5 Things I Love About the HubSpot Business Model (Sort of) (Tech Strategy – Podcast 216)

Posted on July 31, 2024 by Prof Jeff

This week’s podcast is about HubSpot and the really cool aspects of its business model.

You can listen to this podcast here, which has the slides and graphics mentioned. Also available at iTunes and Google Podcasts.

Here is the link to the TechMoat Consulting.

Here is the link to the Tech Tour.

Here are the 5 things I like about the business model:

Software bundles. Especially integrated. Especially with freemium pricing.
Recurring revenue
Switching Costs: Financial, Procedural, Relational and Risk
The ecosystem with network effects (in theory). A Developer Flywheel in practice.
Sales and Marketing Flywheel

Cheers, Jeff

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From the Concept Library, concepts for this article are:

SaaS
Switching Costs: Financial, Procedural, Relational and Risk
Integrated Bundles
Enterprise Software: CRM
Operational Flywheels: Developer Ecosystem

From the Company Library, companies for this article are:

HubSpot

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Jeffrey Towson: [00:00:00] Welcome, welcome everybody. My name is Jeff Towson, and this is the Tech Strategy Podcast from TechMoat Consulting. And the topic for today, five things I love about the HubSpot business model, sort of. HubSpot, very cool company, getting a lot of press recently because it was almost acquired by Google. And I’ve been looking at the enterprise software space quite a bit the last six months.

We looked at Salesforce, we looked at ADP, obviously looked at Microsoft. You know, enterprise software is very cool, and companies that are specialized in customer relationship management Like HubSpot and like Salesforce, that’s a pretty attractive space. The big difference there is Salesforce is a giant and HubSpot is a relatively small sort of competitor.

So that’s also a kind of a cool thing to think [00:01:00] about is how do these specialty software companies, whether they’re specialty in enterprise, specialty in e commerce, specialty in gaming, whatever, how do you compete with the giants? And I’ve looked at that quite a bit over the last couple of years. So anyways, talk about HubSpot today.

It’s got a very cool business model. One of the best designed ever. It’s kind of more true in theory than in practice, but it’s worth understanding at least the theory side and then putting little asterisks by where, okay, in practice, that’s maybe not really happening. So that’s what I’ll go through today.

I’ll sort of talk about the five aspects to it that I think are really cool. And let’s see, standard disclaimer, nothing in this podcast or my writing or website is investment advice. The numbers and information for me and any guests may be incorrect. The views and opinions expressed may no longer be relevant or accurate.

Overall, investing is risky. This is not investment, legal, or tax advice. Do your own research. And with that, let’s get into the topic. All right, now those [00:02:00] of you who are subscribers, I have sent you three articles on HubSpot in the last several days. I basically went into this in pretty good detail because I think it’s pretty important and there’s a lot to learn here in terms of digital strategy and what a winning business model looks like.

HubSpot is a good example of that. in theory and mostly in practice, but not maybe as much as the common narrative says, in my opinion. So I’ve sent you three of those. I’m going to sort of highlight on the key points to that. Very cool company to pay attention to. Okay, now the concepts for today, there’s quite a few of them, but I’ll go through basically three to four that I think are important.

These are, I don’t think I’ve talked about. At least two of these. Number one is, is what I’ve been calling the sales and marketing flywheel. People talk a lot about flywheels. Oh, that business has a flywheel. They make these little graphics with arrows. You know, A leading to B, and then back to A. [00:03:00] No, flywheels are not network effects.

People confuse those. They’re not Structural aspects of the business. Usually what they are, they’re basically a level of operational coordination. So I, if you look on my concept library, it’ll be listed under operational flywheels. It’s where one activity you’re doing like flywheel. feeds into better product development, feeds into better data, and then feeds into better products and better and so on.

So there’s these linkages between various operating activities and sometimes they can form a flywheel. Now I don’t think any of that is a competitive advantage. I don’t usually think it’s a structural advantage of any kind, but they can really be helpful if you’ve got them. So sales and marketing, you can get a flywheel.

