# Hubspot Co-Founder Dharmesh Shah on The 3 Risks All Startups Face

Angel Investing Rules; No Founder Meetings and No Due Diligence, SMB vs Enterprise; Lessons on Pricing, Distribution and Why You Should Resist Going Enterprise

20VC · Jun 13, 2022 · 64 min · 15,732 words
Speakers: Harry Stebbings, Dharmesh Shah
Source: https://www.996.fm/episodes/20vc--ep-2f1f9461/

## Cold open

**Harry Stebbings** [0:00]:

Welcome to 20 VC with me, Harry Stebbings, I'm so excited for this guest today. I've been one of their biggest fans for a long time. And so I'm so thrilled to welcome Dharmesh Shah, Founder and CTO at HubSpot, a full CRM platform with marketing, sales, service, and CMS software. Now Dharmesh started HubSpot in 2006, and today, it is a publicly traded company with over three and a half thousand people and a market cap of $16,900,000,000 as of today. Prior to founding HubSpot, Dharmesh founded Pyramid Digital Solutions, which he bootstrapped with less than $10,000. And after eleven years of CEO ship, Dharmesh helped the company get acquired in 2005 by SunGard Business Systems. In addition to all of this, Dharmesh coauthored inbound marketing. Dharmesh founded and writes for onstartups.com as top ranking startup blog and community with over a million members. And again, if all of this was not enough, he's also an angel investor in over 90 companies, including Coinbase, AngelList, Gusto, Okta. And I just wanna say a huge thank you. This schedule was a real team effort. Danny Hersberg, Kieran Flanagan, Pat Grady, Jay Simmons, and Ron Gill, huge thanks for your amazing questions and really does mean a lot.

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## Conversation

**Harry Stebbings** [3:44]:

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, Stay First.

**Dharmesh Shah** [3:50]:

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

**Harry Stebbings** [3:58]:

Listen. I'm so thrilled that you agreed to it. I have no idea what made my British accent appealing to do, but I'm thrilled to make it happen. I wanna start also. I heard a little bit of 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. Can you take me to that party? What happened between you and Brian and how that led to HubSpot?

**Dharmesh Shah** [4:20]:

It's a fun story. So both Brian and I joined this class at MIT for grad school. It's part of the business school. They had this kind of mixer, social cocktail party thing, so the incoming students and the classmates could kind of meet each other and significant others were invited. 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 I don't know anything about or don't care about, because I'm the kind of hyper introvert, and there's no exaggeration here. My wife, on the other hand, is not. She's at the other end of that spectrum. She's super friendly, loves meeting people. So, what she'll do at these kinds of events is she'll kind of scout the room. Now, 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. I think you'll really like her. And then she came back, and this is interesting. She came back and said, yeah. I met this guy, Brian. I don't know that two of you are gonna hit it off because he's got a sales background. He's really into sports and the Red Sox. And it's like you just don't have a lot in common. That was her first and I've known her twenty five years. And, you know, at the time, it has been ten to fifteen years. So and I trust her judgment. Like, she knows me, and she's been right pretty much a 100% of the time, except this one time. So then classes start, and I get kinda get to know Brian, and he's in there, and I remember him from the party because I did say hi that evening. I wasn't curt. I'm still, like, a pathologically polite self, but didn't connect more than that kind of very brief interaction at that cocktail party. But then we're taking classes. And the more classes I take, the more time I'm around him, I'm like, hey, this guy's smart. Yeah, he may have kind of grown up in sales, but he's like no salesperson. I know disparagement intended to salespeople. They're just different, wired differently than I am. And we just hit it off. And then about midway through kind of graduating, we started noodling on the possibility of us doing a company together, 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 because I had done startups my entire career. That's all I pretty much knew. And then she had known me even before I had done my first startup. And she likes to joke, somewhat jokingly. It's like, had I known you were going be an entrepreneur, I'm not sure that this would have worked out. Because being married to an entrepreneur is not easiest thing in the world. Anyway, so I promised her, and that's why I went back to MIT. I'm like, I'm going to go to grad school. I'll go get a PhD. And my path was to kinda teach. That was the original idea. I was not gonna do another startup. Promised her I was not gonna do it. Then Brian and I met, and we really hit it off. And the reason HubSpot started was two reasons. One, I wanted to work with Brian, and two, we both had a shared passion for SMBs. We can talk more about that later. But that was the original 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 work with and do something with, and it was kinda natural to do a startup. That's the story.

**Harry Stebbings** [6:51]:

Dharmesh, I specialize in going off schedule. 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. Help me out here, Dharmesh. What's the secret to such a fulfilling and wholesome marriage?

**Dharmesh Shah** [7:03]:

The simple thing is you have to kinda enjoy each other's company. That's the number one thing. Enjoy spending time with each other. I think number two is there has to be kind of mutual admiration and respect. And those are much easier things to define than love. It's a little familiar. 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 good people in the world. And it's interesting, and we're very complimentary. So she's not from tech at all. She was a pharmacist by training. Kind of what made us hit it off over the for 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 she wants to save the world. She got an environmental degree, like she's out, and I want to own it. I'm the capitalist, warm hearted, but red blooded capitalist. So we make a good pair. I'm out and relatively good at making money, and she will be great at channeling it to good causes.

**Harry Stebbings** [7:47]:

Absolutely. I heard about you kind of giving away 90%, which I thought was awesome. I do wanna start on your leadership style though because it's a fascinating topic. Bluntly, you're an even more fascinating subject than most when we dig in. So when we think about leadership styles, how would you describe yours today? And then reflectively, how has that leadership style changed over time?

