20VC: HubSpot CEO on Where Value Accrues in SaaS AI | How HubSpot Competes Against Salesforce | Why B2B Is Not a Winner Take All Market | How to Go From SMB to Enterprise an Win | How SEO Dying Changes HubSpot's Business with Yamini Rangan

0:00When you are in a wartime or a hard time, you are optimizing for speed of execution. When you are in peacetime, you are optimizing for getting a consensus around what you're trying to do. You've got to be good at both and many other modes of operating. B2B apps are not winner take all markets, whether you look at HR or finance, CRM, they all have multiple players. The best competitors make you better. And I think Salesforce does a really good job of... This is 20 VC with me Harry Stabbings and today we focus on HubSpot. HubSpot is one of the category defining companies of our time. Before HubSpot, no one believed that you could build a monster business focused on SMBs.

0:47No one also believed that you could come in and compete with Salesforce in the most competitive software space of all, CRM. Well, they did both, and now they have a market cap of $31 billion and revenues of $2 .6 billion. Joining me today we have HubSpot CEO, Yamini Rangan, who joined us in the studio in London. But before we dive in today, turning your back of a napkin idea into a billion dollar start -up requires countless hours of collaboration and teamwork. It can be really difficult to build a team that's aligned on everything from values to workflow. But that's exactly what Coda was made to do.

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4:03Get $1 ,000 off your first year by visiting vanta .com forward slash 20 VC. that's v -a -n -t -a .com forward slash 20 VC. You have now arrived at your destination. Yeah, I mean, there's an ice boat to Bryan. I spoke to Pat. I spoke to Jay Simon's Clare Hughes -Johnson. I mean, I think I just stalked the shit out of you bluntly before they show it. I know. Terrifying, but thank you so much for joining me. Thank you for having me Harry. It's been a long time. I've been long time listener. First time talker to you. That is fantastic. I want to start with the movement in the role of CEO. It's a $31 billion public company.

4:40I mean, the size of HubSpot is incredible. The question that I want to start with is, the founders are still fairly involved. Yep, what's it like being CEO where the founders are still fairly involved? It is a privilege and honor to take over from a founder and it's hard and tough work to make it work. I think for me, I'd been at the company for about a year. I always looked at the decisions that Brian and Darmej made in starting and scaling the company, deep conviction in SMB, deep conviction in building a platform and crafting the platform, deep conviction in having culture as a product. Those are decisions that I loved and I completely believed in.

5:23So I think that is the easier part, and that's the pro of working with founders who know the company, who have taken it from very small start -up to scaling it to a public company and beyond. I think on the flip side, it's a lot of work. When the transition happens, you have to think about a lot of things during the transition and throughout after. What's the cadence? Do you want to send 20 emails a day or two emails? And what's the altitude? Do you want to talk about the strategy and the product or do you want to talk about the whole business? And if it's one or the other, you really need to make sure that you're covering the basis across all of those conversations.

6:03And then what do you do when something bad happens, which something will happen, right? If you hit a pothole or if you make a bet that does not work, what happens? How are you going to like make it work, right? So there's a lot of work that you need to put in and just like any relationship that you have, right? First fall, you have to commit to it. And then you got to put the work in order to make it function. and so yeah, there's a lot of work. That's why I'm single. Now I get it. You said about the deep conviction that, I mean, it's amazing when you look at the deep conviction, as you said, SMB, the GCM, doing CRM at all from nothing, when it was such a mature space, are you able to have such deep conviction as a public company CEO when the street does react very strongly to decisions?

6:52Yeah. You have to have deep conviction in order to run a public company. If those decisions and the choices that you make are counter -intuitive, even better, you got to forget that you're a public company and you got to start with the basics of what do you believe in. One of the things that I just came from talking to investors this whole day, we had a whole non -deal road here today. We spent a lot of time talking to investors. They actually appreciate your conviction in your business. That's what they like to hear. And so when we, you know, talk to them about why we make these decisions, why we focus on the segments that we do, they get our story.

7:32What do you think is the most counter -intuitive decision that HubSpot is making today that may not be obvious? A couple of things come to mind. I would say pricing. When AI came on the scene in 2022, November, we fairly immediately moved into products, you know, product building. And we changed our roadmap. We actually stopped our roadmap, changed the roadmap, and started building product. And since that day, they're like, how are you going to monetize it? You know, what are you going to do with monetization? And we have a deep conviction that there's one product, which is an AI product. It's going to be inbuilt into every hub and every part of the platform.

