Jay:  My guest today is JD Sherman. JD is the president and chief operating officer of HubSpot. Before joining HubSpot, he worked in finance serving as the CFO of Akamai and chief financial executive of IBM’s Systems and Technology Group. JD, welcome to the show.

JD:  Thanks. Thanks for having me.

Jay:  It’s great to have you on. I’m excited because I hear about your company a lot these days. Even in Asia, I’ve been seeing you guys doing a lot of outreach and stuff. So I’m excited to have you on, and hopefully we can help your cause here. Why don’t you give us a little bit of background. I gave the broad strokes in the introduction, but maybe you could give us a little personal background for the audience.

JD:  Sure. I’d be happy to do that. As you mentioned, I had mostly a finance until my time at HubSpot. In fact, I was very happily entrenched in my CFO role at Akamai Technologies, which is a great company. But I happened to meet Brian Halligan and Dharmesh Shah, our founders, at HubSpot. They were talking about hiring a COO, and I actually got introduced to Brian to be a back channel reference for one of their candidates. But he and I kind of hit it off, and we started talking, and he was starting to tell me about their view of the world, which was that the way people live, work, shop, and buy today is just totally different than how they did 10 or 15 years ago. We’re just so hard to interrupt. The old marketing and sales playbook just didn’t work. So there needed to be a new marketing sales playbook that they were calling “inbound marketing,” which is less about interrupting your customers or prospects while they’re on somebody else’s television show or reading the newspaper or something like that and instead creating a magnet around your business with remarkable content and helpful engagement where your customers live and work today, which is on the internet and over social media. It just made so much sense to me that it seemed like there was a big opportunity there. So I actually took the role as chief operating officer, and that was seven years ago. And it’s been a great run since.

Jay:  That’s a very cool story. Thanks for sharing that. I had no clue that that’s how you got connected with the company, and it must have been quite a conversation to literally have you step out of your finance role and join this… Was this before you guys listed?

JD:  It was, yes. So this was back at the end of 2011 when  I started talking to Brian and Dharmesh, and the company was about… It sort of had hit its product market fit. So they definitely had figured out that there was a market need for their product, and they were starting to get traction with it. But we hadn’t sort of figured out business model fit yet. So it was about a $20 million revenue business with about 200 employees, but it wasn’t quite clear yet how we would scale. For example, the customer churn was just really horrible. It wasn’t going to scale. And as you know, from a software-as-a-service business, if you’re customers don’t stick around, you’re going to have real trouble building a strong business on that. So there were problems like that that had to be addressed. And even back then, Brian and Dharmesh were thinking big, and they knew that they wanted to build a business that scaled, not just simply a software product that eventually would maybe end up in the hands of another company through an acquisition or something.

Jay:  Right. That makes sense. It sounds like it was somewhat of a mature company. So it wasn’t a pure startup, but nonetheless, it was at the inflection point. And I guess that’s probably why they were looking to hire more executives and really figure out how to scale it to the next level.

JD:  I don’t think that I, with my background, would be that useful to a pure startup. I’m not the kind of guy who’s going to be creative in terms of the products that you would build or engaging with prospects and customers to figure out if there was a great market fit there. I’m more of a scale up guy. The way we talk about HubSpot even now is we’ve moved from startup mode to scaleup mode. And there’s a tremendous amount of leverage for a business in that scaleup mode. Initially, it’s exciting to get to the point where you even can take your company public, and we had, when we took our company public, maybe 10,000 customers, which was pretty amazing. But now after four or five years being public, we have over 50,000 customers, and we’ve gone from one product line to three product lines. We’ve really built a platform that lots of our customers are using to integrate the rest of their business software into. So you could just have a much bigger impact if you figure out how to really scale your company.

Jay:  Wow, that’s incredible. I don’t if you… Maybe you can spend a little bit of time — and it doesn’t have to be too long — but how did the two co-founders actually start HubSpot from the very beginning?

JD:  Sure. I’m happy to tell you that story. It’s one that we told 75 times on the IPO road. Basically, Brian and Dharmesh were colleagues at the Sloan School of Business at MIT. Dharmesh had started and sold a business earlier in his career and was back and was now getting his MBA. And Brian had grown up through the sales channel of a company called PTC, Parametric Technology in Boston. And he was really a sales and marketing guy. And while Brian was at MIT, he was working with a local VC and trying to help their portfolio companies get there go-to-market act together.