**Dharmesh Shah** [8:05]:

You know, I struggle with the word leader. I really think of myself as that. There are a few kind of fundamental core attributes to my operating style. One is around transparency. And what I mean by that is that whatever it is that's going on in my head, I share it. It's like, okay. Well, here's what I think we should do. Here's the path I think we should take. Here's what I think is broken in the world. Here's what I think we did well. Here's what I think we didn't do well. And I kinda put it out there. That's kinda number one thing is transparency. And then kinda combined with that, and it's gonna sound weird saying the word because it's a paradox in a sense, but is around having the humility to kinda listen. It's like, okay, if you put the stuff out there, but you have to be 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, but that doesn't necessarily mean that you're right. Kind of having the humility to say, I'm still constantly learning. Every interaction I ever have with anyone, be it a person or company, whatever it is, I feel like there's something to be learned there. Does it have the humility to know that you don't know everything? And then we're all kind of on this journey at varying stages. We've picked different paths. I kind of value it in myself. I recognize it, and I value it in others. Like, the best people I've ever met have a very low ego to accomplishment ratio. We all meet lots of people that have accomplished a lot, but then their ego kind of balances out. So, the ratio itself is not great. The best people are the ones that have accomplished a lot, but have very little ego in proportion to that.

**Harry Stebbings** [9:25]:

How do you test for that low

**Dharmesh Shah** [9:27]:

ego, high accomplishment when hiring? When hiring, it's actually relatively straightforward. Do they take full credit for this all the awesomeness that has happened to them or around them or because of them, or do they share that credit? That's one thing. Even post hiring, which is an easier question to answer, the best people in my mind or my experience, HubSpot and otherwise, are the ones that when things go wrong and things will always go wrong, they will shoulder the responsibility. They're not trying to shift blame. It's like, yeah, this went wrong because we didn't get the budget or this person 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. 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 beat the numbers or accomplished this. But it really was Susie 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. People that have that low ego tend to give disproportionate credit to others in terms of what they've accomplished.

**Harry Stebbings** [10:18]:

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

**Dharmesh Shah** [10:34]:

I'll say this. The it kinda falls into the kind of biggest mistake, and we still have not recovered from it yet. And I'll give you the context. So when HubSpot started, first it was Brian and I. We met in grad school, as I mentioned. So he was CEO, we'll talk about that. I was CTO. Our VP of Sales was from MIT grad school, same school. Our Head of Marketing, same school. Head of engineering, same school. So the first six hires, all men, all from the exact same school, same program, not necessarily the same graduating years, but just in that little cluster. So the mistake, I think, and this was blindingly obvious now, was not obvious to us then. It's the opposite of diversity in terms of the team. And we had not really even thought about it. To be candid, this was sixteen years ago. So we hadn't really deliberately thought about culture or diversity, all those things. And it was about five years later before that kind of became one of the core pillars of HubSpot. But if I could do it all over again, that was the big mistake. The challenge with that particular mistake Okay, so I'm gonna take a slight excursion here. It's related, but it's important. So we all understand financial debt. 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. We have then kind of translated that into something called technology debt. 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. That's a well accepted term. People know it. Along the same spectrum, there's a thing I call culture debt. And culture debt is when you hire 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. 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. That's a problem. Right? It's like, made this bad hire. They're just jerked. No one likes to be around them. But the problem is you never really can fully pay it off because it's so toxic. So, like, for instance, if you make a bad hire in your first 10 employees, let's say just one bad hire, the next 40 people, 50 people, 100 people that join are going to be impacted by that person. It's like, here's what's accepted here. This is okay. This behavior is 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 later, like we are now, you're still sort of paying that price. So that was my kind of biggest mistake, hardest one lesson is not investing more intentionally in culture earlier.

**Harry Stebbings** [13:07]:

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

**Dharmesh Shah** [13:17]:

Yeah. So there's only one deck. It's called the Culture Code deck. The reason it's called the Culture Code, my manifestation of if I could write an operating system, literally write Python code, let's say, to run the company and help make decisions and do these things, this is what it would be. On the top three list of things I've learned in thirty 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. 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. 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 dragged What

**Harry Stebbings** [14:27]:

is the right way to bring employees into culture creation process with you? Is it a simple what questions do you ask? How do you ask them? How do you get that feedback?

