HubSpot Founder Dharmesh Shah: The Ultimate Guide to Company Culture | E896

1. 0:00 – 4:07

   How Dharmesh met his co-founder

   1. HSHarry Stebbings0:00

      (reversing beeps) Three, two, one, zero. You have now arrived at your destination. Dharmesh, my word, I couldn't be more thrilled to be doing this one. I've wanted to do it for quite a while. So thank you so much for joining me today first.

   2. DSDharmesh Shah0:15

      My pleasure. Thanks for having me. It's been, uh, years in the making. I've been thinking about this for a while now, but my introverted self, I keep pushing back on, uh, podcasts, so...

   3. HSHarry Stebbings0:23

      Listen, I am so thrilled that you agreed to it. I have no idea what made my British accent appealing to do. But, uh, I'm thrilled to make it happen. I wanna start also, I heard a little bit of a context that your wife, Kristen, is the reason that you and Brian got together in the first place, scouting him at an MIT Sloan cocktail party. So, can you take me to that party?

   4. DSDharmesh Shah0:44

      Sure.

   5. HSHarry Stebbings0:44

      What happened between you and Brian, and how that led to HubSpot?

   6. DSDharmesh Shah0:48

      Yeah. So, uh, it's, uh, it's- it's a fun story. So, uh, both Brian and I, um, joined this, uh, class at MIT for grad school, it's part of the business school. And they had this kinda mixer, social cocktail party thing, so the incoming students and the classmates could kinda meet each other, and- and significant others were invited. Um, and you don't know me that well, but the worst possible thing you can do to me is put me in a social environment with a bunch of people I don't know and have me make small talk about things, you know, that I don't know anything about or don't care about. And so, um, 'cause I'm the kinda hyper introvert, and- and there's no exaggeration here. Uh, my wife, on the other hand, is not. She's at the other end of that, uh, of that spectrum. She's super friendly, love- loves meeting people. And so what- what she'll do, um, at these kinds of events though, she'll kinda scout the room. And I'll be hiding in a corner somewhere, and she'll go scout the room, she'll talk to people, she'll be parts of little groups, and then she'll come back with a scouting report. It's like, "Oh, yeah, I met Priya over here, she's awesome, she's from tech, uh, I think you'll really like her." And then she came back, and this is interesting, uh, she came back and said, "Yeah, I met this guy, Brian. I don't know if the two of you are gonna hit it off because he's, you know, he's kinda got a sales background, he's really into sports and the Red Sox," and- and it's like, "You just don't have a lot in common." That was her first, you know... And I've known her, you know, now 25 years, and you know, at the time it has been, you know, 10 to 15 years, so... And I trust her judgment. Like, she knows me and- and she's been right pretty much 100% of the time, except this one time, right? So, um, so then classes start, and, um, and I get- kinda get to know Brian, and he's in there and, like, I remember him, you know, from- from the party because I did say hi that evening. Uh, but it was a very kind of... I wasn't curt, I'm still like a pathologically polite self, um, but, you know, we just, uh, you know, didn't connect more than that kind of very brief interaction at that cocktail party. But then we're taking classes, and- and the more classes I take, the more time ar- I'm around him. I'm like, "A, this guy is smart. Yeah, he may have kinda grown up in sales, but he's like no salesperson." And no disparagement intended to salespeople, they're just different, wired differently than I am. Um, and we just hit it off. And then, you know, about midway through, um, kinda graduating, we started noodling on the possibility of us, like, doing a company together. Um, and so... Which is really weird because the one thing I promised my wife is not that I wouldn't spend time with Brian, she was fine with that, but that I would never do another startup, right? Because I had done startups my entire career, that's all I pretty much knew, uh, and then she had known me even before I had done my first startup. And sh- you know, she likes to joke, uh, somewhat jokingly that it's like, "Oh, if I had known you were gonna be an entrepreneur, I'm not sure that this would've worked out." Because, you know, being married to an entrepreneur is not, uh, the easiest thing in the world. Anyway, so I promised her... And that's why I went back to MIT, I'm like, "I'm gonna go to grad school, I'll go get a PhD," and my kinda path was to kinda teach. That was the original idea. I was not gonna do another startup, I promised her I was not gonna do it. Uh, then Brian and I met and we really hit it off. And the reason HubSpot started was two reasons. One, uh, is just I wanted to work with Brian, and two, we both had a shared passion for SMBs. And we can talk more about that later. But that was the kind of the original, it's, you know, it comes down to a cliche, but it's- it's all about the people and it's like, "Okay, this is someone I want to, like, work with and do something with." Um, and it was kinda natural to do a startup, but anyway, that's the story.

   7. HSHarry Stebbings4:05

      Dharmesh, I specialize in going off-schedule.

2. 4:07 – 5:25

   What's the secret to a fulfilling marriage?

   1. HSHarry Stebbings4:07

      You have such a lovely relationship with your wife. You see it on social as well. I saw the post about the lawnmower, which I thought was hilarious. Uh, help me out here, Dharmesh, what's the secret to such a fulfilling and wholesome marriage?

   2. DSDharmesh Shah4:20

      Uh, simple of- the simple thing is you have to kinda enjoy each other's company. That's the number one thing. Like, enjoy spending, you know, time with each other. Uh, I think number two is there has to be kinda mutual admiration and respect. And those are much easier things to define than love and things like that. That, it's like, okay, it's a little ephemeral, I'm not exactly sure how to explain it, but I can tell you who I have respect for, I can tell you who I admire, I can tell you, um, you know, just good people in the world. It's like, um... And it's interesting, and we're very complementary. So she's not from tech at all, um, you know, she- she was a pharmacist by training. And kinda what made us hit it off over the- you know, over a long period of time is A, that mutual respect, but then it's like we make a good team. So we like to joke in the family that, um, you know, she wants to save the world. She got an environmental degree, like she's out, um... And I want to own it, right? I'm the capitalist, red- uh, warmhearted but red-blooded capitalist. Um, and so we make a good pair. I'm out, um... and I'm thick... I'm relatively good at making money and she will be great at channeling it to good causes. Um, so...

   3. HSHarry Stebbings5:19

      A- a- and obviously, I- I heard about you kind of giving away 90%, which I thought was awesome. I do wanna start on your leadership

3. 5:25 – 7:36

   Dharmesh's leadership style

   1. HSHarry Stebbings5:25

      style though, 'cause it's a fascinating topic. And bluntly, you're an even more fascinating subject than most (laughs) when we dig in. And so when we think about leadership styles, how would you describe yours today? And then reflectively, how has that leadership style changed over time?

   2. DSDharmesh Shah5:41

      You know, I struggle with the word leader, 'cause I- I really think of myself as that. Um, well, I'll tell you my- my... I'll call it my operating style, for lack of a better... And- and obviously, you know, leadership or some sense of it is- is part of that. Uh, there are a few kinda fundamental core attributes to my operating style. Uh, one is around transparency.... uh, and what I mean by that is that whatever it is that's going on in my head, um, I share it. Right? It's like, "Okay, well, here's wha- what I think we should do, here's the path I shin- think we should take, here's what I think is broken in the world, here's, you know, what I think we did well, here's what I think we didn't do well." And I kind of put it out there, that's kind of... Uh, the number one thing is, uh, is, is transparency, and then kind of combined with that, um, and it's gonna sound weird saying the word, uh, because it's a paradox in a sense, but it is around having the humility to kind of listen. It's like, okay, if you put the stuff out there, but you have to be kind of open to debate. You have to be accepting of the fact that you don't know all the answers, you haven't figured it all out. Yes, you may have had some experiences, you may even have some data, you may have some more context than someone else, uh, but that doesn't necessarily mean that you're right. Um, and so, kind of having the humility to say, "I'm still constantly learning, and there's... Every interaction I ever have with anyone, be it a person or company, whatever it is, um, I feel like there's something to be learned there." Right? Just having the humility to know, um, that you don't know everything, and we're all kind of on this journey at varying stages, we've picked different paths, um, but I think that's kind of part of it. And, um, it's both... I kind of value it in myself and I recognize it, um, and I value it in others. Like, the best people I've ever met have a very kind of low ego, uh, to accomplishment ratio. Right? It's like, they're... You know, we all meet lots of people that have, uh, accomplished a lot, but then their ego kind of balances out, so the ratio itself is not great. Uh, the best people are the ones that have accomplished a lot, but have very little ego, um, in, in proportion to that.

4. 7:36 – 8:52

   How to test for low ego & high accomplishment when hiring?

   1. DSDharmesh Shah7:36

   2. HSHarry Stebbings7:36

      How do you test for that, low ego/high accomplishment, when hiring?

