Hello, everyone. Some familiar faces out there, which is nice to see. Thank you all for joining us today at HubSpot's Analyst Day at INBOUND. This week and this event are all about celebrating the helpful human side of business. It's something that's so very important to HubSpot and to our mission to help millions of organizations grow better. We're thrilled to be hosting our Analyst Day at INBOUND again this year so that you can see firsthand the energy, excitement, and inspiration from the week. For those of you who don't know me, my name is Chuck MacGlashing, I'm the Director of Investor Relations here at HubSpot. I'd like to extend a warm welcome to those of you that are joining us in person, as well as the folks that are on the webcast.
I'm going to pass it over to JD Sherman, our President and COO, here in a moment, but before I do, I've got to review a few housekeeping items. First, here's HubSpot's safe harbor statement, in all of its glory. You can find a copy of it on our website at ir.hubspot.com to the extent that you're interested. As for the agenda today, you can see that we have a lot packed into the afternoon. After I finish up here, I'll be handing over the stage to JD Sherman, who's going to go through our operations overview. He'll finish up about 2 o'clock, and at that point in time, Joe Hanlon and Brian Howe are in the back right-hand part of the room with the lollipop sign, are going to shepherd us down to the main stage to see Brian and Dharmesh's keynote.
We have seating sort of roped off down there, just make sure to kind of keep up with the group. After Brian and Dharmesh finish up, there'll be a 30-minute break where you can use the restrooms, grab refreshments, stretch, but I'd encourage you to make sure that you're back in your seats for 4:10-4:15 so that you don't miss the beginning of Christopher O'Donnell's product spotlight. Once Christopher finishes up, the entire group will move back up here to room 259, for Kate Bueker, our new CFO's financial overview. That'll begin at 5:25. There'll be some food in the back of the room, as you come in, feel free to grab some food, grab your seat, and we'll get started with the financial overview.
Once she finishes up, we'll begin our analyst Q&A just before 6 o'clock with the hope of finishing up sometime around 6:30. Okay, with that out of the way, I wanted to just share that we're very happy to announce that we've surpassed last year's INBOUND record with 24,000 registered attendees, up from 21,000 last year. Really, really excited about this. I wanted to end by thanking you for joining us, in some cases from some faraway places. We're thrilled that you could make it. We've got some really great presentations today. I think it's going to be a really great day. With that, I'd like to welcome up our President and COO, JD Sherman, to the stage.
Thank you very much. Thanks again, everybody, for coming. My objective with this very short talk is kind of two things. One, you are going to hear from Brian and Dharmesh, and then also Christopher, who runs our product team. I want to give you some business context around what you are going to hear from those guys, and then give you a little bit of an operational context that hopefully will rhyme with what Kate talked about this afternoon in terms of the financial model. Let me get going. As you just heard from that video, our mission at HubSpot is to help millions of organizations grow better. I want to unpack that a little bit because we put a lot of thought into that very simple mission statement. I kind of want to break it down into three sections. The first is help.
We are obviously a Software as a Service company, great software, gross margins, and all that kind of stuff, but we really think about our job is to be helping our customers. We do that with certainly a platform, but also with a philosophy that you will hear more about today, and with people. We really want to make sure that our mission is aligned with the success of our customers. That is the first part. The second part is millions of organizations. As we have been really since the IPO and since we started the company, we are focused on sort of that Fortune 5 Million, not necessarily the Fortune 500. We want to target the mid-market, and you will hear more about that today and what that means.
You are also going to hear about some of our awesome new enterprise features, but I want to put that in the context of we are really focused on delighting those mid-market customers. Grow better, and you heard a little bit more about that in the video. We do not think in this day and age, it is enough to just grow for growth's sake. We think you have to grow in a better way that is healthier for your customers, that creates delighted customers, that helps sort of grease the growth of your business. This is my seventh INBOUND at HubSpot. I think the slide showed it was about 2,400 attendees back when we started, and we are up to 24,000 now.
The one comment I wanted to make on that slide is you can see when we go down to the big stage, we are kind of capped in terms of the capacity where we can grow. We grew a little bit this year by taking some additional spaces outside of the BCEC here. We will do a little bit more of that next year. We have made a decision to keep this conference in the Boston area, I do not expect the attendees to grow at the same rate that we have grown over the years. That is just something to be aware of. As I was getting ready to give this talk and a couple other talks I have at the conference this year, I thought back to when I started back in 2012, we had that INBOUND conference over at the Hynes Center.
I thought about how Brian talked me into coming to HubSpot. For many of you who might know, I was the CFO of another, an actual company down the road, an actual money-making company. Brian and Dharmesh had a startup that was targeting small businesses with horrible unit economics. You could see that the business was teetering, honestly. I met Brian, and I was really impressed by his story because what he said is, "Listen, we found this arbitrage opportunity," he called it, to try to use a finance fancy word to impress me. We basically recognized that the way humans have lived, worked, shopped, and bought has been fundamentally changed by the internet, but businesses haven't kept up. We see a huge opportunity to help businesses do that with inbound marketing and with HubSpot.
I thought that was a pretty interesting thing, so I said, "That's great. Let's meet. Tell me more about this." Brian did something that I've seen him do like 10,000 times since I started work here. He went to a whiteboard and started drawing on it, which you guys will see if you know Brian, that he loves to draw on whiteboards. He drew a funnel. What he explained. Oh, but I should say, by the way, this is a reenactment. This is not actually a 2012, just for legal disclosure purposes. This picture was from last week, so I have to just admit that. It's a perfect reenactment because he draws these funnels all over every conference room. What he explained to me is the idea with inbound marketing, you really widen the top of that funnel.
You get found by creating this asset called inbound marketing. Then you use that engagement to help nurture your customers through the process with marketing automation to create a lead. Then you use all of that engagement to help your salespeople close them. They become a customer. That made a ton of sense to me. That sounded like a really powerful thing. We built our business sort of around this funnel, where the opportunity was to get found from a finance mindset. The asset you're creating is inbound marketing. Once you've created that content, it keeps generating leads and business for you. You can optimize the steps and do a really good job of that. The customers are a great outcome of that. That opportunity is still there, still really a lot of the core of what we do.
There's a subtle change going on, and that's a little bit of what you're going to hear about today. We noticed it particularly in the way our customers talk to us. One of the things that we like to do when we talk to customers is we find out why they bought HubSpot, what brought them to HubSpot. The answer used to always be, well, we found you guys through the internet, inbound marketing, really buy into this philosophy. We want your help to get started, and it's working out really great. That's awesome. Still hear that, more and more, we're starting to hear, "Well, our neighbor uses it at their company," or, "My colleague uses it at their company, and it's really great." What we're seeing is word of mouth is becoming super important in this landscape.
You can still see there's Google, there's the HubSpot blog, big drivers for us, but more and more, our customers are hearing about us through word of mouth. That's pretty important, that's sort of a new arbitrage opportunity, if you will. What Brian's been doing lately is still drawing on whiteboards, but he's drawing this thing, which I'll explain to you is a flywheel. You can't really see what it is. By the way, I just want to mention, at the end of the day, we're going to do a Q&A, and we're all going to sit up here, and we're going to wheel that whiteboard over here so that if we get going, Brian can draw on the whiteboard. Inside of here, I have a HubSpot T-shirt, a Grow Better T-shirt.
The first person who asks a question that gets Brian to draw on the whiteboard wins the T-shirt. We'll just do a little contest like that. What Brian's point is, I think he's right about this, is the funnel has some problems in this new world. First of all, the obvious problem is that the customer is the outcome, not the center of the picture. Whereas in this modern world where the customer has such a loud voice, the customer is at the center of your flywheel, of spinning that flywheel for growth and eliminating the friction from your process. The new opportunity that we see is customer delight across the entire customer experience. The asset that you're creating is happy customers. I have a talk later tomorrow, actually, where I sort of analogize your customers to working capital.
Like customer capital is the number of happy customers you have minus the number of unhappy customers you have. If you have a lot of customer capital, much like if you have a lot of working capital, it's going to be really easy to grow your business. The friction's going to come out of there. If you have negative customer capital, you're going to really have trouble growing your business. What you want to do in this model is you want to optimize the seams. You want to take the friction out of the process. You want to make it easy for your customers to buy from you. It's about how you sell as much as what you sell. That's a lot of what you're going to hear about Brian talking about. It's also what we've been investing in as a company.
I don't have to tell you guys that we've been spending a significant amount of investment on R&D. You're going to hear Christopher talk a lot more about this in his section. We've really ramped up. In the first half of the year, we spent about 80% more year-over-year on R&D, we're spending about 18% of revenue on R&D. We've really been doing two things. One is investing in this suite and platform that will help our customers sort of spin that flywheel, and the other is moving our own model towards more of a product-driven, lighter touch, less friction go-to-market model. Let me talk about those couple of things.
As I mentioned, I showed a chart that wasn't quite as fancy as this last year, but we're kind of on this journey from this marketing app that helped people get found and create an asset called inbound marketing to a suite that helps customers create an awesome end-to-end customer experience to a platform where our customers can plug in and integrate all the other software that they use to drive their business. We've spent most of this year on the first part of that journey, let me talk about that first. Coming into the year, you guys will remember if you were here last year at INBOUND, we announced Hub professional product. That's been what we're really super excited about.
Really coming into this year, we had a Marketing Hub. Then we had a product in the sales area, professional product, and built on a CRM that's free to start with, which was pretty awesome, but still not a full suite. In fact, the Marketing Hub Enterprise edition was kind of long in the tooth. We hadn't really invested in it in a while. The primary reason that you would have bought the Enterprise edition was actually not for features, it was for the number of contacts that you had in your system. What you're going to see today is that we've totally completed the suite of our products. In marketing, we've done two really interesting things. We've really beefed up that Enterprise edition. I think that there's a lot of functionality that larger companies are needed to really utilize HubSpot, and I think that's exciting.
We've also introduced a starter product at $50, where small companies can get started with HubSpot in a frictionless way and grow with us over time. Then, of course, we talked about the sales product that we introduced last year. We introduced the Service Hub Professional product in April of this year. At this INBOUND, we're introducing the Enterprise tier for both of those products, and you'll hear a lot more about that. I think this is a really interesting opportunity for us and for our partners, because what it does is it allows us to really significantly expand the market for ourselves, kind of north and south expansion as well as east and west expansion. Let me talk about what I mean by that.
If I go back to HubSpot at IPO time, we had a marketing app that was really geared towards, I'm going to say that 50-200-person company. We fit really well for those types of companies. We were a sweet spot of what those kind of companies needed. We sold to larger companies. We talked about being a 10-2,000 employee focus for our go-to-market efforts. We sold to those larger companies, but I would say we were probably like a C minus, maybe a C in terms of our ability to deal with that. We also had a basic product, but basic was kind of a tweener product. For a lot of small companies that just wanted to get started, it was too expensive to get started with at $200.
Also, it was a little too inexpensive for us to really sell it with our go-to-market model. Just wasn't making sense for us to really push and sell that. I think with marketing, as I'll talk about, we've addressed both of those things in terms of the north and south. On the east and west, of course, we now have the ability to help our customers across their front office, across their customer experience with sales and service, and that's a big opportunity. Then, as I was mentioning before, now that we have a true enterprise edition, and we also have a way to start for customers in a very touchless, frictionless way that has a very low cost of acquisition for us, we have the ability to kind of go north and south as well.
I think there's a big opportunity for us and our partners who are helping these companies succeed to really expand the footprint of HubSpot east to west, and also the sort of market reach that we have north and south. Hopefully, that compass analogy makes somewhat of sense. Some of these same investments have helped us evolve our go-to-market, and I've shared some of these numbers with you guys last year. I want to kind of give you an update on that. A big part of our playbook has been this free CRM. Just get started with HubSpot for free using our CRM. We've seen a tremendous amount of growth in that. We're up to about 350,000 weekly active users at the end of Q2, and that's tremendous growth year-over-year, and that sort of fuels a lot of things about our flywheel, if you will.
The key thing for us to do, though, is get those folks engaged, start adding value for them with the free tier, and then get that first user to invite their colleagues and start using HubSpot as a team, and we call that weekly active teams. When there's two or more users from the same company using Sorry, this thing is kind of cutting in and out. I hope that's not trouble on the webcast. When they're starting to use it as a weekly active team, they become paying customers at a very high rate, at like four or five times the rate that we saw in our traditional inbound marketing funnel. You can see that that's really ramped up dramatically as well. We have now approaching 50,000 weekly active teams using our CRM.
That's a big move in terms of our sort of a lighter touch, product-driven model where we add value before we extract value. We're seeing there as more and more of our customers are starting by using that free software. In the second quarter of 2018, well over 50%, it was about 55% or so, were using HubSpot software for free before they became a paying customer. That's just a much better experience for our customers. The motion that we had with inbound marketing was find out about HubSpot, download an e-book, become a lead, engage in a sales process, commit to HubSpot and buy, get implemented, then start getting the value from HubSpot, and then hopefully grow.
What happens is, find out about HubSpot, start using the software, get value, start paying, then engage with sales and grow, and that's worked out really well, and it matches the way customers want to buy. That's been dramatic. What we've been able to do with that is get more and more customers over time to adopt the suite. So we're at about 28% of our customers at the end of Q2 that are using two or more of our hubs as part of their HubSpot solution, and that's pretty great. We're pretty with the traction that we're seeing there, and we see an opportunity to continue to grow. What's interesting about the way this whole model works, and I think Kate will talk a little bit more about that, is we're really spinning our growth flywheels, what you're going to hear about Brian talking about.
Also, you kind of have opposing forces in terms of the metrics that we look at from a financial standpoint, ARPU and customer count. If you think about that lighter touch model where customers get started touchlessly very often, and generally at a lower price point, that's going to really crank on customer count, which is great. It will tend to pull down ARPU. On the flip side, you have this motion, which is to get customers to expand their wallet share with us, and we expand our footprint in their solution. That tends to grow the ARPU, but is obviously not a customer count driver. You're going to have those two things sort of opposing forces. I always joke that we've taken a humidifier and a dehumidifier and put them in the same room and let them duke it out. That's kind of what's happening here.
I think if we can see that motion continue, both of those sort of metrics continuing to crank, we'll be really, really happy. The last thing I'll briefly talk about is the sort of third step on that roadmap that I talked about, which is moving towards a platform. If you guys are around tomorrow, I don't know how many of you are, but Nancy Riley, our VP of Platform and Product General Manager of our platform business, is going to be giving a talk, and she'll go a lot deeper than I will in this very short period of time. I would encourage you to do that. As I mentioned, we've been investing along this path and starting to invest in the platform. If you don't believe me, look at that arrow that just shows that we have indeed been investing in the platform.
These proof points are very powerful with investors, I think. There's two sides to this, and we have a mini flywheel going here as well. We really have invested in APIs and the robustness of our platform to make it easy for our software, our Connect partners, to integrate with HubSpot. What that's done, of course, is get more and more partners to integrate with HubSpot, which in turn has gotten more and more of our customers to use those integrations. As our customer base grows, we're more and more attractive to Connect partners who want to find a market for their software, and that flywheel is really starting to spin, which is exciting. You can see the sort of two sides of it. This is a graphic of our HubSpot Connect program.
We have over 200 Connect partners in various types of functionality that tie into the HubSpot platform. That's tremendous. We're also seeing it on the other side of the coin with the number of our customers and the amount of integrations that our customers use. As you know, we have just under 50,000 customers as of the second half of this year. You can see we have almost 200,000 integrations to those customers. That's a pretty good ratio, and that's more than double from last year. We're really starting to see some traction around our platform play as well. Overall, I think we're feeling really good about the progress that we're making.
We sort of started with this observation that there's a new opportunity on top of inbound marketing and getting found to help our customers create this delightful customer experience and get their flywheel spinning, take friction out of their model. From that, we sort of identified that we want to make a bunch of R&D investments to drive our capabilities to help our customers with that. We've built out a bunch of new tools for our suite. We've started to build out a robust platform that our customers can integrate with, and we've used it to revamp our own go-to-market model. I think you've seen a lot of progress on all three of those over the last sort of 6 to 12 months. Again, feeling really good about that investment we've made in R&D starting to pay off and starting to see the benefits of that.
That's just a really brief overview. I'm really looking forward to having you guys listen to Brian and Dharmesh. I've personally listened to it about 22 times now, if I'm not paying as close attention, don't let that be an indication to you. I think their talk is really good and hopefully helpful to you guys. With that brief introduction, I guess we'll head over and head down to the analyst day or to the talk. Thank you. Hold your applause, please.
Good afternoon and welcome. We're going to begin shortly. We invite everyone to please be seated. If you're looking for a seat, as you just arrived, or you want to move, there are many seats up front that have just opened up. We encourage you to take advantage of these fine seats. Again, we're going to begin shortly. Thank you. Please welcome HubSpot's Founder and CEO, Brian Halligan.
Okay, welcome INBOUND '19. Just kidding. Okay, I have been thinking a lot, a lot, about how do you grow your business in 2019 and 2020? I've come up with a whole new model for describing how you grow. The model is based a lot in physics. You see, when I was in university, I spent a tremendous amount of time following the Grateful Dead around. In between Grateful Dead concerts, I squeezed in an electrical engineering degree. When you take electrical engineering, you take a ton of physics. Physics was my favorite class in college. I love physics. I love physicists. Physicists, what's cool about them is they love models. No, no. Not those kind of models, these kind of models. Now, what physicists do that's super cool is they study our world.
They study it very carefully, and they'll come up with a model to describe the way it works and a bunch of math to back that model up. They'll publish it out into the wild. When they publish it, the physics community will study it, and they'll test it, and they'll put the bright light on it, and they'll look for cracks in the model. If they find a crack, they'll publish a new model that better describes how our world works, like in these cases. Now, all of us in the inbound community, we're kind of like growth physicists, and we've all got a model we've been using our whole careers. We have a model, I call it Ye Olde Funnel. Clap if you've ever used the funnel. Of course you have. Of course you have.
Now, I've been using the funnel for 28 years, my whole career, and I'm starting to see a couple cracks in Ye Olde Funnel. I want to talk about those cracks. There's two. I want to share them with you. Maybe you're seeing the same cracks. Let's talk about the first one. You see, once a week, my dog, Romeo, and I, we have a very good habit that we've gotten into. Once a week, we interview a HubSpot customer, and Romeo, he's like a dog on a bone in these interviews. During the interviews, what Romeo is trying to get at is, what's the most influential voice in your head when you make the decision to buy HubSpot? Here's how the conversation goes.
Romeo will say, "Well, what was the most influential voice in your head when you bought HubSpot?" The answer will be, "Well, Romeo, that's a good question. There's a couple things. We were subscribed to your blog and liked your content, and then we were talking to your sales rep, he was very helpful, then we decided to buy HubSpot." That's the answer we've been getting for 10 years that we've been doing this, the same answer. That tells me that inbound marketing and selling is working as advertised. Marketing and sales are in their head when they're making the decision. The last two years, the answer's changed dramatically. Here's how the Q&A works. Romeo will say, "Well, why'd you buy HubSpot?" The customer will say, "Well, that's a good question. You know what, our friend Meredith talked us into it.