**Dharmesh Shah** [14:37]:

So every company has a culture, whether you deliberately designed it or not. The hope is that by being intentional about it, can get the culture you want versus one that's kind of thrust upon you. And the second law of thermodynamics is your culture will suck outside of intervention. So the way you kind of involve people is you involve people. And this is a painful process. I will tell you, I began writing the Culture Code deck. This was, I'll say, maybe eleven years ago, give or take a little bit. I was kind of volunteered into it by my cofounder, Brian, who had gone to this 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, sit in a circle and do all that kind of thing. No. I'm kidding. But they did sit in circle. One of the topics one time was around culture and how important culture was. And we were early in our history at this point. He comes back to me. We have one of our founder's dinners that's that are multi hour affairs. And he's like, Dharmesh, I just got back from my CEO club kinda meetup thing, and the topic was culture. And they're like, culture is, like, super important. I'm like, awesome, Brian. It's super important. It's like, why don't you go do that? Like, I have no idea what you mean. 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. But I was a team player. I'm like, okay, fine. So I originally treated as a data collection exercise. My So assumption was we already have a culture and it feels like it's working. People seem to be happy, but let's find that out first. So I ran a survey. It's like, hey, working on culture at HubSpot. I wanna know whether a, you're happy at HubSpot or not. It's a product. And if so, why are you happy? If not, why are you not happy? A weird thing happened when I sent that first email out 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, so this is what we're doing now. So now it's gonna be like putting mission statements up on the wall. We're gonna become one of those companies. And by the way, these are all people I had personally hired and recruited. This is not random folks that had never met me. It's like by virtue of even bringing up the topic of culture and asking very benign questions. It was not a 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? Once we got through that, talked people off the ledge, I understood better why they were reacting negatively, is because culture as it had been practiced before was mission statements on the wall and highfalutin words like integrity and this and excellence and whatever. And that's what they thought we were going down. It's like, okay, well, we've always been a very practical solve for the customer thing. And now it feels like this was one of those big company things where you bring management consultants in and come up with fancy words like integrity and excellence. So, once I convinced them that it was not my intent, once we got through that, 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? And the way I had framed it in my head, hence the name Culture Code, is if I could write a function, what would the 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 to be maybe not causal, at least correlated with success at HubSpot. And that's when we came up with the original set of what some people call values. I think of them as coefficients or the attributes of people. And transparency was up there. Humility was up there. Empathy was up there in terms of the attributes that really kind of stood out. So, once we had that, then we had, it's like, okay, well, these are the kinds of people that succeed at HubSpot and tend to be happy at HubSpot, thereby creating other people that are happy at HubSpot. Let's hire more of those people. So, we used it as a 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 be 10 out of 10 on each of them, but these are the things we care about. And they're not excellence. They're humility. They're transparency. They're empathy. Adaptability. 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 in kind of stage of evolution you are, the best time to work on culture is time t equals zero. Simultaneous to thinking about the product, think about the people. I'm not suggesting you write 128 slides in that first month, first year, but at least 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 wanna attract. So the best time is time to equal zero. The next best time is time to equal now. So if you have not done it yet, wherever you are in your overall kind of evolution, start working on it now. Start having those conversations.

**Harry Stebbings** [18:49]:

Can I ask, you know, when I when I look at you and I listen to you, Stebb, Dharmesh, 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 in humanizing for founders to hear even people like you have insecurities in operating. What do you think are your big insecurities today operating?

**Dharmesh Shah** [19:08]:

The big one is just around impostor syndrome. Everyone has it. People talk about it. I've had it my entire life, and I didn't know what it was called until much later in my life. So my insecurity is the fact that I grew up with very, very modest means. And that's okay. Lots of people, you know, grew up with, but I just didn't have access to like a world class education. I didn't get even access to a computer or technology until I was in my twenties, which is kind of unheard of. Right? So I feel like I'm constantly catching up. Like, others have a massive head start. And I think I'm a reasonably smart guy, so I have a decent amount of confidence there. But in terms of just raw exposure, things I've experienced, things I got exposed to early on in my career, I just didn't. And I have an insecurity around that to this day. Right? It's like, Well, you know, Zuckerberg and Gates and these folks, whatever, that are some of icons of tech. It's, wow. Like, they went to the best schools. They had computers when they were, like, 12. They were programming when they were 14. 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, do I even have a fighting chance of ever accomplishing anything given the kind of slow start I got? Do you compare yourself to others? Not really. No. I also don't keep score in the classic way. I've never really had, like, goals. Early in my career, kind of money mattered to me simply because I like to shape the universe to my liking to some degree. 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. But other than that, I really don't kind of compare. I'm competitive, but not as like, oh, well, I wanna be x or y or z. I don't tend to do that. But I love learning from people. I have immense amounts of respect, But I like different things about different people. To the degree I have any kind of superpowers, 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 to, okay. I can sit through a one hour, two hour talk, and if I get thirty seconds of just value out of it, that was worth it. I don't begrudge that time because the rest of it just wasn't relevant or wasn't good.

**Harry Stebbings** [21:07]:

You said about modest means that when you were growing up. Obviously, your son, who I think is 11 or 12. Obviously, he has a very different lifestyle than you did growing up. How do you instill the same work ethic and values given a very different style of upbringing? It must be tough. It's borderline impossible

**Dharmesh Shah** [21:24]:

because it's such a diametrically opposed thing. So then the question is what we will call drive or ambition or just this kind of need to build or create value. Is that innate? 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? One could easily 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. Comes down to survival. Having said that, the one thing that I have found works better is to tap into the things he does care about and like. And he is one to kinda keep score. Obviously, he loves video games like many children his age. But one of the things I've done recently, short excursion, is that So he's taking a Python programming class, doing all the things I loved. And I'm trying to relive my life through him. He asked for it. He's been wanting to do it. He loves tech. But then I'm like, okay, well, it's really abstract for him. He doesn't really know building these kind of very, very crude simple games because he's hasn't even had Boolean algebra as a class yet. So, it's hard to teach him, but he's learning. So, it's like, okay, well, I'm gonna build an app on a weekend. I decided on Saturday evening, I'm gonna build an app and I wanted to build I'm not gonna tell you the backstory for why I chose this, but I don't know if you've ever played Wordle, the Word game. Love it. So I decided to build a Wordle trainer first. And then ultimately I built a Wordle, we'll call it a competitor for lack of a better term. Anyway, so Saturday night, I decided 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, So, hon, 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 kinda watch this little thing that was nothing when we woke up this morning and now it's something more than nothing. Right? It's not necessarily a blowout success, but that helps connect the dots in his head. 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 twenty years ago, but now you can. The entire world is connected by this beautiful thing called the Internet. And that thing, by the way, took off. Now it has 6,000,000 players. It's called wordplay.com. He and I kinda share the product management in terms of what features to add, he uses the app every morning, does the bug testing, and reports stuff back to me. It's it's awesome.

