hubspot | Advice and Insights for Entrepreneurs | OnStartups

About This Blog

This site is for  entrepreneurs.  A full RSS feed to the articles is available.  Please subscribe so we know you're out there.  If you need more convincing, learn more about the site.

Community

Google+

And, you can find me on Google+

Connect on Twitter

Get Articles By Email

Your email:

Google

Blog Navigator

Navigate By : 
[Article Index]

Questions about startups?

If you have questions about startups, you can find me and a bunch of other startup fanatics on the free Q&A website:

Answers.OnStartups.com

Subscribe to Updates

 

30,000+ subscribers can't all be wrong.  Subscribe to the OnStartups.com RSS feed.

Follow me on LinkedIn

OnStartups

Current Articles | RSS Feed RSS Feed

Does HubSpot Walk The Talk On Its Culture Code?

Posted by Dharmesh Shah on Thu, Apr 11, 2013



A couple of weeks ago, HubSpot shared our culture code deck (http://CultureCode.com) — a document that describes what we believe and how we work. 

The presentation, despite being 150+ slides long and on a topic that doesn't involve celebrities, cat photos or currently trending topics has been remarkably well received. It has had over 340,000 views.  It's one of the most viewed presentations on slideshare in the past year. I've received many, many emails and tweets with positive comments about the culture code deck (thanks!)

Deck is included below, for your convenience, in case you haven't seen it yet.

 

describe the imageNow that the deck is out there and has garnered so much interest, I thought it might be valuable to dig into some of the core tenets of the HubSpot Culture Code and try to do an honest assessment of how well we live up to the tenets. Or, stated differently, how well do we "walk the talk"?  In the deck itself, when a particular tenet was more aspirational than descriptive, we tried to call it out.  (I think this candor is one of the reasons people like the deck). But the call-out doesn't always capture the degree to which we live up to the ideal, so we're double-clicking here.

So, here are the core tenets with a self-score on how well HubSpot lives up to the tenet. Of course, even this take is biased (I'm a founder, and all founders are naturally biased about their startups) and it's a qualitative judgment call. On my list of things to do is to see if we can make this more measurable. But, that's a topic for another day. 

1. We are as maniacal about our metrics as our mission.

Score: 9.5/10

Lets break this one down a bit.  First of all, we are very passionate about our mission to transform marketing and move the world towards more inbound and creating marketing people love.  It's a noble vision, it's a big one — and we invest in it and mostly live up to it.

Mission score: 9/10:  I dock us a point because we do have some outbound marketing in our mix of marketing spend.  We're not pure inbound marketing. We spend some money on PPC, some telemarketing and some paid online channels.  Not a lot — but enough to deduct a point.

Metrics score: 9.5/10:  We really are maniacal about our metrics.  We pore over data.  We slice and dice things like customer cancellation data, SaaS economics metrics, employee happiness surveys, marketing channel data.  I've talked to many, many startups and fast-growing companies.  Of those, HubSpot is one of the most data-driven and metrics-obsessed companies I know.

2. We obsess over customers, not competitors and “Solve For The Customer”

Score: 8/10

The statement itself is mostly true (we spend 99% of our time worrying about customers and very little time worrying about competitors), but the underlying mantra of “Solve For The Customer” is not yet as true as we'd like it to be. 

We get points for the way we have handled pricing and packaging over our 6+ year history.  We have raised prices almost every year, and each time, we go out of our way to grandparent our existing customers and reward them for putting their belief in HubSpot.  So, on this front, I think we do really well.

We deduct points because the overall experience of HubSpot is not as smooth as it could be.  It's not customer-friendly enough.  We sometimes make decisions that are for our self-interest or convenience rather than customer happiness.  We're working on this.

We're getting better at having people call B.S. on decisions or directions that are not in the customers' interest.  People will speak up with questions like “What's in it for the customer?” or “How is this solving for the customer?” or “Seriously?”.  On the one hand, it feels good that people can be open and candid when they don't think we're living up to the SFTC (Solve For The Customer) credo.  On the other hand, in an ideal world, these non-customer-happiness focused things wouldn't have to be called out, because we'd always be acting in the customers' interest.  It would be natural and second-nature.  But, we're a metrics-obsessed, goals-oriented, for-profit company — so it may take some work and practice to have SFTC be natural, 100% of the time.  In the meantime, we'll continue to try and catch ourselves before we make decisions that don't make sense for the customer long-term.

3. We are radically and uncomfortable transparent.

Score: 9.5/10

We are super-duper, hyper transparent — and our transparency level has moved up over the years, not down.  We share all sorts of crazy things with every employee.  For example, one of the posts on our wiki goes into detail on every funding round we've done.  Details include the What the valuation was, what the common strike price was, how much money was raised, how much dilution there was, etc.  

We share just about everything.  And, the things we don't share (like individual salaries), we're deliberate and clear about.  Deducted half a point simply because nobody's perfect and we can always be better.

4. We give ourselves the autonomy to be awesome. 

Score: 8/10

We're good, but not great in terms of giving ourselves autonomy.  HubSpotters have a fair amount of freedom.  You can run with an idea.  Most things don't require permission.  You can talk to anybody in the company, including the founders about whatever you want.  We don't have formal policies and procedures for most things (our default policy on most things is “use good judgment”).

So, why the lower score?  A few things:  First, although we philosophically believe in the “work whenever, wherever” idea, this is not universally enjoyed to the same degree by every HubSpotter.  We trust our team leaders to do what is right for their groups and use good judgment.  We're also a bit conflicted because the data overwhelmingly shows that working together in the same office leads to more creativity and productivity.  So, we understand the importance of co-location, but don't want to force it and take away freedom.  For now, we've straddled the issue.  Bit of a cop-out.

Our unlimited vacation policy has been a good thing (it's been in place for over 3 years).  But, there were a couple of issues.  First, some of us didn't really feel like they could take vacations without negatively impacting their work.  Second, we had growing suspicion that on average people might be taking less vacation than they should.  We didn't know if this was true, since we don't track vacation days — but we wanted to make certain that “unlimited vacation” didn't turn out to be “no vacation” for anyone at HubSpot.  So, we made a tweak: Everyone has to take at least two weeks of vacation a year, or face ridicule by their peers.  We've also tweaked some things to make it more likely that people do the right thing and take regular vacations. 

5. We are unreasonably picky about our peers.

Score: 8.5/10

This is true. We are really, really picky about our peers.  We're fortunate to have a lot of interest in the company, and for every open position we get many (often hundreds) of candidates.  So, we can afford to be picky.  It's actually harder to get a job at HubSpot than it is to get into MIT. Our acceptance rate is lower.

The reason for deducting a couple of points is related to the attributes we look for (Humble, Effective, Adaptable, Remarkable and Transparent). For the most part, HubSpotters manifest these attributes — we try to make sure of this during the recruitment and interviewing process.  But, we don't always get it right.  So, we get a negative point for that. 