   3. DSDharmesh Shah7:41

      Uh, when hiring, it's actually relatively straightforward. Um, do they take full credit for the f- all the awesomeness that has happened to them, uh, or around them or because of them, or do they, um, do they share that credit? That's one thing. Uh, another... So, and this, even post-hiring, this is an easier question to answer, um, the best people in my mind or in my experience, uh, HubSpot and otherwise, are the ones that, uh, when things go wrong, and things will always go wrong, they will shoulder the responsibility. Right? They're not trying to shift blame. It's like, "Oh, yeah, this went wrong because we didn't get the budget, or this person kind of pushed back on us, or we should have done it my way and we chose to do this other thing and therefore it didn't work." Um, the best people shoulder responsibility but share the credit, so when things do work, they're like, "Yeah, yeah, I know this went really well and it's great that we kind of, you know, beat the numbers or accomplished this, but it really was Suzy over here that was kind of instrumental in that happening, and it was this over here, and I'm just glad to have been part of it." Right? Like, it's just... Uh, people that have that, uh, kind of low ego tend to really, uh, give disproportionate credit to others in terms of what, uh, what they've accomplished.

   4. HSHarry Stebbings8:45

      I need to give credit to Kieran on your team for this one, which I loved. Uh, I'm gonna borrow it a lot actually, but he asked the question,

5. 8:52 – 12:19

   Most difficult but valuable lesson learned in HubSpot journey

   1. HSHarry Stebbings8:52

      "What was the most difficult but valuable lesson you've learned in the HubSpot journey?" In other words, it was super tough to go through, but you're glad you went through it.

   2. DSDharmesh Shah9:02

      That's interesting. Um, I'll say this. The... It kind of falls into the kind of biggest mistake, and, and, and we still have not recovered from it yet. And I'll, I'll, um, I'll give you the context. So when HubSpot started, first it was, uh, Brian and I. We met at, uh, in grad school, as I mentioned. Um, and then, so he was, uh, CEO, we'll talk about that. I was CTO. Um, our VP of sales was from MIT grad school, uh, same school. Our head of marketing, same school. Head of engineering, same school. Uh, so the first six hires, all men, all from the exact same school, same program, had the same... Not, not necessarily the same graduating years, but just in that little cluster. And so the mistake, I think, and this was blindingly obvious now, was not obvious to us then, is just, it was, um... It's the opposite of, of diversity in terms of the team, right? It's like, it's... Um, and we had not really even thought about it. Uh, to be candid, this was, you know, 16 years ago, um, so we hadn't really deliberately thought about culture or diversity or all those things, um, and it was about five years later before that kind of became one of the core pillars of HubSpot. Um, but if I could do it all over again, that was the big mistake. Um, and the challenge with that particular mistake is... Okay, so I'm gonna take a, um, slight excursion here. It's, it's related, but it's important. Um, so we all understand, um, financial debt.

   3. HSHarry Stebbings10:27

      Sure.

   4. DSDharmesh Shah10:27

      We get it. So, financial debt is I need the cash now, I can deploy it, I'm gonna pay an interest rate, but the cash is worth it to me now in order to accomplish the thing I wanna accomplish. Awesome, we get it. Uh, we have then kind of translated that into something called technology debt, and anyone that's ever written software is like, "Oh, I'm gonna take this shortcut in the code right now because I need to ship the product, and I know that I'm gonna accrue an interest rate because it's gonna be harder to maintain, it's gonna be buggier, and I'll come back later and clean that code up and pay off that technology debt." Right? And that's a well-accepted term. People know it.

   5. HSHarry Stebbings10:56

      Sure.

   6. DSDharmesh Shah10:56

      Uh, along the same spectrum, there's a thing I call culture debt, and culture debt is when you hire, um, either non-diverse teams or you hire people that are jerks that don't really fit and no one wants to be around. When you make those suboptimal or wrong decisions, you accrue what I call culture debt. Now, it is the most insidious form of debt, and the reason I say that is, number one, you don't really know what the interest rate is.

   7. HSHarry Stebbings11:22

      Mm-hmm.

   8. DSDharmesh Shah11:22

      That's a problem. Right? It's like, "Okay, I made this bad hire. They're just jerks. No one likes to be around them."

   9. HSHarry Stebbings11:26

      (laughs)

   10. DSDharmesh Shah11:27

       But the problem is, you never really can fully pay it off, because it's so toxic and so... Like, for instance, if you make a bad hire in your first 10 employees, let's say just one bad hire, um, the next 40 people, 50 people, 100 people that join are going to be impacted by that person. It's like, "Oh, here's what's accepted here. This is okay. This behavior's acceptable. This is the kind of company we are." And then even if you let them go, the roots of that toxicity are still kind of in there, so you're never really sure if you ever paid it off. Financial debt, you write a check, you're done. Technology debt, you rewrite the code, you're done. Culture debt, 16 years later, like we are now, you're still sort of paying that price. Right? Uh, and that's why... So that was my kind of biggest mistake, hardest won lesson, is not investing more intentionally in culture earlier. Um, and, yeah. So...

   11. HSHarry Stebbings12:16

       Listen, you brought it up. I just spoke to Pat about it,

6. 12:19 – 14:00

   What is the process of making the culture decks?

   1. HSHarry Stebbings12:19

      so I have to ask. The culture decks that you put together, what is the process with which you go through to put them together? I'm really intrigued.

   2. DSDharmesh Shah12:27

      Yeah, so there's only one deck. Um, it's called the Culture Code Deck. The reason it's called the Culture Code, um, is... A lot of people kind of mistake this. Like, "Oh, like it's a code of conduct or a moral code or something like that." It is not. The Culture Code, um, was my kind of manifestation of, if I could write an operating system, literally write Python code let's say, uh, to run the company and help make decisions and do these things, this is what it would be, right? And the kind of V1 of it... Well, let's take half a step back. On the top three list of things I've learned in, you know, 30 plus years now being in the professional world is that culture is a product. Culture is a product, so we build a product. If you're a tech company, you build a product for your customers. We all understand that. We learn, we understand product management, we understand the importance of getting customer feedback and product market fit, and all those things. We fix bugs, we add features, we understand that discipline. We can literally take 95% of that same mindset around product and apply it to this thing called culture. And so here's what happens when you think about culture as a product. You're like, "Oh, well, I would never build a product without asking the customers what it is they want." Why would you build a culture without asking the employees what it is they want? You would never build a product and not ask for the customers to report bugs that are really kind of prohibiting them from doing what they need to do. Why would you not ask your employees if the culture is prohibiting them from what they need to do? So we've literally taken the idea of culture and made it a product in every conceivable way that we can, and that has dramatically helped.

   3. HSHarry Stebbings13:59

      So

7. 14:00 – 19:51

   How to bring employees into culture creation process

   1. HSHarry Stebbings14:00

      I love that, but what is the right way to bring employees into culture creation process with you? Is it as simple, you know, "What would you like in the culture that we have here?" What questions do you ask? How do you ask them? How do you get that feedback?

   2. DSDharmesh Shah14:14

      Yeah, so the number one thing is, um, is to... So every company has a culture, whether you deliberately designed it or not. Um, the hope is that by being intentional about it, you can get the culture you want versus one that's kind of thrust upon you, and the kind of second law of ther- thermodynamics is your culture will suck outside of intervention, right? It's like, it's entropy. Um, but... And so the way you kind of involve people is you involve people, um, and this is a painful process. I will tell you, um, I began writing the Culture Code Deck, this was, I'll say, maybe 11 years ago, give or take a little bit. Um, and I was kind of volunteered into it by my co-founder, um, uh, you know, Brian, who had gone to this, uh, kind of CEO... He was part of a CEO group that they would kind of sit around and meet and talk about CEO issues and sing CEO songs. Um, you know, sit in a circle and do all that kind of thing. No, I'm kidding. Um, but they did sit in a circle. Um, and one of the topics one time was around culture and how important culture was, and we were early in our history at this point. Um, and so he comes back to me. We have one of our founders dinners, that's, that are multi-hour, uh, affairs, and he's like, "Dharmesh, I, like, I just got back from my CEO club kind of meetup thing, um, and the topic was culture, and there, like, culture is, like, super important." I'm like, "Awesome, Brian, it's super important." He's like, "Why don't you go do that?" I'm like, "I have no idea what you mean. Uh, but from what I, little I know about culture, it involves people, and I'm the least social person in the entire company. I'm the least qualified to do anything related to culture." Um, but I was, I was a team player. I'm like, "Okay, fine." Um, so I originally treated as a, as a data collection exercise, so my assumption was we already have a culture, we just wanna at least kind of... And this feels like it's working, people seem to be happy, but let's find that out first. So, um, so I ran a survey. It's like, "Hey, I'm, like, working on culture at HubSpot. I wanna know whether, A, you're happy at HubSpot or not," right? It's, it's a product. Um, "And if so, why are you happy? If not, why are you not happy?" Um, and a weird thing happened when I sent that first email out, um, to the employee base. People reacted with a negativity that I had never seen in my professional career, and this was weird. Caught me off guard. And the kinds of comments I got back is like, "Oh, so this is what we're doing now. Oh, so now it's gonna be like putting mission statements up on the wall. We're gonna become one of those companies." And then the one that really got me... And by the way, these are all people I had personally hired and recruited, right? These are, this is not random f- folks that had never met me. It's like, how can you just by virtue of even bringing up the topic of culture and asking very benign questions... It was not a, um... I did not think that there was gonna be this kind of negativity. But the one that really got me is like, "Oh, Dharmesh, I just don't think HubSpot's the kind of company now that I thought I joined." I'm like, "Nothing has changed, dude. Like, what is wrong?" Um, and so once we got through that, um, and I, I kind of talked people off the ledge and I understood better why they were re- reacting negatively, is because, um, culture as it had, had been practiced before was mission statements on the wall and highfalutin words like integrity and this and excellence and whatever. It's like... And that's what they thought we were going down. It's like, okay, well, you know, we've always been a very kind of practical, solve for the customer thing, and now it feels like this was one of those kind of big company things where you bring management consultants in and, and, you know, come up with fancy words like integrity and excel- excellence. Uh, so once I convinced them that was not my intent, uh, once we got through that, um, and then, you know, the first version of the Culture Code Deck was out there to solve, answer exactly one question, what kinds of people are likely to succeed at HubSpot?

