0:00
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.
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0:05
And one of our early zigs is we are going to do exactly the opposite of that.
0:11
You have no direct reports and I don't believe you've ever had direct reports at HubSpot?
0:15
I could become passively okay at management with some training, with some coaching.
0:15
I don't want to spend any years of my life becoming passively okay at something.
0:23
What was that process like to define the culture?
0:26
My co-founder and I were having one of our founders meetings and he said, "Oh, Dharmesh, I hear this culture thing is really important.
0:29
By the way, can you go do that?" I'm like, "Okay.
0:32
Brian, of all the people in all the company, is like, I am the worst possible person."
0:37
It's not that I don't like people, I just don't like being around them a whole lot.
0:40
Something that's really unique and interesting about you is you're obsessed with comedy and keynote prep.
0:42
It comes down to this metric that stand-up comedians use called LPM laughs per minute.
0:45
I have custom software that I've written that will say, "Okay, here are the points at which the audience laugh."
0:57
Today my guest is Dharmesh Shah.
0:57
Dharmesh is the co-founder and CTO of HubSpot and also one of the most fascinating and first principled thinkers I've ever met.
1:02
In our conversation, we cover a lot of ground.
1:08
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.
1:28
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.
1:43
This episode is so fun and will expand your mind in many ways.
1:43
With that, I bring you Dharmesh Shah after a short word from our sponsors.
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4:04
Dharmesh, thank you so much for being here and welcome to the podcast.
4:12
Thanks for having me, Lenny. It's an honor.
4:16
It's my honor, and thank you for joining me.
4:16
You are a wildly 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.
4:22
And what I'm thinking is I'll just walk through them.
4:27
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? Sounds great. Okay, here we go.
4:35
So one, you have no direct reports and I don't believe you've ever had direct reports at HubSpot. That is correct. 7,000 plus employees?
4:38
Exactly zero direct reports from time, T equals zero.
4:44
Okay, we're going to talk about that.
4:44
You also don't do one-on-one meetings as a result.
4:49
You don't have reports to have one-on-one meetings with? That's correct.
4:55
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. That is correct. You also bought chat.
5:05
com for $10 million and then you sold it two months later for more money than you bought it for?
5:14
It was actually 15 plus million dollars, but I had kind of stated eight figures, but... well, yes. Ooh. Is this breaking news?
5:20
It's breaking news, yeah. Wow.
5:24
So that's not what you bought it for? Yes.
5:27
Okay, and you sold it still for an undisclosed amount, is that right?
5:30
Undisclosed amount, yeah.
5:30
And more than that, I'll just say that.
5:33
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 it was awesome. Okay.
5:39
Also, you're a billionaire? That is once again true. It's still true. Great.
5:45
Also, you were born in a village in India that had no paved streets, no traffic lights, no hospitals. That is correct. Okay.
5:53
Before HubSpot, you founded two companies, but I think 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. Yes.
6:03
I had promised her that I would not do start...
6:07
I had to hang up the proverbial entrepreneurial hat.
6:07
Best laid plans and all that.
6:12
I met my co-founder in grad school, which is that I was going to...
6:12
The plan was, "Oh, I'll go back to grad school and go find myself."
6:17
And then the plan was to go eventually teach, not do another startup.
6:22
But then I met my co-founder there and one thing led to another as these things go.
6:27
I hope she's forgiven you. I do too. Okay. Final fact.
6:31
So Kipp, is that how you pronounce his name? Kipp, your CMO? Mm-hmm. Okay, great.
6:36
So 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.
6:42
That you have a very unique approach to preparing for a talk and how you think about humor and slide design and story arc. That's very true.
6:52
Public speaking is not something that comes naturally to me.
6:52
So we're going to start there.
6:58
We can talk a little bit about the copywriting, other things that are sort of related. And one of the...
7:01
and I try to not do things that I'm not good at and don't enjoy.
7:01
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, which at the time when we did our first one, it was, like, 150 people at the Marriott.
7:20
And then it's steadily grown since then, and so now it'll be like, 10,000 people in the live audience and hundreds of thousands online.
7:33
But as I came to this realization that I was not going to be able to talk my way out of it, and I saw where this was headed, I'm like, "Okay, this is something I'm going to have to actually learn, because I can't delegate it, can't talk my way out of it."
7:45
And so I'm a big believer in this talent versus skill.
7:53
So we all understand talent.
7:53
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.
7:56
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.
8:05
So for instance, if you have a talent for music, let's say, you might learn music faster than someone else and your ceiling may be higher, but does not mean that other people can't learn music, right?
8:16
It's like an acquirable skill.
8:16
That's lesson number one.
8:20
And lesson number two is that there is a process, and this is the engineer in me of just kind of functional decomposition of a problem to say, " Okay, in order for me to be a pretty good public speaker, what are the underlying sub-skills required in order to accomplish that?
8:33
Okay, skill number one, you have to be able to stand up on stage and not pass out."
8:38
That's kind the bare minimum.
8:43
And so what I did over the years is to say, "Okay, I'm going to functionally decompose this skill of public speaking in front of," what I call high-stakes speaking.
8:48
I've got to actually hold the audience's attention. That's part of success.
8:54
So it doesn't matter what the message is, nothing else will matter if I lose their attention, which is increasingly easy to do now in kind of short attention span society.
9:02
And every year I will pick a different part of the public speaking skill set and say, "Oh, I want to learn about slide design and visual expression," Not the actual design. I'm not a designer.
9:12
But then the one thing that I came up that has had the most impact is humor.
9:16
Then you break that skill down just like the engineer would do.
9:16
It's like, okay, well there's humor writing, there's humor, execution on stage, whatever. There's standup comedy.
9:27
There's like, okay, so how do you put all these pieces together?
