Blackbird – Hubspot COO
Host: JD, let me start off by saying a lot of people in this room I’m sure have read your bio, but I would love to have you introduce yourself with your personal elevator pitch.
JD Sherman: Okay. So my name is JD Sherman President and Chief Operating Officer of HubSpot and I guess I’m a reformed CFO. Before I joined HubSpot I was the CFO of a company called Akamai Technologies for about seven years and I actually grew up in IBM. I was in mostly Finance roles and IBM for 15 years. I’ve been with HubSpot since about 2012. So I joined HubSpot sort of as it was emerging from startup mode. It was about 200 employees about 20 million dollars in revenue and we clearly found product market fit.
We had lots of customers who are interested in using our product, but we really hadn’t found a way to scale the business model yet, so I was particularly interested enjoying and working on that part of the journey with Brian and our Darmesh our co-founders. It was interesting how the the story of my joining was that I got introduced to Brian Halligan our CEO still and founder. He was recruiting a friend of mine to be the Chief Operating Officer and I was doing a back Channel reference for for my friend Chris and Brian and I had coffee and I said he should absolutely hire Chris, he’s a fantastic guy, he’ll be fantastic Chief Operating Officer for you. Couple weeks later Brian called me back and said we decided against hiring Chris. Do you know anybody else who might be a good fit for the role? Who you looking for? He said well, we’re kind of looking for somebody like you so I said, let’s talk and one thing led to another I got really interested and passionate about the mission Hubspot and so I joined.
Just a word for those of you that don’t know about Hobspot we are a marketing and sales and now service software company. Our mission is to help millions of organizations grow better and I always say that because it’s important to like we spend a lot of time thinking about that mission and the parts of it.
So the starts with help, so we’re obviously a software platform. But we also want to provide people and a methodology for companies to grow. Millions of organizations is really important to us because we’re not focused on the Fortune 500. We’re focused on the millions of small and medium businesses all over the world.
And grow better is really important to us our observation is that the way people live work shop and buy as fundamentally changed and it’s impacted the way we should market and sell and service HostH and it’s really important to do that in a healthy way that drives sort of durable and sustainable growth and turns your customers into promoters and your best route to Market.
So that’s sort of the story of HubSpot. We’re now a public company we have about 500 million dollars in Revenue about 50,000 customers.
Host: Fantastic. So one of the things that we always joke about in our COOs Forum is that COO stands for chief of other all of our roles are totally different but love to understand little bit more about what your job actually means.
JD Sherman: Yeah, that’s exactly right. I always give a talk to our incoming. Employees where I give them a quiz, I put a slide up at the titles Chief Executive Officer, Chief Financial Officer, Chief Operating Officer secretary and Treasurer in the question number one is which of the following roles is not required for a company to have as public company.
Of course, the answer is Chief Operating Officer and the next question I ask is which of the following roles is the most important in the company of takes the most courage and ingenuity. And of course, the answer is Chief Operating Officer What I have experienced by like you have is that I’ve talked to lots and lots of Chief Operating officers and the the scope of the role that the sort of actual scope of they’re always very sometimes it’s mostly a go-to-market role, sometimes it’s mostly an internal operations role. My role is a little bit broader, It’s almost sort of both of those and the way I try to describe my role to folks is I there are sort of five questions. I feel like I’m responsible for answering and make sure the answers are good for the company and I literally sit down every Sunday night and think about these are the five questions I have to make sure our guiding my focus.
The first is is the company vision and Mission sort of well-articulated. Now I feel like Brian is Darmesh our co-founders probably have more at stake in terms of what that vision and Mission is then I do their kind of the owners of that. But I think my job is the chief operating officers to make sure that the company fully understands and is driving toward that mission
So the second question is then do we have a plan a credible plan to achieve that Vision or Mission or is this plan not ambitious enough or it’s not we’re not focused enough.
The third is an obvious one. Are we executing well against that plan if we are great. If not, what do we have to do to change our execution?
The fourth is do we have a team in place that’s going to help us help us achieve that execution and is that team really well aligned? And of course, that’s the hardest one because when you have to make team changes that can be really tough and disruptive on the business.
And then the last is do we have a culture that’s going to inspire that team. Help us recruit and attract and help our employees do their best work. So I think that’s sort of the role of a chief operating officers to make sure that the operating system of the company if you will is working towards driving the company towards achieving its mission.
Host: fantastic. So you joined HubSpot a couple of years in operations. It was already going business and you joined as a new member of the team. What was it like in those early days?
JD Sherman: it was, you know, very fast paced. I think one of the things that you guys are probably all observing and startup world is you have to move fast.
You have to be willing to make mistakes and constantly sort of iterate and learn and change directions. All that kind of stuff and that’s the way HubSpot operate and the interesting balance that we sort of had to navigate was as we were coming out of that sort of find your product Market fit mode and into a find a scaling mode is you have to stop you have to start thinking about these decisions we were making will they actually scale are we putting we’re making decisions and putting things in place that will actually. Survive not when we’re a 200-person company, but when we were at 2000 or 20 thousand person company and at the same time you want to keep that sort of nimbleness. You want to be want to keep that you want to keep that quick reaction time and you want to keep your culture one that people aren’t afraid to make mistakes.
