Dharmesh Shah

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An Early-Stage Founder’s Quick & Dirty Guide To Growth

Posted by Dharmesh Shah on August 5, 2015 in marketing 19 Comments

The following is a guest post by William Griggs.  William is the Founder of Startup Slingshot, the resource for battle-tested startup strategies. Access the audio interviews of today’s featured growth practitioners, the full 43 page guide, and tons of resources here (free for now).


A startup is a company designed to grow fast.” 


Growth is what founders and investors alike are constantly searching for. Growth enables startups to quickly create tremendous value in the market. Without growth you’re dead in the water. But accordingly to Paul Graham, there’s a silver lining: “...if you get growth, everything else tends to fall into place.”

For a company to grow really big, it must
(a) make something lots of people want, and
(b) reach and serve all those people.”

Unfortunately for most founders, viewing their startup from this altitude isn’t extremely actionable. In this post, we’ll uncover the methodologies and tactics you will need in order to validate your business and systematically reach and serve your target market.


How do you ensure you are making something lots of people want?

Making stuff is the easy part. The key, however, is making something a lot of people want. Market selection and product/market fit are critical here.

This is where a lot of startups end up spinning their wheels. As you build product early on, how do you determine if you’re on the right track or heading towards a dead end? While every business is unique in terms of exactly what it needs to do to achieve product/market fit, the process for quantifying it is consistent.

Assuming you can’t use sales as an indicator of product/market fit, below you will find several ways Brian Balfour, VP Growth at Hubspot suggests quantifying product/market fit for your startup. The further down you go on the list, the more customers are required to receive meaningful insight.

  1. Indicator Surveys -- What do people say about your product?
    1. Created by Sean Ellis, Survey.io is the perfect tool for indicator surveys. To learn how to use Survey.io, read this.
  2. Leading Indicator Data On Engagement -- How are people using your product?
    1. What are you seeing inside the product? How active are your customers?’
  3. Retention Cohort Curve -- Does your retention curve flatten off?
    1. If people consistently use your product over a certain period of time, you’ve reached product/market fit for at least a subset of the market.
    2. Unsure how to get started with cohort analysis? Read this.

Don’t have enough data to do any of these steps? Focus on executing “trickle marketing campaigns.” Sean Ellis, CEO at Qualaroo was right to say that in order to understand what your target market thinks of your solution you have to expose it to them. The trick here is to not spend money and time on a big launch, instead focus on highly targeted marketing campaign that puts your product in the hands of the target market.

Before moving on to the second piece of Paul Graham’s growth equation, it’s important to emphasize that you have to get this right.Without product/market fit you’re wasting time even thinking about growth. As a founder, your startup is like a ticking time bomb says Andy Johns, Director of Growth at Wealthfront. You have a certain amount of time before everything will explode. To extend the time allotted, you need to show growth and the first step is establishing product/market fit.


How do you ensure you reach and serve all those people?

You’ve built something that solves a problem, for at least a part of the market, and now it’s time to get it into their hands.

Three Principles For Driving Quantifiable Growth

Learning how to reach and serve your target marketing isn’t rocket science but it isn’t obvious either. Those that drive quantifiable results do so by following these three principles:

  • Triage: They work on the highest return on investment activities, suggests Ivan Kirigin, CEO of YesGraph.
  • Test: They don’t assume they know what’s going to work. Instead, they focus on generating and testing hypotheses, Ivan adds. If you don’t take the time to get your analytics straight, so you can validate assumptions you’re flying blind.
  • Set Goals: They have a target metric they focus on. Doing so will help you focus your efforts.

Now let’s dig into the specifics.


How To Ensure You Reach Your Target Market

When starting to think about how you are going to really invest in reaching your target market, it’s important to revisit your business model. To start, you will need to formulate your target customer acquisition cost (CAC). Doing so will help guide you in determining which channels to test. To calculate your target CAC, you must estimate the average lifetime value (LTV) of your customer (learn how to calculate LTV) and subtract your profit margin. Hitting this CAC will allow you to profitably acquire customers. While most bootstrapped companies target a CAC that is 30% of their LTV, many VC backed companies that are trying to own their market typically spend to 100% of their LTV.