   3. HSHarry Stebbings17:58

      Huh.

   4. DSDharmesh Shah17:58

      That was... And the way I had framed it in my head, this is hence the name Culture Code, is if I could write a function, like literally code, what would the kind of coefficients of that function be? I might not know the weights as far as the relative importance of those, but at least let's identify the things that seem, seem to be maybe not causal, but at least correlated with success at HubSpot. And that's when we came up with the original set of what some people call values, uh, I think of them as coefficients or the attributes of people. Uh, and transparency was up there, humility was up there, uh, in terms of things. Empathy was up there, in terms of the, the attributes that really kind of stood out. Um, and so once we had that...... then we had us like, "Okay, well, these are the kinds of people that seem to succeed at HubSpot and tend to be happy at HubSpot, thereby creating other people that are ha- happy at HubSpot. Let's hire more of those people." So we used it as the baseline for hiring, kind of from that point forward. So we would, every kind of interview, and then every promotion, and we kind of wove it through the entire company that says, "You have to have... Doesn't have to be ten out of ten on each of them, but these are the things we care about." Um, and they're not, like, excellence, right? They're, they're humility, they're transparency, they're empathy, adaptability. Um, and so, anyway, that's the, uh, you know, somewhat long story around the culture code deck, but this is... If I had to provide one piece of advice to startups, regardless of where, uh, in the kind of stage of evolution you are, the best time to work on culture is time T equals zero.

   5. HSHarry Stebbings19:21

      I-

   6. DSDharmesh Shah19:22

      Simultaneous to thinking about the product, think about the people, uh, I'm not suggesting you write 128 slides in that first, you know, first month, first year (bell sound) , but at least ha- have it on a paper napkin, at least have a conversation with your co-founder that says, "This is the kind of company we want to create, and these are the kinds of people that we want to attract." Um, and so the best time is time T equals zero. Uh, the next best time is time T equal now, so if you-

   7. HSHarry Stebbings19:44

      (laughs) .

   8. DSDharmesh Shah19:44

      ... have not done it yet, wherever you are in your overall kind of evolution, uh, start working on it now, start having those conversations.

8. 19:51 – 21:46

   Framework for solving difficult problems

   1. DSDharmesh Shah19:51

   2. HSHarry Stebbings19:52

      Culture, hiring, the qualities we look for. It's all decisions. And again-

   3. DSDharmesh Shah19:56

      Yeah.

   4. HSHarry Stebbings19:56

      ... I have to give Karen, o- on your team credit for this, but I, I love it again. He asked, "When you have very difficult or problematic decisions that need to be made, what's your framework for solving difficult problems? And do you have a process you go through?"

   5. DSDharmesh Shah20:11

      Um, yes, so there, I'll, I'll talk at two levels. One is a very kind of high order, going back to the kind of early stages of HubSpot, um, is how founders, uh, we as t- two co-founders made high order decisions and we had a very simple framework for this. Uh, number one is, do we both agree on the path on this particular decision? It's like are we, would we, are we choosing the same option? Would we choose the same option? If the answer is yes, decision made, there's no conversation to be had. We both agree it's the same path. If we don't agree, does one of us feel much more strongly about their choice than the other? By the way, it has nothing to do with areas, like it, it could be, I'm CTO, it could be about the product, uh, he's, you know, head of marketing, sales, and everything else, it could be about pricing or something else sales related. It doesn't matter what area it falls under, does one of us feel much more strongly? If one of us feels much more strongly, they win. We pick their path. If both of us feel very strongly and still disagree, then we debate, and we debate, and we debate, and then ultimately, Brian decides, because he's CEO. Uh, but we run it as a partnership, but we go through that kind of heuristic, um, and there have been, like, I can count, count the number of times on the fingers of one hand and still have fingers left over, the number of times that that has, like, come to that, where we go to debate, debate, debate, debate. And ultimately, um, you know, Brian has to decide. We will usually kind of... One of, one or the other of us will talk our, talk the other one into it. It's like, "Okay, here's my..." So the debate usually will resolve it. Uh, it doesn't have to come, you know, ultimately c- by decree. It's like, "Okay, we're gonna go do this." Um, that, that's a rare, rare occurrence.

9. 21:46 – 23:39

   Dharmesh's biggest insecurity

   1. DSDharmesh Shah21:46

   2. HSHarry Stebbings21:46

      Now, uh, can I ask, you know, when I, when I look at you and I listen to you say Dharmesh, it, it just seems all very natural. It's all so fluid and innate within you, this kind of core operating style. In terms of insecurities, I think it's helpful and humanizing for founders to hear even people like you have insecurities in, you know, operating. What do you think are your big insecurities today operating?

   3. DSDharmesh Shah22:09

      Um, well, it, the big one is just around imposter syndrome, right? And, um, and everyone has it. People talk about it. Uh, I've had it my entire life, um, and I didn't know what it was called until, you know, much later in my life. But it's around, um, the... So my insecurity is the fact that, uh, I grew up with kind of very modest, very, very modest means, um, and, and that's okay. Lots of people, you know, grew up... But I just didn't have access to, like, a world-class education. I didn't get, uh, even access to a computer or technology until I was in my, you know, twenties, which is kind of unheard of, right? So I feel like I'm constantly, like, catching up, right? It's like others have a massive head start, um, and I think I'm a reasonably smart guy, so I, I have, you know, a decent amount of confidence there, but in terms of just raw exposure, things I've experienced, things I got exposed to, um, kind of early on in my career, um, I, I just didn't, uh, and I have an insecurity around that to this day, right? It's like, okay, well, you know, if, um... And I'll single out, you know, Zuckerberg and Gates and these folks, whatever, that are kind of, um, some of the icons of tech. It's like, wow, like, they went to the best schools. They had computers when they were, like, 12, right? And they were programming when they were 14. It's like, like, how do you compete with that? How do you reproduce that alchemy of having access to resource? And obviously they're driven, super smart people. I'm not saying I would have been that, but it's easy to ask myself, it's like, "Okay, well, like, do I even have a fighting chance of ever, like, accomplishing anything given, like, the, um, kind of slow start I got?" So that's the...

10. 23:39 – 25:17

    Do you compare yourself to others?

    1. DSDharmesh Shah23:39

    2. HSHarry Stebbings23:39

       Do you compare yourself to others?

    3. DSDharmesh Shah23:42

       Not really, no. I also don't, I don't really keep score in the classic way. I don't have, um... I've never really had, like, goals other than... I'll, I'll say this, uh, I won't say never. Um, in my, early in my career, kind of money mattered to me, uh, simply because I liked to kind of shape the universe to my liking to some degree. Um, and, you know, and I cared about money because I had never had it before, and money kind of bought freedom and allowed me to shape the universe more to my liking. Um, so, but other than that, I really don't kind of compare. I, I, but I'm still... I'm competitive, right? But not as like, "Oh, well..."... you know, I wanna be X or Y or Z. I, I don't tend to do that. Uh, I... But I love learning from people. I have immense amounts of respect for... But I like different things about different people, um, both the kind of icons of business and tech or whatever, but even all the way kind of up and down, it's like, "Okay, well, here's this one thing I can learn from this person that's just, um, you know, could be life-changing." I have a immense amount of patience, uh, to s- if... To the degree I have any kind of superpowers, uh, one of them is around the ability to have the patience to endure the noise if you know there's some signal there. And then over time, the kind of compounding value of that signal is immense. So I have the patience that's like, "Okay, well, you know, I can sit through a one-hour, two-hour talk, and if I get 30 seconds of just value out of it, and the value is high enough," I'm like, "That was worth it. I... That was worth it. I, I don't begrudge that time because the rest of it just didn't, wasn't relevant or wasn't good."

11. 25:17 – 28:49

    How do you instill work ethic in your kids?

    1. DSDharmesh Shah25:17

    2. HSHarry Stebbings25:17

       You said about modest means there when you were growing up. Uh, you know, obviously, your, your son, um, who I think is 11 or 12, obviously has a very different lifestyle than you did growing up. (laughs)

    3. DSDharmesh Shah25:27

       Yeah.

    4. HSHarry Stebbings25:27

       How do you instill the same work ethic and values given a very different style of upbringing? It must be tough.

