How to Grow a Business: 4 Muscle Groups To Go From Startup To Scale-Up (#INBOUND17 Brian Halligan)

Okay, I'm a lucky guy because I get to talk about my favorite topic today. The topic is how do you take a little small startup and turn it into a big growing scale up? I love this topic. My favorite topic, I don't know about you guys. I have a lot of friends starting companies these days. Software companies and they're starting hardware companies, they're starting professional services companies. All these companies, they have three things in common. Organic, artisanal and farm to table. Everyone's starting a company. And I thought, well, it's expensive to start a company. And I went back and looked. How much did it cost HubSpot to get started back in 2006? $200,000 in startup fees. And I said, well, what's it going to cost one of these companies today to get started? About $1,000 in startup fees. Everything's cheaper. It's so much cheaper to start a company. Everything is cheaper. Except that one magic startup. Coffee doesn't come cheap. It's organic, artisanal, farm to table stuff. It's expensive. Since the caveman entrepreneurs started companies back in the neolithic age. It's never been a better time to start a company. It's certainly never been cheaper. Everything's cheaper. The Internet gives you all these services. Very inexpensive. Just a wonderful time to start a company. Now I've seen this play out in spades at HubSpot and in my own world. Basically we started HubSpot, we had about 30 competitors. If you very broadly counting 30 competitors for R to get customers small industry in 2006, you roll that clock forward to today. There's over 5,000 competitors fighting for the same dollars we are. There's been an explosion in entrepreneurship in our industry. It's never been easier to start. But the flip side of that, it's never been harder to scale since the cavemen were starting companies. It hasn't been harder to grow from startup to scale up. Now you might say that's the software industry. I'm not in the software industry. I make real stuff for a living. I'm in the Adams business. And one of my friends said that I have a friend who's starting a really interesting business. She's in the high end children's potty business. She doesn't just want to be a potty preneur though. She wants to grow up someday and be a tiny toilet titan when she grows up. Right? And it's easy to become a potty preneur. In fact, the there are 75,000 potipreneurs who have beat her to the punch. Every corner of every market seems to be crowded. It's hard to scale. Headwinds are everywhere. Tight labor markets, lots of competition. Harder than ever to scale. Okay, I really like this graph. Okay, sorry, I fell below. I really like this graph. Sorry, I'm taking a little break. And I mostly like this graph because I put it together and it represents that journey, that perilous journey from early stage startup up to big scale up. And phase one is kind of the founding phase. You know, you get three people, two, three people working on the idea. Phase two is the startup phase. Between three and 30 people. You're working on product, market fit. You know, all your customers. Most of your customers are either your cousins or your childhood friends or your friends from bandcamp. You're trying to get the thing going. Phase three, well, that's the scale up phase. You got more than 30 employees. You've got many millions of dollars in revenue growing fast. You pour money into the top of the funnel, you get a nice return out the bottom of the funnel. I just want to take a measure of the audience. Who in the room is in that kind of phase one, that founding stage three employees or less? Can you clap for me? Between three and 30 employees, you haven't quite got the model scaling yet. Who's in phase two? Who's in phase three? They're really cranking. They got the model going and they're pouring money in the top. There's a little bit of bad news in this slide. For every hundred companies that start in phase one, only about five make it to phase three. Starting is pretty easy. Scaling's getting harder than ever. Now what I want to talk about today is my own journey. My own journey through this curve. Basically, at HubSpot, we breezed through phase one about a year to get through phase one. We got stuck in phase two, five, six years. Couldn't get the math to work. We're pouring money into the top of the funnel. Couldn't get the return. We knew all our customers. Our best reference customer back here when we had 18 employers. Our best reference customers right over here. Kirsten, Dharmesh's wife. Thank you, Kirsten. And so this is us stuck in phase two. 18 employees early on. Now we eventually figured it out, and now we're at about 1,800 employees. The model's working quite well. And what I want to talk about today is everything we learned, all the mistakes we made along the way to get there. And I can summarize the things we needed to know back at 18 employees, that would have been useful and would have helped us breeze through the startup phase to scale up phase in three important muscle groups, and I like to call them muscle groups. There's really no silver bullet, but there's three muscle groups we sort of built up in phase two that helped us get to phase three. They were a little counterintuitive. They were a lot of work. So I'm going to go through the three. The first muscle group is around hiring. Sorry, first I just said. Did I say hiring on that? The first muscle group. Let's try that