People are actually rewarded for discovering mistakes and bringing mistakes to life. And so the big challenge for me when I joined because I came from mostly larger companies and I’m certainly more of a scale-up guy than a start-up guy was to find that right balance and what I found in my early mistakes was I always pull this a little bit too fast too far towards conventional wisdom and slowed us down. That was you know, even in the stage we were in as a company that was harmful to our growth so finding that right balance was always the hard part.
Host: Right and those five questions that you mentioned earlier. Did you bring that with you at the start or did you evolve to understand the importance of those questions and how to use them over the last few years?
JD Sherman: I think it’s over the course of the last few years. Those were not the most important questions when I joined the most important questions were do we have a sort of a durable business model that’s going to allow us to start putting the bets in place that will turn us into the big company that we hope to become.
Host: Great and you mentioned earlier the process of meeting the founders and supporting them to find someone else and then ending up taking that role yourself. Can you talk a little bit about what it was like to come into the business from the outside and earn that trust with the founders and develop that relationship.
JD Sherman: Yeah. Well it’s that was actually the thing that I thought the hardest about. And I would say for review startup leaders who are either considering hiring a chief operating officer or if your Chief Operating Officer coming into a company that relationship is absolutely critical. It was the you know, I spent the most time in my process of interviewing with HubSpot trying to figure out if Brian and Darmesh and I were going to be a good culture mesh and a culture fit. I told the story at HubSpot earlier today. I did a couple of interesting things one was I took Brian to a Boston Celtics game basketball game and we spent three hours and I just had to figure out is he a guy I can sort of deal with it turns out we had a lot of the same sort of share things.
The other was Brian and his partner and Darmesh and his wife and and me and my wife we went out to dinner and I told my wife I said your assignment tonight is to study the way Brian and I interact and figure out if we can actually work together as a team and so I was like, you know, we had a great dinner had a great time. We were all laughing. I was expecting this huge ringing endorsement we get in the car and my wife says I don’t know. I’m not sure but I did spend a lot of time thinking about it and it is the most important thing is the sort of relationship between the founders and the sort of leadership that they bring in those early hires.
We had a similar experience shortly after I joined we changed out our CFO, we started to hire a CFO that can help us achieve our goals of being a public company and it was the same kind of thing. We wanted mostly to make sure that this person was going to be a culture fit was going to gel with our culture was not going to pull us in a direction that we were going to be uncomfortable with was strong enough to speak up in that context.
Host: Right and can you talk a little bit about how you felt that relationship changed over the last few years?
JD Sherman: Sure. I think the vision that we had early on was that there’s there are these two distinct roles. One role is CEO founder Visionary, big big picture strategy talk to them understand market dynamics, you know set the direction for the company and there’s another role that is adult supervision if you will running the systems and processes every day and making sure we do that and it never were that doesn’t work that didn’t work for us to have those rolls be totally separate. So what the dynamic that we sort of ended up settling in on is sort of an 80/20 Dynamic. Brian’s 80% strategy and 20% operations and I’m kind of the vice versa and that made thats the formation of a really good partnership to Brian’s thought we were thinking about strategy and vision and he’s the very best at that I’ve ever worked with but I have to participate in that in order to have the connection back to the operations. And then also, you know, I can get my optic I can focus on the wrong things and sometimes lose the big picture because I’m in a lot of the details and data every day and Brian everyone smile has to jump in and help realign that focus and neither of us can have thin skin in that world. We have to be able to call each other out.
Host: Right. I’m really interested to hear about what you brought with you to help spot from your experience working in big companies. I mean by the end of my their companies that are many times bigger than our markers of success being a unicorn size startups. What lessons did you bring with you? And what was the most important thing?
JD Sherman: Yeah. Well, I had a finance background. So like if you think my the actual ability that I have is like understanding how businesses work from a financial standpoint and budgeting and sort of corporate finance and that turns out to be really really important now you can you certainly need to have a Chief Financial Officer who brings that to the table as well and in sometimes in some situations, I’ve talked with companies where the chief financial officers almost like a COO in and of themselves, so you know, there’s that sort of one way to address it. But again, it’s that push and pull what I think I was able to do and it probably wasn’t from anything I learned at IBM certainly was balance that sort of discipline you have to have sort of risk aversion from a COO perspective to the big picture thinking and sort of mesh those two things together and it’s again mostly lessons I learned from mistakes that I made in the past. Like I think a couple times in my career I’ve seen a company grow and get to successful too fast and then get really conservative. I learned lessons from that that you have to be careful about not being not getting too conservative and sort of playing we would call it in the United States for American football prevent defense where you get a big lead and you just your defense backs up and starts to let the other team catch up because you’re just playing not to lose.
So balancing sort of the discipline around running a business with the avoiding the Temptation would not to lose I think playing not to lose I think that was the key.
Host: Yeah great such an important lesson. What was the biggest sort of I don’t know the biggest difference that you notice between working in a big company and working in a start-up.
JD Sherman: Yeah. So the day I left akamai to come to work at HubSpot. It’s all the same day by the way because they’re right down the street. They’re literally right down the street. I left for the last time my office which was a beautiful office very quiet. My assistant was outside making sure that nobody would bother me during the day and stuff like that and I walked down downstairs there and up the street and to HubSpot and it was like walking into a beehive people flying all over the place and you know, nobody has an office there. We all sit out in the open and on open desks and it’s just a totally different environment and you know on the surface that’s obviously a very striking difference what I think what I’ve discovered the difference is in the important difference is kind of one word autonomy, like in the companies where I worked before employees didn’t have a lot of autonomy.
You know, we certainly had great employees that got a lot of stuff done but they’re there they had to sort of work their way up into the system to get anything done. Whereas at HubSpot. The culture was giving employees guard rails like understand. Hey, here’s the mission. Here’s what we’re trying to get done.
Now you go figure it out and you can kind of almost do it any way you want. Driving that autonomy was really that was a big difference with us. But we’ve really tried as a scale up as an hour 2600 person company to sort of maintain that approach the the downside of that of course is you make more mistakes put employees make bad judgments, but we kind of have this sort of Matrix the way we think about decision-making in HubSpot is on one axis. You have how big of a decisions this is it’s like am I betting the company or is it not really that big as it’s a betting the company might be like a new product launch not big that big a decision is should I have a team off-site right on the other axis is like is this going to be a really hard decision to roll back or is it going to be an easy decision to roll back?
So like shipping new software is a big thing, but it might be pretty easy to roll back. Whereas, you know choosing a new accounting system is not that big of a strategic thing, but it’s going to be super hard to roll back. And what we did is we said the only decisions that we want executive involvement to go really really deep in are the ones that are both company bedding and hard to roll back.
And so that was sort of our sort and then he telling employees like look if you make a mistake and we can roll it back. Then. We’re just going to consider that a lesson learned and mainly we’re going to say congratulations. You just got an education. Can you like learn from that? But the rest of the time we want you to go and sort of have lots of. and then that makes our world as Executives really focused on the big decisions that matter and so, you know that that discussion can go one of two ways. It can go like wow, there’s a lot of decisions that seem to be rolling up into this corner. There’s a problem with our Focus or something like that or it could be.Wow. Nobody’s come to us with any of that kind of stuff lately. Like why are we not being more aggressive?
Host: That’s great. Do you have any advice for people in the room who might be looking to bring in an executive or someone from a big company to help ease that transition from polished office to be higher?
JD Sherman: Yeah, I would say there are certain things. I would say one is make sure you’re ready for it and two is make sure that person is going to be a additive to the company culture rather than pull It in a negative Direction, I think those are the two big things, you know, you can if you go there too early it’s going to potentially slow down your decision-making process If you go that if you bring in somebody who has like a set play book and is only focused on look guys, I’ve run big companies I’ve run, you know, multibillion-dollar organizations. You got to listen to me. That’s probably not the sort of a culture that’s going to fit as you’re making that transition from startup to scale up.
Host: I might just take a step back here because I just reflecting on the fact that so many of us in this room are at the stage where we’re looking to scale a few of us who are sort of already in the scaling Journey. But how how would you define the difference between being in a start-up and being a scalup?
JD Sherman: Yeah. I think the simplest thing is you’re in a start-up if you’re still trying to meet a customer. You still trying to find out do I have a product or service that’s going to Delight a set of customers and you’re still trying to tweak that and then you’re you’re in a scale up. If you’ve gotten to that point and you want to start bringing that to hundreds or thousands or millions of customers and that’s when you know the business model sort of supports that mission. That’s another interesting thing that we talked about a lot at HubSpot is like if the first goal is I just want to like have a business model that makes millions or billions of dollars. You’re probably not good that’s not kind of company that we were interested in creating.
What we wanted is like we have this really interesting idea that we want to take to millions of customers in order to do that. We have to have an effective business model that scales. We have to have an acquisition cost that allows us to acquire lots of. customers and then we have to profitably Delight them in a way that allows us to keep going.
Host: So what are the markers that people would look forward to know that they’re ready to take that step
JD Sherman: Customer feedback is probably the biggest one and the truest thing for business like ours where software the service the truest sign of customer feedback is our customers sticking around are they you continuing to use your surface service like the first measure that every.
That every business should focus on in my view is customer Delight customer retention and NPS and retention. You can get your self you can fool yourself and I’ve seen a lot of startups do this into feeling really good about your business if it’s growing fast early on but still has a horrible churn rate if your customers are sticking around because in the early days, you can grow really fast with a horrible churn rate the bucket you’re trying to fill is not that big.
