How to Know When Your Business Is Ready to Scale

0:00So what if every time you hired too fast, launched a new channel or added a service line, you were making a bet that your business actually wasn't prepared to win?

0:20Hello and welcome to another episode of the Duct Tape Marketing Podcast. This is John Jance, and my guest today is Mark Roberge. He's the co-founder of Stage 2 Capital, founding chief revenue officer at HubSpot, and the author of a book we're going to talk about today, The Science of Scaling. Mark helped grow HubSpot from zero to IPO and then brought what he had learned into Harvard Business School, where he taught founders how to grow without blowing up what they've built. This framework gives business owners a way to use evidence rather than instinct or outside pressure to decide when they've truly earned the right to scale.

0:57So Mark, welcome to the show.

1:00Mark Roberge:Thanks, John. That's not my copy and I love it. Seriously, I love how you put it. Awesome. Well, good. Well, you know, we were talking before we got started, you and I met some 20 years ago when HubSpot was a nascent business. I think maybe the first conference there were 500 people. Yeah, I was in Marriott and Cambridge. I have, like, I remember specifically a couple of things about you. I think you were the most famous one of our early partners. I think I remember my last in-person chat with you was in some steakhouse in like South Boston or something. Because I remember two people came up to you and asked for your autograph.

1:37Mark Roberge:And you were like super humble about it. And I'm like, oh my gosh, this is crazy. Well, I'm glad I wasn't a jerk. That's for sure. Awesome. Well, let's get into your book a little bit. So I mentioned HubSpot, you know, Harvard. Now you back companies as a VC. did something you learned or showed up across all three of those roles kind of make you say, I need to write this book? Yeah. It's like, it's kind of funny that we can unpack as much as you want, but in reflecting the last 20 years of my life professionally, I've given up on having a plan because I never intended to go into sales. I never applied for HubSpot.

2:18Mark Roberge:I never applied or intended to be a professor at Harvard. I never intended to start a venture capital firm. And I never intended to write either the sales acceleration formula 12 years ago or the science of scaling last year. These were all things that people were like, would you be willing to do this? So they do just show up. And the way that this one, as both books unfolded, was like you, I am blessed with the opportunity to do a number of keynotes every year. And for the big ones like Saster, I tend to try to do something fairly original for the year. So every year I do something original. So I've given like 20 to 25 brand new speeches over the last decade.

2:58Mark Roberge:And this one was just like a pattern I saw after like eight years of being out of HubSpot as an independent board member, as a professor, as an advisor, as an investor, in why companies, the few that went IPO and billion dollar valuations versus the ones that went bankrupt was just this really non-strategic, non-rigorous perspective on when to scale and how fast. And half do it too early, too fast. Half of them wait too long and go too slow. It's more about going the optimal time. I started speaking about it and I'm like, it's ridiculous how many classes and rigorous frameworks we have on accounting for and accruing revenue, but not on scaling revenue.

3:41Mark Roberge:And it just went viral and kept speaking about it, kept writing about it. And then Stanford was like, Hey, can you write this up? And here we have it. So the term you kind of alluded to it, but I'll say it directly, earn the right to scale. It does a lot of work in your framework and your talk. So what does a business owner actually have to prove or do to prove that's true? Like what do they know I have the right to scale? Yeah, it's kind of interesting how it unfolds right now. I mean, I've done this with like tractor companies in Brazil and pharmaceutical companies in Japan, but mostly with software companies in Silicon Valley.

4:20Mark Roberge:And it's kind of funny how it's decided. Like the decision on when to scale is usually when someone hands you a fat check, which doesn't sound that strategic. And so I try to unpack it as two steps that are sequential. One is product market fit and the other is go to market fit. And usually like product market fit, like duh, product market fit, duh. But like, what is product market fit? You know, I think a lot of people will say I'm ready to scale when I have product market fit, which I think is a great answer. But then when I ask them what product market fit is, I get a lot of different answers, most of which are about a certain revenue number, a certain customer number, a certain number of inbound leads.

5:03Mark Roberge:And then I'm like, well, okay, cool. Let's say that you have 200 customers or like 500 inbound leads and everyone's buying, but like people stop using the product. Do you have product market fit? And they're like, okay, no. But I'll just start, I'll just listen to them and build the product to appease their needs. And I'll be like, okay, well, how will you know when you've achieved it? And they'll be like, when they keep using the product and don't churn it. I'm like, exactly. So that's like the first kind of like pivot mentally for folks is I encourage you to define product market fit not as a revenue acquisition metric, but as a revenue and customer retention metric.

5:58Mark Roberge:And the book talks about how to extract that long-term lagging indicator back to something that you can evaluate in the first week of a customer being with you. Okay, so that's step one in product market fit. And then if you think about it, once you've achieved product market fit, all that means is that when you sign up 10 more customers, they're going to see value that you promised and stick around. It doesn't mean that you've proven that you can acquire and serve them profitably. And that's what go-to-market fit is. And it's measured by uneconomics. So that's really probably the simplest way to describe the work is these two sequences of product market fit and go-to-market fit as measured by retention in the first one and positive uneconomics in the second.

6:42Well, since we're defining terms, we probably better step back because I bet you if I asked 100 people, 10 people, 100 people sounds like too much work. If I asked 10 people what the word

6:54Mark Roberge:scale means. We'd probably get a bunch of definitions, more leads, more staff, more tools, but how do you define? Yeah. So once you are ready to scale the way, and to your point, yeah, that can mean a lot of things. It could mean how do we scale our culture? How do we scale our engineering team? How do we scale our office space? Blah, blah, blah. First off, I should be more clear that I'm talking about scaling the revenue. And to your point, scaling revenue, the inputs to that vary quite a bit by business. If you're a consumer business, you may just have to spend more on marketing, something that you know a lot about, John.

7:27Mark Roberge:If you're a B2B, sometimes you have to scale fancy outside salespeople if you're selling like rockets to governments. And sometimes you do it through PLG. And again, it's more of like a marketing exercise. So I really talk about scaling the revenue and the principles apply whether you're doing it through pure marketing or through sales headcount. But let's, for simplicity, let's just talk about scaling through sales headcount. And the big pothole that people make there is even if they follow the guidance of like, let's achieve product market fit first, and then go to market fit. And it could take a day, it could take a week, it could take a month, that could take a year, whatever.

8:14Mark Roberge:And now we're ready to scale. They raise money and then they have a target for the year and they hire like 27 reps the next week, even though they only have one on the team today. And there's just no appreciation of the new capabilities that are needed to hire and onboard and manage 27 reps. Like just like, let's take one piece of it, which is let's kind of pontificate that the hiring quality might be correlated to the number of interview screens we do, qualified interview screens to the hire. If I do two interview screens and make a hire, I'm probably not going to make as good of a hire as if I did 10 interview screens and make a hire.

9:02Mark Roberge:So if we're trying to do 10 and we're making 27 hires, that's 270 qualified interview screens. Where are we getting those candidates? Who's doing the interviews? Nevermind, where's the demand gen gonna come from? Who's gonna ramp them? What about the managers? It's just too driven from a Google sheet or Excel. And so the simple pivot philosophically is don't think about it as putting the annual plan together and hiring all those reps on January 2nd. Think about it as establishing a hiring pace every month or every quarter, 10 reps a month, as opposed to like 37 at the beginning of the year. So there's all kinds of horror stories of companies that blew up because they grew too fast.

9:46Would you say that they scaled too fast or they didn't scale fast enough?

9:53Mark Roberge:Both. I have, like I said, it's about half and half. I mean, I would say like the classic examples out there. Like an old school one is Groupon, which I think if you look at it from this lens, never really had product market fit. Like they just like... It was buzz. The promise was like, if you're a Chinese restaurant and give these coupons away, you'll get new customers. But it was really just the existing customers. And then maybe like WeWork never really had go-to-market fit. And that was pretty famously documented story. The ones that didn't scale fast enough, we just don't know. Right. Because they're like, I can name some in our portfolio or people I've worked with over the years, but the reason why we don't know them is because they just sat there and they were like, they had something, but the co-founders just wanted to just go too slow and continue to do founder selling and wanted to run a profitable business when it needed to be a blitz scale business.

10:44Mark Roberge:And there's nothing wrong with running a profitable business. It's just, if you're trying to win in the AI customer support category today, you can't be profitable right now. There's just certain blitz scale risks that you have in your category that needs to dictate how fast or slow you go. So one of the key elements in science of scaling is evidence over instinct. So if I don't have a giant data team, and I know AI is actually solving some of this right now, but what does evidence actually look like at a startup or smaller business level? Yeah, I mean, you definitely don't need a sophisticated data science team.

