20VC: Hubspot Co-Founder Dharmesh Shah on The 3 Risks All Startups Face, Angel Investing Rules; No Founder Meetings and No Due Diligence, SMB vs Enterprise; Lessons on Pricing, Distribution and Why You Should Resist Going Enterprise
Jun 13, 2022
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Dharmesh Shah, co-founder and CTO of HubSpot, shares his journey from bootstrapping Pyramid Digital Solutions to building a billion-dollar CRM powerhouse. He discusses the three core risks every startup faces and stresses the importance of nurturing a strong company culture, treating it like a product. Dharmesh also reveals his unorthodox approach to angel investing, which avoids traditional meetings and due diligence. He emphasizes the need for market validation and strategic pricing for both SMBs and enterprises, ensuring startups stay focused on their core mission.
Founder-Finding: The importance of shared passion in SMB ventures, risks of early mistakes
Cultural Prioritization: Treating culture like a product, emphasis on low ego to accomplishment ratio
Strategic Expansion: Focusing on innovation, calculated risks, and market validation to navigate enterprise transitions
Deep dives
Launching Darmash Shah's Second Product
When considering the launch of a second product, founders should assess the reasons driving the decision. Factors such as growth stalling due to limited customer base, declining market categories, or the presence of a natural adjacency can indicate the need for expansion. It is essential to recognize the timing when saturation is near or when adjacent markets offer strategic advantages, balancing growth opportunities with increased operational complexities.
Resource Allocation for New Products
In resource allocation for new products, a committed approach tends to yield better results. Opting for an 'all in' strategy, without considering the venture as an experiment, demonstrates a stronger belief in the product's success. This approach involves dedicating optimal resources, attracting top talent, and overcoming obstacles with a complete focus on achieving the set goal, ensuring that the investment is significant enough to drive substantial impact.
Effective Disruption within HubSpot
To disrupt effectively within a well-established company like HubSpot, maintaining a focus on innovation and calculated risks is crucial. By narrowing priorities to core aspects like platform development, brand enhancement, and cultivating a culture of boldness, emphasis can be placed on challenging existing norms, promoting creativity, and fostering a spirit of calculated risk-taking to prevent apathy and drive ongoing success.
Ensuring Product-Market Fit and Market Validation
To navigate the transition into the enterprise market, it is vital for startups to prioritize achieving strong product-market fit and validating the new market's potential. By critically evaluating the reasons for venturing into enterprise, assessing market saturation, category decline, and exploring natural adjacencies, founders can make informed decisions about expansion, ensuring that the move aligns with strategic growth objectives.
The Importance of Investing in Outlier Bets
Allocating resources towards outlier bets with the potential for high returns is crucial for long-term success. By dedicating a percentage of resources to ventures that offer disproportionate returns, organizations can avoid regression to the mean and sustain growth. This strategy, akin to portfolio theory in finance, ensures a balance between predictable outcomes and high-risk, high-reward investments.
Building Communities and Adding Value
Product marketing success lies in fostering community around shared beliefs rather than pushing products. Community building should focus on creating value for its members, allowing them to interact and derive benefits from each other. Celebrating failure and encouraging risk-taking within the community fosters growth and innovation, creating an environment where value is not just gained individually but also collectively.
Dharmesh Shah is the Founder and CTO @ Hubspot, a full CRM platform with marketing, sales, service, and CMS software. Dharmesh started Hubspot in 2006 and today it is a publicly-traded company (NYSE: HUBS) with over 3,500+ people and a market capitalization of $16.9 billion. Prior to founding HubSpot, Dharmesh founded Pyramid Digital Solutions, which he bootstrapped with less than $10,000 and after 11 years of CEOship, Dharmesh helped the company get acquired in 2005 by SunGard Business Systems. In addition to co-authoring “Inbound Marketing" Dharmesh founded and writes for OnStartups.com -- a top-ranking startup blog and community with more than 1,000,000 members. Finally, if all of this was not enough, he is an angel investor in over 90 startups, including Coinbase, AngelList, Gusto, Okta and many more. and a frequent speaker on startups, growth, and the business of technology.
In Today's Episode with Dharmesh Shah We Discuss:
1.) The Founding of Hubspot:
How did Dharmesh's wife help Dharmesh find his co-founder in Brian?
What about SMB did both Dharmesh and Brian find a shared passion for?
What is the single biggest mistake Dharmesh made in the early days of Hubspot?
2.) The Culture Code:
What is Dharmesh's single biggest advice to founders when it comes to culture?
What does Dharmesh mean when he says "you have to treat culture like a product"?
What does Dharmesh mean when he says he looks for a "low ego to accomplishment ratio"? How does he test for this when hiring new hires?
How do the best people approach both responsibility and accountability? How does this show in their work and behaviour?
3.) The 3 Kinds of Risk in Startups:
What does Dharmesh believe are the 3 core risks all startups face in the early days?
How does Dharmesh advise founders when it comes to "testing for a market"? What is the right way to do customer discovery? What are the biggest mistakes founders make in the discovery process?
How does Dharmesh advise founders on when to release their second product? What is the right framework for this decision? Where do so many founders make mistakes here?
How does Dharmesh approach market timing risk? What have been his biggest lessons here?
4.) SMB vs Enterprise:
Why does Dharmesh believe that SMB is the single best market for founders to choose?
What are the single biggest challenges with enterprise? How do the long sales cycles and contracts in enterprise hide both customer satisfaction and prevent product development?
What are some of Dharmesh's biggest lessons on pricing? Does Dharmesh agree you should always "raise your prices"?
How does Dharmesh advise founders on when is the right time to go into enterprise from SMB?
What are the single biggest changes founders need to know when making the move from SMB to enterprise?
5.) Angel Investing 101:
What are Dharmesh's rules when it comes to angel investing?
What have been some of Dharmesh's biggest lessons from analysing thousands of emails to founders pre-investing? What are the biggest signs in emails of future founder success?
Why does Dharmesh not have calls with founders before investing?
What are some of the biggest mistakes Dharmesh has made when angel investing?
Items Mentioned in Today's Episode with Dharmesh Shah: