Lenny's PodcastZigging vs. zagging: How HubSpot built a $30B company | Dharmesh Shah (co-founder/CTO)
EVERY SPOKEN WORD
150 min read · 30,389 words- 0:00 – 4:20
Dharmesh’s background
- DSDharmesh Shah
(instrumental music plays) Some of the best startup advice I've heard is, startups should focus on one thing and be really, really exceptionally world class at that one thing. And one of our early zigs is we are going to do exactly the opposite of that.
- LRLenny Rachitsky
You have no direct reports and I don't believe you've ever had direct reports at HubSpot.
- DSDharmesh Shah
I could become passably okay at management with some training, with some coaching. I don't want to spend N years of my life becoming passably okay at something.
- LRLenny Rachitsky
What was that process like to define the culture?
- DSDharmesh Shah
My co-founder and I were having one of our founder's meetings and he said, "Oh, Dharmesh, I hear this culture thing is really important. By the way, can you go do that?" I'm like, "Okay, Ryan, of all the people in all of
- NANarrator
(laughs)
- DSDharmesh Shah
... company, it's like, I am like, the worst possible person. It's not that I don't like people, I just don't like being around them a whole lot.
- LRLenny Rachitsky
Something that's really unique and interesting about you is you're obsessed with comedy and keynote prep.
- DSDharmesh Shah
It comes down to this metric that stand-up comedians use called LPM, laughs per minute. I have custom software that I've written that will say, "Okay, here are the points at which the audience laughed."
- LRLenny Rachitsky
(instrumental music plays) Today my guest is Dharmesh Shah. Dharmesh is the co-founder and CTO of HubSpot and also one of the most fascinating and first principled thinkers I've ever met. In our conversation, we cover a lot of ground. Dharmesh's hilarious and ingenious approach to putting together a talk, including measuring laughs per minute, his biggest lessons from being a public company exec for over 10 years now, especially while being a startup guy at heart, how he approached creating and scaling the culture of HubSpot, which you'll find both hilarious and inspiring, why founders and product teams are all fighting the second law of thermodynamics, how to zig while everyone else is zagging, how and why Dharmesh leans into his strengths, including never having a single direct report during his 18 years of running HubSpot, and so much more. This episode is so fun and will expand your mind in many ways. With that, I bring you Dharmesh Shah after a short word from our sponsors. And if you enjoy this podcast, don't forget to subscribe and follow it in your favorite podcasting app or YouTube. It's the best way to avoid missing future episodes and it helps the podcast tremendously. This episode is brought to you by Explo, a game changer for customer facing analytics and data reporting. Are your users craving more dashboards, reports and analytics within your product? Are you tired of trying to build it yourself? As a product leader, you probably have these requests in your roadmap, but the struggle to prioritize them is real. Building analytics from scratch can be time-consuming, expensive and a really challenging process. Enter Explo. Explo is a fully white-labeled embedded analytic solution designed entirely with your user in mind. Getting started is easy. Explo connects to any relational database or warehouse and with its low-code functionality, you can build and style dashboards in minutes. Once you're ready, simply embed the dashboard or report into your application with a tiny code snippet. The best part? Your end users can use Explo's AI features for their own report and dashboard generation, eliminating customer data requests for your support team. Build and embed a fully white-labeled analytics experience in days. Try it for free at explo.co/lenny. That's E-X-P-L-O.co/lenny. This episode is brought to you by Vanta. When it comes to ensuring your company has top-notch security practices, things get complicated fast. Now you can assess risk, secure the trust of your customers and automate compliance for SOC 2, ISO 27001, HIPAA and more with a single platform, Vanta. Vanta's market-leading trust management platform helps you continuously monitor compliance alongside reporting and tracking risks. Plus, you can save hours by completing security questionnaires with Vanta AI. Join thousands of global companies that use Vanta to automate evidence collection, unify risk management and streamline security reviews. Get $1,000 off Vanta when you go to vanta.com/lenny. That's V-A-N-T-A.com/lenny. (instrumental music plays) Dharmesh, thank you so much for being here and welcome to the podcast.
- DSDharmesh Shah
Thanks for having me, Lenny. It's an honor.
- LRLenny Rachitsky
It's my honor and thank you for joining me. You are a wildly
- 4:20 – 6:31
Fun facts about Dharmesh
- LRLenny Rachitsky
fascinating human and so I thought it'd be fun to start with just a bunch of fun facts that I found about you online. And what I'm thinking is I'll just walk through them, tell me if they're true as I walk through them and then this is going to lead to a bunch of different topics that I want to talk about. How does that sound?
- DSDharmesh Shah
Sounds great.
- LRLenny Rachitsky
Okay, here we go. So one, you have no direct reports and I don't believe you've ever- ever had direct reports at HubSpot.
- DSDharmesh Shah
That is correct. 7,000 plus employees, exactly zero dire- direct reports from time T equals zero.
- LRLenny Rachitsky
Okay, we're going to talk about that. Uh, you also don't do one-on-one meetings as a result. You don't have reports to have one-on-one meetings with.
- DSDharmesh Shah
That's correct.
- LRLenny Rachitsky
You built many side projects while at HubSpot, including a product called Wordplay which at one point made $90,000 per month and had 16 million users.
- DSDharmesh Shah
That is correct.
- LRLenny Rachitsky
You also bought chat.com for $10 million and then you sold it two months later for- for more money than you bought it for.
- DSDharmesh Shah
It was actually 15 plus million dollars but... I- I kind of stayed at eight figures but yes.
- LRLenny Rachitsky
Ooh, look at this. Is this- is this breaking news?
- DSDharmesh Shah
It's breaking news, yeah.
- LRLenny Rachitsky
Wow, so that's how much you bought it for?
- DSDharmesh Shah
Yes.
- LRLenny Rachitsky
Okay, and you sold it still for an undisclosed amount, is that right?
- DSDharmesh Shah
Undisclosed amount and yeah, and more than that obviously.
- LRLenny Rachitsky
Yeah, there was a profit and I know you gave some money to charity and there's some promises you made where people commented on your LinkedIn post and you gave more money away, so that was awesome. Okay, also you're a billionaire?
- DSDharmesh Shah
That is once again true.
- LRLenny Rachitsky
(laughs) Still true, great. Uh, also you were born in a village in India that had no paved streets, no traffic lights, no hospitals.
- DSDharmesh Shah
That is correct.
- LRLenny Rachitsky
Okay. Before HubSpot you founded two companies but I think the- the more important fact there is you promised your wife you would not start another company before you started HubSpot and then you ended up and went on and started HubSpot.
- DSDharmesh Shah
Yes. I had promised her that I would not do startup, had to kind of hang up the proverbial entrepreneurial hat. Um, best laid plans and all that, I met my co-founder in grad school, which is, uh, that was, uh, the plan-
- LRLenny Rachitsky
Hmm.
- DSDharmesh Shah
... was, oh, I'll go back to grad school and go find myself, and then the plan was to go, um, eventually teach, uh, not do another startup, but then I met my co-founder there and one thing led to another, as these things go.
- LRLenny Rachitsky
I hope she's forgiven you.
- DSDharmesh Shah
I do too.
- LRLenny Rachitsky
(laughs)
- 6:31 – 11:45
His data-oriented approach to public speaking
- LRLenny Rachitsky
Okay, final fact, uh, so, uh, K- Kip, is that how you pronounce his name? Kip, your CMO?
- DSDharmesh Shah
Mm-hmm.
- LRLenny Rachitsky
Okay, great. So he, I asked him what to ask you and he tells me something that's really unique and interesting about you is you're obsessed with copywriting and comedy and keynote prep, that you have a very unique approach to preparing for a talk and how you think about humor and slide design and story arc.