8:10And that means monetization is the entire platform. And Harry, I can't tell you. Every day, I get asked this question about 10 times. How are you monetizing it? We're monetizing it with the current product. And that's how we plan to build. And I think it is a, it's counter -intuitive because today everybody has an AISQ, they slap a premium on that's queue or they put a usage metric or they put an outcome metric. And there's just a lot of swirl about how you price products. But I think the first thing that you got to do when a big tech shift like this happens is to focus on customer value. I'm a fan of making bold statements and supported by data because I'm a venture capitalist.

8:48Right. So when you do it, like outcome -based pricing. Yeah. It is impossible, unless it is completely non -human in the loop, because otherwise there's always going to be this continuous debate. Well, actually, Yamini, I did 80 % of the sale, and your agent only did 20%. So I don't want to pay 100 % for your outcome. Yeah. How do you think about how quickly we'll be able to move to outcome -based pricing and whether that even is the solution for an action generation of AI? There's a lot of swirl, isn't there? I mean, I think there's a lot of swirl on is it seats, or seats going to completely go away, is it outcome, is it some form of consumption credit?

9:27But also, if you're a horizontal based product, like a HubSpot is, you have some customers that will use you for LPs like I will do for a fund. That's a very high ticket versus a florist, which is a very low ticket. And so you can't just have the same outcome based pricing. Yeah. We believe that in the fullness of time, we will have hybrid pricing. We'll have some seed based pricing and some usage based pricing. I think it's really hard to think about outcomes for exactly the same reason that you're talking about, right? Which is how can you validate an outcome? And especially if you offer a platform which on one spot can resolve a ticket, on the other can help you set up a meeting, on the other write a blog or a social post for you.

10:10The outcomes are so different. How are you going to like validate all of it? The simpler way, at least for SMB, our customer base to think about it is results. And it's more of usage. Are you using a certain credit? Are you using something in our AI platform? It's a credit -based mechanism rather than outcome -based mechanism. So that's how I think it's going to evolve. I do want to go back and just before we go on to the leadership element. We mentioned obviously the transition to some elements, some elements, easier. Yeah. Can you describe one thing that I thought was brilliant question? I can't say who it was wrong, but it was great.

10:45Describe one thing you've changed at HubSpot culturally or strategically since becoming CEO that might not have happened under Brian and... Look, I think we are going from a scale up to a grown -up stage. And one of the things that HubSpot that I heard when I took on is that we don't like process. Process is a four -letter bad word. We don't want to talk about process. And you need a certain amount of process as you grow and you become a bigger company, distributed company across multiple offices. So one of the things that I've done is really focused on tying strategy to priorities to outcome.

11:24And when you run a large grown -up company, the clarity of what is important is really needed. So strategy is just that what's the most important work that we do as an organization? Then the second part of it is priority. Of that strategy, what are you going to do this year? That's a priority. And then the third part of it is what do you commit as outcomes based on the work that you're doing this year and are you accountable for that outcome? And this strategy to priority to outcome is something that I've obsessed about for the last couple of years. Just so I get an example of what strategy. So the strategy is threefold, Harry.

12:03Super simple. Focus and obsess on our customer. Everything starts with the customer. Second, make our product easy, fast and unified. And third is have a growth mindset and become grow getters ourselves. That structure of going from strategy to priorities to outcome is something that you need as you scale and you become even bigger and distributed. I can't see Brian as awesome. He probably would have done a lot of things. I don't know if you would have like put a framework like that with the process that we have driven. Can I ask you, on the other hand, is to have a growth mindset? I always think like you want something where someone can take the alternate side.

12:39Yeah. So for example, for me, I believe working unreasonably hard yields better outcomes. There you go. What life balance is a complete myth. Yes. But many people disagree with me and that's fine. Yeah. But you take the four against, no one wants someone who doesn't have a growth mindset, do they? That is not true. I'll push you on that. You're on. I mean, people love the comfort of what they have done every single day. Look at AI, which is coming, you know, and one of the things that we're talking to the whole company about is can we become AI first ourselves? Can we learn how to do prompts? Can we start using AI every single day?

13:17Well, the answer is not everybody wants to do that, because they're comfortable. Some of us are comfortable doing whatever we've been doing for the last decade. And so I think growth mindset, the alternate is comfort in how you do what you do and maybe even comfort in the expert level that you have based on what you have done for a long period of time. Asking questions, being curious, learning, adapting, that is not a given in any company or that's not even a given in the mindset. And I think in the larger you become, you do have people who like the comfort of, you know, I've done this before and I've done it a certain way.

13:59I know how to do it and I'm very comfortable doing it the way that I have done it before. I totally agree with you and I think that's absolutely fair. I think I probably just don't like those people. But you're right and that is here. I'm sure a large portion of large company workforce is kind of... What were you comfortable in how you did that you've had to change? With leadership change and becoming CEO, it's big transition. What did you have to get comfortable that you weren't comfortable doing before? Look, one of the biggest changes when you go from any position into a CEO, the number of stakeholders that you have is massive.