9:27
And along that journey, I came up with this...
9:31
and I've always had this, I'm a very data-driven, quant based person.
9:31
It's like, "Okay, well, how will I know whether something is actually funny enough or not, whether I'm losing the attention or not?"
9:44
And so in preparation for one of these high stakes keynotes that I do every year, I will have my talk, I will do practice runs.
9:57
I will have increasingly larger actual live audiences that I will practice it in front of.
10:02
I will record those talks, everything so far. Nothing unusual yet.
10:02
I will have the talks transcribed.
10:09
I have custom software that I've written that will say, "Okay, here are the points at which the audience laughed."
10:15
Actually audibly laughed.
10:15
That's the only way it counts. And this actually...
10:22
and it comes down to this metric that standup comedians use called LPM laughs per minute.
10:27
And there's actually a benchmark that you can say, "Oh, well..."
10:27
And standup comedians have a very, very high LPM.
10:32
Business talks have a very, very low LPM.
10:32
The most popular Ted talks there's a high strong correlation between the most popular Ted talks and high.
10:38
So I have a goal, look, I'm going to have a minimum I want to improve.
10:42
And so I have software that will calculate the laughs per minute.
10:45
And so then you learn these little kind of tools of the tricks of the trades.
10:49
It's like, okay, if you're solving literally for that ratio of laughs per minute, there are two ways to improve it.
10:53
One is to add more laughs.
10:53
Two is to decrease the number of words between laughs, right?
11:02
So one of the things a software measures, it gives me a visual map.
11:06
It's like, here's the entire talk broken down with little square per minute of talk, or 30 seconds, and it's like, here's what they like.
11:11
It's like, "Oh, here I went one minute and 17 seconds and nobody laughed."
11:15
So I have to do one of two things.
11:15
Shorten that segment if there's nothing funny that can be said without being overt about it, or I have to say, "Okay, I'm going to find something funny to try to inject into this and kind of break it up." Anyway.
11:29
And that's a long way of saying if I can get up on a public stage and learn that particular skill, anyone can learn just about anything.
11:35
It just comes down to practice and measurement and just getting incrementally better over time. Wow.
11:41
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.
11:50
On this humor piece, I'm curious, any lessons to share on how to be funny?
11:56
One of the kind of tricks of the trade in humor, and you learned this particularly in stand-up comedy, but just any comedy.
12:00
And I just hadn't thought of it this way, is that...
12:00
and this is very tactical, but it works and it's a very easy thing to apply.
12:05
So let's say you're looking at...
12:09
and most of us, we're not stand-up comedians.
12:09
We're not going to tell jokes in a classic sense.
12:14
And even stand-up comedians don't tell jokes.
12:14
They actually have stories and they happen to have a punchline or two.
12:18
So, two tactical pieces of advice.
12:18
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.
12:31
So once you deliver it, then you have to stop talking.
12:31
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.
12:41
And if you're continuing to say words, it's going to make them feel awkward and it's going to be less funny.
12:46
So even if moving a phrase in the sentence that you're about to say, it's like, "Well, that sounds kind weird to put those set of words at the end of the thing."
12:55
Do it anyway even though it's awkward because it will actually work better.
13:00
That's kind of tip number one.
13:00
Tip number two on LPM generally is that having stories such that you can spend the time setting up the story, but then have multiple funny bits, multiple punchlines, because you've already made the investment.
13:12
I've said 75 words in order to set up this context, say something funny that's amusing, that's whatever. Say some more things. You already have the...
13:17
and you'll see the stand-up comedians do this all the time.
13:21
And then say something else that's funny because a laugh is a laugh.
13:24
Doesn't really matter that it was still the same story.
13:24
So leverage the investment you've already made in establishing context and scene, and then just squeeze more humor into the end of it in punctuated fashion.
13:34
I feel like the entire podcast could just be this one thread, but I need to move on to other topics. One quick question.
13:41
So you said ideal laughs for a minute is two to three-ish? Is that what you said?
13:44
Yeah, two plus is hard for a business talk because stand-up comedians, the reason they can do it is that's all they're really solving for is LPM.
13:55
In business talks, you actually have another agenda other than just being entertaining.
14:00
You actually have a message.
14:00
You're trying to promote something.
14:00
Promote an idea, promote a product.
14:03
So anyway, in my mind, for most normal circumstance, even if you can get above a one, 1.
14:11
2, 25, you're in the top decile in terms of top, generally given by non-professionals. Wow, this is incredible.
14:19
So after every talk, you run this transcript and audio through your program to see how you did. Yes, yes.
14:26
And are you ever going to publish and release this program?
14:26
Because that sounds really cool.
14:30
I have this notion of what I call SoloWare.
14:30
And SoloWare is exactly what it sounds like.
14:34
It's software built for exactly one person, and in my case, that one person is me.
14:34
And so I've been doing this thing for 30 years right now.
14:39
I just build things that I would myself find useful.
14:44
And the nice thing about Solo, one of the many nice things about it is that the UI is only for one person.
14:50
You don't have to do a whole lot of testing because it only needs to work for one person.
14:54
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.
14:59
You can just stop using it.
14:59
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, that's kind of hard.
15:07
So anyway, that's the calculus I go through, "Is this useful enough to enough people where it's worth the calories of making it non-solo ware, making it even micro-ware?"
15:18
I just made that up, but yeah. Wow. Okay.
15:22
Let's see how the YouTube comments react and how many people would want this and slash pay for it.
15:26
Let me go in a slightly different direction.
15:30
We talked about how you have no direct reports, you've never had any direct reports?
15:30
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 yet.
15:38
So can you just talk about why this is the case?
15:43
Why don't you have any reports?
15:43
And then I think this idea of just strengths and the importance focusing on strengths. Yeah.