- DSDharmesh Shah
That's very true. The, um, public speaking is, uh, not something that comes naturally to me, so we're gonna start there and we can talk a little bit about the copywriting and other things that are sort of related. Um, and when one of the, and, and I try to not do things that I'm not good at and don't enjoy. Um, one of the rare exceptions that has snuck through is the need for me to get on stages as founder when we have our annual HubSpot event, our conference. Um, which at the time, uh, when we did our first one, it was, like, 150 people at the Marriott, right? Like, and, and then it, like, steadily grown since then. And so now it'll be, like, 10,000 people in the live audience and hundreds of thousands, um, online, right? So, but as I kind of came to this realization that I was not gonna be able to kind of talk my way out of it, um, and I kind of saw how where this was headed, I'm like, okay, this is something I'm gonna have to actually, like, learn because I can't delegate it, can't talk my way out of it. And so I'm a big believer in, in this, uh, like, talent versus skill, right? So we all understand talent. It's like if someone has a talent for music, someone has a talent for athletics, whatever it happens to be, and that's true, that exists, but the way I think about it is talent basically controls the slope of the curve, but most things are actually acquirable skills. So for instance, if you have a talent for music, let's say, uh, you might learn music faster, uh, than someone else and your ceiling may be higher, but it does not mean that other people can't learn music, right? It's like a- an acquirable skill. That's kind of, uh, lesson number one. And lesson number two is that, um, there is a process, and this is, uh, this is the engineer in me, uh, of just kind of functional decomposition of a problem to say, okay, in order for me to be a pretty good public speaker, like what are the underlying sub-skills required in order to accomplish that? Okay, skill number one, you have to be able to s- stand up on stage and not pass out. Um, like yeah, that's kind of the bare minimum, right? Uh, and so what I did over the years is to say, okay, I'm gonna functionally decompose this skill of public speaking in front of, you know, in what I call, like, high-stakes speaking. I've gotta, like, actually hold the audience's attention. That's part of success. It doesn't matter what the message is, it doesn't... Like, nothing else will matter if I lose their attention, which is increasingly easy to do now, uh, in this kind of short attention span society. And every year I will pick a different part of the public speaking skill set and say, oh, I wanna learn about slide design and, and visual expression, not the actual design. I'm not a designer. Uh, but then the one thing that I came up that has had the most impact is humor. And then you break that skill down just like an engineer would do. It's like, okay, well, there's humor writing, there's humor execution, like on stage, whatever, there's standup comedy, there's like... Okay, so, like, how do you put all these pieces together? And along that journey, I came up with this, and I've always had this, I have a very, uh, kind of data-driven, uh, quant-based person. Um, I was like, okay, well, how will I know whether something is like actually funny enough or not or whether I'm losing the, uh, the attention or not? Um, and so in preparation for one of these kind of high-stakes, uh, keynotes that I do every year, um, I will have, you know, I will have my talk, I will do practice runs, I will have increasingly larger actual live audiences that I will practice it in front of, I will record those talks. Everything so far, nothing unusual yet. Uh, I will have the talks transcribed. I have custom software that I've written that will say, okay, here are the points at which the audience laughed. Like, actually audibly laughed. That's the only re- only way it counts. And this actually, uh, and it comes down to this metric that standup comedians use called LPM, laughs per minute. And there's actually a benchmark that you can say, oh, well, stand, you know... And standup comedians have a very, very high LPM, business talks have a very, very low LPM, like the most popular TED Talks, there's a high strong correlation between the most popular TED Talks and high LPMs. So I have a goal, I'm like, I'm gonna have a minimum that I want to improve and so I have software that will calculate the laughs per minute. And so then you learn these little kind of tools, so the tricks of the trade. So it's like, okay, if you're solving literally for that ratio of laughs per minute, um, there are two ways to improve it. One is to add more laughs, two is to decrease the number of words between laughs, right? So it's like, so when I, one of the things the software measures, it gives me a visual map. It's like, here's the entire talk broken down with a little square per, uh, minute of talk or 30 seconds, and it's like, here's where they laughed. And it's like, oh, here I went one minute and 17 seconds and nobody laughed. So I have to do one of two things, shorten that segment if there's nothing funny that can be said, uh, without being over- over- overt about it, or I have to say, okay, I'm gonna find something funny to try to inject into this and kind of break it up. Anyway, and that's a long way of saying, uh, if, if I can get up on a public stage, uh, and learn that particular skill, anyone can learn just about anything. It just comes down to, uh, practice and measurement, um, and, and just getting incrementally better over time and that's, uh, so...
- 11:45 – 15:28
Advice for adding humor to your presentations
- DSDharmesh Shah
- LRLenny Rachitsky
Wow. I feel like I've just learned so much about you and how you think just from that question and how you approach this problem. On this humor piece, I'm curious, any lessons to share on how to be funny?
- DSDharmesh Shah
So one of the kind of tricks of the trade in humor, and you learn this, um, particularly in standup comedy, but just any comedy, and I just hadn't thought of it this way, um, is that, and this is very tactical but it works and it's a very easy thing to apply. So let's say you're looking at... And most of us in a, in the-... you know, we're not stand-up comedians. We're not gonna tell jokes in the classic sense, right? And even stand-up comedians don't tell jokes, right? Like they, they actually have stories and they happen to have a punchline or, uh, a punchline or two. So, uh, two tactical pieces of advice. One is when you're telling the story, whatever the funny bit is, those have to literally be the last words of that particular segment. Right? So once you deliver it, then you have to stop talking and the reason you have to stop talking is the audience needs about a half a second to react and then they want the permission to laugh and if you're continuing to say words, it's gonna make them feel awkward and it's gonna be less funny. So even if like moving a phrase in the sentence that you're about to say is like, well, that sounds kind of weird to put those set of words at the end of the thing, do it anyway even though it's awkward because it will actually work better. So, that's kind of tip number one. Tip number two on LPM generally is that, um, have a story such that you can just kind of spend the time setting up the story, but then have multiple funny bits, multiple punchlines, because you've already made the investment. I've said 75 words in order to kind of set up this context, say something funny that's amusing this or whatever. Say some more things. You already have the cont- and you'll see the stand-up comedians do this all the time and then say something else that's funny because you just, because a laugh is a laugh. It doesn't really matter that it, it was still the same story. So, kind of leverage the, the investment you've already made in establishing context in the scene and then just squeeze more humor into the end of it, um, in a kind of punctuated fashion.
- LRLenny Rachitsky
I feel like the entire podcast could just be this one thread-
- DSDharmesh Shah
(laughs)
- LRLenny Rachitsky
... but I need to move on to other topics. Uh, one quick question. So you said ideal laughs per minute is two to three-ish? Is that what you said?
- DSDharmesh Shah
Uh, yeah. Two plus is hard-
- LRLenny Rachitsky
Hmm.
- DSDharmesh Shah
... uh, for a business talk, right? Because-
- LRLenny Rachitsky
Yeah.
- DSDharmesh Shah
... stand-up comedians, the reason they can do it, um, is that's all they're really kind of solving for is LPM. Uh, in business talks, you actually have another agenda other than just being entertaining, right? You actually have a message, you're trying to promote something, promote an idea, promote a product. Um, so anyway anything in my mind, uh, for, for like most normal circumstance even if you can get above like a one, 1.2, 2.5, you're in the top decile, um, in terms of talks generally given, uh, by, you know, non-professionals.
- LRLenny Rachitsky
Wow. This is incredible. So, after every talk, you listen, you, you run this transcript and audio through your program to see how you did?
- DSDharmesh Shah
Yes. Yes.
- LRLenny Rachitsky
And are you ever gonna publish and release this program? 'Cause that sounds really cool.
- DSDharmesh Shah
Uh, I have this notion of what I call Soloware and Soloware is exactly what it sounds like. It's software built for exactly one person and, and in my case that one person is me. And so I've been doing this thing for like 30 years right now. I just build things that I would myself find useful. Uh, and the nice thing about Solo- one of the many nice things about it is that, you know, the UI is only for one person. Uh, you don't have to do a whole lot of testing because it only needs to work for one person and the most important thing is that because it's only for one person if it stops bringing utility, you can just turn it off. You should stop using it. Versus if you have users, even 10 users, and you put it out there and then people would be disappointed if you took it down for whatever reason, uh, that's kind of hard. So anyway, so that's the calculus I go through is like is this useful enough to enough people where it's worth the calories of kind of making it non-Soloware, making it even microware. I just made that up, but yeah, so.
- LRLenny Rachitsky
Wow. Okay. Let's see how the YouTube comments react and how many people, uh, would want this and slash pay for it.
- 15:28 – 18:46
Why he has no direct reports
- LRLenny Rachitsky
Let me go in a slightly different direction. We talked about how you have no direct reports, you've never had any direct reports. I know that's somewhat related to a piece of advice you often share which is to lean into your strengths and to not do things that you're not amazing at. So, can you just talk about why this is the case? Why don't you have any reports and, and then this, I think your, this idea of just like strengths and the importance focusing on strengths.