14:41You now have the board, you have investors, you have founders. in you have like a broader employee population across a lot of teams. And so it's like the number of key stakeholders that judge you, that focus on what you're doing and look at you is just broad, right? So that's number one. What I got comfortable with is that no matter how hard I try, I'm not going to perfectly hit the approval of all of those stakeholders. At some point, I'm going to do something which is super beneficial to customers. at some point I'm going to do something that employees are happy about. At some point I'm going to do something that board members are satisfied with and maybe investors are not.

15:21So you're never going to hit that perfect equilibrium where you're satisfying and maybe even over achieving the expectations of all of your stakeholders. So then how do you make decisions on a given day, how do you pivot? You said it comes from resource allocation. I actually think about it as resource alignment. What I mean by that is, have you heard this term that culture eat strategy for breakfast? I said this to our team, alignment eat strategy for lunch. What I mean by that is the biggest job, job number one is setting up strategy, but I think what is even more important and critical in terms of a CEO is aligning all of the resources to accomplish that strategy.

16:08And as teams grow and as they get distributed, as they get much bigger, vectors are totally not aligned. Can you help me? Where were they misaligned, where you aligned them and what was the outcome? Think about this, Harry. You have a sales organization that's optimizing for this quarter. You might have a customer success organization that's optimizing for the segment of customers staying and not churning. and those two are not always the same. And then you might have a product organization that's trying to launch a product. And how do you align every one of these functions that are trying to do what they think is right?

16:48They're trying to optimize for subsystems. How do you get them to align on the system? And the way to think about this is most of the work that gets done in a larger organization is cross -functional in nature. They're not functional in nature. Most organizations grow up with a functional mindset. What am I doing in my team? What am I doing in my function? How do I optimize? And so really the alignment is can we be clear on what moves the needle for the company? Now I gave you an example of our strategy earlier, which is we want our product to be easy, fast, and unified. Now that's not just the products job.

17:26It is the job of marketing to communicate that value proposition to our customers. It's the value of sales to be able to demo to that and help our customers understand that. It is the job of customer success to make sure that we're delivering based on that, right? Those are very, very cross -functional priorities. Now, if I go to our team and we say, the number one priority for HubSpot today is to make our product easy fast and unified, that aligns the entire set of sub -functions to optimize for that outcome that we want to drive based on that strategy. In most organizations, it's not just about resource allocation, is it when you allocate the resources, is there duplicate work, is there clarity in what the resources are going to accomplish in what period of time, do we know what the goals are, and if something does not work well, is there clarity in who takes accountability to get the right outcomes?

18:20And that's the job. And once you set that up, you begin to see that flywheel work. When you think about alignment, I think about kind of facing a challenge, but me and you're lining against it. And it may as me think of Jay Simon's who I spoke to you last night. And he said, I had to ask you about wartime versus peacetime CEO ship. And he your thoughts, how do you reflect on wartime versus peacetime CEO ship? Yeah, are there different modes, you know, that a CEO needs to operate in? Maybe the modes optimize for different things. You know, when you are maybe in a wartime or a hard time, you are optimizing for speed of execution.

18:58And when you are maybe in peace time, you are optimizing for getting a consensus around what you're trying to do. And those modes are completely different. And you do have to operate. And the question is, you know, should you be good at one or the other? The answer is you've got to be good at both and many other modes of operating. You know, there are years where you get into the year and you're like, this is go, go, go. You are optimizing for speed, which means we are going to be very clear in terms of what we want to accomplish this year. We got to get like people just follow there. That's the North Star for this year.

19:34We're just going to go and it's optimizing for speed of execution. And that's completely different when you need to enroll everybody in your strategy. You're doing round tables. You are getting everybody to align on what the priorities are. And the mode of execution is really different. You gotta do both. And sometimes, you gotta change the mode in a year, or maybe even a given quarter. You say about the importance of speed then. Can you take me to a time where you move very fast, and maybe you should have moved slower? And what did you learn? At the moment with people, where they know something in their head, and it's like, do I say that story?

20:13Or you know, I laugh, Harry, because so I've been getting like performance reviews forever and ever. Oh my God. Yes, exactly. And the consistent theme across now, 25 plus years of my performance reviews is go slow, because I have, you know, my natural mode is really going super fast. Very early on, I was in sales, you know, I just got promoted to sales manager role. That was the first time I got that feedback. Go slow because your team is not behind you. You need to explain things to them. You need to ask questions rather than give answers. I have a sticky that is probably a decade old and I can't take that sticky off my computer because it says slow down and ask questions.