What Brian was finding was these companies would get lots of VC funding, and then he’s say, “Great. What’s your playbook?” And they all had exactly the same playbook, which is “We’re going to buy a bunch of ads. We’re going to do some PR. We’re going to hire sales reps who are going to cold call. We’re going to buy lists, and we’re going to e-mails the lists.”

And he’d say, “How’s that working for you?”

And they were like “Well, it’s a tough slog.”

So he had that in the back of his head. And then he met Dharmesh who had started a blog called OnStartups.com where he basically wrote about his experience as a startup founder and the advice he learned and everything like that. And Dharmesh was building this huge audience, really with no resources whatsoever other than typing onto his computer and creating content that people were searching for, that people were really trying to find — not trying to interrupt them but drawing them in like a magnet. And they kind of put two and two together.

And they said, “Well, the first problem is we have to teach people how to do this.” And that’s where inbound marketing came from. And then the two of them actually have written a book called Inbound Marketing. They talk about that strategy.

The second part was a little bit of discovery as well, which was that Brian said, “Alright. I’m going to go put this playbook into place with some of these portfolio companies.” And he said, “What kind of tools do we need?”

And Dharmesh said, “Oh, it’s pretty simple” — because Dharmesh is a tech guy — “You need a website. You need blog. You need social media tools. You need an email tool. You need landing pages. You need forms. And all this stuff has to work together, and you just wire it this way and that way.”

And Brian’s head started to spin because mere mortals can’t pull that off. What we need is a platform to be able to do that. And so they set out to build HubSpot as a tool to enable people to run this new inbound marketing playbook. And what’s happened over the 10 or 12 years since is that we’ve expanded that to include the sales part of the customer and experience and then, most recently, the service part of the customer experience.

Jay:  That’s a great story, and I think it came at a time during, I guess, sort of the internet where web 2.0 and people were starting the blog and this sort of thing. So it was very timely for this business to launch, HubSpot, from the early days.

You mentioned inbound marketing earlier, and you differentiated that between traditional marketing, which you said was kind of like disrupting, like watching an ad on TV during the Super Bowl or this sort of thing versus inbound marketing. Maybe you could elaborate on what exactly is inbound marketing. How has it grown today versus, say, early days of web 2.0?

JD:  Sure. There’s two ways I like to think about inbound marketing as not a career marketer or sales person. One way is from a consumer’s perspective, which is inbound marketing is about adding value before you extract value. If you think about… And it’s about being helpful rather than interruptive. So if you think about an advertisement that you might see in a newspaper or listen to on the radio or even a banner ad that you might come across on the internet, that’s somebody trying to catch your attention and extract some of your time and effort before they’ve really added any value to you. And it may or may not be interesting to you. Whereas when you create your own content — whether it’s a blog or a podcast like this or a video or engagement on social media — that gets found by an audience who is looking for your content, and it’s helpful, not interruptive. And it’s going to add value to them before it extracts value to them.

The other strategy about inbound marketing and sales is you don’t want to start with “Hey, my product is this awesome sewing machine. Why don’t you buy my product?” You want to start talking about how do you use this machine, or what are some of the ways that people have solved these problems with similar products and brought people into solving a problem rather than immediately going to “Here’s a product you should buy,” and “I want to extract this value from you.” So that’s the one way I like to explain it.

The other way comes from my finance background, which is, think about the first engagement I ever had with a CMO of my company Akamai was he came into my office, and he had an opportunity to spend millions of dollars to put our company logo on the wall of Fenway park where the Boston Red Sox play, the baseball team. It costs lots and lots of money, and it was really hard to attribute that to any ROI because what he was doing, basically, was renting somebody else’s audience. He was renting from the Red Sox, the people that went into the stadium, whereas when doing content marketing, you’re building an asset with your content. So you’re kind of building a factory. It’s an asset rather than just an expense. And once you’ve built that factory — it takes a while to build where you get visitors to your website and your content starts to get search authority, etc. Once you’ve built it, though, the engagement and the leads and the customers start coming in. And even if you turn off the lights of your marketing department, you still get those leads and those customers coming in over time.

Jay:  Right. That’s a very good way of explaining it. I think it particularly helps because now on the internet, there’s just a flood of content. So the traditional ways of trying to interrupt and get their attention, that doesn’t work. So you kind of have to build it more organically. You have to build trust with your audience, like you said, build a tribe or a following. And then that creates this inbound marketing channel where you can then, eventually, sell them or maybe it becomes a reverse inquiry, and they just request products from you. So that definitely makes sense.