**Harry Stebbings** [23:40]:

I absolutely love that, and it's such a cool project to do together. When we think 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. How do you think about the weighting of product versus distribution? I think like the building they will come is crap. It's all in distribution. Like, you're a Wordle competitor? Yeah. But you've got 300,000 followers on Twitter and you could start flywheel like never before. Do you agree with me? And how do you think about that product versus distribution?

**Dharmesh Shah** [24:13]:

I do agree with you. So I'll share this with you. And this is something we apply to HubSpot, something I believe for a long time in terms of startups. And I've been in and around startups pretty much my entire career. There are 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. You just can't create it. That's risk number one. Risk number two is you're able to build it, but that there's a risk that there's just no market for it. There's no customers. 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 a product. There is a market there, but the capital necessary to actually build a business around that product, you either can't get access to or you can't make it happen. That's the kind of financial risk or capitalization risk. Most founders, 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 tool, either they don't think about it 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. May take you six months longer, year longer, but you'll be able to build it. We have a hard time stipulating that even if you have 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. 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. There's no way I'm gonna be able to sell it.

**Harry Stebbings** [25:33]:

How do you test for market? Because 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?

**Dharmesh Shah** [25:43]:

I'm a little bit old fashioned this way. The way to test a market is to create something of value and get value in exchange like money. Build a product, charge for the I'll tell you what HubSpot did. And this is one of the thousand things that my co founder Brian and I completely agreed on. Like, we talked about this all the way through. And we've talked about exactly this risk. It's like, okay, we're not splitting atoms. We're not creating a new energy source. We're putting someone on Mars. Let's assume right now that the product we have in mind that we'll be able to build. 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. 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. One can 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. Because in order to ask for money, have to know what you're going to ask. So I'll tell you the conversation that Brian and I had in order to kinda determine the price for HubSpot in year one. By the way, context building, we had just been through two years of business school. So this is not like, oh, we're like engineers that never heard, like, what's pricing? We had had a pricing class. And so here's the conversation. It's like, we both agreed we need launch a product. Yes. We need to launch a product. We need to charge money. Yes. We need 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. So, we picked our price point and we launched it. In hindsight, it was a little naive, but the one big value to it, it was simple. 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 money on the table? Are we leaving transactions on the table because we're too high, too low, whatever? 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 other important and right decision we made, number one, was getting a price out there, charging early even though the product sucked. Decision number two is that we were 100% on a month to month program. If you bought the product, in month two, you figured out the products, yes, it did suck just like the founders told me, but the value wasn't high enough, you could cancel. So every month, any given customer could cancel. And it was that way for years at HubSpot. And the reason it was that way for years, even though all 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 a 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? If you sign a one year contract with a customer and they can't cancel in the first twelve 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. I'm a massive believer in the importance of distribution, the importance of figuring out whether there's a market. Yes, you need to have a exceptional product, but more companies fail because they fail to find a market than because they fail to build a reasonable product.

**Harry Stebbings** [28:25]:

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

**Dharmesh Shah** [28:34]:

Yeah. I will say this. If you do raise prices, and we have, most of the numbers you track will get better. I don't universally agree with that sentiment of just raise prices and everything will work itself out. Here's why. And this goes to the kind of enterprise versus SMB debate a little bit as well, is that as you raise prices, it's relatively easy to raise prices. And when we went from $2.50 to 500, we made a very simple decision very early that says, okay, everyone that had purchased at $2.50, 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 to this day. But the reverse is not true. So, let's say you raise the prices from $2.50 to 500 to 1,000. And then let's say you somehow figure out that you overshot the market. Like in the last price jumps, either the market changed or you overestimated the value you're providing, whatever it is. Let's say the actual number should have been 700. 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? The only reasonable answer, because it's a subscription model, is you have to give them a $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, by this example, 30%. That's a problem. So, that's why it almost never happens. You never see companies, subscription companies reduce their prices because there's an immediate hit on the thing that we care most about, which is that ARR stream. Yes, try to find a good price. But I've always found that, I'm gonna use it in abstract sense, but I almost mean it in a mathematical sense, that generosity actually has a long term return. When I say generosity, I don't mean out of the kindness of your heart. I mean generosity that says, you are always going to leave money surplus on the table, as the economist might say, and say, oh, I'm charging less than the value that my customers ascribe to this thing. And there's a couple reasons to do that. One is it buys you optionality because you could always raise prices later. So why not keep them the same today and be generous? Bills goodwill. And then it's like when you have the inevitable downturn, which you will, you're already sort of in a relatively good position. It just tends to work out better. It's not to try and eke out every last kind of point of surplus and try to price optimize to not leave money on the table. Think that's a

**Harry Stebbings** [30:34]:

long

**Dharmesh Shah** [30:35]:

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

**Harry Stebbings** [30:36]:

I love that in terms of the generosity. I think one thing that really frustrates 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 800 k ARR. I mean, we're so undersaturated on SMB. Why are we rushing to enterprise? 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?