So if it has up at the bucket has a hole in it.You’re still going to be feeling that bucket. But when that when you become a hundred million dollar company or a 200 million dollar company if that bucket still has a hole in it. Your growth is really going to suffer and that’s going to mean you’re not going to have the investment levels that you need to keep fueling the business could be fueling your RND.
Host: And how does your role as the Chief Operating Officer change from my journey from start to scale up?
JD Sherman: I think the biggest thing is it goes from sort of tactically Hands-On roll up my sleeves managing a lots of sort of micro decisions to really building a team and making sure that that team Is aligned and focused on the gold and we talked about Vector alignment a lot. Like we want to make sure all of our vectors are aligned. When asked about the five questions. Like that’s the that’s the one that has evolved over time. And that’s the part of the job that gets hard and you know, the traditional way to ensure alignment in a bigger and bigger company is to put in a really tight org structure type hierarchy.
I don’t think that’s the way to grow if you’ve been successful as a start-up because it’s just such a such a different path that you’re headed down. I think the right way to do it is with a culture that underpins a strong operating system with autonomy and you know alignment,
Host: And as a leader in the business, how do you Foster that across your management team and the other parts of the organization that influence that culture?
JD Sherman: Yeah. So we have a technique that we call our M spot. It’s a the most important document in HubSpot. It’s a one page Google slide and M spot is a is an acronym so m stands for Mission and our mission as I said, it’s helped millions of organizations grow better and that very rarely changes. We’ve tweaked it over time to sound better.
Basically s is serving it’s reminding you who your customers are and for us. Customers we also have Partners we have employees and now shareholders that we have to worry about obviously.
The p is plays and it’s the three to five things that you’re working on and as a company that you want everybody focused on you want everybody asking your themselves if what I’m working on is not one of those plays like why am I working on it?
The O is really important to its omissions. It’s all the cool stuff that you talked about and decided not to do. Like you put it right on the document because the hardest thing for a business growing like our startup is we’re more likely to die of overeating and starvation. Right? So you have to be sure that you’re not, you know eating at the buffet of every good idea.
So the omissions are super important and then T is Target’s like what are the metrics that we’re going to care about and really try to move this. So we spend a lot of time probably in an inordinate amount of time trying to nail down this document and then we Cascade it down a level or two in our organizations that we you know, our product team and takes that and says okay if the company m spot is this in mspot is that and then that helps us get a lineman and then when we come across some hiccups and bumps we can go back to that documents say where we where did we go wrong?
Host: Great, and as you’re thinking about that Journey from being a start-up to being a scale of how do you make those trade-offs between growing faster and growing better between doing things right and getting it done?
JD Sherman: Yeah, that’s a great question because it’s growing faster. You can pull some levers that are just not playing durable and I think that’s why you have to sort of stick to your mission.
Like what is your mission here?.You know avoid making do the right thing, even when it’s the hard thing it’s hard to say but that’s a mission and a culture is what what is required to pull those kind of things off another good that goes back to the question you asked me before which is when you’re looking to bring in an external executive or leader to help take you to a scale up, you know, make sure they’re passionate about the mission and they’re not just passionate about you know, Quickly turning the business into a growth engine or a profit engine because that’s not going to end up being durable.
Host: Can you tell us about the time where you and the team at HubSpot had to make that trade-off?
JD Sherman: Yeah, it’s one that I’ve shared publicly a couple times, which is we early in the early days left. So I we had a horrible turn problem as most software. And one of the things that we did to solve that term problem was we created an account manager role to manage our customer to try to talk them out of Journey.
One of the tools that our account managers had to do that was frankly ownerís terms and conditions in a contract like, you know, you’re in an annual contract and your renewal you Auto renew. And so that was the situation. And so I was talking one day to one of our customer success managers. That’s what we call our account managers and just having to sort of a skip level conversation.
And how’s it going? We’re not doing well, like just tell me about her numbers and everything like that. I’m like, well you had a really good month and she’s like, yeah, but I don’t feel great about it and I’m like well tell me why well, she said well, you know, my goal is revenue. You know, I started the month with $100 of customer retention.
I got to try to get it 205 and I was having a tough month and a customer came up and they had a big renewal and their pricing was going to go from make it up $10,000 to $15,000 cuz their contacts had grown or and a bunch of other things that happened, but that customer was struggling and they called me up and said I need to adjust my.
I need a downgrade because I can’t afford this fifteen thousand dollars and she said oh, well, you’ve sorry you missed your you missed your renewal date the contract auto-renew. So you owe that for another year and then went back and forth and said, well, what did you do? She said well, I was having a bad month.
I had to hold them to this and I said well, what are the customers say? And he said she said the customer said to me you got me on this, but after I renew I don’t ever want to talk to you. And I’m like that is that what we want that’s definitely not what we want. And so what what we saw there was we created an incentive.
