5 Interesting Learnings from HubSpot at Almost $2 BILLION in ARR!

Hey everybody. On Saster, we've been doing a series for quite some time called five interesting learnings where we take usually a leading public company, a Zoom, a Slack or today HubSpot or sometimes up and comers you don't know much about back when we looked at Bill and others. And we share the learnings that can help other founders. And today I want to dig in on HubSpot itself, one of our all time favorite hero companies for many of us for so many reasons. First of all, a lot of us use HubSpot, so we know it. But also it's so interesting. HubSpot has thrived in its space selling to SMBs and how it did it and when it did it and what's going on. We're going to dig into right now and we'll do five plus probably nine interesting learnings about HubSpot as as it approaches a stunning $2 billion in ARR. Yes, if you don't follow it closely, HubSpot is coming up on $2 billion run rate. So number one most important industry thing is that it's accelerating. At 2 billion in ARR, it is growing 41% as it comes up on 2 billion ARR. And that means adding over 800 million in new book year, which is faster than a billion. At a billion it was growing an impressive 32%. But at 2 billion it's growing 41%. We didn't used to think this was possible. We didn't used to think companies could accelerate even much after an ipo, that you would go on a deceleration curve. But so many of the cloud leaders today, because for a variety of reasons, which we'll talk about next, but also in part because cloud got so big and SAS got so big they can accelerate after a billion. And HubSpot is the latest one. It was growing at a still plenty impressive 32% at a billion. And then it just, each quarter it started growing faster and faster and wow, 41% growth rate at 2 billion ARR is crazy. It is crazy. HubSpot's adding over $800 million a year of new revenue. Okay, point two. How did it do it? Well, probably the single most important factor in accelerating that growth is that they have five material products today. And if you've been around for a While in SAS, you may think of HubSpot as mainly a marketing automation solution. That's how I knew HubSpot and that's a great business today. Okay, it's marketing automation business. Its marketing hub is doing 1.1 billion on its own, growing 30%. That's pretty good. That would be a very decent public company. But HubSpot has five material products now marketing 1.1 billion at 30%. But sales hub, which is fairly new, this one may blow your mind if you haven't followed it. On the revenue side, you people know HubSpot CRM, but they may not know how much money its sales product makes. $450 million run rate growing over 50%. Over 50%. That alone could be a great IPO. Like HubSpot, CRM could be its own company and still be worth five, $8 billion today. And finally, its next generation products are a little bit smaller, but they're material. Its service hub is almost 100 million in revenue. It's growing also over 50%. And its CMS product, which is in a very competitive Space competing with WordPress and so many others, it's already at 70 million, growing over 50%. And its Ops product is growing quickly too, at 35 million. So these days we look at so many cloud leaders going multi product, you definitely don't want to go too early and distract your team. In fact, HubSpot waited a while to add CRM. I'm not sure it added a free CRM. I think probably back in around 2015 or so I could have that a little bit wrong. But that's quite late, relatively speaking in the company's life cycle. It waited, it didn't go multi product too early. So I don't think anyone's saying that 5 million ARR. You should have five core products like HubSpot, but it is a reminder to sequence it. And HubSpot would be a great company today without being multi product. But it'd be a $1.1 billion company growing 30% instead of a $2 billion company growing over 40%. Pretty impressive. Okay, point three. This is one I've talked a lot about over the years on Saskra, but HubSpot's a great example. International going international. International customers are now over 50% of HubSpot's revenue. They're 54%. Only 46% of HubSpot's revenue is in the US and I just don't see enough founders focused on going global as quickly as they can. I do think you should be thoughtful. Going multi product too late is a problem, but going multi product too early can wreck the team. But if you have pull, if you have pull in Europe, if you have pull in APAC early, if 10% of your customers at a couple million revenue are already in Other geographies, don't hide from it, don't hide from. Because support's hard in other countries or you don't have sales reps there, lean into it. And B2B apps that don't have regulatory elements, that aren't fintechs, that are insurance based, that aren't tax based or compliance based, they quickly cross borders, right? I mean we use Canva every day at, at Saster. Myself, I, I don't really care whether it's an Australian company and folks don't really care. HubSpot is all across the world. More HubSpot customers are outside of the US than inside of the US so go global if your customers are there and localize early like it pays off. And HubSpot again, if hubs had stuck mainly to the US it would be half the size it is today. Go global my friends, number four and this is something we could talk almost endlessly about. And if you search on Saster, Brian Halligan, co founder and now chairman of HubSpot and I did a deep dive on their channel partners. The channel partners, their solution partners, agencies, groups that deploy HubSpot for customers, they drive 43% of revenue. And so many of us that don't have channel or deep partnership experience spend all of our time going direct. And you should, you have to, most of us have to sell direct. But again 43% of HubSpot's revenue comes from the channel from solutions partners. It's not far off for Shopify and for, for many others selling to SMBs. It's a, it's a less understood SMB sales channel that lots of third party consultants, agencies and others deploy apps like HubSpot and Shopify for their small businesses that don't have IT teams that don't have people. A lot of smaller businesses just don't have a team to deploy apps. They'll go to an agency, a marketing agency and say what do I need? And they'll say well we'll give you HubSpot. And they, and they do it and they charge for their own services. 