Dharmesh Shah explains HubSpot's path to $1 billion: start with a huge market, then treat your business as a financial engine. The key metric is LTV-to-CAC ratio. HubSpot's was 2.5-3× early on; they improved it by raising customer lifetime value rather than cutting acquisition costs. The goal needs a deadline: HubSpot targeted 2020.
Chapters
What are the learnings going to $1 billion, right? And why the heck can HubSpot even do $1 billion? A lot is defined by the market you're going after, right? So if we were going after some vertical trying to sell a $250 a month product that only had 8,000 possible companies to sell into, there is no way the TAM was large enough and the addressable market's big enough to— I think it comes down to what we call at HubSpot, we call like machine building. Yeah. Okay. So, and the way we think about the machine is that, okay, we have this machine. This is the LTV to CAC kind of thing. It's like, okay, we put $1 into this machine that we've built. and X number of dollars comes out over a Y period of time, right? It's a classic LTV to CAC thing. And so the thing we work on, it's like, okay, everything we do has to do one of two things. Either has to shorten the length of time that it's going to take us to get the LTV, whatever it's going to be, increase the overall return. So we might, like when we were starting in our formative years, that number was like 2.5 or 3, the LTV to CAC, right? And it's like, okay, we're going to keep driving that up. Well, what do we do? It's like, oh, we could work on acquisition costs, which we did. Yeah. That was not the issue. And that is usually not the issue for most SaaS companies at this stage. The issue usually is like, okay, maybe your CAC is 20% higher, but the upside on LTV is where the real leverage is. So the question we ask ourselves is, here's how much money we make on a per-customer basis right now, here's how long they stay, how do we make both of those numbers go up? And we back-solve, so we have a number in mind in terms of when we're gonna get to $1 billion in revenue, and it's less than eternity. You know, it's— Considerably less. I think we've actually told investors that we're targeting 2020.