again. First muscle group is around scaling your management. So scaling management. A lot of the things we learned to do as managers in startup mode worked against us in scale up mode. We had to learn a whole new bag of tricks. And anytime I talk about scale up management and best practices in management, I gotta talk about my dog Romeo. This is Romeo. He's having a great time with his favorite chicken. He loves his toy chicken. Toy chicken's not having a great time. Here's Romeo at the toy chicken store. And here's how the conversation always goes. Romeo says, yo, Brian, I could use another chicken here. Rome, how many chickens you need, Brian? I'm jonesing for some chickens here. And every time, you know I'm weak, we have this conversation and my answer is the same every time I say yes. My predilection for saying yes and being a yes man happens at home. It happened at HubSpot in the startup phase, okay, I was a yes man. I prided myself on being a yes man. I didn't care what the question was, the answer was yes. And they were getting a little bigger. And I got some feedback from a woman named Lori Norrington. She's a fabulous board member of ours. And she said this yes man thing worked great in startup mode, but man, it's backfiring in scale up mode. We got projects half baked, projects all over the place. You need to amend your yes man ways. And then she gave me a great expression. I love this expression. She said, startups are much more likely to die of overeating than starvation. Too many projects, not enough. And she said, you have a serious overeating problem. And so I went to work on this. Feedback's the breakfast of champions. And I listened very carefully to her and I went on a yes man diet. And I had to learn an important new word. And I struggled with the word. I can never remember the darn word. I came up with a little hack that really helped. And if you have the yes man problem. Maybe you could borrow this then. Laundry day. The diet wasn't enough. The diet wasn't enough. I needed an exercise routine to really help me reform my yes man ways. And the exercise routine was a document we put together called our M spot. And this has been a killer, killer thing for us. The M stands for mission. S are the people we serve. The P are the plays we're going to run this year. The O are the place we're going to omit this year. The T or how we're going to track how we're doing on this stuff. And this is a document we put together and publish internally the first week of January every year. It's a really key play for us. Almost every scale up I've encountered has a similar document to this that keeps everybody on the same page. Now the key, the hard part of the play, the muscle you need to develop, is on the O. We argue like crazy about those omissions every year, and this past year was no exception. These were the omissions we decided to pass on in 2017. I like that one. Okay, so the first muscle group is you learn to focus, you gotta do to learn to do less things. Well, the second management muscle we needed to develop really was a problem that started emerging as we grew larger. When we were small, 10 people, we were all in the same office. We saw each other every day. As we got bigger, we had a layer of management in place. We had people working from home in remote offices and whatnot. And what started to happen that causes a lot of problems is in scale ups is people, managers started to make decisions that optimize for their department over the company. Right, department over the company. And this was happening a lot. They didn't do it maliciously, of course, but this became sort of a normal thing. So we put in place a muscle that we call HubSpot's hierarchy of needs. And what we want our managers to do and everyone to do in HubSpot is when they're making a decision to. To solve for the company over their department, and even better is if they can solve for the customer over the company, over their department, over themselves. This was a muscle group that was really important to us. So to summarize, if I could go back in time to when we had 18 employees, the advice I wish I got was, gee, everyone's got to learn to say no from the front line on two. You need some way to keep everyone aligned on the plays you're running and the plays you're omitting. Three, you need to solve for your company over the department. That's what I wish I learned when we were at at employees. Okay. Second muscle group, Billie Jean. Second muscle group is around hiring. Okay. And this sounds like an easy muscle group and it's an easy idea, but it's actually very hard to do at scale. And we learned a lot of things about hiring that didn't work in startup mode that really enabled things to happen in scale up mode. Now when we first started HubSpot, the word culture wasn't one we encouraged discussion about. We didn't talk a lot about culture, but we didn't think we could measure it. It felt like a luxury we just couldn't afford. And that was until we met this guy. And this is Colin Engel. He's the CEO of iRobot and Colin's company. They make those Roomba vacuum cleaners. And I could summarize my relationship with Colin in one word. Man crush. And I joined a CEO group right around when we were 18 employees and there were 10 CEOs in the group. I joined it because he was one of them. And they spent a whole day, once a quarter together and they picked a topic and went very deep on the topic. And I joined my first meeting kind of nervous. Joined my first meeting and the topic was culture, which