Also subtracting a half point because not only do we make hiring mistakes sometimes (despite our best efforts), we're not as good as we should be at calling people out when they do un-HubSpotty things.  For example, we have being “Humble” as a core attribute (it's actually been an attribute from the beginning).  But, not everyone acts in humble ways, and we often fail to call it out. Part of having a great culture is defending it.

6, We invest in individual mastery and market value.

Score: 8/10

Though we've always believed in investing in our people and wanting to “build not just a company we're proud of, but people we're proud of”, this hasn't been explicit in our culture code until recently. So, we have some work to do here.

First, we're going to take a hard look at where our “discretionary culture spend” (aka “employee happiness expenses”) — which, incidentally is over a million dollars a year.  We want to shift our budget to things that help increase mastery and market value. Things like education and leadership training.  Yes, we enjoy parties and celebrations too (and those are important), but all things being equal, we want to invest these dollars (in our people), not spend them

But until then, we still get an 8 on this front.  We can do much more.

7. We defy conventional “wisdom” as it's often unwise.

Score: 8.5/10

This culture attribute goes towards how much we question the status quo and do things differently.  We're actually pretty good at this.  Good, but not great. We get points for things like not having offices and executive perks.  Our radical transparency and openness defies conventional wisdom.  We're one of the few private companies that publicly shares its key financial data (like revenues) every year.

8. We speak the truth and face the facts.

Score: 9/10

We have a very strong culture of facing the facts and reality.  Nobody is allowed to walk around with rose-color glasses on. We don't brush problems under the rug. We don't hide from issues. If anything, we can be faulted for being too critical sometimes.  We also do a great job of speaking the truth and being candid about the problems we see in the organization.  This happens in meetings, in hallways, over email and on the wiki.  When problems show up (as they do regularly), we are usually quick to react.

9. We believe in work+life, not work vs. life

Score: 8/10

This one is a bit squishy and hard to measure.  Generally, we do a really good job of work-life fit.  Mostly flexible hours, unlimited vacation, centrally located and relatively easily accessible office.  All of those things help.  Things that fall into this bucket that we're not great at is diversity — particularly gender balance and getting more women into leadership roles.  We're “leaning in” on this, and hope to get much, much better at this over the next few months.  Stay tuned.

10. We are a perpetual work in progress.

Score: 9.0/10

This one's a bit of a gimme (note to self: We need to replace this tenet with something that's more substantive and less platitudinal).

We don't sit on our laurels.  We celebrate victories big and small — but celebrations are short-lived.  Though we are pleased with our modest success so far, we recognize that there is still much work to be done.  We're constantly trying to improve how we run the busines and ourselves.



Article has 5 comments. Click To Read/Write Comments

Surprising Insights From HubSpot's $35M Mezzanine Round

Posted by Dharmesh Shah on Mon, Nov 05, 2012

 


The following is a post from my friend and co-founder/CEO of HubSpot, Brian Halligan.
HubSpot just closed its mezzanine round, so I thought I’d share some surprising things I learned during the process. I’m by no means an expert in this field, so these are just the observations of one entrepreneur.

A Surprising Number Of Potential Investors With Widely Varying Value Propositions

My impression is that times have changed in the growth equity game. It used to be that early stage venture folks just did early stage investing, late stage venture folks just did late stage investing, and public equity investors only invested in publicly traded stocks.  What surprised me is that now, it seems like everybody invests in late stage private companies.describe the image

This is certainly not the “official” way to look at it, but here’s the way I ended up bucketing types of investors in my own head.

  1. Typical Early Stage VC Firms with Growth Equity Funds – These are folks like Sequoia, Accel, General Catalyst, Redpoint, DFJ, etc.,  that have typically started new funds with new teams focused only on investing in late stage companies.  They write checks from $15 million to $100 million as far as I can tell, and I think they’re pretty valuation sensitive as a group. They usually want to take a board seat and can add a lot of value in terms of knowledge, connections, and pedigree -- Sequoia led HubSpot’s last round and has been huge on those fronts. 
  2. Late Stage VC Funds – Think Meritech, Adams Street, August, Norwest, Tenaya, Questmark, SAP, and DAG. These folks only do late stage equity and write checks from $10 million to $40 million as far as I can tell. I think they are less valuation sensitive than the traditionally early stage folks. They are typically a bit more arms length in their level of involvement which often translates into a board observer seat -- they seem to follow-on the top tier early stage folks and rely on them for their advice and connections.
  3. Big Check Late Stage Funds – GA, TCV, NEA, etc. seem to only do late stage equity and write checks north of $40 million. I think they are relatively valuation sensitive, but keep in mind I only have a small sample size here. It seems they’ll want a board seat and to be very involved – and they can add a lot of value.
  4. Private Equity Funds – TA, Summit, etc.  are the types of firms I know the least about, but my sense is that these folks do late stage investing and write “biggish” checks. They seem to be wired to buy out existing investors, put in some working capital, and raise debt. This can be a great approach for a company, but it’s probably hard to work for a firm that already has a lot of venture money in it. My sense is that they want to be involved and are value-add.
  5. Public Funds – The last bucket is folks like Fidelity, T Rowe, Janus, Cross Creek/Wasatch, Altimeter, Tiger, and Morgan Stanley. They invest out of public equity funds, seem to write checks from $10 million on up, and tend to be slightly less valuation sensitive (we’ll talk about why below). They are financial investors and do not want to be overly involved, which means no board seats or observer seats for the most part.

That’s my sense of things based on insights from HubSpot’s mezzanine round of funding. If I’ve missed some funds, please do include them in the comments section so we can make this article as useful as possible. 

The Surprising Value Of Public Investors Investing In Your Private Company

We went with public funds -- #5 above -- not private funds for three main reasons that made a lot of sense for us, though they might not make sense for your company:

  1. Public investors tend to buy more of your shares after you go public, while private investors will typically look to sell their shares after you go public.  The venture funds incentive system is set up such that they are supposed to sell the shares and distribute the profits to their investors after a reasonable time elapses following the IPO. My sense is that the period of time between when you go public and when they sell varies widely, and the better the firm’s footing the more likely it is they will hold. Having said that, I think it’s pretty rare that the traditional venture folks actually buy more in the public markets.  It’s important to note that this does not matter if your most likely outcome is a trade sale.
  2. Public investors can “recycle” their capital while most venture funds can’t really do that easily. Huh? If Fidelity gets a 70% return on their investment in your company in a year and a half, they are pretty happy -- they can turn around and reinvest that money into other stocks. If Accel gets a 70% return on their investment in a year and a half, they are actually pretty unhappy -- they need to return that 70% to their investors and can’t really reinvest it. In order for venture funds to make their math work, they need to get a 3X return on their investment. So what? Well, this means that the late stage venture folks will likely give you lower valuations and more “structure” (i.e. participation) in their deals to try to reach higher return levels, while the public folks will likely be more flexible. 
  3. We are generally very happy with our board and were not looking for new members or even new observers. 

