you signup a customer). As a result, sales and marketing costs are front-loaded, but revenue comes in over time. This can create cash-flow issues. The higher your sales growth, the larger the gap in cash-flows. This is why SaaS companies often raise large amounts of capital.
Quick Example: Lets say it costs you about $1,000 to acquire a customer (this covers marketing programs, marketing staff, sales staff, etc.). If customers pay you $100/month for your product and stay (on average) for 30 months, you make $3,000 per customer over their lifetime. That’s a 3:1 ratio of life-time-value to acquisition cost. Not bad. But, here’s the problem. If you sign up 100 customers this month, you will have incurred $100,000 in acquisition costs ($1,000 x 100). You’re going to make $300,000 over the next 30 months on those customers by way of subscriptions. The problem is that you pay the $100,000 today whereas the $300,000 payback will come over time. So, from a cash perspective, you’re down $100,000. If you have the cash to support it, not a big deal. If you don’t, it’s a VERY BIG DEAL. Take that same example, and say you grew your new sales by 100% in 6 months (woo hoo!). Now, you’re depleting your cash at $200,000/month. Basically, in a subscription business, the faster you are growing, the more cash you’re going to need.
2 Retaining customers is critical. In the old enterprise software days, a common model was to have some sort of upfront license fee — and then some ongoing maintenance revenue (15–20%) which covered things like support and upgrades. Sure, the recurring revenue was important (because it added up) but much of the mojo was in those big upfront fees. The holy grail as an enterprise software startup was when you could get these recurring maintenance fees to exceed your operating costs (which meant that in theory, you didn’t have to make a single sale to still keep the lights on). In the SaaS world, everything is usually some sort of recurring revenue. This, in the long-term is a mostly good thing. But, in the short-term, it means you really need to keep those customers that you sell or things are going to get really painful, very quickly. Looking at our example from #1, if you spent $1,000 to acquire a customer, and they quit in 6 months, you lost $400. Also, in the installed-software world, your customers were somewhat likely to have invested in getting your product up and running and customizing it to their needs. As such, switching costs were reasonably high. In SaaS, things are simple by design — and contracts are shorter. The net result is that it is easier for customers to leave.
Quick math: Figure out your total acquisition cost (lets say it’s $1,000) and your monthly subscription revenue (let’s say again say it’s $100). This means that you need a customer to stay at least 10 months in order to “recover” your acquisition cost — otherwise, you’re losing money.
3 It’s Software — But There Are Hard Costs. In the enterprise-installed software business, you shipped disks/CDs/DVDs (or made the software available to download). There were very few infrastructure costs. To deliver software as a service, you need to invest in infrastructure — including people to keep things running. Services like Amazon’s EC2 help a lot (in terms of having flexible scalability and very low up-front costs), but it still doesn’t obviate the need to have people that will manage the infrastructure. And, people still cost money. Oh, and by that way, Amazon’s EC2 is great in terms of low capital expense (i.e. you’re not out of pocket lots of money to buy servers and stuff), but it’s not free. By the time you get a couple of production instances, a QA instance, some S3 storage, perhaps some software load-balancing, and maybe 50% of someone’s time to manage it all (because any one of those things will degrade/fail), you’re talking about real money. Too many non-technical founders hand-wave the infrastructure costs because they think “hey we have cloud computing now, we can scale as we need it.” That’s true, you can scale as you need it, but there are some real dollars just getting the basics up and running.
Quick exercise: Talk to other SaaS companies in your peer group (at your stage), that are willing to share data. Try and figure out what monthly hosting costs you can expect as you grow (and what percentage that is of revenue).
4 It Pays To Know Your Funnel. One of the central drivers in the business will be understanding the shape of your marketing/sales funnel. What channels are driving prospects into your funnel? What’s the conversion rate of a random web visitor to trial? Trial to purchase? Purchase to delighted customer? The better you know your funnel the better decisions you will make as to where to invest your limited resources. If you have a “top of the funnel” problem (i.e. your website is only getting 10 visitors a week), then creating the world’s best landing page and trying to optimize your conversions is unlikely to move the dial much. On the other hand, if only 1 in 10,000 people that visit your website ultimately convert to a lead (or user), growing your web traffic to 100,000 visitors is not going to move the dial either. Understand your funnel, so you can optimize it. The bottleneck (and opportunity for improvement) is always somewhere. Find it, and optimize it — until the bottleneck moves somewhere else. It’s a lot like optimzing your software product. Grab the low-hanging fruit first.
Quick tip: Make sure you have a way to generate the data for your funnel as early in your startup’s history as possible. At a minimum, you need numbers on web visitors, leads/trials generated and customer sign-ups (so you know the percentage conversion at each step).