HubSpot has a great example of one. I’ve I’ll put a graphic in the show notes. I basically mapped it out as a picture. We’ll talk about that. Talk about developer flywheels. Which [00:04:00] is, you know, when you do something like HubSpot, which is sort of a platform that other apps can integrate on. You know, so if you’re on like WordPress, you can download plugins from Gmail and lots of other apps.

They will integrate into your service. That’s basically other companies, other developers integrating with your product, which then makes your product better, which makes it more attractive to customers. You get more customers in theory. You get bigger. As you get bigger, that makes you more attractive to more developers who then add more apps.

So it’s a little bit of a flywheel there too. Talk about that one. The other one to think about is an integrated bundle. Now bundles I’ve talked a lot about. Bundles of products. Shampoo plus conditioner, one price. Bundles of services. A lot of consulting firms do this. They will bundle products. But when you do digital bundles like Microsoft Office and others, actually Adobe is a better example of this.

[00:05:00] Sometimes not only are you putting multiple products together for the same price, which is, has a lot of value there but also the products can integrate and make each other better. That usually only happens with digital goods like Adobe. If you have the various Lightroom and Adobe Premiere, they share data.

They share sort of operational data, technological integration. The more products you have, the better the products can get. Sometimes we’ll call that an integrated bundle. Now, Microsoft Office doesn’t really have that. If you have Microsoft Word and you have Microsoft Excel, okay, you get them at the same time.

You get a deal. It’s a good deal, but it doesn’t really make them work dramatically better. It’s pretty minor, the levels of integration. So look for integrated bundles as opposed to regular bundles. So those are sort of the three concepts today. And with that, let me just sort of jump right into it. Now, I’m Not assuming that everybody is familiar with [00:06:00] this company.

So I’ll give you the basics. Okay. HubSpot. Basically, you know, it’s a, a pure digital creature. They make software, they make enterprise software. which is obviously B2B side. I love the enterprise software space. So they’re selling to various businesses and they’re focused on the area of customer relationship management.

Now, if you’re going to sell people enterprise software, there’s usually two layers to that. There’s the app. Here’s our sales software. Here’s our sales tools. You can give to your sales team at your business, but below that is usually a The sort of system of record, some level of a database where information is captured there, in this case about customers and that database level can then be used by other apps.

So, a business like HubSpot, you know, it’s basically five to six different [00:07:00] apps. services bundled together. You can buy one, you can buy two, you can buy three, but they all are within the area of CRM and they all sort of draw on the same common database. So you’re really sort of operating at two levels.

One, you get the bundle. You can buy one service. Let me give you the list of services. So they have what they call them hubs instead of services that are bundled. So they have a marketing hub. So these are apps and tools you can use for attracting, engaging. And nurturing sales leads, basically. And a big part of this is marketing automation.

That’s something HubSpot is very good at. And they have about 30 40 percent of the market within the category of marketing automation. They have a sales hub. So these are tools you would give to your sales team that would increase their productivity, that would increase their effectiveness of the team.

So that could [00:08:00] be personalizing communications to leads email templates lead and sales tracking, call schedules, some degree of sales automation, depending on what you’re selling. You can do what they call an operations hub. Now, this is just sort of data tools where data syncing, data curation checking for data quality, some degrees of automation.

So that’s, that’s a little bit between levels one and two content management hub. So this is tools you would give to the company, you know, basically team members would, you know, they’d create blogs, they’d create landing pages, they do search engine optimization, they do analytics, everything that would be under the content management hub.

Banner that typically has been a team, but more and more, we’re starting to see this become automated with generative AI. There’s a services hub. This is basically customer service function. So live [00:09:00] chat help desk, chatbots tickets for customer inquiries, responses, things like that. And then finally a commerce hub, which, you know, links your CRM package into various e commerce.

Systems, whether it’s Amazon or whatever, handling payments can be done on your own web page, Shopify, things like that. So basically six different types of services that all link together to a significant degree they’re integrated and you can buy one or two, or you can buy all six as a bundle and then they would tier them.

So they offer a freemium. Tiering structure. So you can start, you know, try it out for free, upgrade your services. So those three things right there are pretty cool in terms of a business model. One, it’s a digital bundle. We like that. It’s an integrated bundle. We like that even more. They’re using [00:10:00] tiering freemium pricing.