11:26Mark Roberge:You don't even need AI agents doing this stuff. Let me just give you like a really simple example. All right. So we talked about product market fit is where I'm proposing to everyone that it's more about customer value and retention as opposed to customer acquisition. And obviously you need to acquire customers to eventually make them valuable. So it's an input to it. The retention is a lagging indicator. So we need to define a leading indicator of retention. We can't wait a year to know if we have product market fit. I need to know like the week after I acquired the customer or the month after.

12:02Mark Roberge:And so what the book and the work I've been doing with companies for the last decade is to help them define their leading indicator of retention. What is it that we can observe in the first month of a customer's experience with you, your product, your service, whatever, that if we see that, they'll be with you forever. And if we don't, they'll probably churn. And so like I frame it as P % of customers do e-event every tea time. Okay, so that sounds like the programmers on the audience are like loving this right now. The history majors are like totally lost, right? So like just to bring that to life, Slack, 80 % of customers send 2000 team messages every month.

12:42Mark Roberge:HubSpot, 80 % of customers use five or more features in the platform every month, right? So these are things that can be measured in the first month to give us insight. If we're at 80%, we probably have product market fit. If we have 10%, we definitely don't. I don't need a data scientist to evaluate that. So these are not overly complicated PhD math type things. One of the things I've been preaching for 20 years is that when we talk about the customer journey, that retention and advocacy and all the things that come after somebody becomes a customer are part of the customer journey or should be part of the customer journey.

13:22And for so many people, it's let's get a customer. And I think what you're really certainly hammering home here is this idea that you're not going to scale without retention and without referrals or whatever you call it.

13:37Mark Roberge:Spot on. I mean, when I hear people like you say this, the conviction continues to escalate, right? Because it's like another way to say what John is saying here is, let's just talk really tactically. Do not let the dashboards and sales funnels in your CRM end at closed one. That is like literally step four of seven, right? Like let's just like really step back, like very like basic, like, you know, opportunity stage one is, you know, business like discovery call and like business. metrics definition. Step two is product validation, demo, blah, blah, blah. Step three is closed one. Step four is set up.

14:27Mark Roberge:Step five is regular engagement. Step six is retention. That's the funnel. Yeah. I actually refer to it, have been referring to it as the hourglass, you know, with the idea being that, yeah, the funnel, right? But then it goes back out again. Expands. Exactly. Because you expand more. And a lot of people are winning by design with Jocko. And that's just a great way, the bow tie. A lot of people, it's a really good way to think about it because that usage, it represents the usage and should grow. So you were at Harvard and name a dozen schools, Stanford, that a lot of people go to those because they've got a big idea or they want to have a big idea.

15:06They want to turn out the next Google. I'm sure you encountered many founders or would-be founders in those environments. What would you, like if you were, I'm sure you did this in your class environment, tell them they're going to get wrong? Or, you know, what would you, how would you coach them of the, how there's, how you think they're thinking about it incorrectly?

15:26Mark Roberge:I mean, there's a lot to that. I think we covered a lot of them related to the work in terms of like, you know, being more precise around having the business fundamentals in place to be prepared to scale and how you go about scaling. I would say, I guess I'll add two more to it that come up a lot. One that's related to revenue development to some degree and one that it really isn't. The one I'll mention is having a plan for a moat. And I would say like when I ask people what their long-term defensibility will be, they often tell me about a feature. And when I ask them if they are correct and they start crushing it and start winning and then the competition realizes it, how long will it take them for them to build that feature?

16:21Mark Roberge:And they say six months. And I say, that's not long-term defensibility. So you really have to like, you don't have to prove it on day one because oftentimes it might take something that you have to kind of take one of those design big start small approaches to it. But you really need to have a vision around if you are right, there will be lots of copycats and the incumbents will try to take you out. Yeah, the other one that's interesting, I think it was a study done at London School of Economics where they looked at like, I don't know, 5 ,000 seed funded businesses like 15 years ago and tried to evaluate the commonalities for those that like exited at, you know, a very strong exit.