Now, that’s HubSpot. Every company is different. Let’s just say, as an example, that you are a travel technology company that’s doing well, but you need some help on the board, some VC pedigree and connections to improve your team, domain expertise, and maybe some money to buy out existing investors and their board seats. In that case, you’d be nuts not to go with, for example, General Catalyst or Sequoia. 

The Surprisingly Common Use of “Structure”

In our A through D rounds, the concept of “structure” did not come up. In fact, when one of the potential Series E investors asked me, “Are you open to ‘structure’?” it caught me off guard, because I didn’t know what it was and didn’t want to seem like a complete rookie. So I said, “Let me check with my board and get back with you.”  That turned out to be a good answer, by the way.

Structure is a fancy word for preferential terms set up to increase the return of the new investor, or limit the downside of the new investor. As I mentioned earlier, private investors typically need to get a 3X return on a late stage deal, and they’re nervous that they will invest money into a company and six months later it will sell for 75% more than they invested. For someone who can reinvest that capital, that’s a great outcome; for a VC, it’s not. In order to protect themselves from that risk, they will ask for participating preferred stock that, for instance, will put a floor on their return of 2X. Given the VC’s incentives, it makes perfect sense, but that is a different type of equity that sits on top of everyone else’s equity that needs to be looked at extremely carefully. It comes in a lot of flavors and can work well to bridge a valuation gap, but can be confusing, so I recommend folks dig in and build the model on how it ripples through.

Another type of structure that VCs put in is a block on an IPO or trade sale of less than 2X (or something like that). This block makes perfect sense for the VC given their contract structures with their LPs, and it might make sense for you -- but you need to go into that with eyes wide open.

The Surprising Importance of Your Series A Terms on Your Mezzanine Round

It turns out that the terms from your Series A are most often cut and pasted into your later round deals. When you compromise on terms in the early stages, you will have to pay the price in the later stages. You generally don’t start from scratch and rehash the terms.

Surprisingly Rational Pricing

The initial pricing interest in our early stage rounds varied widely; but in our mezzanine round, the numbers came in much closer to each other. There are hard public numbers to look at with publicly traded companies and recent acquisitions by public companies. The pricing discussions just seemed much more “real” than the earlier stage deals. 

My advice here would be to get your arms around the public companies for your industry, and where those companies were when they were your size. We built a chart that showed every public SaaS company and what their revenues and growth trajectories were from their early days to where they are today. It was a useful tool in our discussions, particularly when we were getting compared to public companies that were growing at 25% and we were growing at 85%.

Surprising Value of Currency Valuation in M&A

Private companies buying private companies with stock is a tricky business. After our Series D, we acquired another privately traded company called Performable with a combination of cash and stock. The trickiest part of deals like this is figuring out what their stock is worth, and what your stock is worth. The nice part about just having finished a relatively late stage, clean round is that at least our side had a real number to negotiate from. If neither side has a recent number, those negotiations are really tough to sort out.

Those are some of the surprising things we learned in our recent mezzanine round. Am I missing any insights that you have on this topic? Feel free to leave a comment and let me know.



Article has 13 comments. Click To Read/Write Comments

Hatching An International Office: 6 Tips For Startups Going Global

Posted by Diana Urban on Wed, Sep 26, 2012



The following is a guest post by Diana Urban. Diana is the Head of International Marketing at HubSpot, all-in-one marketing software

International expansion can provide a startup with tremendous growth opportunities. It allows your company to grow faster by casting a wider net, and helps diversify your revenue stream. While global expansion can be an exciting time, it’s a significant undertaking and requires some careful planning and making some hard decisions.

Today, HubSpot announced its European Headquarters launch in Dublin, Ireland. As part of the HubSpot International team, I wanted to share some of our learnings with you.globe hatch

Here are six important things to consider when expanding a startup internationally:

1. Follow your customers and prospects

To determine where your biggest global opportunity exists, take a look at your customer base. If 50% of your International customer base is in Europe and only 8% is in Latin America, it makes a lot of sense to choose Europe as your International HQ. Let your domestic team build your Latin American segment up to a point where it’s ready for its own HQ. Make sure you have enough proven revenue in a region before opening up a new branch.

Also take a look at where the majority of your non-domestic prospects, or leads, live. You may notice that you’re generating the most leads in a country other than your largest international customer base. If this is the case, take conversion rates and cultural factors into consideration. Even though you’re generating a lot of leads in a particular country, can its population afford your products’ price point?

Finally, as much as we'd like to "follow the metrics" and make purely data-driven decisions, the choice of location might come down to people.  Does one of the founders have a particular affinity or background in a location?  Do you already have one of your stars anxious and eager to start an office in a particular country?  These "people-based" factors should be considered.  Often, the "optimal" decision from a metrics and revenue perspective is not the "best" decision.

2. Set ambitious international goals

Expanding internationally is a big investment, so it’s important to set ambitious goals to get the highest ROI possible. For example, plan for 30% of your business’ revenue to come from your global HQ within 3-5 years. Defining an international revenue goal for your international office will help you determine things like:

  • How many sales reps do you need to generate $X in revenue?
  • How many marketing leads do you need to generate to make those reps successful?
  • How quickly does your international customer segment need to grow to reach that goal within 3 years?
  • How many customer service reps will you need in order to serve this segment?

Whatever numbers you set to suit the needs of your own business, make sure you set those goals ahead of time so that you can plan accordingly every step of the way. Setting clear goals ahead of time will help keep the team that opens up the international headquarters accountable for its success.

3. Hire locally but be consistent culturally

A major benefit of opening up an office overseas is being able to recruit local talent, who will be experts in your industry in their culture. No matter how much you’ve been educated in the nuances of the culture you’re entering into, nobody will be better prepared than the people who grew up in the region.

If budget allows, try to bring over your new global employees for a couple weeks of training in your primary office. They will likely be teleconferencing frequently with your primary HQ, so having them join for training in-person helps put a face to the name for all future interactions.

Even though you should plan to hire mainly locals to staff your International Headquarters, be sure to maintain your company culture by sending over a group of expats, even if for a limited time range -- six to 12 months can suffice.

Most importantly, ensure that from Day 1, members of your international team feel like they're part of the company.  Give them training.  Give them career opportunities.  Give them access to information and resources.  

4. Network and attend conferences

Although America is becoming very dependent on virtual communication, in-person interaction is highly valued in cultures like Europe and East Asia. Use conferences and networking events to make connections with local industry-leaders in the region you’re opening your new office. Plan to stay a couple extra days after the conference for 1:1 meetings with your new connections. Meet with local press in-person to provide interviews on your global expansion plans.

Networking with the locals will help you spread the word not only about your product, but about the career opportunities now available to the local marketplace. You may need to hire aggressively your first couple years in your new office branch, so networking is imperative to drive high-quality candidates to your business.