21:07I smiled and laughed because, you know, this is a lesson in the making. My mode of operation is always for speed and speed of execution. And I found that when you spend the time providing the context to your team, when you ask more questions so that they can get to answers, when you enroll them in what you want to accomplish as a whole organization, then you go far. And sometimes you optimize for speed and you turn around and you're the only one there. And so what I've learned is that there is a ton of context building when you are making a pivot or when you're changing a direction of something, you have to provide the context, you have to provide the why behind the what you're asking to do.

21:58And that is a process of slowing down in order to go far. I'm intrigued when you think about making those big decisions and providing contacts for them. One thing that again everyone actually said we should talk about was the transition in not fantasy transition, but the moving up also of customer ICP, embracing a larger enterprise client. Yeah. Why did you decide to add mid market and enterprise to the pretty purely SMB HubSpot? In other great question, I'll tell you then, when I joined HubSpot, this is January 2020, I looked at how we were running the company, how we were running marketing sales and service, and we were running HubSpot on HubSpot.

22:40And guess what, at that time, we were a 4 ,500 person company. So well out of our target segment zone in our ICP, it was working beautifully, and we were customer numbers zero for HubSpot. So product was absolutely ready. Then the question is, can you get the partner ecosystem, can you get the whole company behind moving up market? And just so we know, we're talking about two to two thousand. We're not talking about 20 ,000 person company. We're not talking about 200 ,000 person company. We're still talking the segment that we were originally focused in, which is two to two thousand. But the opportunity to go to a thousand person company and help them grow across marketing sales and service, with huge, our product was already there.

23:28And so the next step was to state that as part of the strategy and to get the whole company behind serving an upmarket customer in that space. And it's worked out. Is it not an entirely different business in the way that you've suddenly got a scale, an SDO, a BDO, an AE team, a customer success team? These are really complex GTM motions functions. Is it not an entirely different company that you got to build? No, I don't think it is that different, especially if you think about how we went about doing it is we were already serving companies with 200 employees and then we started serving companies with 500 employees and then we started serving companies with 1000.

24:12So I think like there is a myth that there is a completely different motion and you got like go on higher all these enterprise class you know reps to come and sell and in fact if you do that that will break the system and that will break the culture. But if you think about more incremental approach of getting the product to be perfect fit for the next higher segment. So going from 200 to 500 and then looking at the kind of sales and support organization that you need and up leveling them incrementally the next year to make sure that they can serve a 500 person company and then taking it up to 1000 and taking it up to 2000.

24:55That is a much better way of scaling up market and we've been able to bring along our reps by upscaling them. We've been able to bring along our partner ecosystem by upscaling them. We've been able to continuously drive innovation in the product as we go up market. And that's why does it feel most different? you know, when you're from 200, 400 and 400 to 800 and 815, where's that like, this is different to the last phase? When the complexity of the buying process on behalf of the customer goes from I'm making decisions, I got the budget, to I have a committee of people that now need to make the decisions, that includes IT, that includes procurement, that includes security, that includes maybe the board, then it probably gets a little bit more different.

25:44And that's where we have to like upskill our sales team. How do you sell to a committee versus an individual owner or a sole proprietor or a VP of marketing? How do you make sure that you're driving a process that makes sense that works for customers upmarket? Right? So I think there is a organic way of upskilling that you can do to make sure that your team is enrolled in the process, the skills are getting better, and then you begin to set that flywheel in motion. When we think about the movement up to a higher employee base, you do more and more nudging to Salesforce's territory. You've always not even, like, Hubsloss has been quite like, yeah, no, we're not really, we're not really combated as And there was like, no, no, no, no, no, no, no, no, no, no.

26:33I'm sorry. You kind of all, right? Look, it's a very large market. B to B apps are not winner -take -all markets. It's different than consumer apps. You know consumer apps, you see one use case. There's a app that comes in and then it's like 90 % of the market is just like one provider. That's not been the case. is almost any of B2B apps, whether you look at HR finance or recruiting or you look at CRM, they all have multiple players. I think the way we look at it is for the 2 to 2 ,000 segment. We have a great product and we have a great go -to -market fit. We're really good at that. Salesforce has got this amazing enterprise segment that they're really good at.

27:25And so, yes, is there an overlap in the upper end of our up market? 2000 person company? Sure, we see them. And they probably are like, yeah, we have a whole space and an surprise. And okay, there's some overlap there. So, yeah, are we competitive in one portion of the segment? Yes. But we also focus on really delivering for that entire in a SMB, which is the 2 to 2 ,000 space we've been talking about Won't you think they do better than you that you're like, you know, we can learn from that We respect that and we can learn from that. I always respect and learn from you know competitors The best competitors make you better sales force does Really good job of marketing and telling the story and creating the narrative.