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

One of our favorite companies today, HubSpot. We have covered HubSpot a lot on Saster, and if you go to Saster.com, you can see incredible interviews we've done with CEO Yamini Rangan, CTO HubSpot, Dharmesh Shah, founder and chairman Brian Halligan, and so many others. It has been great to really dig in with the founders and executive of HubSpot over the years. And why do we follow them so much? Well, because HubSpot's a lot like us in several ways. First of all, a lot of us use it. We did a survey at Saster and informally at Saster Annual last year and at SAS General. The majority of the attendees used HubSpot, at least at the session we were at in almost half on our broader survey that we did online used HubSpot. A majority still use Salesforce for CRM, but close to it used HubSpot for CRM and marketing automation. I mean, Every founder uses HubSpot for marketing automation. So we all use HubSpot. We, we've all tried it. We all sort of know HubSpot. And interestingly and helpfully, HubSpot is SMB. It's really the M of SMB, as Brian Halligan has said many times. But it is an SMB app, so it's a lot like what we do. It can be hard for some of us as founders to really understand what ServiceNow does or Palantir, these very heavy enterprise niche applications. We can sort of get it, but most of us have products that sell to companies small, medium and large. So there is significant overlap with HubSpot's customers, customer base, its motions, its type of product, what we're doing. So I really find it's one of the best ones for us to learn from. And 2023 is weird times. It is weird times. Interest rates have increased faster than in modern history, and many SaaS startups are deeply struggling. And yet, and yet Gartner predicts record overall spend for SaaS software both this year and next year. And. And yet many cloud leaders are, if not growing as fast as the peaks of 2021. The crazy lockdown peaks. They're still growing at epic rates. One of them is HubSpot. HubSpot has just crossed now, wait for it, if you don't know this. HubSpot has just crossed 2 billion in ARR and it's growing 30% still at 2 billion. That means it's adding 600 million of new bookings per year, folks. Now, is that as crazy as it was at the peak, no, at the peak at 1.6, 1.7 billion, it was growing 40%. So growth has come down a bit and we'll chat about why in our five interesting learnings. But it is still epic. It is growing 30% at 2 billion in revenue, folks. And what that means is I know things are tougher, I know budgets are being scrutinized, I know upsells are much harder for almost everyone. And we'll see. It's been harder for HubSpot, it's harder for Twilio, it's harder for Cloudflare, it's harder out there. But don't make too much of an excuse out of things. If HubSpot can grow, can add 600 million in new bookings this year in sales and marketing categories that are more impacted than infrastructure than others. If they can add 600 million of new bookings, if they can grow 30% at 2 billion AR, why can't you grow 60% or 90% or 120%? You probably can do even better than you're doing. If HubSpot's doing that well, take it as a good natured challenge. Take it as a good natured challenge. Okay, so let's take it five interesting learnings about HubSpot and then we'll have a few bonus learnings that'll really be more like, like eight or nine. Okay, number one, and we are seeing this everywhere. We are seeing this with so many leaders. They are combining strong growth with a brand new level of efficiency. HubSpot has accelerated its path to double digit operating margins. It is much more profitable, at least on a non GAAP based basis than it was even a year ago. It is more profitable probably than it planned on having to be. Like many of us, from small startups to the biggest. But HubSpot has radically accelerated its efficiency and we'll talk about why in a minute. Without it appearing to impact growth, we're still hitting epic growth rates of 30% while having double digigit operating profit margin. So this is whatever we're seeing with everybody, everyone across the board, it is public, is getting more, almost everyone is getting more profitable, more efficient today they are growing quickly with, with increased spend, but not as accelerated a spend as 12, 18, 24 months ago. And HubSpot's the latest one, rapidly increased its efficiency. So that is, that is the theme of 2023. Okay, point 2. HubSpot is driving its ACVs up, but only modestly. ACV has increased to $11,400, which is meaningfully. Up from the 10k it was at for several years. But it's not that much. It's up 6% year over year. And HubSpot also is phasing in pricing increases, which probably accounts for a big portion of it. But it's not dramatic. It is not dramatic, but it helps. Why does it helps? Because with SMBs they've got 180,000 customers. That's up 23%. But because of this, because of the NRR being above 100% which we'll chat about next, and because of modest increase to 6%, combine it together, they're able to grow 30% from a 23% customer increase. And I think if you look at SMB SaaS, that's the ultimate challenge. Can you grow revenue faster than your customer count? No matter what anybody says, most SMB SaaS starts