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HubSpot – How to Grow a Billion Dollar B2B Growth Engine

HubSpot

HubSpot invented the term Inbound Marketing, and has lived it’s mantra, driving their business from an idea in 2004 to a $50M+ run rate in 2012 in the competitive marketing tools and services category. But is the story that simple? A deeper dive reveals that a deep belief in metrics, an organizational focus on growth, and a commitment to sales excellence has fueled their explosive rise.

In 2004, HubSpot co-founders Brian Halligan and Dharmesh Shah met at the Massachusetts Institute of Technology. Or, as Halligan says, “HubSpot was born out of the loins of MIT.” [1] Founded in 2006 on the concept that traditional marketing is broken, HubSpot offers an inbound marketing software platform that helps businesses “market to humans.” [2]

The Cambridge-based company’s growth has been impressive. HubSpot began in 2006 with just three customers, and they ended last year with 8,440. [9] In 2011, the company did $29 million in revenue, which was a full 81% growth over the previous year [3], then jumped to almost $53 million in 2012. [9] As of 2012, their Average Customer Value (ACV) was somewhere around $6,220 per customer ($52.5m / 8,440 customers).

To date, the company has raised $131m through VC funding. [14] Major sources of funding include General Catalyst ($5 million in VC funding in 2007), Matrix Partners ($12 million in VC funding in 2008), Scale Venture Partners ($16 million in VC funding in 2009), Sequoia Capital, Google Ventures, and Salesforce.com ($32 million total VC funding in 2011).

Data on whether or not the company is profitable yet isn’t easy to source, but HubSpot CMO Mike Volpe explained on Quora in 2010:

“HubSpot could be profitable if we wanted to, our current revenue run rate is in excess of $20 million.  We just believe that there are tens or hundreds of thousands of businesses that we can help transform with better marketing (beyond the 3,000+ that use our product today).  We want to continue to grow fast and be the leader in this market, so we are investing in even more rapid growth.  There are many things that worry me, but our ability to be profitable is not one of them.” [15]

HubSpot has chosen to focus on growth rather than profit for now, and that dedication is evident in the numbers above. So how has HubSpot made such huge gains, so quickly?

 

Gaining Early Traction by Practicing What They Preach

Early Traction

Inbound Marketing

Both Shah and Volpe say that HubSpot uses a combination of inbound and outbound marketing [19], but data that speaks to how much is spent on what isn’t available.

In 2009 Halligan and Shah literally wrote the book on inbound marketing—Inbound Marketing: Get Found Using Google, Social Media and Blogs. True to form, HubSpot offered promotional resources like free eBooks with content sneak peeks.

Volpe says that inbound leads are generally cheaper to acquire, and it should come as no surprise that inbound marketing has been critical to HubSpot’s growth:

“I cannot emphasize enough the importance of inbound marketing in our growth. (I know I am biased and I know it is self serving, but that does not make it a lie.) ” [3]

The company’s inbound marketing strategy covers the spectrum, but one area in which they’ve really excelled is content marketing. From the outset, HubSpot has offered resources like expert blog posts, webinars, and tools. For example…

 

Website Grader

Between 2006 and 2011, HubSpot’s free Website Grader was used to grade more than 4 million websites. [7] Anyone could enter a URL and get insight about which aspects of a site were performing well and which ones could be better.

Like the best free resources, Website Grader was good for both Hubspot and prospective customers—first, it helped users understand that their sites weren’t performing as well as they could be, making the value proposition of an inbound marketing system more appealing. Second, it did this for free, functioning much like a free consultation, yet the time and hassle of speaking to someone was replaced by a simple web experience. Hubspot didn’t have to pay sales staff to walk users through the process because it was automated.

This is why Website Grader (and free-but-valuable tools like it) are a win-win. Website Grader was easier to market than the actual HubSpot product, because it required no up-front investment yet provided instant value. Additionally, Website Grader brought visitors one step closer to becoming customers by showing users the need for HubSpot and collecting contact information for sales, generating tons of inexpensive leads.

 

Twitter Grader

Hubspot went back to the free tools playbook in 2009. When business owners were still working to figure out the appropriate application and ultimate value of social media, HubSpot launched Twitter Grader, generating a ton of buzz among influential social media types and making HubSpot a part of the growing conversation around social marketing.

Twitter Grader generates diagnostic reports of Twitter users, measuring their influence based on factors like follower ratio, update frequency, and level of community engagement; and playing off of powerful motivators such as vanity and game mechanics (like how users rank among Twitter users in their areas).

