Business Strategy, Going from Startup to Scaleup. Brian Halligan

Doesn't go away. I still feel like HubSpot's a bit of a startup and I run it like a bit of a startup. So we have our core marketing business. Of course it's going quite well, but within the marketing business we'll build new products. We built a new ads product. When we build a new ads product, we have that same sort of MVP attitude of can we build something that at least one of our customers will want to buy? Can we build it compelling enough that a bunch of our customers want to buy? Can we get that math to work? And we measure things like what's the percentage of people who start using our ADS application and then what's the percentage of those users where it's sticky? So we still treat that like a little startup. We started a sales business inside of HubSpot, same type approach. We were like, how do we get to mvp? How do we work through all that? So you're still a startup. I actually think what's interesting about tech is so many of the great tech companies. I wouldn't put us in a great tech company category yet, but I look at Apple, I look at Microsoft, I look at Google, they're still run by entrepreneurs. They don't bring in some seasoned person who's run a giant GE kind of thing before. It's that entrepreneurial mindset of continuing to innovate, continuing to question conventional wisdom, continuing to have that real startup mentality that I think benefits them. It turns out.

I absolutely agree and we've done pretty well over the years for it, which is great. It's really exciting to see how we're now starting to branch out into different languages and so on like that and dealing with the localization issue and so on and so forth. A lot of starters want to get to that phase when you were talking about the adopting in tech and constantly reinventing the product or adopting it so people will still want it. When I worked in startups, one of the difficulty we had was how much of the resources and time do we put into the engineering side of things and then sales and marketing and how do you start to figure out when you're very limited, how to balance those two, which one deserves more time? Where do you like stop focusing on products so much, maybe put more money into the marketing of it? How did you deal with that issue as it came up?

This was one of our early big mistakes we made and I think it's maybe useful. Before we really got into scale up mode, we started hiring sales and marketing people at a pretty Rapid clip. And I think that's part of the reason is I'm a sales and marketing person by background. Most of these tech companies that become great are not run by someone with a sales and marketing background. They're actually run by product people. And so I think I jumped the gun, started hiring sales and marketing people too quickly, hitting the gas in sales and marketing too quickly when we hadn't sort of really sorted out the product market fit and the value we provided to customers. And I think that cost us. I think it costs us. I think it costs us some time and a lot of money and a lot of market cap. By, by doing that, we wasted way too much money. My advice would be keep it really producty engineering, get to product market fit, get those early customers, maybe hire one or two salespeople and get some marketing going. Get the marketing going earlier than the sales. And then once you start to get that machine working and you're pretty sure you can stick a dollar in and get, you know, three, four, five dollars out, or you can stick, you can get that ATM going, then pour on the gas with sales and marketing and add them quickly and scale them up as quickly as you can without breaking the business. We started too early, but luckily survived. Yep.

So one of the things that you mentioned in a great article you wrote for Rethink was being sometimes described as a chief pothole prevention officer. And by a pothole, you meant something similar to this. Where this could have swallowed you hole could have taken over. Another one you got into was something that we, in the inbound methodology, we talk a lot about the Persona and targeting. How did being unfocused on a Persona also be quite a big pothole that could have swallowed us? And how did you end up deciding to focus on that single Mary Mofu monetization Persona or strategy?

Sure, the chief pothole prevention officer is very true. Still am the chief powerful prevention officer. And at scale. Here's the thing. At scale, you have to get almost everything right almost all the time. No pressure, because everything kind of fits together. And I'll give you an example, you know, your support organization. So we have a support organization and we want to answer every call within 60 seconds. Give dynamite support. If you've got some product issues, you rushed your product to market or you did something on the product side, those support issues can really, you know, people can wait a long time. They wait a long time. Let's say they wait five, six minutes for the call. They'll hang up on the call and then they'll Call their sales rep and they'll start asking their sales reps technical questions. And guess what? Sales reps stink at asking. Answering technical questions. And then the sales rep just points them back to support. So you have this negative flywheel essentially that happens where maybe you released a product, it wasn't quite right, you didn't roll it back quickly enough. Support backs up. People are relatively unhappy when the support backs up. Then they're calling the sales reps. Sales reps aren't selling right. And then they're back in support. Back in support, back up. And it can be a negative flywheel. You kind of have to have all the pieces of the organization operating at nearly full speed nearly all the time because everything is so wired together in scale up mode. And so you've got to be super vigilant about looking for, I call them, little cracks in the pavement. If you can find a little crack in the pavement, you let that crack go. Particularly in Boston. It'll rain, you'll have sleet, you'll have snow, and the next thing you know, you giant sinkhole that will swallow your whole goddamn company up. And so I try to find them early and patch them up.