It was an actual to weigh. This customer success manager got paid basically encouraged her to give that customer really sharp edge. So we change that incentive and it also made us look at all the other incentives that we had in the company. We now start we started to look at the incentives of our sales people.
Who obviously they got paid when a customer signed on the dotted line we change that so that they get obviously still get paid their salespeople. We need them to get paid when a customer signs, but they also now get either penalize the rewarded based on the debt customer stick around and grow and that’s a big part of their of their incentive now, so getting those incentives aligned to make sure that there’s nothing that you’ve you know, obviously we didn’t mean to set up a situation like that.
You know, sometimes you have to be really careful with the incentives you can put in place and how do you think about things like incentives in terms of things like that where an experience clearly points to you that you’re incentivizing the wrong behaviors versus having those regular reviews where you look back at them on an annual basis?
I think it’s pretty straightforward. Actually. You just want to align your employee success with your customer success. So you want your employees to feel happy and rewarded when your. Are successful and you want them to feel awful and your customers are not successful. So I would die would say what we’ve done and we’re not perfect but we’ve gone to take an inventory of all the places where maybe we put our employees at odds with our customers.
We called it the sharp edges. We like said, let’s find all the sharp edges in our process and some of them were still fixing because they’re sort of structural with our billing and everything like that. You know, that’s a great exercise that anybody can go do with their with their company is like let’s just soar do an inventory of all the sharp edges of all the places where we’re adding friction to the way we deal with our customers.
Host: Great. So one less efficient made that I’ll turn it over to the floor. But if you could give one piece of advice to yourself six years ago to those of us in this room who are just starting to look out for that curve. What would that be?
JD Sherman: Let’s see. I got to ask this question at HubSpot earlier today and I gave kind of a personal answer which was you know, make sure that you’re balancing your work and your life because when you’re not it’s going to be miserable for both your work and your life.
That’s probably not the answer that you guys are looking for in terms of like a business lever, but I’m going to stick with it because the most important thing when you are rapidly in scale-up mode is things are going to come at you fast and if all you do is sort of dive into their you’re going to miss the big picture.
So I actually encourage people to put folks that work for me when times get really really tough and I see them get super stressed. Like why don’t you take a step back? Why don’t you take a day off like sort of absorb? What’s. Go spend time with your family or your partner or whatever and that really pays off.
The other thing that’s sort of related to that was the best piece of advice I ever got from a mentor from in. My career was from the chairman of Akamai were weather for one day. I was in my office and I was like, I was in total stress mode. We’re trying to figure out some issue and it was you know going to impact.
And George came in and he said what’s going on and I started to say, you know, wring my hands. Oh, this is happening. I don’t know and you know, Joe says this and John says this and I like and he just stopped me. He said okay Sherman. Listen, your job is to take all of that uncertainty and passed down Clarity to your.
And then he just walked out of town. Thanks for that. One is I want to be the chairman who just gets to walk out of the office and to that’s pretty good advice like your team is all waiting for clarity and to the extent that you can’t pass that Clarity down to them. They’re really going to struggle and that’s going to be on you honestly, and I thought that was a great piece of advice.
Host: Who’s got some questions.
Thanks for your time. I wanted to ask you about the business model, you know, you mentioned that he thought it was really positive when you joined. What what is it about how to solve this this model that you think is so powerful and work so well.
JD Sherman: Yeah, so I think so. We’re going after mid-market companies small medium businesses.
The good news about mid-market companies is there are millions of them. It’s a huge Market. The bad news is they’re super hard to reach because it’s not like you can get a list of small and medium businesses and go give them a phone call. Fry you have to pull them into you and it’s not like you could and you have to do it in a very efficient way because the the lifetime value of a small and medium business is going to be a fraction of the lifetime value of signing up General Electric or Ford motor or something like that.
So I think the business Model Magic that we have is our ability to reach mid-market companies and for us that’s three things one is inbound. Great to talk about because it’s what we kind of teach our customers to do but inbound marketing is about not about the size of your wallet is about the size of your brain.
You create remarkable content you draw a custom companies into you and you convert them into customers. That’s a very effective way to do it. The second is we have a big partner Network. So three or four thousand small and medium-sized agencies Marketing sales agencies that help customers. Built help mid markets businesses grow and they use HubSpot at the platform to pull that off and the third in a relatively new channel for us is we have a freemium model so you can start with HubSpot software for free with you can adopt RCR sign up for RCM start using start getting value before we expect to extract value from.
From and they end up advantage of that approach is a really brings our cost of acquisition our cat down to a level where we can really scale into mid-market business. That’s sort of the business Model Magic. I think we’re also that aligns really well with our the approach that we take to building a product as an all-in-one product, but that’s sort of the model aspect.
At least in a lot of good things about working hard with their family in European. What would be the worst thing about working at house?
JD Sherman: I always joke that for weren’t for all these employees. I would love my job. I think it’s a it can tend to be a high-pressure environment of when we expect a lot of our out of our employees when you give a lot of autonomy expect a lot back.