15:49
I'll tell you the quick story as to how this came about.
15:55
My co-founder and I had the founding meeting for HubSpot.
15:55
This is the week where we've decided we're going to do this, and then we have this list of questions or topics for the founders discussion.
16:05
One of them, and I think I've published a list, these are the questions all co-founders should ask each other in that kind of early period.
16:11
One of the ones it's like, okay, well who's going to be CEO?
16:16
This was an easy one because I had been CEO twice before and had figured out I'm not that good at it.
16:22
I actually suck at that.
16:22
And one of the reasons I suck at that is that part of the CEO role is being good at managing people.
16:27
It's not just about leading and having a vision or whatever.
16:32
Actually have to do the management as a craft.
16:32
And so, that part I already had in my head.
16:38
I think Brian, my co-founder, already had in his head that with... That's how this...
16:41
that was a very quick conversation.
16:41
And in the moment, as soon as I had that win behind me, it's like, "Okay, well I don't want to be CEO."
16:46
Brian wanted to be CEO because he'd never done it before.
16:51
I'm like, "okay, that was easy."
16:51
And then I said, "Oh, and by the way, I don't want to have any direct reports."
16:55
It just popped into my head as an idea.
17:00
I had not pre-planned it or anything, and I sprung it on him.
17:04
He's like, "Okay, well..."
17:04
And the reason is because I have learned that I suck at management.
17:10
I'm a reasonably smart person.
17:10
I think I could become passively okay at management with some training, with some coaching or whatever.
17:16
I don't want to spend any years of my life becoming passively okay at something.
17:21
I would rather take those same calories and take the things that I'm good at that I actually enjoy.
17:25
And those things are highly correlated.
17:25
You tend to be good at the things you enjoy.
17:29
You tend to enjoy the things you're good at.
17:29
And Brian was like, "Yeah, sure."
17:35
And then I'm like, "No, no, Brian, you don't understand."
17:35
Because then I was like, "There's going to be a time in the company."
17:39
He was like, "Oh, our VP of engineering just quit.
17:42
Just be interim with something or whatever and have this team report to you until we find.."
17:46
It's like, "We're going to have those things and you're going to have to promise to me we're not going to do that. We're going to..."
17:50
It's like I am not going to have direct reports.
17:53
And we had that kind of heart to heart conversation, and it was one of the best decisions I've made both for myself and for HubSpot.
18:00
Had I not made that decision, I'm a startup guy, I don't know that I would've survived at a company at HubSpot scale.
18:05
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.
18:11
And the reason is, I get all the upside of scale, which is I can make big bets.
18:17
So we can have long-term things and plans, whatever, and plan for global domination without the downsides of scale, which is, "Oh, you're having to manage all these people and all the kind of mechanics." And that's hard.
18:31
It's a hard skill to have.
18:31
I appreciate other people that have it. I don't.
18:35
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 happy at HubSpot.
18:39
So I think it's been both productive for HubSpot and good for me.
18:43
I love that this is an example of how you can build a company the way that you want to build it.
18:48
You don't have to do it the way everybody else has done.
18:51
I imagine there's a lot of challenges to this too, but I think it's inspiring to just like, "Hey, I'm going to design a company the way I want to build it."
18:59
Yeah, it's amazing what you can get away with in terms of shaping the universe to your liking.
19:03
I think people automatically assume that things have to go a certain way, especially founders and first time founders.
19:08
It's like, you should at least try it.
19:08
It's like, "Okay, well I want to do it..."
19:14
First of, I'll give you another tactical example.
19:14
Both my co-founder and I are night people, not morning people. Just happens...
19:17
I didn't pick him because of that. We learned that later.
19:24
And so we made it just from the early days of HubSpot in the early years at least, we're like, "No meetings before 11 A. M. Period." That was it.
19:29
And then we adjusted it, I think maybe three or four years and we're like, "All right, we could have meetings before 11:00 AM.
19:40
You just can't invite one of the co-founders to it.
19:40
So you're welcome to meet amongst yourselves if you choose to do so."
19:45
But anyway, yeah, it's little things. That's an amazing rule.
19:50
I have a personal rule where I have no meetings before 3:00 P. M.
19:50
because I don't work anywhere.
19:54
I can more so create my schedule, but the idea is I create this deep work time in the beginnings of the day. I love that. Yeah. Okay.
20:02
So you talked about you're a startup guy.
20:02
At the same time HubSpot is approaching its 10 years of being a public company and I think 18 years since founding. Yup.
20:12
I'm curious what lessons you've taken from that experience being someone that's clearly startuppy person, being an exec at a very fast growing and large company.
20:22
And I'm thinking from the perspective of a founder who's maybe thinking about starting a company or starting company, what advice you might have to share for them?
20:31
And also for people in the exact role today? A couple of things.
20:31
One, since we are publicly traded down, this doesn't get talked about enough.
20:37
I'm going to go and get this out there and use this as a platform to get this message out, which is I think too many founders, once they get to a...
20:46
They are very apprehensive of going public and going through the IPO process and being a publicly traded company because they think...
20:51
I mean, that's like the beginning of the end.
20:55
"It's going to change everything and my life is going to suck."
20:58
And I think they're over indexing on what they think it's like to be a publicly traded company.
21:03
In my own personal experience, and Brian, my co-founder would attest to this.
21:03
And yes, there's certainly a tax or things we have to do now as a publicly traded company that we didn't have to do as a privately traded company.
21:11
But there are actually benefits.
21:11
For instance, if you kind of venture back in private, let's say, you're sort of at a little bit the whim of the market and how VCs perceive your category and all these things or whatever.
21:22
And you get, every now and then, when you're out raising a round of capital, you sort of get marked to market.
21:26
Now here's sort of what the valuation is based on what someone's willing to kind of fund the company at.