You see, Meredith, she's been using HubSpot her whole career. She started her career where was she working? Bubba Gump Shrimp. Then she left Bubba Gump Shrimp, she used HubSpot there, and she went to a new company. What's the name of that company she worked at? Dunder Mifflin. They love HubSpot at Dunder Mifflin. She talked us into it." You see, the answers changed. It went from being sales and marketing being the loudest voice in their head, to being word of mouth being the loudest voice in their head. It strikes me that's a sign of the times these days. Whether we all like it or not, trust in sales and marketing is at an all-time low. It's about 5% on the trust index. There is some good news for all of us sales and marketers in the room. Two pieces of good news.
The first piece of good news is we get those goddamn politicians beat, don't we? Yep. The second piece of good news is when they put the trusted index together this year, they didn't include CEOs on there. Perfect. Okay. This is a sign of the times. Nobody trusts anybody anymore. They don't trust marketers, sellers, vendors. They don't trust the government, for sure. They don't trust media, social media. Who do they trust? They trust your customers. That's the only people they trust these days. That's at sort of the end of the buying process. Romeo and I were interested in what happened at the beginning of the buying process. How did our best customers find us in the first place? Once again, it was word of mouth. Word of mouth is becoming a more powerful channel, whether I like it or not, than sales and marketing.
Here's the thing for you sales and marketers out there. I don't think this is the end for sales and marketing. I have some ideas on how we can tweak how we market and sell to really make this happen for all of our businesses. This, my friends, this is the first crack, of course, in the funnel. The funnel shows customers as an output when we all know that customers are actually an input to our business in today's day and age. Okay? The second crack. Well, I want to tell you a story about an old boss of mine. She was a great boss. She ran marketing for a company I worked in back in 2001, 2002. She had an expression.
What she would say to me is, "Brian, the sun rises and sets on the quarter." What she meant was, by the end of the quarter, she had wrung every ounce of energy out of marketing. You start the next quarter on the first day from a standstill with no momentum and no leverage, right? I don't think that's true anymore. All of you are doing a fabulous job of inbound marketing. You have assets. You have content, you have links into your site, you have social media followings, you have keyword rankings. You have all these assets, and you have momentum that swings from quarter to quarter. The funnel, my friends, I think, is a broken metaphor that we're using. Everybody with me? Okay. I've been wallowing a bit of misery over this, and I talked to Romeo about it, and we're very upset about it.
I go to a lot of meetings at HubSpot, as you might imagine, probably 30 a week. Every meeting I go in, there's funnels. There's funnels on the whiteboard, funnels on the slides with customers, with partners, with employees, funnels. It's frustrating because I know the funnel's a broken way, an old way to look at the way growth really happens. I was frustrated because I couldn't think of a better way to describe how growth actually happens in 2018. I saw a great presentation by somebody who knows a lot about growth, a guy named Jeff Bezos. The way Jeff Bezos described growth was fascinating. He said, "The way we grow is we increase the selection. The more selection we have, the better the customer experience, of course. The better the customer experience, the more traffic and word of mouth.
The more traffic and word of mouth, the more sellers, and so forth and so on." What really impressed me the most about this presentation, he went through the entire thing, he didn't drop a single F-bomb. He didn't say the word funnel once. He had a new word, a new F word, very clever one. He referred to this thing as a flywheel. Now, why would he call it a flywheel? It's a circle. It's a loop. Why create some fancy word for it? I don't know about you guys, but I didn't know what a flywheel was, so I googled it. What a flywheel is an invention by a guy named James Watt 200 years ago. He was a physicist, and he invented this machine that was very good at capturing energy, storing energy, and releasing energy.
This flywheel was the key part that enabled the steam engine to happen, which enabled the whole Industrial Revolution to happen. It turns out, Bezos picked a very, very cool word for describing the way a modern business in 2018, 2019, and 2020 really grows. I like this a lot, and I think we, the inbounders, the inbound community, ought to embrace this new metaphor, this new model, the flywheel. I like it so much, I made my own flywheel model. You want to see it?
Yeah.
I love that thing. Okay. We have some business to take care of. We're going to talk a lot about the flywheel today, how to apply it to your business and get your business growing fast in 2018, 2019, and 2020. Before we do that, the funnel has done terrific work for all of us his whole career. Let's throw him a great retirement party. Let's get him the gold watch. Let's get him the new clubs. He's retiring down in Naples, Florida. Please join me in congratulating the funnel on his permanent retirement from the sales and marketing business. You're a good sport. Okay. This right here on the screen, this is HubSpot's flywheel. This is how we run HubSpot, and we've retired the funnel. By the way, during this presentation, I'm going to weave in and out a couple of times stories about HubSpot.
I hope you'll grant me that privilege today. The reason I do it is HubSpot's got lots of smart people I learn from, lots of smart partners and customers, and it's like a laboratory for new ideas. I'm going to talk about HubSpot here, and I'm going to talk about our flywheel. Before I talk about our flywheel, I want to show you the impact it's had on me and my life and HubSpot. To do that, I have to wind the clock back to when I was a little boy. I was six years old. Now, when I was six years old, I was one of those kids that repeated kindergarten. Had a hell of a time tracing those letters and numbers. Those clay snakes were vexing. Couldn't get those snakes, roll those snakes. You know what I mean, right?
The only good part about staying back in kindergarten is when you're 16 years old, you're first in line to get your license. Freedom, all your friends are counting on you to get your license. I'm 16 years old. Right on my birthday, I show up for my learner's permit test, right? I take the written test, and I do very well, and then I go and I do the eye test. I put my head in the thing, and the woman says to me, "Oh, Brian, can you read the bottom line?" I said, "I can't read the top line." Okay, I failed my test. I went to the optometrist, and he gave me a full workup, and he said, "You know, Brian, you're a very tricky case. You're right on the edge. You're right on the border.
On the one hand, I could give you a pair of glasses. On the other hand, I could give you a seeing eye dog." I was blind as a bat. Well, I ordered some glasses. Two weeks later, they came. Oh, my God. Blades of grass. Birds in the trees. The basketball rim. That's how I feel about the flywheel. Really like our flywheel at HubSpot. There's a couple things I like about it, way better than the funnel. First, it's got customers on there, and it's got our happy customers, our promoters on there, and it's a circle. They're inputs to our new customers. The second thing I really like about it is it doesn't just give us credit for what's going on in a given month or quarter. It's got all our leads, all our customers, all our promoters on there.
It's got a sense of leverage and momentum. I really like this flywheel. There's a customer that Romeo and I interviewed a couple months ago that's got this flywheel thing nailed, and it's a company called Airstream. Let's have a look at the video. These guys are awesome.
Purchasing an Airstream can be a lifelong dream for some people.
We affectionately call people who own Airstream, Streamers, and that don't own an Airstream today, Dreamers.
Having a large database allows us to build a community that gets us to conversations around the campfire, connecting that digital space with the real world and using Airstream Dreamers to promote the brand for free.
I have yet to meet someone who owns an Airstream who doesn't want to talk about it or tell you their story. In my past, I've had to pay people for those stories, or I'd had to go out and not make them up, but you had to work a lot harder to try to get people to interact.
Even if they may never buy one, because they're all influencers for us. That would cost us millions to reproduce if we did it in a more traditional way.
Okay. The Airstream folks are here. Let's give them a big hand. All right. They're fantastic. Okay. Every time in college I had a physics lecture, the professor would give me a back-breaking set of problems. Today, you're sitting through a bit of a physics lecture, and I'm going to give you a back-massagingly easy set of problems. Here we go. Here's your first problem. There'll be three. The first little exercise I'd like you to do is just like these two folks in the video. During the breaks, when you're back in the office, draw your flywheel. Right? Take elements from your funnel, add all your customers and promoters in there, include all your leads, everything you've ever sort of created, all your asset there, and go ahead and draw it on the board. If you'd like me to grade your homework, I put a hashtag on there, #ourflywheel.
Go ahead and post it on Instagram or Twitter. I spend way too much time on those platforms. I'll take a look, give you a grade, give you some feedback. The person who does the best job on their homework, I'll give two free VIP tickets to INBOUND next year. Okay. You don't have a funnel. You've got a flywheel. How do we put that flywheel to work for you folks? How do we think about your business differently? Where do we invest in 2019 and 2020? How do we really grow? Well, to build a flywheel, James Watt, the physicist, would say there's three important things. The first is you need, of course, to apply a force to your flywheel. Very simple idea. Apply a force to the flywheel and it spins. The more force you apply, the faster it spins.
The more place along the flywheel you apply a force, the faster it spins. Now, one of the things I find most fascinating about selling and marketing these days is where the best return on investment is. Where should you apply your force in your business to get the biggest return? I think it's shifting a lot, and it impacts everybody in this room. When I started my career, the best place to invest, the biggest return on force, was in the engage stage. That's where the sales reps come into play and your rack-mounted sales reps. Now, why did that make sense back then in the 1990s? My theory is back in the 1990s, sales reps had a lot of information. Customers had relatively little. The sales reps leveraged that information gap to create a lot of trust.
It made a ton of sense to hire sales reps back then. The reason we started HubSpot is we saw this shifting back in 2005, 2006, and it shifted a course to attract to marketing. Why did it shift? It shifted because the sales rep and the prospect had the same information at the same time, and so it behooved you as a marketer to create as much information as possible and pull people in with that. What about today? It's shifting again, right? Of course, today, the loudest channel in the market is delight. I'm going to talk a little bit about how you increase delight in your business, but this is where the biggest return on your investment is today.
There's a company that I love that's doing this really well that my son Luke educated me about, and I want to tell you about it a little bit. This is Luke and I. We were horsing around in New York City one day, and it was getting dark. As you can see, the picture's getting dark. We didn't have jackets on. Luke said to me, "I was getting cold, Dad. We should get some jackets." I said, "Luke, I am your father. You're right." "There's a Gap right around the corner, Luke. Perfect." Luke gave me one of these emojis, you know, the no emoji. I was like, "What's wrong with the Gap?" He said, "The Gap's fine, but we got to go to Patagonia." "What's the big whoop about Patagonia?" He said, "Patagonia is fabulous. I got a Patagonia jacket two Christmases ago.
I trash all my clothes. You cannot rip this jacket. I beat it to shreds. It is a tank. It's so comfortable. It's the most comfortable piece of clothing I own. By the way, if I ever did rip it, the zipper breaks, anything happens to the jacket, you know what, Dad?" "No." He said, "You bring it back to the store, they give you a brand-new one for free." "Okay. Let's see where the Patagonia is. We're not going to Patagonia. It's a 30-minute Lyft ride, Luke. We're not going to Patagonia." Here's Luke with his new Patagucci jacket. You see, Patagonia's got it right. They've got all of their force on delight, right? They've got it all here. They're not trying to close Luke. They're trying to delight Luke. All their forces, their quality policy, their return policy, their ads, everything are designed around delight.
What they want to do, and they're succeeding, is they want to turn Luke into a walking, talking Patagonia flywheel. Right? They've done a nice job of that. This is what HubSpot's flywheel looked like in 2015. For better or worse, HubSpot is very much a reflection of its CEO, probably similar to your company. I'm a sales and marketing person. I grew up in sales and marketing. I'm passionate about sales and marketing. We really focused on this. All of our energy at HubSpot was sales and marketing. Really wanted to close as many customers as possible, and frankly, delight was an afterthought. I've been influenced. I've been influenced by Romeo, by Patagonia, by Luke, by Airstream, and I've come to see the light.
What we're trying to do is shift our center of gravity and shift our forces from down here to up here. We're making progress. We're by no means perfect. We're making mistakes, but we're on our way to creating a flywheel that looks more like this. Okay. Now, I've made some mistakes along the way. One mistake I made along the way is I just said, "Hey, we're going to be a delight company," and it was lip service, and no one listened to me. The second mistake I made was I assigned this to the service department. I said, "The service department, you got to fix this problem. We need to delight our customers." Neither of those things work.
What really works is getting your whole darn organization behind it, and the most important part of your organization to get behind it is sales and marketing. Let me give you an example of how sales and marketing can shift its focus from down here in closing. Sorry, that thing spins really well. Hello. Up there to delight. It's our commission plan of all things. Our commission plan in 2015 was very simple. If you're a sales rep, you get commission on everything that closed. We made two important tweaks to it. We added a carrot and a stick. The stick was very unpopular, but the stick was if a sales rep closed a new account and that account canceled within eight months, well, the company would claw back that commission. Painful but useful.
The carrot, also useful, the sales reps who do the best job at setting expectations and have the highest retention rates and the happiest customers, well, they get paid at a kicker, a higher rate. That carrot and the stick has moved that force from sales over to delight. Our sales reps now are focused not on closing customers, but on delighting customers. This is the key, by the way, to growing your business. This is the key in sales marketing. Sales and marketing want to continue to invest in it, but how do you get your sales and marketing focused not on closing but on delighting? That's the key to growing your business in 2019 and beyond. Okay. Two more small homework assignments. Really easy. Just like these folks in the video, take that flywheel you built and draw your forces on it. Okay. Put your commission plan.
Where does that really sit? Put your best people on there. Put your pricing plan. Is your pricing plan designed to close or to delight? Do your customers pay you as they gain more value, or do they pay up front? Put everything on there, all the forces you can think of, and then redraw the darn thing with your forces up in the top right, like HubSpot's trying to do. Again, the person who does the best job, two VIP tickets to INBOUND. I'll look at all of them that are submitted on Twitter and Instagram and give you some feedback. I'm really looking forward to seeing what you come up with. Okay. Now, if you ask James Watt how to build that flywheel, the first thing is force. What's the second thing Watt would say? Watt was a smart guy.
He would say, "You want to put a force on it, but you really want to lower the friction in your flywheel, so that if you just barely touch it spins and spins and spins. You get a big return on investment." What I want to tell you about is my low-friction morning. I had a very low-friction morning. I woke up on my new mattress I bought from Purple, then I put my Warby Parker glasses on. As you all know, I'm blind. Then I picked up my phone and I put on Spotify, and I put my favorite Grateful Dead song on, "The Wheel." Danced my way into the bathroom. I shaved with my Dollar Shave Club razor, then I went in my closet, and I got my new outfit from Trunk Club. By the way, I'll give you a little non-sequitur.
Before we do this big presentation in front of all you, we do a dry run inside of HubSpot with about 30 people. 29 of the people gave substance feedback, but one person decided to give me style feedback. The remark, it was from someone named Andy, is, "Oh, really, I liked the presentation this year." He said, "The problem you're going to have is you're wearing dad jeans." He said, "The problem you've got is your jeans are too wide at the bottom." He said, "What you need are skinny jeans when you're up there on stage." What do you think of my new skinny jeans. Woo. I love them. I love them. Then I got in a Lyft, and I came over here.
These six companies have woven their way into my daily life and a lot of yours. Fascinating companies. They're all startups. They're all less than 10 years. They're all younger than HubSpot. They all sell commodities, relatively undifferentiated products. You can get skinny jeans at The Gap, in Patagonia, and anywhere these days. They're all growing like a weed. How'd they do it? What's the secret modern 2018 handshake? It's friction. They took all the friction out of their flywheel, entirely removed the friction from their flywheel, and they've reimagined their industries. Let me give you an example of what I'm talking about. Two months ago, I bought that Purple mattress. Zero friction in the process. Didn't talk to a single human. It was fabulous. Everything worked great. Two years ago, my previous mattress, I bought from a store called Bernie & Phyl's.
Clap if you've heard of Bernie & Phyl's. Okay, a lot of people have. The best thing Bernie & Phyl's has going for it is its jingle. Bernie & Phyl's, quality, comfort, and price. That's nice. The worst thing they have going for it is they're stuck with a very high-friction model. Right? It's full service, but full service means humans, means handoffs between humans, and means haggling. By the way, I want to try the mattress. I want to try it at home. Romeo wants to give it a go, too. Right? We want to give it a try. So you need to move your model. The key these days, all of a sudden, seems to be friction. Everywhere I look, companies taking the friction out. Why is that?
What the heck is happening on the internet, in the world, that friction's all of a sudden the secret handshake? I blame the iPhone. This is my iPhone. Before I used the iPhone, I had the patience of a saint. Now, I have the patience of a squirrel on its second espresso. That's my favorite part right there. I can go home now. I love the squirrel. Okay. All the examples I've given you so far, they're B2C. They're glasses, they're music, they're things like that. If you're in the B2C industry, the train is about to leave the station. You need to get 90% of the friction out of your model, or you're going to be in trouble. You got to move. If you're in B2B, the train's parked at the station, but it's leaving soon.
You want to gain competitive advantage against your competitors, you want to disrupt incumbents, you disrupt it using this low-friction play. I had a great professor in business school, and she said this mantra over and over again, "Hey, Brian, if you want to build a great company someday, your product has got to be 10 times better than the competition." I think that's terrible advice now. I think it's dated. If you want to build a great company in 2018, your customer experience has to be 10 times lighter than the competition. The rules are really changing. Oh, thank you. It used to be the best product won. It's the best customer experience wins. It used to be what you sold really mattered, and now it's how you sell. Right under our feet today, everything's changing. It feels to me like 2006 all over again.
Everything's shifting under our feet. There's a big opportunity for those of you who want to take advantage of this to build big companies and really grow. I want to give all of you three tips you can take back with you to your headquarters, and they're going to be actionable tips. I think these are the three most important things I have to say today. The first thing I want you to think about when you go back to get the friction out, is your company today, most likely, 80% of the touches with your customers and prospects, well, they happen with your employees and your humans. I love humans, and I love employees, but employees mean friction, and friction's the new enemy. In the future, 80% of your customer interactions have to be self-service and 20% with the humans.
You need to turn it upside down and turn your model on its head. How do you do it? Today, 80% of your IT resources are invested in making those frontline employees more efficient. In the future, 80% of your IT investment should go to making your customers more efficient. Turn it on its head. What else? One more. Today, when you grow, you add humans. What tends to happen is those humans get specialized. You go from having a sales rep to you have a BDR and a hunter and a farmer and an account rep and all kinds of different roles. I love specialists, but specialists mean you're getting handed off between them if you're a customer. If you're getting handed off, you're feeling friction, and friction is the enemy. In the future, 80% of this is going to be done with automation.
Your humans are going to handle the more complicated cases, the exceptions. Your employees will have to change, too. Today, your employees are what some people call I-shaped. Very deep in what they know. The BDR is the world's best BDR. In the future, we're going to have to train our employees a little differently so we can avoid the friction. You have somebody who's very deep, like a BDR, but they're T-shaped, and they have other expertise, and they can do more things to avoid those handoffs. Okay. I want to show you a video of a customer of ours that really rocks, and it's headed on the right path. Please pay attention closely to this video. These guys are awesome. Let's have a look.
On the Rock & Roll Hall of Fame's Facebook page, we have a lot of fan interaction. I knew that Facebook Messenger would be a very busy channel for us. I really believe in one-to-one engagement. Automation does things to prioritize your workflow, but with chat in particular, people are really looking for that answer to their question or that direct interaction at the moment that they're reaching out. You have to be able to deliver the information and respond. Otherwise, it's just setting someone up to be disappointed, and that's absolutely what we want to avoid with any pre-visitor experience. We were prioritizing Conversations and able to balance automation and a real person interaction and conversation. What we found was that there was a lot of common visitor-facing questions, and we built the first menu to get their answers as they needed them as fast as possible.
The fan questions that come in, a lot of them are about the people in the Hall of Fame. You can tell that these people are really passionate about these artists. The Rock Hall just wants to give these fans a voice. That's why we do what we do and why this organization exists, and we just want everyone to feel like they're a part of the conversation with us.