was disappointing because I didn't have a lot to say. One topic I didn't have a lot to say about. And we go through the meeting, I didn't have a lot to say and the meeting was going fine. And during the coffee break in the afternoon, Colin kind of took me aside and he said, Brian, you want to build a great company, right? Sure. He said, if you want to build a great company, you're going to have to hire lots of people, right? Yeah. If you're going to hire a lot of people, you're going to need a great culture. I'm like, ok. He said culture. Culture is the magic startup ingredient. And I said, hold on one minute. Coffee is the magic startup ingredient. Okay. So I went back to the office and had a chat with it, chat with Dharmesh about this and we said, let's do a little research. We're both fans of Colin. Colin had a big scale up. We wanted to be like him when we grew up. And let's do a net promoter score type survey of our employees. And this is the first one we've done. We've done 100 since and the results came back and the results were interesting. The number two reason that people liked working at HubSpot was they loved the culture, right? They thought the culture was great, and they wanted to talk about the culture. The number one reason they loved working at HubSpot was the free, organic Bugles. Okay, so two data points. Employees really liked the culture. Colin thought we should do it. So we got to work on our culture. And Dharmesh and I did some work thinking about the culture, understanding what the culture was that we had, thinking about the future of it. And we wrote it down. We wrote it down. I go we. Because Dharmesh did all the work on this, and we wrote it down in something we call the culture code. And we call it a code, by the way, because we think of it like a piece of software. Okay? We take a piece out, we refactor it, we put it back in. It grows and scales and changes over time as the amount of employees join the company. And it's a lot like a product in another way. If you build a great product in your company and it's unique relative to your competition and it's valuable to your customers, gosh, that product's like a magnet that pulls customers in. If you build a great culture, it's unique relative to your competition and it's valuable to your employees. That's like a magnet that pulls in and retains those employees. Okay, if you've come across our culture code, you've read it, flipped through it, can you clap for me? Okay. A lot of people have come across it. Colin was largely right about this. We published the culture code. It's have it over 3 million views on SlideShare. And it's been a key, key part of that end to end employee experience for all the HubSpot employees. So the first muscle in the hiring muscle group is you need a great culture, and you need to write it down. The second muscle, I have to describe a little bit of how we collaborated HubSpot to describe this one. We have a section of our wiki at HubSpot where we collaborate, and it's called the lore and mythology part of our wiki. And it's a part of our wiki where anyone can write anything down that we might want to look at later or maybe even laugh at later. And it's a really fun part of our wiki. And this is. I'll give you an example of a post. This is a wiki post that someone put up there in the lore of mythology. We had an outage in 2007, and Dharmesh really pinpointed the scientific reason behind the outage. And somebody Wrote down his analysis, pinpoint analysis of it. And then I had this beauty that someone wrote down about a month later. Now, I want to introduce you. We have 1800 employees. She may be our best employee. Her name is Katie Burke. She's our chief people officer. Okay. Now there's a story behind Katie that's interesting. Katie's a career marketer. Katie joined HubSpot's marketing department, stayed in the marketing department, and at the time, we had kind of a voice of the customer guy named Jonah. If Jonah was in the room, we didn't need a customer in the room. He understood the customer, spoke passionately on their behalf. Katie, despite being in marketing, was the voice of the employees, spoke passionately about the employees. Now what Katie's superpower is and she moved eventually into HR and ran people ops. She does a great job on hiring and she does a great job on benefits and all that stuff. But what her superpower is, is she's passionate about not making HubSpot a good place to work, but making it a great place to work. Even trying to make us the best place to work in the world. You need someone like this, this voice of the customer, passionate about making your company a great place to work. If you want to move from scale up to startup. Okay, last one in this muscle group, Mission. This is the one muscle we had right from the start. If your mission today is you want to make 3 cents a share more than last year by gouging the planet or gouging your employees or customers, that just doesn't fly in 2017. The employees we want to hire. The employees you all want to hire. Those special snowflakes, they're more missionary than mercenary. You need to appeal to them. Mission matters now. At HubSpot, when we started the company, the thesis was quite simple. We felt the Internet disproportionately benefited small businesses relative to large. In that your success was more about the width of your brain than the width of your wallet. Right? Every investor we met along the way from day one of HubSpot, tried to talk us out of our mission. Said, it'll