    5. DSDharmesh Shah25:34

       It is. It's, uh, borderline impossible, right? Um, it's, it's because it's such a diametrically opposed thing. So then the question is, is, you know, what we will call kind of drive or ambition or just this kind of need to build or create value, is that innate, right, or is it because you're kind of hungry and you have a chip on your shoulder and you've got a point to prove? Uh, one could easily make the case that it sure helps a lot to have the hunger because you're gonna have that drive because you have no choice but to not have it, right? It's, uh, comes down to survival. Um, having said that, the one thing that I have found, um, works better than just like, "Oh, you need to, like, work harder, do this, whatever," that, you know, um, for anyone that has kids knows that doesn't really, uh, work that w- well, is to kind of tap into the things he does care about and like. Uh, and he is one to kind of keep score, right? And then they... Um, and he obviously loves video games like, uh, many children his age. But, uh, one of the things, you know, I've done recently, um, uh, a short excursion, is that, um, you know... So he's taking a Python programming class, right? So doing all the things I loved. Uh, and I'm trying to live, relive my life through him. He asked for it. He's been wanting to do it. He lo- you know, he loves tech. But, um, but then I'm like, okay, well, you know, it's really abstract for him. He doesn't really know. Like, he's, you know, building these kind of very, very crude, simple games because he's, you know, hasn't even had Boolean algebra as a class yet, so it's hard to teach him, but he's learning. And so it's like, okay, well, I'm gonna build an app on a weekend. So I decide on a Saturday evening I'm gonna build an app, um, and I wanted to build... It's... I'm not gonna tell you the backstory for why I chose this, but a, I don't know if you've ever played Wordle, the word game.

    6. HSHarry Stebbings27:08

       I, I-

    7. DSDharmesh Shah27:08

       Yeah.

    8. HSHarry Stebbings27:08

       ... lo- love it.

    9. DSDharmesh Shah27:10

       So, so, um, so I decided to build a Wordle trainer first. Um, I'm gonna build this app, and then ultimately, I built a, um, a Wordle, uh, we'll call it a competitor, for lack of a better term. Anyway, so Saturday night, uh, I decide to do it with the deadline that Sunday I'm going to launch it to the world, and the motivation here was I wanted to walk him through the process. It's like, "Okay, so hun, we talked about this on Saturday evening. I'm writing in the exact same language that you're learning right now. I'm writing it in Python. Tomorrow, we're gonna get up, and we're gonna launch it. And I'm gonna show you what Google Analytics is so we can watch traffic coming in. I'm gonna show you how I tweet," because he knows what social media is, "and what impact that has on the Google Analytics, and I'm gonna show you how time zones matter because as people are waking up and they come across these... Like, here are all the things that go into it, and we can kind of watch this little thing that was nothing when we woke up this morning and now is something more than nothing," right? It's not necessarily a blowout success, but that helps connect the dots in his head, right? So now, when he has ideas, he's like, "Okay, well, I don't have the skills yet to do the thing that Dad just did, but I know it's possible. I know it's possible to take an idea that can be solved through software, and I can actually launch something." This is the beauty of the internet. You don't have to ship floppy... Like, you couldn't do this 20 years ago, but now you can. The entire world is connected by this beautiful thing called the internet. Anyway, uh, so I... And that thing, by the way, took off. Now it has six million players. It's, uh, called wordplay.com, um, but... And he, you know, he and I kind of share the product management in terms of what features to add, and he does, uh, he uses the app every morning and does the bug testing and reports stuff back to me, so it's awesome. It's been a great project. Anyway.

    10. HSHarry Stebbings28:44

        I, I absolutely love that, and it's such a cool project to do together. I, I, I do have to ask you, though, when we think

12. 28:49 – 31:18

    Product vs. Distribution

    1. HSHarry Stebbings28:49

       about kind of product itself, I actually don't spend much time on product at all today with founders when I'm investing, and I don't because it's so transient. What I do spend time on is distribution and how they think about it.

    2. DSDharmesh Shah29:01

       Yeah.

    3. HSHarry Stebbings29:01

       How do you think about the weighting of product versus distribution? And I think, like, the build it and they will come is crap. It's all in distribution. Like, your Wordle competitor, yeah, but you've got 300,000 followers on Twitter, and you could start-

    4. DSDharmesh Shah29:15

       Totally.

    5. HSHarry Stebbings29:15

       ... the flywheel like never before.

    6. DSDharmesh Shah29:17

       Yep.

    7. HSHarry Stebbings29:17

       Do you agree with me? And how do you think about that product versus distribution?

    8. DSDharmesh Shah29:21

       I do agree with you. Um, so, so I'll share this with you, and this is, uh, something we apply at HubSpot but something I've believed for a long time in terms of startups, and I've been, you know, in and around startups pretty much my entire career, is that, um, there are, like, three kinds of risk when you start a startup. Risk number one is the risk that you won't be able to build the product you envision, like, you just can't create it. Okay? That's risk number one. Risk number two is you're able to build it, but that there's a risk that, um, there's just no market for it, there's no customer. You built the product, but there's no one there to actually buy it at the levels that... And the third one is that you build the product, there is a market there, but the capital necessary to actually build a business around that product, um, y- you either can't get access to or you can't make it happen. That's the kind of financial risk, um, or capitalization risk. Uh, most founders in tech companies, um, they almost always jump directly into the product risk and try to mitigate that risk by just starting to build the product. It's like, okay, well, the other two, I'll... Either they don't think about it, or they think about it, but they think those are secondary. My advice, and strong, strong advice, is that we should stipulate that you will be able to build a product. Rarely have I ever met founders... Uh, there are some, obviously, doing really, really cutting edge stuff where it's, maybe it's possible that they'll ever really actually create the product.... that's like 0.01% of the cases. So let's stipulate, if I'm talking to, uh, let's say we're chatting and you're a founder, I'm like, "Let's stipulate that you'll be able to build the product that you envision. May take you six months longer, a year longer, but you'll be able to build it." We have a hard time stipulating that even if you had that product that there's a market, and that's the thing that's the most expensive risk, because the most expensive thing you have is time, right? Like, uh, we all... and it's a cliche, but it's true, is time. So what you wanna do is you want to, if there's not a market, you wanna figure that out in the first month, three months, six months, a year. You don't wanna figure it out after you've spent two years building a product or whatever it is and then figuring out, "Oh, I was successful at building a product, but there's no market for this thing. Um, there's no way I'm gonna be able to sell

13. 31:18 – 35:00

    How do you test for market?

    1. DSDharmesh Shah31:18

       it."

    2. HSHarry Stebbings31:18

       How do you test for market? 'Cause everyone does customer discovery and they say, "Would you like this?" And everyone goes, "Yes, I would." And they go, "Great, we've got a market." So how do you test for market and validation?

    3. DSDharmesh Shah31:29

       I, I'm a little bit old-fashioned this way. Um, the way to test a market is to, um, create something of value and get value in exchange, like money. Like cha- like build a product, charge for the r- I'll tell you what HubSpot did, and, and this is one of the thousand things that my br- uh, co-founder, Brian, and I like completely agreed on. Like, we talked about this all the way through. It's like, okay, and we've talked about exactly this risk. It's like, okay, l- th- we're, you know, we're not splitting atoms, we're not creating a new energy source or putting someone on Mars, let's assume right now that the product we have in mind that we'll be able to build. Um, and so how do we figure out if there's a market or not? It's like, oh, well, the way to figure out if there's a market or not is to ask people for money and see if they give it to you. Okay, fine. Now, what do we need in order to ask people for money? Well, we need a product. Fine, we have a product in alpha. Uh, one could argue whether we should or shouldn't be charging for it. We're gonna charge for it, and the other thing you need is a price. 'Cause in or- in order to ask for money, you have to know what you're going to ask for. All right. And so I'll tell you the conversation, um, that Brian I had in order to kinda determine the price for HubSpot, uh, in year one. Brian... By the way, context building. We had just been through two years of business school, right? So this is not like, oh, we're like, you know, engineers that never heard, like, "What's pricing?" Uh, we had ha- we had had a pricing class, right?

    4. HSHarry Stebbings32:42

       (laughs)

    5. DSDharmesh Shah32:42

       Um, and so here's the conversation. It's like, "We both agree we need to launch a product." "Yes, we need to launch a product." "We need to charge money." "Yes, we need to charge money." "What should we charge?" "I don't know. What do you think we should charge?" "I don't know. What do you think we should charge?" "How about $250 a month?" Done. That was the extent of the kind of debate, discussion, analysis, supply-demand curves. Um, it's like w- so we picked our price point and we launched it, um, and in hindsight it was probably a little naive, uh, but the one big value to it, it was simple. Like, and the thing we were trying to do was we were not necessarily trying to optimize for the cash, like, "Oh, what could we charge? Are we leaving table... money on the table? Are we leaving transactions on the table because we're too high, too low?" Whatever. Like, the most important thing to us was data. It's like, okay, let's pick a point, will people buy it or not? Even in its crappy form. And we will be transparent about it. It's like, this is an early product. They'll buy it. So the, the other important and right decision we made, number one was getting a price out there, charging early, even though the, the product sucked. Decision number two is that we were 100% on a month to month program. So, if you bought the product, in month two you figured out the product's... yes, it did suck, just like the founders told me, but the value wasn't high enough, you could cancel. And so every month any given customer could cancel, right? And that... and it was that way for years at HubSpot. And the reason it was that way for years, even though all the, um, the signals and the advice are, "Oh, but you should go for longer term contracts because it'll raise your retention rates." And all that's true, but the thing we were trying to do is we were trying to maximize the number of data points because we were trying to gather evidence of a market, and the way to gather evidence of the market is to get the product out there, will they buy, and then given the discretion to leave, will they stay, right? So if you charge... if you sign a one-year contract with a customer and they can't cancel in the first 12 months, you've far gone 11 points of data on that customer. You do not know whether they're happy or not. You do not know whether they're sustained because they have to and they're paying you anyway, or because they actually are getting value from the product. Um, so anyway, I'm a massive believer in the importance of distribution, the importance of figuring out whether there's a market, uh, and it's not about the pr- I mean, yes, you need to have a exceptional product, um, but more companies fail because they fail to, uh, find a market than because they fail to build a,

14. 35:00 – 38:12

    Mark Andreessen's "Raise Prices" quote

    1. DSDharmesh Shah35:00

       build a reasonable product.