Okay. Rock & Roll Hall of Fame's in the house. Let's give them a hand. Great job, Rock & Roll Hall of Fame. Okay. I wanted to give them a test, right? I wanted to go to their Facebook page and have a little chat with their bot and see how that went. The other day, I went to their Facebook page, and I had a little chat with the bot, and here's how the conversation went. "Is the Grateful Dead in the Hall of Fame?" The bot said, "Yes." "Is Aretha Franklin in the Hall of Fame?" "Yes." Go, Aretha. "Is Phish in the Hall of Fame?" "Yes." "Are The Allman Brothers in the Hall of Fame?" "Yes." "Are The Flywheels in the Hall of Fame?" "No." WTF. How could The Flywheels not be in the Hall of Fame? I love The Flywheels. They're the best band.
What kind of idiot is working over there? What's wrong with you? My inner squirrel brain took over for a minute there. Fortunately, 30% of the customer interactions on their bot are taken over by humans, the more complicated cases like myself. I was rotated to Ellie from the video. My sense of Ellie is she had handled a few flywheel fanatics in her past. She talked me right off the ledge. She was fantastic. Ellie is T-shaped. Ellie is a content marketer, as you saw in the video, but she's very good at customer service. These guys are fantastic. This was an important chapter, so I'm going to summarize. We're in a big era shift. It's similar to the shift that I saw when we first started HubSpot. The internet has really shifted under our feet.
We're moving from an era where the best product almost always won to an era where the best customer experience almost always wins. We're moving from an era where we created a funnel and filled that darn funnel with friction to an era if you want to win and have a light customer experience, you need to build the flywheel and free it of friction. This is where the world is going, folks. It's an exciting opportunity for all of us. Okay. One last thing that James Watt would say if you want to build a high-growth flywheel inside your business. He would say, if you're putting force on your flywheel and you've got low friction, it's going to spin. It's going to spin really fast. If it spins really fast, it will break. You need to build your flywheel of very high-quality scalable materials.
I've got some experience with scalable materials, and I want to tell you about these two. That's my mom and my dad back, my mom's here, back in the 1980s, and they're on the back deck at our house. 99% of the time, they were happy with each other, touching each other, smiling. 1% of the time they fought like absolute banshees. It was always the same issue they fought about. Constantly arguing, never stopped, it was exhausting. The ants. Here's how it went. You'd be sitting on the back deck with mom and dad, and my mom's got a very thick Boston accent. I don't do it justice. You're sitting on the deck, and sure enough, there'd be ants crawling around and my mother would say, "Bob, I got ants crawling up and down my leg. You're so cheap.
When are you going to get an exterminator around here? We got a wicked problem." They're very happy. You're in the 99%. Bam, the ants put them right in the 1%. My dad would say, he's heard this before. He'd get down to Costco, and he'd get the giant pack of ant hotels. You know those ant hotels. Then he'd be on the deck and putting the hotels down and so many ant hotels, it was like an ant Monopoly board up there. Back to the 99%. Settled down. Then a couple of weeks later, my mom's had a good idea. She said, "Why don't we have a party on the deck?" Cool. My dad said sure. Two weeks later, we got a party. We had about 20 people up on the deck and we're having a great time. Drinking beers, listening to music.
It turns out, as we were having a party on the top of the deck, the ants were having a party down underneath the deck. About halfway through the party, the whole damn deck just went boom and crashed. We didn't have scalable materials. We had pine, and it wasn't pressure treated. All of you these days, well, you're building flywheels. Flywheels have humans in them. They have automation, they have software, and they need to scale. What we're working on in HubSpot is trying to build all of you a scalable platform. Let me tell you a little bit about that journey we're on. If you looked at HubSpot 12 months ago on this stage, we had about 44% of your flywheel built. We had three marketing applications, and we had one sales starter app, our toe in the water there. We've had a huge year.
The first way we're scaling is we've got a full flywheel. We've come out with a bunch of new product to really help you grow and build one of these awesome customer experiences. Pretty cool, huh? The second way we've scaled is we're relatively well-known for working with entrepreneurs and working with startups and small companies. We love doing that. We don't just want to work with you as a start, we want to scale up with you. Today was a big day for us. We came out with a brand-new Sales Enterprise product that's awesome. We came out with a brand-new Service Enterprise product that's awesome. We took our Marketing Enterprise product and it had a big step function improvement in it.
Today, we can work with you when you're two people in a garage all the way up to a giant company. Really proud of that, really psyched about that. The other thing we're psyched about is HubSpot started as an app really, we've moved to a suite, we're starting to move to be more of a platform. A year ago, there were 80 companies, software companies that integrated into our product. Today there is over 200 really cool ones like Slack and Stripe and Shopify. Lots of other ones that began with us too. Okay. If you're interested in HubSpot, by no means you don't have to, this isn't a HubSpot conference, it's an INBOUND event. Come to Christopher O'Donnell's presentation. He's the one after Dharmesh. There's a little break, he'll be presenting here. He's going to show demos. It's going to be awesome.
I think about myself and my personal journey with HubSpot. We started 12 years ago. There was a window of opportunity that the two of us saw, the window was create content, pull people in. The internet created this arbitrage opportunity for all of us, it's been great. The shade's down a hair on that window, it's still a pretty good window on the marketing side. It's changed, there's a sliding door, new opportunity for all of us to create one of these killer, new, great customer experiences. That's the business we're in now. We want to help you do that. That's what we're up to at HubSpot, I'm really excited about that. Okay. One final thought. At the beginning of the presentation, you might remember this slide of famous physicists. Some of these physicists were better at branding than others.
Isaac Newton's pretty good branding, right? Every classroom around the world. Albert Einstein, every university physics class, you talk about Albert Einstein. Who is Quantum? Who's Atomic? You have to go deep into the bowels of Wikipedia to find these guys. I've learned my lesson. I'm going to end on Halligan's growth model. What's my growth model? Of course, my growth model is a flywheel. Throw out your old concept of the funnel, embrace the flywheel. My flywheel behaves according to this equation. The equation looks complicated, it's actually quite simple. The numerator at the top says, "Keep investing in sales, keep investing in marketing," but boy, the investments you make in delighted customers, you get a bigger return on investment.
I would also say that take your sales and marketing resources and see if you can move them slightly to not just focusing on closing customers, but delighting customers. A lot of power in the numerator. The denominator, of course, is delight. Sorry. The denominator, of course, is friction. Get the friction out. The lower the friction in your model, the faster you're going to grow. If you like this kind of stuff, we built a new site for you, ourflywheel.com. Check it out. Really cool stuff if you want some help with your own work, go on there. Dharmesh will be up in a minute. I want to thank you all. You've been a great crowd. Thank you very much.
Please welcome HubSpot founder and CTO, Dharmesh Shah.
Thank you. Greetings, everyone. We all want to grow better. The question is, how do you grow better? This is the question I've been obsessed with. We've already looked at the physics of growing better. We've looked at flywheels and force and friction, and I think it's also useful to look at the philosophy of growing better. I've had two major milestones in my life that have kind of helped me explore this idea of growing better. This is my son, Sohan. I introduced him to you all. I've lived in the South for 10 years, I'm allowed to say y'all. I introduced him to y'all seven years ago, from the INBOUND stage. Yes, this is a photo of him projected on the INBOUND screen.
Next year, what I'm going to do is I'm going to have a photo of me with the photo in the back screen. It'll be like an inception thing, or Modern Family opening credits based on your preference. When Sohan was born, I was overwhelmed with emotion. All the emotions, fear, anxiety, excitement, and joy. Uncomfortable joy. Uncomfortable because imposter syndrome. I wasn't sure I was ready, wasn't sure if I was deserving of that kind of joy. Many parents in the room, I think, have experienced this. When a child is born, you're never really sure what they're going to be like. Sohan got lucky. He's more like his mom. But he and I do have some similarities. We have some traits in common. He, too, is more indoorsy than outdoorsy.
He, too, is musically inclined, which in our family means he, too, knows how to create a Spotify playlist. He, too, is a technology geek. This is a photo of Sohan when he's two. He's making some money on the side as a freelance mobile app tester. I know some of the parents are thinking, "Is that really age appropriate, Dharmesh?" Don't worry. It's okay. He only accepted payment in Bitcoin. It's all right. Sohan's long cryptocurrency for those keeping score. By the way, if you have young children in the family and they're not making money on the side, you're missing on a big opportunity. It's the gig economy, I'm telling you. You heard it here. Sohan is seven now, so he just graduated first grade. This summer, he went to coding camp, as one does. He's written more code this summer than I have.
It's not a competition. I mumble to myself, "It's not a competition." If it had been a competition, I could've imposed his screen time limits and I could've won. I'm just saying. Could've won. Sohan's my younger one. My older one also had a milestone this summer. My older one turned 12. By my older one, I mean HubSpot, or as my wife likes to say, your actual firstborn. This is a photo of an early HubSpot birthday party. I'm going to make note of a couple of things. Number 1, I'm wearing a HubSpot T-shirt. Shocking, I know. Shocking. The odds were 100% that was my entire wardrobe back then. What's noteworthy is I'm wearing a large HubSpot T-shirt. It was too big. I didn't need a large HubSpot T-shirt. Every T-shirt I bought was a large HubSpot T-shirt. Why? Because I had vision.
I had foresight. As we heard from Beth Comstock, vision doesn't matter unless you act on it. You have to execute. I will make note in this photo, I am holding a slice of pizza. No one else in the photo is holding a slice of pizza. While holding the slice of pizza, I am simultaneously eyeing the cake with serious intent. I didn't have vision. I executed on the vision. I executed a lot. By the way, with all due respect to skinny jeans, I am very comfortable in my dad jeans, just so everyone knows. Also wearing dad jeans in the photo, years before I was a dad. Vision, people. Vision. I got to thinking, okay, I've helped out growing a tiny human. I've helped grow a company. Are there similarities? Are there lessons to be learned from the two?
I got together with my wife, and the answer is yes, there are similarities, and we made a list. What does growing a human and growing a company have in common? Both involve a moment of passion followed by years of hard work. Neither one will make money for the first couple of years. People will find you insufferable because it's all you can talk about at parties. It's not as easy as your friends make it look on Instagram. It's not that easy. Around year 2, you decide to never, ever do this ever again. All the wrong people are eager to give you advice. And finally, there will be days you want to sell them. But you shouldn't. You shouldn't. The overall lesson here is that you start out being completely clueless. Startup, kid, same thing.
As time goes, you become slightly less clueless over time. Let's dig into the growing a company part. We'll save the deep conversations on kids for when there are grown-up beverages available, which is the appropriate thing to do. This is a photo of HubSpot in the early years. It's the three of us. And by three of us, it's Brian, myself, and an office plant that my wife gave us as a present. The plant is named Duo because it's the second one. Uno, the first one. Well, we don't talk about Uno. It's not important. In the photo, we're shown in ascending order of socialness, from less social to somewhat more social. This might explain why Duo the office plant got invited to more after-work parties than I did. I probably wouldn't have gone, but it's nice to be invited sometimes.
In these early years, Brian joined a CEO group. He would get together with several other CEOs of high-tech companies in the Boston area. They would meet quarterly to talk about their companies, talk about growth. And I'm not really sure where they had their meetings, but I always pictured it like this. Brian has repeatedly assured me that they did not meet out in the wheat fields. But to this day, Brian has never provided photographic evidence to the contrary, my theory still holds. They would sit in a corner and they would talk about their CEO dreams. They would confess their CEO problems. They would sing CEO songs. And at one of these meetings, a very pivotal meeting, the key topic was culture. Culture.
Now, we were in the early stages at HubSpot. We hadn't talked about culture a whole lot. As far as I knew, culture was that stuff you put in yogurt, or make yogurt with, or is that gluten? I don't know. As this conversation is progressing with his CEO buddies, Brian's like, "Oh, yeah, you folks are further along. We have product to build, we have content to write, we have growth to generate. We'll deal with culture later." But his CEO buddies were insistent. They're like, "Brian, no, you don't understand. Culture is critical. It defines the destiny of a company." Wait a second. The next day, Brian stops me like, "Dharmesh, I learned something super important at my CEO group meeting." I was like, "All right. Lay it on me." "Culture is critical.
It defines the destiny of a company." I'm like, "Okay, Brian." I waited for him to finish his dramatic pause. That's the role of a co-founder. He would do the same for me. He went on to say, "You know what would be great? Is if we could dig into this culture stuff." When he said we, he did not mean the royal we. He meant the very unroyal me. What he meant was, "Dharmesh, it would be great if you could dig in to this culture stuff." My reaction was this. I remember thinking, "Dude, we went to grad school. We've been co-founders for years. I've spent more time with you in those years than I have with my wife, who I love. Do you not know me at all?" I'm not a people person.
From what I know of culture, what little I know, there are people involved. I'm an introvert, right? I'm not a cultural anthropologist. I'm an introverted technologist, otherwise known as a technologist. After a few weeks of anxiety, I finally sent Brian this email nine years ago this week. Exactly this week, nine years ago. I apologize for a couple of the typos. This was a late-night email. "Brian, not sure how I wound up being the guy to lead the discussion on culture. It's freaking hard. Eventually, we need to give this to someone that actually likes humans." This is a bit of a misrepresentation, because it's not that I don't like humans. I just don't like being around them a whole lot, especially in large groups, which I define as being three or more, including me. I did some deep breathing.
I did an unguided meditation. Best I had at the time. I scheduled a one-on-one with Duo the office plant. I know it's not weird. Duo was head of HR at the time. It's all we could afford. I did what engineers do. I got distracted on Reddit for a few hours. Right after that, I started collecting some data. For weeks and months. Connected some dots, found some patterns, made some observations. I took all the lessons learned and put it in an internal document called The Culture Code. I know The Culture Code sounds like a Dan Brown novel. I know. It's a slide deck. It's a slide deck that explores the relationship between people and the companies they work for in the modern world.
What do people want from the companies they work for? This was the idea. We wanted to create a modern company at HubSpot. We later published this deck. Shared it with the world, all 128 slides. Got some traction. Well-received. A few of you are wondering, "Dharmesh, why are you telling us this? Is it just to vent? Is it just to do a not-so-humble brag that you got 4 million views on a slide deck?" My response is, well, no, it's not just that. I mean, it's that. It's not just that. The biggest lesson I've learned in my career about growing better came from an idea in The Culture Code deck, and it's this slide. Solve for the customer. Solve for their success. Put the customer first.
If I had to get rid of all the other slides and keep only one of the 128 slides in The Culture Code deck, this is the one I would keep. The lesson here is that to grow better, you need a culture that puts the customer first. If you do not have a customer-focused culture, it's not like friction in your flywheel. It's like a full metric ton weight sitting on top of the flywheel. You need to start with a culture where people care about the customer. Makes everything else easier. There's a problem. It's the trendy versus truthy problem. It's trendy to say we're customer obsessed. Truth is, companies are often self-obsessed. It's trendy to say we're customer-centric. Truth is, companies are often customer circumfric. Circumfric is a word that I made up three weeks ago.
I don't expect it to get added to the Merriam-Webster dictionary anytime soon, but a word that did get added this year, chiweenie. 2018, the word chiweenie was officially added to the dictionary. A chiweenie is a breed of dog that's the intersection of a Chihuahua and a wiener dog, also known as a dachshund. Chiweenie. Chiweenie. Circumfric. You never know. It's trendy to say we're a customer-first company. Truth is, many companies are customer eventually. We'll get around to some of our customer stuff. When I say companies have this problem, I'm not talking about all those other companies. HubSpot isn't without fault. We are culpa, too. Over our 12 years, we've made decisions that weren't always customer first, despite our best intentions. Over those 12 years, we've accrued some bad habits.
For the last several years, Brian and I have been working on a new season of Breaking Bad habits. I know this is a dated reference, but I just binge-watched all five seasons of "Breaking Bad," and I worked on this slide too long not to sneak it in somewhere. Brian once said, well, actually, he just said, just some minutes ago, "You don't need to make your product 10 times better. You need to make your experience 10 times lighter." I would add, I am going to add right now. Improving your experience 10X is much easier than improving your product 10X, which is good news, because as we know, how you sell is as important as what you sell. Speaking of what you sell, what does Starbucks sell? We're going to do a quick economics review.
If you were selling coffee beans, you would have little price differentiation, and as a result, relatively little price leverage. It's a commodity, literally a commodity. I'm using the word literally like literally a commodity. If you took those coffee beans and you put them in a bag, now you have a product, not a commodity. More differentiation, more price leverage. If you brew the coffee and serve it in a cup at a McDonald's or a Waffle House, now you have a service. Yet more differentiation, yet more price leverage. If you kept going and you opened a coffee shop and you put in comfy lounge seating and you created a Spotify playlist every week of mediocre lounge music, which Starbucks does, by the way, every week. You can look it up. They create a new Spotify playlist. It's not random. Then you have an experience.
The question really isn't what does Starbucks sell? Because for some, it's like, okay, well, they sell a cup of coffee and a place to charge my phone. For some, it's a cup of coffee and beginner Italian lessons. For me, Starbucks is a global network of restrooms, where the price of admission is the price of a muffin, $2.95, and also you get a muffin. Awesome. The question isn't what does Starbucks sell? The question is what does Starbucks offer? And what Starbucks offers is the experience of relaxing and recharging. The coffee is somewhat incidental. What does Amazon sell? 20 years ago, easy answer. Sells books. Amazon sells books. 20 years later, today, you could say that Amazon sells whatever Jeff Bezos wants because nobody puts Bezos in the corner. Especially now that we know he's been Vin Diesel this whole time. This whole time.
The question isn't what does Amazon sell, what does Amazon offer? What Amazon offers is the ability to look up product ratings and reviews, put your order in, maniacally track the package all the way through as it goes through Smackover, Arkansas, which is a place, and winds up at your doorstep. It doesn't matter what Amazon sells. What they offer is the experience of buying things. That's what Amazon offers. What does HubSpot sell? Easy answer. We sell software, or more specifically, software as a service. But what HubSpot offers is success as a service. Yes, we invest tens of millions of dollars in R&D. I could not be more proud of the product team at HubSpot. But we also spend millions of dollars on training and education and community and hosting events like INBOUND. What HubSpot offers is the experience of growing better. That's our mission.
The lesson here is to grow better, you need to offer a delightful, differentiated experience that customers love. That's the key. Let's look at that phrase, customer experience. The natural way to think about the customer experience is, okay, well, it starts when somebody buys and then stops when they stop buying or they cancel. That's the customer experience. That's the way I thought about it for a long time. I think there's a crack in that thinking. There's a crack in that model. I think the right way to think about it is it starts the very first moment someone encounters your company or your brand and ends never. That entire time is the customer experience, and that's what we should be thinking about and optimizing. The question is, okay, what do customers want from their experience? What do they want?
This is a lot like the question The Culture Code tried to answer, only this time it's the relationship between people and the companies they buy from. What do people in the modern world look for? What do they want from that relationship, and what do they not want from that relationship? I did what engineers do. I watched episode four, five, and six of Star Wars to get Jar Jar out of my mind. Personal problem, it's not an issue. But right after that, I started collecting data. I started with a focused longitudinal study on the customer experience. And by focused, I mean n equals one, and by n equals one, I mean n equals me. Now, before the statistics people get all judgy, I'm a customer. I buy things.