43% of HubSpot's revenue comes from indirect sales from the channel. And for some of us this won't be true. Many of us will be magic PLG companies and we'll never have to deal with this. But the learning is if you it sent this like see if it works early and lean into it and look and see if roughly similar apps to yours sell a lot through a channel, do your diligence and if you're a little bit like Hub HubSpot. If you're a little bit like Shopify and others invest heavily in this channel because it could be half your revenue. It's 43% of Shopify's okay, point number five. What I call the golden ratio though no one's, no one else is calling it the golden ratio which is the ratio of new customers and revenue from new customers in your install base. Because if you have high NRR a risk can be that you rely on them too much and you don't have enough new bookings from new customers. It depends on your nr. But to me the golden ratio is you want at least a third of your revenue from new customers or your growth may decay over time. It may decay over time. You high NRR may mask low customer count. So What's HubSpot? It's 50. 50. Well and that's a good place to do it. 50% of its revenue comes from new customers, 50% from its installed base. Again, I like to see at least a third of your revenue coming from new customers. Now HubSpot's NRS we'll get to in a second is, is high for SMBs at 110 but not abnormally high. So it's hard to get that to get too much revenue from your existing customers if you're not more enterprise or consumption based. But, but carefully monitor this. I see too many SaaS companies that have higher NRR not see a yellow flag or even a red flag when new customer count slows even as the overall revenue growth is is decent. Okay, point six which we, which we just hit NRR it took HubSpot sells to SMBs. And as Brian Halligan again pointed out in that discussion we had before, it's the M of the SMBs today mid market they're selling, they want 10, 15, 20k ACVs today. So, so single seat users don't do that. But nor do you know the tiniest companies really benefit from marketing automation. But it took them a long time to get there. So Brian and Dharmesh at Sasser Annual talked about how even at I think they said 20, 25 million in AR they still only had like 70 or 80% NRR. It was and I said did you think that was bad? They're like yeah, it was bad, it was bad. We talked about it but it just took us a while. It took us a while to create a stickier product to go multi product to, to nail it. And so they were still at, at, at at pretty low NRR which makes sense for SMBs. But it's stressful of 70, 80% at 20 to 30 million AR. By 2018, they finally nailed it. They'd gotten to 100% NRR, which you really need in SAS to thrive working at it. And even 2018, well past their IPO, they were barely at 100. Today they're at one hundred and ten. Mainly by going multi product one hundred and ten. And that just makes your life so much easier. So it's a reminder that, listen, if you're in the enterprise, you're probably going to naturally have 120 +NR. That's the way enterprise SaaS generally works. If you're consumption based and you're doing it right, you may well have the same dynamics because people use more of your product if you do it right. But SMB B2B. B2B SMB throw a lot of acronyms in there, but B2B SMB. You know, it's hard to get 100 NRR T customers go out of business. Tiny customers shut down, tiny customers shrink in ways that you know, your, your well established enterprises don't. So you've got to do something special in SMB SaaS to hit 100 NRR. And HubSpot's a reminder that they did do that special. But it didn't happen in a quarter or a week. It was year after year attacking and going from 70 to 80 to 90 to 100. And now finally 110nrr from SMBs. Okay, number seven, super interesting. This has been written about, but you may not know it today. HubSpot did not start off freemium. It did not. It started off as straight to pay. They were late to freemium. Fast forward to today. 60% of its customers at almost 2 billion revenue start off trying to free product 60%. And that is up. That is up. In 2018, it was a little bit less than half of their customers started off trying free. Today it's over 60%. Now HubSpot has various versions. You know, the, the CRM for a while was truly free. Other products you can use a little bit for free. So I wouldn't say that HubSpot is a classically free product. Freemium product that's almost B2Cs like again like a Canva or even a Slack. You can use Slack free forever. HubSpot's not quite like that. But the real point is that if you do it right, freemium can be a great way for customers to experience your product. That's what HubSpot found. By adding free, they took friction out of sales and marketing. That was the insight. Their goal wasn't to have 100 million people using HubSpot like use Canva. In fact, they don't even publish the number of free users they have because that's not their goal. Their goal is to tactically use freemium to reduce friction in sales and marketing. And I don't, I think for 95% of us we should always try to do that, even