never work, right? These small, medium sized businesses are growing. You can never make it work, right? Never make it work. You need to go to the Fortune 500, build a product for the Fortune 500. What they fail to understand was that mission mattered to Dharmesh and me. Mission mattered a lot. Eleven years in, I'm up here working my guts out because I believe in that mission. Dharmesh, the same. We'll be up here 11 years from now, working our guts out because we believe in the mission. I suspect our 1800 employees, they come to work every day because they believe in that mission. Mission matters. In fact, I'm going to give a quote from Simon Sinek, one of our speakers, a couple years ago. He said, if people are working hard in a mission they believe in, they call that passion. If people are working hard in a mission they don't believe in, they call that stress. Mission matters. Mission matters more in 2017 than it ever has. Okay, so what are those hiring muscles you need to scale to go from startup to scale. What did I wish I knew when we had 18 employees that I know today? First, you need a culture. You need a good culture, unique culture. You need to write it down. Second, you need a voice of the employee. Maybe that's you inside your company. Doesn't have to be an hr. HR is necessary, but not sufficient to go from startup to scale up. Three, mission matters. You need a great mission that's compelling. Okay, most of you in the room are doing a fabulous job at building an inbound customer funnel, right? Pulling customers in through the Internet. To go from startup to scale up, you need to build an inbound recruiting funnel. It's the same type thing. So nothing up here on the screen. I didn't mention LinkedIn or job boards or recruiters. You need all that, but it's not going to get you there. To go from startup to scale up, you need to master these plays. Okay, one last muscle group. This is the one that held us back. This is the one. This is how we got stuck in phase two. It took us a long time to figure this out, and I'll tell you why. One of the things that's good and bad about Dharmesh and I is we read everything about startups. We're steeped in the latest startup thinking. We're fascinated in it. We read all the startup dogma and we buy it. And so these words that you see on the screen, when we were in phase one founding stage, we must have said minimum viable product 1,000 times a week. When we got to phase two, we hung our hats on product market fit. All we talked about was product market fit. But that startup dogma held us back to getting to scale up mode. You don't need product market fit to get to scale up mode. You need product market delight to get to scale up mode. And it's very different. Delighted customers. Well, they do two things, don't they? The first thing they do is they pay you. Of course, the Second thing they do is they market for you. And in 2017, your delighted customers are a better marketing channel than on your own marketing department. That's the way you grow. That's the fuel in the scale up rocket ship. In this day and age, it took us a long time to figure this out. Took us a long time to go from startup to scale up. We started investing heavily in R and D, heavily in net promoter score improvements, heavily in retention rate improvements. This has made all the difference for HubSpot. This was the key play that helped us go from startup to scale up. And I personally probably shouldn't be too surprised given my history and my first job I ever had, my first job I ever had, I was 16 years old and I worked in a gas station. And I want to tell you about my first day on the job. It was my first day on the job and my first customer. Seven in the morning, beautiful day. And Cadillac pulls up to get their gas. And I'm a gas pump guy at my first job and I'm 16. And the woman rolls her window down. You had to roll it down back then. I said, how can I help you, ma'? Am? And she said, well, fill it up with unleaded. I said, sure. So I walked down the side of the car, I'm looking for the gas, where to put the gas in. I didn't see it. Back car around the other side of the car and quite see it there. Take another look. I must have missed the gas cap on the first time through. There's no gas cap on a Cadillac, apparently. Can't find the darn gas cap. And so the woman, this is my first customer, having a little trouble delighting my first customer here. Woman gets out of the car, she's a little irritated with me and she goes and she pulls down the license plate and sure enough, that's where the darn gas cap is on a Cadillac, right? Don't judge me. Short shorts were in back. Okay, so off to a rough start, but unscrew the gas cap, right? Put it on top of the thing and take the hose out and I put it in and go, go, go, go, go, go, go, go, go, go. Fill up the thing, get the thing out, put it in the thing. I take her money and she's off. Second customer comes up, car pulls up. Gentlemen, how can I help you, sir? Please fill it up with unleaded. Okay, walk down the side of the car. Gas thingy's where it's supposed to be, right on the side of the car, unscrew the gas cap and I put it on top of the thingy. Hose out and I put it in the thing. Go, go, go, go, go, go, go, go, go, go, go. I got this, right? I'm a customer. Delicious machine, right? I got this. And then about an hour in I had served a bunch of customers. My boss comes out, busy and he comes out and he takes a customer, this gentleman and pulls down the window. How can I help you sir? And