And so my guess is and from talking to employees like you can stress out a lot. So that’s why we like we gear a lot of our sort of culture towards sort of trying to balance that stressed out like we have a sabbatical after five years. We have unlimited vacation everything like that. So but it still takes it still takes a you know, you have to be ready for that type of.
Host: What size was hopin you reached product Market fit revenue or people
JD Sherman: I am get so I joined in 2012 and we were about 200 employees and had about 3,000 customers. I’m guessing that we’ve probably found product Market fit about a year before that. So we probably had let’s call it a thousand fifteen hundred customers.
That’s when we started to say. Yeah, this is going to work. Now. The product had to be sort of totally revamped, you know, sort of version. One of the product was good, but not robust, but I think at that point we realized that this this is going to work. and then.
Host: So I work for a start up recently gone through a discussion on a COO of over since GM to different business lines..Is that a topic that I ever came up at Hubspot .So why did you decide to stick with the CEO of yeah. Yeah.
JD Sherman: That’s a good question. In fact that topic comes up in terms of the way. We think about our sort of org chart in general. So we at HubSpot even though we have three product lines now and arguably a fourth with our platform.
We are still functionally aligned. So we have one sales team one marketing team one product team Etc. Now the product team breaks up by by sort of sub function underneath there. And the way I always think about that is there’s sort of two orgasms one is a functional design and then the other is like a matrix with GM’s right and no matter what and Company switch between the two all the time and basically what.
Every time you pick an org design you solve a bunch of problems and you create a bunch of problems. So like the organization we picked it solved the problem that I thought was really important, which is one face to the customer. Wanted to make sure that we had one that’s a big part of our value proposition for small and medium businesses.
The problem that it causes is the functions getting out of alignment as we have multiple products and everything like that and trying to get. The quest the reason that we decided to stick with the model we have as we ask yourself which of those problems is our culture most likely to be able to address without an orc, you know supporting it and because our culture is like we’re pretty good with alignment.
We’re pretty good with transparency and. Setting guardrails and everything like that and said, let’s take the risk on our ability to keep the whole company a line rather than create a, you know, a bad experience in front of our customers with multiple products.
Host: Thanks, JD. You literally just hoping gold nuggets.
I have a question about if you can remove moments during your relationship with the CEO where you felt like you know, they were bottleneck in the core of the organization in some way and just how you dealt with that and also, how do you stop yourself from becoming that bottleneck?
JD Sherman: Yeah. I actually think more often I was at risk of becoming the bottleneck.
I think and this by the way, this is like would say healthy Brian and our mesh are more likely to push us so fast that the engine burns out and we spin out of control Wild. Whereas I’m more likely to say hey, come on, let’s let’s make sure that this plan we have is executable and sometimes that can be that can be the bottleneck and sometimes we don’t move sometimes I win that argument and it turns out we aren’t moving fast enough.
I can think of a couple of times if that’s the case. I also can think of some times where we move too fast and really, We really bit the bullet on that. So there is no solution to make sure that you’re going to make that decision right every time but you have to have is an operating system and a culture that says when I make those mistakes, I’m not going to be defensive about it.
I’m not going to hide it. I’m going to go bring it right out in the open and say guys, I think we’ve made a mistake here. We need to fix and be able to do that. The the joke. I always tell internally is that mistakes are like potatoes. Like if you bury underground they grow more potatoes and then but if you dig them up, you can make a lovely potato salad or something like that.
So you have to have a culture that’s like okay, I we’re going to try this and we recognize that it might be a mistake and I’m okay with reacting to that if you like I’ll be I love the IBM. I worked there for 15 years, but making a mistake it IBM was deadly as lethal to your career. And so what did IBM do didn’t make a lot of mistakes?
That’s for sure. But it also grinded along and I don’t think that’s the way it might make sense for a hundred billion dollar entity, but it’s certainly not the way to run on Startup or scalup.
Host: Just interested in your thoughts around. I guess this almost myth the founder should be the CEO when they’re very two different skill set. So working with Brian and seeing him go through the start of the scale of Journey. But what point does he transition into professional CEO? I guess having never done this before interval supporting him through that.
JD Sherman: Yeah. That’s a great question. I think Brian has done an unbelievable job of transitioning to a public CEO and I think. It’s because we’re he was able to define what is good at what I’m not good at and vice versa. I think we’ve all had to do that. But that’s really really important. If you’re a you know, sometimes I start ups I think the fault of a start-up CEO is they feel like they have to be involved in everything and early on they probably do but.
That’s not going to scale when you get to a level of you know company trying to grow very rapidly. And by the way, like some people are very uncomfortable. There’s a legendary investor Ben Horowitz you guys know Andreessen Horowitz, of course who has a very strong opinion about a company that takes its founder out of the CEO role in hires a professional.
Manager to be the CEO his view is no that is a bad idea because no professional CEO is going to come in and swing as hard and think as big as the founder and you know, he’s probably got a point to but there’s somewhere in between there where if you can find the right sort of balance and partnership you’re going to you know, you’ll be successful.