    2. HSHarry Stebbings35:01

       Do you agree with Marc Andreessen's kind of statement of like what he has on the billboard, raise prices, um, and how do you think about that and some big lessons for you in terms of maybe where you fucked up pricing?

    3. DSDharmesh Shah35:12

       Yeah, um, I will say this. If you do raise prices, and we have, um, over the years, um, most of the numbers you track will get better, and that's why... So I, I don't, I don't universally agree with that sentiment of just raise prices and, and everything will work itself out, and here's why. Uh, and this goes to the kind of enterprise versus SMB debate a little bit as well, is that as you raise prices, and then I'm talking primarily on subscription-based models now, uh, which, you know, are slowly becoming the predominant model, um, it's relatively easy to raise prices. Um, so for instance, w- and when we went from 250 to 500, uh, we made a very simple decision very early that says, "Okay, anyone that had purchased the product at 250, we were not gonna raise the price on them. So all new customers will pay the new price, all existing customers continue to pay the old price." And we held to that, um, for, well, to this day. Anyway, uh, it's a long story. But the reverse is not true. So let's say you get to... you raise the prices from 250 to 500 to a thousand, and then let's say you somehow figure out that you overshot the market. Like, in the last price jump, either the market changed or you overestimated the value of your product, whatever it is. Let's say the actual number should have been 700, just... I'm making these numbers up. Now you have, let's say, a thousand customers paying you a thousand dollars, and now you're selling new customers at $700 because that's the right price. What do you do with those existing thousand customers? Well, the only reasonable answer is you ha- because it's a subscription model, is you have to give them the $700 price.... all of a sudden, you've taken your revenue down, your recurring revenue down, that everybody's looking at, everybody cares about, including your investors, um, by, you know, in this example, 30%. Um, that's a problem. And so, that's why it almost never happens. You never see companies, uh, subscription companies reduce their prices because there's an immediate hit on, on the thing that we care most about, which is that, um, that ARR stream. So, yes, try to find a good price, uh, but I've always found that, um, I'm, I'm gonna use it in an abstract sense, but I almost mean it in a mathematical sense, uh, that generosity actually has a long-term return. And when I say generosity, I don't mean out of the kindness of your heart. I mean generosity that says, uh, you are always going to leave money surplus on the table, as eco- economists might say, and say, "Oh, I'm charging less than the value that my customers ascribe to this thing." Uh, and there's a couple reasons to do that. One is it buys you optionality 'cause you can always raise prices later, so why not keep them the same today or, you know, and, and be generous. Uh, it builds goodwill, um, and then it's like, when you have the inevitable downturn, uh, which you will, you're already sort of in a, uh, a relatively good position. It's- it- j- i- it just tends to work out better. It's not to try and eke out every last kinda point of surplus, uh, and then try to price optimize to not leave, uh, money on the table. That, I think that's a-

    4. HSHarry Stebbings38:06

       I, I-

    5. DSDharmesh Shah38:07

       Long term, I don't think that's a great strategy.

    6. HSHarry Stebbings38:09

       I love that, in terms of the generosity. I think one thing that really frustrates

15. 38:12 – 46:00

    The move to enterprise

    1. HSHarry Stebbings38:12

       me right now, Dharmesh, is I see so many of my companies being like, "We need to move to enterprise. We need to move to enterprise." And I'm going, "We're at 800K ARR." I mean, w- we're so under-saturated on SMB. Why are we rushing to enterprise?"

    2. DSDharmesh Shah38:25

       Yeah.

    3. HSHarry Stebbings38:25

       What are your thoughts on startups that are rushing to enterprise? How do you advise them when their home is in SMB and they're going, "We need to move to enterprise"?

    4. DSDharmesh Shah38:34

       Yeah. Um, so I have, I have strong opinions on this that I'll, um, I'll share them. So, I told you when Ryan and I started the company, kind of the, one of the top two reasons we started at HubSpot was we wanted to work together. Um, the second reason was we had a, a passion around SMB. Now, I'll tell you why we had a passion around SMB. We both had grown up in enterprise software, right? That's, that was our background. My first, uh, you know, first software com- software startup, uh, was an enterprise software. And we knew it sort of sucked, right? It, it had always kind of sucked. It's, it's hard, I should say. Um, and, but it's even harder now. So, in the '90s, which is kind of the heyday of, of enterprise software, you know, life was good. You s- signed multimillion dollar contracts, but then you had this kind of over-purchasing and you had this kind of glut. Uh, but then there's all this kind of downside to enterprise software, which is, you get revenue concentration, and so you have a small number of customers paying you a lot of money, s- who thereby, uh, understandably have a strong degree of influence over the product roadmap and your vision, right? So, you can have whatever vision you want, but if your number one customer says, "I need you to build these three things over the course of the next year," it's hard to resist building those three things, especially if you're a startup, right? Um, that's kind of thing number one. Um, sales cycles are longer. So, if you believe in this kind of iterative, the s- So, I believe that the s- the smaller your feedback loop, the tighter that loop is, the more likely you are to s- succeed. I'm a big believer in the quality of the outcome is based on the number of iterations. It's, that's the one, like, predictor of it. So, if I, if I can go through something a thousand times and someone else went through it a hundred times, I'm gonna do something fundamentally better. I, I just believe that. As long as you have a, uh, like a data, um, you know, data c- piping back into the system. Um, on the enterprise side, because the sales cycles are so long, the amount of data coming in, which is w- w- And I'll say the amount of evidence, the amount of, um, insight coming in is just one-tenth of what you would see, uh, in a non-enterprise company, right? When the sale cycle's just one month and you're signing, you know, 10 companies a month versus signing one every six months, you're just gonna learn more. You're gonna learn faster. More iterations. Uh, so that's one reason we didn't like enterprise. Now, let's go to the other end. Let's look at consumer products. Because, you know, we're just in business school. We had not... You know, it's like, oh, like, let's, we're just, you know, two, uh, two friends chatting about startups. On the consumer side, the challenge there is most of the outcomes are bimodal. If you succeed in consumer, you might have the next Facebook, the next Google, the next whatever, because the consumer companies tend to... I'm not, it's not a black and white thing, but you can have massive, massive outcomes because the market is so big. Um, but you have also, if you don't succeed, you could go to zero. Because along the way, you know, it was an advertising subsidized model, you had all these things, whatever, and there's very little gray area in between. There's not a lot of consumer products like, "Oh, yeah, we kind of built this thing for four years and then we sold this consumer product company that didn't really kinda, um, hit escape velocity, and we sold it and made $5 million." That almost never happens, right? So, you get this kind of bimodal outcome, uh, which we don't like. The value of SMB, just, um, we'll put the, uh, philosophical things for a little bit later. The value of SMB from an economics, from a startup perspective is that you have the scale of consumer, there's literally millions of them out there, but then you have the business model of enterprise, which is you can actually charge people money. And you don't have the bimodal outcome that you have in consumer. So, you have almost the best of both worlds. Now, that's a narrow view of it because the thing that, uh, kind of keeps people out of SMB or drags them up out of SMB is because go to, the go to market distribution is hard. To make the, the physics work, to make the math work in SMB is non-trivial. This was definitely true 16 years ago when HubSpot started, and that was one of our number one challenges is convincing, uh, the investor community and, um, everyone that was out there that you could actually build a big business in SMB, because almost no one ever had, like, Intuit's the only real example back then of a successful software company that was $10 plus billion in market cap. Uh, you didn't really see a whole lot of that, right? As f- as far as, um, like, you know, business

    5. HSHarry Stebbings42:39

       I, um, my, my concern is- ... the business model works, yeah. ... as a generation of businesses, the SaaS businesses, which are using enterprise cost basises and applying them to SMB, where they're having sales reps close $3,000 contracts- Yes. ... and having customer success managers- Yeah. ... and I'm going, "Dharmesh-... this does not make sense as a financial engine."

    6. DSDharmesh Shah42:58

       Who cares?

    7. HSHarry Stebbings42:58

       And they don't get it, and they go, "But we'll scale into enterprise." How do you respond and advise them, who are kind of trying to plaster on enterprise costs to this SMB distribution, and then just thinking they'll scale into enterprise?

    8. DSDharmesh Shah43:12

       I, I think it's misguided. Um, let, let's close up on, on the SMB thing. We'll close up on one thought-

    9. HSHarry Stebbings43:17

       Yeah.