5. Don’t underestimate cultural differences

Just as marketing best practices vary culture-to-culture, so do business practices. For example, in the U.S. it is typical for employees to have 10 non-holiday vacation days. However in Europe, it is customary for employees to have at least 20 non-holiday vacation days -- and be required to take all of them. It’s important to take this cultural difference into account when projecting sales quotas and development sprints.

6. Get support from finance, HR, and ops experts

When opening an office abroad, there are a lot of overhead elements to plan for, such as:

  • Negotiating leases and contracts
  • Determining company structure
  • Setting up accounting and tax reporting systems
  • Supporting expat and local employees’ HR needs

Expect that you will need ongoing support from your finance, HR, and operations departments, and plan to hire agencies to help if you don’t have the resources in-house. Again, global expansion is a big investment, and it’s important to get these basic elements right from the get-go.



Article has 11 comments. Click To Read/Write Comments

Combating the Innovators Dilemma – HubSpot’s Experiments Framework

Posted by Brad Coffey on Tue, Aug 23, 2011

 


The following is a guest post by Brad Coffey, an early employee at HubSpot.  You can follow Brad on twitter @BradfordCoffey 

This week HubSpot was lucky enough to be included in the Inc. 500 list of fastest growing private companies.  It’s a great honor, we're really excited (and humbled) to be listed next to so many great companies.  In an adjoinging article in Inc. Magazine, our CEO Brian Halligan discusses a key part of our success (and looks impressive in a full-page photo too).  He talks about our approach to experimentation and our methodology for incubating new ideas.   What Brian describes is three tiered approach to promoting and funding unconventional projects.  It’s a methodology that served us well thus far and helped create an innovation pipeline that offsets our traditional disciplined focus on the core business.

The foundation of this framework is based heavily on Clay Christensen’s work in The Innovators Dilemma.  We’re huge Clay Christensen fans at HubSpot (even have a conference room named after him) and have been life-long students of his work.  In his work Clay asks a very straightforward question without an obvious solution - specifically: Why do well managed, successful companies repeatedly fail to create new disruptive innovations?

This framework was developed fundamentally to combat that challenge and create a lasting culture of entrepreneurial exploration.


HubSpot Experiment Framework

HubSpot’s Experimentation Framework

The framework has 3 stages, each with a distinct goal and approach.

AlphaLowering barriers to experimentation

No bureaucracy, no red tape, full access to information.  This stage is simply focused on enabling anyone with energy and an idea to try a new solution.  Tests are run by everyone and anyone – but are generally done in spare time (nights and weekends) and with few resources. You don’t need to ask permission to run these tests - and by design no one ever knows all the alpha stage experiments actively being pursued.  It's open and distributed.

Beta - Determining proper funding

When an experiment reaches Beta stage the ‘founders’ are fired from their day job and work on the experiment full time.  While founders determine their own goals and metrics – these leaders are encouraged to be patient for growth but impatient for profitable economics. Like many founders these people also report to a 'board' regularly and are subject to evaluation on future funding.  At its core this stage is about providing access to funding for entreprenurial folks with new ideas and transparency/accountability into the success of those early tests.

v1Scaling successful experiments

v1 projects have proven economics and now are looking to scale the success.  Often this requires growing the team beyond the founders, building dedicated systems and developing regular tracking of core metrics.  Founders with experiments graduated to v1 are now considered 'mini-CEO’s' and are tasked with running their project as a start-up within HubSpot.   

We established this framework in the hope of driving innovation and empowering the entrepreneurial edges of our organization to create change.  It seems to be working - we’ve had several successful founders graduate from the program (Pete Caputa with VAR program, Jordyne Wu with the Services Marketplace) and we created a culture to be proud of.   It's enabled us to focus on the core business without foregoing the entreprenurial engery and creativity of our team.

But is this enough? What do you think? Will this framework sustainably create the type of disruptive innovation required to create a lasting company?  Any other ideas or tactics we might want to consider?



Article has 13 comments. Click To Read/Write Comments

Insights On SaaS From The $32 million HubSpot Mega-VC Round

Posted by Dharmesh Shah on Tue, Mar 08, 2011



Today’s big news is that my company HubSpot announced a major new round of venture financing.  Details can be found in the non-clever, but descriptively titled  “Sequoia, Google Ventures and Salesforce.com Invest $32 Million in HubSpot”.  We could not hope for a better set of investors for this round, and we’re thrilled with the further marketing validation that this group of investors brings. 

My co-founder, Brian Halligan and I have been thinking about the Software-as-aService (SaaS) industry for many years now.  It started when we were classmates in grad school back at MIT.  We consider ourselves eager students on the subject.  As part of this most recent funding round, we dug into more details and want to share some of our insights, lessons learned and data with you.  We’ll also share some of the same arguments we made to our new investors.

Lets start things off with a few fun data points.

* At the end of 2010, the median valuation of publicly traded SaaS companies was approximately 4.2x their revenue.  (This median was 3.2x in 2009).

* The highest multiples were awarded to Salesforce.com (9.5x) and SuccessFactors (9.6x). 

* Size matters.  The market seems to value the larger revenue SaaS players more.  The companies with revenue above the median had a 5.2x multiple vs. 3.3x for the companies with revenues below the median.

Lesson #1:  Winners win big. 

We’re going to argue that in the age of the Internet, winners win big.  10–15 years ago, in most technology categories, oligopolies formed.  [To save you the Wikipedia lookup on oligopoly, it’s a market where a small number of sellers dominate an industry.] The #1 player in a category would get a decent chunk of the market-cap of the industry, but #2, #3 would have respectable portions too.  Basically, the top 3–4 companies would have most of the market power.  That seems to have changed.  In modern technology-driven industries, over time, the #1 player ends up capturing a very large portion of the mindshare and marketshare. onstartups think big dream big

To demonstrate this, try this short mental exercise.  For the following leading companies, see if you can name the #2 player and #3 in their category.  You have 30 seconds, I’ll wait:

  • Amazon    
  • NetFlix
  • VMWare
  • eBay

Difficult, isn’t it?  Chances are you struggled a bit with coming up with the #2 and failed completely to come up with #3.  The point here is, as these tech categories evolved, the #1 player became so dominant that we often don’t even know who #2 and #3 are. 

This is the main reason that HubSpot has been aggressively investing in growing our marketing platform and growing our marketshare and mindshare.  Similar to how Salesforce.com dominates the CRM industry, we think there will be one emergent leader in the marketing software industry.  We’re working hard to be that company.

Question:  Doesn’t this reek of the late 1990s craziness when startups were spending heavily to acquire “mindshare”?