5 You Need Knobs and Dials In The Business. One of the great things about the SaaS business is you have lots of aspects of the business you can tweak (examples include pricing, packaging/features and trial duration). It’s often tempting to tweak and optimize the business too early. In the early days, the key is to install the knobs and dials and build gauges to measure as much as you can (without driving yourself crazy). Get really good at efficient experimentation (i.e. I can turn this knob and see it have this effect). But, be careful that you don’t make too many changes too quickly (because often, there’s a lag-time before the impact of a change shows up). Also, try not to make several big changes at once — otherwise you won’t know which of the changes actually had the impact. As you grow, you should be spending a fair amount of your time understanding the metrics in your business and how those metrics are moving over time.
Quick advice: If you do experiment with pricing, try hard to take care of your early customers with some sort of “grandparenting” clause. It’s good karma.
6 Visibility and Brakes Let You Go Faster. One of the big benefits of SaaS businesses is that they often operate on a shorter cycle. You’re dealing in days/weeks/months not in quarters/years. What this means is that when bad things start to happen (as many experienced during the start of the economic downturn), you’ll notice it sooner. This is a very good thing. It’s like driving a fast car. Good brakes allow you to go faster (because you can slow down if conditions require). But, great visibility helps too — you can better see what’s happening around you, and what’s coming. The net result is that the risk of going faster is mitigated.
Quick question: If something really big happened in your industry, do you have internal “alarms” that would go off in your business? How long would it take for you to find out?
7 User Interface and Experience Counts: If you’re used to selling client-server enterprise software that was installed on premises, there’s a chance that you didn’t think that much about UI and UX. You were focused on other things (like customization, rules engines and remote troubleshooting). That was mostly OK, because on average, the UI/UX of most of the other applications that were running on user desktops at the enterprise sucked too. So, when you got compared against the other Windows client-server apps, you didn’t fare too badly. In the SaaS world, everything is running in a browser. Now, the applications you are getting compared to are ones where someone likely spent some time thinking about UI/UX. Including those slick consumer apps. You’re going to need to step it up. In this world, design matters much more. Further, as noted in #2 above, success in SaaS is not just about selling customers, it’s also about retaining them. If your user experience makes people want to pull their hair out and run out of the room screaming, there’s a decent chance that your cancellation rate is going to be higher than you want. High cancellation rates kill SaaS startups.
Quick tip: Start recruiting great design and user experience talent now. They’re in-demand and hard to find, so it might take a while.
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So, what do you think? Are you running a SaaS startup now? What have you learned? Would love to hear about your experiences in the comments.
By the way, you can follow me on twitter @dharmesh.
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Imagine you’re having some big, high falutin’ meeting. Perhaps it’s a board meeting. Or, if you don’t have a board, perhaps it’s a management team meeting. Or, if you don’t have a team, perhaps it’s just you talking to yourself at 3:00 a.m. in the morning. Whatever mechanism it is you have to talk about important issues and make decisions, imagine that meeting. Are you imagining it? Good.
Now, imagine that same meeting with one important change: One of your smart, savvy, customers is at the table. And, she has an actual voice. She’s a peer. She makes arguments, some of which are wrong and misguided, just like you and the rest of your team. If the customer were there, I think you’d have better meetings.
Practically speaking, you probably can't actually put a customer in all your meetings. If that’s the case, you should act as if she’s there. Pretend like she’s sitting in the room. In the past, I’ve actually designated an empty chair in the meeting as being where the customer is, and looking in that direction while asking “what does the customer have to say?” (yes, I’m weird). When you’re trying to make an important decision, and you’re sort of divided on the issue, ask yourself: If the customer were here, what would she say? You don’t actually have to do everything she says, but it’s useful to at least factor in her point of view.
Now, you might argue that you’re already factoring in customers in all of your decision-making. And, I’m going to argue that you’re wrong. You’re making decisions all the time where the customer’s voice is either absent or too weak. Just think back on the last five debates you had, and the decisions you made. Perhaps it was a pricing decision. Or a funding decision. Or an office space decision. Did the customer really have a voice? Was it as loud as everyone else’s? Probably not.
You might then further argue that you have someone “representing” the customer (your head of customer support, perhaps). I’d argue that that’s different. Yes, your head of customer support is solving for your customers’ well-being, but that’s not the same thing. Imagine if you were running a hospital. You’d have operations, and finance and marketing and all sorts of other groups. In your big hospital meeting, you might think that the doctors represented the patient’s interest (because they are looking to solve the patient’s problem), but if you’ve ever been a patient, you know that’s not the same thing. Your hospital management meetings would be very different if there was a patient in the room. Your startup is no different. The decisions would be better if there was a customer in the room.