Right. So like that's the one of the things that it becomes systemic. Every part of the organization becomes damaged by something as simple as not getting to those support calls on time and wine.

It's super cliche. But you're only as strong as your weakest link. If you're bad at market, it'll rip through the whole funnel. If you're bad at support, it'll rip through the other way. Everything is completely tied together. I'm very surprised how tied together it is, I guess. Yeah.

Because a lot would have thought that, well, the product is great, it'll sell itself. It's fine. We just focus on that. We don't do anything else around that. And some have been lucky. And that's even possible. Another big decision that HubSpot came up against was switching from the TOFU to the mofu. So TOFU is our acronym for top of the funnel tools to Middle of the funnel tools and really diving into being a marketing automation platform. Can you walk us through a bit about how you had first of all decided to build those more like traffic type tools and then move on to something that was more deeper about nurturing and about giving people a good experience?

Sure. The early days of HubSpot we're really focused on solving one simple problem. How do you turn a complete perfect stranger out there in the world into a visitor into your site. And we really spent four years on that mission to pull that off. That went pretty well. And we noticed the problem people had is they were like, all right, now I'm getting visitors, I'm starting to get leads, I need to manage these better. And they were starting to buy these things called marketing automation Solutions. So then we decided, let's jump into marketing automation. We've made a little acquisition around it, built out a big team, and we spent the next four years of our life really working on how do I turn a visitor into a qualified lead for a sales rep. And that went quite well. And then we're about a year into the third chapter in HubSpot, which how do I turn a qualified lead into a delighted customer? And so we're building CRM and tools like this and the journey has been very, very interesting. We did the exact opposite of what everyone tells you to do. What everyone tells you to do is focus on one little thing and get very, very good at it and then maybe expand from there. We get very good at a very wide set of things and that has served us well and served our customers very well. I think one of the things, like if I look at HubSpot, I read Peter Thiel's book, Peter Thiel's bright guy and what he talks about is your company has to have a secret. You have to be right about something that everyone thinks you're wrong about. And I think we were right about a couple of things. One, we were right about going very wide and all in one in serving businesses that way. I think we were right about you can build a scalable business, big profitable business in the SMB software space. I think we're right about this idea of the world is going to move to a much more inbound world away from an outbound world. So we were right about a few things people are wrong about. When you're right about things people think you're wrong about, it gives you cover of the night to run very fast while everyone's naysaying you. I think that's important in breaking from.

Startup to scale up nowadays. Would you say people have to run that little bit faster because let's say 10 years ago might have been a good spot before people had the. The ability to jump in and learn and adopt and like, let's say, make imitation tools, make imitation companies and disrupt from other ways. Can startups today assume they can be in a similar position, like being right about one thing, or would you say they have to just move that bit faster?

I Think it's the world's best time to start a company and the world's worst time to start a company. The best time to start a company because, man, you can build software compared to 10 years ago. You can use AWS, you can use open source tools, there's so many powerful programming languages and libraries out there that developers can use. And it's amazing what you can build in six months today versus what you could do years ago. Same with hardware. Like you can come up with a prototype, you can go to China, they will build at scale your piece of hardware or your piece of clothing or your piece of whatever. Exceptionally quickly the hard part has shifted to sales and marketing because there's so many products out there, so much choice for buyers, B2B, B2C that you have to become a black belt in how do you market in a way that stands out? How do you market and sell in a way that matches the way people buy? That's turned out to be the long pole in the tent. The long pole used to be building a great product. The long poles move to boy, how do I sell and market that product in an effective way?

Controversial. People will love to debate about that later on inbound.org if you have any questions. One other big chili in your article was about how changing the pricing model actually was really critical to getting it right because there were issues around. So one part was about retention was one critical cornerstone and then actually changing the pricing model. Can you talk us through how the change of the pricing model and why it worked and then why retention became that thing you focused on so hard, like 2012, I believe.

