The Business Leaders Network

Dharmesh Shah @ Business of Software.

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Talk – “Building A Great Software Business: Notes From The Field”

In this session, he will attempt to condense many of the lessons learned from pretty successful companies like Constant Contact, DropBox, Kayak, FreshBooks, ZenDesk – and of course, HubSpot. He’ll talk about all sorts of things but mainly how to get customers, keep customers and grow revenues and profits. [Note: This description has been intentionally left sufficiently vague so as to allow a complete rewrite of the content at 2:00 a.m. on the morning of the conference. That’s just how Dharmesh rolls.]

Bio – Dharmesh Shah is the founder and CTO of HubSpot, a venture-backed software company offering a hosted software service for inbound marketing. Prior to HubSpot, Dharmesh was the founder and CEO of Pyramid Digital Solutions. Pyramid was a three time recipient of the Inc. 500 award and was acquired by SunGard Data Systems in 2005. Dharmesh is also the author of, a top-ranking startup blog with over 20,000 subscribers and 100,000 members in it’s online community. He has a B.S. in Computer Science from the UAB and an M.S. in the Management of Technology from MIT.

Dharmesh is co-author of the recently released book Inbound Marketing: Get Found Using Google, Social Media and Blogs. The book has been in the Amazon Top 100 business books for 21 consecutive days. [Because it is REALLY very good – ML]

Dharmesh Shah

Dharmesh Shah

What has Dharmesh learned at Hubspot?

Venture capital is not a necessary evil. – it is neither necessary nor evil. BUT, once you take VC money, you move from solving your customer’s problem to solving your investor’s problem.

Thinking about SaaS businesses, Dharmesh asks how much money the typical SaaS company has raised before it IPOs. Answer for publicly traded ones is median number is $42 million. In a SaaS business, you are spending huge amounts of money up front in order to buy customers. You are basically financing your customers.

Startup 101. The important, obvious and simple basics that most people forget:

  • Cost of Customer Acquisition (COCA) is Total Cost of Smarketing (Sales & Marketing) divided by Number of Customers
  • Life Time Value of Customer (LTV) is Annual Revenue Per Customer (ARPU) * Expected Lifetime of customer.

LTV should be > Cost of Customer Acquisition!!!

Absence of churn = Presence of Delightedness

Three key value drivers in the business

  1. Sales Velocity
  2. Lifetime Value
  3. Acquisition cost

Improving one often degrades another. (Sounds a bit like the Project management – time, quality, cost equation). Balancing the three is incredibly tricky. what do you do?

Don’t improve the product, improve the EXPERIENCE.

  • It is easier for sales people to sell
  • Customers stay for longer and talk about you
  • COCA goes down

Everybody wins. Hubspot has moved from investing in sales and marketing (sales team is now 60 people) to investing in customer experience.

Don’t make customers happy. Make happy customers. Hubspot measures the Customer Happiness Index (CHI) of all its customers every month. It is a single number that ties to the likelihood of a customer to continue to pay to work with us. Ingredients of number change but at Hubspot, the basics are:

  • Frequency of use
  • Breadth of Use
  • Sticky Features

Sticky features is really important. Irregular users who use sticky features trump frequency and breadth of use.

Think of the customers. Hubspot has an empty chair in all meetings that represents the customer. Marketing Molly is required to hit quorum for management and board meetings. Very few meetings happen without someone saying, ‘Bullshit, what would Molly say?’ Customers should have a voice, not a veto. Customers are often better at identifying their problems, not the solutions to those problems.

Hubspot's Marketing Molly

Hubspot's Marketing Molly

Services are low margin. Except when they are not. Hubspot charges $125 an hour for ‘on-boarding’ (I think that is American for setting up), customer support etc. Felt like it would be about a break even business but in fact that does not account for increased use of Hubspot by customers which leads ti increased use and lifetime value. Tried giving it away for free but in fact customers didn’t value the sessions as much. Charging $500 for a 4 hour customer training session means that customers make sure that the real people get value.

Hubspot has customer success managers who monitor customer happiness and then call those people and do all sorts of stuff to make them happier. They say, “I think you’re unhappy. What can I do to make you happy?” About 30% of those unhappy customers still end up ditching Hubspot but that means they are keeping 70% of a bunch of customers that would have walked away.

Don’t make XXXX software, make XXXX Superstars. In Hubspot’s case, Don’t make marketing software, make marketing superstars. the answer is not to make a better XXXX, it is to make a simpler XXXX. Hubspot offers a bunch of tools that are readily available in other packages but they are packaged simply.

Transparency Trumps Secrecy. Most Hubspot information is available to all barring salary/compensation information. Makes being a manager much easier – don’t have to worry about what should be kept private or not. Have not made this a policy that opens this information to public sharing as they cannot see the upsides. Vacation Policy is that they have no Vacation Policy. If someone is likely to abuse the policy,they have hired wrong.

Dharmesh packs an afternoon of talk into 45 minutes.  A phenomenal speaker.

Hubspot's  Dharmesh at Business of Software

Hubspot's Dharmesh at Business of Software

The Power and Perils of Freemium. Free is NOT about tricks and traps to make people pay. (The opposite of the Salesforce model).

Build a Brilliant Brand. Brand is what people say about you after you have left the room. The most important thing apart from building a brilliant product, is not screwing the customer. Be a good egg. The path of truth is paved with profits. If you are looking to build the next multi-billion dollar business, people will talk about you and find out if you do bad stuff. Oracle, Microsoft and others got away with it in the past. No longer. (So what about Salesforce that have done just that? Dharmesh thinks they may have been the last one…).

Dream Big, Execute Small. If you get an offer for your business before you have built a billion dollar business, think about taking it. It gives you cash. Cash will fund your next dream.