Let’s talk about HubSpot specifically. You mentioned that anyone that’s listening that’s tried to set up a blog and tried to monetize it online, I think, has gone through all those pain points of literally setting up a WordPress website, connecting an email service provider like ConvertKit or MailChimp or something like that and then trying to plug in like a ClickFunnels and some sort of scheduling thing. It’s a nightmare. I’ve actually personally done it myself, or tried, a couple of times, and it’s an absolute nightmare. So my understanding is that HubSpot aims to basically solve all of this in a one-stop shop solution. Is that accurate?

JD:  That’s exactly right.

Jay:  And then the types of clients, you guys are dealing with basically large corporations, enterprises. Do you actually have anything on the smaller business and just solopreneur-type level? Or is it mainly, due to pricing, for enterprises?

JD:  Actually, we target… Our customer base that we want to try to help is actually the mid-market, the smaller-medium businesses. We really don’t go after the large enterprises. One of the great things about the internet and technology in general, and therefore inbound marketing and sales and this whole approach, is it’s kind of a democratizing of business because in the old world where it was about traditional advertising and interrupting, it was about the size of your wallet. How much could you spend to get people’s attention? That was really difficult for smaller businesses.

In this new world, it’s about the size of your brain. It’s about the customer experience you’ve created. It’s about the content you create. It’s about the way you take care of your prospects, etc. And that’s really good news from small and medium businesses. And so we think there’s a huge opportunity for those types of businesses in this world. And that’s what we want to focus on. We have 50,000 customers, and our average customer probably has 50 to 75 employees. We don’t have a ton of very large customers, although, frankly, I think they should probably be using an inbound marketing and sales approach, and we’d love if they would use our software as well. But we really focus on that mid-market.

Jay:  Does that include social media marketing as well on the platform?

JD:  Yes, it does. We have social media marketing tools for HubSpot as well. The way I think about… We have a very broad set of tools, everything from the top-of-the-funnel type tools to grow your audiences right through the types of tools that you use to take care of your customers and actually create advocates and promoters from your customers, who turn out, in this day and age, in a major evolution, to be probably your best route to market. So we have a very broad range of tools.

We also have something like 200 software companies that have an integration with HubSpot, and that includes a lot of the social media advanced tools sets because sometimes a customer of ours is going to want to have a more sophisticated approach to social media marketing or a more sophisticated approach to their website, etc. We’re not going to build all of that sophistication, particularly since we’re targeted at the mid-market. So we also allow our customers, through APIs, etc., to integrate other tool sets with HubSpot.

Jay:  Yeah, I think that marketing is evolving, as well, as time goes on. So it’s good to offer all the tools. I’m sure you can customize it based off of what your company needs and this sort of thing.

JD:  In the early days, we actually thought we were going to be an all-in-one tool, and what you realize is… And back in the day, we actually have a guy that works for us now named Scott Brinker who publishes the Martech 5000, this chart of 5000 companies in the marketing-tech space. We thought nobody is going to need to use all that. They’re just going to use HubSpot. We’re going to be an all-in-one platform. We realize that that’s, frankly, impossible because we can’t do it all. And people want to be specialized in one area or more sophisticated in one area.

So we’ve started to think about our mission, not to be an all-in-one but to be an all-on-one. We can help our customers with a platform that’s sort of the center of gravity for their flywheel, as we like to call it, which is about marketing, sales, and services. Then we’re going to really help them grow their businesses.

Jay:  Right. JD, I like how you explained it from what you guys do from a finance perspective because I’m a finance guy, and I think a lot of our audience is actually finance or investors. And you mentioned viewing marketing not as an expense but as almost like a balance sheet — like an asset or an investment — which I think is a unique way of thinking about things. And I imagine that’s a good sales pitch to a CFO of one of these potential clients that you guys have.

I would think that one of the biggest push backs would be, like you said, the ROI and how can you track that? What would you say to a CFO that is potentially looking at your solution that’s pushing back with this type of question?

JD:  You’re absolutely right. In fact, I have a talk that I give that’s called “How to convince your CFO” or “How to sell inbound marketing and sales to your CFO” and that’s exactly what it is because, as you know as a former finance guy, we view expenses in one way, very differently than we view assets and liabilities. Expenses are to be minimized when you get efficiency. Assets are something to invest in and get a return based on that.