Sure. To pull that off. That went pretty well. And we noticed what the problem people had is they were like, all right, now I'm getting visitors, I'm starting to get leads. I need to manage these better. And they're starting to buy these things called marketing automation solutions. So then we decided, let's jump into marketing automation. We've made a little acquisition around it, built out a big team, and we spent the next four years of our life really working on how do I turn a visitor into a qualified lead for a sales rep? And that went quite well. And then we're about a year into the third chapter in HubSpot, which how do I turn a qualified lead into a delighted customer? And so we're building CRM and 20 like this. And the journey has been very, very interesting. We did the exact opposite of what everyone tells you to do. What everyone tells you to do is focus on one little thing and get very, very good at it and then maybe expand from there. We got very good at a very wide set of things and that has served us well, served our customers very well. I think one of the things, like if I look at HubSpot, I read Peter Thiel's book, Peter Thiel's bright guy and what he talks about is your company has to have a secret. You have to be right about something that everyone thinks you're wrong about. And I think we were right about a couple of things. One, we were right about going very wide and all in one in serving businesses that way. I think we were right about you can build a scalable, big, profitable business in the SMB software space. I think we were right about this idea of the world is going to move to a much more inbound world away from an outbound world. So we were right about a few things people are wrong about. Right about things people think you're wrong about. It gives you cover of the night to run very fast while everyone's naysaying you. I think that's important in breaking from.

Startup to scale up nowadays. Would you say people have to run that little bit faster because let's say 10 years ago might have been a good spot before people had the ability to jump in and learn and adapt and like, let's say make imitation tools, make imitation companies and disrupt from other ways. Can startups today assume they can be in a similar position like being right about one thing, or would you say they have to just move that bit faster?

I think it's the world's best time to start a company and the world's worst time to start a company. The best time to start a company because man, you can build software compared to 10 years ago. You can use AWS, you can use open source tools, there's so many powerful programming languages and libraries out there that developers can use. And it's amazing what you can build in six months today versus what you could do. Same with hardware. Like you can come up with a prototype, you can go to China, they will build at scale your piece of hardware or your piece of clothing or your piece of whatever. Exceptionally quickly the hard part has shifted to sales and marketing because there's so many products out there, so much choice for buyers, B2B, B2C that you have to become a black belt in how do you market in a way that stands out? How do you market and sell in a way that matches the way people buy? That's turned out to be the long pole in the Tent. The long pole used to be building a great product. The long poles moved to boy, how do I sell and market that product in an effective way?

Controversial. People will love to debate about that later on inbound.org if you have any questions. One other big chili in your article was about how changing the pricing model actually was really critical to getting it right because there were issues around. So one part was about retention was one critical cornerstone and then actually changing the pricing model. Can you talk us through how the change of the pricing model and why it worked and then why retention became that thing you focused on so hard like 2012 I believe.

Sure. The thing that enabled us to skip from or move from start to scale up was really improving customer value and improving the retention rates. And lots of companies have this problem and it holds 99% companies back from going from startup scale up. And so we are laser focused on that. It turns out fixing retention. What a lot of companies do is they just turn to their head of services and say fix the darn problem. And the head of services can only do so much. And so we did it. We said let's. Well first of all we did that didn't work. And then when it didn't work, we said let's make retention and customer value a team sport. And so we asked our VP of sales change the way they sold and changed the commission structure to be tied to customer value. We asked our head of marketing at the time to start scoring leads in a whole different way in raising the score of leads that aren't most likely to buy but are most likely to stick around and have a lot of value. We changed our pricing and packaging. We changed the part of our product we invested in. That is the sticky part. We changed the way we delivered services, changed everything pricing and packaging. The part we changed there that I thought was, that worked was we aligned our pricing model with customer success. And I really like having the company's success aligned with customer success. As our customers are successful, we participate in a small way in their success essentially. And so the way that works for us is the size of your leads database, your contacts database. So the better our customers do with inbound marketing, the more leads they get, the more customers get, the better they get, the better we do. So that part of the pricing model change worked really well. It aligned our developers and our salespeople and everybody with our customers success. So to the extent you can, to the extent you're thinking through your pricing model and everyone's constantly thinking through their pricing model, try as Best you can to align incentives. Right.