    10. DSDharmesh Shah43:17

        ... um, because I think it's important, is that there's this thing in, in, I'll say software, but even tech more broadly, which I call reverse gravity, that left to your own devices, your company will be pulled up into the enterprise.

    11. HSHarry Stebbings43:31

        Mm-hmm.

    12. DSDharmesh Shah43:32

        Always. And the only way not to be pulled up into the enterprise is, is you have to spend energy to resist that pull. And here's why, is that as you are... So let's say, wherever on the spectrum you are, and, and you know, definitions vary in terms of what's considered SMB versus enterprise, doesn't really matter, but let's say you're an SMB now, and then someone talks you into it, says, "Okay, we're gonna nudge up the price point, the market. We're gonna go, instead of going from 10 to 50 person companies, we're gonna go from 50 to 500," whatever it is. Um, as you move up, every single metric you track will improve. Everything. Not like, "Oh, this thing got better, that..." Like, just about everything you track will look better, retention's better, getting better ARPU, uh, average, you know, uh, revenue per customer. Um, all those things will look better. The one thing, over the long term, that almost is never better is the, uh, is the, the competitive dynamic. Because everyone got pulled up, so now you're sitting here in the enterprise thing, and you're duking it out with every other company that, over the course of the last, I don't know, years has also been pulled up. And now, it's like, "Oh, well, I'm having... I'm now up against the incumbent that's really, really better at this than I am." It's like, okay, well what is it that you have that's so special that's gonna allow you to kind of scale up in the enterprise? So now, back to your question, what would I tell those founders that are saying, "Oh, I'm gonna do this kind of inefficiently"? Um, it's okay to do things, uh, that don't scale. That, I'm okay with. Um, if you're doing it for learning, and you have a path, it's like, "Okay, well, this is the path all along." But you have to sort of have a plan that says, "Okay, well, here are the things that..." Because right now, you're kind of judging your market based on the, the playground you're playing in, and you're saying, "All, what we're really doing is training to play over here at high altitude or something like that, up in the mountains where, you know, you can, uh, barely take a breath." That's a problem, right? It's like, if you're gonna do that, then you have to collect evidence for the market you're going into, not for the market you're... And it's like, that doesn't work.

    13. HSHarry Stebbings45:25

        It's, it's-

    14. DSDharmesh Shah45:25

        Uh, because you're learning the wrong lessons.

    15. HSHarry Stebbings45:27

        Yeah, I agree.

    16. DSDharmesh Shah45:27

        You're not learning how physics work in the world that you're trying to enter. That's not...

    17. HSHarry Stebbings45:31

        Y- yeah, applicability-wise, like product messaging, product marketing, customer ser- it's, it's just so fundamentally different as SMB-

    18. DSDharmesh Shah45:36

        It is fundamentally-

    19. HSHarry Stebbings45:37

        ... so you, it's like they're false data.

    20. DSDharmesh Shah45:39

        Yes, it is. Um-

    21. HSHarry Stebbings45:40

        Tot- totally agree.

    22. DSDharmesh Shah45:41

        Not only does it, like it, does it not teach you the right lessons, it teaches you the wrong ones, right? It's like it's almost like a negative value to some, in some ways.

    23. HSHarry Stebbings45:48

        I totally agree. I, I often find it's kind of like a desperate search for more market or when they don't have product-market fit when they try and go into enterprise as well.

    24. DSDharmesh Shah45:56

        Yeah.

    25. HSHarry Stebbings45:56

        Similar to when they have a second product. A question that I have

16. 46:00 – 52:48

    When to launch your second product

    1. HSHarry Stebbings46:00

       to you is, when's the right time to launch a second product? Often, I feel it's just too early.

    2. DSDharmesh Shah46:05

       Yeah.

    3. HSHarry Stebbings46:05

       How do you advise founders on when to launch a second product?

    4. DSDharmesh Shah46:08

       A couple things. One is, um, you need to know why you're launching a second product. That's the number one question. I'll give you buckets of reasons that are all good reasons. Um, one could be, uh, "We were growing really, really nicely, but we were growing so well that now, um, we haven't hit like 100% saturation, but our growth rates are stalling because there's not that many customers left to sell to for which we would be an ideal fit, and so things are getting harder now, uh, in this market." That's bucket number one. Bucket number two, "We're growing nicely, still lots of headroom in terms of nowhere near saturation, still single digit market share, but the category we're in is itself declining. We were doing great, but the ceiling happens to be now dropping. It's not that we hit the ceiling because we were growing, it's because the ceiling is dropping 'cause there's not as big a market for that thing. That category is on the decline for whatever reason, so we need to kind of find something else." Uh, the third reason is, "There is an adjacent market that is a natural fit for the market we're in, and both for growth reasons and defensive reasons, we need to be in that other category." And this is the example of HubSpot. So HubSpot started in the marketing software business.

    5. HSHarry Stebbings47:18

       Mm-hmm.

    6. DSDharmesh Shah47:18

       Um, and about, I'll say maybe seven years in, uh, we decided that, okay, well, we have marketing software and we loved it. We loved the category, it was growing, um, and that product now is over a billion dollars in ARR, so had, um, a fair amount of success with it. But we sort of saw the writing on the wall that says, okay, if you're using marketing software, the leads you're generating using HubSpot are gonna go somewhere, and that somewhere is a CRM. Uh, so you're gonna use Salesforce or you're gonna use Dynamics, you're gonna use one of the CRM products, which we knew because we were integrated with those products, as, as you would expect. But we came to the kind of realization that, oh, well, kind of marketing and sales CRM kind of go together. They're natural, natural adjacency, number one. But number two, if we did not go into that second category, whoever was in that second category would ultimately also take over marketing, because the CRM data was the system of record, and it was a much stickier, much harder to unlodge- dislodge. And it's like, okay, well as, and we expected, and this is exactly what happened, that someday the CRM companies are going to say, "Oh, well, marketing is sort of part of what we do," and that's not gonna be a happy day for HubSpot. So anyway, either your revenue, your growth is stalling, the category's dropping, or there's a natural adjacency, either for offensive or defensive reasons, or both. Um, that's generally...

    7. HSHarry Stebbings48:32

       How do you determine between an ancillary and a distraction? There's a fine line between the two.

    8. DSDharmesh Shah48:38

       Um, okay, so a couple things. One is... So I'm a big believer, a really big believer, uh, in, in focus. And so I... So my advice, and this is gonna sound kind of paradoxical, is founders should put off the second product for as long as they can, but not forever. And the reason I say as long as they can, is because when you add the second product, everyone will measure...... all the goodness that will come from it, and may- let's assume right now that all the data you're projecting is gonna be right. The revenues are gonna grow this way, and you're gonna be able to sell X units, and this is gonna be awesome for the second product. Let's just stipulate that you are correct about your projections. What people don't realize is the flip side of the equation is the increase in complexity when you go from product N equals one to product N equals two.

    9. HSHarry Stebbings49:26

       Huh.

    10. DSDharmesh Shah49:26

        And that is a huge gap, because everything in the business, when you launch your second product, becomes harder. Every decision becomes harder. Every chart that you look at now, you're again- then gonna wanna break down. It's like, "Oh, yeah. Here's our growth overall. How does that break down by product one, product two? Oh, we're gonna invest in R&D and we just hired 10 engineers. How do we decide whether they work on product one or product two? Oh, we have this ability to do a massive, like, campaign. Uh, w- we've got a marketing budget. It's December, we're trying to use up some funds. How do we decide whether we're gonna promote product number one or product number two?" All, everything you look at... And it's not an incremental increase in complexity. It's in, like, a new dimension of complexity, right? It's like you're adding another axis to your business, but you had the X-axis, life was good, product one, and now you have a Y-axis, and now you're living in, like, a two-dimensional world instead of a one-dimensional world.

    11. HSHarry Stebbings50:12

        How do you think about resourcing for second product? Is it like, "Hey, very lean test, very cheap, see what we can do, MVP?" Or is it that never works, you're either all in or all out? How do you recommend on the resourcing for new products?

    12. DSDharmesh Shah50:25

        It, it's, it's a great question. I've tried it both ways. Um, personally, and this might be, uh, it is sy- symptomatic of, um, of, of HubSpot, but in our world, we tend to do better with, uh, going all in and, and not, like, doing experiments. It's okay, we... and we might be wrong... we made this decision, here's the thing we're gonna do, and this is not an experiment. This is not a drill. We are going to do this. So when we did d- decide to go into CRM, it was not, "Oh, let's try to build a CRM product and we'll do it as cheaply as..." I'm, I'm not saying you shouldn't be scrappy. You should. But in terms of, like, commitment to it, um, I, I sort of believe, and it m- might vary in other companies, other companies might be better at this than, than we are, but, um, I believe in self-fulfilling prophecies when it comes to product investment that says if you decide that you are going to conquer this category and build this new product that's going to be game-changing for you and you're gonna do it, then you're going to put the best people on it, you're gonna put the resource, and you're going to leave no stone unturned. You're gonna leave no obstacle in the path because you are all in on this bet. Um, and the degree you do that... I mean, this is relatively intuitive, is like, okay, well, if you do that, the odds of that thing succeeding go up. So the... B- but here's the thing you have to be careful of, um, is that that bet has to be worth winning, right? So if you're making an all-in bet and the return, even if, like, you, like, succeed at the thing you're trying to do, it's barely gonna move the needle. It's gonna be an incremental, "Oh, we're gonna go from, you know, 40 points of growth to six." Like, that's not worth it. It has to be, like, game-changing like it was for us with CRM. That was a kind of, you know, we didn't pivot the company, but a pivotal moment in HubSpot history, um, you know, getting into marketing and sales software that, you know, the company wouldn't be where it is today if, uh, if we had not made that choice, so I'm...

