Dharmesh Shah: Why Company Culture is Crucial [Entire Talk]

All right, well, thanks, Stanford and the ETL for having me. A couple of quick disclaimers. I'm Dharmesh, by the way. I'm on Twitter, as it turns out as well, and I'm cto, so that means this is not my natural state of being. My natural state of being is writing Python code, not being a public spirit. So bear with me. If I sound nervous, it's because I'm nervous. I get better, though, trust me. So my claim to pseudo fame is I co founded a company called HubSpot about nine and a half years ago. It's grown, went public about a year ago and doing well. HubSpot's in the marketing and sales software space. But this is not about HubSpot. Actually, we're going to talk about people and culture. Skip through this. This is the gratuitous ringing of the bell photo that must be included in every company's slide deck at least 24 months after they go public. So this is us. Some of you might be wondering, like, Dharmesh, why don't you look like more excited? That's me excited right there. That's as excited as I get. And so what's that? Why the sunglasses? Someone the very last minute, one of our, I think one of our marketing people said, you know what, we should do something like noteworthy or remarkable, that people ask us exactly why the sunglasses? No reason. It's like, why not? It's like, Dharmesh, put these sunglasses on. I'm like, okay, fine. So the company's done well. We just, as Tom mentioned, we just had our quarterly earnings call. And so the company's about $180 million in revenue last year, growing 57%, which means something because that's actually relatively hard to do at that scale. We're proud of that. That's the last braggy slide I think I have, so we can kind of get on with business. This is a safe harbor statement which basically says I may make forward looking statements and if I do, the future may not be what I said it was going to be. And don't buy stock based on things that I say. I'm paraphrasing, but that's what it Sundays. It's an SEC requirement. And I didn't do this for fun, just for entertainment value. So one big disclaimer is, so HubSpot's been successful and I've been talking to entrepreneurs for a long, long time and realize this is like one of the things that happens with startup advice generally is you have this kind of what I Think that was like extrapolation from a Data point of 1. Essentially it's like, oh, we did this and good things happened, so that must have been the right thing to do. So not all unicorns dispense, not everything they did was right and not all the things that they say are necessarily applicable. So that's my take it as it is. So going to kind of tell you a story here in terms of not my life story. We'll fast forward through my times on the dusty streets of India and how that informed my notion of unit economics and SaaS businesses. So I went to school here for grad school. It's mit, what some of you may recall the other school on that other coast somewhere, which it is. And while there at grad school I met this guy. His name is Brian Halligan and he's my co founder, he's the CEO of HubSpot. So we met about 11 years ago in grad school. And the one problem was that Brian was in business school working towards an mba. Any MBA students here? A few that will confess, especially with that lead up. Right. It's like, okay, there's probably at least a few of you that wouldn't raise your hand. It's okay. And so the question is like, well, why is that a problem, Dharmesh? It's just because he was. And so because there was this prevailing theory in startup land that says, okay, well let's see, your probability of success for some definition of Success is roughly 1%. Pick it up. Oh, for getting to a billion dollars or whatever it is. And then there's factors that impact that probability, one of which is this kind of very exponential kind of factor where N is equal to the number of MBAs on the early team. And so that's been like a long running thesis within the startup community for as long as I've known the startup community. So I'm like, okay, well you know, startups are hard. And I'm about to start this thing with a co founder that you know, like right out of the gate our odds have gone down 50%. And then like 30 seconds later I had the realization that I also was in business school working towards. It's like, okay, well now that's two. So okay, so that's, you know, my co founder and I, CEO and CTO. And then we went on to hire a VP of marketing, a VP of sales, a VP of customer success and a VP of engineering, all of which were MBAs, all from MIT, Sloan. And it's like, what could possibly go wrong with this picture, right? And so the reason I'm telling you this is like the talk is about people and culture. And one of the things I've learned so I'm an engineering guy, I like code. I don't like being, I'm not psychopathic, I'm just antisocial. I like humans, okay? I just don't being around them a lot. I like some humans. But I'm going to posit this thesis to you that not all MBAs are genetically predisposed to startup failure. They're not all schmucks and they're not all chumps. There are actually some good ones that can contribute value. I think one of the mistakes folks like I make is we can underestimate the value of like non engineering, non product people. As it turns out, especially in this day and age, it takes more than just building a great product to actually build something successful. And I've learned