It's not just pizza and large T-shirts and exercise equipment that folds conveniently and goes under your bed, never to be seen ever again. I buy lots of things, and all modesty aside, I thought I provided myself brilliantly insightful feedback. I acknowledge my critics that say, "Well, that might've been too limited a sample to be useful. It may not represent the larger population." I'll concede that, maybe. I doubled the survey and surveyed my wife. This just didn't improve the sample size. It's much more reflective of the overall population because unlike me, my wife Kirsten is normal. Expanded the audience again. Went to social media, which is awesome for antisocial people like me. Went to Twitter, Facebook, LinkedIn. Stories and anecdotes and experiences started flowing in with #customerfirst and #customerfriction.
I didn't use Instagram for the study, and the reason is it's really hard to get unfiltered feedback on Instagram. I know, sorry. I know that was cheesy, but for the three of you that found that clever and witty, we just became BFFs, just so you know. Stories and anecdotes are great, but the plural of anecdote is not data. It's also not anecdatae. What I needed was some quantitative information, something I could analyze. I had the HubSpot research team go out and survey thousands of actual people in a statistically valid survey, and came back with a bunch of data. I'm excited to share with you the patterns that we discovered from all those stories, all those anecdotes, and all that data. It's the first time I'm sharing it, and I'm super excited. I am this excited about what I'm about to share.
I'm as excited as a Labradoodle on a lawn. I know some of you, the more astute amongst you, are like, "Well, that looks an awful lot like Brian's dog, Romeo." Romeo's a minor celebrity now. That's his stunt double. Romeo's back in the Airstream, relaxing and curled up in a Patagonia fleece. By the way, Labradoodle, officially in the dictionary. It's a real word. [inaudible] There were a bunch of insights and observations that came back from this study and from this research. I'm going to share the top five with you, things that I think would be most impactful for you to take back to your business and grow better. Number one, earn my attention. Don't steal it. Give me something I value before you take something I value, like my time.
People have pushed back on this use of the word stealing, because it's a little harsh, well, what word would you use when someone takes something that you value from you without your permission and doesn't give you anything in return? You have to admit, some of these kind of permission-free outreaches can be somewhat inconvenient. When would be a good time to tell you about our special offer? The data backs this up. When we surveyed people, 85% said they think less of a company that reaches out to them without getting permission. 11% said, "Eh, unchanged." 4% said their opinion went up. I don't know. Maybe they were just happy to get some attention. I don't know.
The point here is the worst-case scenario is not, "Oh, well, we did that and it didn't work, and we got zero return." That's not the worst-case scenario. The worst-case scenario is you damage your brand, you dig yourself into a hole, and companies that may have bought from you in the future are now less likely to do so. When you do this permission-free outreach, it's like applying force to the flywheel, but in the wrong direction. Number two, solve for my success, not your systems'. Don't make your process my problem. We've all tried to buy some things and experienced this: "Thank you for your interest. Let me take you through our sales process." I understand some of you have beautiful, handcrafted, artisanal processes made with only the freshest organic steps. I get it.
If a customer wants to skip some of those steps, let them. If a customer wants to skip all the steps and just give you money, let them. Do not impose your process on your customers. It adds friction. Just like you shouldn't impose your process, you also shouldn't expose your org structure to your customers. It's embarrassing, and it's unseemly. They don't care that you have a customer success team and an account management team and a customer support team, and they all report to different people who may or may not like each other. Customers don't care. They want their question answered, and they want their problems solved. Making customers deal with your departments and their dysfunctions is friction in the flywheel. Number three, own your screw-ups. We all make mistakes. Just say sorry, be sorry, and make it better.
I'm going to share with you an email from a fictional company that had a fictional outage, but the email itself is very real. I've changed the name of the company to protect the innocent, and by the innocent, I mean me. What I'm going to do is I'm going to read through parts of this email, and I'm going to put my brain on speakerphone so you can kind of hear what I was thinking as a customer of this company. Here's what I was thinking. "We're aware that you may have lost connection to your internet." May have lost connection? I've been a customer for 14 years. You know I live on the internet. You have the data. The internet goes down, all we have is each other. People. The horror.
They go on to say, "There were major cuts to the fiber provided by third-party partners," blah, blah, blah. I don't care about your third-party partnerships. For all I know, fiber is the thing that my doctor keeps telling I need more of in my diet. Here's the most egregious problem with this message. Nowhere in the entire message, it goes on for two more paragraphs, I'll spare you. Nowhere in the entire message does the word sorry, apologize, or any of its synonyms appear. Nowhere in the message. That is not how you own your screw-ups. Let me tell you about another company that screwed up. Kentucky Fried Chicken. Kentucky Fried Chicken earlier this year had an issue. They ran out of what many would consider a critical component of their offering. They ran out of chicken.
As it turns out, KFC alone just doesn't cut it. The C is important. So what did they do? They didn't say, "Well, we'll get over it. It'll be fine. We'll brush it aside." They took a full-page ad out. Let me repeat this. They paid for a full-page ad to broadcast their screw-up. Here's the ad. There are several things that are noteworthy in this ad. The first is just the playfulness. They didn't take themselves too seriously. The second is the headline of the ad are the two words, "We're sorry." Those are the perfect words to use. Not, "If we happen to have interrupted your culinary behavior and habits, for that, we sincerely apologize." No, we're sorry. I love the first line, "A chicken restaurant without any chicken. It's not ideal." I love KFC for this.
This is from a lifelong vegetarian. I've never been to a KFC, and I love this. The data substantiates this. 96% of the people, if you acknowledge the mistake and fix it, 96% of the customers will not leave you. Just own your screw-up. When you own your screw-up, you save yourself from a possible slowdown in your flywheel. Number four, I don't mind paying, but I do mind being played. Make your pricing open, make it clear, and make it fair. Kept coming back from customers, kept coming back in the data. Let's start with being open.
If I visit your company's website looking for pricing information, it's like, "Hello, I'm not seeking the Holy Grail, just some pricing information." The response is, "Go away, you son of a silly person, or I shall taunt you a second time." That was just me doing audience survey of how many people watch "Monty Python." That's not important. Don't guard your pricing information like it's a treasure. I know some of you are thinking, "Well, Dharmesh, we're B2B. We're in a very niche industry. Every one of our prospective customers is a special little snowflake, and we create special little price quotes for each individual one." I get it. Not every industry is the same. That doesn't mean you can't provide some guidance around your pricing. We charge by the hour, we charge by the project, and it starts from $25,000 and goes up to $75,000.
Give them some idea. The reality is it's out there anyway. People can find this stuff. There's this thing called the Internet. The data substantiates this again. We ask people, if a company doesn't have pricing information, what do you do? 75% of the people said they would look for an alternative. Unless you're working at a monopoly where there are no alternatives, the absence of pricing information is friction in your flywheel. We've talked about open pricing. Let's talk about clear pricing. Customers should not need a math degree to understand what they're going to pay for the product or service. Mere mortals should be able to understand it. I showed this cartoon to Brad Coffey, who's the head of strategy at HubSpot, also one of the smartest people I know.
As expected, he was confused, and he's like, "Dharmesh, so what part of sigma over the first derivative did people not understand? Like, what was confusing here?" Data, once again, says if you have confusing pricing, people don't buy as often. 69% said, "Yes, I would leave as a result of confusing pricing." We've talked about open pricing, we've talked about clear pricing. Let's talk about fair pricing, which brings me to Blockbuster. Blockbuster, for those of you that are under 30, is like Netflix in a little plastic box, except you have to get out of your pajamas, you totally can't chill. Then like an idiot, you go to the store and browse shelves for a movie. There's negative selection bias because the only movies there are the ones nobody wanted to rent, including Chad, who works there.
You go home with your movie and you put it in this device that's the size of 20 iPads, then like a caveman, you rewind the thing, then you have to repeat the process to return the movie when you're done. In 2004, there were 4,500 of these non-pajama-friendly locations that Blockbuster had. Today, they are down to exactly one. This one in Bend, Oregon. When the analysts and the media dug into the reasons behind the fall of Blockbuster, the most commonly cited customer complaint was what Blockbuster called the extended viewing fee, otherwise known as a late fee. Extended viewing fee. That's like, "Oh, well, I know you had 'Elf' for 43 days. I hope you really enjoyed it. Here's your $200 tab." It's like, no.
Even though they called it the extended viewing fee, customers perceived it as a you're lazy and we're greedy, and we're going to charge you fee. One of the critical pieces of the Blockbuster downfall. Here's an actual takeaway for you. When you get back to the office, pick 10 random receipts or invoices that you have sent to customers recently and read it as if you were the customer. Does every item on that invoice, does it sound reasonable? Does it sound fair? How would you react if you got that invoice? There are two parts to being fair. There's the charge that's proportional to the value received, there's also the charge me the same price that you charge other customers that are like me. Pricing should be programmatic. Don't make customers negotiate.
They will reluctantly if they have to, you should not make them. Some of you are thinking, "Well, he's not suggesting we do away with discounts." No, you can have discounts. They just need to be programmatic. You can say we're running a promotion for the holiday, or it's a full moon, or this is a repeat customer, or this customer bought multiple products. All those are great reasons to offer a discount. Just don't offer different discounts to different people at the same point in time if they have a similar profile. In the future, that's a recipe, in my mind, for discrimination. There's going to be a time where people pay a higher price simply because of where they're from or what they look like. That's just bad. It's just bad business. Charge them fairly. Last one, number five, don't block the exit.
You made it so easy to buy. Don't make it so hard to cancel. It's like customers buy with the best intent. We wanted it to work out. Sometimes things don't work out. Relationships just don't work. We don't always know why. It doesn't have to be awkward. I didn't leave clothes at your headquarters. We can still remain friends. We might get back together someday. Don't block the exit. Don't be that person because we've all had this. Well, to cancel service, you'll need a letter from your doctor, notarized by the Dalai Lama, and filed at the end of that rainbow. We've had variations of this experience kept coming back in the surveys and the anecdotes. Once again, the data says if you make it easier to break up with you, more people buy. This is not counterintuitive.
If you make cancellations easy, it adds fluidity to your flywheel. Which brings me to an idea. We've all seen this button. It's the buy now with one click. Brilliant. We've all seen it, and we've all used it. Here's the idea. What if we started putting up a cancel now with one click button? Do we think that if our companies built a reputation for being easy to break up with, easy to cancel, that more people would buy from us? I think so. There's precedent. In the retail sector, Zappos, Nordstrom, lots of. If you make it easy for people to refund or cancel, you get more sales. I think that works. Those are the five biggest insights and lessons drawn from the research and drawn from the data. There are more. You do not need to speed-read all of these.
We have kindly and conveniently put all of them into a new slide deck that we creatively named The Customer Code. By the way, I sneakily took that slide off just so you would. No, I'm kidding. I'm not that diabolical. I am, but that's not why I did it. It's called The Customer Code, and it's at customercode.com. Launches today. It has all the tenets, the lessons we've learned, more data, more fun cartoons, and at the end of the deck is an email that comes straight to me, an email address. More importantly, there's this report card. You can do a self-assessment of yourself. It's always of yourself. A self-assessment, and give yourself a score from zero to 10 against all the things that your customers, my customers, people want from the relationship with you.
Give yourself a score from zero to 10 just to see. Some people are cringing and squirming a little bit. It's like, I'm not sure how my company would do on these things. It sounds like it could be painful and possibly embarrassing. You're right. It is painful. It is embarrassing. I know this because HubSpot went through the exercise. I went through the exercise. The one thing more painful and embarrassing than going through the exercise is taking the results and putting them on a 50-foot screen and sharing it with the internet. This is HubSpot's 2018 report card, as honest as I could be. Not great. We have work to do. We are, as we speak, working on getting this score to an eight or an 8.5 over the next year. I encourage you, go through the exercise. It will be revealing for you.
It'll be useful. This is Domino's. They sell pizza, which I love. Perhaps a little bit too much. I've probably had 1,000 Domino's pizzas in my life. I've almost never been to a Domino's store because Domino's doesn't just sell pizza, they offer a pizza buying experience. Domino's has the pizza builder on their website. Instead of talking to someone and trying to explain the exact configuration of the pizza you want, you build it online. Okay, so I want a large pizza, hand-tossed crust, and the whole thing, I want green peppers. On half, I want black olives because I married an alien. Who puts black olives on a pizza? There's very few ways to mess up a pizza. Black olives is one of those ways. Okay. I'm no culinary expert. I do know black olives, but I'm no culinary. Here's what pizza is.
You start with a bunch of bread, then you use tomato sauce and cheese to cleverly disguise the bread so people feel less guilty. I'm not an expert, but I think that's basically what pizza is. When I go to checkout and I see this page on the Domino's website, it bothers me a little bit. It's like, okay, well, we know you just ordered a bunch of bread, cleverly disguised. Would you like some more bread? Have you considered some more bread? Perhaps you should think about some more bread. I'm okay with this. I'm okay with it. At least make it a fair fight. You're trying to upsell me, then you have these big green buttons, and the thing I have to click on, find and click on is this no, go to checkout. Tiny little link. Not even a button.
That's what I have to do to get my pizza. The thing that goes in my head is, "I'm weak. I'm very weak. I give up." Some of you are thinking, "Dharmesh, have you considered that they're running an A/B test?" I know how the internet works. I don't have an aol.com email address. Give me some respect. Yes, I considered that it might be an A/B test, I tested it with multiple browsers, multiple devices, logged in from different countries. This is not an A/B test. They are showing this frigging to everybody, not just the weak of will like me. Domino's is well within their rights to do this. They have the right to do this. Just because they have the right to do it doesn't make it right. Which brings me back to the question we started with.
How do you grow better? The answer is simple. Not easy, but simple. Do the right thing. Treat people with respect. Treat them like you'd want them to be treated. Recognize people's differences. Some of us spend $120 on a Patagonia fleece. Some of us spend $120 on pizza and extra bread. We need to recognize and honor people's differences. Do the right thing even when it's hard. I know it's hard to own your screw-ups. I know it's hard to not get taken in by the temptation of short-term results. I know it's hard to let a customer go and not hug them too tightly. All these things are hard. Do the right thing, especially when it's hard. When you do the hard things, by definition, you are differentiating yourself. The hard choices are the choices few others will make.
We've all had these moments, faced with a tough choice, and we make the right choice. We do the right thing for the customer. It feels good. It doesn't just feel good, it doesn't just feel better, you actually do better. We need more of those moments. If you put all those moments together where you do the right thing for the customer, all those moments together is what creates delighted customers. Customer love is the most powerful force you can apply to your flywheel. That's how you grow better. Thank you.
To grow. Relatives comment on it, doctors track it, and parents encourage it. Once we're older, we begin to obsess over it. Somewhere along the way, growth becomes our ultimate goal, our only goal, something to be achieved at any cost. We compromise our values. We mislead. We put our customers at risk. We trade trust for a payout and choose what's easy instead of what's right. The world says you must be cold, cruel, and cutthroat to succeed. We disagree. Here at HubSpot, we believe it's not enough for businesses to grow. They need to grow better. What exactly does that mean? Growing better is remembering you're helping people with unique needs and dreams. It's letting them interact with you on their terms, not yours. Growing better is adding value before seeking a reward. It's more than what you sell.
It's whether those you sell to succeed. Growing better is placing long-term relationships ahead of short-term gains. It's staying true to your values and making the right decisions, even when they're not the easy ones. Growing better is succeeding with a soul. At HubSpot, we've made it our mission to create a platform and community that help you do just that. When our customers succeed, we do too. Grow better with HubSpot.
You guys both talk a lot about putting customers at the center of everything that you do. How do you individually as leaders of an organization do that, and how do you make sure that HubSpot, as it scales, continues to do that day in and day out?
Yeah, there's a couple things I do personally. I meet with one-on-one at least a customer a week. Every time we have a management team meeting, we kick the management team meeting off with a customer, and we try to pick a customer that's not that happy.
We get really good feedback there. Every time we have a company meeting, it's kicked off by a customer. We are constantly surveying our customers to get feedback on what they're saying and what they're doing with the product. I'm a voracious consumer of that stuff, so always trying to solve for the customer. Customers do two things for us. One is they're obviously a source of revenue. The other thing that's happening and that I've seen in the pattern of our customers is most of our new business is coming in really as a function of word of mouth from the existing customers.
There's like this flywheel effect that happens with our customers that we're really leaning into.
I'm really glad you mentioned the word flywheel because I want you to define it, because I think flywheel can be a tricky term sometimes. Like, I've heard it, I think most people that have maybe gone to business school have heard it. Some organizations have heard it, but the average person maybe doesn't know exactly what that means or the context. Can you give us like?
Sure
the straightforward definition and why it's a business term?
Yeah. The first person I heard use that term was Jeff Bezos, and when he started the company, there's this famous napkin drawing he did in the early part of Amazon where he drew the potential Amazon flywheel, he didn't have any product yet, for an investor. The flywheel basically was, how do we improve the customer experience? It's like customer experience is good, somebody buys something, they get revenue, that revenue turns into profits. That's all well and good, but the more traffic he got into that system, the more customers he got, the more additional products would get attracted in there-
which made the customer experience better, which enabled them to grow more, it just became kind of a flywheel. It wasn't just about a funnel where we're bringing in more visitors and more leads and more customers, and end it that way. It was the idea of additional customers were pulling in additional products, which made the product more valuable to additional potential customers, and that thing just got spinning and spinning and spinning. Every company, by the way, I think needs to move from this idea. It's kind of an archaic idea, this idea of a funnel where-
boy, you got the marketing department pulling visitors and leads in, they got a sales department converting them into customers, and that's it. Well, that may have been the way it worked in 1998, but today it works in a very different way where word of mouth for almost every business is the major driver for growth.
There needs to be a new metaphor to describe how people actually decide and make decisions and how a business really works. I think it's more like a flywheel than a funnel.
Is that a product of scale or size, or is that from day one?
I think it's from day pretty early.
people thinking that?
Day one, typically your first. Like for us, our first customers were all friends of ours. I'll tell you a funny story about HubSpot. We had a list of, I think we were around 50 customers, and we had a management team meeting, and we went through the list and said, "How many were friends of Brian?" We had an FOB column, and almost everyone was a friend of Brian's. Then we got to 100 customers, and we looked at the FOB column, and what we were excited about is less and less of our customers came directly from our network, and more and more were coming through word of mouth. That's what businesses want to do.
They want to get that word-of-mouth flywheel really cranking.
We had friends of Dharmesh as well, but both of them were on there, and that was pretty much it. Didn't scale particularly well, so yeah.
Let's talk a little bit about The Customer Code as well.
Sure.
HubSpot has had a relatively long-standing, at this point now, Culture Code that you spearheaded and has really taken off and been the heart of the company for quite some time.
Now we're diving into this idea of a customer code.
Sure.
Can you just briefly explain what that is.
Sure
The why of it all for HubSpot?
HubSpot's original The Culture Code, which was really well-received, the idea there was to kind of revisit the relationship that companies had with their employees, the people that work there. It felt like something was kind of fundamentally broken in the modern age. Like, okay, well, there's a bunch of things that companies do, including HubSpot at the time, that don't make complete sense in the modern world. What The Culture Code said, it's like, okay, here's how we think the relationship between employees and companies should work now to reflect the current reality. The Customer Code essentially is an analog to that, but it kind of rethinks the relationship that customers want to have with the businesses they buy from. The idea is to identify what are the points of friction, what does the customer experience really look like? What do they care about?