CTO Dharmesh Shah explains, “What Twitter Grader is trying to measure is the power, reach and authority of a Twitter account. In other words, when you tweet, what kind of impact does it have?” [6] Similar in form and function to Website Grader, this free tool gets tens of thousands of uses per month. [4]

When Twitter Grader first launched it set off a wave of viral awareness, with people sharing their Twitter scores with their followers, perpetuating a seemingly-endless cycle of more and more people checking their Twitter cred. Again, this free tool drove leads and tons of awareness for the company.

 

HubSpot’s Blog—Inbound Hub

When searching HubSpot’s blog Inbound Hub for “landing page,” you get 4,480 results. That’s a lot of content, most of which comes in the form of resource posts like “What Is a Landing Page and Why Should You Care” and “11 Simple (But Critical) Tips for Creating Better Landing Pages”—each with a relevant call to action at the end. Volpe claims that HubSpot’s addition of a Call to Action at the bottom of every blog post tripled the number of leads they were getting from the blog. He explains:

“A lot of people have calls to action, or offers in the sidebar of their blog, and those work.  But having one… and again, it wasn’t the same one on every single article, it was tailored to that article. So if you’re reading an article about, you know, optimizing landing pages you’ll have an offer at the bottom of that blog article that has something to do with a landing page optimization webinar or something like that.” [8]

As HubSpot has become more sophisticated in identifying onsite visitors and personalizing the experience, they’ve been able to drive calls to action not just for new visitors, but to re-engage existing customers as well. For example, the marketing on Inbound Hub for customers suggests new tools to try in the HubSpot suite, while new visitors will be driven to ebooks or free tools. [9]

Inbound Hub generates real results, the blog is full of useful and shareable content that results in 20% of all of HubSpot’s organic leads. [5]

 

Webinars

In response to a question on Quora about how HubSpot got so many Twitter followers, Mike Volpe writes:

“As far as I know, we were the first company to hold a webinar on the subject of “Using Twitter for Marketing and PR” – we got over 3,000 registrations for it, and tons of new followers that day back in 2008.  And during that webinar and all of the webinars after it, we used Twitter as a discussion tool during the webinar, to allow people to chat and ask questions.  I am also pretty sure we were the first company to use Twitter for discussion during webinars – we started that in 2008.  Because of this, many of the hashtags for our webinars have become trending topics on Twitter – most recently #emailsci, but I think more than 5 of our webinars have been global top ten trending topics since 2008.” [4]

Just like with Website Grader, Twitter Grader, and Inbound Hub, HubSpot uses webinars to educate users, generate buzz, and attract thousands of new website visitors—a number of whom will eventually become customers. [5] One of their most popular webinars, Volpe reports, had 13,000 signups. [8]

Through focusing on inbound marketing as a means of establishing themselves as an authority in the field, HubSpot was and is able to generate a huge volume of relatively low cost (especially when compared to outbound marketing), high quality leads. [3] How do these leads compare to those resulting from outbound marketing? Volpe explains:

“The conversion rate from those leads, if you compare…inbound leads vs outbound, or paid, the types of things where you’re annoying people and kind of getting in their face…the comparison between the two of those, the conversion rate is more than double…for the organic leads, or the inbound leads.” [8]

So not only are these organic leads from inbound marketing less expensive to acquire—which in and of itself would matter little if they weren’t the right kind of leads—they also result in more than double the conversions. When thinking about how HubSpot has grown so much and so quickly, this can’t be ignored.

 

Partner Program

In 2008, a sales rep, Pete Caputa, came up with an idea to build a partner program that would allow agencies to resell HubSpot services as value added resellers (VARs). Agencies, Caputa believed, would give HubSpot additional distribution to targeted prospects. Having trusted partners gave HubSpot not just additional sales reach, but a trained (and incentivized) group of marketing experts who could help end users get the most out of the program.

HubSpot invests in their partner success with content, sales support, and program support to help make their partners’ customers successful, which creates lasting partner relationships and continued advocacy—all driving more leads and new HubSpot customers.

While the initial idea was panned by HubSpot co-founder Brian Halligan, Caputa’s persistence won out. The last reported number we were able to find, at the end of 2011, shows that the partner program accounts for 20% of the company’s new business. [12]

 

Highly Selective, Top-Notch Marketing Team

Brian Whalley, a former employee—or, as Shah refers to them, someone who has “graduated from HubSpot”—explains that during his three years at HubSpot the marketing department hired less than 1% of applicants. Every 100 resumes resulted in no more than five or seven interviews, with positions often going unfilled for months until the right person for the job was found.