21:31
One of the nicest things, and this is underappreciated, is that we know right now what the market values HubSpot at.
21:41
I can tell you that any business day of the week.
21:41
And there's a niceness to that.
21:41
And that's the other thing I tell folks within the company is that the valuation, which is we're in a relatively efficient market.
21:54
The public stock market is a relatively efficient by the economic definition of the term, in efficient market.
21:58
So, the valuation will oscillate around the value.
22:04
So, if you focus on creating values, here's what we're actually building, valuation will sometimes be higher than you deserve, sometimes will be lower than you deserve, but over the fullness of time, those two things will move in lockstep, right?
22:11
That's been demonstrated. That's what happens.
22:16
That's almost a definition of an efficient market is that information moves essentially, and then the valuation catches up with the actual value.
22:25
But here's the other social reason why I think founders should go public, which is...
22:25
So in HubSpot, and I hadn't thought about this so I'm not going to take credit for being this generous, magnanimous person, is that in our first 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.
22:46
We hadn't been a unicorn.
22:46
So it was slightly below when we went public.
22:50
So HubSpot was never a unicorn because that's private privately held company, over a billion.
22:55
In the subsequent years, we went from a billion dollars in market cap to 30 billion, which is roughly what it is now.
23:00
That first billion of market cap creation, a very small number of people got to participate in.
23:04
The rest of the $29 billion in market cap, everyone, every public investor got a chance to participate in.
23:11
And so I like the idea of, okay, well you believe in your company.
23:17
There's lots of people that believed in HubSpot.
23:17
It's nice to let them kind of participate.
23:22
Our customers, our partners, our well-wishers, and they can sort of now have the upside.
23:26
And you don't get that in the private markets because it's a very closed...
23:30
you can't just buy shares in every private company you like.
23:30
I wish that existed, but it doesn't.
23:36
So, it's a way to let the market at large participate in your growth earlier.
23:43
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 going to help me stay excited about what I'm doing"? Yeah, I think this is...
23:57
and Bezos exemplifies this, I think the best, which is, just because you're a public company does not mandate that you do certain things.
24:04
All that's necessary is the kind of transparency that says, "Here's what the company is doing, here's what we're about, here's what we're solving."
24:14
And he had this with his very first annual shareholders letter, which he obviously writes every year, which is, "This is what Amazon is about, we're solving for the long term or whatever."
24:22
And he didn't say this in a snarky way.
24:22
If you reread the letter, but if you read between the lines, it's like, if you don't agree with this approach, you should not buy Amazon shares.
24:31
It's like, it's a completely optional thing.
24:31
"You don't have to buy it, but this is the way we're going to run the business."
24:37
And he stayed true to that.
24:37
And you can continue to do that.
24:41
I'll tell you one quick story.
24:41
This is once again, the anti-dissuade founders that might be reluctant to go public.
24:47
So one of the core values at HubSpot that's been part of the culture from the early early days, literally days, is transparency.
24:51
And so, one of our mechanisms by which we implement transparency is we've had this thing that says all information within HubSpot is equally shared with everyone in the company, period. Everything.
25:11
So our balance sheet, what we raised capital at, whether we're going to be able to meet payroll in six weeks, all those things, everything was transparent all the time. And with two exceptions.
25:21
One is if it was illegal for us to share, let's say if we were looking at some acquisition or whatever and we had non-disclosure or the information was ours, not completely ours to share.
25:31
And one example of that was salaries.
25:31
So, we feel that salaries are co-owned both by the company and by that individual.
25:38
And it's not up to us to share someone's salary if they don't want to do that. Okay. All right.
25:42
So, we had that transparency and then as we go public, we have this meeting with our investment bankers and our lawyers.
25:48
This is in the IPO prep process, and they sit down and as part of this all day meeting, one of the questions is like, "Okay, so who are your designated insiders?"
25:59
So who are your designated insiders?
25:59
Brian nor I had ever taken the company public before, we're like, "We don't know what that is."
26:04
It's like, "Oh, it's this group of people that will have access to all the financials and will know."
26:13
And we're like, "Oh, okay, so how long is that list?"
26:13
And they're like, "Five or six."
26:13
And so then Brian says, "Seven? Seven?"
26:18
And they're like, "Yeah, you can do seven." And I say, "Eight? Could you do eight?"
26:24
And so we discovered through that mathematical induction process, is like, "If it's true for N, is it true for N plus one?"
26:31
Is that there's no actual legal limit to how many insiders a company can have.
26:34
And so we ended up doing, literally the day we went public, is we designated every single employee to be a designated insider.
26:41
So that allowed us to maintain the transparency thing because there was no rule that said you could only have 5, 6, 10, and there was hundreds of people.
26:50
And we did not make it optional.
26:50
We didn't say, "Oh," because there are downsides to being an insider.
26:55
There's windows within which you can't trade, there's stuff.
26:59
But we're like, "Okay, well, we believe in transparency.
26:59
Everyone's going to have access to it, and it's not an opt in kind of thing.
27:03
You're like, "This is it.
27:08
We're all in it together.""
27:08
And we still do this to this day, even at 7,000 people, everybody's an insider, so we can still share all the financials with everyone all the time.
27:18
You have many contrarian opinions is what I'm getting from this conversation already.
27:18
And the way you're pushing the envelope on, "Can we have 10, can we have 1,000?"
27:22
I'm curious if there's anything else there of just contrarian ways of running a company.
27:27
I know there's probably many, but what comes to mind?
27:34
So one of the phrases we like to use in our industry overall is this notion of first principles.
27:38
I don't know who popularized it, but it's used a lot.
27:43
I'm not going to say something snarky, but I think most of the time first principles is used, it's actually used incorrectly.