fill it up and unlead. In he goes and the gas caps where it's supposed to be and unscrews the thing and then he goes to put it on top of the who's ma jiggy. He realized that his new hire had forgotten a key step in the customer delight process. I'd like to think I did my own part in helping the gas station industry convert from a full service industry to a self service industry. Okay, all right. I'm impressed with the gas station industry for what it's worth. They disrupted themselves, they transformed their customer experience. And it's much lighter touch. It smells a little bit, but it's pretty good. Most industries aren't so forward looking, are they? Here's a couple that are in the news a lot. What I want to do with you all today is talk about these disruptions that happen and see if we can learn together something about them. Let's start with the disruptees, the industries that have been turned inside out. There's a line of thinking these days that these companies weren't disrupted but they self destructed. And that Netflix didn't disrupt Blockbuster, their late fees did that. Apple didn't disrupt the music industry buying the whole album did that. Uber, they didn't disrupt the taxi industry waiting outside and the rain did. What they all have in common is they open the door wide for the disruptors to come in by creating kind of a crappy end, end to end customer experience. That was very heavy. There's a lot to be learned from these guys. What about the flip side? What about the disruptors? Is there anything we can learn from the disruptors? I think there's three things. Three things I learned. The first is it's much more about how they sell than what they sell, right? It's how they sell, not what they sell. Great products these days seem to be disrupted very, very quickly. Great services, end to end experiences are far more durable. Disruption cycles are fast. Much more durable with great experiences. Two light touch and automation wins out over heavy touch in humans. I don't love that fact, but it's kind of true. Self service is one of those double win things. It's better for your bottom line and your customers like self service too. 3. The words coming out of the customer's mouths are 10 times more valuable than the words coming out of the vendor's mouths. They have mastered word of mouth. These are three things that we're working on here at HubSpot. So our own model At HubSpot, you've seen us evolve over the last few years. Here at inbound, we've moved to very much a freemium model. Clap if you've used one of our free products. We're trying to move. We're kind of trying to move, I think of back in 2013. We got religion on a delightful product. We're trying to move to a delightful end to end process. We think that's really a key thing. So the freemium is designed to do that. We sell in a whole different way. It's about how we sell very light touch. And it's designed to be word of mouth. So this is very influential on us. The other thing we're doing with this is we're changing the product we're bringing to market to all of you. Like, think back in time. Why? We started HubSpot in 2006. It was like a wormhole opened up on the Internet. That was a fabulous thing that if you were a small or medium sized business, you could create content and pull people in through Google and social media. It was fabulous, right? And we built a platform to help people drive through that wormhole. That wormhole's still there. It's a bit smaller. By the way, the new wormhole today is creating one of these delightful inbound, end to end customer experiences. It's much more today about what you sell. Sorry, it's much more today about how you sell than what you sell. Your marketing sales service departments have never been more important than they are today. Okay, so what are the three muscles in the muscle group? First, it's about how you sell more than what you sell. Second, it's light touch over heavy touch. Third, it's not 2007 anymore. It's word of mouth over word of seller. Okay, I want to wrap up with a short story about this guy. That's my son Luke. Luke's 13, but far more importantly, Luke is 5, 2, and 3 quarters. And I know that because just backstage he texted me. He texts me every day with an update on his site. You see, Luke is in phase two, trying to get to phase three, like all of us. Okay, here's Luke doing the back to back thing with my mom. You remember my mom from inbound last year. Here's Luke doing the back to back thing with my sister Diane. I can hear my mother laughing over here doing the back to back thing with my sister Diane. And you know, his mouth's open, he's really pissed off because Di Di's still got him by about a half an inch. Right. And I was heading down to. On the weekends, we go to Dunkin Donuts. It's our thing. And I go to Dunkin Donuts. I get a large hot coffee with milk and Luke always gets a small latte. And we're in line waiting in the Dunkin Donuts. Your usual? He said, no, no, no, no, no. I'd like an apple juice. I said, apple juice? What's the matter? He said, coffee stun. And I said, that's funny because I always thought coffee was the secret ingredient. Anyway, I think we all have a lot to learn from Luke. We started HubSpot to help all of you go from startup to scale up. We give away content. We have this conference to arm you with the knowledge you need to do it. We build the platform to help you grow your business. I want to thank you all for coming. Dharmesh is going to be out after a short video. Thank you very much.