Don't just go for the enterprise model, the unlimited free model and so on without actually having a strategy around why it matters and why it will actually have that positive knock on effect regards to the way you're building your teams out.

Sort of like what AdWords did you think about what AdWords did? You had Yahoo before it was a list of links and then Google obviously moved to a model where you're paying not for the impressions but you're paying for the click through. There was an auction model and so they really tied those incentives together really nicely. We were inspired by Google's pricing model when we created HubSpot's pricing model.

One of the big things then over all this change over all these years has been how you've been able to navigate the leadership issue like how to spot the right people to bring a company like this to the fort. Bring it to the stage it's at now. How often do you go around like taking the temperature of how team leads and managers and VPs are feeling and how do you deal with the feedback?

Okay, one interesting factoid about HubSpot is if you look at our the people who report to me today compared to the people who reported to me six years ago, it's mostly a brand new team and this surprised me. I didn't expect that. Some of the most all those execs who reported to me back then are terrific people. I would start companies with them, I love them. And most of them left HubSpot and gone on to do very entrepreneurial startup things. Some people are just startupy people and they like that. Totally cool with that. There's nothing wrong with them, they're fantastic. But we have swapped the whole team out. The way, the way we find out whether a leader of a team is scaling well is somewhat interesting. We survey all of our employees once a quarter and we've done this for the last eight years and ask and do a net promoter survey. We say to you on a scale of 1 to 10, how likely are you to refer a friend to work at HubSpot? And then why and what we do is we look at, we look at it by department. So we look at the VP of XYZ department. If VP of XYZ the department has a very high net promoter score for quarter, quarter, quarter, then bam, it goes down. Well that's a problem. You know what are their employees saying? There are their leadership issues or the problems. So we'll typically go and we'll gather up the feedback from There, present it to the leader in question, ask that leader to work on it, and they crank away and they work on it and you wait kind of with bated breath for the next quarter and the results come back and bam, it typically falls again. Kind of disappointing. Now what I learned from that is once your team, once your team has lost confidence in you, it is very difficult to win that back. And that's an unfortunate conclusion I've come to. But it's happened multiple times in my history. That's my first aha. My second aha is once we hire a capable replacement for that person, we typically try to find a new role for that person. The score will bounce all the way back to where it was. So you can recover it quite quickly with the right capable leader. So I found the whole team thing to be very interesting. The team we had in startup mode is very different than the team we have at scale up mode. It turns out it's a slightly different skill set. The way we found out whether our startup leaders were scaling or not was really that their employees told us through the surveys.

So that's one big challenge is then to be able to have that realization where you can change this out. And it is not a bad thing. Even if the guys have been there from the beginning, it's like if they're not fitting the position the company's in right now, then that's okay.

It's fine.

They played their part and they've done.

Really well and they've done great. And financially they did great and they learned a lot and we learned a lot. And what we hope is they leave and start another company that's bigger than HubSpot someday, like that's what would make us really proud. And for all these folks who have left, if they start companies, my co founder and I, we're investing in them and we, we wish them the best. But it is slightly different profile as you scale for me even too. Like, I've had, I have plenty of issues on the leadership side and we hired a COO to kind of compliment me. Our COOs sort of get complimentary skills to me and it's helped a lot. And so it's hard scale. The skills you need at 100 employees turns out are different than at a.

Thousand employees a bit more. So you get complimentary people who can fill those like less, not lesser strengths, but just like parts where maybe you're not.

Cover your weaknesses.

Cover your weaknesses, lean into that and find good people who can do that.

Yeah. One of the things I personally found myself doing is like, I've worked on my weaknesses and worked on my weaknesses and worked on my weaknesses and gosh, the return on calories trying to fix my weaknesses is very poor. And so I've moved completely to, I'm just going to lean into my strengths. I'm good at a few things, how do I get even better and lean into the things I'm passionate about? And that served me well. People don't change terms.

So yesterday Katie had brought up at the younger age, maybe perhaps try to lean in more to it, but then you can decide for yourself as time goes on how that works overall now. So in SaaS, as in software as a service, what are the kind of big challenges you'd see for brand new ones? Starting off today, you've got a program running now, HubSpot for Startups.