Lots of companies talk about being customer first, customer obsessed, pick your term of choice. If you ask them, it's like, well, what is it that you do on a day-to-day basis that causes you to be customer first? I think step 1 is really understanding what customers want, what that relationship should look like, and what that experience should look like all the way through.
When I hear the phrase grow better, I think of.
Eating my vegetables. Growing healthily.
I think grow better, to me, is to step out of my comfort zone.
Grow better means being able to work on fulfillment and not on achievement.
Making sure that there's a purpose behind what I'm doing.
Moving in a direction that will allow me to accomplish my goals and accomplish them in a way that will make me feel empowered.
When I think about growing better, I think a lot about day to day, we're trying to do the right thing for the world, how can we do that in a satisfying way that we feel really proud of ourselves at the end of the day.
Progress for progress' sake isn't really progress at all.
I think when people start businesses, they actually dream of achieving something or solving someone's problem. Along the way, because of the pressures of growth and cash flow and paying salaries, they may have to make decisions that are not the best for what the dream they want to fulfill. Growing better means creating a context where you can actually pursue those dreams.
All of this that we've talked about so far is a little bit about or a lot about how your thinking around the business and how your thinking around HubSpot and its products has sort of evolved, especially in the last year, couple of years. HubSpot celebrated its 12th anniversary.
Woo-hoo
here. This is the seventh INBOUND stage you've been on. How have you changed as leaders in that timeframe, and is there any points along the way that really stand out to you?
Go for it.
One thing I've tried to do over HubSpot's kind of history is kind of narrow the scope of things that I spend time on and focus on. I've found that the narrower the focus is, the deeper I can go on those particular things, and I think the more value that I can add. I've gotten it down to three things that I care about and work on at HubSpot. One is the HubSpot brand and the overall story of HubSpot. Who are we, and how do people perceive us? Number 2 is culture, which manifests in The Culture Code and in other ways. The third one's a little bit odd.
It's around boldness to make sure we're taking enough risk for the long term, essentially, is to kind of really think through how do we systematically think about investing in things that may not have a short-term return, that will take a while for those things to show up. There was a time at HubSpot, and this is the time I think all startups go through this. You start off as being very much a generalist, essentially. Everybody does everything, so you're writing code, you're making sales, you're doing marketing. Over time, as the organization scales, I think this happens for people, too. You tend to specialize.
that's where I think you get real return, is to be able to kind of narrow that focus and then really dig in. Yeah.
I would say I just come at it from a different angle. I'm a big believer in getting feedback, and feedback's kind of the breakfast of champions. As I've grown from just the two of us to 2,500 employees, my role's changed a lot over the years. Every couple of years it seems to be a kind of a tectonic shift in the types of stuff I'm supposed to do. What's helped me along the way a bit is I get a Actually, Dharmesh gives me a world-class review every year. Last year's review was 31 pages, single-spaced, with feedback from 21 different employees and board members and customers and all kinds of people. About half of it is, here are the bugs that you've got in how you're managing the company and the people and the community, and here are the features you have.
The bugs, you need a lot of scotch to get through the bugs one. The features one is fantastic. You're floating around the office when you read the features one. I take that very, very seriously and try not just to fix the bugs. Some of my bugs are permanent bugs that are hard to fix, but fix the ones I can fix and then lean into some of the features that maybe are unique to me. That's been a big help. I also hired an executive coach, which has been helpful-
that had coached other CEOs of companies that had scaled and gleaned a lot from that. I'm a learner. I like to learn, I like to evolve, that's served me well.
Do you give Dharmesh a review?
Yes.
He does, yeah.
How important is your relationship with each other as co-founders? You're in a unique position where despite your title as CEO or CTO, you're the only two co-founders. Could you be solo founder, do you think? Would you want to be?
I think I could easily be solo founder of HubSpot, we'd be about a tenth the size we are now. I don't think we'd be sitting here having this interview. I don't know.
I couldn't be a solo founder. I don't have the requisite skill set, essentially, in terms of being able to grow and scale. I think the partnership has worked out really well. It's been symbiotic. Yeah, it's been.
It's worked remarkably well. I think Dharmesh tweeted this the other day, the number one cause of death for startups is co-founder dysfunction or conflict.
I think one of the things that we've been aligned on from the very early days is we want to build something much bigger than ourselves, something that will have a big impact in the marketplace, something that will change lots of employees and partners and customers and investors' lives. We've consistently strived really for the very, very long term and always made very long-term bets, been willing to take a step back or two so we could take four or five steps-
forward more quickly. That alignment has been really helpful.
In all of that time that you guys have evolved, so has the business, HubSpot has gone from being a one-product company to a multi-product platform organization. Nowadays, what seems to be really driving that and the sort of messaging that all of that carries is this idea of growing better. What does growing better mean to you?
Yeah, I think there's been two arbitrage opportunities that have opened up in sales and marketing. When we first started the company, there was a real opportunity in lead gen. The way people were shopping for things were changing. They were going to Google more, and they were going to social media sites. They were ignoring all the traditional marketing ways.
like cold calling and emails and stuff like that. We said, "Well, let's do inbound instead of outbound." That was where there was sort of like this opening in the universe to create value. I think there's still plenty of value there in doing inbound versus the old school thing. Many people are doing it now. The new opportunity is around building these flywheels, so creating that gorgeous, fast flywheel that spins and is a very convenient, slick buying process for your customers. So our value props move from a lead generation platform to kind of a full flywheel platform.
We've gone from marketing into sales into service. We've got a free CRM in the middle. So we're trying to match our value prop and our product where we think the opportunity is for companies to grow in a much more effective and fast way now.
Yeah.
Partly, I think in the grow better kind of the idea is analogous to the kind of original Inbound Marketing idea, which is people are just sick and tired of essentially being taken advantage of or being marketed to. It doesn't limit itself just to marketing. I think growing better is really about understanding what people want, what they want the relationship to be like. We talked about trust earlier. I think the way to grow better is to actually earn the trust of the customers and say, "We wouldn't do something that we wouldn't want done to ourselves. We're not going to charge you in a way that we wouldn't want done to ourselves," essentially. I think growing better is recognizing that growing bigger is not enough. That's not sustainable.
If all you're doing is tracking some metric and making that number go up, you can make that number go up by doing unnatural acts, essentially, or putting your customers through pain. That only lasts so long. If you're truly solving for the long term, you don't just want to grow bigger, you want to grow better, you want to improve, you want to really understand this kind of modern world and what customers and people are looking for.
Succeed with soul.
By being positive, by being open to change.
Just letting go. I think enjoying letting go, being part of whatever you're doing, and living that moment.
Making sure that there's a purpose behind what I'm doing and making sure I'm putting the benefit of others in front of me.
It's putting out good into the world and receiving it back.
Is succeeding as a human being and not just as a number, or as just a business entity.
Hitting my goals, my personal goals, and my professional goals in a way that is moral and fair.
Always being conscious of the people around us when we're doing the work, and making sure that we're not taking advantage of others, even when it might be easy for us.
Okay, we're going to jump into a little bit more of somewhat rapid fire questions.
Okay. Sure.
What drives the work that you do?
It's kind of the impact we're having. When we started HubSpot, we said, "Boy, wouldn't it be great if we built a great company that one day our grandkids will brag about?" Brian and Dharmesh created this awesome company, a company that we're super proud of. It's starting to happen a little. It's cool. We have 2,500 employees. For the most part, they're pretty happy. We have lots of great partners that many are doing great, and we're really happy and proud of them. We have tens of thousands of customers. We have lots of investors who have done well. For me, that's super gratifying and motivating at this point in my life.
Dharmesh, what drives you?
Similarly, just having a positive impact. The other thing is making those that kind of believed in HubSpot, both our customers and our partners and all the people, making them look brilliant someday. That's the overall goal is to do something meaningful. Yeah.
Are there any books that have inspired you personally or professionally or both?
There were two books that the two of us read when we first started HubSpot or reread. One was "The Innovator's Dilemma" by Clayton Christensen.
We took his class, actually, when we were in business school, and he taught the class, and one of the cases in the class was the iPod case.
It was very inspirational to us. I remember just thinking, "Oh, that whole iPod thing, that's like internet marketing because you have to buy an analytics package and a website and apply it. It's complicated. How do we pull all that together for a mere mortal?" The other one we read was "Blue Ocean Strategy." It was super helpful back in the early days.
On the Clayton Christensen, that was interesting. Early in HubSpot's history, I think we were fewer than 100 employees at the time. We invited Clay because we were just so-
Fanboys
just such big fanboys. We said, "Well, would you come in and talk to the team, talk to the company?" He did. They were like. Then it's like, "You don't know what you're doing. You can't get Clayton Christensen to talk to 50 of us." Anyway, it was awesome.
That was awesome.
He's a wonderful human being.
He's a great human being.
Yes.
Yes, he is. Knowing all the things you know now, what advice would you give to your teenage 15-year-old self?
I would tell myself to reduce self-doubt. It's going to be okay. Life will turn out all right. That would be one. The other one is around it's okay to pick the things that you want to be good at. There's this, I think, prevailing things like, you have to kind of shore up all these particular skills. It's like, no, it's actually there's a path where you can say, I just want to do these limited set of things over time, pick those things, really love them, and if you do, you'll kind of obsess over them, you can get good at them.
I think you can do okay versus going the classic kind of managerial path, like I'm going to go off and build this. There's a different path that I think that works too.
I think if I eventually wanted to build HubSpot or folks out there want to build HubSpot, the startup world is enamored with this idea of failure and failing fast and learning from failure, and we certainly do that, and we embrace that. Success helps too. If you join a company that's had some success and learned some things and iterated through stuff and really got some scale, that is invaluable experience that you can bring to your own startup, and it gives you confidence and backbone to take risks. My advice to myself would be go to work for good-sized companies that you really respect and admire with great leadership teams. If you want to start your own company, that's invaluable scale-up experience. It's hard to get. Very few companies really go through hypergrowth for a long period of time.
You learn a tremendous amount, and those are very rare skills to acquire. I would recommend that to anyone thinking about starting a company.
Thank you guys so much for sitting down and chatting with us. Excited to be here at INBOUND this year and excited for next year and everything, see where all these product announcements and HubSpot goes from here. Thank you.
Cool.
Thanks for having us.
That's a tough one. I can think of many people that inspire me to grow better.
A lot of people.
My mom, she's selfless and always puts others in front of her, and I think that every day inspires me to grow better.
My dad. Yeah. He grew from nothing to build his business.
People who do hard things but know that it's the right thing to do.
It's Justice Ginsburg. Not only does she show up for herself and for her community every day at work, she really inspires tons of women and girls throughout the world for the rights that she stands up for, and she still makes it to the gym every day. I find her really impressive.
I think it's important to look at people in different realms.
A really good example is Tiffany Pham inspires me. She co-founded Mogul. She coded the whole thing herself, and she didn't know how to code before she created this app, but she taught herself Ruby on Rails at 3:00 A.M. just so she could build her own prototype.
People that I look up to that I would probably never, ever meet. Somebody like Brian Chesky or Jeff Bezos are probably people that inspire me in terms of a professional environment.
My coworkers, they are driven, they are passionate, and they are good at what they do.
Yeah. That's pretty awesome.
Please welcome back your emcee and host, Mr. Mark Jeffries.
Good afternoon. Hi, everyone. Can you believe it? We have reached the final presentation in this room for today. It is a good one. We've had amazing presentations from Brian and Dharmesh. Just backstage now I'm chatting with Christopher. He told me this has been the biggest year yet in product development at HubSpot. Now we're going to take a look at some of the cool products that are coming your way as we welcome to the stage the senior vice president of product at HubSpot. Please welcome Christopher O'Donnell.
My three-year-old daughter loves baby pigs. The other day, I came downstairs early into the kitchen at her request to try to make little baby pig-shaped pancakes. There I am, I'm kind of struggling to do it, but doing my best. She kind of walks in and walks up to me and smiles. She says, "Dad, when I grow up, I want to do what you do." I'm feeling very proud. She says, "I want to be a pancake flipper." I'm thinking to myself, I'm more than this one thing that I happen to be doing in this one moment. I don't say that. I say, "Sweet, strong girl. Just last week you said you wanted to be a veterinarian." She smiles and tilts her head and says, "Dad, I can be more than one thing." "Yes, you can." Everything is possible for her.
Three years old. She could just follow her imagination wherever it goes. When I was a kid, never did I think that I would be here doing this. Growing up, actually, I wanted to be a tornado chaser. Not exactly following my father's footsteps into the world of equity research, which is an actual profession that exists and is respectable. That's the great thing about being a kid. You see, as a kid, you can be anything. You want to know everything, you want to be everything all at once. There's no such thing as work. There's only play. Do you remember that feeling? Put yourself there, okay? You're a kid. You can play firefighting ballerinas. You can be a crime-fighting airline pilot. You can play dentist office with your friends and explode into a musical number. Work is play. The only limit is your imagination.
Work is play. What an idea. That reminds me of my days working at a startup. This is me, obviously. I wore my hair a little bit differently, startup days. See, startups are just like being a kid. You get to come in and play 10 different roles in one day. You get to be the marketer that hops on closing calls for key accounts. You're a sales rep. You also answer the 800 number. You blog, you put on events in the office. You get to be the founder who picks up coffee when you feel like the team could use a boost. Honestly, startup life is pretty great. Well, at HubSpot, we make stuff for startups. That's right. This year, our starter products have matured. More than ever, starter products keep your imagination big without becoming a burden on your budget.
This, my friends, is where we begin our story today with our massively updated Marketing Hub Starter product. Let's dive in. The number one thing that marketers need to do, we all know this, is generate leads. Marketing Hub Starter has done this since its very birth. In just seconds, Starter gets you up and running, collecting leads off of your website. Last year, many of you were here. It was a big step. We added support for Facebook lead ads to Marketing Hub Starter. It's good times. Facebook lead ads are just dynamite. One of my favorite things that's new to marketing technology, they really work. Comprehensive analytics baked right in. This is why we made the decision to build Marketing Hub Starter on top of the free HubSpot CRM.
The native CRM integration alone puts Marketing Hub Starter in a class of its own. It is an incomparable value. Nothing like it in the market. Marketers, as we know, don't just manage lead lists. Huge part of their job is to engage and re-engage these humans, keep them coming back, getting that flywheel that Brian and Dharmesh were talking about, getting that flywheel to really crank. That's why I'm so excited to announce that we've taken a big step. We've added the power of HubSpot email marketing tools to Marketing Hub Starter. HubSpot email marketing in a starter product. Can you believe this? This is huge news. Who's excited about this? Massive. It's not just email, it's better email. What we did is we went in and we rebuilt our email editors from scratch, from the ground up.
We built them to be sleek and intuitive, fully drag and drop. Today we can confidently say that we have the best editors in the business of email marketing. Lots of exciting additions. They're available right now. One part of Marketing Hub Starter that we did not add to is the price. It still starts at just $50. We have Sales Hub Starter, too. Very popular. It's been a huge hit. We talked about it last year. You guys are here for the new stuff. I get it. I'm with you. If you're starting out, in fact, especially if you're starting out, do not wait to make an amazing customer experience a key part of your growth strategy. This flywheel idea that we've been hearing about today is really real, and it's never too early to start.
Today, I'm pleased to announce Service Hub Starter. It's a new suite of tools that will help you delight more customers and to do it in less time than ever. Let's take a look inside. First up, ticketing. Native ticketing, native help desk in the CRM, a gorgeous universal inbox that helps you organize and respond to questions, track customer issues closely, all in real time. Share help articles. Guide customers faster with features like email templates, snippets, documents. Book customer meetings faster by letting customers choose what times work for them. Hop on live chat, hop on the phone from CRM to connect with your customers seamlessly right from within HubSpot. Nothing falls through the cracks. Your entire team will have the context they need to have a smooth, continuous conversation through the entire customer journey. Managers.
Well, managers benefit from deep reporting and key performance indicators so they can help their teams meet, even exceed, the ambitious goals that they're setting. All right, pricing. Why reinvent the wheel on pricing, right? We think at $50 a month per user, Service Hub's really going to turn some heads out there. What do you guys think? You guys excited to see Service Hub expand? Us too. Hold that thought. We have actually a bunch more exciting stuff for Service Hub coming up a little later. All right, another cool thing about being a kid, it's free. It's free for the kid. You know what really is free? Our Conversations product. What is Conversations? It's a bunch of stuff. It's bots. It's live on-site chat. It's team email, and it's tied together in a beautiful universal inbox.
In the words of the great philosopher, Paris Hilton, "It's hot." If you haven't checked it out, seriously, while you're here, when you get back to the office, give it a shot. Really serious about this. I mean, think about this for a second. This is actually pretty huge. Live chat, which is just one feature of Conversations, this is the kind of product that some companies pay hundreds of dollars a month for just that one feature. Not here. You get it totally free. Why do you get it totally free? We think that this is absolutely the most important thing that you should be doing, is having these immediate one-to-one conversations with customers, and we don't think that that should have a price tag. We think it's the right thing, and we believe the right thing has a way of working itself out.
All right, we just took Conversations free, and already the growth has been really thrilling. Real-time chat, this is the future of marketing, and we're thrilled to claim a spot at the forefront of this rapidly evolving space. All right. That's a lot of free product love. Who thinks giving this stuff away is going to help a few companies out there? As you can probably tell, I dig startup life. It has a special place in my heart, and I really love these starter products. Every company should be able to do things that are bigger than its team, bigger than its budget, bigger than its brand. As they do, that brand will grow, and it will grow better over time. As that brand grows and as that brand grows better, there still will be times when you wish it would grow just a little bit faster.
Let's do it again. Put yourself there. You're a kid. It's a summer afternoon. You're at an amusement park with friends. Friends want to go over to the roller coaster. You head over, and you're not tall enough to ride. Just then, your friend's older sister comes around the corner. All you want in the world is for her to notice you, and she gazes right over your head. It's the absolute worst feeling. You close your eyes, and you wish. You wish that you were big. You dream of the day that you get to take your company public. You dream of the day when you look around you, and you realize you're building a company that your kids could work at one day. I remember 10 years ago or so, I was at an event a lot like this one, and I made a wish.
I wished as I watched the fellow on stage demo the new product stuff, all the cool stuff, I wished that I could be that person on that stage. I'll tell you, be careful what you wish for because this is totally and completely terrifying. It's a lot of fun, but it is terrifying. It is quite a roller coaster. Really, what happens when you wake up and you actually get this wish? What happens if you wake up and all of a sudden you're living in that world of scale? You're a household name. What could go wrong? At first, being at scale is scary. Your friends told you, "It'll be fine. It'll be fun." There are twists, there are turns. Suddenly, you're upside down. The world of yesterday is gone. The rules have changed on you in an instant.
Let's learn together how to survive in this new world. To help us, a trio of products. We have the massively updated Marketing Hub Enterprise and two swashbuckling new products, Sales Hub Enterprise and Service Hub Enterprise. Let's take a look. Immediately, you notice this terrifying new world of scale is full of data. Your customer database has roared to life and expands geometrically even when you're sleeping. In this new world, you're generating more leads, you're closing more customers, you're collecting more data. You're using a whole host of new tools to do it. A lot of this action has been automated. It's been optimized. As surely as the sun rises and sets, this customer data set continues to grow, not just in size, but in complexity. This precious asset, this complete picture of the customer journey risks shattering apart and scattering to the wind.