With this in mind, the next step is selecting what customer acquisition channels to test first. Below, I’ve briefly summarized Brian Balfour’s blog post titled, “5 Steps To Choose Your Customer Acquisition Channel.”


channel matrix 3.jpg

Source: 5 Steps To Choose Your Customer Acquisition Channel by Brian Balfour


In this matrix, you will have a list of potential marketing channels on the left and a set of channel attributes at the top. Keep your business model, competition, and target market in mind, and begin to fill out the matrix by rating each channel using the words “low,” “medium,” and “high.”

Review your current constraints (time, money, target audience, legal, etc.) and select the top one or two channels to test for viability. The viability of a channel is determined by its ability to drive predictable returns on the time/money invested. Once you find a channel or two that works, it’s time to double down and to continue to invest in optimizing the channel.

Not sure where to start with each of these channels? Check out these videos from 500 Startups’ WMD conference.


How To Ensure You Serve Your Target Market

In addition to reaching your target market, you must also focus on optimizing the process with which you use to serve them. In this case, serving them means getting them to your product’s “wow moment.” To get more of your target market to your product’s “wow moment,” Sean Ellis suggests that you focus on increasing desire and decreasing demand.

  • Increasing Desire: To increase desire you are continually working to test and optimize your messaging and positioning. The thought is, “with enough desire, people will overcome a lot of friction” says Sean Ellis. To execute on this and track your progress, you will need a combination of qualitative and quantitative data. Sean emphasizes that it’s paramount to keep the ultimate product experience in mind, so that you don’t increase desire for a product promise that your product is not designed to deliver on.
  • Decrease Friction: This step in the process is all about conversion rate optimization. It’s about seeking out and fixing all that’s preventing people from converting, whether that’s a macroconversion, like signing up for your product, or any of the microconversions that lead up to it. To dig in further on this topic, I suggest you read Qualaroo’s, “The Beginner’s Guide to Conversion Rate Optimization.”



In this post, we’ve covered the essential elements to designing a startup for fast growth. If you’re farther along or you just want to dive deeper into growth for early-stage startups, you can access the audio interviews of today’s featured growth practitioners, the full 43 page guide, and tons of resources here (free for now).

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Happy Birthday HubSpot! 9 Lessons From Our First 9 Years

Posted by Dharmesh Shah on June 9, 2015 44 Comments

9 years ago today, on June 9th 2006, HubSpot was officially started. I remember the day, because it was also the day I graduated.  (I had promised myself I'd enjoy my 2 years in grad school without too much distraction, so deliberately picked graduation day as the official start-date for HubSpot.)

So far, we've had a pretty good run.  HubSpot is now public [NYSE:HUBS] and still growing fast.  More importantly (at least to me), I'm still having a great time.

Rather than bring out the party hats and cake, I thought I'd reflect a bit on some of the hard-won lessons we've learned across our 9 hear history in the hopes that it will be helpful to some of you.  (Note: The below picture of a cake is from our 2nd birthday party.  Now, we'd need a bigger cake)

Warning: Some parts of this article are a bit immodest.  I usually try to avoid that, but sometimes I fail.  Also, some parts of this article are a bit touchy-feely.  The reason for that is that despite popular perception, I'm kind of touchy-feely sometimes.  

On with the lessons and stories...

1. Don't defer the hard co-founder questions for later. They only get harder.

Have the important conversation(s) with your co-founder early.  Topics might include long-term goals, fund-raising, equity allocation, vesting, etc. I've written an entire article with some of the questions co-founders should ask each other. In our case, one of the reasons my relationship with Brian Halligan (co-founder/CEO of HubSpot) has worked out so well is that we talked through these things early and made sure we had agreement and alignment.  One of the top reasons for startup failure is co-founder conflict.  You can't mitigate that risk completely, but you can reduce it significantly simply by some candid and direct conversations just as things are getting started.

Oh, and no, the best way to avoid co-founder conflict is not to not have any co-founders.  I think that's sub-optimal.  Your odds of success go up if you have a co-founder.  

2. An imperfect decision today is better than a perfect decision some day.

Some decisions will be impossiblly hard to make and you'll debate them for months (and in our case years).  Most decisions you'll need to make in a startup are based on imprecise and incomplete data. Get used to it.  Make the decision and move on.  Sometimes, you'll need to cycle back and "course-correct" decisions that are wrong and significant (the wrong, insignificant ones you should learn to ignore).