Whalley explains, “HubSpot in general has about a 3% hire rate from resume to first day, which makes them more selective as an organization than any ivy league school or top-tier engineering school, among other programs.” [3]

 

Growth As a Core Company Value

But it isn’t just HubSpot’s highly-selective marketing department that’s growth-oriented. Much has been written about the culture and work environment at HubSpot, in particular, the HubSpot Culture Code. It reads:

 

  1. We are maniacal about our mission and our metrics.

  2. We Solve For The Customer.

  3. We are radically transparent.

  4. We give ourselves the autonomy to be awesome.

  5. We are unreasonably picky about our peers.

  6. We invest in individual mastery and market value.

  7. We constantly question the status quo. [11]

 

Whalley explains that every department strictly adheres to the HubSpot ideal of “Math Makes Right” [3]. Each department keeps a close watch on the metrics that matter for them. “It can be a little ruthless,” he continues, “but it makes sure that ultimately every dollar spent in the business can be tracked into its ROI. … Everyone in the organization knows these numbers, and obsesses over them.” [3]

 

Today’s Growth Engine

Today's Growth Engine

Like any successful company, HubSpot has shown a readiness to evolve based on what the market wants. While still working hard to create and disseminate content people want, HubSpot is the authority in the field of inbound marketing. It’s founders and staff speak frequently about their success, fueling their awareness and growth among marketers and businesses who try their products and services.

 

Sales and Marketing Excellence

By practicing what they preach, HubSpot generates a large portion of their leads from Inbound Marketing efforts. In August of 2012, Volpe reported that 70-80% of their leads—with a volume of 40 to 50,000 per month—come from their Inbound Marketing efforts. He compares that to an industry average of 20% and specifically cites Marketo’s inbound leads at 6%. [21]

Building a sales and marketing organization to drive this program and turn content into a growth lever is arguably the most important key to HubSpot’s success. Being able to guide the inbound efforts to reach the right kind of prospect, and then build a funnel with a repeatable, scalable and successful sales process has allowed HubSpot to grow quickly, service customers with a lower average value than other enterprise marketing competitors, and make the most out of their inbound traffic.

Refined over the last six years, HubSpot has over 30 marketers and 120 inbound sales specialists who manage the pipeline and drive customer acquisition. According to Volpe, they have no outside sales staff. [21] David Skok, a General Partner at Matrix Partners and HubSpot board member wrote an excellent deep dive on HubSpot’s sales process and hiring methodologies in 2011 that illuminates much of their approach to driving the sales organization.

 

Inbound Marketing at Scale

To feed the sales organization above, HubSpot has a constant need to scale their inbound channels. To that end, HubSpot has poured more and more effort, resources and hires at that engine.

Today, HubSpot is a content and tools machine. Beyond scaling content, they’ve also continued to deliver new tools and services that drive both interest from new customers and help retain existing ones. The company has worked to expand their offerings via new products like Signals, a marketing plugin for Chrome, and Content Optimization System, which uses cookies to deliver targeted messages on websites and landing pages.

HubSpot also offers free inbound certifications at Academy.HubSpot.com and produces a weekly Internet marketing video podcast called HubSpot TV at http://hubspot.tv. And they’ve made smart hires, like adding Dan Zarella to their team, who produces data-driven content to help businesses make sense of new marketing tools.

 

Marketing Grader

In late 2011, Website Grader was changed to Marketing Grader, which reviews over 30 factors and provides an overall Marketing Grade on a scale of 1-100, Marketing Grader is the company’s way of acknowledging and incorporating the various factors that now contribute to marketing. [7] In the first week alone, Marketing Grader was used by more than 140,000 companies. [17] According to the company’s own numbers, Marketing Grader and Website Grader together have more than 4 million users. [18]

 

Acquisitions and Partnerships

In February of 2012, Shah teamed up with with Rand Fishkin, CEO and Co-founder of SEOmoz, to launch Inbound.org, a “for-fun” community for sharing content from the world of inbound marketing. The site, which gets around 40-50,000 visits per month, is a “community of bloggers, marketers and enthusiasts passionate about non-paid channels like SEO, social media, content marketing, conversion rate optimization, etc.” [16]

The company has also made some smart acquisitions. In June of 2011, HubSpot acquired the marketing software startup Performable. Two months later, they acquired social media management platform OneForty. In May of this year, they acquired the Chrome plugin Chime and the calendar synchronization tool PrepWork, in an attempt “to make its software friendlier and more human.”