if the freemium app doesn't pencil out, even if we can't get the 50 million free users we need at scale for traditional funnel math to work on freemium. Just building a freemium product forces you to have a more elegant onboarding experience, a faster onboarding experience, an easier to use product. There's so many benefits and, and we've learned this over the years and HubSpot proves it. HubSpot proves it with 60% of customers now at 2 billion starting off using a free version. Okay, number eight, half of its new customers. You use two plus products. This ties to the prior point. It's just digging in a little bit more. The key to HubSpot's acceleration and its key to its higher NRR is multi product. And there's different ways to do that. Some folks sell multiple products over time, but HubSpot's gotten good at getting its new bigger customers to start off with multiple products from the beginning. So I don't know how we'll end up with you, but it's again a reminder that think about what's the portfolio of products that your customers want. The more you sell them, the more you can drive up your ACV. And last in today's world, nine. It's very interesting to look at HubSpot's operating margins. What Wall street wants, what the public markets want today is growth and profits. Yes, the markets are way down. Some of the SaaS and cloud leaders have fallen 7590 from their highs. It's brutal. It's brutal if you're invested in public SaaS stocks, but not all. There are folks like HubSpot like Zoom Info like Paycom whose stock prices have held up very well. Some of them have held up extremely well, like Paycom because they're wildly profitable. Paycom has 40 EBITDA, right? So 40, 40 cents out of every dollar basically goes to earnings. And over a quarter of that, over 25 cents goes, goes straight to operating income. HubSpot's not that HubSpot is in the middle. It's pretty like they're being deliberate. And this is very interesting. HubSpot shows that the public markets aren't saying you have to be wildly profitable, but they say you need to be have a thoughtful mix of profitability and growth. So HubSpot's margins have gone up to 8% and they're not at 20. They're coming up on 20 billion ARR. And a lot of folks think hey, as you approach a billion, you've got to get to 20 operating margins. No, HubSpot's not there, but they're deliberately making progress. They will clearly get there and they're combining that with strong growth and Wall street. The public markets are saying hey, that's pretty good. Importantly, what, what HubSpot is saying and they're, they're messaging this very well, is, it's thoughtful. They're saying, hey, we're not cutting R and D and we're not really cutting sales and marketing. Those are pretty consistent over the last four years. They really have not the only, you know, how do you make money in SaaS ultimately? Well, it turns out ultimately you can't spend half, half of every dollar on sales and marketing and you can't spend another 25 of each dollar on engineering. Those are ratios we often see as we're growing. Right? Is 50 of our revenue in sales and marketing and 25 in R D. But if you do that and add 20 for, for GNA, you can't add up to 20 profits. Right? Where's the 20 going to come from? So as companies get really big, they cut back on R D. Hopefully. You should get economies and scale, right? I mean the same amount of software should be able to be used by more and more customers. Sales and marketing is usually harder because if you have a sales driven business, there usually are no economies of scale. Right? You need the same number of reps to close the same amount of bookings and sometimes sales gets even harder as you get bigger. So it's a, it's a fine line to, to thread and HubSpot is being very thoughtful about it. They're saying, listen, we're not going to rush to be massively profitable overnight. Be patient with us. But we're getting more and more profit profitable each year and we will get to that 20% but stay with us while we grow like a weed. And they have communicated this better to Wall street than others have. And it's a lesson that yes, everyone's looking for SaaS companies to be more profitable today than they were 12 months ago. The world has changed and probably it will change back when we come out of this weird post Covid world that probably will bounce back and profitability will be less interesting than pure growth, which is where we have or most of the time people ignore a lot of these issues and they focus on pure growth. But HubSpot's an example that you can thread that right? You do not have to be massively profitable at scale. You can invest in growth if you show a clear path to why. And it's just super impressive at all levels. So incredible story and I think the most important thing from HubSpot is if you sell the SMBs, be inspired. You can push through low NRR even even up to 20 or 30 million ARR. It's not too late to go from 70 to 100% NRR. HubSpot did it. Challenge yourself. Challenge yourself to learn about the channel. If you don't, almost half of HubSpot's revenue even from SMBs comes from the channel, not directly from their own salesforce. And remember, just to think about multi product. And I think especially if you sell to SMBs, you probably have to go to multi product early because you'll get to critical mass and customer count, right? If your enterprise you may get to a billion in revenue before you have a thousand or five thousand customers. But with SMBs you could get to 10,000 customers by 20 or 30 million in revenue. And you may need to go multi product early. You probably do. But study HubSpot if you sell the SMBs. This is one of our best case studies and most inspirational companies. Pretty cool. Growing 41% a year as it crosses 2 billion in revenue. Wow.