- DSDharmesh Shah
Yeah. Um, let me... I'll, I'll tell you the quick story, um, as to how this came about. Well, my co-founder and i had the kind of founding meeting for HubSpot. This is like the week where we've decided we're gonna do this and then we have this list of questions, uh, or topics for the kind of founders discussion. Um, one of them, uh, and I... This I've, I think I've published a list. So, these, these are the questions all co-founders should ask each other in that kind of, uh, early, uh, early period. One of the ones is like, okay, well, who's going to be CEO? This was an easy one, uh, because I had been CEO twice before and had figured out I'm not that good at it. I actually suck at that. Um, that's... And, and one of the reasons I suck at that is that part of the CEO role is being good at managing people. It's not just about leading and having a vision or whatever. It's you actually have to do, uh, kind of the management as a craft. Uh, and so that part I already had in my head. I think Brian, my co-founder, already had in his head that we... that, that's how this con- That was a very quick conversation. And in the moment, as soon as I had kind of had that wind behind me it's like okay, well, I don't want to be CEO. Brian wanted to be CEO because he'd never done it before and I'm like, "Okay, that was easy." And then I said, "Oh, and by the way, um, I don't want to have any direct reports." Just, it just like popped into my head as an idea. I had not like pre-planned it or anything and I sprung it on him and I, and the reason is like an-... And it's like, "Okay, well, and the reason is because I have learned that I suck at management." I'm a reasonably smart person, I think I could become passably okay at management with some training, with some coaching or whatever. I don't want to spend n years of my life becoming passably okay at something. I would rather take those same calories and take the things that I'm good at that I actually enjoy, and those things are highly correlated. You tend to be good at the things you enjoy, you tend to enjoy the things you're good at. Um, it's like, so... And, and Brian was like, "Yeah, sure." And then I'm like, "No, no, Brian. You don't understand." Because then I was like, "There's going to be a time in the company when it's like, 'Oh, our VP of engineering just qui-' like, just be interim something or whatever and have this team report to you until we find..." It's like, "We're gonna have those things and you're gonna have to promise me we're not gonna do that. We're gonna re-" It's like, "I am not going to have direct reports." And we had that kind of heart to heart conversation, um, and it was one of the best decisions I've ba- made both for myself and for HubSpot. Had I not made that decision, I'm a startup guy, I don't know that I would have survived at a company at HubSpot's scale. And right now, I can honestly say I'm having a better time at HubSpot now at 7,000 people than I was having at 70 people. And the reason is I get all the upside of scale which is I can make big bets so we can have long-term things and plans, whatever, and, and plan for global domination without the downsides of scale which is, "Oh-"... you're having to manage all these people, all the kind of mechanics and that's hard, right? It's a hard skill to have. I appreciate other people that have it. Uh, I don't. And so I get all the upside with very little of the downside of scale and that's what kind of keeps me engaged and energized and, uh, happy at HubSpot. So I think it's been both, uh, productive for HubSpot and good for me.
- 18:46 – 20:02
You can shape the universe to your liking
- DSDharmesh Shah
- LRLenny Rachitsky
I love that this is an example of how you can build a company the way that you want to build it. You don't have to do it the way everybody else has done. I imagine there's a lot of challenges to this too, but I think it's inspiring to just like, "Hey, I'm gonna design a company the way I want to build it."
- DSDharmesh Shah
Yeah. It, it's amazing what you can get away with in terms of, uh, shaping the university to your liking. I think people automatically assume, um, that things have to go a certain way sp- especially founders, um, and first time founders. It's like y- you should at least like t- try it. It's like, okay, well, I want to do it. For instance, I'll give you another kind of tactical example. Both my co-founder and I are night people, not morning people. That's ... just happens, you know. Uh, I didn't pick him because of that. We did, yeah, learned that later. Uh, and so we made it just like from the, you know, early days of HubSpot, in the early years at least, uh, we're like, "No meetings before 11:00 AM." Period. Like it's ... that was it. Uh, and then we adjusted it, uh, I think maybe three or four years, and we're like, "All right. We can have meetings before 11:00 AM, you just can't invite one of the co-founders to it."
- LRLenny Rachitsky
(laughs)
- DSDharmesh Shah
So you're welcome to meet amongst yourselves, uh, if you choose to do so, um, but anyway, it's, uh ... but yeah, it's the little things.
- LRLenny Rachitsky
That's an amazing rule. I have a personal rule where I have no meetings before 3:00 PM because I don't work anywhere, I can more so create my schedule, but the idea is I create this deep work time in the beginnings of the day, and I-
- DSDharmesh Shah
I love that, yeah.
- 20:02 – 23:43
Lessons from building HubSpot
- DSDharmesh Shah
- LRLenny Rachitsky
Okay, so you talked about you're a startup guy. At the same time, HubSpot is approaching its 10 years of being a public company, and I think 18 years since founding.
- DSDharmesh Shah
Yep.
- LRLenny Rachitsky
I'm curious what lessons you've taken from that experience being someone that's clearly startup-y person, being an exec at a very fast growing and large company, and I'm thinking from the perspective of a founder who's maybe thinking about starting company or starting company, what advice you might have to share for them, and also for people in, uh, in the exact role today.
- DSDharmesh Shah
A couple of things. One, let's, you know, um ... since we are publicly traded now and this doesn't get talked about enough, I'm gonna go ahead and, um, get this out there, use this as a platform to get this message out, which is, I think too many founders, um, you know, once they hit to ... they, they are very apprehensive of going public and going through the IPO process and being a publicly traded company because they're, they think, I mean, that's like the beginning of the end, it's gonna like change everything and my life is going to suck. And I think they're over-indexing on what they think it's like to be a publicly traded company. In my own personal experience, and, and Brian, my co-founder, would attest to this, and yes, there's certainly are tax, there are things we have to do now as a publicly traded company that we didn't have to do as a privately traded company, uh, but there are actually benefits. For instance, if you're kind of venture backed in private, let's say, uh, you're sort of at, a little bit the whim of the market and, and how VCs perceive your category and all these things or whatever, and, and, and you get every now and then when you're out raising a round of capital, you sort of get mark to market, right? Like this ... now here's sort of what the valuation is based on what someone's willing to kind of fund the company at. One of the nicest things, and this is underappreciated, is that we know right now what the market value's HubSpot at. I can tell you that any business (laughs) day of the week, right? Like that's, um ... and there's, there's a niceness to that. And this is the other thing I, I kind of tell, uh, folks within the company is that, you know, the, the valuation, uh, which is, um, we're in a relatively efficient market, like the public stock market is a relatively efficient, by the economic definition of the term, an efficient market. And so, but the, so the valuation will oscillate around the value. So if you kind of focus on creating values, like here's what we're actually building, valuation will sometimes be higher than you deserve, sometimes it will be lower than you deserve, but over the fullness of time, those two things will kind of move in lockstep, right? That's been demonstrated. That's what happens. That's almost the definition of an efficient market is that, uh, information kind of moves centrically and then, then the valuation catches up with the actual, actual value. Uh, but here's the other kind of social reason why I think founders should go public, which is ... so, you know, HubSpot's ... and I hadn't thought about this, so I'm not gonna, uh, take credit for being this, uh, kind of generous, magnanimous person, is that in our first, um, you know, pre-public years, I think we were eight years old when we went public, we had created roughly a billion dollars in market cap, give or take. We hadn't been a unicorn, so it was slightly below, uh, when we went public. So HubSpot was never a unicorn because, you know, that's privately co- privately held company over a billion. In the subsequent years, we went from a billion dollars in market cap to 30 billion, which is roughly what it is now. That first billion of, of market cap creation, a very small number of people got to participate in. The f- rest of the $29 billion in market cap, everyone, every public investor got a per- chance to participate in. And so I like the idea of, okay, well, you believe in your company. There's lots of people that b- believed in HubSpot, um, it's nice to let them kind of participate, uh, our customers, our partners, our well-wishers, and they can sort of now have the upside and you don't get that in the private markets because it's a very closed, uh, you know, you can't just buy ch- you know, shares in every, uh, private company you like. I wish, uh, that existed, but it doesn't. So it's, it's a way to let the market at large participate in your growth, um, earlier.