Anytime you can give something away for free to get people on board. And then third, underneath this, they really do have sort of a second product, which is this database, which really aims to become a source of all customer knowledge, a record of all customer interactions, basically to become the single source of customer truth within a business.

ERP and other enterprise companies. Software companies that we want to have our database like Oracle be the single source of truth that every aspect of the business draws upon. Well, this is the single source of customer truth. Okay. So right off the bat, that’s pretty cool. Now the other thing to keep in mind here is, okay, why is HubSpot different than let’s say Salesforce?

Salesforce is a lot like Microsoft. It’s a lot like Oracle. It’s a lot like SAP. These, [00:11:00] the big boys, you know, their primary customer base has always been very large companies and multinationals. And, you know, they build software that do these various ERP enterprise software services, you know, a company like Microsoft will offer everything from CRM all the way to the back office finance operations, everything.

Salesforce is more specialized to the front end customer interactions. But because they’re focused on these big companies. They have a fairly operationally intense business model. Yes, you have the software, but you have to offer a lot of sort of services. You know, big companies don’t want to put in tickets on a website to get a response.

No, there’s a consulting aspect. There’s a, you know, sort of adoption and implementation aspect. There’s a lot of customization that goes on and all of these big boys have massive sales force that do direct sales to these big [00:12:00] companies and they build these relationships. I mean, it’s, it’s kind of Microsoft secret weapon is they have a massive sales force that meets with every major Fortune 500, Fortune 1000, company and has very close relationships and they, you know, sell them software.

They work with them. They do customization. It’s really a software plus services business model. Now HubSpot doesn’t do that. HubSpot is focused on medium to small companies and that’s an area that a lot of people avoid because selling to those companies is really a pain. It’s very difficult. The sales process takes a long time.

They’re very demanding, the dollars are smaller, they’re harder to reach, they’re scattered all over the world. So you know, it’s kind of an old joke that like, VCs will instantly reject anyone pitching a new business that’s selling to small businesses on the [00:13:00] enterprise side. I would say the same thing, any business that comes in and it says, we’re going to sell to doctor’s offices.

I’m like, dude, that’s really hard. It’s, it’s, it’s a long grind to get that to happen. Well, no sales HubSpot focuses on businesses that have anywhere between about two to 2000 employees globally. And they are pretty international. So because they’re doing that, they can’t have the massive sales force.

They’ve got to do this mostly with a software business model, not a software plus services in house business model. It doesn’t work. So they’re, you know, far more of a pure software creature than let’s say Salesforce. Okay. Now how do they do that? I’ll talk about that as sort of one of the five reasons I like them is they have a sales and marketing flywheel, which I’ll talk about.

Okay. So if you read the HubSpot narrative, which is in all their 10 Ks and [00:14:00] stuff you get told a pretty good story. And here’s the story. It’s our business. is aiming to be the one stop shop, everything you need service for small and medium businesses within customer relationship management. So we have, you know, you can buy lots of point solutions.

You can get this piece of software to do your sales. You can get this piece of software to do your customer service. You can talk to Zendesk, whatever, but then you’re going to have to stitch them all together. So they’re sort of a contrast to that. We give you everything you would need within CRM. It’s all integrated.

It’s one bundle. It works beautifully. That’s a lot easier. So it’s a better solution. It’s a total solution. And we recognize that most small businesses don’t have the resources to stitch together lots of different software packages. So they will say we are the all in one, everything you need, CRM service.

For small and medium businesses. And we [00:15:00] offer this bundle with a freemium pricing model. So it costs you nothing to get started. And then you can upsell, you know, upgrade as you want. That’s sort of point number one. They say underneath that we have your customer database that creates a single source of customer knowledge.

And then below that we offer an ecosystem of compliments, apps, and integrations where all these other. Software companies, everything from Gmail to MailChimp to whatever, all can be integrated into our system. And there’s about 1, 500 apps and integrations that work with HubSpot. So that’s kind of their pitch.