With scattered data, you risk missing the point. You risk having the wrong conversation with the wrong person. Growing your data better starts by connecting everything you do, every tool you use to one single source of truth. As of today, there are now over 200 free integrations that allow you to connect HubSpot to some of the best tools in the business. You can use these right from the beginning. As you scale, they become more and more impactful over time. If you have a custom-built system or a system you want to build in-house or maybe something else that we haven't thought of, we're thrilled to announce that we've increased the number of public APIs that we offer by a third just this year. We're just getting started. We are committed to becoming an API-first company.
All of this data does not exist in a vacuum. It's connected. When you import data into HubSpot CRM, you can now import that data with associations. This means that you can import your data and maintain the relationships. All of these data points. This is super important. It's critical even for large companies. It's a real enterprise feature. This one we thought every company on the planet deserved. We decided to offer it for free. We think every business getting started in HubSpot should be able to pull their data in and get the most out of it right away. Workflows. Workflows are what we think of as the brain of HubSpot. This last year, we took a look at that brain and asked ourselves if it was smart enough and fast enough. We decided it wasn't. Our engineering team dove in.
They rewrote Workflows, they re-platformed it. I'm happy to tell you that the version of Workflows that is live today is 10 times faster than it's been in the past. You guys excited about that one? What this powerful automation does is it's really what transforms HubSpot into your single source of truth for the customer journey. Why is this important? Again, you can't waste precious time, money, resources having the wrong conversation with the wrong people. It's not good business. It's not how you grow better. This was our vision. When we built the new version of Predictive Lead Score to put in HubSpot Enterprise, we made a monumental investment in artificial intelligence, and this investment really paid off. The new Enterprise Predictive Lead Score is more accurate, it's stronger, and more powerful.
When you're small, you can have someone crunch some numbers in Excel, have someone stitch data together. We've all done it. I used to do a lot of it. The truth is, as you grow, that's no longer a scalable option. We enrolled our CRM in a math course, and we added to HubSpot calculated properties. Who's excited about calculated properties? Think about everything you're doing by hand right now. Things like sales rep commission or deal profit, support cost per account, total marketing interactions by contact or by company. I mean, the list goes on and on and on. Now you can let HubSpot do all of that for you. Here's my take on this one.
The truth is, so much of HubSpot comes down to the contact and those properties that you have on the contact, your smart lists, your Workflows, smart content, CRM views for sales reps. Everything really touches properties. To have these new properties means all of HubSpot is now infinitely more powerful. I am thrilled about calculated properties. You use these tools, you customize your CRM, and over time, it fills with valuable customer insights. How do you get at these insights? How do you find the needle in the haystack, the one piece of information that you're looking for? Historically, you haven't been able to search on custom properties in HubSpot. That changes now. Available today in Enterprise, custom property search allows you to use the global universal search bar to unlock data stored anywhere in the CRM, no matter how much data you have.
Thrilled about this one. I want to introduce you to someone that I've known since I was a kid, truthfully. We went to high school together. We nerded out. We took computer science together. This is my friend Aaron. Today, he and his friend Ariel have a company. It's called Blissfully, and I love this company. Their entire company is centered around this idea of an explosion of data that's happening to growing companies. Should we meet these guys? We're going to hear them and how they think about this problem of exploding data, scaling data, and also the choices they've made in growing their venture-backed business.
At Blissfully, we know that modern companies are built on top of a huge number of amazing SaaS apps, but it becomes really challenging to manage that. We help companies figure out all the products they're paying for and which ones they're actually using so they can improve their business. My name's Ariel Diaz, co-founder and CEO of Blissfully. Hi, I'm Aaron White, CTO and founder of blissfully.com. Blissfully was founded in 2016, born out of the pain that my co-founder and I had experienced ourselves building and running businesses. We wanted to help companies like ourselves have an easier way to manage their different SaaS apps and vendors. We're now about 10 employees, have raised $5 million in venture capital. We've got over 500 customers now using it.
We've integrated HubSpot with all of our analytics products to pump data into it, to enrich our customers with their profile data. We've integrated HubSpot with our various lead captures and other marketing activities. We've integrated HubSpot with some of our conversational platforms. We're going to be integrating HubSpot very directly with our product so we can pump data directly from inside our app into HubSpot. At Blissfully, we're in the business of cataloging thousands and thousands of SaaS apps. We use dozens and dozens of them. When we choose HubSpot as our CRM, that has real meaning because we've played with a huge number of products. HubSpot is, in fact, a very robust platform. That's what you're looking for when you're choosing a CRM. The fact that it's free is fantastic and lets us build and integrate against it with confidence.
We think every company in the future is going to get to cherry-pick the best vendors. We think at scale, if we're successful, we'll be helping a large chunk of the world's businesses.
It's really critical to have that data in a single place. That's what HubSpot enables us to do.
Let's hear it for these guys. In particular, I loved hearing this quote from Aaron. It's a big vote of confidence that these folks who know so much about the world of SaaS, that they've decided to centralize their own stack on HubSpot CRM. That really made my day. Here's the question. What do you think? Should we let our customer data fly in a million directions? I don't think so. Who would rather grow their data together? You know what's fun about scaling? Hiring. You know what's really terrifying about scaling? Is when all those people actually show up and want to do something. How are you going to train hundreds, thousands of people? How are you going to know if they're even doing stuff at work? Are your growth tools going to hold up or what?
How do you keep your team from growing apart? What if your whole stack could magically and transparently support your growing organizational structure? Look, it's no secret that HubSpot was originally built for smaller companies. In the past, HubSpot has been rather lacking in this particular aspect. Today, that all changes. HubSpot Enterprise allows you to group your folks in a zillion ways. You can group folks by team, by region, by product line, literally any dimension that you can think of, all in our elegant, unified interface. We think this is really cool. This opens of HubSpot to a whole new class of growing companies, some companies we've really wanted to serve. Let's continue. You've scaled your company, physically scaled your company around the globe. Each new international office is a huge investment. Show me the money, you say.
How are you going to know how one particular region is performing? Guess what? You got this. You've already set up your teams. Automagically, you're halfway there. You see, with custom analytics filtering in Enterprise, reporting on the performance of, let's say, a regional website or activity from a certain country, it's as easy as choosing it from a dropdown menu. HubSpot is now, as of today, great for managers of big teams, even teams that have lots of layers, lots of levels. Got it. What about the people on the front lines? What about the people actually doing the work on a day-to-day basis? Is it the downside of one system that everybody's going to be stepping on each other's toes all day? Well, it shouldn't be. With content partitioning, it's a breeze.
In HubSpot Enterprise, you can section off your content by team, it's as simple as tagging that content. That lets you control who sees which assets, and maybe more importantly, who can edit and publish different assets inside HubSpot. There's a bonus here for those of you who are marketing internationally. If you're publishing content in multiple languages, our support for multi-language has come a long way. You no longer need to have seven different copies of an asset to market in seven languages. This is exciting. Every person on your team can have a clean, organized workspace without having to worry about stepping on another team's toes, ruining their day or their quarter. How do you give sales prospects the content that they ought to be seeing based on their actual business needs and priorities? Announcing a new feature called Playbooks.
Imagine being able to surface everything from knowledge docs to competitive battle cards, call scripts, presentation decks, case studies, and present it in the right way at the right time based on that human you happen to be talking to. As you grow from 50 to, say, 500 reps, with Playbooks, you'll sleep easy knowing that everyone on your team is having productive, relevant conversations with prospects. Relevant conversations are the ones that actually lead to new business. This call may be recorded for training purposes. How many times have we all heard that? You ever wonder if that training ever happens? With call transcription in HubSpot, your managers have an easy way to coach frontline reps to show them what a good job looks like and actually how to help customers in the best way. The benefit for the rep, simultaneously, call transcription removes tedious data entry.
All right, growing your team. With HubSpot's enterprise tools, growing across regions, across product lines, industries, or any other dimension you could cook up now feels natural. Instead of scattering your team to the winds, who here would rather grow their team together? What do you think? Okay, a few minutes ago, you heard from the team at Airstream. It's amazing how word of mouth is driving their business. Talk about a flywheel story. Talk about a grow better story. We love Airstream, love what they're doing. Now, as it turns out, this has meant some massive growth of their team, just like we were talking about. Growth of their team, growth of their data set, basically everything that they're doing. Physically, their footprint is growing very quickly. We're going to hear a little bit more about Airstream and how they have decided to scale their team using HubSpot.
Let's take a look.
Five years ago, we were a company, approximately 250 employees. Today, we're over 1,000. When it comes to manufacturing, that's a lot of growth. We've added at least 250,000 sq ft to 300,000 sq ft of manufacturing space in those last five years, and we're currently busting at the seams. Next year, we'll be building a whole new facility as our first new complete manufacturing facility in 50 years, and it'll be 765,000 sq ft. Significant growth. If we didn't have HubSpot, we wouldn't be nearly as efficient. I don't think that we'd have a good understanding of our customers. We certainly wouldn't know what's working and what's not working. The idea of having this omni-channel approach and kind of having a holistic view and seeing everything has really made us better, not only at marketing, but I think that now we're putting money where we should be.
It takes very complicated things. It delivers them with such simplicity that I can share the information across channels. It's a quick read. I know immediately what's going on.
Airstream's seen tremendous growth in our contact database. It's grown in excess of 10-fold in just that three-year timeframe. That transformation, that growth, has really been made possible by everything from digital advertising to really sophisticated email marketing and an overall improvement in customer experience. We have hundreds of Workflows built because we understand that pre-purchase customer experience is really critical.
When I think about HubSpot, it's the nucleus. Everything has to work through HubSpot. You're the connection point for everything that we're doing right now. I think that's a testament to how important you guys are to our business and our digital strategy.
All right, go Airstream. Let's hear it for Airstream. What a cool company. That's what we're talking about in that last section. This is real employee growth, not to mention job creation. Very cool. Imagine being Airstream. Absolutely crazy growth. Doubling, tripling, actually quadrupling the size of their employee base. 10x-ing the size of their customer database. We're not making this stuff up. Life at scale is really something. It feels like it happens overnight when it happens, believe me. Wow. It seems like Airstream has really adjusted to this scary grown-up world. Now, like Airstream, you've learned the new rules. You're moving quickly. You've adjusted. You feel good. How do you make sure that your growth doesn't take you further from your customers?
How do you make sure that you don't become that big brand that's disconnected, that's distracted, that spends all of its time solving for itself? Dharmesh had some really good examples of when companies get this right and get it wrong. First up, email marketers. Do you ever worry that you're sending more email than you'd like? I'll tell you, if you're sending more email than you'd like, people are hearing from you a lot more than they would like. As we grow, as we scale, as we rely increasingly on automation, this becomes, frankly, more frightening over time. Announcing send frequency cap in HubSpot Enterprise. You can avoid accidentally over-emailing customers by simply choosing the maximum number of emails that any one human can get within any specified time period. That's it. You'll never over-email these wonderful, kind people who are trying to do business with you.
Honestly, this is a feature that we all want, we all need it in more ways than one. How cool is that? Send frequency cap. At scale, conversion matters more than ever. Every percentage point of conversion that you can squeeze out of those A/B tests that you sweat over day in and day out really matters. We celebrate even the tiniest improvements on these tests. Here's the thing, though, the world keeps turning. People change. Times change. Those gains that you get from conversion optimization fade over time. What I'm going to say sounds a little nuts, but bear with me. What if HubSpot could always be testing and tweaking for you? Today, ongoing optimization in HubSpot Enterprise is here, and it's constantly testing all of your different conversion points and optimizing them based on everything that you can imagine, visitor history, device type, 1 million other things.
Imagine a smart artificial intelligence engine using all of the data that you have in that CRM, in that customer data set, working around the clock to ensure that you stay totally optimized for engagement and conversion. Next up, everyone's workday is different. Some sales reps spend their time out in the field. Some support reps, let's say, are full-time remote. In this day and age, people by and large work where they want to work. We're no longer tied to a desk the way that we have been in the past. What if something really requires someone's immediate attention? What if that is solving for the customer? I invite you to take a look at our new native integration with Slack. No matter where you are, never miss what your customers are telling you.
My favorite part here is you can take action in HubSpot without even leaving Slack. Slack is an awesome company and a fantastic product. I love Slack, and I absolutely love this feature. Well, we've established by now that everyone should be using live chat. Few companies are in a position to actually chat live. Bots are a great way to scale these one-to-one communications. Enterprise makes deploying your bots surprisingly intuitive. Let me show you what I mean. HubSpot custom bots. With our drag and drop custom bot builder, you can craft custom conditions, flows. You can add answers to the questions you're getting most often. You can do all of this and then deploy those experiences to your website in just minutes. Now, here's the reality. More and more people aren't even on your website. A lot of folks prefer to spend their online life in Facebook.
They don't even go to websites. It sounds kind of crazy. That's the world we live in. No problem. Take a look at HubSpot's Messenger tools. See, with these, you can create rich conversational experiences in Facebook Messenger, experiences that do everything from create contacts to qualify leads and get information from those contacts, deliver personalized content. The best part is that customer never has to leave the native experience of Facebook. What you've seen so far in HubSpot Enterprise truly is just a taste. HubSpot Enterprise is comprised of dozens of different features that help every company at every size continue to grow better. Starting today, HubSpot's brand new Enterprise products. They mean you never have to worry about outgrowing HubSpot. Enterprise helps these three key departments, and more importantly, your customers, continue to grow better. Let's talk turkey. Here's the deal.
Each of these hubs is available individually. What's really cool is that they're available together as part of what we call the Enterprise Growth Suite. When you buy them together, you get the very best of HubSpot for larger, more sophisticated scaling companies, and you get it at a terrific discount. The price of Marketing Hub Enterprise with all of these new additions is going to go up on November 1st. My advice to you guys is take a look at this, take a look at the package, the suite, before November 1st, and you'll get an even better discount by acting early. With these Enterprise tools and a lot that we were not able to get to today, growing bigger doesn't mean you have to grow apart from your customers.
Once again, who here thinks the right idea is to grow better together with your customers? What do you guys think? A lot of new stuff, a lot of bold claims. I see some skeptical faces out there. It's okay. That's cool. What about a real-life example? What if I told you there was a company, publicly traded, offices around the world, tens of thousands of customers, dozens of products, thousands of employees growing and scaling by using everything that you just saw. Who wants to meet this company? Yeah? All right. Let's take a look.
We have about 2,500 employees across eight offices worldwide.
As a company, we're growing by about 80 to 100 people every month.
The company's huge. It was small when I started. There are so many people here now. The bigger marketing team is like, gosh, maybe 250 people.
Our team has been growing so fast, I'm having a hard time keeping track of all my new colleagues, especially in the last couple of months.
We have about 500 people in services at our company. When I started, we were probably a little bit over 200. This year we'll be close to 500 people on our team.
My entire day is in HubSpot, whether it's helping a customer with a question or learning something new for myself. The entirety of my workday is within HubSpot's CRM.
We use it for email, our website's hosted on it. We use Conversations and live chat from HubSpot, it's really the center for all of our efforts.
Myself as a manager, we do customer assignments. You can do a lot of tracking of customer success long term and manage the renewals through HubSpot.
My daily use of HubSpot is around paying attention to a lot of the leading indicators that let me know how we're going to finish at the end of the month. HubSpot's tremendously helpful in making sure that I spend my time in the right place.
We're growing really rapidly. We're growing in the 35% range year-over-year on revenue. We have almost 50,000 customers now in 100 countries around the world. We're using the entire platform of HubSpot to run our business. I'm JD Sherman, President Chief Operating Officer of HubSpot. We're powered by HubSpot.
What do you guys think of that? That's right. HubSpot is powered by HubSpot. We are using Marketing Hub Enterprise, Sales Hub Enterprise, Service Hub Enterprise. Of course, most importantly, HubSpot CRM. I want to tell you something. We are one of the most sophisticated users of CRM software in history. If you're wondering whether or not HubSpot can really live up to this and help your grown-up scaling company, I hope that this data point convinces you to check us out. This is a very, very exciting step in our history. Our singular goal is to build a product that teams love to use and that creates a delightful experience for you and for your customers. Now everyone can use these tools, from the first employee up through growth into a company of thousands of employees. What about HubSpot Professional?
You had to commit fully to one currency. Now we've made it straightforward to add multiple currencies into the same CRM portal. This is super cool. Reps can track deals and manage their pipeline in the currency that they work in their local currency. Their managers, VPs, CEO, can roll that up into a base currency, a home currency. You might be thinking, well, what about all of the currency exchange? We handle all of that for you. It's invisible to you. We do it all behind the scenes. The way the team solved this problem was actually super cool. Multi-currency is available across a ton of products within HubSpot, reporting, products, line items, quotes, quotas. A bunch of other places. Very exciting. All right, the second thing, custom reporting.
You had to commit fully to one currency. Now we've made it straightforward to add multiple currencies into the same CRM portal. This is super cool. Reps can track deals and manage their pipeline in the currency that they work in their local currency. Their managers, VPs, CEO, can roll that up into a base currency, a home currency. You might be thinking, well, what about all of the currency exchange? We handle all of that for you. It's invisible to you. We do it all behind the scenes. The way the team solved this problem was actually super cool. Multi-currency is available across a ton of products within HubSpot, reporting, products, line items, quotes, quotas. A bunch of other places. Very exciting. All right, the second thing, custom reporting.
Until today, if you had Professional, you had the standard reports that we gave you. We got a lot of feedback from you guys. We heard you loud and clear. As of today in Professional, you can now run up to 20 custom reports on anything from contacts to companies to deals, not to mention across objects. One of the biggest efforts that we had in the product this year came to Professional and Enterprise cross-object reporting. We're also going to give you one more additional custom dashboard to play with in Professional. We have one more thing. You know the best way to grow better? The best way to grow better is to actually get face to face and make a human connection with your prospects, with your customers, from anywhere in the world, by the way. Well, buckle up for this. Announcing HubSpot Video.
This is a massive set of features across a huge swath of the product. We'll take a look at a few of the big ones. Huge thanks to our friends who are helping power this at Vidyard. Let's check it out. First up. With one-to-one video recording in CRM, now your sales, service, and marketing teams can record and send video in a single click. You have lots of options. You can record your webcam. You can record a screencast. You can do both at the same time. I'll tell you, this has transformed our life internally at work. We use this constantly. It's amazing how great this type of video turns out to be for sharing complex, detailed information in a way that's still really digestible and really relatable, very human, very effective. Second. Built-in video hosting.
Upload video directly to HubSpot, then set it up to succeed. You can add all kinds of marketing tools, like smart calls to action. You can embed HubSpot forms natively in the video content. That is freaking cool. For the SEO geeks out there, we have you covered too. You maintain full control over the metadata of the videos, so you can make sure it fits into your overall comprehensive technical SEO strategy. Third, as you'd expect, rich reporting. Check this out. Detailed analytics that let you understand how your videos are performing, that show you what's working and what needs work. That's HubSpot Video, and it rounds out three big new features for Professional, and of course, they're all available in Enterprise too. I got to say, I'm really proud of the work that's been done this year to improve our suite of products.
I hope you guys are too. I'll tell you, a lot of the engineers and designers that built this stuff for you guys are here today. We have a ton of people from our Dublin office. We have a whole engineering team. If you liked what you saw today, let them hear it. Who's excited? I see a ton of them here, and it's great. They've been busting their butts. This is like our New Year's today. It's a lot of fun. All right, for everybody who's here physically at INBOUND this week, I have a good call to action for you guys. Tomorrow, you can dive deep into any one of these three hubs with our product leaders for each of these hubs, the general managers. That's Nicholas, Mike, and Lou for marketing, service, and sales, respectively.