Host: You swing a little bit of about the importance of emissions of what you do you want to come in for p talk a little bit about kind of your prioritization process and what you have decided to see before not yeah.
JD Sherman: Sure. I can do that. So I was always telling job before that big fisherman. They why that’s important.
So we had our prioritization process is called tuna season. So Tennessee There’s an inn where we are in New England. There’s a certain part of the Year where the tuna are up in that area. And that’s when you kind of stop all the other fishing for really small fish and everything and you go out and try to catch a big tip.
And so I call it tuna season and what we do is we we we have this process where for most of the year we are kind of tight to our mission like we have we have then we have our big event called inbound and. In Boston every year then we take like 45 minute break and then we allow ourselves for about a month or two to really oscillate and what we’re going to do like throw all the balls back up in the air take all those things that were in the Omission bucket and put them back on the list.
Take all the things that everybody’s dreaming and put it back on the list. And then as a management team we spend and by the way as the cro like I’m under my desk like curled up in a ball and it’s scary period of time but as a management team, we sort of roll around in it for a while and we allow ourselves a certain amount of time and then we come out of it with a list that we all whether we agree to it or not.
We all commit to the result of that list. So we kind of have as a great question because you I think you have to have a really formal. Hash through that as a company and that’s worked really well for us.
Host: so being the COO I guess we have this idea that he likes that old operations, but obviously there’s life beneath you. So like what is the Australian operations look like. Do you think that with someone else?
JD Sherman: Well, we try to push a lot of autonomy out to the region. So are we have a director of sales?
This is primarily a sales and service office for us. We have a director of sales who kind of calls the shots for Australia and he rolls up to. Our managing director for asia-pac and that’s an interesting because the director of sales is only directly responsible for the sales team. The services team actually reports to a different person.
But when we hire those those roles we expect them to sort of be the quote unquote CEO for the for the ANC Market that they’re responsible for and of course, that’s tricky because if you have the wrong person in there and there. Domineering you know the team that doesn’t particularly team doesn’t report to them is going to push back and say this is bunch of BS.
I don’t want to deal with this person if they’re not assertive enough and they’re not affiliate of enough and they can’t work together. Then the teams will get out of alignment. So I think the answer on that one is like the finding the right person to fit in that role is really the key.
Vision on fishing stories. I’m going to use that one. Thank you very much. And although it’s more pinkish staging ideas and each unit. So they’re not going back in the summer. We tried on Sunday to go out there and there’s a seizure so choppy that I. Scared for my life. So it’s Australian. So thanks to me your
decision maker that the company and content do decision Matrix the stuff you pushing down to the teams for them to think about and move in. Repeated mistakes happen and I try not to because I know it Mormons making mistakes. But how do you strike the balance in that zone where it is delegated and you do get repeating mistakes.
JD Sherman: Actually, that’s one of the things that we teach brought actually Bryan has this quote. They took from the Dali Lama of all places, which. It’s okay to lose but it’s never okay to lose the lesson and so one of the questions that he asks and I’ve taken on from him is like when somebody makes a mistake, you know, you you sit down with them and say that is totally fine.
But what I would like to know from you is like, what did you learn and how can we make sure that we don’t make that same mistake twice and we’ve made a lot of mistakes at HubSpot. Very rarely do we make the same mistake twice? If we do it’s in it’s indicative of maybe if somebody who’s are a team or a process, or maybe it’s maybe it’s you as like I haven’t set the right guard rail or something.
But something is amiss that to me is a sign of a mistake is not a sign that something is amiss no mistakes actually would be a sign of some of the myth but the same mistake twice is a sign that something is amiss.
Host: Hey, you talked and I went around the mission alive admission being really important for your son of energies. How did you actually allow people to Mission in practice
JD Sherman: Yeah, that’s a great question. I think by General observation. Is that the employees we hired today? They care so much about them.
They don’t want to just work at a company that doesn’t have. A mission that they care about but so we spent a lot of time sort of we used our internal Wiki to sort of build the words around that so there was a participation element of it. I think that’s a big part of of doing this the participation element one of the things when we make any decision and HubSpot, we try to we try to not only explain the how but the why.
And so I think that’s a big part of like my talk about autonomy and guardrails. I think a big part of the guard rails is the why why that matters and then that really enables the sub-teams to sort of pull together. So if that’s what matters then I know how to I know how to address this two examples I can think of there are in our sort of ongoing mission to make our like one of our print one of our plays.
Let’s remove the friction from customers starting with HubSpot. It’s our freemium play and we say why is that important? And then we talk about all the reasons. It’s important. And then our product teams is oh, I see if that’s the case. Then there’s three or four things that I can be doing with the way I think about the product that will help move those metrics and we’ll get the signups to to activations number much better will get the activations to team activations much better.
And then, you know, they can build it from from the sort of Bottoms Up. That’s one great example another great example that is another play that we have is diversity inclusion on our teams. Like we had to really not only talk about what we want to accomplish. We want an environment that encourages a diverse and inclusive Workforce.