And here’s their financials, just so you’re, you Get a little more information. They would say, based on that pitch, we have 205, 000 customers, basically businesses around the world that work for us. And that’s about 50 percent in the U S 50 percent out. [00:16:00] The business is, it’s not that big. It’s about 7, 600 employees.

So that’s big, but it ain’t, you know, it ain’t 50, 70, 000, like, you know, the giants of enterprise. Their revenue for 2023 was 2. 1 billion. And that’s up from 1. 2 billion, two years prior. So they’re growing, but they’re still in that, you know, 2 billion range after being founded in 2009. So, and when you look at the revenue, it is all subscription.

I mean, there is not, there’s tiny bit of professional services, but it is overwhelmingly software subscriptions that are mostly annual subscriptions that generate that, so sort of an interesting, almost purely software creature. Revenue has been particularly good in the last couple of years. The gross margin, big surprise, 84 percent because it’s almost entirely a digital creature as opposed to having lots of, you know, human provided services.[00:17:00]

And when you look at their numbers, the big expense that will jump out to you is sales and marketing, which is 49 percent of revenue. So that’s kind of where they’re spending a lot of money. Now they have 20 plus percent in R& D and you know, tech and things, but no sales and marketing is really where the money is being spent.

So that’s kind of an interesting thing. Okay. So those are sort of the HubSpot basics. That’s sort of the basic story the basic information in the narrative. Now, let me kind of tell you what, like, here are the five things within this business model I really like. And. It’s not a hundred percent true in practice.

It’s a lot of it’s true, but maybe a lot of it’s sort of not quite there yet. So here are the five things I really like about this business model. Number one, as mentioned, it’s a software bundle. I mean, I really like bundles of software. I like them of services too. Why? Because they do a couple things for you.

Number one, it generally [00:18:00] creates a better solution. Now, if your bundle is unrelated stuff. Like, Walmart sort of created a membership, like sort of their version of Amazon Prime, and they basically put together a bunch of stuff that isn’t really related. You could get like, discount on some products, you could get discount on gas, and I would say the same thing about Amazon Prime.

Yes, it’s a bundle, but you know, better delivery doesn’t really have much to do with video. Okay. So there’s different types of bundles, but when a bundle is all within the same area, you can sometimes create a more complete solution, a better solution to whatever the job to be done for the customer is.

That’s generally a better product. So a complete CRM service with everything you need, sales, marketing, customer service, ops, commerce, is a better solution than any point solution. So that’s why if you’re going to do [00:19:00] the point solutions like Zendesk or whatever, you’re going to have to stitch them together.

So number one, if it’s in related service against a common problem, a bundle is almost always a better and more complete solution. It’s a better product, full stop. Number two. It creates a barrier to entry, or at least it raises one. Because suddenly anyone who wants to come in and compete against you, let’s say like Zendesk, they have to offer everything.

And that’s a lot more work. It raises the bar. You know, suddenly you have to have three, four, five, six different types of services together to be a real viable competitor. That’s raising the barrier. And third, it gives you the ability to use your bundle as a competitive weapon. If you choose to, if you have five services and you want to really hit Zendesk, which like customer service stuff.

Well, what if I just discount my customer service [00:20:00] stuff because I’m making my money over in marketing, right? The more services you have, you can subsidize one to the other. Now, the most aggressive version of this that you’ll see is something that, you know, Microsoft is for doing. They will have a bundle.

Like the Office Bundle or Windows or whatever, and then they will put Microsoft Teams, which is a direct competitor to Slack, and they’ll put it in the bundle and they won’t even charge for it. So it will feel like you’re getting it for free. Now actually they may charge you for it in the bundle somewhere, but to the customer it’s like, well, I’ve already got Microsoft Office and now I’ve got Microsoft Teams and I didn’t even have to pay for it.

So, you know, if you can offer a service for free because you’ve got a bundle, that’s pretty devastating against a standalone solution like Slack. Okay, so bundles are great. Digital bundles are even better and especially when they’re on one common problem or one job to be done. And then when you can [00:21:00] integrate them, where they’re better the more that you have, that’s even better.