17:00Mark Roberge:The number one correlation was the founder's ability to up-level the executive team around them as they went through the various phases of growth. And it's like, it's so pronounced in my journey with some of these folks. It's like, it's so hard to do too. Like it's so hard for like a founder to like stare someone in the eyes who've been there in the trenches with them from day one for three years and be able to communicate that they are over their head and that the business needs someone ready for the next stage. How you deliver that, how you recognize it, how you have the guts to say it, how you like move through that and still feel like a human and still feel like that person has been made whole.

17:42Mark Roberge:like that's such a difficult skill to build but that there's so much correlation with successful founders and ceos and in developing and executing that skill well and let's take it up one level many times the business outgrows the founder right sure it's very rare maybe having that conversation with themselves right totally yeah and that lots of times the board has to manage that. I think we went from a culture or a tactic around that. I would say in the 80s and 90s, when venture capital was much smaller and startups were, it was a much smaller portion of the economy, VCs were notorious for investing in these young technicians and then firing them.

18:28Mark Roberge:And I think in the early 2000s, venture took a different approach. They didn't want to get a reputation for firing CEOs. So they did what I call the Sheryl Sandberg, which is to like bring in the operator, but keep the CEO, which is good. I think that's great. I think a lot of times that CEO can sort of graduate up to being a face to the organization, a driver of the culture, a person to be in key meetings with customers, to be on the road, but like don't have to be, or nor qualified to be like the day-to-day operators, hence like today's COO president role. So, but yeah, sometimes founders, they're like not willing to let go.

19:14Mark Roberge:And I have to be like, I have to be like, do you even understand that you have graduated to an era and scale that every CEO founder dreams of? We're basically offering to pay for someone to do all the work that you hate and have you just do the work you love, which is product vision, talking to customers, and talking to the market. So it's like, it takes a little reframing, you know? Yeah, yeah. So you, I think your PR people mentioned this. They're donating the proceeds to the book to McLean Hospital for Mental Health Research. Is there an intentional connection of the subject of scaling to mental health?

19:58Not so much.

19:59Mark Roberge:It's very light. it's more of an intentional connection to the author. And it's just something as you've experienced, John, like you get up in the morning and do these things three times more aggressively when you have a cause like this around you. And there's two personal reasons. And thank you for providing the platform to talk about them. The first one is mental health has played an enormous piece in my own life. I have been a caregiver, a direct caregiver to many loved ones, and I've been a patient. And I can stand here and say this because I've been blessed with certain resume wins that society values and I can be braver than most.

20:39Mark Roberge:And I'm sure by saying that some people may be hesitant to work with me. And I just think we need to fight that stigma more. Like we've come a long way in a generation, but even to this day, I think a lot of people will be interviewing a candidate and find out they survived cancer 10 years ago and it will elevate their perception of them versus if they found out that they overcame a serious mental illness, they may have some concern. And both are just a disease. They're often genetic. So that's part of the personal driver. And the second one is, I think, in this moment in tech, there's 100 times more capital, talent, and effort going into building AI and next to nothing in helping society adapt to the world that it's about to become.

21:28Mark Roberge:And I think we as technicians need to change that. We can't delegate this to Washington or economists. They're just not close enough to it. And we just need to really diversify our efforts away from just building and profiting toward helping society adapt to this new world. Because like with every tech revolution, we ended up better as a society, but there are scars along the way. It happened with the internet. They're about to be really bad with AI if we don't do anything. So I think we all need to find a little thing to do. And right now that's my little thing to do. Awesome. Well, I appreciate you taking a few moments to stop by the Ductate Marketing Podcast.

22:07Anywhere you invite people to connect with you, find out more about your work as well as your latest book.

22:14Mark Roberge:Yeah, I'm all over. I mean, LinkedIn is probably where I'm most at. I'm trying to hang out on TikTok more, John, just to like, because I need to like talk to these 22 year old founders as well, which is awesome. So I'm trying to find where they are, but I'm mostly on LinkedIn if folks want to go on there and collaborate. Awesome. Well, again, I appreciate you stopping by. Hopefully we'll run into you someday in a steakhouse in South Boston. I'd love it. And maybe I'll ask for your autograph, John. I don't know how much that'll be worth to you. But if you've got a pen, I'll do it. All right. All right.

22:45Thanks, Mark.

22:46Mark Roberge:It's great to see you. Thank you.