Should Your Startup Have Its Own App Store? Insights From HubSpot

By Yoav Shapira on July 14, 2011

The following is a guest post by Yoav Shapira one of the early team at HubSpot and VP Platform.  

Earlier this week, HubSpot unveiled its "App Marketplace," an area for customers and prospects to install "apps" much like Apple’s App Store or Salesforce.com’s AppExchange.

Why would we do this?  Doesn’t the world have enough App Stores already?  Does an app store really make sense in the world of business to business?   This article describes our early considerations on this topic, what we did, and why we did it.  We’re probably wrong on some of these things, and we’d love to hear your feedback in the comments.

We hope some of these thoughts help you structure your own analysis for your own business.

kingston-market-place-early 80s - power dressing, fur coats...

 

What’s the story behind the HubSpot App Marketplace?

Our App Marketplace started out as an area to test new features and portions of the product which were not ready for regular customer use.  We called it “Labs”.  We modeled the implementation on what Google has done (specifically, Gmail).  In Gmail, you can go to the “Labs” area in settings and enable a large number of additional features.  We implemented this “Labs In The Product” at HubSpot for the same reasons that Google did.  It’s a great way to get new features out to a self-selected list of users, measure results and iterate quickly. 

Customers were very positive about this approach.  It was clear which parts of the system were still new and in “beta”.  As our functionality evolved, we recognized that these cool new “Labs” features didn’t have to just come from us.  Third party developers could also build nifty new capabilities that would help HubSpot users.  Also, as it turns out, people are quite used to the notion of an “app store” (thanks Apple!), so we shifted our efforts into what is now the HubSpot App Marketplace.

Why not have another Beta approach, like sending some portion of our traffic or customers to Beta versions of the software?  

We like this approach.  We’ve been doing it for years, and we continue to do so.

What the App Marketplace brings to the table, besides the familiar metaphor for customers, is that it puts the customer in control.  They decide if and when to install an app, and can remove it at their leisure.  So it’s not quite a controlled A/B test, but it’s much more optimized for the customers themselves.  We like that.  We also like that instead of us choosing some random sample to test out a new feature, we can get data on which of our customers are interested in which kinds of capabilities.

But don’t you need many developers building stuff for a successful app store?

As it turns out, no, you don’t ;)  Especially while we were thinking of the app marketplace as a “Beta” channel, we planned to simply have our in-house developers create some apps.  In fact, this is how the first couple of marketplace apps evolved.

Our app marketplace model is a mixture of both quantity and quality.  It’s not extreme on either end.  We don’t want to be like Apple, controlling the entire experience very tightly, because that is painful for developers.  We also don’t plan to have millions of applications in there, as a B2B company, because our market is not quite big enough yet.  More on that shortly.

What we found is that of our existing hundreds of partners and VARs (Value-Added Resellers), at least a couple dozen companies have developers and are happy to work with us.  In fact, they see this as a channel to productize their custom integration work into something more profitable.  For these organizations, the marketplace provides an opportunity to build an ongoing revenue stream.

We’ve been working closely, and happily, with these early partners.  We’ve incorporated their feedback, and in turn, the ecosystem gets better for everyone involved.

We’d love to get more developers, and we have some ideas In this area, but we’re not shooting for millions.  We’ve been pleasantly surprised at the amount of interest in our marketplace from developers, and we’re working with them closely.  All the documentation and code samples are free / open-source, as is the discussion group, where everyone is welcome.

 Alright, but surely these developers want millions of customers?

Thankfully, that’s not the case.  Each of our partners does their own economic calculation, but it turns out for many of them, selling hundreds or thousands of customers, at up to a few thousand dollars per customer, is a very nice business.

It turns out the SaaS subscription model works nicely here as well.  We’re not selling $0.99 apps, nor $0.99 add-ons.  Apps like some CRM integration packages could easily cost tens of thousands of dollars, but end up costing a small portion of that amount in our marketplace, because the developer gets dozens of customers instead of one.

Isn’t this distracting from your core product work?