And that’s kind of what I think HubSpot has in theory. Now, why do I keep saying in theory? If you look at What people are actually using from Hotspot, what most people say is they are very, very good at marketing automation. They’re definitely the leader there. And, you know, the founder Brian Halligan, I believe, you know, he was an expert.

in basically inbound marketing. There’s a famous book called Inbound Marketing. He wrote he’s a marketing guru specifically about how do you market digital products. So, you know, HubSpot, which he and a co founder launched around 2009, is very good at the marketing services. So their marketing hub is great and they have really great market share there.

Okay, you don’t get that sort of picture when you look at something like [00:22:00] their commerce services. Now their commerce services, Well, that puts them head to head with Shopify. Okay. Shopify is really, really good at providing commerce software for businesses when you put them at, you know, customer service, things like that, they’re not as, so yes, in theory, you are the all in one everything you need within CRM bundle in practice.

What I’ve been trying to find out is, is that really true in practice? Are you mostly a marketing automation and services or software business? Is that most of what’s going on here? And then the rest is kind of a mixed picture. So in theory, I think it’s spectacular. I think Salesforce has an integrated bundle for large corporations in CRM in practice.

I think Microsoft is great at this stuff. And there’s a lot of companies. I’m not sure HubSpot is really the complete [00:23:00] bundle in practice yet. No, maybe it’ll get there. So the theory is amazing. The business model is amazing. And even if that’s not true, being really, really good at marketing automation is great in itself as well.

It’s just not quite the bundle all in story. So that’s going to point number one. Point number two. Because it’s a subscription model, they get recurring revenue. That’s fantastic. I mean, recurring revenue businesses, and specifically recurring revenue bundles, which are sometimes called Rundles.

Fantastic economics. You can see it in the negative working capital. You can see it in the retention rates. It’s just a fantastic, I mean this is the whole software as a service business model is just great if you can pull it off. So they’ve definitely got sort of the recurring revenue. You can see it in their numbers.[00:24:00]

That’s point number two, a bundle, a software bundle with high margins and you’ve got recurring revenue. That’s fantastic. Point number three, why is the first two so difficult to achieve? Everyone wants point one and two. Very few companies achieve it. Why? Because they don’t have point number three, which is deep switching costs.

Big switching costs, real lock in. If you’re going to offer someone a bundle with a freemium model, and that’s great, and it generates recurring revenue, that only works if you’ve locked them in, because otherwise you get lots of churn. Yes, you’re out there getting customers, but you’re losing customers.

Now, one of the reasons enterprise software is so attractive is because you can integrate into the business, into its operations. That can be, you know, this is [00:25:00] arguably the biggest strength of enterprise software is the ability to build switching costs into companies. Now, most of them can’t do this, or they can’t do it as well as they think.

If you have, let’s say ADP, and you’ve got enterprise software that’s specialized in human resources, in theory, you have switching costs. It’s not a critical area in terms of day to day operations. It’s important, but it’s not critical. You can swap those out, but if you are doing their software for all their interactions with their customers, businesses are going to be very hesitant to swap that out.

There’s too much risk. It’s not worth it. You know, what are you going to save 10 percent on your subscription costs every year? No, no. Let’s just stay with what’s working. Let’s not try to transition our entire customer database and source of knowledge. So the fact that they are doing enterprise software in CRM is great.

So switching [00:26:00] costs, this is one where it’s not in theory, it’s in practice. You can see it in their average revenue retention per year, which has been going between about a hundred and three and a hundred and ten percent. So you can see it in practice. They’re locking people in. And that gets you the standard business strategy for a company like this, which is, you know, land and expand.

You try and get into companies, you try and get them to put in the freemium version of your software. And then as soon as you get a foothold in, you start to cross sell your other services, you start to upgrade them. And then along the way, you’re building switching costs. It’s just a great business model if you can do it.

All right. So that’s kind of what is that? One, two, three of the five points of things I really like about the business model. All right, number four. And this is where we get to another sort of. Now. If you can start to offer an ecosystem, even if it’s a limited ecosystem, as opposed to [00:27:00] just a service, that’s better.

What that means is, okay, they make a big deal about the fact that they have what they call an ecosystem where You know, 1, 500 other apps and integrations fit right into their platform, and that’s true. If you go to HubSpot and you look up the HubSpot directory or the HubSpot what they would call marketplace, you will see tons and tons of apps you can install that will integrate in with your HubSpot service.