- 23:43 – 37:26
Contrarian ways of running a company
- DSDharmesh Shah
- LRLenny Rachitsky
What about from the perspective of just staying excited and motivated and finding things to take on? Is there any lessons there for founders that are, I don't know, at a larger company and just, "Okay, this is gonna help me stay excited about what I'm doing"?
- DSDharmesh Shah
Yeah. I think, uh, this is, um ... and Bezos e- exemplifies this, I think, the best, which is, um, just because you're a public company does not mandate that you do certain things. All you ... all that's necessary is the kind of transparency that says, "Here is what the company is doing. Here's what we're about. Here's what we're solving." And he had this with his very first annual shareholders letter, which, you know, he obviously writes, uh, every year, which is, "This is what Amazon is about. We're solving for the long term or whatever." And, and he didn't say this in a snarky way, if you kind of reread the letter, it's like, but, but if you read between the lines, it's like if you don't agree with this approach, you should not buy Amazon shares.Right? It's like, it's a completely optional thing. You don't have to buy it, but this is the way we're going to run the business, and he stayed true to that.
- LRLenny Rachitsky
Mm-hmm.
- DSDharmesh Shah
And you can continue to do that. I'll, I'll tell you one quick story. This is once again the, uh... To anti-dissuade, uh, founders that might be reluctant to go public. So, uh, one of the core values at HubSpot that's been part of the culture from the early, early, early, early days, uh, literally days, is transparency. And so one of our kind of mechanisms by which we im- implement transparency is w- we've had this thing that says all information within HubSpot is equally shared with everyone in the company, period. Right? Tran- Like everything. So our balance sheet, what the we raise capital at, uh, you know, whether, you know, we're gonna be able to meet payroll in six weeks. All those things, everything was, uh, transparent. A- all the time, uh, with two exceptions. One is if it was illegal for us to share. Let's say if we were looking at some acquisition, whatever it'll be, we had, uh, non-disclosure, uh, or the information was ours, not completely ours to share. And one example of that was salaries. So we feel that salaries are co-owned, uh, both by the company and by that individual, and it's not up to us to share someone's salary if they don't want to do that. Okay. All right. So, uh, so we had that transparency, and then as we go public, we have this meeting with our investment bankers and our lawyers. Uh, this is, like, in the IPO prep process, and they sit down and i- it's part of this all-day meeting. Uh, one of the questions is like, "Okay, so, so who are your designated insiders?"
- LRLenny Rachitsky
Mm-hmm.
- DSDharmesh Shah
B- Brian nor I had ever taken a company public before. We're like, "We don't know what that is." It's like, "Oh, l- it's this kinda group of people that will have access to kind of all the financials and we'll note..." You know, it's like... And we're like, "Oh, okay. So how long is that list?" And they're like, "You know, five or six." And so then, you know, Brian says, "Seven?"
- LRLenny Rachitsky
"Seven."
- DSDharmesh Shah
And they're like, "Yeah, you c- you could do seven." And then I say, "Eight? Like, could you do eight?" And so what we're... And so we discovered through that mathematical induction process, uh, is like if it's true for n, is it true for n+1, is that there's no actual legal limit to how many insiders a company can have. And so we ended up doing, literally the day we went public, is we designated every single employee to be a designated insider. So that allowed us to maintain the transparency thing because there was no rule that said you could only have five, six, 10, and it was hundreds of people, and we did not make it optional. We didn't say, "Oh..." Because there are downsides to being an insider. There's windows within which you can't trade. There's, there's stuff. But we're like, "Okay, well, we believe in transparency, everyone's going to have access to it," and, and it's not an opt-in kind of thing where you're like, "You're... This is it, we're all in it together," um, and it's been all... And we still do this to this day, right? Even at 7,000 people, um, everybody's an insider, so. So we can still share all the financials with everyone all the time.
- LRLenny Rachitsky
You have many contrarian opinions is what I'm getting from this conversation already, (laughs) and the way you pushing the envelope on, "Can we have 10? Can we have, uh, a thousand?" Um, curious if there's anything else there, just contrarian ways of running a company. I know there's probably many, but what comes to mind?
- DSDharmesh Shah
So one of the phrases we like to use in, in our industry overall is this kinda notion of first principles. Uh, I don't know who popularized it, but it's, it's used a lot. Uh, I'm just... I'm, I'm not usually a, a snarky per- uh, I'm not gonna say something snarky, but I think most of the time first principles is used, um, it's actually used incorrectly. Uh, because the way first principles is supposed to work, as Elon would probably describe it, is that it's not first principles like a first principles of what we believe, these are core, kind of, first principles in the company. It's the first principles of the universe. It's not what you believe is true. It's what do we all collectively know to be true to the best of our knowledge? It's science, right? That's like physics. Like, the first and second law of thermodynamics, those are first principles. All the layers on top of that are things that you think are true, are your assumptions or the things, the decisions you made, and that's fine. Like, you may have made some decisions, like for instance, transparency is not a first principle, it's a founding principle, right? It's not like everyone should do this, it's like a com- completely core thing. And so yes, um, I can be, uh, contrarian, but you have to kind of limit the dimensions. So the number of things that you're a contrarian on-
- LRLenny Rachitsky
Mm-hmm.
- DSDharmesh Shah
... has to be greater than zero, but not too high, right?
- LRLenny Rachitsky
Mm-hmm.
- DSDharmesh Shah
So you want, uh, wh- what I think of as, like, a high conviction, low consensus bets, right? So high conviction is we really, really believe this and low consensus is that most other people don't. And there are other people have kind of phrased this differently. I think Peter Thiel actually says it more, uh, simply and elegantly, which is you need to be right about something that other people think you're wrong about for a very long time, right? Like, okay, th- this is the thing that, um... And you just happen to be right. So one of the early, kind of high conviction decisions we made, um, at HubSpot-
- LRLenny Rachitsky
Mm-hmm.
- DSDharmesh Shah
... was that we were gonna focus on SMB as our target market. And I'll make a case both for SMB and for having a high conviction bet, it doesn't have to be, you know, target market, but something. Once you make that bet, um, because it's low consensus, it's going to be hard and necessary for you to have the conviction because everyone disagrees, including your board, including your investors, including potential investors. So we had that for all, literally all 18 years of HubSpot's history. We have always had the que- all during the IPO roadshows, like, "Yes, we get that you've kinda... On SMB, but so, so what's the path to the enterprise?" Like, no, you don't understand. This is not a go-to-market strategy, this is not like, "Oh, we're gonna conquer SMB first." This is not bowling pin, this is not Geoffrey Moore, this is a, "We are here for SMB." This is, that's what we're doing. Um, and so we maintained that conviction for a very long time, and that kind of helps you make other bets, um, that are secondary, but, but you don't wanna reinvent everything. So I'll give you an example of something that we had in the early years of HubSpot that the, we kind of forewent. So in the early years, uh, of HubSpot, we're like, "Okay, we believe in a flat organization." One of the manifestations of that flat organization is we had no titles in the company. Nobody had a title, right? So even though, we, like, we had business cards, whatever, we had no titles. Y- if you introduced yourself, um, you know, in a meeting, and we had this up to, like, hundreds of people, um, when you introduce yourself, like, "Oh, I work in product, I work in engineering," or whatever, it's not like, "I'm director of X or VP of Y" because that...... as a thing didn't exist. Then as we scaled, uh, we came to the realization, um, that there's actual, um, value that people ascribe to titles. And the reason they ascribe value to titles is because, uh, there were rumors that there was life beyond HubSpot. Like, I- I couldn't believe it. What? There's, there's life out there outside of HubSpot? And it's like, yeah, but it's like, and then when we go to the Thanksgiving dinner or whatever and I talk to my aunt, I need some shorthand. It's like, oh yeah, like, I got promoted to director. I got pro- like, you know, just show some progression because it's a signaling device. And in this life beyond HubSpot and outside of HubSpot, it's like, other people are also gonna want to know sort of where I was in, in... It's like, okay. And this was the winning argument. I love this argument because we had a day-long meeting on talking about this one topic. And the winning argument was, Dharmesh and Brian, I recognize why you, uh, why we don't have titles. I recognize this. And so they made the case of like, yeah, but there's, you know, value. And it's like, and by virtue of you not giving us titles, that means you're having to compensate us in a, in a kind of economic sense in other ways, right? So you're, you're losing out because it's like, is that value high enough to not do that? Um, that's a strong case. It's like, and so, and then we had it down to three choices. We're like, okay, well, we could have chosen to just stay firm with like still no titles. We could have said, okay, we're gonna have classic titles. Then I had the option on the table of make up your own title. Like, you could be Grand Poobah of X and that could be your, like... And then we ended up making the decision to go with classic titles because that actually served the need of there's a benchmark, there's a standard. Otherwise it doesn't mean anything. So having made up titles is pretty much the equivalent of having no titles because they lack any, any meaning. Anyway, um, but that's one of those things that, okay, you sort of iterate, you change things as they go. Um, yeah.