Another concept that I applied a finance background to that’s more marketing and sales relate too is a concept that I call Customer Capital. You have working capital, which is your short-term assets minus your short-term liability. And if you have negative working capital, you’re in real trouble.

Your customer capital is the amount of promoters you have of your brand versus the amount of detractors, which you measure with net promoter score. And if that goes negative on you, you’re going to have real trouble. You’re going to have a lot of friction in your process. So the key, of course, when you’re working on assets and talking about investing in those assets is measuring the ROI. The other point I make with inbound marketing and sales is it’s much easier to do attribution and figure out the ROI with an inbound marketing and sales approach than it is with a broad-brush brand campaign, such as putting your company’s logo of an arena or advertising, for example.

There are tools around there, and what you can do and the advice I give to marketing and sales leaders is this is an opportunity for you to go collaborate with your finance team and say, “Look, here’s the data I have. What we want to do is we want to experiment. We want to put this in and see what we get back out. We want to make that investment and see. Here’s our hypothesis of what we think it’s going to generate. And is it generating that or not?” Get the finance team involved in that analysis. And then that collaboration really tends to help the business.

Jay:  Do you think that that old-school method of advertising still actually works, like buying and paying a million bucks for a Super Bowl halftime ad or stuff like that? Is that still effective?

JD:  You know, actually, interestingly enough, I think the big bang, the Super Bowl ad, probably still works. I’m less convinced that the broad-brush advertising that you see all over the place, whether that still works. It must still be effective at some point, because people still keep doing it.

One of the things I ask very often when I’m talking to an audience about the old way, it’s like “How many of you guys have ever gotten a piece of direct mail in your house and opened it up and said, ‘Boy, this looks like a really neat product,’ and then went and bot that product?” And, of course, I have not yet come across anybody that says they have done that. But somebody is lying because we still get a lot of direct mail. So it must work at some point.

Another observation that Dharmesh has had, and I really believe him, is that it used to be that you could do that, and if it didn’t work, you had a zero ROI on it. And that was fine. You could live with a zero ROI. But nowadays, because people get frustrated with brands who behave badly, who interrupt them, who don’t… You actually have a negative ROI because you turn those people into detractors. The percentage of time that somebody goes and looks either for reviews or talks to their friends about your product or service before they buy, it happens a majority of the time, and if you’re creating friction by not behaving well as a brand, it’s going to be a problem.

Jay:  That’s interesting. I like how you break that down between detractors and what’s creative or helpful for your brand.

I’m curious about what you think about… When I look at marketing — and I’m not a marketer by any means, but I’ve kind of had to study it in the last few years when doing things like setting up this podcast, for example, and stuff like that. It kind of makes you have to get up to speed. After web 2.0, there was a period where, if you were a blogger, you could get a lot of subscribers very easily if you were an early, early adopter. And the same thing with social media. I feel like if you were one of the first thousand users of Twitter, you automatically get a bunch of followers. And then now it’s kind of been saturated. I feel like everyone is everywhere — all over social media, all over content marketing. It’s almost like it’s the minimum bar that you need just to compete in the arena.

Now that’s actually good for your business because it means that everyone out there, just to play the game, is going to have to have some sort of inbound marketing campaign or strategy, some home base that they can build their business off of. I’m just curious as to what you think is the next iteration of what whole marketing thing. Because I know that there are still a lot of large businesses and medium businesses that need to do this and are coming online, and they’re getting savvy with the social media. All these older-school business models that used to buy the billboards, they’re not shifting. What’s the next iteration for people, in your opinion, that are here? Or is this how it’s going to be for the foreseeable future?

JD:  I think that’s an absolutely correct observation, and I think there are a couple of things that we’re seeing that are somewhat tactical. This is like the conversation we have when our customers are looking for advice from us. I guess I’d put it in three buckets.

The first is specialization. As you say, it’s a very broad landscape out there, and there’s just so much noise now out there. We used to tell customers, “You just have to crank out the content to get found.” And now what we say is, it has to be carefully crafted and probably specialized to what you’re trying to accomplish. And a lesser amount of content of higher quality actually makes more sense in today’s day and age than a lot of really crappy content. And part of that goes back to the building trust in your brand thing. But that’s the first part of it.

The second part of it is we do believe and I believe that there is a healthy relationship between a targeted, paid advertising relationship and the content you create because today, the world of Google and Facebook being these very dominant platforms, when you have content that is working for you and creating some interest, you want to pour a little gasoline onto that fire by sort of pushing that through paid channels, particularly Facebook and Google, which are working very well. So that is tactical advice we give to folks.