Let me give you an example of how not to do it.  In the early years of HubSpot we were trying to make the (very hard) decision about whether to focus on the very small business market or the mid-market (larger businesses with 10-2,000 employees).  We debated this one for years.  There were good, strong arguments on both sides.  We spent many days locked up in a conference room, promising ourselves we wouldn't leave the room until we had made a decision.  But, the decision still didn't get made.  We should have made the decision sooner, because regardless of which path we picked, we likely would have made it work.  

3. Don't be distracted by the "Press Release Hire".

When building the early team, don't get hung-up on how people look on "paper" (i.e. how experienced someone is).  Brian (my co-founder) calls these kind of hires the "Press Release Hire".  Litmus test:  Imagine you hired this person.  Would you issue a press release to let the world know that you brought this awesome person on board?  If so, you're probably more focused on what they've done instead of what they will do for you.  Don't get me wrong, if you can get someone that's a great fit and they've accomplished something in the past, and you think that'll translate to doing great things at your company, go for it -- and may the force be with you. But remember, that past successes at really big companies doesn't guarantee future success at your company.  The context is very different.  Also don't ignore talented future stars because they lack experience and nobody has heard of them.  At HubSpot, in those early years, we were all relatively unqualified for the roles we were in.  Some might argue I'm still unqualiifed for the role I'm in.  But, we were hungry, willing to learn and most importantly -- we cared

4. If you don't love your customers, you're more likely to lose.

You better really love your customers.  If not, pick a different idea or industry.  Life is short.  Startup success is both about solving a problem you care about and solving them for people you care about (or at least don't hate).  If you find yourself making fun of or disparaging your customers when they're not around, something's wrong.  It's not impossible to build a business this way (there are entire industries where it seems that every company hates their customers).  It's not impossible, but it's harder -- and less fun.  On the flip side, there's something immensely gratifying about genuinely helping people and caring.  If you love your customers, several good things happen.  One, they'll know it, and will stay longer (yay,lifetime value!).  They'll refer other customers.  You'll be able to recruit and retain better people onto the team.  So, overall, your odds of success go up.

5. Even micro-investments in culture can yield mega returns.

If you know me or know HubSpot, you probably know that we are obsessed  with culture.  As many people likely know HubSpot for it's culture as it's product (I could argue that the culture you create is part of the product).  But, it wasn't always that way.  In our early years, we didn't talk about culture much.  We hadn't documented it all.  We just built a business that we wanted to work in.  And, that was great.  But the real return on culture happened when we started getting more deliberate about it.  By writing it down.  By debating it.  By taking it apart, polishing the pieces and putting it back together. Iterating. Again. And again. And again. If you're interested in learning more about how we think about people and culture at HubSpot, you should check out our Culture Code deck -- embedded below for your convenience.


Now, I'm not suggesting you drop everything and go create a 128-slide treatise on culture for your company.  But make some small investments.  For starters, have some conversations about the who.  What kind of people do you want on the team? Try to avoid platitudes.  Make a list of attributes and traits that other companies avoid, but tend to work for you.  And vice versa.  Write this list down, even if it's just a simple email to the team.  Once you start writing your culture down, a couple of surprising things will happen:  1) You'll realize you got parts of it wrong (because people will tell you).  2) You'll increase the chances of hiring for "culture fit" without falling into the trap of toxic homogeneity where you just hire people like yourself under the guise of "culture fit".  Short rant on that topic:  No company should be able to skip over candidates for lack of "culture fit" unless it has at least a minimal clue of what that culture is.  

One of my regrets about culture at HubSpot is that we didn't wake up to the value of diversity until much later in our evolution.  And, though I'm in good company, that doesn't make me feel that much better.  If you're just getting started, take my advice:  Be mindful of diversity super-early and beware the homogenity traps.

6. Don't just think bigger -- think better.

Since time t=0, one of the decisions Brian and I made early on was that we were going to take our best shot at building a big, successful company. We specifically talked about not building a company that was "built to sell".  In fact, many of our early decisions and actions reduced our chances of being acquired.  That was OK, because it's not what we were after.  Instead, we made sure that we pushed each other to think about scale.  To keep thinking bigger. 

Here's my theory:  Most big, spectacularly successful companies (which I hope HubSpot will become some day) did not get that way by accident.  Rarely does an entrepreneur, wake up one morning, drink her morning coffee and exclaim: "Hey look!  I accidentally built this super-successful company!  Yay me!"  Yes, that happens every now and then, but it's super-rare.  99.9999% of the time, success is built through deliberately deciding to build something big -- and then working super-hard, taking risks and persevering through the hard times.  