- LRLenny Rachitsky
Yeah. I think there's so much to this. Let's just try things differently. Okay, that didn't work. Let's, okay, it's fine. We're just (laughs) gonna do what everyone else is doing here. And then often you discover a thing that, okay, this is actually better.
- DSDharmesh Shah
Yeah.
- LRLenny Rachitsky
Just to understand, when people have no titles, so someone, say, as a product manager, what, like, do you call them a product manager or just like, "I'm an employee at HubSpot, I have no, literally no title?"
- DSDharmesh Shah
At the time it was, uh, no title, and now we have classic titles.
- LRLenny Rachitsky
Yeah.
- DSDharmesh Shah
So we have levels of things and-
- LRLenny Rachitsky
But back then it's like, you're just here.
- DSDharmesh Shah
No title. Literally no title.
- LRLenny Rachitsky
We don't know, we don't know exactly. (laughs) That's what you said.
- DSDharmesh Shah
No title.
- LRLenny Rachitsky
Uh, I saw somewhere that you paid everyone $5,000 monthly as their salary at the beginning of HubSpot, including yourselves for a long time.
- DSDharmesh Shah
Yes.
- LRLenny Rachitsky
Is that right? Okay. (laughs)
- 37:26 – 40:29
Fighting the second law of thermodynamics
- LRLenny Rachitsky
You've been talking about simplicity. The opposite extreme is you could say entropy, and someone told me that you have this kind of concept that as every, uh, that every leader in every business is fighting the second law of thermodynamics, which I believe is entropy.
- DSDharmesh Shah
It, uh...
- LRLenny Rachitsky
Yeah.
- DSDharmesh Shah
Well, yeah. The e- the actual law is within a closed system, entropy increases over time.
- LRLenny Rachitsky
Mm, okay.
- DSDharmesh Shah
Yep. And yeah.
- LRLenny Rachitsky
All right.
- DSDharmesh Shah
But we don't have to get into the... (laughs)
- LRLenny Rachitsky
No, I love this.
- DSDharmesh Shah
I'm not a physicist.
- LRLenny Rachitsky
No, we're getting, we're, uh, we're getting to the real, the first principles of everything. Talk about that. What does that mean when you... And what does that look like when you're running a business?
- DSDharmesh Shah
Okay, so in, in layperson's terms, um, the second law of thermodynamics, I'm paraphrasing here, is that over time, unless you intervene, everything goes to crap.
- LRLenny Rachitsky
(laughs)
- DSDharmesh Shah
I'm paraphrasing, right? Which is essentially-
- LRLenny Rachitsky
Sure.
- DSDharmesh Shah
... the amount of disorder and randomness in a system is going to increase over time. You see this like when you break an egg, the breaking it, like molecules don't come together and form an egg, right? That doesn't happen. It's always the other way around. Becomes disorderly and more random. That's the, the second law of thermodynamics and this happens in companies as well, right? Like and it happens in code, like at almost every level of abstraction you will see, uh, some variation of this. Um, and so the way I think about this is that in the early stages of a company, you're essentially fighting to survive. Like just trying not to die, right? That's the thing. Like, okay, like not... Priority one, don't die. Uh, in the second phase of a company, you're trying not to stagnate, right? It's like you still wanna be able to drive growth and be able to do things. Like, okay, we, yep, managed not to die because stagnation is essentially death. So we're still trying not to die. But then, um, the third stage is you're fighting complexity and that's the thing that you will crumble under your own weight over time, uh, absent some external intervention. Um, and this, you see this happen all the time, right? And, and it shows up and manifests in different ways, which is everything gets more complicated, like you need more layers of management, more headcount, more this, more of that, more everything. Everything that becomes harder, margins go... It's like just bad things start to happen, becomes slower and that's eventually it's a slower death, right? Because you're at more scale now, but it's still eventual death, right? Like the complexity does kill companies. Uh, maybe not as quickly as other things, but much more reliably than other things. Um, and so this is why, uh, it's never too early to, um, kind of plant the seeds of simplicity. Uh, put them in there, make that part of the kind of culture of the organization, and, and we have a, a thing that, that are part of our kind of culture inditing principles around, uh, what I call fight for simplicity. Uh, it's literally those three words, right? And the, the message we're trying to convey is simplicity is worth fighting for. That's like thing number one, it's important. But the other one is that it requires fighting for us. Now, it does not happen and it will be a fight because the universe is working against you. Uh, and it will take calories to fight for that simplicity because everything, even well-intentioned people will introduce complexity because that's the natural way of the world. Uh, we want more tiers in our pricing. We want these knobs and dials in the product. We want these more... You know, it's like all of it tends towards the second law and entropy increases. So anyway.
- LRLenny Rachitsky
I love this.
- 40:29 – 45:22
The importance of simplicity in running a business
- LRLenny Rachitsky
The algorithm for seating is a good example of this. Is there any other examples either in the product or strategy where you pushed for simplicity and that ended up being right?
- DSDharmesh Shah
Yeah, so on, on the product side, in the early years, um, and Brian gets credit for the actual, um, implementation of this. So we had a relatively broad product and we can talk about that, um, pros and cons of that even in the early years. But we were solving for simplicity, uh, and we got this from Apple. We'll talk... Uh, we can talk a little bit more about, um, kind of genesis of this but, so we had a rule in the HubSpot product as the product grew in those early years that every time you added what we thought of as a knob or dial, um, called a feature, you had to take one out somewhere else. That's a net amount of... And this is a very coarse measurement, right? It's like, okay, well, no, not every radio button, checkbox, dropdown, whatever, menu item that you put in your nav is necessarily equivalent, but it's better than nothing. It's better than having no constraints. Um, and so, and once again, this goes to the kind of binary thing. It's like it just at least forces you to think about it, right? It's like versus the... Because the other mistake I think people make in product all the time but, um, is that we measure the cost of a feature based on the usually or even a new product based on the cost of implementation, right? That's the first order of thinking is like, "Oh, this is gonna take six months to develop. It's gonna be Y engineers and Z designers," or whatever. Second order of thinking is thinking through the maintenance of that feature. It's like, "Oh, it's not just the first version that goes out. It's like now we have this code base that we have to support and improve," or whatever. I get that. The third order of thinking which is I think is the most nuanced and it turns out to be the most important is the other costs that that complexity adds. Okay, so let me, um... We'll come back to this. So when you go from product number one to product number two, right? It's like, okay, product number two is gonna cost us this much to develop. It's gonna have this risk associated with whether it's successful or not, all these things, so there's gonna be this kind of carrying cost for product number two. What companies don't think through is that that is even the mainten- maintenance of that is like, "Oh, we're gonna need a team to kind of maintain that new product." No, what actually happens is that now when you go from product one to two, you have added dimensional complexity to your business.What I mean by that, it's not an incremental increase like, "Oh, we went from one to two." It's like now every decision you make has to be made through the lens of, "Now we have two products. We just hired an engineer, do they work on product number one or product number two? We're gonna launch a marketing campaign, do we spend five minutes talking about, uh, product number one and two minutes talking about product number two? How do we out, like how do we do anything?" Every chart you look at in terms of the, the growth, uh, revenue per whatever, look, it's all of it. Now every chart that you ever had now has to be sliced by product one and product two in order to really-
- LRLenny Rachitsky
Mm-hmm.
- DSDharmesh Shah
... kind of capture that precision. And so now you have this new dimensional complexity that you just hadn't planned on, and this applies, once again, every level of abstraction. So everything you do in your business should factor in the long-term cost of that complexity, and it should be worth it, and that of course you need, and I can make the case that you need to build product number two and product number n, uh, n plus one over time, uh, but you should be mindful about the cost of that complexity. Yeah. I think that's...