And then the third really comes down to this new opportunity that we see, which is around delighted customers being your best route to market and making sure that creating, from your own customer base, delighted customers who are going to advocate for you and be a great advocate in the market. And so I think that’s the new opportunity that particularly fits well with small and medium businesses because they tend to be closer to their customer. They tend to know more about what their customers want.

And so what our advice to customers who are talking about marketing sales initially is we say, you have to think about that across the entire customer lifecycle, and you have a ask yourself where are you putting those calories. And if you’re putting most of them at the stage where you’re engaging with your customers, trying to sell them your product, and you’re not doing as much in the delighting your customers part of the business, we suggest you kind of shift that around a little bit and try to create another channel to market, if you will, through delighted customers.

Jay:  That’s a great way of thinking about it because it’s not what most people think when they think about customers. They just think bottom line and revenue and numbers, but to actually be able to then use them to help you with the future marketing is pretty clever.

JD:  They want to do it as well. When they’re passionate about a brand… And it goes both ways, unfortunately, for all of us. If you deliver a bad customer experience, people can’t wait to tell everybody else about what a crappy company you are.

Jay:  Yes. It’s dangerous. It’s a very slippery slope, especially with social media and this sort of thing these days.

I know that you guys are doing a lot of stuff globally. Last weekend I was in Sydney for this startup conference called StartCon. I saw one of your colleagues there, Andrew Lindsey, who I think is your corporate development guy. He was giving a nice talk. So I saw him speak, and I’ve been seeing HubSpot a lot. Being based in Asia, this is more of a frontier market for this whole… People are still getting up to speed with how to do marketing properly. So maybe you can tell us a little bit about what your plans are for 2019 and that sort of thing.

JD:  Absolutely. I was just in Asia myself last month for two and a half weeks. I went to see all of our offices. We have an office in Singapore, which is our Asia PAC corporate hub, our HQ. Down in Sydney, we have a big team. We also have a team now in Tokyo. Asia is our fastest growing area.

We’ve sort of attacked the international opportunity in phases, if you will, and I think we’ve gone pretty fast, actually, because for a company as young as we are, we get 37, 38% of our revenue outside of the US, which is pretty impressive. But we kind of did it in phases. Like phase one was basically take our playbook that we developed in the United State, in English, to other markets similar to the United States that spoke English. So we had a lot of early success in the UK and Ireland, and we’ve actually been in Sydney, Australia since 2015. That made a ton of sense.

The next phase was to localize. And we really have only been at this for two, two and a half years where we’ve finally localized our product into four or five languages. But we’re still, with that playbook, largely targeting mature markets where we know the playbook. We know the customer persona really well, and it fits with our acquisition model — our cost of acquisition, the way customers want to be engaged with.

The phase three that I’m most excited about, which we’ve really just starting to sink our teeth into the opportunity, is in emerging markets because we’ve kind of omitted that opportunity for a while. We didn’t really have the go-to-market model for that model. But now that we have this freemium model — we have a free version of our software; we have a starter version of our software — I think that positions us well to go after some markets like India and Brazil and others in Southeast Asia. And I’m super excited about that opportunity, and we’re going to start to experiment with that a little bit in 2019.

Jay:  That’s fantastic. It was probably ignorant of me because I wasn’t aware. When I thought of HubSpot, I always thought it was for much larger organizations. So I never actually researched it for on the smaller business or even individual level. So that’s fantastic to hear.

JD, thanks so much for your time. It’s been really fun catching up with you and interesting to hear about the growth that you guys are experiencing, and we’re excited to see how HubSpot keeps growing. What’s the best place that people can find you, follow you, or learn more about HubSpot?

JD:  Certainly you can visit HubSpot.com. We have a blog that gets like 15 million visitors a month. I would encourage you visit.

Jay:  Wow.

JD:  I know. We’ve really built that up.

Jay:  Practicing what you preach. Right?

JD:  That’s right. Absolutely. We are some of the best inbound marketers and salespeople in the world, thankfully. The playbook definitely works. That’s probably the best place to start and learn about HubSpot. I would also say go to HubSpot.com and get started with our free software. It’s literally costless to sign up and pretty easy to get started.

Jay:  Fantastic. Well, thanks again for your time, and we look forward to hearing more about HubSpot growing in the region here.

JD:  Okay, Jay, great talking to you.

Jay:  Alright. Take care. Bye.