But, what worked for us wasn't just making the numbers go up and to the right.  It was about thinking about every part of the business and trying to figure out what would make it better.  Yes, we're a software company, and I'm proud of our product team.  But, it's not just about the product.  We try to be equally maniacal about making every part of the business better.  Every. Single. Part. 

Fun, inside story:  We do NPS (Net Promoter Style) surveys on a crazy number of things.  You might know NPS as a way to measure customer happiness.  The standard two questions are:  1) On a scale of 0-10, how likely are you to recommend this product/service? 2) Why that score? Like many other companies, we've been sending NPS surveys to our customers regularly for years.  But, unlike many other companies, we also send out NPS-style surveys to all of our employees every quarter.  The question is slightly tweaked to: "On a scale of 0-10, how likely are you to recommend HubSpot as a place to work?".  We also do NPS for our alumni.  We're working on doing it for job candidates that interview with us ("How likely are you to recommend HubSpot as a place to interview?").  We've done it for our company meeting.  After the meeting, we ask: "How likely are you to recommend this meeting?" (Learned lots of interesting things on that one).  OK, so that might be a bit OCD.  But in our experience, once you can start measuring something and getting qualitative feedback it's much easier to make that thing better. No big revelation there, I think the business world has known that for years.

What was a revelation (at least to me) was how all the parts of a company are so inter-connected.  It's impossible to build something really great by just focusing on one part of the system.  You need to simultaneously work on every part of the system -- and make it better.  

7. Don't obsess over competitors.  Obsess over customers. 

I'll confess.  I'm likely more guilty of watching our competitors too closely than anyone at HubSpot.  But, the good news is that though I watch them closely, I try not to follow them.  Knowing what your competitors are up to is good.  Doing what your competitors are up to is bad.

Take the calories you would have spent worrying about your competitors, and spend them on your customers.  You'll be better off (and will sleep better too).  

8. Don't minimize dilution, maximize impact.

This one might come off as controversial.

If you go out and raise outside funding, resist the temptation to worry too much about valuation (and minimizing dilution).  In the grand scheme of things, as long as you're getting a fair deal, marginal differences in dilution won't matter.  What will matter more is the degree to which you can have an impact (however you measure that).  You're probably going to be happier owning 5% of something great than 25% of something not-so-great.  

Now, don't get me wrong, I'm not suggesting that every company should go out and raise funding.  I advise entrepreneurs (especially first-time founders) to defer fund-raising. The reason is that once you start raising funding, you're often shifting your focus from solving customer problems to solving investor problems.  You're better off working on the former -- because that makes the latter much easier.

In any case, if you're going to raise funding, raise funding.  Pick a great partner, get fair terms and don't sweat the dilution too much.

One more thing:  The other way you dilute is by sharing equity with your team.  Here too, don't worry too much about minimizing dilution, get the best people and try to maximize impact.

9. Don't be satisfied with sales, seek LOVE.

This one might come off as a bit weird.

If you're reading this, there's a decent chance that you're human.  (If you're a robot, and you actually understood this article so far, I submit to your kind's superior intellect and ask that you forgive us humans our foibles).  Anyways...let's just assume you're human.  And, because you're human, you probably seek love. It's natural.  We spend a fair amount of time and energy looking for love (hopefully in some of the right places).  I'm going to posit to you that you need to carry that sentiment to your startup. I'm not talking about the crazy, desperate call at 3am kind of "love", but the hope to find someone that "gets you" and "likes you for who you are and what you believe".

Yes, I know that  sounds a bit strange.  But it's not that strange.  Chances are, there are some companies or brands that you love. All I'm saying is that as a startup, you need to seek that love.  

Let me explain by telling you how we do this at HubSpot.  Like most growing companies, we want to get people to buy from us and become customers.  But, unlike most companies, for us, deep-down inside, that's not enough.  We don't just want people to buy from us.  We want people to love us.  We want them to love what we love and respect what we do, even if they don't buy from us.  Even if they are unlikely to ever buy from us. Because what we believe is that the more people that love us, and want us to succeed, the more likely we are to do so.

Thanks for all the love and support over the years.  


p.s. It usually feels weird to "sign" a blog article like a letter, but in this case, it felt right.

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