    13. HSHarry Stebbings52:14

        (laughs)

    14. DSDharmesh Shah52:14

        I'm not saying I'm right on this one. I, I, I can... I've tried it the other way. The, the challenge with the other way is then you have to operate in a little bit like a VC model, um, where you have a thousand flowers bloom, or let's say 20 flowers bloom, and you're gonna have a bunch of experiments, and then you're gonna have quarterly meetings to see how everyone's doing, and you're gonna measure, measure on whatever metrics you collectively decide, um, and then you're gonna kill off the ones that aren't working, and you're gonna double down on the ones that are working, and then you're gonna get to series A and series B and series C, and then ultimately... And it sounds good in theory. It's just really hard to execute, um...

    15. HSHarry Stebbings52:47

        Uh, when I spoke to-

    16. DSDharmesh Shah52:47

        ... and, and maybe others

17. 52:48 – 56:34

    Effective disruption from within

    1. DSDharmesh Shah52:48

       are better at it, but...

    2. HSHarry Stebbings52:48

       When I spoke to Dani, uh, Herskog before the show, she said that you were the disruptor from within constantly, whether it's on startups, whether it's inbound. How do you think about effective disruption from within to prevent apathy and, bluntly, you know, HubSpot's a very big public company, um, lethargy, actually? How do you disrupt from within so effectively?

    3. DSDharmesh Shah53:12

       Um, yeah, I might qualify the effectively part. I think we do it, uh-

    4. HSHarry Stebbings53:16

       (laughs)

    5. DSDharmesh Shah53:16

       ... reasonably well, but, um... So here's the thing... So I've reduced the things that I work on at HubSpot, uh, this has been the case for now a decade, down to three things. Um, and I change them periodically, but I get it down to exactly three things, and I'll tell you what my three things are right, uh, right now. It's, uh, it's platform, the thing we're building, brand, which is the story of HubSpot, and the third thing, which is I think the longest running thing, ever since I've been tracking these three things this has been on my list of three things, is boldness. And what I mean by that is that a nonzero percent of my waking hours and even my non-waking hours are around how do I push the org to take more calculated risk? It's as simple as that. It's like, okay, what is it that's keeping us from it? Are we not scared enough? Do we not see this particular trend coming? Are we like, "Oh, well, you know, we, we've got our product roadmap laid out," which most companies do at scale. It's like, okay, like, we have in our heads 15 other years worth of like, here's the things we could do. Like, customers are asking for it. They are, like, no-brainer investments. Like, we can add these features to these products and we will make money. Like, hands down, we will make money. Uh, and so how do you fight that? And, and the way you do it, um, so we did this with CRM. That one, um, was an existential crisis, right? And so there's nothing that motivates more than an existential crisis. Like, okay, this, if we don't do this, like, we may not have a company, right? Like, this is a... it's just a matter of time. W- uh, we don't want someone else to control our destiny. Um, you may not have a convenient existential crisis when it- that's when it gets harder, but the way to kind of push it is you have to win the battle at a macro level first, um, and this is the Clay Christensen innovator's dilemma thing, right? It's like good people, good managers will always run the existing business really, really well. That's why they got to where they are. That's why the business is where it is. So you has- have to, as an organization, decide...... however you structurally do it, that says we're going to spend some percentage of our resources on outlier bets that have a disproportionate return, right? And this is a, uh, I'm not a finance guy, but this is like pure Portfolio Theory 101, right?

    6. HSHarry Stebbings55:26

       Yeah.

    7. DSDharmesh Shah55:26

       Especially VC Theory 101 that says, okay, well, it's okay for us to have... And VC is even more extreme, right? Because you have to have the bimodal outcomes, but it's like, okay, well, it's great and it's fine that 80%, 90%, 95% of our resources are on things that are predictable outcomes and great outcomes. Don't get me wrong. The return on the investment is great. But some portion of our portfolio has to be allocated towards things that can have a 10X, 100X, uh, or higher kind of return, um, because otherwise we're nev- we're going to be caught by the, the regression to the mean over time, right? It's like we keep doing it. Growth will look good until it stops looking good. Uh, everything will be good until the market stops looking good, and then we're going to have wished that we dug the well when the house wasn't on fire, right? That's the... And that's... And it's, it's, it's something that's a constant drumbeat, right? This is the thing you have to... And, uh, and you have to kind of give people the confidence. This is like, I know this is uncomfortable. I know this... And I'm not going to tell you which bets to make. All I'm telling you is that you as an individual, your team as a team, and the company as a company needs to be investing a non-zero percentage. You get to decide what that is, but the answer can't be zero, that we're going to do 100% on things we know.

18. 56:34 – 58:06

    Encourage risk without creating a culture that accepts failure

    1. DSDharmesh Shah56:34

    2. HSHarry Stebbings56:34

       How do you let people know they can fail without creating a culture that very freely accepts failure? You want them to take risks, but ?

    3. DSDharmesh Shah56:41

       Totally. And it's like, yeah, um, the easiest way is to, um, I- it... is to celebrate failure. So e- even at like, we- we'll have all-hands meetings where we'll talk about it. We have a failure forum, especially within kind of product and engineering area. Here are things that we tried that did not work. Okay. And that- and that's fine. And so we, so we learn the lesson, we move on, um, with... And so that basically sends a signal, and this is particularly useful, uh, for high-growth companies, right? The thing we don't realize, like if you're growing headcount 50 to 100%, or at least you were up in, in 2021, um, that means every all-hands meeting you have, a decent percentage of the company, this is the first all-hands meetings they've ever been to. So, you know, founders often, um, will walk around and it's like, "Oh, well, I've already said this thing like 100 times around culture, around risk, around boldness, around whatever." It's like, yes, but 40% of the room, people in this room have never heard us say those words in that order before, right? Like, they've never heard it, uh, and maybe they read some of it in the culture code deck, maybe they... but they've never really, like, heard it.

    4. HSHarry Stebbings57:47

       Mm-hmm.

    5. DSDharmesh Shah57:47

       And so, that's, that's the key, is that you cannot rely on osmosis, uh, for anything good that's gonna happen. You have to sort of beat the drum, and the only way to know whether you've kind of said the same thing enough times is when people get tired of hearing it, and then you need... then you know you need to say it a few more times (laughs) , um, when everyone's tired of hearing

19. 58:06 – 1:00:39

    Biggest breakpoints in HubSpot's scaling

    1. DSDharmesh Shah58:06

       it, but yeah.

    2. HSHarry Stebbings58:06

       What were the biggest breakpoints in HubSpot's scaling?

    3. DSDharmesh Shah58:10

       Um... So I don't think about it in terms of headcount. I think about it in terms of like milestones in the company.

    4. HSHarry Stebbings58:18

       Yeah.

    5. DSDharmesh Shah58:18

       Uh, one was around, uh... So we had a relatively smooth growth curve, um, relatively predictable. It's a textbook, uh, textbook case. But, uh, when we went, um... I'll, I'll give you a few examples. Product two, big, big, big, uh, lots of pain, uh, going to product two. First of all, just making the decision to do product two, right? That was big. Uh, going international, it's like, okay, well, we're gonna not just sell to the United States, and we're not gonna just take, uh, customers of convenience because we have this thing called the internet. Fine, we were selling internationally, but we weren't really selling internationally, right? The product wasn't localized. We had no sales team anywhere other than, um, we had no support in other languages, all those things. So that was another kind of, um, pivotal point.

    6. HSHarry Stebbings58:58

       Why was product two... why was, why was product two...

    7. DSDharmesh Shah58:59

       Uh, when we went public, that's another pivotal point.

    8. HSHarry Stebbings59:01

       Why was, why was product two so painful?

    9. DSDharmesh Shah59:06

       Because we had already built the strength and been so good at inbound marketing and marketing software for years and years and years, growing fast, raised funding, and we were about to go into an IPO, um, and the year before the IPO is when we made this brilliant decision. It's like, "Oh, we're getting into CRM," right? Um, but it was painful because it was supposed to be painful, right? It's like, it's, um... We did the equivalent of, like, Volvo trying to start getting into, like, racing cars or something, like, you know, sports vehicles or... Like, you know, that's not what they're known for, right? Like, HubSpot was known for marketing. We create a category called inbound marketing, and we're associated with that, and it's scary. Not t- that we couldn't do it. It was still software, but like did we have the market's permission, um, to actually go do that thing, right? It's like, how would our customers react to this? Um, and then, you know, what new, like, muscle group do we need to... Like, with inbound marketing, we had a very strong point of view on what was broken with marketing, 'cause it wasn't about the product. It wasn't about the software. It was about this entire movement, uh, that was happening, and we got up on stages and, and talked about it, wrote a book, have an event with, you know, 30,000 people. Like, it was a movement, and now we're getting into an area we don't know hardly anything about, uh, there is no strong, at the t- you know, strong point of view. It's like, "Oh, here's why CRM is broken, and this is why ours is better." Like, that would have been inauthentic to, to say that at the time, um, so that's why. It's like everything we knew, uh, we were not abandoning, but we were like... we're going to uncharted territory with, uh, unproven returns.

