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