Yes, back in the dot-com days, many startups raised millions of dollars of capital to try and “get big fast” (and be first-mover).  But, there’s a big difference today.  In the dot-com bubble, companies were investing heavily to acquire “eyeballs” (or some other proxy for value).  In our case (and in the case of many SaaS companies), we’re investing in growing revenue (not a proxy for revenue).  Like Salesforce.com did in its early years, we understand the economics of our business.  We understand how much it costs to acquire a customer, and the lifetime value of that customer.  And, for us, Lifetime Value >> Customer Acquisition Cost.  So, we don’t think it’s like the dot-com bubble at all.  We’re investing capital into building a real business.  At HubSpot, we not only have gross margins (gasp!) but they’re trending upwards month after month.

Question:  OK, that’s great.  But do you really need $50+ million in capital?  It’s a SOFTWARE company!

That’s an excellent point.  3–4 years ago, when I was just starting, I thought it was somewhat crazy to even be raising $5 million for a software company (my prior two software startups were self-funded).  I never would have believed we’d end up raising $50 million.  But, I’ve since learned that it’s not only not crazy to raise this kind of capital, it’s quite possibly necessary.  I’ve written about this (and other fun SaaS topics) before in the super-popular article “SaaS 101: 7 Simple Lessons From Inside HubSpot” (it’s been retweeted over 3,000 times!)  But, the point bears repeating:  SaaS companies often charge on a subscription basis — so cash comes in over time (often monthly).  However, the acquisition cost is paid up front.  The result is, even if you’re making margin on each sale, the faster a SaaS company is growing, the more cash it will need to fuel that growth. 

Lets dig into this a bit deeper.  Below is a chart that HubSpot created a while ago.  It does something interesting — it looks at some prominent, publicly-held SaaS companies and then time-shifts them.  The reason we did this analysis was we wanted to understand how our growth, cash burn and fund-raising matched up against other SaaS companies for which there was public data available.

onstartups saas chart v2

The median (not mean) capital raised prior to the IPO for these companies was $47 million.  Of course, going public is not the only measure of success, but it’s interesting that those that did break-out and remained independent consumed significant capital getting there.  There are no “bootstrapped all the way through” kind of companies.  Don’t get me wrong, there’s absolutely nothing wrong with bootstrapping software companies (I’m at my core a bootstrapping kind of guy) — but I’m going to argue that to create a SaaS market leader in a large segment takes capital. [Side note:  Our peers in the industry have also raised tens of millions, presumably for this very reason].

Disclaimer:  We’re not investment bankers, and this is not investment advice.  This project was done as an interesting side project.  Data was taken from available public sources.  Don’t rely on our analysis for anything serious.

Question:  So, you’re going to spend all the money on sales and marketing?

Actually, no.  Last year (before we had even considered raising another venture round), we made a deliberate decision and formed a strategy that we labeled “HubSpot Inc 2.0” (a convenient label for the second-generation of the company — not the product).  The primary goal of this new strategy was to shift most of our dollars away from sales and marketing and into product development.  The company had been doing exceptionally well acquiring customers, and we felt that the best use of our cash was to make the product even better and produce happier customers.  We have a cool measure at HubSpot for customer happiness call the “Customer Happiness Index” (CHI).  It’s a regression-analysis based quantitative metric that uses available data about customers and their interactions with the company/product.  In any case, when we decided to shift to “HubSpot Inc 2.0” we set very specific goals for ourselves around things like CHI.  We’re in the middle of executing on that strategy now (and hiring aggressively in our R&D team). 

Big Insight:  System dynamics and the sales, marketing, service conundrum.

Here’s a big lesson learned from our HubSpot experience.  Think of the four primary areas of a SaaS company as being marketing, sales, product and customer service.  (You might call them different things, but that’s roughly right).  Now, lets temporarily take product out of the mix and look at just marketing, sales and customer service.  Across these three groups, an interesting thing happens.  If you try to improve the metrics of one of these groups, one or both of the other groups often suffer.  For example, if you’re looking at just decreasing the cost-per-lead (marketing metric), you can easily do that by allowing a higher percentage of leads into your funnel.  The result is less “quality” customers — and so the customer service group suffers and your cancellation rates go up.  If you try to improve just your retention rate numbers (customer service), you can do that by putting stronger “filters” in your sales group (perhaps reducing commissions on customers that are not ideal”).  Of course, that means your sales team is working harder for every deal, and your cost of acquisition/sale goes up.  Generally, you can take any of the key metrics for these three groups, and you can improve one metric at the expense of one or more of the others. 

The way to break out of that “robbing Peter to pay Paul” conundrum is to invest in the product.  If you invest in R&D and make the product better everybody wins.  Marketing has an easier job (because you get more referral customeres).  Sales has an easier time closing deals, because the product demo sings.  Customer service has an easier job because customers are happier with the product (and cancel less).  So, economically, investing in the product has the most leverage.  That’s why we’re taking so much of our available dollars and pouring them into the product. 

Of course, now that we have so much cash we can invest in both.  We’ll resume investing in sales and marketing too.  The economics of our business makes fundamental sense.  No reason not to get even more customers.  We have a dominant position in the marketing automation industry today (with 4,000 customers, we have more than all of our competitors combined) and it makes sense to extend our lead.  We also have customers in over 30 countries today — and we’d like to deepen that footprint.

One of the core values at HubSpot is transparency (we have others too, but that’s a topic for another article).  So, within reason, I’m happy to answer questions and share things we’ve learned.  We don’t have alll the answers, but we usually have opinions.  What would you like to know about our take on SaaS?

* Some of the data in this article was based on the Software Equity Group annual report, 2010.  

 

  



Article has 84 comments. Click To Read/Write Comments

HubSpot Fires First Shot in Boston Battle For Talent: $10,000 Bounty

Posted by Dharmesh Shah on Mon, Jan 24, 2011



Over on the west coast, companies like Google and Facebook are duking it out for top tech talent.  There’s all sorts of craziness going on including 10% across the board raises and big bonuses. Back here in Boston, there’s a similar battle for talent brewing.  Except, here in Boston, we’re kind of polite and a tad overly sane (there’s not enough craziness).  So, nobody really comes right out and says that there’s a battle for tech talent going on in Boston.  So, I’m going to go ahead and say it.cannon

There’s a battle for brilliant developers going on in Boston! 

There, I said it.  I feel much better now.  All anyone seems to talk about around here is startup funding and whether or not Boston VCs invest aggressively enough in consumer Internet companies.  But, I’m going to argue that for awesome startups, raising funding is actually easier these days than recruiting great developers.  I personally know a dozen startups in the Boston area that are all looking for great developers (I’m an angel investor in half of them).

So, who wins in the battle for tech talent?  Why, it’s the talent!  Why?  Because as in most situations where demand greatly exceeds supply, it’s a seller’s market.  (That’s an MBA way of saying, “you’re going to do really well….”)  So, instead of startups interviewing developers, in reality, it’s more that developers are interviewing startups.  Life is good for you, esteemed awesome developers!