So if you want to use MailChimp to send out your emails, you can put it right in there. But this is like for WordPress, all the plugins. If you want to integrate in with Amazon so that you can do selling there, that works. If you want to do Gmail or Google Contacts, so all the contacts are integrated.

So basically you can integrate into all of that. And they call this a marketplace which would be a platform business model. I don’t think that’s really true, but there’s this question [00:28:00] of, okay, that is good in its own right. Because if you’re offering a software solution to somebody’s problem, like basically sell more, do better sales, be more efficient at your sales and marketing, be more productive okay, you’re offering a service to meet that need, offering a bundle of related services, which is what they’re doing, is even better because that’s closer to a total solution.

Well, this is even one step better than that because you’re offering a total solution, six software services, plus you’re offering a whole list of complements that make your solution even better. So, A total solution to a client’s problem is better than a partial solution. And a total solution plus a whole list of complements is even better.

And that’s what this ecosystem, in theory, gets you. Now, I agree with that. Now they will say they have a [00:29:00] network effect here. I don’t really think that’s probably true. I don’t think they have a platform business model. There’s, There’s kind of a long walk between we have a good service and now it integrates with other apps and developers are making their apps integrate with ours.

Integrations and apps. There’s a bit of a long walk from that to having a full platform business model and full network effects. Usually when you’re talking about network effects between let’s say buyers and sellers, you’re talking about hundreds of thousands if not millions. of people on the other side of the platform.

You may be talking about, you know, 20 million consumers of your marketplace platform, but then you’re going to have 5, 10, let’s say a couple million sellers on the other side. It’s usually not 1, 500. So there’s a bit of a sliding scale there where you’re adding compliments and all of that, and it makes your product and service better.

doesn’t really [00:30:00] make you an ecosystem or a platform business model with network effects. You kind of have to make a judgment call there. I don’t really think that’s what they have. What I would call what they have, so in theory, if they were to build the ecosystem or platform business model, that would be unbelievable.

Phenomenal business model. I think what they have is what I would call a developer flywheel, which is another operational flywheel, which is we have a lot of clients. Installing our software that handles the CRM, or at least part of it, at their company. Because of our customer database, 200, 000 companies, all these other software tools and developers are making sure their apps can integrate with ours.

Okay, all of those apps now make our solution even better. Our solution is even better, that will attract more customers. As we get more customers, that will make us even more attractive to developers. So I think there’s a flywheel [00:31:00] there. I wouldn’t call it a platform business model. I’m not convinced there’s a significant network effect there.

Anyways, that, that’s kind of another one where I’m, I’m on the fence. I’m thinking about it, but I’m not, I’m not convinced. So that’s sort of what I like. Number four, and that’s fine too. The ecosystem and the platform business model would be more powerful, flywheel is also quite good. Just not quite as good.

That’s number four. Last one, number five. They have a sales and marketing flywheel. This is pretty spectacular. Now one of my standard questions when I look at a business or an industry is who is the cheetah? I want to know who in this business has hyper specialized in the one activity that matters most.

For a cheetah, you know, a cheetah is hyper specialized, super specialized in accelerating very, [00:32:00] very quickly. And they’ve built, you know, the whole anatomy of a cheetah is designed for acceleration, five steps. You know, they can go at top speed, top accelerate. I mean, they basically hit the 60 miles an hour in three steps, two steps.

You know, and they can maintain that for about 15, 20 seconds before they overheat, which is enough for them to catch the gazelle that nobody else can catch pretty frequently. But they’re not big cats anymore. They can’t really kill zebras very easily. They certainly can’t kill giraffes. So they’ve given up a lot to super specialize.

Now, in this business selling enterprise CRM software to small and medium businesses, what is the activity that you would super specialize in? Is it software development? I don’t think so. I think that’s important. I think having good products is important. I think the activity you super specialize in is sales and marketing.