27:50
Because the way first principles is supposed to work, as Elon would probably describe it, is that it's not first principles like first principles of what we believe, these are our core first principles in the company, it's the first principles of the universe.
28:04
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. That's physics.
28:08
Like the first and second law of thermodynamics, those are first principles.
28:12
All the layers on top of that are things that you think are true, are your assumptions or the decisions you made, and that's fine.
28:21
You may have made some decisions.
28:21
For instance, transparency is not a first principle, it's a founding principle.
28:25
It's not everyone should do this, it's a completely core thing.
28:30
And so yes, I can be a contrarian, but you have to limit the dimensions.
28:30
So the number of things that you're a contrarian on has to be greater than zero, but not too high.
28:38
So what I think of is high conviction, low consensus bets.
28:45
So high conviction is, "We really, really believe this," and low consensus is that most other people don't.
28:52
And there are other people have phrased this differently.
28:57
I think Peter Thiel actually says it more 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."
29:04
And you just have to be right.
29:04
So one of the early high-conviction decisions we made at HubSpot was that we were going to focus on SMB as our target market.
29:12
And I'll make a case both for SMB and for having a high conviction bet.
29:18
It doesn't have to be your target market, but something.
29:22
Once you make that bet, 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.
29:32
So we have that for literally all 18 years of HubSpot's history.
29:37
We have always had the...
29:37
All during the IPO roadshow, it's like, "Yes, we get that you've on SMB, but so what's the path to the enterprise?"
29:41
No, you don't understand.
29:47
This is not a go-to market strategy.
29:47
This is not like, "Oh, we're going to conquer SMB first," this is not Bowling Pin, this is not Geoffrey Moore, this is a, "We are here for SMB." That's what we're doing.
29:55
And so we maintain that conviction for a very long time, and that helps you make other bets that are secondary.
30:00
But you don't want to reinvent everything.
30:07
So I'll give you an example of something that we had in the early years of HubSpot that we kind of forwent.
30:10
So in the early years of HubSpot, we're like, "Okay, we believe in a flat organization."
30:15
One of the manifestations of that flat organization is we had no titles in the company. Nobody had a title.
30:20
So even though you had business cards, whatever, we had no titles.
30:25
If you introduce yourself in a meeting, and we had this up to hundreds of people, when you introduce yourself like, "Oh, I work in product, I work in engineering," whatever, it's not like, "I'm director of X or VP of Y," because that, as a thing, didn't exist.
30:41
Then as we scaled, we came to the realization that there's actual value that people ascribe to titles.
30:48
And the reason they ascribe value to titles is because there are rumors that there's life beyond HubSpot. I couldn't believe it. "What?
30:53
There's a life out there outside of HubSpot?"
30:59
It's like, " Yeah, looks like."
30:59
And then when we go to the Thanksgiving dinner or whatever, and I talk to my aunt, I need some shorthand.
31:02
It's like, "Oh yeah, I got promoted to director. I got..."
31:06
Just to show some progression because it's a signaling device.
31:11
And in this life beyond HubSpot and outside of HubSpot, it's like, other people are also going to want to know where I was in...
31:15
It's like, "Okay," and this was the winning argument. I love this argument.
31:20
Because we had a daylong meeting on talking about this one topic.
31:20
And the winning argument was, "Dharmesh and Brian, I recognize why we don't have titles. I recognize this."
31:25
And so they made the case of, "Yeah, there's value.
31:30
And by virtue of you not giving us titles, that means you're having to compensate us in an economic sense in other ways.
31:37
So you're losing out because it's like, is that value high enough to not do that?" That's a strong case.
31:51
And then we had it down to three choices.
31:51
We're like, "Okay, well," we could have chosen to just stay firm with still no titles.
31:55
We could have said, "Okay, we're going to have classic titles."
31:59
Then I had the option on the table of, "Make up your own title."
31:59
You can be grand poobah of X, and that can be your...
32:05
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.
32:13
So having made-up titles is pretty much the equivalent of having no titles because they lack any meaning anyway.
32:16
But that's one of those things that, okay, you iterate, you change things as they go. Yeah.
32:22
I think there's so much to this, "Let's just try things differently. Okay, that didn't work. Okay. It's fine.
32:27
We're just going to do what everyone else is doing here."
32:31
And then often you discover a thing that, "Okay, this is actually better." Yeah.
32:36
Just to understand, when people have no titles, so someone say as a product manager, do you call them a product manager, or just like, "I'm an employee at HubSpot, I have literally no title"?
32:45
At the time, it was no title.
32:45
And now we have classic titles, so we have levels of things and- Yeah.
32:48
But back then it's like, "You're just here-" No title. Literally no title. "... we don't know exactly." No title.
32:54
I saw somewhere that you paid everyone $5,000 monthly as their salary at the beginning of HubSpot, including yourselves for a long time. Yes. Is that right? Okay. Yep. Another fun fact.
33:02
How long did that last, by the way?
33:02
I'm trying to think back. It's a long time ago.
33:07
I want to say probably the first year, year and a half. Amazing.
33:11
One of the things that, and this is one of the core...
33:15
And not everything that we...
33:15
Obviously not everything was right, but not everything is applicable to other companies.
33:21
But there are some things that I think are, and one of the things that I think are applicable is just this need to solve for simplicity.
33:25
It's like the simpler you can make things in the early years, the better off you generally are.
33:31
And this is going to sound weird, so how we wound up with transparency is not because of some moral, it's like, "Oh, everyone deserved to have this," and this is the truth, so it's not some moral position.
33:43
It was a, when we hired the first employee, and both Brian and I [inaudible 00:33:54], when we hired the first employee, we had to make the decision, it's like, "Oh, so what files do we give them access to and what..."