We’re working on making HubSpot a magnet for technology talent in the Boston area, like Facebook is on the west coast.  We’ve got tough software problems to solve, millions of users, lots of capital, cool office space, and some of the smartest developers around. 

In order to officially kick off the Boston battle for talent, we’re doing a few somewhat crazy things (crazy for Boston, at least). Here’s what we’ve got lined up so far:

a) Refer A Developer, Make $10,000.  If you know a brilliant developer, refer them to HubSpot.  Not only will you be helping them join a great software company in Boston, you’ll get a $10,000 bonus for yourself.  Think of the gadgets you could buy!  Check out the “Refer A Developer” program.hubspot refer developer $10k

b) Many Will Enter, Few Will Emerge — With A Free iPad.  Any developer that gets called in for the final HubSpot interview (you don’t even have to survive it, or be offered a job), gets a free iPad, just for playing.  Oh, and before you think we’re super-crazy, know that we are notoriously selective.  In fact, I’m not sure that if I weren’t the founder, I’d be able to make it that far.  Seriously.  Our dev team is super picky. 

c) $4,000 shopping spree.  Any developer that joins HubSpot gets to go on a $4,000 hardware/gadget shopping spree.  They get to pick out stuff that they can somewhat rationalize will make them more productive and/or happy.  Popular options include the new Macbook Air, a big second monitor and one of the cool new Android phones (which we hear, can actually make phone calls).    [Note to self:  Now that iPhone’s available on Verizon, probably need to stop making iPhone jokes].

So, the question is, is all this craziness diabolically clever or an act of desperation?  That depends.  The difference between crazy and genius is whether it works. 

Of course, we’ve been doing other things to build the awesome team we already have.  If the company sucked, no amount of recruitment shenanigans would work, so we first made sure not to suck. 

Here are some reasons why we think you (or someone you know) should check us out.

Reasons You Or Someone You Know Should Interview (At) HubSpot

1. A compelling vision that helps millions of people:  Great developers like building products with broad appeal and wide reach.  They like to have impact and influence.  We do that at HubSpot.  Our marketing software has been built for small businesses.  We’re rallying against old-school marketing like junk mail, spam and cold calls.  The message is resonating really well.  We reach millions of users every month, and have 4,000 customers.  With this kind of scale comes great challenges.  Like figuring out how to store and analyze terabytes of data (and heading towards petabytes alarmingly fast). Or, creating a user experience that your Uncle Leo could use (because someone’s Uncle Leo does). 

2. Shiny, Happy People:  Last year, we were voted one of the best companies to work for in the Boston area by the Boston Business Journal (our friends at Google were #2).  We asked people why the heck they were so happy (besides the spiked slushies), and they said, somewhat recursively, “…I’m happy because I get to work with other smart, happy, passionate people.”  We have the reverse Lake Wobegon effect.  Several times a week, you will walk into a room and feel you brought the average IQ down.  Seriously, you will. 

3. A Real Salary:  We’ve raised $33 million in venture capital from some of the best VCs on the planet.  We have millions still left in the bank and revenues are growing like wildfire.  So at HubSpot, you don’t have to be paid in hugs and options and work on the “deferred compensation plan” (which is basically, “we can’t really afford to pay you right now — but just as soon as we get those customers/investors/grandparents/governments to give us some cash, you’ll be first in line!”).  You actually get a real salary, making your friends and family proud and/or envious.  We’ve heard that money is useful for buying stuff.  So, come help us spend some of those venture capital dollars towards a good cause.

Note: I’m not suggesting that it’s not a good idea to work for an early-stage startup — they’re totally cool.  But if you do, it should either a) be your own and/or b) be one that you are totally passionate about.

4. Options/Equity:  Yep, we have those too.  Every developer at HubSpot gets a stake in our future.  The difference between options at HubSpot and most other startups, is that the share price has just kept going up and up and up.  And, we think our best years are still ahead of us.  It’s a bit like joining Facebook in the early years, only not. 

5. We don’t want to just build software, we want to build entrepreneurs:  We want to build a big, successful company in the Boston area.  Obviously, creating great software is a big part of that.  But, we’re also passionate about seeding the next generation of entrepreneurs.  If you have the entrepreneurial gene, we fully expect that you’ll meet and work with your future co-founders at HubSpot.  We also have one of the best startup networks imaginable. 

6. We’ll Raise Your Currency:  HubSpot has an exceptionally strong reputation.  We’re known for hiring kick-ass people and not suffering fools.  So, if for some silly reason, you decide to leave us someday, the fact that you’ve been on the HubSpot team is going to wonders for your credibility (not that you needed help on that front).

7. Strict “No Jerks” Rule:  We don’t hire jerks.  Period.  If your normal disposition is to be negative and cranky, and it can’t be explained by a temporary lack of caffeine, you won’t fit in at HubSpot.  We’re intense at HubSpot, but it’s a good intense.  The reason for the “no jerks” rule is simple — for those of us that are not jerks, working with jerks is a whole lot of suckiness.  Life is short.  Why work with jerks?

8. Cool Stuff Shopping Spree:  We got tired of arguing about whether this MacBook Pro or that Thinkpad was better.  Or whether big second monitors really did help productivity (they do).  So, every developer that joins HubSpot gets $4,000 to go buy stuff.  You decide what’s going to make you super-productive.  [Oh, and if you just happen to want to buy that latest Android tablet because you’re thinking about doing a side project some day, I say go for it.  ]

9. Office Space For Happy Humans:  The nice thing about having lots of customers and fast growing revenues is that we can afford to invest in great working conditions.  We work in a well lit, comfortable, fun, cool office space.  Don’t take our word for it, check out some photos, or just come visit [we have HubSpot.tv every Friday at 4pm — and there’s free beer]. 

10. Hyper Transparency:  One of the core components of HubSpot’s culture is hyper transparency.  Every employee in the company has access to most of the company’s critical data — including financials.  This includes customers, revenue, burn-rate, cash in the bank, valuation of last venture round, notes from “strategic” meetings, plans for future financing.  Just about everything.  Our default position is:  “Unless you have really good reason to keep it secret, don’t make it a secret.”  We trust ourselves to use all of this information wisely, and so our default mode is “open”.

11. The “Take What You Need” Vacation Policy:  Over a year ago, the topic of a vacation policy came up in a management meeting.  We didn’t have a policy, and someone suggested we should have one.  Our CEO pushed back, with a “why”?  Net result:  We decided our policy would be to have no policy.  Members of the team take as much vacation as they need.  There’s no approval, no paperwork, no tracking, no accruing — nothing.  Contrary to what some outsiders may have believed, the company did not die.  It’s working great. 