They've put a ton of work into these talks, I'll tell you, they are the world's expert, each of them, on these product lines. Introduce yourself, get to know them. They're a lot of fun to work with. One of my favorite parts of my job is getting to work with those guys. Now, whether you're here with us in person or if you're joining on the live stream, I see you on the live stream. You look lovely. You can learn more about everything you saw here and a lot more by visiting hubspot.com/new. Your growth is at the forefront of everything we do at HubSpot. To us, it's not about growing up, and it's not about even growing bigger. It's about growing better. Today, I promise, if you commit to growing better, you will never outgrow HubSpot. Join us, let's grow better together.
We'll see you next year.
You're going to give your love to me. I want to love you night and day. You know our love will not fade away. You know our love will not fade away. Not fade away. When I was leaving in a Cadillac. I tried to show you, but you drove me back. Your love for me has got to be real. You're going to know just how I feel. Our love is real, not fade away. Not fade away.
Two minutes. I'm going to give the heads up here in a minute.
Okay.
So
You want to go live?
Yeah. Let's go.
Okay, if we can take our seats, we're going to go ahead and get started here with the financial overview in just one minute.
Is Joe on the lights? Is Joe going to do the lights?
They're already set. They're on 4. If you want them darker-
No, this is great.
This is it. Yeah, this was the one that we've been using.
Yeah.
Tell me how it's going to be.
Turn them off?
Yeah. that
Hello, everyone. I'd like to add my thank you for coming today. I know this is a first time for me personally, to have a chance to meet a lot of you, I really do appreciate you taking the time and making the trip. I know it is a long day and a lot of time. We have not seen the forward-looking statements in a good couple of hours, I thought I would add those for good measure before diving in. What I want to do today is really three things.
The first is to provide a short reflection on the current state of the business, then we're going to do a little bit of a deep dive on some of the key product announcements that you've heard about all day, but really with a view in how they translate into the financial impact on the business. Finally, we're going to checkpoint on the long-term financial model for the company. Let's dive in. Many of you out here have been with the company for a long time, frankly, a lot longer than I have, and already have an appreciation that HubSpot has delivered consistent [unintelligible] really since the IPO. Today, HubSpot is a $half a billion [unintelligible] growing in the mid-30s.
[inauidble] speaking five public software companies that have achieved this combination of scale and growth, and we believe the right investments to continue to drive top-line growth. As you've heard consistently today, we are investing in two areas, expanding the platform.
For some reason,
All right. Hold on one second, please.
Take your bad job.
Is this better? Can you hear me now?
Yeah, great.
Yeah? Gets the thumbs up. All right. I'm going to move over here a little bit. I think there have been two consistent messages around investment today. One has been that we're investing to expand the platform. The second is that we are moving toward a more product-driven go-to-market. On the first, last INBOUND, we introduced a sales professional product, and in May, we launched more than one product from HubSpot, 29% at the end of July. This is important because we continue to see stronger retention rates from customers who buy multiple products, and we believe there's still a ton of opportunity here. Only 1% of our customers currently buy all 3 hubs, and lots of our new customers are starting with HubSpot with multiple products up front. In fact, the majority of our new multi-product customers in any period are new customers to HubSpot.
We are also starting to see the benefits of our product-driven go-to-market. Jamie shared something this morning about the rogue groups in our free user base. The good news for me as the CFO is that this motion is also helping to deliver a pipeline of paid users. The percentage of new ARR that we are seeing from customers who have tried a product before they pay for it has increased steadily, and we are now seeing that percentage consistently over 50%. As you can see in the chart on the left, total customer growth continues to be strong, 40% year-over-year. Average subscription revenue per customer has come down a bit over that same period of time, and we've gotten a lot of questions in my tenure about this decline. The simple answer is that it's a product mix-driven change.
A lot of the investments that you just heard about mean that more and more of our customers are buying the lower-priced Sales products and Marketing Starter products, which is driving down ASRPC. What we tried to do here on the right-hand side is to strip out those impacts, so you can see more clearly in the Marketing Hub ex Starter and in the Sales Hub cleanly that ASRPC is actually growing year-over-year in each of these cases. As we've said before, we are going to continue to launch new products, and these numbers are going to move around from time to time. The other big area of go-to-market investment for the company has been in international expansion. International revenue has grown an impressive 67%. It now represents 37% of total revenue. We operate in more than 100 countries around the globe, and we have six international offices.
Our strategy with [inaudible] primarily English-speaking markets, and that remains the majority of our [inaudible] A few years ago, we made investments to localize content and open offices in Another mic change. Hello? All right. Now we only have operator errors here, so we're not out of the woods yet. International, we talked about the fact that we first started in English-speaking markets. That remains really the majority today of our international business. A few years ago, we really started to localize content. We've opened offices in other developed markets. These are growing really fast, and we will continue to make investments here. More recently, we started to talk about expansion into more emerging markets. We now have a nice low-touch way to go into those markets, and we think there's a lot of opportunity here. The company is also realizing balanced growth.
We've steadily increased profitability since the IPO. We have strong gross margins in excess of 80%, and we have generated positive operating profits since the beginning of 2017. Importantly, we are also generating positive free cash flow. This year, we expect to generate $34 million-$35 million of free cash flow, and we have a strong balance sheet, which affords the chance to make opportunistic, smart investments. Overall, I think we are in a very strong financial position. With that, let's look forward. As JD described this morning, we've expanded our addressable market in two ways with today's product announcements. First, we've introduced a set of tools that can reach across the customer experience, which he referred to as our east to west expansion.
We've also created editions of all of our products that fit companies from sizes 2 to 2,000, which he refers to as our north to south expansion. Today, we have Starter, Professional, and Enterprise versions of all of our hubs, and all of these sit on top of our now full-featured free CRM. Let's walk through a few of the notable changes you heard about today. There are a lot of exciting things at the Enterprise level. First, we announced a function upgrade to the Marketing Enterprise product, and with that, we have increased the price of Marketing Enterprise to $3,200 starting on November 1st. We launched [inaudible] Enterprise Service edition, both of them priced at $1,200 a month.
As you just heard from Christopher on the main stage, the suite of Enterprise products includes a number of management features for larger, more sophisticated teams, as well as advanced analytics and built-in machine learning features. While there are no foundational pricing or product changes at the Professional Edition level, the Professional Suite also got a bit of an upgrade. In particular, video is heavily integrated into our Professional Suite, reporting and analytics have been upleveled, and the suite now supports multi-currency. Finally, at the Starter level, we recently relaunched our Marketing Hub Starter product with email and launched a new Service Hub Starter product today at INBOUND, completing the suite of our Starter products. All of these Starter editions are priced at $50 a month and can be purchased touchlessly.
We have not shared performance results of our individual hubs in the past, but given the volume of announcements today, we thought it would be helpful in framing the future growth prospects for the business. We do not intend to share this information going forward on a quarterly basis. Let's start with a review of our largest business, which is Marketing. At the end of Q2, Marketing Hub was a $425 million ARR business growing in the mid to high 20%. The product announcements today create really three major new growth drivers for the Marketing Hub. First, the Enterprise Edition upgrade allows us to compete for a new set of customers at the top end of SMB. Think about companies that are 200 or more employees. Second, the new functionality in both the Enterprise Edition and also the Professional Edition create interesting upsell potentials within our install base.
For example, the majority of our Marketing Hub customers today buy the Professional Edition, and we think about 10%-15% of those customers are of the size and sophistication that would be natural fits for the new Enterprise product. Finally, the early results of our new relaunched Starter product would indicate that we have found the right value proposition for an attractive entry point. Since we launched in mid-July, we've had almost 2,000 customers sign up for Marketing Starter. A huge majority of these signed up touchlessly. Our Sales Hub was a $50 million ARR business at the end of Q2, and it is growing at a rate north of 100%. Like with Marketing, the Enterprise Edition allows us to compete at the high end of SMB for new customer additions.
We think about the target market for our Enterprise Sales product as any business that has 10 or more sales professionals, or roughly 50 or more employees. At this scale, the team really can leverage the management tools and Playbooks that the new Enterprise Edition provides. About 20% or so of the sales professional customers that we have today fit this profile, and we believe that there's also a natural upgrade opportunity within our sales professional install base. We're obviously still in early days for Service Hub, having launched the product only in May. At the end of Q2, Service Hub was a $2 million plus ARR business, and it's obviously growing really fast. Service Hub was and has been the most successful Hub launch to date. It took us less than three weeks to get to $1 million of install base ARR with Service Hub.
We talked actually a lot about Service Hub in the Q2 call. One of the things we talked about was that the primary go-to-market motion for Service Hub has really been to sell into the install base. We think there's still a lot of opportunity here. We continue to believe that this will be the primary go-to-market motion in the near term for Service Hub. That said, we have been pleasantly surprised to see some success in selling Service Hub to new customers. About a quarter of Service Hub sales have been to new customers to HubSpot. We think the launch of the starter edition of Service Hub provides an even easier onboarding path for new customers. Okay. At the end of the second quarter, we had more than 14,000 active customers with more than one HubSpot product. Since then, we have passed the 15,000 mark.
The product announcements today do a couple of things here. First, we've created multi-product solutions that make sense for customers of all sizes. Second, we've tried to make it as simple as possible for customers to buy the suite with our new bundled pricing. Okay. That was the exciting part. I would like us to take a little bit of a look at the long-term financial framework. The first thing to notice is that we are not changing our long-term target for operating margin. It remains 20%-25%. There are a couple of more detailed changes, however, that I would like to highlight. First, we've increased the long-term gross margin target by one to three points to 81%-83%. Our R&D team does a really nice job of managing our infrastructure costs. We have been operating within this range.
Offsetting this change, however, we are increasing our R&D spend as a percentage of revenue to 16%-18%. You've seen the impact today of our R&D investments in all the product announcements. We expect that we will continue to spend at these levels. G&A expense as a percentage of revenue continues to show some of this scale as the business is growing. We are holding our G&A target percentage of revenue at 10%. Finally, sales and marketing expense remains the farthest away from our long-term target. While we believe that 30%-35% is still the right long-term goal, we are not in a hurry to get there. The reason that we're not in a hurry to get leverage out of sales and marketing is that our unit economics remain very strong. In fact, the unit economics today are modestly better than when the company went public.
Our LTV to CAC of five times means that we expect a customer that costs us $1 to acquire will deliver to the company $5 in value over its expected life. At these unit economics, we believe it makes sense to continue to invest in sales and marketing. That said, we do continue to believe that the financial framework that John and Brian outlined last year for you makes sense for the company. Specifically, what we've said is that at growth rates over 30%, we believe that we can deliver one to two points of leverage every year. We would expect to be able to deliver more leverage to the extent that growth slows below 30%. Overall, I think we have a healthy, growing business that's delivering financial leverage. The strong set of product announcements that you've heard today demonstrate the early returns from our investments in R&D.
They expand TAM in all directions and create a solid foundation for long-term growth. With that, I would like to ask the rest of the leadership team and join me for Q&A.
Good afternoon, and thank you for hosting today. Stan Zlotsky from Morgan Stanley. Just one question from me. You mentioned that you're really focusing on this product-driven go-to-market strategy. What does that really mean, right? It's not like you guys are an Oracle type of shop where you put out software that doesn't necessarily do things. You put out really solid software. You've always had good products. Is there some kind of change? What's really changing? Why this focus on your product-driven go-to-market?
You want to start or you want me to?
Go for it.
I'll start, Brian or Dharmesh can chip in. I think maybe it's two things. One is about matching the way our customers want to shop and buy today. As I talked a little bit about in my prepared remarks earlier, the old model that we had was you engaged through a lead, you talked to a salesperson, hopefully we talked you into using HubSpot. You got started, you started to get value from the product. There was a lot of friction. There's friction in that model. We were extracting value before we were adding it.
I think a much more modern way to do that is start adding value for the customer with the software, let them experience it, start to adopt it and get value from it before we ask them to pay us and start to extract from it. Part one is, let's match that. Let's take the friction out of the model. Let's match it to the way modern customers want to shop and buy today. Second part is it's a lighter touch model. It's a higher velocity model. What we find, as I mentioned, is when we get people started on that software, that first user invites a second user, it becomes a weekly active team, they convert at a very high rate, with very low touch from a human standpoint, often touchlessly.
The second part of that is a benefit to us, which is it's a lighter touch model that's working on the CAC. We work on the CAC from that standpoint, we work on the LTV with a happy customer with the first point. Make sense?
Yeah.
Thank you. Mark Murphy. It's on.
We can hear you. Well, I'll repeat the question when you say it. How about that?
Mark Murphy. There we go. Mark Murphy with JPMorgan. Great to be here, thank you for having us. The pricing that you showed, the price of Marketing Hub Enterprise is about two and a half times even more than of Sales Hub Enterprise or Service Hub Enterprise. Is that reflecting what you think you can realize there? Is that reflecting the value that you think is being derived per seat for the users? Or is this a case where maybe that pricing would reach parity over time as you build out the functionality in sales and service?
Yeah. Good question. I think you have to think about the Sales Hub and Service Hub products a little bit differently than the Marketing Hub product because that pricing is driven by seats. The way to think about that $1,200 is you get up to 10 seats with that, the $1,200 is sort of the enterprise price of entry. As you're a larger sales team, say you're a 50-person sales team, that price is going to scale at $120 a seat. In some sense, it's kind of apples and oranges to think about what's the value of the Sales Hub product versus the value of the Marketing Hub product. The Marketing Hub product is $3,200 for the enterprise, but it doesn't have a seat limitation. It grows with contacts, whereas on the sales and services side, it's a seat driver.
I think that's the right way to think about that pricing. Does that make sense?
just as a follow-up, where do you think you can derive the highest price per seat if you can have all of that?
You mean again, marketing, we wouldn't think about how does that scale per the number of marketers on your team. I think the pricing on Sales and Service, they're aligned in terms of the price per seat. If you're asking me over time, where do I see the value of it, I think the value is as it gets more robust and larger and larger teams can adopt this product, we're going to see some pretty high ASPs.
I think the Sales and Service side, we'll see some people buying 100 seats of that Sales Enterprise product, the price point's going to be pretty high, actually. It's an apple and an orange. We use context-based pricing on marketing. The base price is a little higher on Sales side than Service side. Context-based pricing, that's just not the way people do it, we use seat-based pricing. I think as we start to sell the Sales Enterprise, Service Enterprise product, we're going to start to see customers spending $10,000 a month with us regularly.
We have customers today who are paying us more for the Sales products than the marketing product that they use.
Vince Rivers, J.O. Hambro. Brian, you spent a lot of time, obviously, in the speech downstairs about this change from the funnel to the flywheel. Can you talk maybe a little bit about how you operationalize that? You guys are a young company, so it's not like you have to redo culture, which we spoke about in the second presentation. You've been doing it one way for a while now, and as an investor, that does create some risk for us, and Kate just went through your operating model, where there was no change there. How should we think about it, both in terms of operation and financial impact?
Sure. I think operationally, we've been on this path for a while. It's not like there's a step change that's happening now. It's something we started working on a couple of years ago. It's just a focus on the fact that, boy, our install base and our customers and our install base of users is really growing very rapidly. The users are growing really rapidly. How do we get more focus on people not just buying their first product but buying additional products? How do we get focused on delighting those customers, servicing them properly, meeting their needs so that the word of mouth increases? I honestly don't think there's a risk operationally in your models from this. I think it's all goodness, all upside, is my take. Currently, we're calling on the install base, and we're getting revenue out of it, of course. It's actually going pretty well.
I think there's more opportunity there for us going down the road as we look into 2019 and 2020, where we've got more products now and our install base is growing. I think there's just a huge upside if we can execute on it well. If we can delight customers right up front and then sell them more products, then get them telling more people, that's a nice recipe for a great company.
Hello. Is this on? Great. Again, add my kudos to the analyst. Very helpful. Thanks for bringing it on.
Yeah.
Inviting us to this. I had a couple of questions. I guess I wanted to specifically address the flywheel from Brian. First, you talked about how the model has changed from getting found to sales leads to now just delighting the customer. I guess conceptually, you look at the flywheel, that means you're putting more emphasis on just that one section of the flywheel. It would seem not symmetric, not balanced, and therefore not be able to churn so properly.
Yes
more conceptually, not so much figuratively, but it just seems like if you're putting all your emphasis on this area of delighting, the previous areas of focus that you had before will be less resourced.
Sure.
I have a second question too after that.
That's a terrific question. Somebody in the audience was paying attention. Thank you very much. My presentation was what it was, and when I talk to customers and I ask them why they're buying, they say it's somebody else told them about it. It's word of mouth that's shifted. Of course, marketing and sales is still in the mix, but word of mouth seems to be very powerful. As we're thinking about resourcing anything inside the company, whether it's our lead scoring, whether it's our commission plan or our pricing plans, what can we do to set that customer up so that they not only buy, but they're delighted and then buy more stuff? If I showed the more detailed flywheel that we have inside of HubSpot, it's a visitor, it's a user.
If somebody bought one product, they bought a bunch of products, they're promoters, they tell more people. That's sort of how I actually think about the flywheel. I dumbed it down a bit for the audience today. Furthermore, the flywheel, there's this spin on the flywheel that's quite interesting. The more customers we have, the more partners, third-party software providers we have that are adding value to it. The more customers we have that are happy, the more agencies we have. Our flywheel is actually quite a bit more complicated than I showed on the slide today.
Okay.
Just one quick thing to add to that, which we haven't talked about. Historically, when we have kind of the freemium model, our thought was, oh, some number of these freemium users are going to convert to paying customers or at some percentage, that's the kind of primary monetization. The thing we're starting to learn now, though, is that even those free users that never buy are great word of mouth, because they have friends or colleagues that work in larger companies that might be perfect customers for us. We get credit now for all that large and growing base of free users as well.
That's back to the question earlier about moving to be a more product-centric go-to market. Before, we created content, we pulled people in with those contents. Sales reps spent a lot of time working with them. We converted them into customers, kind of a big step functions there. Today, we flip it, we say, "Hey, use our free products. If you like it, upgrade it." It's a lighter touch, lower cost to acquire. Even if you don't buy, all those free users are a magnet for partners and software developers. When we go to Slack, when we go to Stripe, or we go to Shopify, we're like, "Hey, let's build an integration into HubSpot," the slide we show is the number of users and how that thing's hockey sticking up into the right.
There's a bunch of flywheels that get spun up from that product-driven go-to market. Same type of flywheels that get spun up in Slack's go-to market, in G Suite's go-to market, and all the modern go-to markets of companies that are really growing these days.
My second question is also about the flywheel. In regards to where you are planning to develop further resources, you just introduced the enterprise versions for all these 3 products, you load them up with features and stuff like that. There is still more that could be added in terms of sales and marketing and customer service. I mean, everything from order fulfillment to vertical applications and stuff like that. I guess if you look at these 3 areas, where do you see some of the features that you would be adding in, or you would consider adding in the near future? Oh, I forgot to introduce myself. Jonathan Kees, Summit Insights. Thanks.
Okay. Thanks, Jonathan. I still feel like HubSpot's early in the second inning of the baseball game we are playing. Very motivated by our mission still, very motivated about what we are up to here at HubSpot. In terms of the flywheel, all the products we released over the last year in that Service Hub are really designed to help people with delighting those customers and closing that loop. I am thrilled about that. The market has really enjoyed it. The sales reps are selling it. That looks like a winner product line for us. I would say in terms of all of our 3 hubs today, there is plenty more work to do. There is a lot more innovation. The thing that never changes is the way people shop and buy, they continue to evolve over time. Like video now is a huge thing, of course, we announce video into the product.