this. And so the nice thing about MBAs is they're the better ones, which we tried to hire are like super analytical and they're not all just kind of the paper pushing whatever it is like stereotypical notion that you have about business school students. So anyway, I just want to dispel the myth right here, go on record and say MBAs are not all bad. All right, so the thing I'm going to talk about here is culture. And when I talk to startups, most of them don't spend a lot of time thinking about culture and thinking about people. It's like, okay, I'm going to walk you through some of the common reasons why entrepreneurs like culture. One is culture. We've got that figured out. We've got Margarita Mondays, we've got a ping pong table, we're going to do Star Trek movies on Friday afternoons or something like that. So that's rationalization, number one. Number two is culture. Well, that's just something that happens organically. You don't create culture. That just sounds kind of creepy and kind of fishy, right? That's why we don't do that. And then there's one of my favorites is like we're friggin changing the world. Put in the density universe. That's our culture, okay? And so those are the kind of common buckets of reasons why early stage companies don't talk about culture. And the most common one, and this is actually a legitimate one, is we've got a thousand things to do. We're trying to raise funding, we're trying to build product, we're trying to find co founders we're trying to figure out how to replace the VP of engineering that was supposed to quit his thing and didn't quit his thing. And like all those things that are happening in early stage land, you don't have time to think about people and culture. Which is probably the best reason I'm going to posit to you that despite all those reasons that not only should you think about culture, you should obsess over as early in the process as possible because of all the things you will do that will have the time that you can spend, yes, build the product, but people is the thing that will cause the startup to succeed or fail. And the culture is going to define, we'll talk about this, who you bring in as a co founder of the early team. And that's going to actually influence your overall probability of success more than most other things that you will do. Most of you will start companies where the likelihood that you're able to build a product is relatively high. That's going to be fine. What's really the kind of stopping point sometimes is either there's no market or you have a falling out with the early team. Those are like a common causes of startup stagnation or failure. So the other reason I'm going to walk you through some of the arguments in favor of culture. We all know that all the time and calories you spend in product is good time and energy because the better the product is, the easier it is to attract users and customers. Not counterintuitive at all. That makes sense. I'm going to posit that there's a direct analogy around culture. The better your culture is, the easier it will be for you to attract co founders and employees, eventually customers, investors and other things that actually matters. This is going to sound cliched and platitudinal because it's cliched and platitudinal. But the overall purpose of a culture, the idea behind it is to a attract amazing people, then help them do their best work. That's why you have it. That's why you should have a good one versus a crappy one. The other one is like this I've seen happen so many times. So bad crappy culture and there are multiple toxic cultures will not likely kill you immediately. It's not the fastest way to die. There are much faster ways to kill a startup. This is the most reliable. It will kill you. If the culture is crappy, it's just a matter of time. It will not, can't last. And then this is for the economically and Mathematically oriented, there is relatively convincing evidence. This one slide around. This is a comparison of the S&P 500 based on the survey of the happiness of the employees at those companies and their overall performance on the public markets. Right. So reasonably it's like, okay, so culture sort of matters. At least there's a correlation. We may not be able to draw direct causality, but there's a correlation between companies with happy employees tend to do better performance wise on the market. All right, so having said all that, HubSpot in our first three years, we're about nine something years old now, we did not use the word culture at all. And I know this because neither my co founder and I, we don't have phone calls. I don't have phone calls generally at all. As it turns out, I'm quirky that way. So everything we've ever said to each other has been in late night emails from 11pm to about 2am we have these long thousand word emails that go back and forth. So I look back through the archives like, oh, when did we first start talking about culture? It was three years in, so we didn't do it. And then this happened. So my co founder, the CEO of HubSpot, went to a CEO group, which the easiest way to think about is like group therapy for CEOs. So they all go in and they kind of talk about issues of the day, which is super useful, I highly recommend it. And so at this particular session that he went to, the theme was culture. And we're still in our kind of early stages. And so he has, I guess I don't think I could reveal the names anyway, but he had some highfalutin CEOs in his group. And Brian's reaction, my co founder, was like, well, culture, he had that last excuse. We don't have time for that. We're trying to build this business, we're building a product, we're trying to get customers, we're doing all these things. Who has time for culture? And they beat him up over it. They're like, no, you do not understand your job as a CEO. This is like this can't, cannot be any higher on the priority list. It's like it should be number one, you should do it. And so Brian nodded his head, got through that meeting. Then the next meeting that I had with him over beers, he's like, dharmesh, I've heard this culture thing is really, really important. Why don't you go do that? Now that presented a problem because on the extrovert to introvert scale. I'm like, way over there. Like way, like as possible. Like way over there, right? And so it's not that I don't like humans. There are some that I do like hanging around with. That's my wife and child. A gratuitous photo of the children. And so then it's like, okay, Brian's busy, he's doing other things. All he's really asking me to do, like what I thought my mission was going to be was, okay, well, we have a culture. I just need to collect some data and ask our employees what culture is, what they think about it, do they like it or not. It's a data collection. Kind of like write down and be the scribe for the culture that already exists. Like, not pleasant. I'd rather be writing code. But okay, fine, I'll take one for the team. And within days, this is my reaction. It's like, this is the worst possible thing I've ever done to myself in the history of me. It was so bad. It was bad on so many levels. It was crazy. I'll give you one anecdote. So I started sending emails around saying, by the way, I'm working on this thing. I'm trying to figure out culture at the company. And then I got these flaming responses. And I'm used to flaming responses from HubSpot employees telling me I'm an idiot for many different reasons. But this one was particularly acute and hard to take. They're like, oh, so now we're talking about culture. Next it's gonna be like posters on the wall and this is the first step down the slippery slope. And then this is the one that killed me. It's like, this is not the company that I thought I joined. Like, you're killing me here. What all they asked you was, are you happy or not? What do you think that it's like, wow. And people have this very visceral reaction when you start talking about kind of people issues and culture. And so I sent this email, this is unedited, directly to my co founder. I'm going to paraphrase and say, well, I'll read it. Not sure how I wound up being the guy to lead the discussion on culture, but it's freaking hard. Eventually we need to give this to someone that actually likes humans. This is a late night email about two or three months after that original kind of interaction. So I didn't drop it. I'm like, okay, let's get back to thing, Whatever, we'll work through these issues, whatever. I do think it's important. I was going off and reading on what other people do. As it turns out, the data suggests that. So we did a survey and asked the employees, are you happy or not? Would you recommend HubSpot as a place to work on a scale of 0, 10. And the reality was good, which is, oh, they were super happy, ecstatically happy, maniacally happy. That was the good news. The second question we asked is, okay, well, why did you give us that score? And then we had this kind of recursion problem. The reason the people at HubSpot were happy was because of the other people at HubSpot. It's like, well, I don't know what to do with that. Which is, okay, well, start with happy people and don't lose them, I guess. And then they will attract more people that will also be happy. So this was a challenge. We worked through this. So this is actually. This is the last braggy slide. I forgot I had this one in there. So Glassdoor does this kind of nationwide survey of employees anonymously, like Yelp, for how many people have heard of Glassdoor? I'm just curious. Okay. Just about all of you. All right. So they do this thing. And unsurprisingly, last year, Google was number one. Facebook. And I just pulled out the tech companies folks that you would know. This is one of the things we're most proud of. This is this year's scores. So we came in at number four. I'm going to talk you through. Yeah, it's like what happened along the story. So that's the last braggy slide. And so the approach we took in terms of culture is we took the kind of engineering, very geeked out way of thinking about it, which is, okay, well, culture, what it really is, the way I think about it, it's like the operating system that everything else is kind of running on. It's like the hardest. The machinery that makes us run and we should kind of build it as such. And so I subsequently spent hundreds of hours. This is like the floor. I know it's bigger than this. This is all I'm willing to admit to. And the real pain was the fact that those 300 hours were not spent writing Python code. They were spent writing a PowerPoint deck trying to describe culture at HubSpot. We thought it was what we think it needed to be and resulted in this deck called HubSpot Culture Code. And we made the weird decision about a couple of years after we kind of started that process to like, oh, well, this is useful, like in the kind of Open source mentality. We have this very