12. Friends In Cool Places:  We believe in being an active member of the startup community inside and outside of Boston.  As such, we're well connected with a bunch of startup celebrities: Drew Houston (DropBox) -- he's on our advisory board.  Jason Fried (37signals).  Joel Spolsky (Stack Overflow), Mike McDerment (Freshbooks).  Adam Smith (ex-Xobni).  Alexis Ohanian (Y Combinator, Reddit) -- also on our advisory board.  Eric Ries (we're major lean startup fans). Rand Fishkin (SEOmoz, and SEO Extraordinaire). Hiten Shah (KissMetrics).  Dan Martell (Flowtown).    If that isn't enough name dropping for you, we've got more. So, what's the point of all of this (other than showing off)?  Well, we learn from all of these great entrepreneurs.  We hang out with them for beers.  They come do guest talks at HubSpot.  It's awesome.

13. Ping Pong:  Yes, we have a table, that’s not a big deal.  What we’re proud of is that our CEO, CTO, our VP Platform, VP Customer Happiness, VP Sales all play ping-pong.  Heck, even our CFO can play ping pong and chances are he can kick your ass. [Feel free to challenge him, but don't let him charge you for a beer -- they're free at HubSpot].

14. We're Good Peeps:  I know this one's a tad subjective, but ask around.  If you know anyone that knows HubSpot (and you should), ask them about the people.  Chances are they'll say good things. 

OK, I could drone on and on, but I think, you get the point.  We're a fun place to work, growing crazy fast and all modesty aside the place you want to be if you're awesome and can code.  You'll be the envy of your friends and family ("what, you got a job at HubSpot -- that's cool!"). 

I'll even make the initial process painless for you.  Just go to this page and enter your email address and a URL of some page that shows me your awesomeness.  I'll personally check you out and see if it's worth going to the next step.  If you ask me nicely, I'll even tell you what your odds are of making it to the final interview and getting the free iPad.

What do you think?  Any other ideas for attracting great developers?  Did you think this set of ideas was diabolically clever or a tad too desperate?  Would love to read your comments.



Article has 39 comments. Click To Read/Write Comments

SaaS 101: 7 Simple Lessons From Inside HubSpot

Posted by Dharmesh Shah on Mon, Jul 19, 2010

 


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). onstartups saas blackboard

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.

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). 

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). 

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.

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.

—-

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.



Article has 64 comments. Click To Read/Write Comments

Startup Marketing ABCs

Posted by Mike Volpe on Wed, Jun 09, 2010



The following is a guest post from Mike Volpe, the VP of Marketing at HubSpot, who has helped grow our marketing software company from a handful of customers to nearly 3,000 customers over the past 3 years.  You can find more of his thoughts through the HubSpot Blog, on Twitter, and his personal blog.

I was recently asked to speak about "startup marketing" at Atlassian Starter Day in San Francisco.  I have spoken about marketing at over 50 conferences, but never specifically about marketing at startups.  I decided to try to have a little fun and talk about some of the learnings from our experiences at HubSpot according to the alphabet.


 

Avoid Addiction

Google AdWords and most forms of advertising are addictive drugs to marketers.  They make you feel good (leads!) but they are expensive, and when the good feeling is gone, you need to buy some more to feel good again.  This leads to marketers being lazy, and not building assets that improve the value and business model of the company.
A much more sustainable strategy is to build assets - just like equipment in a factory.  Marketing assets are blog articles, subscribers, inbound links, SEO rankings, social media followers, opt-in email lists, and other tools that help you generate more and more leads over time without ongoing expenses. 

Blog Beforehand

Many startups today have a blog, but most of them do not start blogging until after they have launched a product.  One of the smartest things the HubSpot co-founders did was start blogging before HubSpot had a product to sell, helping to build an asset 
The second mistake most startups make is that they blog about their own product and on topics that they want people to read about.  That works ok, but not nearly as well as thinking about your content from the point of view of the customers that you want to attract through inbound marketing.  Media companies think about what content people most want to consume - you should think of your blog as a media company for your market.  Don't talk about your product much at all, talk about what people are most interested in reading and sharing.

Create Convenience

More and more people have the expectation and the capability to sever themselves.  Making each and every thing that you do to acquire new customers as simple and convenient as possible helps to increase the conversion rates for each step in the process, and improves your yield.
One of the things that has worked well for HubSpot is creating free tools that are really convenient.  For instance with Website Graderyou just type in your URL and you get a pretty useful report back quickly.  Making our tools and content as easy to use and as easy to share as possible has helped them spread far and wide at a low cost.  To date Website Grader has been used to evaluate over 2.4 million websites, and we have spent almost nothing marketing it. 

Data Drives Decisions

Most entrepreneurs know that marketing at a startup requires you to do some experimentation and use that marketing data to drive your decisions.  We have found that taking this to the extreme works well.  Each month the marketing team produces a report about marketing that is over 100 pages long, plus many other special reports.  We produce over 2,000 pages of reports each year, just for marketing.  We have targets for our key metrics and track those daily.  We know within a couple days if we are behind on a certain metric and can adjust our activities to compensate.
Tracking our business each month (or day) helps us optimize and evolve faster.  If you track your business monthly, you optimize and improve your marketing 3 times faster than a company that measures quarterly.  Measuring in smaller increments is key to evolving your startup marketing faster, by experimenting more and learning more quickly. 

Employ the Exceptional 

In the Inbound Marketing Book Dharmesh and Brian talk about the DARC criteria for hiring.  We use those criteria for hiring at HubSpot, also adding criteria for hiring marketing pros that "get stuff done" and are smarter than we are.  Experience is not as important as many people think because marketing is changing and evolving fast, such that too much experience can actually be a liability because you might prefer older and less effective marketing techniques. More than 2 years of experience might not add any additional value in terms of marketing expertise. (It does add value in terms of leadership and management and communication experience.)
What do you think?  What are the most important startup marketing lessons you have learned?  Leave a comment below and share with the community.



Article has 19 comments. Click To Read/Write Comments

7 Uncannily Obvious Lessons From A Product Launch

Posted by Dharmesh Shah on Wed, Jun 04, 2008



A few days ago, my startup HubSpot, launched a new app called Press Release Grader. It's not our core product, but a free tool for marketers and PR folks to analyze a press release and provide suggestions.

The launch has gone exceptionally well for us (and by that, I mean, the uptake in the community is much, much better than we were expecting). Would put some stats here, but it'd seem a bit like bragging and the focus of this article is not on press release grader or its specific results, but things I learned from putting it out there.

Warning: As noted in the title, I have an uncanny knack for the obvious, and I like to focus on the fundamentals (which is a polite way of saying that you're unlikely to find any brilliantly insightful lessons here).

7 Uncannily Obvious Lessons From A Product Launch

1. It's Not Too Early To Release: I'm a really, really big fan of the "release early, release often" mantra. But, even I fell prey to the "let me just get a bit more done" mind-set. I could have released the product a few weeks earlier, and I should have done exactly that.