We had to say the why. And then it seems like say oh if that’s what we’re going for. Then I can change my recruiting process in this way and I can sort of adapt what we’re trying to do. I can change the way I onboard customers. I can change the way I you know describe job descriptions and things like that.
So I think it’s a maybe the answer is you have to do the the what but you also have to do the walk.
Host: Hi, I am Allah from suspension and my question is that the sales and marketing takes stack season has been one of the most unbelievably crowded spaces. What do you think helps? What was one of the big Winners?
JD Sherman: I think it was a it goes back to a decision. We made shortly after we kind of got product Market fit. So we started to have this awesome. Marketing automation project product. Basically, it’s kind of full marketing staff would call it all in one but it was really get found with blogs search social tools and then email and marketing automation to nurture leads.
What a natural decision might have been at that point to take that product and make it so awesome that we could sell it to every Enterprise the world sort of go up Market, but they go deep in other. We instead said no, you know, we don’t do that because we look up in the top of the pyramid and that’s where it’s really crowded.
That’s where there’s a red ocean. There are other guys who are building that sort of that capability and they’re going to there’s going to be a bunch of Acquisitions happening there and Salesforce is going to have a role, you know, a roll of strategy oracle’s going to have one sap is going to have one.
We saw this broad opportunity in the mid-market to create a platform that mid-market customers could use. To compete with the big boys and grow better as we say, so that was a really big decision for us and it changed a lot of the way we thought of thought as a country as a company we had to shift a lot of our resources to our D and away from sales and marketing we had to you know, rethink our go to market model and build a freemium model.
Those kind of things. I think that really was the sort of like defining decision for us that helped us to be you know, whatever success we are now.
Host: Could you can surround through of your round Capital risings the little reporting that does not only that rising and also the impact on customer pricing? As you venture to okay
JD Sherman: sure. So we we went public back in October of 2014 before that. We raise about a hundred million dollars. Our first round are a round was probably 2007 and we raise it like a 12 million-dollar valuation all the way up to an ear and we actually did a Series E with fidelity.
Like a public, you know sort of pre public ground that had evaluation in the 400 million dollar rings. I don’t remember exactly what it was. So yeah, we did. You know, the thing about a SAS model is it’s an awesome model for durability, but it’s expensive to build because while you’re growing in acquiring all these customers you’re having to pay the cat, you know, the caught the acquisition cost up front while the customer life payback is a long period of time so.
I think that’s a challenge for all of us what the other thing that goes a little bit to customer pricing was our first customers were small really small businesses and they paid us two hundred fifty dollars a month, but they turned and they were you know at that the lifetime value of this customers was not awesome.
So we had to sort of change our target market to what we call we are Persona. We called marketing mayor. Marketing Mary was the CMO or vice president of marketing for a company that had at least 10 employees and up to 200 to 500 employees because one of the things that we realized was if you’re selling marketing software to a company that doesn’t have a marketer.
It’s going to be tough. So we figured that out and that that raised our ASP raise the lifetime value of a customer and allowed us to invest more aggressively on customer acquisition.
Host: You mentioned you have a simple way to die and distributing rid of that helps for proof. Like the white part cultivate came out of anything. This point I guess how you thinking that it from here 2,000 and 5,000 people and what other businesses that have done that at there and assess face do you respect?
JD Sherman: Yes. I don’t know that anybody’s I think our culture has evolved we have this document called the culture code that has been viewed three or four million times and we use it as a. Sort of holding ourselves accountable to the type of culture. We want to be and sort of checking ourselves. Even as we grow do we still have this sort of culture?
And so I think we can pull it off. I think we can sort of maintain what was great about how spot in our early scale up days all the way. Being a really big company. Will that play out? I hope so, you know, I don’t know. I don’t think any companies done it exactly the way we want. But you know, we one of the things that we do with our management team every year as we take them on a field trip and we don’t go visit the companies in the Boston area because honestly, there aren’t that many aggressive companies on the east coast of of.
The United States we go to the valley and we go hang out with Facebook. And at last the end of we have a board member who’s on our board from atlassian and Google and stripe and slack all these companies. They have a dynamic that we really aspire to and it’s awesome to see how they pull it off and they all do it in a different way.
We don’t even try. We don’t we try not to copy them. We just try to learn from them and sort of adapt and it’s worked out really well for us. I think one of the things that I love about HubSpot is it’s a learning culture like we want to learn from how other people do it and we’re always asking questions it just to see what we can figure out.
Host: Any more questions, right?
All right. Well, thank you all for coming out feel free to hang around for a little bit longer and thank you so much JD for sharing your thoughts with us tonight. I’ve been writing down those. I’m sure a lot of other people in the audience have as well and I thought of course thank you to my brother for putting on this great event and giving us all this opportunity to give me tonight.
JD Sherman: Yeah. Fantastic. Thanks everybody for coming us.