**Dharmesh Shah** [31:00]:

Yeah. So I have strong opinions on this and I'll share them. I told you when Brian and I started the company, one of the top two reasons we started HubSpot was we wanted to work together. The second reason was we had a passion around SMB. Now I'll tell you why we had a passion around SMB. We both had grown up in enterprise software. That was our background. My first software startup was an enterprise software. And we knew it sort of sucked. It had always kind of sucked. It's hard, I should say it, but it's even harder now. So in the nineties, which is kind of the heyday of enterprise software, life was good. You signed multimillion dollar contracts, but then you had this kind of over purchasing and you had this kind of glut. 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, who thereby 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? Kind of thing number one. Sales cycles are longer. So, I believe that the smaller your feedback loop, the tighter that loop is, the more likely you are to succeed. I'm a big believer in the quality of the outcome is based on the number of iterations. That's the one predictor of it. So, if I can go through something a thousand times and someone else went through it a 100 times, I'm gonna do something fundamentally better. I just believe that as long as you have a data piping back into the system. On the enterprise side, because the sales cycles are so long, the amount of data coming in, which is the amount of evidence, the amount of insight coming in, is just one tenth of what you would see in a non enterprise company. Right? When the sales 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. So that's one reason we didn't like enterprise. Let's go to the other end. Let's look at consumer products. 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, it's not a black and white thing, but you can have massive, massive outcomes because the market is so big. But you have also, if you don't succeed, you could go to zero because along the way, 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. It's like, oh yeah, we kinda built this thing for four years, and we sold this consumer product company that didn't really get escape velocity, and we sold it and made $5,000,000. That almost never happens. Right? So you get this kind of bimodal outcome, which we don't like. The value of SMB from an economics, from a startup perspective, is that you have the scale of consumer, 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. Almost the best of both worlds. Now, that's a narrow view of it because the thing that kinda keeps people out of SMB or drags them out of SMB is because the go to market distribution is hard. To make the physics work, to make the math work in SMB is nontrivial. This was definitely true sixteen years ago when HubSpot started. And that was one of our number one challenges is convincing the investor community and 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 dollars in market cap. You didn't really see a whole lot of that, right? There's this thing 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, always. And the only way not to be pulled up into the enterprise is so you have to spend energy to resist that pull. And here's why. So, let's say wherever on the spectrum you are, and 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's like, okay, we're gonna nudge up the price point in the market. We're gonna go instead of going from 10 to 50 person companies, we're gonna go from 50 to 500, whatever is. 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, average, you know, revenue per customer. All those things will look better. The one thing over the long term that almost is never better is 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 ten years has also been pulled up. And now, 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 an 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. It's okay to do things that don't scale. That I'm okay with. If you're doing it for learning and you have a path that's like, okay, well, this is the path all along. But you have to sort of have a plan that says, okay, well 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 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 because you're learning the long lessons. You're not learning how physics work in the world that you're trying to enter.

**Harry Stebbings** [35:39]:

Yeah. Applicability wise, like product messaging, product marketing, customer it's just so fundamentally different SMB. It's much different. I totally agree. I often find it's kind of like desperate search from more market or when they don't have product market fit when they try and go into enterprise as well. Yep. Similar to when they have a second product, a question that I have to you is when is the right time to launch a second product? Often, feel it's just too early. How do you advise founders on when to launch a second product?

**Dharmesh Shah** [36:04]:

Couple of things. One is 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. One could be we were growing really, really nicely, but we were growing so well that now haven't we hit like a 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 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 because 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. 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. And about, I'll say maybe seven years in, we decided that, okay, well, we have marketing software and we loved it. We loved the category. It was growing. And that product now is over $1,000,000,000 in ARR. So, 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. So, you're gonna use Salesforce, you're gonna use Dynamics, you're gonna use one of CRM products, which we knew because we were integrated with those products, 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 a system of record and it was a much stickier, much harder to unlodge, dislodge. And it's like, okay, well, as 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, your revenue or your growth is stalling, the category is dropping, or there's a natural adjacency either for offensive or defensive reasons or both.

**Harry Stebbings** [38:02]:

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

**Dharmesh Shah** [38:07]:

Okay. So a couple of things. One is so I'm a big believer, a really big believer in focus. So my advice, 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 let's assume right now that all the data you're projecting is going be right. Revenues are gonna grow this way, 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, the flip side of the equation is the increase in complexity when you go from product n equals one to product n equals two. 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 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 going to invest in R and 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 campaign. We got marketing budget. It's December. We're trying to use up some funds. How do we decide whether we're going to promote product number one or product number two? All, everything you look at, and it's not an incremental increase in complexity, it's a new dimension of complexity. Right? It's like you're adding another axis to your business. So you have 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.

**Harry Stebbings** [39:25]:

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?

**Dharmesh Shah** [39:38]:

It's a great question. I've tried it both ways. Personally, and this might be asymptomatic of HubSpot, in our world, we tend to do better going all in 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 decide to go into CRM, it was not, oh, let's try to build a CRM product. We'll do it as cheaply as I'm not saying you shouldn't be scrappy. You should. But in terms of, like, commitment to it, I sort of believe might vary in other companies. Other companies might be better at this than we are, but 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 going do it, then you're going to put the best people on it. You're going 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. And the degree you do that, I mean, this is relatively intuitive. It's like, okay, well, if you do that, the odds of that thing succeeding go up. But here's the thing you have to be careful of, is that that bet has to be worth winning. So, if you're making an all in bet and the return, even if 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, you know, we didn't pivot the company, but a pivotal moment in HubSpot history, you know, getting into marketing and sales software that, you know, the company wouldn't be where it is today if we had not made that choice. So, I'm not saying I'm right on this one. I've tried it the other way. The challenge with the other way is then you have to operate in a little bit like a VC model, where you have a thousand flowers bloom or let's say 20 flowers bloom, 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 out whatever metrics you do collectively decide, and then you're gonna kill off the ones that aren't working, and you're gonna double down the ones that are working, and then you're gonna get to Series A and Series B and Series C. And it sounds good in theory. It's just really hard to execute. And maybe others are better at it.

**Harry Stebbings** [41:28]:

When I spoke to Dani Hersberg before the show, she said that you were the disruptor from within constantly, whether it's OnStartups, 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. Lethargy, actually. How do you disrupt from within so effectively?