 

Inbound Conference

In 2010, Rebecca Corliss posted on Inbound Hub that HubSpot would no longer be exhibiting at trade shows and events because it didn’t make financial sense. [5] Instead, the company shifted its focus to speaking at events, creating more content, holding their own events, and attending events to mingle and learn (rather than sit behind a table all day).

One way they’ve done this is through hosting the annual HubSpot conference in Boston, known as the INBOUND Conference as of 2012. INBOUND13, which took place in August of this year, had over 5,550 registered attendees. [10] That number is especially impressive when compared to INBOUND12’s 2,857 attendees. [9] Now that HubSpot is the firmly-established authority on inbound marketing, INBOUND is a fitting way for the company to foster innovation and education in the field.

 

Exceptional Customer Retention

One of the most celebrated pieces of HubSpot’s growth engine is customer retention. While it’s difficult to find hard data on their actual retention metrics, their success in this department is anecdotally referenced on a regular basis. Hubspot’s approach to retention is much like other aspects of their business. They focus on key metrics and align their sales and marketing processes to create successful customers.

From a sales and onboarding perspective, HubSpot uses year-long contractual commitments that come with mandatory paid training and consultation services upfront, in addition to software fees. This gives new customers the incentive to use the software and sets them up for the best chance of success, and therefore the best chance to be a lasting HubSpot customer.

To measure and monitor the success of their retention efforts HubSpot uses something called a Customer Happiness Index, or CHI as the core retention metric. Jonah Lopin, VP of Customer Success at HubSpot, explains:

“[CHI] is a measure of the degree to which one of our customers is practicing inbound marketing in a way that is likely to lead to long-term success. Our customers with the highest CHI scores get the biggest lift in traffic and leads every month. These customers also give us the highest Net Promoter scores and have the highest renewal rates.” [20]

The number is calculated based on how well a customer is doing inbound marketing, and certain elements are weighted based on their correlation with success. Lopin says that the CHI is easier than conducting a survey and quicker than cohort analysis, and it gives HubSpot Consultants a framework from which to teach inbound marketing based on each customer’s strengths and weaknesses. Consultants work with customers to get them the highest CHI scores possible, which drives traffic and leads for customers and results in higher customer satisfaction for HubSpot.

 

Fostering Innovation

The company seeks to foster innovation and encourage entrepreneurship in all its employees. Halligan says that HubSpot has a straightforward, three step process by which employees introduce new ideas: Alpha, Beta, and Version One. [12] He explains:

“If you have an idea for some new thing, you can start working on it nights and weekends. You don’t have to ask us for permission—just start cranking on it. There’s no red tape. If you’re a software developer, you can write software; if you’re a businessperson, you can work on a business idea. That’s Alpha.” [12]

Next, the employee presents the project to management, and if it looks like a good investment, it becomes Beta, meaning resources “in the form of heads and access to developers” will be devoted to the project, and the team gets three months to attempt to gain traction. Anything that doesn’t work is cut as soon as possible. What does work graduates from Beta and becomes “part of the way we do business,” or Version One.

To give this a little perspective, at the time of Halligan’s interview in 2011, 30 of HubSpot’s 260 employees were working on projects in various stages. Still, he claims that the majority of projects do fail, and employees simply go back to their regular duties—until they come up with their next big idea and try again. It’s all part of the culture.  [12]  Of the typical HubSpot employee, Halligan says:

“We try to attract employees who fight conventional wisdom. Gen-Y employees are different. They have an entrepreneurial zeal. They want to start new things, and they’re not afraid to fail. Personally, I hate conventional wisdom. You could say I’m the enemy of conventional wisdom. I would even love it if one of these start-ups disrupted HubSpot’s core model.”

Part of creating this environment of innovation is making the organization decentralized and flat. We want to empower the edges of the organization, and we want to let the people who really understand our customers make decisions. Now they can.”

 

The Remaining Pieces of HubSpot’s Growth Engine

After HubSpot raised $35M in a mezzanine financing round in November of 2012, people started talking about whether the company was preparing for an initial public offering. Though this has yet to happen, Halligan does not rule it out:

“At some point, we’ll change the type of investors from private to public, but we’re in no hurry to do so. We’re trying and we’re on our way to building a sustainable lasting business.” [13]

They’re also focusing their efforts on international expansion, opening their first international office in Dublin, Ireland, in January of this year.

