HubSpot co-founders Dharmesh Shah and Brian Halligan resisted investor pressure to chase enterprise customers, doubling down on small businesses instead. They grew net revenue retention from 75% to 110% by improving retention to 90% and upsell rates to 20%, using product-led growth and strong customer success.
Chapters
Yeah, we had a slide. We had a really good slide in our deck. There's a New Yorker cartoon and there's a dog typing on the internet and there's a dog looking over his shoulder very carefully. And the dog typing in there that says, you know, the great thing about the internet is nobody knows you're a dog. And I love that slide. And it's kind of true. Like, you can't tell how big a company is on the internet through their website and whatnot. And so we thought the internet disproportionately benefited small businesses, startups relative to large businesses and scaleups. And that was our, that was our thesis. And everybody thought we were wrong. It was the hardest chapters in HubSpot were raising our funding rounds because nobody— everybody wanted to go to the enterprise. Yeah.
And when we were thought wrong for a very long time, every board meeting, every— like, it's like, okay, so we get it that you're starting in SMB, but surely you have a path to the enterprise. I'm like, no, we, we're doing SMB. Year goes by, 5 years go by, 10 years go by, we're on the IPO roads. But we must have a path. I'm like, I know it's— but We're like, no, we're not.
I hate when they call you Shirley. Like, I know. Yeah. Do you think—
nicely played, Brian.
And I do want to talk about what the vision was on day zero versus today.
But this—
the more I thought about this SMB stuff and I had some— I had, I had some of that DNA too, but I changed my mind quickly to survive. Sure. But do you think it's just— it really is people's DNA that it's that passion? Is that what kept, kept I mean, we'll talk in a minute about, as you said in a tweet, HubSpot at a, you know, at a low five-figure price point, really a bigger SMB or an M of the SMB, really the M in SMB. But when the board was pushing you back in the day, was it more cultural? Was it more just we don't want to do it as human beings because we don't have passion?
I think two things. We did— we did think that the internet disproportionately benefited the small relative to large, particularly on the marketing side. We also saw the business model evolving where you can actually scale a small business software company. You know, there are two tricks to it. You need to keep your CAC low, which is a hard thing to do, and you can't do that with, with like major advertising budgets. You need some sort of viral marketing, freemium motion, product-led growth. You need to really get good at keeping CAC low and then you're going to churn out customers. So your customer your customer dollar retention, you're going to have a divot to fill and you need a second product or a second axis to your pricing so your best customers can fill that divot and you grow through it. And the metrics on HubSpot, like if you look at HubSpot back maybe in 2012 when you wrote that article, like our customer dollar retention was probably 70% and our upsell was maybe 5%. So we were 75% total. And now that 70% has gone to plus or minus 90%. And so customers are much happier, they're staying around longer or whatnot. And then the upsell is more like 20% and sales 110%. And so over time, our business model got much stronger and our product got much stronger and really helped us scale.
Yeah, I didn't— I did hit that later, but I didn't. It's interesting. So if when we wrote this, you were in 20, 30 million something revenue, you still had crummy SMB numbers. What today we would call them shitty SMB numbers. No, no VC, no matter how they just, just made $5 billion on Figma would fund an SMB company at $25 million ARR with 75%. Yet we know why it is like the smallest do churn every month. They go out of business, they change and upsells hard. How did you— what's your advice on that? Because I challenge folks to at least have a path to $100 million. It's like a path to profitability. Like you also, I think, almost need a path to $100 million so that you don't plateau.
The mechanics are not hard. It's exactly the component pieces you have to make the product better, right? Yeah. Invest in customer success. So more people getting adoption, maniacally focus on that churn rate, the customer dollar churn. And then you have to either have seed expansion or more products to sell or tier expansion. Like otherwise the math just doesn't work. There's just no way to kind of get there from here.
But did you feel like you were anything less than fully succeeding when you had that sort of suboptimal NRR?
I really kept up at night the whole time where we had high churn and, you know, sub-100%, we're like, and this is— we're having a, you know, a pretty good run, but this is not going to be the thing.
What was the board saying? Were they saying this is great, the 75% revenue?