How do you reach all these little companies [00:33:00] scattered all over the world? You’re not going to have a big sales force. You can’t do that. How do you reach them? Remember how I mentioned that HubSpot, 49 percent of their revenue in the last year was sales and marketing? I think they’ve, I think they’re the cheetah in sales and marketing of CRM software to small and medium businesses.

I think they’ve super specialized in that activity, and that’s, the way they’ve done that is really two things. Number one, they’re very good at sort of inbound marketing. Inbound sales, inbound marketing you know, the co founder wrote the book on this stuff, literally. They’re, you know, they’re always putting out content, they’re doing SEO, they’re doing social media, they’re doing email newsletters, they’re doing videos and blogs and basically attracting visitors to the website and then trying to convert them into leads.

Then they also have some inbound direct sales where they’re converting their leads into ongoing customers. Fine. They’re good at [00:34:00] this. But that’s not terribly special. You’ve got to be good at it and it’s a critical activity, but a lot of people can do that. In fact, pretty much every business is doing some version of this.

No, what they have that most others don’t is they have what they call their solution partners, which is what I call their sales and marketing flywheel. Where they have basically gone out. You go on to HubSpot, you can pull up basically the HubSpot directory, and they will recommend to you a service firm or an agency in your area, if you want, any city, Tanzania, Cardiff, anywhere you want to go, they will have local solutions partners that can basically advise you.

They can help you on what products and services you should install, they can help you with installation, they can help you with onboarding, they can answer your questions. They have a partner network [00:35:00] that covers the whole world. Well, not all of it, but a lot of it. And what they do is, you know, they, they basically, this partner network is going to be doing two things all day.

They are always going to be marketing for you in their local market. You know, they’re putting out your information. They’re probably forwarding on your content, everything that you’re putting out in terms of inbound marketing. Here’s our blog. Here’s our video. Well, they’re amplifying that and referring it.

So they’re amplifying your marketing. And two, they’re doing sales and servicing for you because when they put in your software or help the client put in the software, they get a commission for their referrals. And. That’s pretty powerful. Especially, I mean, think of what the benefit is if you’re a small boutique firm in, I don’t know, pick a city somewhere in Bordeaux, somewhere in South Florida.

You’re working with the local clients in your area. [00:36:00] You’re their IT person they call. Okay. Agency work like that, consulting work like that, servicing work like that, you know, the revenue comes and go. It’s, it’s very sporadic. But if you get a commission from HubSpot that generates recurring revenue for you, because when they put in the software, it’s a recurring revenue business model, you get an ongoing recurring revenue.

That’s a really nice income stream for a lot of these companies. So they’re out there helping you with marketing. They’re helping you with sales. They get commissions for referrals. That basically, you know, makes HubSpot more effective. HubSpot becomes larger. HubSpot becomes more well known. That will attract more partners to their network everywhere they go.

So basically, the more partners you have, you’re going to sell more, you’re going to get more customers. The more customers you have, the more partners you can [00:37:00] sign up to be part of your system. It’s a flywheel. And, you know, that’s it. They kind of say like 30 to 40 percent of their customers come from this.

40 plus, these are general numbers, don’t hold me to these, you know, 40 plus percent of their revenue comes from their partner network. So it’s a huge percentage of their sales and marketing activities. And now HubSpot itself will have a direct sales team that manages the relationships with all the solutions partners.

If you go in their directory, you will see that they have lots and lots of specific skills and then the partners get accredited for those by HubSpot. So you can say I’m accredited by HubSpot for building email lists for you. I am accredited or certified by HubSpot for doing SEO solutions. So any specific task you are looking to do, you can find a local partner Actually, they don’t have to necessarily be local.

They can be at a distance if you want. Usually [00:38:00] they’re specified by geography and by language. So I want an English speaking partner who can help me put in this SEO solution preferably local near me. And, you know, they will pull up a list in the directory and you can see their ratings because they get rated by customers who have used them.

I can see if they’ve been accredited or not, certified by HubSpot, having gone through various levels of training. Anyways, they have this network everywhere. That’s the sales and marketing flywheel. It’s pretty amazing. It’s, I mean, how else would you sell at this level and grow at this rate without such a network, given that you’re trying to sign up small and medium businesses?