There is a lot more enhancement and a lot more work that we will do inside of the 3 tiers of each of the hubs we have. Having said that, there is a couple more big opportunities in front of us. We could, in theory, build more hubs. There is more hubs kicking around in our heads. It is a question of when, not whether, we will probably build more hubs. Then there is the platform side. Christopher talked about how we have increased our API footprint by 30% over the last year. We have increased the number of third-party ISVs that integrate into us from 80 to 206 year-over-year. Lots of opportunity to build potential marketplace effects and really, over the long haul, maybe monetize the marketplace. We feel like it is still very early days in terms of matching what is in our head for the vision of HubSpot for long term.
Hey, guys. Thanks for taking the question. Brad Sills from BofA Merrill. With the focus on the different hubs now, you have got the 3 different hubs, a lot of investment in service and sales, do you see the makeup of the channel changing at all, going forward? Do you feel like their readiness is there already, or could we see more sales-oriented partners come into the channel, even SIs, as you go after more of the back-end integration, as you are moving up market within your target market?
Sure. I think that's exactly right. It's a good question. I think we're going to see two things happen. One, that opportunity that we laid out for you guys, what I called north and south and east and west, that's an opportunity for our partners as well. Some of our partners are really grabbing ahold of that opportunity and evolving their agencies to help their customers sort of spin that flywheel. That's been really productive. The other thing, though, is, as you mentioned, we now have a really robust CRM and a Sales Hub and a Service Hub. There are different types of agencies and integrators who participate in that.
Once we get that flywheel spinning, and we have lots and lots of customers who are using the CRM, migrating to that CRM, integrating other software with that CRM, I think we'll have an opportunity. We've got some initiatives in place to attract different kinds of partners. I think what we'll end up having is sort of, we'll have some of our agencies that stay focused on marketing and web development and content marketing. That's going to be awesome. We'll have some new partners who come in and focus on getting customers set up and really leveraging our sales products and our service products and making that work super well.
We'll have some of our agencies that have been with us for a long time or grow into these really premier agencies who help customers leverage the whole suite, the whole platform to run their businesses.
Hey, guys. Thanks for having us. Tom Roderick here from Stifel. A bit of an eat-your-own-dog-food question here. If I'm not mistaken, I think I heard earlier, during the keynote that HubSpot is now internally using your own CRM product. If we've got that right, that's a pretty interesting data point, insofar as you're testing CRM at scale at a pretty sizable company. You know all the proof points, all the challenges. Maybe you could talk a little bit about what that might mean internally and what the challenges were as you integrated with your own CRM. Kate, if you want to touch on, is there some cost savings that we might be aware of that could help you out there? That'd be great. Thank you.
You want to do that one?
Yeah, I think you'll be more-
Okay. Well, first of all, that company has a very handsome COO. I don't know if you noticed that, if you watched the video.
The video was great, by the way.
Yeah, I thought they did a nice job on the video. We've been working on eating our own dog food, as you call it.
Drinking our own
drinking our own champagne for quite a while. What's interesting about that is we're a complex company. It's challenging. When you're deeply using whatever CRM it is, it's challenging to come off of that. That sort of informed us in terms of the way we want to go to market with that CRM. We want to make it easy to use. We want to make it scalable so that it grows with you. We don't necessarily have, as a target plan, to go to the big enterprises and get them to rip out their CRMs. It's really hard to do. That's the first point. Second point is, the way we've thought about our CRM is, as I mentioned in my prepared remarks, we're a software platform, but we're also a philosophy.
We built that CRM with a sales philosophy in mind that we think makes a lot of sense. Then obviously, therefore, it makes a lot of sense for us. Some of the things that we're adopting with our own CRM, the approach that we're asking our salespeople to take with that, it's just a really nice, easy match for us. What we've seen as we've moved our salespeople over to our own CRM is they're just delighted. It's a much easier product for them to use. They're just very happy. We're getting a sort of ancillary benefit of it. It's much easier to sell a product you're already using. I think we're going to see both of those benefits.
Another secret benefit, by the way, is we've been spending a lot of effort and time doing that migration with our internal software team, if you will, like our internal enablement team. I'm excited next year about that team freeing up to be able to do a lot of the other stuff that, as we look at our own flywheel and look at the points of friction in the flywheel, what other things can we go after? I'll let you comment on that.
Yeah, I think actually JD's last point would transition nicely into the one that I would make, which is we have been making some internal investments as we are migrating onto our own CRM. Any savings would have already been baked into the long-term model that I shared.
Hi, Taylor Reiners from Piper Jaffray here. I had a question on the platform opportunity that you talked about. You mentioned that you've seen over 100% growth in total platform partners, and I was wondering if you can offer any thoughts or metrics around the impact that that's had on retention or full suite adoption for customers who are using other applications in the ecosystem. As a follow-up, do you have any preliminary thoughts on what the longer-term vision is here in terms of either adding development tools or monetizing it, much like Salesforce has done?
Yeah. Well, maybe I'll try to answer the first part, and Dharmesh can comment a little bit more on the long-term vision of the platform. You definitely see there's two things that you will see underneath that sort of chart that I showed. One is when customers are using HubSpot, and they're integrating other software with it, well, we're really their sort of core platform. We're their system of record, and their retention is definitely better. The other thing you see is, this is interesting as we launch our Enterprise products is, 200,000 roughly integration points, 50,000 customers, that's four per customer on average, but there's a curve, right? The smaller customers tend to have fewer integrations. The big customers really have a lot of integrations, and they're really important to that business, how those integrations work.
As we start to address those larger and larger companies, that's going to be super important. It's also going to spin that Flywheel that Brian talked about. More and more software companies are going to be interested in being part of that platform.
I think it's a really big moat for us going forward, and that's an obvious one where we have network effects, the more partners we have, the harder HubSpot is to displace. The other thing that's interesting about SMBs, all of you have likely seen the MarTech landscape chart with 5,000 logos of companies in the marketing space, and sales has something similar, and it's growing. We made a decision years ago that we weren't going to fight that particular trend, that we were going to actually embrace it to say, okay, what do we do to help orchestrate for our customers and provide that backbone? We're not trying to squash these little companies. We want to make them more efficient, give them access to our customers, and have this kind of joint relationship that's super positive.
From a branding perspective, I think we have an opportunity, and there have been platform companies before, but in terms of rethinking what that relationship between the partner and the platform looks like. I think we've got some interesting opportunity there beyond just monetization. Can we actually take the things that we've built in-house to build our own company and make those available as tools and things to help these smaller companies scale, essentially? It's not just access to the customer, it's access to insight, access to internal analytics reports, and all the things that we've kind of learned over our 12 years building a company in the space.
Thanks so much. Ross MacMillan from RBC. Thank you for doing this. It's great. I think I'm right in saying the historic mix of products, and these are approximations, was a little bit under 10% on Starter. This is ARR, I guess. Something like 55% on Pro, and then the rest in Enterprise. I guess two questions on that. One is, with the new pricing scheme, do you think that mix between Starter, Pro, and Enterprise will be similar? Then do you think it'll be similar across all the product areas, i.e., Sales, Marketing, and Service?
Let's make Chuck answer that. You're correct.
It was his idea to give that data.
You are correct. Now, that would've been of our marketing business.
Yeah.
That wouldn't be of the total business. I think, from me personally, I'd start to say that I think that there's an opportunity, obviously, to build at the Starter layer. Kate gave the data point that we've seen a lot of the success just the last couple of months, selling to 2,000 customers with that new Marketing Starter product, which is up very substantially when you look at prior periods. I think there's also an opportunity with 60% of our Professional base being on the Professional layer to sort of reengage those folks upmarket with our revamped Marketing Enterprise SKU.
Yeah. I'd add, we've been talking on the last couple earnings calls about ASRPC, and we've been talking about customer count, and we foreshadowed that those are going to be tricky things to track in HubSpot, and now you know why. Because we have all these new Enterprise products coming, new Starter products in. We have some guesses on where these are going to break out and where is ASRPC going to go, but it's going to be a little bit hard to predict. What I know for sure, I'm pretty sure for sure, is that revenue's going to go up, and margins will go up, and the business will be very good, and the customers will be happy with it. Down below, it's hard for me to predict what ASRPC is actually going to do in the next couple months.
That's fair. Maybe I have one more follow-up. This might even get me on the board, so maybe it's a T-shirt here. When you change the Basic SKU, I noticed something else that you'd introduced, which was a standalone CMS SKU.
Yeah.
You used to have sites. So I wondered if you could just walk us through the thought process of that change and what the CMS standalone is intended to sort of drive toward. Thanks.
Yeah. You want me to take that?
Go for it.
Okay. Yeah, we used to have.
Do you want me to draw?
I don't need it, actually.
Sorry.
Okay.
Is this the point where?
Drop the flywheel on there.
I have to tell you something. There's a little bit of a contest going on. The first person who gets you to draw on the whiteboard gets a T-shirt, just so you know.
Sorry, Ross.
I'm a big Ross MacMillan fan.
What was the question? Oh, CMS.
Yeah.
Okay. CMS used to be, it was packaged in as an add-on with the marketing product, and that worked pretty well. What our partners really wanted was to be able to use that CMS standalone, start somebody on the CMS, have it connected with the CRM, and then later they can put the marketing product in. It was pretty much a reaction to what the partners had been asking for. The partners are super psyched about it. They want to be able to stick somebody in a sandbox with that CMS, have them use it, play around with it, build their site, and then come back later and connect with other stuff.
The way I think we compete with that, and the way we can win with that, is that CMS is priced in a reasonable range, and then you combine it with the free CRM, and that's a very powerful solution. I'm excited about where that goes. That's an interesting area of opportunity for us.
Hi, Rakesh Kumar from UBS. You have long been an SMB-focused company, but over the last 12 months or so, you have added lots of new features and functionality in your product set and expanding your product set, which makes you a company that could be used by enterprise customers as well. Over the next one or two years, do you anticipate getting more into the enterprise and competing with larger vendors like Salesforce or some of those guys?
That's a good question. The way I would Okay, I'm going to give him the T-shirt.
Yes.
Well done. Well done. Here we go.
Here, deliver that T-shirt for us.
Hello. The way I think about the products is we got our enterprise layer, we have a pro layer, and we have a starter layer. This pro layer is where 90%, historically, of our effort has gone in. Can you see the whiteboard back there? The pro layer, frankly, is for companies, let's call it between 20 and 200 employees. If Michael Porter were analyzing us, he would give us, call it an A, in our product market fit there. Our product's perfect for a company of that size. They're very happy with it. What's going on with the starter and pro products is we wanted to get people earlier between, call it two and 20 employees, and let's call it before we were C, we're going to try to get to an A there. These are rough grades.
In the enterprise, we hadn't invested really anything in the enterprise from, call it 200 to 2,000. Maybe we had a C or even a D. We're trying to get to an A there. What we're not doing is working on 2,000 plus. The word enterprise to us really is this. The word enterprise to us is mid-market for Salesforce. That's really what it is. We're really trying to strengthen here. 1, we want to win accounts in here. There's lots and lots of opportunity there. 2, we want to start with somebody down here and not have them outgrow us and go pick another platform when they're 200 people. That's what we're up to.
Thanks.
Hi, Scott Berg with Needham & Company. Kate, you had brought up an interesting statistic there around LTV to CAC and the changes since the IPO. Given that the company's very different today than five, six years ago, because you have more products, you sell into different customers, you got a freemium model, et cetera, can you help break down the drivers between that? A secondary question on that is, given that the freemium product has a lot of support costs, but it's a driver for new paid customers, are you taking the costs of that that are probably in the COGS line and adding that into that calculation? Thank you.
Great question.
Yeah, it's a great question. The good news is I have a smack team in the back from FP&A, who has dug into unit economics beyond anything that I have seen before. We actually did a complete revamp of the calculation of the LTV to CAC over the last couple of years, as the company has gotten more complicated, to take into account all of the factors that you are raising. We have actually seen over time that both the LTV and the cost to acquire have come down as the portfolio has expanded. We have tried to take into account that there are some portion of what we would otherwise call R&D that really is part of the customer acquisition cost. I think we have tried to take all of those things into account.
I think there's a bit of a summary in the presentation that will end up on the IR website that gives you a view of how that calculation actually works.
The drivers, actually, is it just purely each number's moving down in an appropriate manner? Are you selling more products? Do you have
Well, I would say the biggest changes in the overall drivers are, one, the freemium motion is obviously the biggest thing that is going to lower the cost of acquisition. It's the cross-sell that has been the biggest change in sort of the opportunity, once a customer becomes a customer, to grow over time.
I would just say maybe two things to that. One, as you think about, you mentioned support costs. Our free customers, the folks just using the CRM, we use our own product, and we provide them a knowledge base, and that's how they get support. When you get to the Starter tier, they can file tickets with email, but they still don't call us. We don't answer on the phone. Then it's our pro and Enterprise customers that can call us on the phone. We do manage that somewhat. The other thing I would just add for color for that is, if you could magically, of course you can't, segregate out the acquisition, that freemium acquisition funnel, and just look at customers who bought Marketing first and then eventually bought other products, I guarantee that that LTV has gone up while the CAC would've stayed relatively consistent.
What's happening is we have a bunch of new customers that we're acquiring at a lower
cost, and that's awesome. Then they have a lower LTV, and only a portion of them become the very largest customers. In some sense, when we talk about Starter, I think about Starter as part of that freemium motion that we're developing.
Hi, thanks. Alyssa Johnson, KeyBank. I wanted to ask a little bit around artificial intelligence. I had attended a session earlier today that was packed. It seemed like a bit of a change relative to the last few years, which is interesting given your SMB market. I was hoping to just try to get a sense of how big of a priority for you is that, and then maybe within your sizing of customers, given that it seemed like a lot of the AI functionality is put in at the top. So, what extent you think you could leverage anonymized data or whatever to get good AI for really the true small business as well?
I'll take this. A couple of things. One is we've made significant increases in investment in our AI team overall over the last year or two. Our approach, because we're an SMB, is actually different from other companies that have talked a lot about AI. Our approach is more applied AI, which is we don't need our customers to necessarily understand what artificial intelligence and machine learning is.
The way we've approached it is our AI and machine learning team goes across the entire product and talks to every product manager, say, "Let's go through the list of features that you have, and let's figure out where machine learning might make this particular feature better, either more efficient or reduce the work for the customer or do something automated instead of manual." We have this long backlog of here are the things we could do that apply AI and ML to our customer base. That's going to kind of continue to be the strategy, which is not sell AI ML as a particular thing or brand it or have large implementation projects, is to just make the software better based on available technology that we have now. That's proving out to be pretty good.
There's lots of opportunity across the marketing, sales, and service to apply machine learning. We do get the benefit of folks that are on the enterprise sector to see, okay, well, here's where people seem to be investing money. I'm personally very excited about it. I think two, three, five years from now, it'll be a little bit like the web was. Back then it's like, oh, if you could build a web application, you were really cool, and it wasn't that nice. It's the new thing. Three or five years, ML will be baked into every software company. There won't be software companies that don't use machine learning. They may not talk about it, but it's going to be baked in, versus sprinkled on. Yeah.
Baked in versus sprinkled on. Right now I just came up with that?
Yeah, that's awesome.
Sprinkled on.
I wasn't thinking about cake or anything, Brian. That was just coincidence.
Oh, okay.
Probably time for two more questions here.
How you doing? Josh Bennett with Weatherbie Capital. Wondering if you could talk, you're now moving up into the enterprise. You have a pretty full product offering across the enterprise. Prior to having this, you were losing customers who were kind of getting to the point of maybe kind of growing out or graduating from HubSpot and moving on. I'm wondering if you can give us, as investors, any sense of the number of customers or how much revenue you were kind of losing that were sort of graduating beyond. Now, in doing those kind of exit interviews with those customers, how much of that need are you filling with the current enterprise product versus where you might get to two or three years from now? I'm trying to get a sense of, you had a leaky bucket, now you've kind of plugged those holes.
How much does that help you?
I don't have the exact number on it, we would lose customers to Salesforce and to Marketo, companies like that. There was a relatively clear list of enhancements they wanted. You can see them. You go to ideas.hubspot.com, our customers vote on them. It wasn't a stretch for us to figure out what to build. Christopher showed a bunch of them, like formula fields, like cross-object reporting, some stuff that enterprises would want. We ticked a bunch of them off. The reason for leaving HubSpot, that list has gotten much, much shorter. Hopefully they'll stick around longer. Hopefully, too, in the group that sells here, we're winning more deals against these folks, there's a double win to doing it. I would also just caution, that word enterprise, we use the word enterprise. Sometimes I cringe a bit at that word.
Most people would call 200 to 2,000 mid-market. Salesforce would call that mid-market. Oracle would call that small business. We're way out of the range of where, let's say, a GoDaddy lives or a Mailchimp or a Constant Contact. We've lived traditionally in that 2 to 200. We're moving up a little and down a little and really filling out the full product offering. I hope people stay longer. I think they will, and hopefully they'll buy the whole platform up front or eventually buy the whole platform. I think today's maybe the biggest day in HubSpot history with all the stuff we've announced. You saw how much we increased R&D investment this year. We got a lot of questions about. This is the return, a whole bunch of new products, and I think our customers are going to absolutely love them. I think it's going to help a lot.
Follow-up from Dr. Murphy?
Thank you. Dr. Murphy, I like that one. I was thinking about trying to tear apart the growth rates of the business, Kate, you gave us some really meaty new disclosures today. I was thinking if sales is $50 million and it's growing 100%, say it grows 100%.
North of 100%.
North of 100. Right. If it slows down to 100%, I realize it could slow more than that, but you'd get about 10 points of growth in the aggregate business, right? On a $500 million run rate. Marketing, you said, is growing around 25%, I believe.
Mid to high.
Mid to high 20s.
Okay.
I see where you're going with this, by the way.
I'm conservative, I'm undershooting
I think you're going to get to like 75% growth next year.
Even if it was 20. Yeah. What do we think? 75% next year? I was thinking 25%. You add that together, you're at 35, right? You start thinking, well, but could marketing is bigger. Does it decelerate? Does it accelerate? Because you have all this new high-end functionality. Brian, you're talking about kind of the leaky bucket concept. You're losing less to Salesforce and Marketo. You're winning more head-to-head against them. I'm not even kind of commenting on service, right? Because I guess I just figure it's $2 million in ARR. It's kind of a rounding error, right? For right now.
Any comment on just how to think about that overall framework as we move into next year?
Let's make Chuck answer that.
I was hoping, I was thinking Dharmesh Shah.
Thank you all for coming.
Yeah. Anyone with dad pants can. No skinny jeans.
I don't know if we can really comment. The business is good, though. We're not modeling the business to all of a sudden slow down. We just made a bunch of investments.
Yeah.
We are feeling good about I can't recall feeling much better about HubSpot. Feeling really good about it. Things are going well.
We give 2019 guidance coming out of Q4, they'll probably stay tuned in that respect.
These are the good old days, Mark.
Yeah. I want to thank you all for coming.
Yeah, thank you very much.
Making this a very successful analyst day. Wish you all safe travels back home, wherever that takes you.
Thank you.