We hope this case study helps B2B founders and entrepreneurs who are looking to disrupt a category in a meaningful way. Regardless of your specific field, HubSpot shows that giving away content that’s educational, helpful, and compelling can be an effective way of getting customers to come to you. Their case also highlights the benefits of making growth a priority for everyone in your company and proves that importance of fostering innovation both by not being afraid to try an idea that sounds crazy, and knowing when to move on when it doesn’t work out.

What did we miss? What else has been instrumental to HubSpot’s success from 2006 until today? Share your thoughts and insights in the comments.

 

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Contributing Authors:

Everette Taylor

Dylan La Com

 

This case study is one of ten in Growth Engines: Case Studies of How Today's Most Successful Startups Unlock Extraordinary Growth. Get the ebook on Amazon right now for just $2.99.

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  • Sean Ellis (@sean)

    Great post Morgan. Comparing Hubspot’s b-to-b growth to the GrowthHackers.com studies for more b-to-c products like Snapchat or Evernote, it looks like b-to-b marketing is a lot more hard work. Seems like b-to-c is more product driven.

    I’d be curious to know how much their value proposition has evolved since 2006.

    Overall Hubspot has a really impressive growth story and I’m sure it will be informative for lots of b-to-b marketers.

    • Morgan Brown (@morgan)

      Thanks Sean. One of the things I didn’t get into here, is that they made a significant shift in how they price their service back in September, 2011 that based pricing tiers on the number of contacts managed by the system.

      This fundamental pricing change shifted the way users perceived the value of the product, and no doubt had an impact on marketing, messaging and value prop. While I couldn’t find much about its actual impact online, I am confident it’s material to the Hubspot success story—how much so vis-a-vis these other factors is a question that I can’t answer.

      • EdFry (@edfryed)

        HubSpot’s pricing is fascinating because it covers software use, services, usage numbers and more but targeting very different target audiences.

        This is really worth studying: http://web.archive.org/web/*/http:/www.hubspot.com/pricing

        • Morgan Brown (@morgan)

          Totally agree Ed. They also made a major shift in pricing that changed fundamentally how users valued the product. I also think it’s incredibly smart, and challenging, and gutsy, to charge for training up front. It’s common among enterprise software installs, but for the lower ACV customer it’s a strategy that probably flew in the face of most people’s gut instinct on how those types of customers would take it.

          • DharmeshShah (@dharmesh)

            Morgan: Thanks for the detailed write-up.

            And, for the record, you’re right — charging for training up-front does fly in the face of conventional wisdom in our target market (SMB). But, we don’t deserve credit for the courage to defy conventional wisdom — we get credit for diligently looking at the data. We tested it both ways.

            • Morgan Brown (@morgan)

              Thanks Darmesh—and that upfront charging test must’ve been a heck of a test. You’d need several months of data at least to see if it made sense, right? Kudos to your team for always testing everything. Too many orgs have sacred cows that get tested around.

          • EdFry (@edfryed)

            I think the other key point on pricing is “hiring the right customer”.

            Annualised pricing only, with a prospecting process before being brought on as a customer means less flaky clients. Monthly pricing gives many opportunities to review “is this working yet?” and lets organisations who won’t give it a chance to come onboard.

            I see this with Qualaroo too? You really have to dig to find a budget-friendly plan for small businesses on a monthly basis to avoid tying up cashflow. But I bet those cohorts are comparatively weak compared with folks signing up to annual plans and using Qualaroo every week?

  • JasonPeck (@jasonpeck)

    Great post. I’ve attended a few events that Hubspot (Mike Volpe or Brian H.) have spoken at, and they’ve always shared really great insight during their talks. This kind of thought leadership is key when trying to build awareness/trust in the b-to-b space. How they get these speaking gigs? That’s something I wish I knew more about :)

    • DharmeshShah (@dharmesh)

      Glad you enjoyed Brian and Mike’s talks. They’re really good.

      In terms of how they get speaking gigs? Simple — through the kind endorsement of folks like you, word spreads and invitations come. So, if you enjoyed a talk from someone @HubSpot (or from anywhere, for that matter), let the organizers know.

      Thanks!

  • DavidArnoux (@darnocks)

    Best piece I’ve read in a long time. Can’t believe it took me this long to read it and I’m on GH.com every day. I really appreciate how you’ve taken the time to structure and detail it. I have a new “B2B oriented” client meeting tomorrow and this has given me many ideas. Thx.