Yes, you should primarily focus on your product, and we do as well.  The app marketplace is supported by less than 5% of our development team, so it’s not a big distraction.  And it provides a channel that makes most of the rest of the team more efficient, at least when it comes to testing out Beta-type features or product ideas.

 

I get that.  But doesn’t the world have enough app stores?

There are three reasons we did this, all driven by customer feedback.

First, it turns out that marketing involves many different activities.  The number of tasks our customers have to do is very large, and we want to help them with the entire marketing process.  This would take us a very long time to build ourselves and like all companies, we too have limited resources.  The marketplace provides another way to help more of our customers, faster, whether we do the work or someone else does.

Second, customers are becoming more sophisticated over time, and they want to pick and choose among different modules or pieces of functionality.  It’s not a simple “one size fits all” when it comes to small business marketing.  We try to listen to our customers, so we’re giving them a choice.  But rather than have a very complex pricing matrix, we just used a metaphor they know and like, thanks to Apple et al.

Third, our customers are aware of other external applications that are available .  But they have told us they trust HubSpot more than a random web site they don’t know.  They already pay us, they already know us, and even though we don’t write or support most of the apps in our marketplace, they still prefer this to a random 3rd party.

Tammelan tori

Those were some of our considerations.  Stay tuned for another blog post coming soon, covering where we belong on the Apple / Google app store spectrum, how shipping a minimally-viable product totally worked (we haven’t built billing yet), and more…

Meanwhile, would to hear your thoughts on the pros and cons of trying to build a store/marketplace for your product.  Do you think we moved too early at HubSpot?  Should we simply have kept our platform development to exposing APIs and having "external" integrations -- instead of allowing applications to co-exist within our system?  All thoughts and comments appreciated.  We're learning as we go.

Continue Reading

Some Heart-felt and Humble Advice For Rand Fishkin of SEOmoz

By Dharmesh Shah on July 7, 2011

Dear Rand,

Really enjoyed the recent article on your personal blog, “Inflection Points: Bravery vs. Foolishness”. Very few entrepreneurs have the courage to be that transparent. On behalf of entrepreneurs everywhere, thank you!

We've known each other for many years now and have had many a late-night conversation, and many dinners. I'm honored to call you a friend.

Though our direct chats are always fun and useful, I thought it might be interesting to have a longer, “in written form” response to your article. I was inspired to write this article a bit by Brian Halligan, my co-founder at HubSpot (who you also know), who left an exceptionally detailed comment on your article. I'll be borrowing liberally from Brian's comment (it won't be the first time I've borrowed from Brian's wisdom and used it to make me look smarter than I actually am).rand fishkin

1. It's great to have options. Raising capital is always a bit of a scary thing for an entrepreneur. And, for right reason. It not only changes a lot about the business, it also changes you. SEOmoz is now at the stage where outside capital is not a “necessity”. That's awesome. It takes away one of my biggest concerns with raising capital: When the entrepreneur doesn't have a choice, she doesn't have any leverage. Having the option to raise capital is a big amount of leverage and dramatically increases the odds of both getting a fair deal and making a rational, thoughtful decision.

2. If you're going to raise, raise now. If you're thinking about raising capital, this is a really good time to do it. The markets are nice and frothy, making for a great time to be a seller of equity. The timing question is always hard (both in terms of M&A, which is selling all of your equity or a funding round, which is part of your equity). I've been through this particular calculus before. When things are going really well (as they are for SEOmoz), it's tempting to think: “Hey, the market is valuing us at X times revenue — our revenue is going to go up by Y, so our valuation will be going up by X*Y in the next year.” I've made exactly that argument to myself in the past (not at HubSpot, but my former company). As it turns out, up markets go down and frothy markets get less frothy. So, if the market took a downturn, it could have two potential impacts on your company valuation: 1) your revenue multiple goes down (thereby decreasing valuation). 2) Your actual revenue could be lower than you expected — because people are not buying as readily or cancelling more often. So, it's entirely possible that despite having a “good” year coming up, the company is valued less. So, our advice would be: If you're considering raising at all, don't try to wait until you drive your revenue up further. Raise now.