**Dharmesh Shah** [41:47]:

Qualify the effectively part. I think we do it reasonably well. But so here's the thing. So I've reduced the things that I work on at HubSpot, and this has been the case for now a decade, down to three things. And I changed them periodically, but I get it down to exactly three things. And I'll tell you what my three things are right now. It's platform, the thing we're building, brand, which is a story of HubSpot, and the third thing, which is I think 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 non 0% 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've got our product roadmap laid out, which most companies do at scale. It's like, okay, like we have in our heads fifteen other years worth of like, here's the things we could do. 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. How do you fight that? And the way you do it so we did this with CRM. That one 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, we may not have a company. Right? It's just a matter of time. We don't want someone else to control our destiny. You may not have a convenient existential crisis. 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. 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 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 I'm not a finance guy, but this is like pure Portfolio Theory 101, right? Especially Theory one zero one 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 10 x, 100 x, or higher kind of return. Because otherwise, we're net we're gonna be caught by the regression to the mean over time, right? It's like we keep doing it, growth will look good until it stops looking good, everything will be good until the market stops looking good, and then we're gonna have wish that we dug the well when the house wasn't on fire. It's something that's a constant drumbeat. 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 even gonna 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 gonna do a 100% on things we know.

**Harry Stebbings** [44:27]:

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

**Dharmesh Shah** [44:34]:

And it's like, the easiest way is to celebrate failure. We will have all hands meetings where we'll talk about it. We have a failure forum, especially within kind of product and engineering hour. Here are things that we tried that did not work. And that's fine. So we learned a lesson, we move on. And so that basically sends a signal. And this is particularly useful 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 2021, that means every all hands meeting you have, a decent percentage of the company, this is the first all hand meetings they've ever been to. Founders often will walk around and say, Oh, well, already said this thing like a 100 times around culture, around risk, around bonus, around whatever. 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. And maybe they read some of it in the Culture Code deck, maybe they but they've never really, like, heard it. And so that's the key. So you cannot rely on osmosis 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 when everyone's tired of hearing it.

**Harry Stebbings** [45:36]:

What were the biggest breakpoints in HubSpot scaling?

**Dharmesh Shah** [45:39]:

I don't think about it in terms of headcount. I think about it in terms of, like, milestones in the company. One was around so we had a relatively smooth growth curve, relatively predictable. It's a textbook case. But when we went I'll give you a few examples. Product two, big, big, lots of pain going to product two. First of all, just making the decision to do product two, that was big. Going international, it's like, okay, well, we're gonna not just sell to United States, and we're not gonna just take 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 I think we had no support in other languages, all those things. So that was another kind of pivotal point.

**Harry Stebbings** [46:13]:

Why was Product two so painful?

**Dharmesh Shah** [46:15]:

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. And the year before the IPO is when we made this brilliant decision. It was like, oh, we're getting into CRM. Right? But it was painful because it was supposed to be painful. Right? It's like it's we did the equivalent of like Volvo trying to start getting into like racing cars or something, you know, sports vehicles. 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 that we couldn't do it, it was still software. But like, did we have the market's permission to actually go do that thing? Right? It's like, how would our customers react to this? With Inbound marketing, we had a very strong point of view on what was broken with marketing. Wasn't about the product, it wasn't the software, it was about this entire movement that was happening. And we got up on stages and talked about it, wrote a book, have an event with, you know, 30,000 people. It was a movement. And now, we're getting into an area we don't know hardly anything about. There is no strong point of view. It's like, oh, here's why CRM is broken. This is why ours is better. That would have been inauthentic to say that at the time. That's why. It's like everything we knew, we were not abandoning, but we were like going into uncharted territory with unproven returns.

**Harry Stebbings** [47:26]:

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?

**Dharmesh Shah** [47:44]:

To me, product marketing is all about community and not an abstract sense. Right? So the one of the things that I think 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 start the blog, 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. 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. A 100% of the people cannot agree with what you're saying because then you're basically in the middle. You've regressed the meme. Sorry, do not pass go, do not collect 200. Right? You're you're done. 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 by the booth are your competitors. Right? Yeah. It's like, oh, you sent your last kind of, you know, physical 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 to a VP of Marketing, you're creating the 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? And we're like, that's great. You built this career. Like, you create these things. I'm not saying you should go to zero, but I'm telling you, you're not gonna be able 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 the year's the right way. So, product marketing should be about a community and a story they believe in. That story has to be a story that not everyone believes in.

**Harry Stebbings** [49:16]:

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? What do you think people misunderstand by the buzzword of community?

**Dharmesh Shah** [49:26]:

What people don't realize about community is the same thing they The issue is that community is really around unlocking value for the community members. Fundamentally, that's what it is. When you look at the kind of roots of the word itself, that's what it is. It's gonna 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 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. 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. The 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. Yes, we do get it wrong. And if you think about it correctly, it says, okay, who are the people I'm trying to reach and trying to sell to, to whom this kind of story resonates? 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 are the one that told the story, you're the one that pulled them together.

**Harry Stebbings** [50:32]:

I know we've gone on. I I do have two more questions for a quick fire. One was I got an email from old, old employee of yours, 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. They asked, what is a high conviction belief you have about technological, political, or social or societal changes that most people aren't noticing? So in 2017, 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?

**Dharmesh Shah** [51:05]:

My answer would be that the way buyers and sellers connect is fundamentally broken because you don't own your data. The consumers don't own the data right now. So here's what's happening. The and we we kinda experienced this in the consumer world already, which is, oh, like, when I tweet, Twitter gets a 100 of whatever economic value that I create. Right? Like, directly, if they're they're gonna advertise against it, they may sell subscriptions against it, whatever it happens to be. I make enough. And that in the future, that there will be a more direct because Well,

**Harry Stebbings** [51:30]:

do you get 0% of that value? Because you get distribution. I get distribution, and then we monetize that distribution. You with the WordL competitor, you could sell it. You could sell premium. I monetize my distribution with sponsorships and with Sure. So, we do get value.