20. 1:00:39 – 1:02:50

    The state of Product Marketing today

    1. DSDharmesh Shah1:00:39

    2. HSHarry Stebbings1:00:39

       Do you not think the state of product marketing today is pretty abysmal? I look at everything, and I'm like, "It's neutral." Nothing makes me feel anymore. Nothing excites me. It's all the same case studies, logos, very bland, and nothing excites me. How do you think about the state of product marketing today, and what makes truly exceptional product marketing to you?

    3. DSDharmesh Shah1:00:58

       To me, product marketing is all about, um...... it's all about community, um, and not in an abstract sense, right? So, one of the things that I think, uh, HubSpot got right is that we were kind of builders of community well before we even had a product, right? Like, we were out there kind of congealing these things. Like, okay, well, we're gonna say that marketing is broken and people are doing spammy stuff, and there's this new way called inbound marketing. We'd have nodding of heads, right? And it's like, we're, then we, you know, we start the blog, um, and we start the event, and we're trying to get that flywheel of, like, we wanna find like-minded people and pull them together, and they're out there. Um, and part of the thing we did, which I think companies should do, and I don't mean in a sensationalistic way, but you have to kind of polarize your market.

    4. HSHarry Stebbings1:01:40

       Yeah.

    5. DSDharmesh Shah1:01:41

       100% of the people cannot agree with what you're saying, because then you're basically in the middle and you've regressed the mean. Sorry. Uh, do not pass go, do not collect $200, right? You're, you're done. Um, so what we did is we said, "By the way, everything you've done in marketing doesn't work anymore, does it?" Like, you go to these events and you try to take a trade show booth, and the only three people that came back- came by the booth are your competitors, right? Yeah. And it's like, oh, you sent your last kind of, you know, physical, uh, direct mail campaign or whatever, and you have no idea whether that's doing anything for you or whatever, and then people are giving you a hard time internally because you're wrecking the environment, right? It's like, yeah, right. By the way, like, if you're trying to sell it to a VP of marketing, you're creating an existential crisis in their head when you tell them that everything they know how to do well is no longer relevant. And that's exactly what we did, right? We were like, "That's great, you've built this career, like, and you're great at these things. I'm not saying you're, it should go to zero, but I'm telling you, you're not gonna be able to do that anymore, because all the things that you track, I'll bet you money, it's, they're already going down, and that's not gonna turn unless you take a change in direction, and here's the right way." And that's, uh... So, every, so product marketing should be about a, a community and a story they believe in. And that story has to be a story that not everyone believes

21. 1:02:50 – 1:04:54

    What do people misunderstand about "Community"?

    1. DSDharmesh Shah1:02:50

       in.

    2. HSHarry Stebbings1:02:50

       Do you hate the way that community is so thrown around today? You've built communities for years. Now, community is the buzzword. Do you hate it, and what do you think people misunderstand by the buzzword of community?

    3. DSDharmesh Shah1:03:03

       I, I... It's the same, it's, we're, we're an industry of buzzwords, right? Um, it's, what people don't realize about community, um, is the same thing they, uh, and, and this is not everyone, right? It's, it's the, uh, 95% of the people that give the real 5% a bad name, right? It's, um, it, the issue is that community is really around unlocking value for the community members. Fundamentally, that's what it is, right? It's like, and that is if you, like, when you look at the kind of roots of the word itself, that's what it is. It's gotta come together as a community. And we think of it as like, oh, basically, a community is just a list of people I can market to that have opted in or whatever and will, uh, show up at my event or show up for my webinar. That's not community. A real community is one when the community participants are getting value from each other. And you're there as the host, not, you're not up on stage, right? That's the thing. It's like, oh, like, I'm, we've got this community in the room here of 5,000 people. That's not a community. A community is when those 5,000 people go out into the hallways and talk to each other. That's the community. Not in the room when you're doing your keynote speech, right? That's the, um... Anyway, so yes, we do get it wrong, and if you think about it correctly, this is okay, who are the, who are the people I'm trying to reach and trying to sell to to whom this kind of story resonates? Um, and then how can I best, and maybe it's an online community, maybe it's throwing up a Discord channel. Whatever it is, how do I help those people connect? That's what community is. And then, you have to have belief that if you pull those people together, value gets created both for them, and then incidentally, for you, because you are the one that hosted, you were the one that told the story, and you're the one that pulled them together.

    4. HSHarry Stebbings1:04:39

       I know we've gone on. I, I do have two more questions for a quick fire. One was, I got an m- email from a old, old employee of yours, um, and they said that you had amazing answers to this for four years running when they were at HubSpot for four years. But they wanna know your answer now.

22. 1:04:54 – 1:08:45

    2022 Prediction

    1. HSHarry Stebbings1:04:54

       They asked, what is a high conviction belief you have about technological, political, or soc- or societal changes that most people aren't noticing? So, in 2017, they said crypto. 2018, you said CEOs being more political. 2019, remote work. 2020, every company will be a media company. What would the answer be in 2022?

    2. DSDharmesh Shah1:05:16

       My answer would be that... the way buyers and sellers connect is fundamentally broken because you don't own your data. Uh, the consumers don't own the data right now. So, here's what's happening. The, and we, we kind of experience this in the consumer world already, um, which is, oh, like, when I tweet, uh, Twitter gets 100% of whatever economic value that I create, right? Like, directly. They're, they're gonna advertise against it. They may sell subscriptions against it, whatever it happens to be. Um, I make nothing. When you fill out your LinkedIn profile, um, you're gonna tell them your work history, and the value you're hoping, uh, like, when people originally sign up is that, oh, it helps me be more discoverable in order to get a job.

    3. HSHarry Stebbings1:05:53

       Mm-hmm.

    4. DSDharmesh Shah1:05:53

       But then after that, it's like, if you're not looking for a job, like, what was that creating for you? And the answer is, um, you know, they will essentially license/sell/make that data accessible, and you get ex- exactly 0% of that value. Uh, and I'm not saying either of those companies are bad companies. I'm saying the model is broken, and that in the future, um, that there will be a more direct, because-

    5. HSHarry Stebbings1:06:14

       Well, do you get 0% of that value? 'Cause you get distribution, I get distribution, and then we monetize that distribution. You with a viral competitor, you could sell it, you could sell premium. I monetize my distribution with sponsorships and with-

    6. DSDharmesh Shah1:06:27

       Sure.

    7. HSHarry Stebbings1:06:28

       ... other talent. So, we do get value.

    8. DSDharmesh Shah1:06:31

       We do on the company side. Um, yes, on the personal side, you're building brand, but it's an indirect value. So, o- so let's say we were even to monetize. Like, okay, this is the value that I actually got. Um, the question is, if you even lump that in, what percentage of the overall value that was created went to the creator of that value versus the intermediary? Right? It's like, okay, well, companies are buying. It's like, oh, if I wanna recruit, you know, I go to LinkedIn, I do a recruitment, you know, database search or whatever, and I, I make hundreds of millions of dollars, billions of dollars in revenue. How much of that actually flows back, um, you know, to the actual consumers and owners of that, um, owners of that data? That's the thing I wonder.

    9. HSHarry Stebbings1:07:07

       Totally. How does that change?

    10. DSDharmesh Shah1:07:10

        I don't know. Um, so it's... I don't know. I think the way it's changed in the past is that, um, as you think through creating... So here's my, and this has been true of me since I was a, a little child in the, you know, dusty streets of India-

    11. HSHarry Stebbings1:07:28

        (laughs)

    12. DSDharmesh Shah1:07:28

        ... is that I'm a big believer that over the fullness of time, markets become more efficient. All markets. And the definition of an inefficient market is when a buyer and seller should be coming together, but don't. As a result of non-discoverability, as a result of non-trust, any number of reasons, a transaction that should have happened, doesn't, is the kind of signal of a inefficient market. An efficient market is one that all transactions that should have occurred, occur, is a layperson's definition. Um, but, so but, so if you believe that, then what intermediaries are doing, um, are basically saying, "Oh, I'm going to allow these transactions that weren't happening before on eBay, on Link-" Whatever it is, right? That's what they're doing. They're making an inefficient market more efficient and taking some percent of the value as their tax, as their, um, as their commission for making that transaction possible, which is completely reasonable, right? That's fine. My thesis is that the market over the fullness of time will find increasingly efficient ways to make the market more efficient. Uh, and we're not quite there yet. And we may be at a pivotal point in history where technology's starting to come together and, um, to be- be, make a nonlinear jump in the way we make markets more efficient versus what we may have had with, uh, Web 1.0 and, and Web 2.0. That's the...

Episode duration: 1:19:32