- LRLenny Rachitsky
Is there something you've done to help operationalize that? Because I imagine this, everyone's like, "Yes, this is great. Don't do too many things. Simplify." Hard to do when you're like, "Oh, we gotta drive growth. We have this awesome idea, we have this opportunity, we have a competitor." I know this is part of the culture, so maybe that's the answer, but how do you keep people to actually this principle?
- DSDharmesh Shah
So it's really hard. Um, I'll, I'll say that. And so, and things that have made it easier, it's a little bit idiosyncratic to HubSpot, right? So part of what has made it easier for us to keep things simple is the early constraints, uh, we impose, and we didn't know this at the time. So 'cause we're building for SMB.
- LRLenny Rachitsky
Mm-hmm.
- DSDharmesh Shah
We have a freemium product. All right, well, when you're doing that, there is literally a limit to how much complexity you can add because we don't have like an army of people that are gonna spend, you know, 18 months implementing something. We don't ha- Like, we have to be able to support a product that's free. Like that's hard to do, right? Like it has to be simple enough that someone can get value from this thing. And so there's these kind of sim- self-imposed things. So the, the lesson I would kind of carry away is come up with, uh, systematic ways and mechanisms, as Amazon would call them, of, of, of putting, uh, guardrails and constraints in to the degree that you can because, uh, you can put words on a page and try to infuse it into cultures like, "Oh, we believe in simplicity. We fight for this." And you can have meetings and you can kind of get up in all hands meetings and kind of reinforce that, which I encourage you to do. Uh, but like a really... Even a reasonably well done system will out beat, uh, any other mechanism that you can kind of try to put in and infuse, right? Like that, those things kind of, uh, deteriorated over time. It's hard to scale them. So I, I'm a big believer in kind of systems and imposed constraints, um, versus...
- 45:22 – 50:29
Succeeding in the SMB market
- DSDharmesh Shah
- LRLenny Rachitsky
I can't help but talk about the SMBPs 'cause I do a lot of angel investing, and classically companies that focus on, on small businesses are very challenging because getting to small businesses at scale is very hard. They're often kind of more old school, not early adopters. You sell one and you, that's just like one small customer and they're not gonna upgrade and roll it out to this large group, they're not gonna increase spend, uh, very quickly. For founders that are exploring SMB or trying to win something SMB, any advice other than just maybe the advice is probably don't do it, it's very hard.
- DSDharmesh Shah
No, my, my advice is absolutely do it. Um...
- LRLenny Rachitsky
Amazing. Great.
- DSDharmesh Shah
Be- cu- A, because it's hard.
- LRLenny Rachitsky
Mm-hmm.
- DSDharmesh Shah
Uh, and we'll talk about that. Um, but B, okay, so I'll, I'll tell you this, uh, quick story in terms of how we, um, chose an, uh, chose SMB.
- LRLenny Rachitsky
Mm-hmm.
- DSDharmesh Shah
And so this, you know, uh, my co-founder and I met in, in grad school, uh, and he had done software. His, you know, he was on the kind of sales and marketing side, I was on the, you know, product engineering side. Didn't know each other before grad school and we met there. Uh, but one of the things, uh, we kind of, as we were kind of noodling on, on, on possible ideas, um, of working together on the startup, we said, "Oh," we had done both an enterprise software before, right? The kind of opposite of, of SMB. Uh, and there are definitely challenges with, uh, enterprise software, right? Um, well documented. Uh, one of the biggest one is that life as an enterprise software company sucks as a startup. Sales cycles are super long, feedback loops are super long. You, you're, you have to have sale. Like there's all this kind of... You have revenue concentration, which means you don't completely own your product roadmap anymore because whoever's writing the biggest check will ask for these three things and it's really hard to say no, especially as a startup. All these things that go along with that. It's like, okay, we, we sort of know that game. At the other end of the spectrum, you have consumer startups, right?It's like, okay. Uh, the problem with consumer startups is they have very bimodal outcomes, right? It's like either you're gonna be super successful, the next Meta, the next Google, the next whatever, or it's gonna be the zero, right? Like you're, it's very rare that you have like, oh, you made a few million bucks or whatever as it, 'cause like either it worked and y- 'cause it's a massive market. The case for SMB is you have almost the best of both worlds, okay? You have the nicety of enterprise, which is, oh, I can solve a product and people pay me money for it. I don't have to be advertising subsidized. I don't have this bimodal outcome. I can build an incrementally more valuable business that's measurable. So for, oh, we went from 100K in ARR to a million in AR to two million in AR because we're a business software company. But it has the benefit of consumer because there's millions of them out there to sell to, and n- there is no revenue concentration. You do control your roadmap. You have very short feedback loops. You can try pretty much anything that you want because there's, you know, like, oh, we have 50 customers. What if we do this and screw it up? It's like there's five million more. And not, don't intentionally screw it up, but you can experiment, right? You can take on risks. Um, and so, and by the way, like when HubSpot started SMB, it was literally like 100 times harder to succeed at SMB, right? And we could not raise capital. Like it was so hard 'cause it was like, I mean the common argument was like there literally is exactly one company in the history of software that's made a like global brand, billions of dollars of market cap, that was Intuit. No one else had ever created an SMB focused software company before. And we're like, "Yeah." (laughs) It's like, we know. Um, but the nice thing about it is once you figure the physics of it out because it's so hard to do, um-You end up, and this is, has played out. Now there's lo- lots more proof points. There's Shopify, there's a bunch of companies that have, uh, succeeded in SMB but one of the things about SMB is that in, in the software market... This, by the way, all I know i- is software. That's th- the, uh-
- LRLenny Rachitsky
Mm-hmm.
- DSDharmesh Shah
... kind of scope of my, uh, experience-
- LRLenny Rachitsky
(laughs)
- DSDharmesh Shah
... is that in software there's what I call reverse gravity. Over time the market will always pull you up, right? Because what ends up happening is that smart founders and smart management teams, uh, will look at the numbers and say, "Oh. Well, as it turns out our bigger customers stay with us longer, pay us more, oft- often have higher NPA, like all these things. Uh, and so if you allow yourself to kind of be led by that, which is, seems like a reasonable smart thing to do, uh, you will get pulled up in the market." And because of this reverse gravity almost every company winds up being, every successful software company ends up being an enterprise software company over the fullness of time, right? That's what you see. It's like everyone... The kind of byproduct of that reverse gravity is that every software company ends up being an enterprise software company so you end up competing with literally everyone.
- LRLenny Rachitsky
Mm-hmm.
- DSDharmesh Shah
In the SMB world you're only competing with the people stupid enough to stay focused on SMB or try to do that, right? It's like, it's a much... It's a harder thing to accomplish but once you figure out the physics of it and make it work it's a much more sustainable, much more fun model. Uh, so I encourage, particularly startups, uh, and maybe you fight reverse gravity for some period of time and maybe but at least start there. Try to make it work, uh, until it gets really, really, really painful and then try some more, right? It's like a, there's just so much value in SMB. It's, uh, yeah.
- 50:29 – 54:17
Zigging when others are zagging
- DSDharmesh Shah
- LRLenny Rachitsky
Okay, so this theme has come up a bunch already in our conversation. I asked Chris Miller, previous podcast guest, what you're amazing at and what I should talk to you about, and he said that you're very good at zigging when other people are zagging and zagging when other people are zigging, and I think that's already come across in our conversation. I guess is there anything else along those lines that you think might be helpful to people in terms of how you think about that or examples of that in action?
- DSDharmesh Shah
So this comes down to kind of, kind of high conviction low consensus bets, um, and so we had, uh, like three things that we were zigging. And by the way, it's not just me. My co-founder and I both have that kind of zig versus zag, uh, and we kind of ask ourselves, and we ask ourselves this to this day, right? It's like okay, well, we understand like this is the way that kind of the world moves, this is the way it's normally done, but have we considered this completely? And I'm not saying we should do it, but have we considered this alternate, kind of alternate path? So I would encourage you at any stage of the company, uh, you don't necessarily have to do the zig versus zag, but you should at least know what a zig would've been-
- LRLenny Rachitsky
Mm-hmm.
