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From Day 0 to IPO: What Went to Plan, What Most Certainly Didn't

HubSpot went public in October 2014, validating CEO Dharmesh Shah’s focus on content and inbound marketing. Here, he shares his insights on pricing, team composition and enterprise versus SMB customers.

Over the next few days, DataFox will summarize the SaaStr 2016 panels. If you miss the tactical theater or strategy stage, are networking on the ground, or didn’t get a chance to attend this great conference, we’ve got you covered.

View all SaaStr 2016 panel summaries

Special thanks to Jason Lemkin of SaaStr for putting on this conference and giving us the chance to publish these summaries.

In a nutshell:

  • MBA’s aren’t a surefire indicator of failure (we at DataFox don’t think so - our CEO and head of product are both business school grads).
  • Be flexible around pricing, and don’t cut yourself off from revenue streams.
  • Find the customer success metrics that work for you.

A startup’s chance in hell

Shah’s formula for success looks like this: 1%*1/(2n), where n is the number of MBA’s on the early team. HubSpot’s entire executive team had graduated business school; its success was pretty darn improbable. And they made some mistakes along the way.

Startups, Shah says, should focus on doing one thing well. HubSpot did the exact opposite. In an attempt to eliminate market risk (rather than product risk), they started asking prospects to pay money. They charged $250 a month across the board, which eliminated the possibility of charging Fortune 500 companies more. They wanted to get evidence that people would pay for their product, even if it wasn’t that good.

Now, they’re using a flexible pricing structure, and more than a product, they’ve developed not just a brand, but a movement. The new narrative was, “take everything you know about marketing. It’s wrong.” They essentially created “inbound marketing” - a risky strategy, Shah admits, that can be expensive and offers a low probability of success. They’re still on the fence on whether creating the “inbound marketing” category was a good idea.

Crazy theories

Shah offered three somewhat controversial ideas:

  1. Not all MBA’s are predisposed to failure (HubSpot’s proof enough)
  2. It takes more than technology to build something big - you also need a philosophy.
  3. At least 100 people in the room will do crazy things and build a $100m ARR company.

Other tips

HubSpot developed a customer happiness prediction algorithm that could tell them, beyond just cancellations or non-cancellations, whether their customers genuinely got value. They used the Net Promoter Score to determine customer satisfaction, with so-so results. What was better, they realized, was behavioral data - login recency, employee churn, and other factors.

 

Check out all of our SaaStr panel summaries here, follow us on Twitter at @datafoxco to see live tweets of the event, and visit SaaStr itself for more great content.