**Dharmesh Shah** [51:44]:

We do on the company side. Yes, on the personal side, you're building brand, but it's an indirect value. So, look, so let's say we were even monetized. Like, okay, this is a value that I actually got. 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 how much of that actually flows back, you know, to the actual consumers and owners of that data? So, here's and this has been true of me since I was a little child in the dusty streets of India, 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 an inefficient market. An efficient market is one that all transactions that should have occurred occur, is a layperson's definition. But if you believe that, then what intermediaries are doing are basically saying, oh, I'm going to allow these transactions that weren't happening before on eBay, on LinkedIn, 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 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. And we're not quite there yet. And we may be at a pivotal point in history where technology is starting to come together and make a nonlinear jump in the way we make markets more efficient versus what we may have had with Web one and Web two.

**Harry Stebbings** [53:18]:

Final question before we move into a quick fire. You're on the cap table also of some of the biggest and best companies today as investor. How has Angel investing impacted your operating mindset most?

**Dharmesh Shah** [53:28]:

So I got into Angel investing when I was a grad student with Brian. And the reason I got into it, I'll tell you the quick story, is I had promised my wife I was not gonna do another startup. That was a standing agreement. And then, so I decided, oh, well, I really like startups. Maybe I'll invest in startups so I can live vicariously through other entrepreneurs. Right? That was a you know, it's like it made sense. It's like having a niece or a nephew. It's like you get to play with them, but then you can just kinda hand them back to their parents and then you go back about and and live your life. Right? That's the it's like, that sounds awesome. I get to whenever I want, I can go have the excitement and go into strategy meetings if I want to and do all those things. And then I can just kinda step back into the into the shadows. So that was the original plan. That's why I started Angel investing. And then we made the decision to start HubSpot. And so I had a decision. It's like, okay. Well, do I continue Angel investing? First immediate reaction was no, because I'm such a big believer in focus. I'm like, I can't do that and do this. It doesn't compute. So the decision I made is like, okay, well, there is value to angel investing. Here's what I'll do. I will set up guardrails for myself, and these are extreme, by way. So number one principle of my angel investing is solve for minimizing time, not maximizing return. Because I realize I'm the co founder of a new startup that's like, okay, the the thing I don't have is time. I do have money. I can write checks, but I don't have time. And so everything else flows from that.

**Harry Stebbings** [54:41]:

What's an example of that? Minimizing time, not maximizing value.

**Dharmesh Shah** [54:44]:

I'll I'll give you the the top ones. No founder calls or founder meetings at all, even pre investment, even during the decision process. Investment decision within twenty four hours, if not two. How do you decide without meeting the founder? Over email. How do you decide anything? Well,

**Harry Stebbings** [54:57]:

I I speak to you. I hear about your story, about growing up, the ambition, the motive. I get a sense of who you are and why you're building a HubSpot.

**Dharmesh Shah** [55:05]:

What I said was I don't have phone calls. I don't have meetings. I will exchange emails, right? I have a By the way, this is a topic for another day. I have internal product I built for myself that indexes two plus million work emails that I've had across my entire professional career. So, I can do analysis in like meantime between responses and things like that in terms of Anyway, so I am I have a finely tuned mechanism to kind of judge people just based on tone of email and timeliness of email. So, let's say it's like three days before YC demo day and I send a I come across a company and it's like, oh, this is interesting. I send an email to the founder. The best founders, even the ones that already have VCs interested in banging down their door before demo day, the best founders out of a sense of humility will respond. Even if it's a quick response like, Dharmesh, I'm sorry it took me four hours respond, but, you know, I'm the midst of getting ready for demo day or whatever, it's like, it comes through. And then the arrogance will also come through. Right? It's like, okay. Either a non response, which is fine, even if, like, a week later, they're like, oh, by the way, I'm sorry I didn't respond to you. But it's like, humility, that kind of ego versus accomplishment ratio strikes high for me. And then due diligence in my mind is unnecessary, at least for me personally, because like, okay, well, there's nothing, no diligence to do. Like, there's I can't do that. There's I'm not smarter. I'm not gonna be able to study markets. Don't have the time. And it's worked out. So, I would put all modesty aside, I would put my 100 plus company portfolio over the course of sixteen years against any early stage portfolio that's out there as I edit.

**Harry Stebbings** [56:20]:

My question to you is, okay, so no Founder meetings won. What are the other guardrails?

**Dharmesh Shah** [56:24]:

No negotiating terms. Someone else leads the deal because negotiating terms requires you to actually spend time and do that. So, all these things kind of flow to the kind of minimized time. I don't do this is economically suboptimal. I don't do follow on investments. And here's why. Because if I was gonna do a follow on investment, then I have to kind of pick which of the companies am I gonna do follow on and which ones am I gonna not participate on the follow on rounds. If I don't participate in certain ones, there's a signaling problem for the founders. Like, Well, why did Dharmesh choose not to follow on with you? The way I have it now, a 100% of companies I don't do follow on. There is no signaling problem because everyone knows that. I put it publicly out there. I tell the founders going in, this is my style. This is what I do. So, bunch of problems go and I don't have to spend the time learning about whether the company is worth a follow on investment or not. It's like, doesn't matter. I'm not gonna do a follow on investment. I'm gonna move on to the next one because that decision I can make in an hour because it goes back to kind of step one.