34:01
And so Brian is just like, "All of it. Nothing to hide. Why would we do that?"
34:08
And so then we thought out...
34:08
And then the output of that was like, "Okay, well, A, binary decisions are much easier than non-binary decisions."
34:14
It's like, "Okay, everything or nothing is much, much simpler."
34:19
And then it's like, "Okay, well, if it works for Employee Number Three in the company, why wouldn't it work at Four?
34:25
Why wouldn't it work at Five?
34:25
Why wouldn't it work at 50?"
34:25
And we just kept doing it because it's like, "Okay, well, until it breaks, we'll just keep doing that."
34:33
And this applies to so many different aspects of HubSpot, but as we try to start with the simplest possible thing that might work, and then, if necessary, add the complexity, add the things or whatever.
34:47
Even our original, this is actually the tactical thing that everyone should take away, especially early-stage startups, very first HubSpot office has exactly four tables because aspirations for growth, because we were in a co-working space, so, we lived in WeWork back in the day, here in Cambridge, Massachusetts.
35:01
And so we had four chairs, and the only distinguishing characteristic of the four chairs, there were two chairs that were by the window, two chairs, not by the window. Okay, great.
35:09
Hire that first employee.
35:09
Other decision we have to make is like, "Okay, well where do people sit?"
35:14
And so this one is like, "Well, it feels unfair to us that we would just get the window seats or whatever."
35:18
It's like, "Okay, we believe in a flat organization, why?"
35:23
And so what we did is we said, "Oh, we'll just do a lottery."
35:23
And it's not like, "Oh, whoever pulls the thing gets the window seat."
35:29
Whoever pulls gets to choose from the remaining seats, because different people ascribe different utility to different seats.
35:34
It's like maybe you don't want a window seat.
35:38
Maybe you like the darker corner, whatever it is.
35:42
And so we did that with employee number one.
35:42
Then we did that with employee number two, and we did it every time we hired a new employee, we would do a seat shuffle.
35:46
We're going to do the lottery, we're going to go down the sequence, and of all the seats, that was the algorithm.
35:56
And our investors were like, "Oh, that's cute and that's funny.
35:56
It's not going to work at 15, 20 people.
36:01
It's not going to work at 50."
36:01
It worked at 25 worked at 50, worked at 100, worked at 200.
36:06
We updated the algorithm, we did some local optimizations, which we said, "Oh, there are some groups that should not be next to other groups because engineers like quiet time and salespeople don't, and so we're going to try to optimize a little bit."
36:15
So it's not completely random anymore.
36:21
Now it's like within this part of...
36:21
Well, we still would do it.
36:21
Then we said, "Okay, we're not going to do it for every hire, we're going to do it every quarter."
36:27
And that stood, by the way, for hundreds of people, that mechanism still worked. It's like it's... Yeah. Oh my God.
36:38
So the moral of the story is, that one decision of simplifying, can you imagine the amount of politics we avoided?
36:44
In corporate America, the amount of calories spent is like, "Well, your office is bigger than my office.
36:49
Your desk is one inch higher or one..." Like, "No."
36:49
It's like all of that just went away by virtue of that one decision.
36:54
And we don't even know, it's incalculable, honestly, how much grief that saved us.
36:58
And then there's all other side benefits to it in terms of people getting to know each other better, better chemistry, there's lots of good upside, but just the simplicity is almost always a better answer.
37:12
I love that everything often comes back to some algorithm you've developed or this N-plus-one approach of, "Let's just keep going until something goes wrong." This is amazing.
37:20
I'm excited for many more of these hilarious, amazing examples of how you did things differently.
37:24
You've been talking about simplicity.
37:24
The opposite extreme is, you could say, entropy, and someone told me that you have this concept that every leader in every business is fighting the second law of thermodynamics, which I believe is entropy. Yeah.
37:42
Well, the actual law is within a closed system, entropy increases over time. Okay. Yeah. Okay.
37:48
We don't have to get into the [inaudible 00:37:50] of this. No, I love this. I'm not a physics guy.
37:52
No, we're getting to the first principles of everything. Talk about that.
37:53
What does that mean when you...
37:53
And what does that look like when you're running a business?
37:57
Okay, so in lay person's terms, the second law of thermodynamics, I'm paraphrasing here, is that, "Over time, unless you intervene, everything goes to crap." I'm paraphrasing.
38:06
Which is, essentially, the amount of disorder and randomness in a system is going to increase over time.
38:12
You see this like when you break an egg, the molecules don't come together and form an egg. That doesn't happen.
38:16
It's always the other way around becomes disorderly and more random.
38:21
That's the second law of thermodynamics.
38:21
And this happens in companies as well, and it happens in code, almost every level of abstraction, you will see some variation of this.
38:31
And so the way I think about this is that in the early stages of a company, you're essentially fighting to survive. Just trying not to die. That's the thing.
38:37
Okay, priority one, don't die.
38:43
In the second phase of a company, you're trying not to stagnate.
38:43
But it's like you still want to be able to drive growth and be able to do things like, "Okay, we managed not to die, because stagnation is essentially death, so we're still trying not to die."
38:58
But then the third stage is you're fighting complexity.
38:58
And that's the thing that you will crumble under your own weight over time, absent some external intervention.
39:04
And you see this happen all the time, and it shows up and manifests in different ways, which is, everything gets more complicated.
39:15
You need more layers of management, more headcount, more this, more that, more everything.
39:19
Everything becomes harder. Margins go...
39:19
It's like just bad things start to happen, you become slower.
39:23
And that's the eventual...
39:23
It's a slower death, because you're at more scale now, but it's still eventual death.
39:28
Complexity does kill companies.
39:28
Maybe not as quickly as other things, but much more reliably than other things.
39:35
And so this is why it's never too early to plant the seeds of simplicity, put them in there, make that part of the culture of the organization.