Finally, you might have the most insidious set of fears of all: First, that your customers are ignorant (they don’t understand industry trends or technology). Second, that they’re selfish (all they care about is getting the lowest price and extracting the most value from you). Third, that they’re control-freaks and just want to run your business. All of these are simply not true. Your customers are not ignorant, selfish, control-freaks. Of course, there’s a distribution curve at work here. You might rightfully argue that some of your customers manifest one or more of these attributes. But, that misses the point. I’m not asking you to visualize those customers at your meetings. Visualize the smart, savvy and benevolent customer that wants you to succeed and has no intention of running your company. You have some of those customers. If you don’t, then go get some.
That kind of customer is exceptionally useful. They feel pain with your product that you’re likely not going to feel. They can empathize with your other customers in a way that you can’t. And, in the long term, even though they may not have as loud of a voice or be able to debate as passionately as you, they have a decent chance of being right. Imagine if you were keeping meeting minutes from these meetings and noted her side of the story and her “vote”. If you looked back a year or two later, you might say something like “Hey, you know what, in that meeting, she was right. We would have been better off if we had just listened to her.” Maybe you and your team are way more insightful than average, but I’ve said this to myself many times.
So, the next tiime you have a big, high falutin’ meeting and are attempting to make a big decision, try to give your customer a seat at the table. I think you might make a better decision.
What do you think? How would you make sure the customer has a real voice in your company?
By the way, you can follow me on twitter @dharmesh.
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I’m a big fan of Eric Ries and the lean startup movement that he’s championing at Startup Lessons Learned. I think many of the fundamentals behind the lean startup are things you likely have been practicing for a while. But, seeing it articulated so well and establishing a common vocabularly for us to talk about it is immensely valuable.
One of the key parts of the lean startup is the concept of a “minimally viable product”. The MVP is a product that has the minimum set of features needed to learn what the market wants. The idea behind the MVP is to spend as little energy is possible figuring out whether what you’re building is something people want.
In this article, I’d like to look at what happens after you’ve built the minimally viable product for your market. What’s next? I’m going to suggest that once you know there’s a market, you should work towards the “Maximally Buyable Product” (MBP). Yes, I know that’s not the perfect term, but I’m a sucker for literary symmetry and you have to admit, it’s got a nice ring to it.
Given that this is the first time the term Maximally Buyable Product has been used (I made it up), I’ll take a shot as defining it:
Maximally Buyable Product: The MBP has the set of features needed to capture the maximum potential opportunity in a market. These are the features that make it easy for people to try, buy
Features Of A Maximally Buyable Product
1. Easy To Understand: To be “maximally buyable”, the product should be simple to understand. It’s hard to market and sell things that people don’t understand.
2. Easy To Try: You may think that your product is revolutionary and is creating it’s own category and that you have no direct competition. But, as it turns out, your potential customers didn’t get that memo. Doesn’t matter what market you’re in, people believe they live in an age of abundant choices. Given this perception, to be “maximally buyable”, you need to ensure that the product is designed such that it is easy to try. This takes investment.
3. Easy To Buy: This one’s going to sound obvious, but so many of us trip over this one (including me) that it bears mentioning: To get the maximum amount of sales for your product, you need to have the minimum degree of pain in the buying process. This includes having clear, simple pricing — on your website. It includes a straightforward purchasing process (based on your market). It includes payment mechanisms that map to customer expectations.
4. Easy To Stay: Chances are, your startup makes money from customers over a period of time. This is either because you’re charging on some subscription basis (monthly, quarterly, annually) or because even if you have some large up-front fee, there’s some trailing revenue in terms of maintenance/support/upgrades/cross-sells etc. Given that the revenue you see from a customer is spread out over time, the maximally buyable product ensures that customers are kept happy for as long as possible. If you design for customer longevity (not just customer acquisition), you'll find that often a different set of dynamics are at play.
5. Easy To Leave: Though you want customers to stay with you as long as possible, designing your product to make it easy to leave is an important part of its "buyability". A "feature" that supports this easy to leave notion is a robust "export" feature (to avoid data lock-in). The easier you make it for customers to leave, the more likely that are to buy in the first place.
You may be thinking that each of the above aren’t really about product features, but about marketing (and sales). I’d disagree. I’d argue that even though these aspects of the product are not the features that customers are directly paying for (they’re not the ones that solve the customers immediate problem), they should still be thought of as “features”. You should carefully select these “maximally buyable product” features just like you would select features for your MVP. You should should design them like you would any other feature. It’s a mistake to think of them as being part of finance/accounting/operations/sales/marketing/whatever. They’re part of the product.
If it’s a part of your customer’s experience with you, it’s a feature of your product.
Some examples: The “signup for a trial” process. The “upgrade” process. The “how do I get a receipt or change my billing info” process. All of these are features of the product. You can lose money just as easily by poorly selecting or designing these features as you can by the “core” features.
What do you think? Have you invested sufficient time in building a Maximally Buyable Product? Would love to hear your ideas and experiences in the comments.
By the way, you can follow me on twitter @dharmesh.
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