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Hubspot Case 1. Do you agree with HubSpot that the “rules of marketing” have changed? If so, how? Is inbound marketing the answer? Why or why not? Hubspot is doing a great job in inbound marketing, which rises a fierce debating of changing the “rules of marketing’. From my point of view, inbound marketing is growing rapidly to match the nowadays market and fast developed social media. Inbound marketing, an innovative marketing strategy, keeps delivering lower costs for customers than outbound marketing does. Many years ago, marketers spread out messages through different channels like advertisements or trade shows to get in touch with the prospects that may join the sales, but things have changed. For one thing, technology changed. Customers are allowed to suffer on the Internet to learn and gather whatever information they want to make the purchase decision. They are more active than in the old days, since Internet is fast and easy to use. For another, customer behavior changed. People are now good at searchers by using the Facebook, blogs and websites. Being in the roles of searchers, they have capacities to sort and filter thousands of marketing messages. Afterwards, they reject unwanted messages and retain useful ones. Even if they don’t buy online, they will learn online before engaging in a potential buying discussion. Moreover, business changed. Due to economic globalization, many firms or individual businesses were born rely on Internet, such as a single seller on eBay (online market platform). From business point of views, social network, like blogs and Facebook, are growing so fast compare to traditional marketing strategies. Inbound marketing uses interactive market tools to attract people and distribute comprehensive contents easily found by prospective customers. Therefore, more and more salespeople need to discover and develop their market through the web channel provided by companies like Hubspot. HubSpot is one of the leading companies that provide customers with Web 2.0 service. HubSpot focus mainly on inbound marketing and its core value is established on inbound marketing which creates market niches for the firms and draws followers. Compare the traditional marketing rules; inbound marketing strategy has many competitive advantages and becomes a trend in today’s marketing environment. 2. Is HubSpot finding and serving the right set of customers? Given its position as a startup company, should it widen its focus to serve any customer that comes its way? Or should they narrow their target by focusing exclusively on either the Owner Ollies or Marketer Marys? Or alternatively, by focusing exclusively on either B2B or B2C customers? Currently, Hubspot’s has different features towards different customer’s needs. Since the customers are very diverse, the company feels difficult to standardize process across customers. The mix of customers leads costs to the sales and technology services. By looking at Hubspot’s business model, 50% of the leads are weeded out before sales team gets connected to customers. From Hubspot’s customer growth rate (exhibit 10), there is only a conversion rate of 3.7% (910 new customers/24,084 leads = 3.7%) of the leads will finally be converted into customers. In this circumstance, I think Hubspot should narrow down its customer set to increase efficiency in sales and have a chance to scale up its business. Then, Hubspot has to figure out who should be focused to as a target market. Looking at Hubspot’s current customer sets, they can be roughly divided into sevral major groups, Owner Ollie, Marketer Marys, B2B and B2C.

Owner Ollie vs. Marketer Marys OO’s Pros and Cons Pros More OO in the potential market Lower acquisition cost of $1,000 Easier to sell Shorter selling cycle More customer host website with Hubspot 13% Need quick and simple solution MM’s Pros and Cons Pros More educated and higher sophistication level Lower churn rate 3.2% More revenue generated Stay longer and use more Hubspot services

Cons Less revenue than MM More macroeconomic risk High churn rate 4.3% Bad business model

Cons Harder to sell Higher acquisition cost of $5,000 Longer selling cycle Less customer host website with Hubspot 2%

MM will be using many Hubspot products extensively since they are more professional. Whereas, OO only use very few applications of Hubspot in comparison with MM who use other applications that will help Hubspot improve its product portfolio. Although MM cost more, but they stay with Hubspot longer, so Hubspot is able to gain revenue from them. Last but not least, dealing with OO seems to be more risky, since they are not as stable as MM. B2B vs. B2C B2B’s Pros and Cons Pros Can derive greater value Less churn rate 3.3% Complex business B2C’s Pros and Cons Pros More sophisticated Less consulting required

Cons Less sophisticated Longer decision-making cycle

Cons Higher churn rate 6%

B2B should be more focused, because they can derive greater value delivered from Hubspot. B2C found Hubspot’s templates too rudimentary for their need, so B2B value Hubspot’s product more than B2C do, and B2B also have much lower churn rate. B2B are more complex than B2C, so they tend to have more needs from Hubspot’s leadqualification analysis. Hubspot’s products are effective feeders of B2B customer funnel. Analyze from customer growth rate, we can look at the new customer acquisition of Hubspot from September 2008 to December 2008. (In the case: Exhibit 5