Very difficult. And it’s really win win because once you get installed in a company with maybe a freemium service, maybe a basic service, You can then land and expand to other services and you know, the network wins, the company wins. It’s a really a great [00:39:00] business model. So that’s kind of number five and really the main point today, which is you know, sales and marketing flywheel, fairly powerful.

The developer flywheel, I think that’s a very good addition to their core product. I like the switching costs. I like the recurring revenue and at the end of the day, I like software bundles, especially when they’re integrated. When they’re specialized, when they have a freemium version, those are kind of the five.

Anyways, that is the content for today. I think I’m a little bit longer today than normal, but really cool business model. In practice, I think it’s a little bit different than the standard narrative, but I think it’s worth understanding both. Understand the business model in theory, because it’s very powerful.

And then, you know, in practice, it’s, it’s a bit different, but it’s still quite good. So anyways, that is sort of my explanation for HubSpot. And those of you who are subscribers, I sent you three pretty [00:40:00] long emails that have a lot of graphics for this stuff. So it’s, it’s easier to see it than me describing it.

You can take a look at those. But the main concepts for today, if you go to the concept library sales and marketing flywheel. The developer flywheel and just integrated bundles in general and then switching costs, of course, but I always talk about it. And that is it for the content for today. As for me, it’s been kind of an awesome week.

I’ve just been sort of, I don’t know, a little bit manic, almost just going through company after company, after company is a hub spot, I’ve actually been going through two other companies, which I’m going to start sending out information in the next couple of days. That’s a PopMart. Which is really interesting.

And then Bilibili, which is a Chinese sort of video specialist Really interesting company. Basically I’m switching from B2B in the enterprise side of digital to the consumer side. And both PopMart and Bilibili. Bilibili is kind of [00:41:00] specialized in gaming, anime, things like that. Comics. There’s really great.

Consumer lessons, digital consumer lessons in both of these companies and they’re actually kind of a related similar concepts So that’ll all go out soon, but I’ve been just burning through those Next one on the list is Kuaishou. So yeah I’m always happy when I’m when I’m hyper productive and that’s been sort of the story for the last week No real.

Oh, I guess no Deadpool which was big surprise. Everybody knows it was really good You It was really fun. That’s been kind of my thing. One other, another recommendation. I’ve been watching Korean vengeance movies. Like, it’s really weird how, like, Korean cinema, like, Korea is such a civilized place.

Like, it’s really great. And you know, they have these good romance movies, like A Moment to Remember, Sassy Girl, all that. But they seem to, for [00:42:00] whatever reason, have a category genre of movies that are just hyper violent and shockingly violent. Like there’s a bunch of them, like I Saw the Devil, which is unbelievably good movie, but anyways, the ones that are probably the most well known are the vengeance movies, right?

There’s, there’s Oldboy, Which has been around for a while. That one is shocking. And it was the one I’ve been watching this last couple of days is Lady Vengeance. There’s three of these vengeance movies late and all by the same director. I believe Lady Vengeance is the one I’m watching. It’s just awesome.

It’s on Netflix. It’s just awesome. But let me put a big asterisk on this. It’s really shocking and violent. I mean, same with old booking environment. Don’t watch it with your family. Don’t watch it with little kids anywhere nearby. God forbid, don’t watch it with a parent. That would be maybe the worst. But yeah, [00:43:00] those are pretty amazing.

Oh, yeah, I saw the devil. I forget what the third one’s called. I think Sympathy for the Devil, maybe? I don’t remember. But anyways, Korean Avengers movies. That would be my recommendation with a big asterisk on those. These are not for everybody. Anyways, that is it for me. I hope this is helpful, and I will talk to you next week.

Bye bye.

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I write, speak and consult about how to win (and not lose) in digital strategy and transformation.

I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.

My book series Moats and Marathons is one-of-a-kind framework for building and measuring competitive advantages in digital businesses.

Note: This content (articles, podcasts, website info) is not investment advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. Investing is risky. Do your own research.

Jeffrey Towson 陶迅

Consultant and keynote speaker on digital and AI strategy, transformation and disruption

5 Things I Love About the HubSpot Business Model (Sort of) (Tech Strategy – Podcast 216)

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