3. Take some freakin' money off the table! I recognize that you have concerns. And that you lead a modest and happy lifestyle. And that you don't want money to mess things up. I get all that. But, it's not only irrational to have such little diversification of your personal funds, it's outright irresponsible. In terms of how much you should take — that's a personal decision. If it were me (I don't have a particularly lavish life either), I'd shoot for several million. Enough to where you didn't have to worry (or think about) money at all for the next 10 years.

Bonus argument: Even if you kept your lifestyle exactly the same, here's one more phenomenal reason to take some cash off the table: You could become an angel investor and help other up-and-coming entrepreneurs get started. Trust me, you'd have a blast! Though this doesn't completely solve the “lack of diversification” problem (you'd still have your money tied up in startups), at least it's not all the same startup.

Oh, and by the way, I know you kids these days like living on the edge and all, but having just $25k in savings is unwise — especially if it's unnecessary.

It is not about the money. It's about having options.

Finally, as Brian said: Just because you have millions in the bank doesn't mean you have to stop working crazy, ungodly hours. My suspicion is that you have the startup gene that means you're going to work crazy hours regardless.  (Besides, who wants to work godly hours, anyways?)

4. VC will definitely change things. I'll just take Brian's words directly on this one: My personal sense of the thing that will be most uncomfortable for you is if a good quality VC joins your board is the scrutiny she will give your team and other board members. She will constantly be testing your conviction about team members and constantly looking to hire one of her crony outside overpriced headhunters to replace the folks that you rely on and who built your business with you. I have no idea whether you think your team is the right team that will scale or not, but if you do think they are the right team that will scale, be prepared to defend that position for a long time. VCs can never know your business that deeply and chapter 1 of their playbook where they think they can add the most value is on the “team.” It is low risk for them and their network is where they perceive their biggest value is. Sometimes they are right here and bring in just the right person, other times they don’t.


5. Its about the people. Also from Brian: Your hierarchy of investor priorities is right. I have gotten to know a lot of VCs over the last few years and many of them are not as good as I expected. There are some of the really top dogs that I’m convinced are far more lucky than good, so don’t be dazzled by their investment record. In my mind, there are two “types” of VCs, ones that are more like Wall Street equity analysts that are great with spreadsheets and picking trends and others that are former CEOs. Like you, I’m a first-time CEO, so part of my criteria was to find the ex-CEO type who I could turn to for advice and this turned out to be a really good decisions for me. When an equity analyst type or an ex-CEO type, I’ll give you my VC test: When I meet with them to talk about the business, do I take any notes or any action items? About 80% of the time when meeting VCs, I don’t take any notes or any action items — once in a awhile I meet someone that is sharp and changes my thinking or gives me great advice. Go with one of those ones, even if the terms are much worse.

6. Protect the culture. One thing Brian and I have learned in building HubSpot is that culture counts. Industries change, markets change and products change — but amidst it all, great cultures endure. You've built a great culture at SEOmoz and you should fight to defend it. But, raising a round of capital doesn't necessarily mean you'll screw your culture up. I like to believe we do a pretty good job at HubSpot when it comes to culture (many would argue that it's one of our biggest advantages). We've raised over $50 million across four rounds of capital and 6 investors and have managed to maintain the core of our culture. Brian notes: The act of raising money and having a new board member is not what will screw up your culture. It is when you bring in new team members that things can go awry. Every time you bring in a new exec, the exec team sort of needs to re-form itself and re-gel. If you bring in a crony of the VCs that doesn’t fit and who isn't TAGFEE, that’s where the culture blows up. [This last point is something I haven't personally experienced, but saw through other CEOs I know through a CEO group I joined]

We both are super-impressed with what you've done and that you've done it without being (or becoming) a jackass — quite the opposite. We look forward forward to watching your continued success.

Warm regards,

Brian Halligan and Dharmesh Shah (the HubSpot guys)

Topics: strategy culture
Continue Reading

Community

Let's Connect

And, you can find me on Google+, Twitter, and Linkedin.

Recent Posts

Chat with GrowthBot

It's a bot to help you with your marketing and grow. You can research your competitors, improve your SEO and a lot more. http:/GrowthBot.org