Yep.

What challenge do you see similar challenges to when HubSpot began or has the game changed a bit in terms of SaaS and services such as that?

I think that SaaS companies go through. The first challenge I have is can they get the product market fit, Hard to do, lots of noise, lots of competitors. They need a secret and they need to be able to build good products. We don't help with that. What we help with is once they've got something that looks about right, boy, how do you fill your funnel? How do you pull visitors in? How do you turn those visitors into leads? How do you turn those leads into qualified leads and customers? And when you're a little tiny startup and you're just getting going, you can't afford HubSpot. It turns out you haven't raised any venture funding yet. You're trying to prove out your idea, maybe prove it to venture capitalists or more investors. You've got no dough and you're living on ramen. And so we've got an aggressive 90% discount for startups that are in incubators. We call it HubSpot for startups. And it's basically a year subscription of HubSpot, a 90% discount. The second year they get a 50% discount and then the third year they're on kind of normal pricing. And we put that together a couple years ago and we've signed up hundreds of incubators and, you know, a lot of startups are taking advantage of it. I do feel like marketing and selling is hard today. So much competition, so much choice, so many people building products, so much funding out there that they need to become black belts and marketing sales and we want to help them. Do we Want to get in there early and help them as much as we can and then we'll grow together. That's the idea of it.

Right. It was going to get to my question of what inspired you to want to offer a program to startups because some people might think, well that's not particularly profitable. They could never afford something as expensive as a big marketing automation and sales platform. But it's something that you, you believe it's like a long play. Yeah, that's another point you had in the article. When do you make the right over the fast decisions and go for the long plays?

One of the things that I think founder co founder choice is is a good one. I found the near perfect co founder. He and I are aligned on a lot of things. One of the things we're aligned on is we didn't want a small exit, we didn't want a quick win. We wanted to build something that would endure, be durable, build something our kids and our grandkids will be proud of over the long, long haul. And so every time we've got to make a decision, we typically lean on making the decision that benefits, you know, enterprise value over the very long term. So stuff like this that is pittance of revenue and kind of distracting in the short term, well, it helps the community. But over the long haul, we're self serving capitalists. It will help us over the long haul. As they grow, we'll grow together.

Good stuff. So we're almost at the end and one of the last things I wanted to ask about, so we wanted to make this a week of the team on Always be Learning. We're now running sales certifications, marketing certifications and all that of like growing together, sharing the knowledge and getting people to nail sales and marketing. Well, it's a bit of an unusual decision to start an entire academy. Where did that idea come from and where do you see it? Like, do you see this as still being an extremely valuable part of HubSpot's mission?

Yeah, I'm psyched about the academy. We had a terrific guy named Mark Killen start it and he started it as a way to scalably train our customers on HubSpot and inbound marketing. And it went really well. Our customers really liked it and we noticed non customers kept taking the classes and really liking it, putting on their LinkedIn profiles. Because once you learn inbound marketing and learn HubSpot, you become a very valuable marketer, you get hired very quickly and you end up making a lot of money, which is good. Yes. And so we started Layering in more courses and then turning them for our customers. And from the outside, we just layered in the sales force. I think the way marketing has changed, humans are changing the way they shop for products. The way to make decisions about products, marketers needed to transform the way they market it to match that Sales is changing too. The way you sell has to change to match the way people buy. And cold calling people, I just think is dead. Cold emailing people is not dead. But there's a way to do that that you need to increase the value and increase the context there. How you pursue an account, how you engage an account, the sales process changes as that customer, potential customer, can learn so much more on the Internet, on your website, on Quora, so much more information available to them. So we wanted to build a modern methodology of how do you actually sell to the 2016 human that matches the way they buy. So we put together an awesome new course teaching people how to do that. So I'm hoping people take that. I think they really like it.

Absolutely. So we offer sales and marketing courses. Academy.HubSpot.comCertification if you're a startup, please check out our HubSpot for startup course or our program. Pardon me, if you're part of an accelerator. And thanks for joining us. We hope to see you for day three. Thanks for.

Thank you, Brian.

Thank you for having me.

Yeah.

And we'll see you soon. Bye.