Former senior executive at HubSpot Inc
- HubSpot (NYSE: HUBS) and its solutions, focusing on new introductions such as Operations Hub and HubSpot Payments
- Go-to-market strategy, noting a unique customer focus, freemium offerings and emphasis on customers with 2,000 or fewer employees
- Competition vs suite providers Salesforce (NYSE: CRM) and Adobe (NASDAQ: ADBE), including win rate vs CRM
- Corporate governance considerations considering notable management team changes over the past year or so
- 1-3-year outlook, highlighting opportunities, risks and potential changes in focus
Many people have probably heard of HubSpot, but may not be very familiar with what exactly it is and offers and how it has evolved over the year. Could you give insight into those details?
Can you expand on what you think is most important from a product perspective across the hubs you highlighted? I think you mentioned starting with marketing, but what are the most important products to its customers?
You mentioned the notion of HubSpot’s core being developed and built on top of through internal development as well as additional hubs being built out. Does that approach to interoperability and integration still hold true or do you expect it to be a little more aggressive as it thinks more broadly about hubs and how to bring those offerings both into the company and out to customers quickly?
Former HubSpot Chief Product Officer and author of the company’s How Primary Colors Helped HubSpot Build a CRM That Customers Love blog post, Chris O’Donnell, was with HubSpot for a decade and left in August 2021. To what extent could there be changes in its product approach, with a change in the Chief Product Officer, among other things? You outlined the different hubs and highlighted that Marketing Hub, Sales Hub and Service Hub – the first hubs it launched – are the bread and butter, and so understandably they’re interconnected. Interestingly, the Marketing Hub by far accounts for the most revenue, notwithstanding all the hubs that have been introduced over the last handful of years. It accounts for around a little more than two-thirds of revenue, with Sales Hub accounting for around a little less than one-quarter of revenue, so those two hubs account for all but around 10% of revenue. How might you expect those percentages to be in 3-5 years? Is Marketing Hub going to be the biggest revenue contributor with some Sales Hub or might there be much broader diversification of contributions?
HubSpot only had Marketing Hub for a long time, which it introduced some 15 years or so ago. The next hub it launched was roughly eight years later, and then Service Hub came in 2017. It seems to have accelerated the pace of hubs introductions a lot, which continued with Operations Hub and HubSpot Payments last year. Do you think this pace of innovation can continue? Do you see a lot more potential hubs or does it make more sense for the company to focus on some of the newer hubs it has launched at this point?
I have heard recruitment as a potential next hub [see HubSpot – Evolution to Marketing/Sales Platform Provider & Coronavirus Impact – 18 June 2020] and the company notes a long-term financial targets of R&D as a percentage of revenue being 18-20%. I think it was there in H1, which implies to me that it might decelerate the pace of investment in and innovation around new hubs, instead aiming to build around what it has. Is that a reasonable connection or is there something else to consider in scaling some of these expenses?
What are your thoughts on its B2B commerce and payments offering, HubSpot Payments? It was introduced after you left the company, but you had to have thought about this as an opportunity internally before it was launched. What do you think the opportunity is for Payments and what is the problem the company is trying to solve?
As an analogy, Shopify is thought of as the platform for SMB to sell online, and Payments is Shopify’s single biggest business revenue-wise, accounting for some two-thirds to three-quarters of revenues, depending on when and who you ask. What percentage of revenue do you think Payments could contribute by 2025, acknowledging that you said it could become the company’s fastest-growing product?
Competition can seemingly be thought of in one of two ways – competitors that have suites of products or platforms of products, which I know HubSpot sees itself as or is aspirational of, and then point solutions that compete across some of the individual hubs. You mentioned point solutions such as Marketo and Pardot in the latter category, which were bought by much larger companies in Adobe and Salesforce respectively, which have the suite or platform approach. Is that how competition on that high level across the two primary companies, Salesforce and Adobe, should be assessed?
Especially over the last couple of years as HubSpot has introduced all these additional hubs, it seems there’s more overlap and direct competition with Salesforce. How does that competition play out? Do you have any thoughts on how HubSpot and Salesforce stack up and when each company wins?
What would you suggest HubSpot’s win rate is against Salesforce? Obviously it goes across a number of different company types and circumstances.
One reason HubSpot wins that we haven’t covered is the pricing model and how the company has embraced and actually leveraged freemium pricing, perhaps more than some of the competitors we’ve discussed. Can you assess the importance of that, particularly given the customer base it focuses on?
One competitor that seems to be coming up in certain contexts a little more than in the past is Thryv, a USD 1bn publicly traded company that people might not know as much about. Do you have any thoughts on that company in competition directly with HubSpot?
HubSpot has been delivering growth pretty consistently. I think expectations are for some deceleration, but consensus estimates indicate 20-35% annual growth over the next few years. What do you think are the 2-3 most important elements of the strategy driving its growth?
Can you discuss the importance of partners as well as HubSpot’s partner programme and how and why that has become so important? I think HubSpot has consistently indicated that approaching half of revenue, I think last year was approximately 44% of revenue, was represented by solutions partners.
Could you describe the types of partners and name the most impactful partners to help us better understand the partner approach and relationships?
HubSpot’s focus on companies with 20-2,000 employees – which it highlights as the mid-market and corporate – seems to have been a theme. I’ve seen references to small- and mid-sized enterprises. It’s obviously the biggest component of the customer and revenue base, but there increasingly seems to be a focus on moving upmarket to some extent. Could you discuss the customer mix and the percentage of revenue allocated to the mid-market, which the company describes as 20-200 employees, vs corporate, 200-2,000 employees, vs small business, 20 employees or less?
There have been many management team changes over the last year or so. I touched on the Chief Product Officer stepping away last summer, but perhaps more notably the company has had a new CEO, Yamini Rangan, for about half a year. My understanding is that Brian Halligan, founder and former CEO, had an accident that forced him to step down, but he was a critical face and driving force for the company. Can you assess the impact of this change and others? How do you think the company has re-formed the C suite?
Less than one year before founding CEO Brian Halligan stepped away, COO JD Sherman also left that post, and I don’t think another COO has been placed. Is the company making any fundamental changes to its strategy, prioritisation or capital allocation, given the substantial turnover of its top leaders?
What is your 1-3-year outlook for HubSpot and what do you see as its biggest risk?
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