**Harry Stebbings** [57:11]:

I love that. Have you made any mistakes, Angel investing? Where you're like, oh, darn Yes.

**Dharmesh Shah** [57:16]:

Couple of them. One is investing in ideas that involved atoms instead of just bits. And that's a whole difference. I only invest in software because anytime you have a physical product, not to say, know, people haven't created, obviously, trillion dollar companies, you know, with physical products like Apple, but it's just a hard business. It's one I don't know anything about. So, I've made that mistake, I think, twice, and it was early early in my thing. And then secondly is not trusting my instincts when my ego accomplishment thing was raising the yellow flag. It's like, okay, well, because I fell too much in love with the idea and what the company was doing and didn't read the singles. It's like, okay, this founder doesn't feel like the Harry Stebbings of the world. He doesn't have that high bar of humility. Oh, you

**Harry Stebbings** [57:55]:

don't know me at all if you think the high bar of humility would be. Final one. What's the biggest miss? Everyone has a miss.

**Dharmesh Shah** [58:02]:

The biggest miss? Let's see. I've had a lot. Dropbox was one, and it was a weird story. And it was a miss because Drew and I were already friends. I knew him before he started Dropbox, talked him out of the prior startup he was going to do. We would meet regularly. He's another MIT guy. And it was a miss because he thought me too much of a friend to ask, and I thought him too much of a friend to offer. And so I never and then I it was much years later, that's like, wow, that was stupid. Can I invest? And I was like and so I did. And I had a couple of investments that got acquired by Dropbox, I ended up having, you know, pre IPO shares. But I was not in that first round, so that silly reasons, but

**Harry Stebbings** [58:33]:

Listen. I wanna move into my favorite, which is a quick fire round. I could talk to you all day, Dharmesh. It's been fantastic. So let's start with your favorite book and why.

**Dharmesh Shah** [58:40]:

Les Misrabe, Victor Hugo. And the reason is because it's the best book written of all time. Everyone should read it. Favorite this is this gets harder as far as nonfiction. I really like Getting to Yes. It's a negotiation book. That's one that I I have read multiple times. I love Innovator's Dilemma because that's sort of part of my job. So I reread that every couple years and send people excerpts, from it. So that's probably high on my list. But yeah. Books are harder now than they were ten years ago. It's a, because there's so much good content on the Internet. That's part of it. But it feels like business books, particularly, have become a little bit formulaic. That's how Like, the first 15 to 17% is really good. It's like, that's the book the author wanted to write. Then the rest of it is what the publisher forced them to write, to fill the pages to get to two forty or whatever the page count has to be for an average business book.

**Harry Stebbings** [59:22]:

Cursor, what's your biggest strength and your biggest weakness? Thirty seconds on each.

**Dharmesh Shah** [59:25]:

Okay. Biggest strength is the ability to separate skills from talent. Skills are learnable things, and talent is just ability to acquire skills faster. So don't let the lack of talent hold you back. Learn whatever you need to learn. And then your biggest weakness? I'm pathologically non confrontational, and that's why I'm a terrible manager. That's why I have no direct reports, because I am just too polite and too non confrontational. And you need to be able to, like, in a kind way, those things are not correlated, is hold people accountable, push back on them, give them constructive criticism, all things I am terrible at doing, honestly.

**Harry Stebbings** [59:55]:

If you didn't start a hub this was from Kieran. If you didn't start HubSpot, what company would you have started instead?

**Dharmesh Shah** [60:00]:

I wouldn't have started a company. I would have stuck by my agreement to my wife and gone off and taught. That's probably the most likely path.

**Harry Stebbings** [60:06]:

What piece of advice do you often give but find hard to follow yourself?

**Dharmesh Shah** [60:10]:

You should take care of your health.

**Harry Stebbings** [60:13]:

What do you know now that you wish you'd known at the start of HubSpot?

**Dharmesh Shah** [60:16]:

That the SMB bet is going to work out, that the nonbelievers are gonna be proven wrong.

**Harry Stebbings** [60:19]:

What would you most like to change about the world of startups, Dharmesh?

**Dharmesh Shah** [60:22]:

I would like more founders to be focused maniacally on the customer problem and not get married to their solutions too early.

**Harry Stebbings** [60:29]:

Who's the unsung hero of the HubSpot journey?

**Dharmesh Shah** [60:31]:

Our partners. We have 5,000 of them, but they're the ones that were the the story consumers, and they're the ones that helped kinda spread the word to the other 140,000 people that are now customers.

**Harry Stebbings** [60:40]:

Penultimate one. What three traits would you most like your son to adopt?

**Dharmesh Shah** [60:43]:

Drive or ambition, kindness, and a builder mentality. Create things.

**Harry Stebbings** [60:47]:

Final one. Next five years for you and for HubSpot. Paint that picture for me. It's 2027. We have this again. Where will you be?

**Dharmesh Shah** [60:54]:

Probably in this chair, HubSpot will have grown further and solved more of our customer problems. Feels like we're in early innings. We're like in the second inning of an of a baseball game. It's just so much work left to be done.

**Harry Stebbings** [61:04]:

Dharmesh, I've absolutely loved this. I so appreciate the time, and you've been a hero to do it. So thank you so much. Thank

**Dharmesh Shah** [61:10]:

you. Thanks for having me on.

**Harry Stebbings** [61:13]:

I mean, what an incredible show with Dharmesh. I wanna thank him so much for being so open there, so much if that was off schedule. He also has to be one of the most popular angels ever. Are you kidding me? Decision within twenty four hours. No meetings. No negotiation. What a fantastic set of guardrails. Again, huge thanks to Dharmesh. But before we leave you today,

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