- DSDharmesh Shah
... and ha- have talked it through. So that's kind of thing number one. Um, some of the best startup advice I've heard and I've ever given is startups should focus on one thing and be really, really exceptionally world class better than anyone else at that one thing, and one of our early zigs is we are going to do exactly the opposite of that. Uh, so from year one HubSpot decided to build an SEO tool, web analytics, logging tool for content management, all of it, and every one of those categories that we were building a product in, literally this is year one, had great products with great companies behind them. Uh, and so it's like okay, well why would you do that? Um, and, and the reason is that the one thing we wanted to be good at was solving for the actual customer problem that existed, and the customer problem that existed was not a dearth of tools. Lots of great SEO, blogging, everything, all the tools existed but SMB specifically did not have the wherewithal to put all those pieces together, right? So you and I it's like oh, I can throw a website up, I can put Google Analytics on it, I can put a Wufoo warm- uh, Typeform form on it, I can do all these things, I can wire it all. No big deal. Like why is this so hard? But for most people, most SMBs, that's a science project, right? And so said okay, in order for us to solve the actual customer problem we have to solve the actual customer problem even if it's uncomfortable, even though it's contrarian and every kind of instinct and every advice we've heard or given says we should not do this, we should not go that broad. But once we make that decision, so then the other kind of lesson learned is like an, uh, and we said this in the early years, uh, and it's gotten better since. So let's say you do this, and, and this is kind of the all-in-one approach, we're going to have this broad-based product, um, it's like okay, we're gonna be you know many miles wide and, uh, only so inches deep. One of the, and this goes back to our, uh, very systematic thinking is like okay, we're gonna measure each of those individual product categories that we're now playing in. Are we in the top three in the market in that category? If the answer is yes, that means we invested too much in that category. We should not be in the top three because our value proposition is not that we're one of the top three blogging tools or one of the top three web analytics tools or we are the top three whatever. Our value proposition is that everything works so well together that that, being in the top three and having those right features or whatever doesn't matter. Doesn't matter as much as the all-in-one, and that means we overindex on one individual category by virtue of that was one of our kind of heuristics for being able to tell, uh, that we were overindexed on one particular aspect of it, uh...
- LRLenny Rachitsky
That is hilarious. (laughs) Rarely do I hear, "We, we're in the top three. We're doing too, we're, we're doing the wrong thing. We are, we are too good for this."
- DSDharmesh Shah
Yeah. Uh, by the way, and we've changed that over time, right? Like in, in the startup world and now I would, I would argue that most of the categories we play in we are as, uh, you know, surveys would tell you that we're in the top three in, in each of those categories now, right? But at the time, uh, when we were very, very resource constrained, um, you know, we were trying to be disciplined and focused and like, yeah, so...
- 54:17 – 57:33
When it makes sense to go “wide and deep”
- DSDharmesh Shah
- LRLenny Rachitsky
We're just racking up all these very, uh, contrarian approaches to company building. I imagine people listening to this might feel like, okay, cool. I'm just gonna build a bunch of stuff. This is great. I'll work, work for HubSpot. Do you have any heuristics for when it makes sense to go wide and not deep that you share with founders? When do you think it makes sense versus now you should actually follow the common advice here?
- DSDharmesh Shah
Yeah, so it, it comes down to, um, what problem you're solving. So I think, um, found, one of the mistakes I think founders make is that, especially product-oriented founders-... is that we kind of fall in love with the solution instead of sol- falling in love with the actual problem. And y- you need to sol- fall in love with the problem and, and putting that constraint on yourself forces you to kind of understand and at least label and define what problem you're solving. Because of- oftentimes we can describe our product, whatever, but, eh, w- we struggle sometimes as founders describe the actual problem. So if you can make the case, uh, which HubSpot did, it's like, okay, w- we... It's not like we immediately jumped to that like, "Oh, we have this epiphany and we're gonna build the all-in-one, do all the things," kind of thing. We're like, "Oh," in actually talking to customers, 'cause we've, we considered doing like, "Oh, we'll just do this marketing piece, we'll just do this," or whatever. It's like, no, th- that- that's not their issue. Their issue is like, it's not that th- these things don't exist. So if you a- as a result of talking to customers and understanding the problem deeply come to the conclusion that you need to do more than just one thing, b- but then you should force yourself to have the discipline that we did, which is here's why we're gonna j- go a little bit broad and here's how we're gonna make sure, uh, that that broadness doesn't kill us, right? You have to have the kind of self-imposed constraint. You can't have the best of both worlds. You can't say, "We're gonna be all in one and, oh, by the way, we're gonna be the best." No, you can't be the best. You can say, "We w- will be... We solved this particular problem the best," but we're not gonna have the best product, uh, even in, along those, any of those dimensions.
- LRLenny Rachitsky
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- 57:33 – 1:02:44
Using flashtags to communicate opinions
- LRLenny Rachitsky
Okay, I'm gonna go in a totally different direction for now and see where this takes us. I wanna talk about flashtags.
- DSDharmesh Shah
Sure.
- LRLenny Rachitsky
So this is something that you came up with that came from a problem of you're a founder, people come to you for feedback, you give them some random thought, and they treat that as gospel and they go do it and spending months fixing something that you're like, "Oh, just, it's just a thought." Um, talk about flashtags.
- DSDharmesh Shah
Yeah, so, and this is exactly the, the, the problem, right? It's not just, once again, most things, uh, exist at every level of abstraction, so anyone that manages people, anyone that leads has this exact same issue. It's the megaphone issue, right? Like, someone will pass you in the hall, when we had offices in halls, um, y- (laughs) um, you know, they'll ask you, uh, like a question and as it turns out, uh, this is particularly true of founders, like I have an opinion on everything. Like literally everything. So if you ask me a question, I will have... It won't be thought out, it won't be right, but I will have one, right? And, um, and so the challenge is people will kind of take that and over-index on what was an opinion. And because it's inefficient to qualify every time someone asks you something or every time you put an email out there and say, "Oh, by the way," it's like, you know, this is just my opinion. You can put like, you know, IMHO or something like that every now and then, but then, and like people say, "Oh, that's just like politeness," or something like that, right? Okay, so here's what flashtags are, literally, and I live, uh, most of my life, uh, through email, but I do this in other media and, as well, is it's like the hashtag that we all know, but it's a discrete set of them. Uh, an escalating set of, uh, what I call the kind of dying on the hill spectrum. Okay, so here's, here's how it goes. The bottom hashtag is #FYI and the definition of the #FYI is I came across this interesting blog post or I found this news or whatever, just letting you know. No response expected. Fine, go on with your life. Next level up is #suggestion. I have this thought that came into my head because I l- listened to the episode on Lenny's podcast with Sam from Microsoft or whatever and th- and this feels like, like it'd be a good thing to kind of explore. But #suggestion means I still don't expect a response, you don't have to do the thing I'm asking, but it is something that I would do if I were you or at least I would consider if I were you. Okay, next level up is #recommendation. #Recommendation is I've thought about this a lot. I've done some research, I've done some digging, I've done some soul-searching. I would do this. It's still not a, "You have to do this," but if you decide not to do this, I would appreciate a response in terms of why you don't want to do this, what you learned in the process of exploring this particular thing, other alternatives or something. So i- it's like a response expected, but still not a mandate. And then the last one is #plea. I beg of you, we don't have mandates at HubSpot, I have thought about this so much, uh, like to my core in my soul, I believe this is the thing we should be doing. I'm going to plea with you to please just do this. Um, still not a mandate, by the way, um, but that's the... And so now it's commonly accepted, like, it's on the wiki, like people know. It's like, and I use this multiple times every day, other people at HubSpot use it, um, it is remarkably effective.... because they're self-descriptive. Hashtags are searchable, right? Because you can go back and it's like, "Oh, I wanna know the last five hashtag recommendations that I made, how those turn out." Uh, like it's, there's just so much goodness that comes out of it and it's not hard to understand or describe.
- LRLenny Rachitsky
It's really interesting that none of them are just, "Just do it." You say that there's no concept of there's no mandates, essentially. Why is that? And do you feel like people, do people just treat P.L.E.A. as, "Okay, I actually just really have to do this"?