2. Be Ready To Iterate: I intentionally cleared my schedule of other major distractions so I could focus on the software and iterate, iterate, iterate. In the days after the release/launch, I iterated like crazy with multiple production updates a day. Not a day should go buy that the software doesn't get better for the users. Continue this as long as you can (maybe even weeks and months).

3. Provide Simple Feedback Mechanism: You don't need anything fancy. Just a place for users to click a link, type in some feedback and send it to you. That's it.

4. Respond To Feedback: This goes back to #2. You should be ready to fix the "obvious" bugs and add the enhancements based on user feedback (as long as they make sense). The magic of immediate user responsiveness is underestimated. I've had a couple of noteworthy bloggers write about Press Release Grader simply because of the rapid response-time. It's just good, clean living.

5. Track As Much Data As You Can: For a web product, I'd suggest that at a minimum, you track all the standard web data (this can be done via a web analytics tool) + any "inputs" that the user is providing.

6. Don't Waste Time Coding Reports: Although you should track/store as much usage data as you can, don't waste time creating fancy (or non-fancy) reports just yet. Just capture it. Some simple mechanism to get a sense of usage is fine, but don't try to build ways to look at all the data you're tracking. It's a distraction. Focus on what will make the users happy. You can work on reports later.

7. Watch It Spread, Nudge It Along: You should be spending half of your time not just on coding, but on promotion. This includes watching who the product is getting picked up by across the web and who's writing about it. When people do write about it, thank them and offer to do something about their ideas and feedback. This works wonders. Even if you've got the luxury of business people (marketing, PR, etc.), stay involved. There's no replacement for being "plugged in" to the community.

On point #7, here are places I check to see what's being said:  Google (mostly blogs), Twitter, delicious, StumbleUpon and digg.  (I have a wee bit of an advantage because I've got some internal tools to help with this stuff). 

What lessons have you learned from releasing a product out to the wild? What will you repeat and what will you change the next time?



Article has 19 comments. Click To Read/Write Comments

Insanity? Why A Bootstrap Entrepreneur Raised $17 Million in Venture Funding

Posted by Dharmesh Shah on Fri, May 16, 2008



If you've been following OnStartups.com for any period of time, you likely know that I'm not a big advocate of startup founders going out and trying to raise venture funding in the early stages.

My argument boils down to two things:

1) Most folks don't need venture funding in the early stages

2) the odds of first-time entrepreneurs actually raising VC is pretty low.

Oh, and 3) it's one of the least fun activities an entrepreneur can take. Raising funding is often harder than building a product/business -- and much less fun!

So, given my general disposition, it will come as a surprise to many that know me that my startup, HubSpot, announced today that it has closed a Series B round of funding of $12 million. This is in addition to the $5 million Series A funding we raised less than a year ago. So, the total capital raised is now over $17 million. The news was big enough that TechCrunch wrote about HubSpot today.

So, back to the question. Why would a seemingly reasonable and modestly successful bootstrap entrepreneur raise venture funding of this magnitude?

Insanity? Maybe...

How A Bootstrap Entrepreneur Winds Up Raising $17 Million In Venture Funding

1. I seed funded HubSpot with $500,000. To do this, I used some of the proceeds from the sale of my prior startup (which I had bootstrapped with $10,000). The seed funding was an easy decision, because I mostly had to convince myself, and I'm pretty convincing when I talk to myself.

2. The seed funding was enough to build our SaaS product for internet marketing and get it out into the market (i.e. start charging real companies real money to use to it). People bought it. Sure, the product was "pre-alpha" and crappy, but it was useful. We also improved it every day (literally) so it got less and less crappy over time. More and more people bought. This gave us some evidence that there was actually some sort of market demand out there. Interesting.

3. The fact that things were headed in the right direction led us to raise another $1 million in angel funding. For us, that was a fair amount of money (we're capital efficient). Raising the angel funding was reasonably efficient because we had the inside track. The fact we had paying customers was helpful. So, no we're up to $1.5 million in capital raised. Cash in the bank. Life is good.

4. Then, the VC community starts to get interested in HubSpot (this is weeks after we have our angel funding finalized). "Not really interested," we say. We've got a $1 million of fresh cash in the bank. We don't need VC money. As it turns out, one of the best times to raise venture funding is when you don't need the money.

5. My co-founder, Brian Halligan and I have lots of interesting discussion and debate. We'd both debated the whole VC thing while grad students at MIT (where we met). For HubSpot, we had confidence that the market opportunity was big enough to warrant venture-funding, we just didn't think we needed it quite yet. (This is June-ish of 2007). But, we knew we were on to a potentially really big idea. We'd both made some money and weren't really looking for a "modest outcome". We wanted a big, significaint, immodest outcome. So, on the VC front, we figured with the right set of terms and the right partner, we'd consider raising it sooner rather than later. We got the right set of terms and the right partner. So, we raised another $4 million in VC bringing our "Series A" to $5 million. We're off to the races.

6. We did what I think is the best possible thing a startup can do with lots of cash: Not spend it too quickly. No advertising, no marketing, no high-flying salaries for high-flying executives. We hired the smartest, most passionate people we could find. People we knew and respected immensely. People fanatically focused on building a real business and who were constitutionally incapable of spending money willy-nilly. We behaved a lot like we were spending our own money. Because, we were. [Note to self: Write a future article about why VC money is as much yours, once you've given up the equity to get it].

7. Life is good. Sales are ramping steadily. Every month is a record month. Not in terms of visitors, eyeballs or some other proxy for future revenues, but in terms of actual revenues. The business is growing fast. By the time we officially launch the product in November, 2007, we have 100+ paying customers.

8. As it turns out, success attracts more capital. We started getting some "pre-emptive" interest in the company from VCs. "We don't need more money right now," we say. We hadn't even spent half of the last round and lots of cash in the bank. But, we're practical guys and willing to listen. As it turns out, one of the best times to raise venture funding is when you don't need the cash... (see point #4 above).

Fast-forward to today: We've closed a $12 million Series B round.

But, seriously, why did I raise VC funding? Did I change my mind?

The simple answer is no, I have not changed my mind on VC. I still don't think most early-stage entrepreneurs should go out on the venture fund-raising circuit. They should maintain the option of a modest exit. Focus on solving the customer's problem (not the VC's problem). My situation with HubSpot was special. I had already done the bootstrap thing (multiple times) and made money. I had above average odds of raising money for HubSpot.

So, why did I raise funding? Because, this time around I wanted to take a shot at the big leagues. Sure, any success (even a modest one) is nice. But a modest success is not going to change my life much at this point. I want to swing hard. It's not about the money. It's about the fun and excitement of pursuing a really big idea, working with really smart people and doing what I love. [And, of course, the money won't hurt either]

And that, my friends, is why I raised $17 million in venture funding.

If you have questions, feel free to ask them. I'll do my best (within reason) to answer them. Otherwise, I'll keep you posted with future articles as things progress.



Article has 26 comments. Click To Read/Write Comments

Previous Page | All Posts | Next Page