39:43
And we have a thing that are part of our culture and guiding principles around what I call "fight for simplicity."
39:54
It's literally those three words.
39:54
And the message we're trying to convey is, "Simplicity is worth fighting for."
39:59
That's thing number one, it's important, but the other one is that it requires fighting for.
40:04
It does not happen, and it will be a fight, because the universe is working against you.
40:09
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.
40:14
We want more tiers in our pricing, we want these knobs and dials in the product, we want these more...
40:22
It's like all of it tends towards the second law and entropy increases. So anyway. I love this.
40:28
The algorithm for seating is a good example of this.
40:28
Is there any other examples, either in the product or strategy, where you pushed for simplicity and that ended up being right? Yeah.
40:37
So on the product side, in the early years, and Brian gets credit for the actual implementation of this.
40:41
So we had a relatively broad product, and we can talk about that, pros and cons of that even in the early years, but we were solving for simplicity, and we got this from Apple, we can talk a little bit more about genesis of this, but 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, called a feature, you had to take one out somewhere else.
41:11
That's a net amount of...
41:11
And this is a very coarse measurement.
41:11
It's like, "Okay, well, not every radio button, checkbox, drop-down, whatever menu item that you put in your nav is necessarily equivalent, but it's better than nothing.
41:22
It's better than having no constraints.
41:27
And so once again, this goes to the binary thing, it's like it just at least forces you to think about it, versus the...
41:32
The other mistake I think people make in product all the time is that we measure the cost of a feature based on the, usually, or even a new product, based on the cost of implementation.
41:45
That's the first-order thinking, it's like, "Oh, it's going to take six months to develop, it's going to be Y engineers and Z designers or whatever."
41:50
Second-order thinking is thinking through the maintenance of that feature.
41:54
It's like, "Oh, it's not just the first version that goes out, it's like now we have this code base and we have to support and improve or whatever." I get that.
42:01
The third-order thinking, which I think is the most nuanced, and it turns out to be the most important, is the other costs that complexity adds.
42:12
Okay, we'll come back to this.
42:12
So when you go from product number one to product number two, it's like, "Okay, product number two is going to cost us this much to develop, it's going to have this risk associated with whether it's successful or not, all these things.
42:21
So there's going to be this carrying cost for product number two."
42:25
What companies don't think through is that that is...
42:31
And the maintenance of that, it's like, "Oh, we're going to need a team to maintain that new product."
42:34
No, what actually happens is that now when you go from product one to two, you have added dimensional complexity to your business.
42:39
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.
42:48
We just hired an engineer, do they work on product number one or product number two?
42:52
We're going to launch a marketing campaign.
42:52
Do we spend five minutes talking about product number one and two minutes talking about product number two? How do we do anything?"
43:00
Every chart you look at in terms of the growth, revenue per whatever, it's all of it.
43:07
Now, every chart that you ever had now has to be sliced by product one and product two in order to really capture that precision.
43:11
And so now you have this new dimensional complexity that you just hadn't planned on.
43:16
And this applies, once again, every level of abstraction.
43:19
So everything you do in your business should factor in the long-term cost of that complexity.
43:25
And it should be worth it.
43:25
Of course, you need, and I can make the case that you need to build product number two and product number N, N plus one over time, but you should be mindful about the cost of that complexity. [inaudible 00:43:39].
43:39
Is there something you've done to help operationalize that?
43:39
Because I imagine everyone's like, "Yes, this is great.
43:44
Don't do too many things. Simplify."
43:44
Hard to do when you're like, "Oh, we got to drive growth.
43:49
We have this awesome idea, we have this opportunity, we have a competitor."
43:52
I know that this is part of the culture, so maybe that's the answer, but how do you keep people to actually this principle?
43:57
So it's really hard, I'll say that.
43:57
And things that have made it easier, it's a little bit idiosyncratic to HubSpot, so part of what has made it easier for us to keep things simple is the early constraints we impose.
44:08
And we didn't know this at the time.
44:14
So because we're building for SMB, we have a freemium product.
44:14
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 an army of people that are going to spend in 18 months implementing something.
44:29
We have to be able to support a product that's free. That's hard to do.
44:29
It has to be simple enough that someone can get value from this thing.
44:36
And so there's these self-imposed things.
44:41
So the lesson I would carry away is come up with systematic ways and mechanisms, as Amazon would call them, of putting guardrails and constraints in to the degree that you can.
44:53
Because you can put words on a page and try to infuse it in the culture, it's like, "Oh, we believe in simplicity, we fight for this," and you can have meetings and you can get up in all-hands meetings and reinforce that, which I encourage you to do, but a really, even a reasonably well done system will outbeat any other mechanism that you can try to put it [inaudible 00:45:14].
45:14
Those things deteriorate over time. It's hard to scale them.
45:14
So I'm a big believer in systems and imposed constraints versus- I can't help but talk about this SMB piece, because I do a lot of angel investing, and classically, companies that focus on small businesses are very challenging, because getting to small businesses at scale is very hard.
45:28
They're often more old school, not early adopters.
45:35
You sell one and that's just one small customer, and they're not going to upgrade and roll it out to this large group, and they're not going to increase spend very quickly.
45:45
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"?
45:58
No, my advice is absolutely do it. Amazing. Great.
46:01
A, because it's hard, and we'll talk about that, but B, okay, so I'll tell you this quick story in terms of how we chose SMB.
46:07
And so my co-founder and I met in grad school, and he had done software, he was on the sales and marketing side, I was on the product engineering side, didn't know each other before grad school, and we met there.
46:20
But one of the things, as we were canoodling on possible ideas of working together on the startup, we said, "Oh," we had done both an enterprise software before, the opposite of opposite of SMB.