- DSDharmesh Shah
So we've always had as part of kind of early, uh, manifestation of HubSpot culture, we kind of believe in autonomy, lots of companies believe in autonomy, and we try to carry that, that idea as far as, as we can. Uh, and, and for the most part we do that. And that's... And the hashtag P.L.E.A. is part of that, right? This is like we trust our people, we try to hire the best, we expect them to learn, and we still want them to, you know, have the kind of discretion to be able to make hard decisions. And we have, um, you know, the cl- uh, we call them DRIs. Uh, it's not... We didn't invent that term, a directly responsible individual. And we'll talk more about, uh, we should talk about more about decisions and how decisions get made. But, but the reason I do hashtag P.L.E.A. is that it's a soft way of, uh, a mandate without being a mandate, right? It's like, okay, like... And by the way, like the number of times that happens is like I can count on the fingers of like one hand and still have fingers left over, right? Like that almost never gets to that.
- LRLenny Rachitsky
Mm-hmm.
- DSDharmesh Shah
Um, uh, because either I talk myself out of it. It's like, okay, and this goes to the, is this a d- hill I'm willing to die on, right? It's like, okay, um, I get it. I may disagree. Is it the end of the world? Um, you know, is it really gonna do that much harm? And is the cost of kinda imposing that kind of founder card, uh, you know, like, go do this. Um, does happen. Just not that often. Um, so yeah.
- LRLenny Rachitsky
Awesome. And we'll link to the... There's a post you wrote about how to use these.
- DSDharmesh Shah
Yeah. It's flashtags.org if you want a quick way just to get to that blog post. Like I believe in domain names and shortcuts, um, because I believe in simplicity, so...
- 1:02:44 – 1:09:41
HubSpot’s decision-making process
- DSDharmesh Shah
- LRLenny Rachitsky
You mentioned decision-making. There's something interesting there. Talk about how you make decisions at HubSpot.
- DSDharmesh Shah
Like most organizations, HubSpot historically has made decisions poorly. Um, it's, it's just all a spectrum, right? I think, uh, decisions are one of the hardest things because it's hard to strike the balance. Um, and we, and we've evolved it over. I think we're much better, um, uh, than we were in, in our earlier years. The things we get wrong, most people get wrong. Uh, and so I'll tell you the things we, we get right now is that, uh, so we, we like to be... We're very, uh, data oriented. Uh, we like to make data-informed decisions, but data doesn't make decisions. People do. Uh, right? So there's like that's like thing number one. Uh, it's like, you know, you have lots of geeky founding companies or whatever. It's like, "Oh, like we have a chart that says this, so we should go do that." Uh, that doesn't work. Uh, it doesn't work at HubSpot. Like data's awesome. Uh, and we also, um, have one position that we designate to make the decision. And that is not necessarily the executive overriding that team. It's like, okay, well, so and so... Like, and we as... And they literally own that. And we didn't invent this idea either. This, uh, this existed long before HubSpot, but it actually works. It's like you have to decide who's gonna make the decision. And that is the, like the nu- almost the number one decision, uh, to make. And it's like, okay, uh, don't pick people you don't trust to make the decision. And so that's kind of thing number two. And the biggest mistake, and we used to make this much more than we make now, um, is... And this, and, uh, Amazon has taken this really well. Uh, they have, theirs is called disagree and commit. Um, uh, we have a slight twist on it. I'll tell you why we twist it a little bit. Uh, ours is, uh, debate, decide, unite. That's our kind of phrase that we use in, in HubSpot culture. But the idea here, the core premise of it is that once you make a decision, getting alignment around that decision... Because there will always be at any, any amount of scale people that disagree with that decision because they were debating the other side, right? Like they just didn't like... They went... They would have picked option A and we ended up picking option B. But it's extremely important, uh, that even when a decision gets made and we decide to do something that is contrary to the thing that you believe and would have debated for and did debate for, you lost on that particular one. Fine. Um, hard to do, but so important and so valuable. Um, and I'll tell you why, uh, we tweaked, um, the Amazon one. So the disagree and commit sounds a little bit harsher than we like, right? Which is like a, "It's fine if you disagree, but then F-ing commit," right? It's like, okay. I, I get that. Um, I'm, I'm biased. Um, but, so the debate is, okay, so let's have open debate. Let's get all the options on the table. Uh, let's actually make the decision, and then it's unite around that decision. Not just, because it's like, okay, let's, let's kind of come together around that. Um, and that sounds more HubSpotty. Uh, so anyway, that's what...
- LRLenny Rachitsky
It is a lot more friendly. I was thinking that as you were talking. Debate, decide, unite.
- DSDharmesh Shah
Yeah.
- LRLenny Rachitsky
Versus disagree and commit! And then there's like, have backbone, you know, in that one. It's, uh...
- DSDharmesh Shah
Yes.
- LRLenny Rachitsky
So I like that part.
- DSDharmesh Shah
The other thing I'll, I'll tell you, and this is-
- LRLenny Rachitsky
Yeah.
- DSDharmesh Shah
... uh, partly a HubSpot thing but partly a me thing, and this will not surprise, uh, surprise you at all, is I, I like to think systematically, uh, around decisions, right? And so I'll, I'll give you an example. Um, the question I ask myself when faced with a, a decision or a thing that I'm trying to do is like, okay, if I could write Python code, a Python function to come up with an answer to this, what would the variables or the coefficients... Uh, okay. Well, let's, let's say you're not, uh... If you were making an Excel spreadsheet to make this decision, what would the columns be? All right. You don't have to decide the weights, but at least decide the factors. Then the next step is like, okay, I... Here are the factors that I think matter in the making of this decision. I'm gonna decide between these seven options. Here are the things I'm gonna look at, right? Like you could, you would do this for picking a school to go to or, you know, it's like it, it works, right? And you don't have to take it, uh, to the nth degree, but the exercise of going through it is like, okay, well, step one, if I can just identify the factors that I think should impact this decision, that's an 80% win right there. Not because it's just in your head. If the team works collectively to say, "Okay, here are all the factors that I think should contribute to the making of this decision-"... then number two is, okay, we can't assign exact weights, so we can't write the Excel formula just yet, or the Python code, but can we at least stack rank the factors? Like this factor's more important than that factor. Now you get a closer sense of approximation, right? You're still not gonna use the spreadsheet to make the decision, but the human making a decision has much better information they had than pre going through that exercise. One of the mistakes people make around decisions, and, and Amazon has written about this, uh, I'll, I'll give you kind of my take on it, is that the calories you spend on a decision should be proportional to the consequences of that decision, pure and simple. And he, he calls 'em like, uh, one-way doors versus two-way doors, which is a kind of a binary heuristic, which is, uh, I love the elegance and simplicity of that. I'm taking it one level further, um, which is, it literally should be proportional. Like okay, if you have a really, really big decision that's gonna be expensive to change, really, really spend a lot of calories making that decision. You might still get it wrong, but it, it's worth it, right? Like that's, um... And it's not just around decisions, it's around activities and bets and things that you're gonna do, um, is that the calories you spend should be kind of proportional to the kind of the outcomes that, and, and what you're seeking and the value of it. And that's one of the things I try to apply to my life is like, okay, like my geeky nature wants me to go, uh, you know, nine miles deep in, you know, you know, start writing code and do this thing or whatever. But I, I found that that one simple thing is like, okay, is this like a first order approximation where I can just identify the factors or I can like... And, and the other thing that helps, by the way, is then we'll talk about this, um, so one of is my default position on most things, I don't mean this in a negative way, is no. It's like, oh, shiny object, should I go do this? No. And then I have to sort of force myself, okay, like I need like reasons to say yes. I have to kind of force myself, because it's easy to say I love new things, I love new people, like I, I love all that is then so I have a, I have a like a sorry but no post, uh, on my blog that, uh, life-changing for me. Uh, and so, so the idea there is that, um, this is goes back to one of the other first principles is, uh, time is one of the few kind of constants, right? It's like the... So every time you say yes to something, by definition you're saying no to something else. And so this is goes back, uh, to the, the kind of product heuristic we were using in the early years of HubSpot. It's like, oh, when you put something in, you have to take something out, because we want to kind of keep the complexity roughly constant if we can. Same thing, so it's okay to say yes to things, but then you have to force yourself based on the calories that you're committing to, to say, okay, well what am I gonna take out of my schedule, out of my life in order for me to be able to make room for this thing? Because...
Episode duration: 1:41:43
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