with low NRR. When when Brian and Dharmesh, the co found of HubSpot came to Saster annual 2022, they talked about how I think it was until 30 or 40 million AR they were still stuck at 75%, 85% NRR. They didn't even hit 100 until they went multi product and built up more of a suite. But you need to ultimately do that to grow revenue faster than customer count. So HubSpot's doing that. It has raised prices, it has driven up deal size, but not dramatically, not dramatically. From 10K to 114 over the years. Okay, 0.3 efficiency viewed differently, revenue versus employee count. And we are seeing this all across public SaaS and cloud companies and we're seeing across startups. Here's the math. How did HubSpot get much more profitable this last year? How did it get more efficient? It's pretty simple folks. Revenue is up 30% but employee counts up only 10. Okay, grow your revenue faster than your headcount, you are going to get more efficient. This is, this does not mean cut things to the bone. This does not mean stop marketing spend. What it does mean is this is software. And you know, software is right once many people use it, ship everywhere, it should work that way. So as you, you should still invest in the future. You should still invest in marketing and sales and product and more. But you need right now for most of us to grow the headcount just more slowly than revenue. I remember during the worst times as a founder in 08 and 09 when things were literally 100 times worse than they are today, when the biggest banks in the world were about to fail. That's what I did as CEO I didn't know we weren't as smart as we were today. We didn't have the public companies like HubSpot to analyz their metrics and learn from. But we were cash flow break even at the time. So that's what I said. I said, listen, for every, you know, dollar we bring in, we can spend 80% on people. That's what we did. So we didn't stop hiring. We didn't pause hiring. We didn't even do layoffs or anything. We just grew headcount a little bit more slowly than revenue. And that meant every month we might have one new hire to make. And then as we grew a little more, it was two. And we just decided for our organization at this size of this scale, who's the best one Wreck we should put on who's the best one, hire the best two, the best three. And you know, at a macro level, that's what HubSpot's doing. Revenues up 30%, headcounts up 10%. Do that math and you will scale efficiently no matter, no matter what else happens. Okay, point four. We kind of did this math, but we'll dig into the NRR. 23% customer growth leads to 30% revenue growth. That's that magic ratio. Getting that, getting there with SMBs. Getting revenue to grow faster than customer count is the ultimate sort of magic number for SMB SaaS. But it is a little bit harder for HubSpot. Their NRR has dipped to 104 from 110%, which they hit last year. They're not alone. Freshworks, which sells to SMBs2 saw similar, very similar NRR dip. It's across the board. Basically what everyone's seen is that gross churn for leaders is not really going up. In many cases, downgrades are not increasing, but upsell is just harder. It's taking longer. It's across the board. And it's true at HubSpot as well. So what is still strong NRR for SMBs at 104, but down for 110% a year back. Number five, super important to this whole journey for HubSpot to getting to 2 billion, to getting the NRR to the triple digits, to becoming the HubSpot we use today, which is that 45% of their customers now use three or more HubSpot products. Almost half. I'm sure we'll cross half very soon. It's just a case. Hey look, we're not all at 2 billion in ARR, but the magic to HubSpot was Going multi product making sales huge sales is more than 500 million. In ARR, it will cross a billion making their support product bigger, making their CMS product bigger. Being multi product, even for SMBs, is how they've been able to continue to scale. And almost half of their customers now use three or more HubSpot products. That's kind of, that's kind of the magic 0.6. We'll give you a couple, couple three quick bonuses. Point six international revenue. We've talked about this before on Saster, but it's a great one to learn from. HubSpot on international revenue is now 46% of their total. And interestingly, it's growing faster than North America. That's fairly uncommon when we look at Asana, when we look at freshworks, when we look at others, they're actually seeing Europe as weaker and North America as a relative source of strength. Well, for whatever reason, HubSpot isn't. It's actually seen stronger revenue growth at 33% outside of the U.S. than 27% in the U.S. in any event, it's a reminder that they're seeing stronger growth outside of the U.S. and 46% of their revenue is outside of the U.S. i can't, I can't emphasize this so much to founders that are too myopic about their local market, about the US Market. Look, if your product has complicated regulatory environment, if it has complicated financial services elements, it may well be hard to expand beyond your local markets to expand beyond the US leaders like Bill.com took a long time to go international as the product is hyperlocal, localized to American financial services. But HubSpot ain't. You can use HubSpot pretty much everywhere, especially if you use a localized version. So it's just a reminder of advice I give founders again and again. If you have any material amount of revenue outside the US Lean in there, invest in there, localize your product early, hire a country manager in EMEA, in APAC or whatever if you have a chance to get even 8, 9, 10% of your revenue. In geography, that is a huge accelerant. And if HubSpot had not gone as global as international is today, it would literally be half the size if it had been to North American Focus. So most of you know, we see most similar sort of B2B apps be somewhere in the 25, 30% international, 46% is high. HubSpot is an outlier here, so it's great to learn from. But challenge yourself to go more global more early. It is not a distraction it can be a magic accelerant. Okay, point seven. I just found this was interesting that HubSpot called it out. They said Q1 is their seasonally strongest quarter. And I hate hearing about seasonality. The reason I hate hearing about seasonality is I find most founders use it as an excuse. Why? Why did you miss Q1? Well, Q4 is our big season. Okay, well, maybe, maybe if you're in E commerce or some other categories. But the thing is, if you're growing triple digits each year, we should not be seeing big declines due to seasonality. Like, even if it's true, you should be growing so quickly as a startup that you don't actually see seasonality. So I usually find for startups, it's an excuse, but it doesn't mean it's not true. So it's very helpful to have HubSpot call out that Q1 has always been seasonally strong for them. So they were doing that in part to hedge because their. Their customer ads were impressive at 9,000. But I do. Seasonality is an interesting thing. Don't let it be an excuse in your startup. My strong recommendation. But also be be aware of how similar applications are seen in terms of trends for seasonality. Okay, 0.8. And this is one that actually I've got two more. 0.8. 0.9. 0.8 is one that, you know, deserves an almost infinite amount of sessions because it's so interesting. But 40% of HubSpot's revenues come from its partners. I linked to an excerpt of an amazing deep dive I did with co founder Brian Halligan on sasser.com if you look for it under 5 Interesting learnings from HubSpot where he just talks about what an epic, incredible moat getting 40% of their revenue is from partners. I can't tell you how profound this can be. It's profound for Shopify, it is profound for HubSpot. And I was meeting, I was at Re Invent with a breakout SaaS vendor coming up on 50 million in revenue. And we were at a dinner and I asked the co founder, I'm like, okay, listen, obviously you have a great product, you are a great co founder, but you have like six companies that look a lot like you. What was one of your secrets? He said, well, one of our secrets is that none of our competitors are here at Re Invent. None of them sell through AWS as a channel. We have, yes, we have big competitors, but we think we have over 90% of the partnership revenue through Amazon. And HubSpot similarly has a Network of thousands and thousands of agencies and partners that deploy HubSpot for them, HubSpot would be half its size if it did not have this partner network. And what is profound is that if you've worked, if you haven't seen this with SMBs enterprises, they tend to pick just one an agency, a marketing agency that will help you get up and going on HubSpot or Shopify or other similar apps. They're not going to learn four or five apps. They don't have time, they don't care. They want to get paid to deploy a single app that just works for their customers. And so it becomes a huge moat. If you are the one that owns these partner channels. So incredible to see this 40% of the revenue. If you don't understand it, if you only do direct sales, if you have not thought through it, if you think partnerships take too long and they do take a While, go to sasser.com and watch this incredible deep dive with Brian Halligan. And you, you may, it may challenge you to think you should do more. You could be 40% bigger if you're like HubSpot and have a partner channel. Okay, last nine. A small point, but it was just helpful for me to see it. What is their icp? And this ties back to being focusing on the M of SMB. Their focus is customers from 2 to 2000 employees. It's a wide range and they see upmarket as 200 to 2000. Those folks that are 200 to 2000 can support this 10, 11, 12K price point and up. And that's a helpful way to think about it. How, how big a company do you need to be to fully deploy all the power of HubSpot? Well, it turns out, you know, yes you, you can. Tiny companies use HubSpot. I think most of the founders that, that use it are certainly their companies are far smaller than 200 but we're fairly sophisticated and a bigger customer for them is, is 200 to 2000. So again, pretty incredible. HubSpot growing 30% having now crossed 2 billion in ARR. It is harder for them. It is harder for them. Upsells are taking longer. NRR has come down a bit. They do have some concern about maintaining their, their torrid pace of customer acquisition. But if HubSpot can add 600 million in new bookings this year, how about you? I think you can go crush it.