kind of transparent culture. It's like, ah, we'll put it out there to see if this is useful to other people. And it's been wildly popular for reasons that are not completely clear. And I think it's because the topic's on people's minds. So that's done well. And what I'm going to do is I'm going to talk you through some of the kind of mechanics of how we came up with the stuff we came up with and some of the things that I think are useful. This is not to tell you about HubSpot culture and what it's like. It's to tell you about the thought process that went into some of the things that I think are generally good. So the first thing we kind of recognized, our first kind of observation was that all of us, humanity overall, and people that work for companies and startups all over, had kind of dramatically changed how they live and work. So in the left column are things that people used to care about that was their thing. In the right column is the way they are now. Right. And most of you will have, like, especially the younger generation will nod your heads like, yeah, I can't believe what's a pension? Like, what is that? And like, when it's inconceivable to any of us that we're going to spend an entire career. People did this, by the way, back in the day. They spent their entire professional career in one company. And that was the thing that you did. And Lao's like, what? Like, whatever. I'm not, like, no, I'm not staying here. I'm definitely not. Anyway. And so our reaction was like, okay, well, it looks like a lot of these companies are essentially frozen in time. They've got this thing that they're doing that makes no sense for the current reality in terms of the people that are working there, people they want to attract. It just doesn't make any sense. So we went out to fix that. And that's what the capture code kind of describes. Here's what's broken, here's how we think. I'm not going to bore you with this stuff and this is going to sound, I'm going to skip by this actually, even though it's like the most important slide in the deck. But I'll put it up there for a little while. This one is crucial. I love this quote. And the idea here is most of the dysfunctions that exist in a startup or a company of any size, most of them happen in Dark corners behind closed doors is when the stupidest stuff happens. And if you can shine light into those things that are happening right now, the likelihood of stupidity, just flat out stupidity goes down. So if there's like two people trying to make a decision like, okay, we're going to go, just talk this through, whatever, and then we will reveal to the employees what we came up with. You are much more likely to make very stupid decisions in those circumstances. So the more light you can shine into the process overall, the better the outcome, better the decision. As a result of that, we made the decision early on in the company to share just about everything with everyone, Period. The only different, only exceptions were if we were legally bound not to share it. Like if we were working on some MA transaction where we had a contractual obligation not to share it or, and we can talk about this in the Q and A if we, if you're curious, individual compensation data, because it was data that we felt like we didn't exclusively own as the company. It was kind of a shared data thing between the individual and us. Everything else, the board deck, the financials, how much money we burned when we were going to run out of cash, we, what the overall valuations were, what discussions we were having with VCs, everything was shared with everyone. And that worked out well. The other thing we did, I'll give you this quick hack. So we have, it's very open culture. Lots of people do that. Something that a lot of people don't do. I'll give you the anecdote here. So we start off just my co founder and I. We're in this room with four desks. Common startup environment. Actually that's probably. We were like living luxuriously because there's like two desks that are open. That was amazing. And so then we hired the first employees. Like, okay, well where should that person sit? And it seemed unfair originally. It's like, okay, well why should we have. Just because we happen to be here. So what we did is like we had this hack. It's like, okay, what we'll do is we'll do a random lottery and we'll pick desks. And we did it because we're geeked out. We're like, okay, well it's not. Whoever gets it gets the window seat. Because that's because not everybody wants the window seat. So whoever has your turn came up in the lottery, you got to pick whichever of the open desks were left. Essentially. Very, very simple, simple hack. And then what we did was like, ok, well every time we hire someone. We're going to go reshuffle desks. We're going to go through the lottery process again. So employee number four, employee number 10, employee number 50, employee number eight. And all along the way, people told us, well, that's just crazy. Yeah, it worked at 10 people, maybe 50. I don't know how you do it. 200 people, 400 people. And we kept going. And if I think back on it now, in terms of, like, simple hacks, can you imagine the countless hours that has saved just from raw office politics? Now, a lot of you are young, and so you haven't had the mind numbing experience of, like, arguing over, like, one inch of, like, office space. Like, wait a second, Suzy has a better thing than I do or whatever. We avoid.