OO MM Total

B2B

B2C

Total

64 155 219

52 88 140

116 243 359

From the table, it is obvious that B2B is the choice compares to B2C, and MM is the choice compares to OO. B2B and MM have bigger growth rates. This is to say, B2B and MM should be valued a bigger potential market. 3. HubSpot has begun do differentiate its products as it has learned more about its customers. Should it do more? Should its pricing strategy change too? Does the software-as-a-service (SaaS) pricing model work for both Marketer Marys and Owner customers? There are two major criteria can be used to judge if Hubspot need to do more in differentiation. One is conversion rate, and the other is customer needs. On the aspect of conversion rate, Hubspot only has a 3.7% conversion rate for all customers, which is low. This is to say, Hubspot faces a very diverse customer set, and it has different level to reach different customer. It is easy to sell products or services to Owner Ollie, but hard to reach Marketer Marys. Thus, it is important to carry out different strategies to attract different customers. For the customer needs, Hubspot also should do more to differentiate its products. B2C customers are very sophisticated and found Hubspot’s content templates were too rudimentary for their need. In contrast, customers Owner Ollie just want quick and simple solutions to help them generate leads. Marketer Marys who are marketing professional customers run many more inbound marketing, so they need more robust and sophisticated tools to design them and measure their results. Extending the products differentiation, Hubspot should never lose its sight of product’s value and quality; especially it is a technology-based company. Hubspot’s current pricing strategy SaaS should reflect its monthly charges and customers churn rate. SaaS pricing model does not charge big up-front payment when start-up, but there are fees charged over time, so the revenue comes in over time. Thus, Hubspot’s coming in revenue should at least cover its acquisition cost to a customer. For example, acquiring a new Owner Ollie cost $1,000 and Hubspot charge $500 initial fee plus $250 per month on this customer. It means, in order to make money, Hubspot should make sure this specific Owner Ollis will host its website with Hubspot for more than two months. With Marketer Marys, the cost is $5,000 and Hubspot charges initial fee $500 plus $500 per month as revenue. In this case, Hubspot need to host with Market Marys for more than 9 months to make revenue. Therefore, it is also important to know customers’ churn rate by age. Looking at Hubspot’s customer churn rate by age of customer (Exhibit 8), we can see the churn rates are roughly constant around 4% till the age of 16 months which begin to peak. This is to say Hubspot has to begin to earn revenue before the 16th month. The good thing is Hubspot has a solid financial foundation. Besides SaaS, an upfront fee charge for the software can lock in customers.

Due to different customer characteristics,Hubspot’s SaaS pricing model should be more capable to hold different customers and let them stay longer. One solution could be lower the monthly fee, which will lower the churn rate consequently. However, lower monthly fees require longer time to cover the acquisition cost. Thus, Hubspot should narrow down its target market, which allows it to cut costs associated with unfocused customers approach. A well matched pricing strategy should be in line with value delivered to different customers. Since B2B customers derive greater value from inbound marketing than B2C customers do, Hubspot may consider charge more to B2B customers for training. 4. Are Halligan and Shah being too stubborn by not doing any outbound marketing? Or should they continue to practice what they preach by focusing on inbound marketing alone? I do not think Hubspot should expand a more traditional way of outbound marketing. Contrarily, I believe one of Hubspot’s strength is its clear objective. The company has a broad vision of what product should produce. It has a slogan claimed, “At Hubspot, we live and breathe inbound marketing. We know a lot about it. We love to teach. We will make you an expert.” Inbound and outbound marketing are two different strategies, so that a combine may misunderstand Hubspot’s mission, and undermine its credibility of brand. Inbound marketing is a pull-based approach while outbound is an interrupt-based approach to marketing. With inbound marketing, Hubspot is very competitive in the marketplace, with its advantages of low cost and ease of use. Hubspot insist preaching by focusing on inbound marketing instead of making mass cold callings and printing advertisements. This makes Hubspot better targeting to people who selfqualify themselves; while outbound campaign throw out mass messages to attract limited customers. Also compare to outbound customers, inbound customers should have more interests in products, and they should be easier to persuade purchases. Moreover, Hubspot consider its software more a system of tools than a piece of product. Thus, on the customer side, what they pay to Hubspot can be more marketing or technology investment than expenses. Hubspot helps firms rank on top of results from searching engines, so that they get leads out there. The firms keep obtaining value from Hubspot’s software even if they cancel their Hubspot subscription. Therefore, adopting traditional marketing may not be helpful for the company targeted its right customers. Furthermore, there is a chance that Hubspot would lose some customers due to low brand credibility with inbound marketing. Even Hubspot is hindering scale a little bit by not creating outbound marketing programs; I still do not believe Hubspot should go outbound. As a young startup, Hubspot has a solid financial foundation which can support it with a current SaaS pricing strategy. Outbound is not that necessary for the company to generate more revenue to recover the cost. More importantly, Hubspot strategy should never against its core value, which can hurt the company’s image badly. 5. Halligan and Shah want HubSpot to be to marketing, what Salesforce.com is to sales. What would your plan of action be to make this happen? Why would you take these actions? What keeps you up at night about your plan?

Sales.com dominated in the sale segment, and became the industry standard for managing and tracking sales efforts. Hubspot hopes to dominate the lead-generation and analysis/qualification stages of the customer funnel, just like Sales.com dominate sales segment. To achieve this goal, there are several actions can be taken, but not all of them are feasible. Hubspot can cut its price to lead a price war for more market shares, however it is unfair competition. Or, it can get support from government and make Hubspot the only standard within the industry, which is not practical. In my opinion, the best way to dominate the market is to be ahead in products quality and value that matches customer need. Hubspot’s competitors in the area of analysis and qualifying leads include consultant and software companies. Hubspot should try to make itself the first and best choice among competitors. The company should initially spend more time study its customers. First, R&D should be outstand that can find out what customers need. For example, they want more simple or professional solutions. Second, a complete inbound marketing is needed to see who the prospects are, how should them be converted as paying customers. For Hubspot, they would narrow down customer set to focus on B2B and Marketer Marys. Third, well established pricing model is important to keep the customers stay longer. Afterwards, Hubspot should make more efforts to build a stable but innovative technology. The company wants to figure out the best way that SEO work for customers and makes them more visible on the Internet by increasing exposure. It probably should make the software better featured and institutionalize the process....