46:32
And there are definitely challenges with enterprise software.
46:37
One of the biggest one is that life as an enterprise software company sucks as a startup.
46:44
Sales cycles are super long, feedback loops are super long, you have to have sale, there's all this kind of...
46:50
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.
47:02
It's like, "Okay, we sort of know that game."
47:05
At the other end of the spectrum, you have consumer startups. It's like, "Okay."
47:05
The problem with consumer startups is they have very bi-modal outcomes.
47:10
It's like either you can be super successful, the next Meta, the next Google, the next whatever, or it's going to be to zero.
47:19
It is very rare that you have, "Oh, you made a few million bucks or whatever."
47:19
Because either worked, because this is a massive market.
47:25
The case for SMB is you have almost the best of both worlds.
47:31
You have the nicety of enterprise, which is, "Oh, I can solve a product and people pay me money for it.
47:36
I don't have to be advertising subsidized, I don't have this bi-modal outcome.
47:39
I can build an incrementally more valuable business that's measurable."
47:43
So we're "Oh," we went from a 100K in ARR to a million ARR, to 2 million ARR because we're a business software company.
47:48
But it has the benefit of consumer because there's millions of them out there to sell to, and there is no revenue concentration.
47:53
You do control your roadmap.
47:53
You have very short feedback loops.
47:57
You can try pretty much anything that you want because there's...
48:02
Like, "Oh, we have 50 customers.
48:02
If we do this and screw it up, it's like there's 5 million more."
48:07
Don't intentionally screw it up, but you can experiment, you can take on risks.
48:07
And by the way, when HubSpot started SMB, it was literally a hundred times harder to succeed in SMB.
48:12
And we could not raise capital.
48:18
It was so hard because the common argument was there literally is exactly one company in the history of software that's made a global brand, billions of dollars of market that was into it.
48:31
No one else had ever created SMB-focused software company before. And we're like, "Yeah." It's like, "We know."
48:37
But the nice thing about it is once you figure the physics of it out, because it's so hard to do, you end up, and this has played out, now there's lots more proof points.
48:47
There's Shopify, there's a bunch of companies that have succeeded in SMB.
48:50
But one of the things about SMB is that in the software market...
48:50
By the way, all I know is software.
48:59
That's the scope of my experience, is that in software, there's what I call reverse gravity.
49:06
That over time, the market will always pull you up.
49:06
Because what ends up happening is that smart founders and smart management teams will look at the numbers and say, "Oh, well, as it turns out, our bigger customers stay with us longer, pay us more, often have higher NP, all these things."
49:24
And so if you allow yourself to be led by that, which seems like a reasonable, smart thing to do, you will get pulled up in the market.
49:31
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 full list of time. That's what you see.
49:46
The 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.
49:53
In the SMB world, you're only competing with the people stupid enough to stay focused on SMB, or try to do that.
50:02
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.
50:09
So I encourage, particularly startups, and maybe you fight reverse gravity for some period of time, and maybe...
50:15
But at least start there, try to make it work, until it gets really, really, really painful, and then try some more.
50:21
It's like there's just so much value in SMB. It's that idea.
50:26
Okay, so this theme has come up a bunch already in our conversation.
50:31
I asked Chris Miller, previous podcast guest, what you're amazing at and what I should talk to you about.
50:36
And he said that you're very good at zigging when other people are zagging, and zagging when other people are zigging.
50:40
And I think that's already come across in our conversation.
50:44
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?
50:52
So this comes down to high-conviction, low-consensus bets.
50:52
And so we had like three things that we were zigging...
50:58
And by the way, it's not just me.
50:58
My co-founder and I both have that zig versus zag.
51:02
And we ask ourselves this to this day, it's like, "Okay, well we understand this is the way the world moves, this is the way it's normally done, but have we considered this completely?
51:13
And I'm not saying we should do it, but have we considered this alternate path?"
51:18
So I would encourage you, at any stage of the company, you don't necessarily have to do the zig versus zag, but you should at least know what the zig would've been and have talked it through.
51:27
So that's thing number one.
51:27
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."
51:37
And one of our early zigs is, "We are going to do exactly the opposite of that."
51:41
So from year one, HubSpot decided to build an SEO tool, web analytics, blogging tool, content management, all of it.
51:48
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.
51:58
And so it's like, "Okay, well, why would you do that?"
51:58
And- And so it's like, okay, well why would you do that?
52:03
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.
52:23
So you and I, it's like, "Oh, I can throw a website up.
52:23
I can put Google Analytics on it.
52:26
I can put a Wufoo Typeform format.
52:26
I can do all these things. I can wire doc. No big deal. Why is this so hard?"
52:32
But for most people, most SMBs, that's a science project, and so we 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 instinct and every advice we've heard or given says we should not do this.
52:48
We should not go that broad.
52:52
But once we make that decision so that the other lesson learned, it's like, and we said this in the early years and it's gotten better since, let's say you do this, and this is the all-in-one approach, we're going to have this broad-based product.
53:00
It's like, "Okay, we're going to be many miles wide and only so inches deep."
53:04
One of these, and this goes back to our very systematic thinking, is like, "Okay, we're going to measure each of those individual product categories that we're now playing in.
53:14
Are we in the top three in the market in that category?
53:21
If the answer is yes, that means we invested too much in that category."
53:21
We should not be in the top three because our value proposition is not that we are the top three blogging tools or one of the top three web analytics tools.
53:30
We have 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.
53:39
Doesn't matter as much as the all-in-one.
53:39
And that means we over-index on one individual category by virtue.
53:43
That was one of our heuristics for being able to tell that we were over-indexed on one particular aspect of it. That is hilarious.
53:51
Rarely do I hear we're in the top three and we're doing the wrong thing. We are too good at this.