Yamini Rangan, CEO @ HubSpot: How HubSpot Competes Against Salesforce

When you are in a wartime or a hard time, you are optimizing for speed of execution. When you are in peacetime, you are optimizing for getting a consensus around what you're trying to do. You've got to be good at both and many other modes of operating. B2B apps are not winner-take-all markets. Whether you look at HR, Finance, CRM, they all have multiple players. The best competitors make you better, and I think Salesforce does a really good job of that.

Thank you for having me, Harry. It's been a long time. I've been a long-time listener, first-time talker to you.

It is a privilege and honor to take over from a founder, and it's hard and tough work to make it work. I think for me, I'd been at the company for about a year, and I always looked at the decisions that Brian and Dharmesh made in starting and scaling the company: deep conviction in SMB, deep conviction in building a platform and crafting the platform, deep conviction in having culture as a product. Those are decisions that I just loved and I completely believed in. So I think that is the easier part, and that's the pro of working with founders who know the company, who have taken it from a very small startup to scaling it to a public company and beyond.

I think on the flip side, it's a lot of work. You know, when the transition happens, you have to think about a lot of things during the transition and throughout. You know, after, what's the cadence? Do you want to send 20 emails a day or two emails? And what's the altitude? Do you want to talk about the strategy and the product, or do you want to talk about the whole business? And if it's one or the other, you really need to make sure that you're covering the bases across all of those conversations. And then what do you do when something bad happens, which something will happen, right? If you hit a pothole or if you make a bet that does not work, what happens? How are you going to make it work, right? So there's a lot of work that you need to put in, and just like any relationship that you have, right, first of all you have to commit to it, and then you've got to put the work in to make it function. And so, yeah, there's a lot of work.

Yeah, you have to have deep conviction in order to run a public company, and if those decisions and the choices that you make are counterintuitive, even better, right? And it's almost like you've got to forget that you're a public company and you've got to start with the basics of what do you believe in. One of the things that I just came from talking to investors this whole day, we had a whole non-deal roadshow today, we spent a lot of time talking to investors. They actually appreciate your conviction in your business. That's what they like to hear. And so when we talk to them about why we make these decisions, why we focus on the segments that we do, they get our story.

A couple of things come to mind. I would say pricing, and we'll talk about AI pricing. But when AI came on the scene in November 2022, we fairly immediately moved into product building, and we changed our roadmap. We actually stopped our roadmap, changed the roadmap, and started building product. And since that day, they're like, how are you going to monetize it? You know, what are you going to do with the monetization? And we have a deep conviction that there is one product, which is an AI product, and it's going to be inbuilt into Hub and every part of the platform, and that means monetization is the entire platform. And Harry, I can't tell you, every day I get asked this question about 10 times: how are you monetizing it? We're monetizing it with the current product, and that's how we plan to build. And I think it is counterintuitive because today everybody has an AI SKU, they slap a premium on that SKU, or they put a usage metric, or they put an outcome metric, and there's just a lot of swirl about how you price products. But I think the first thing that you've got to do when a big tech shift like this happens is to focus on customer value.

Yeah, I mean, I think there's a lot of swirl on: is it seats? Are seats going to completely go away? Is it outcome? Is it some form of consumption and credit? But also, if you're a horizontal-based product like HubSpot is, you have some customers that will use you for LTV like I will do for a fund, that's a very high ticket, versus a florist, which is a very low ticket. And so you can't just have the same outcome-based pricing. I think, you know, look, there's a lot of swirl. We believe that in the fullness of time we will have hybrid pricing. We'll have some seat-based pricing and some usage-based pricing. I think it's really hard to think about outcomes for exactly the same reason that you're talking about, right? Which is how can you validate an outcome, and especially if you offer a platform which on one spot can resolve a ticket, on the other can help you set up a meeting, on the other write a blog or a social post for you, the outcomes are so different. How are you going to validate all of it? I think the simpler way, at least for SMB, our customer base, to think about it is results, and it's more of usage. Are you using a certain credit? Are you using something in our AI platform? Then it's a credit-based mechanism rather than an outcome-based mechanism. So that's how I think it's going to evolve.

I want to know who asked that question, Harry, but I will hold it. That's my enterprise version. Okay, look, I think, you know, we are going from a scale-up to a grown-up stage. And one of the things at HubSpot that I heard when I took on is that we don't like process. Process is a four-letter bad word. We don't want to talk about process. And you need a certain amount of process as you grow and you become, you know, a bigger company, distributed company across multiple offices. So one of the things that I've done is really focused on tying strategy to priorities to outcome. You know, when you run a large grown-up company, the clarity of what is important is really needed. So strategy is just that: what's the most important work that we do as an organization? Then the second part of it is priority off that strategy: what are you going to do this year that's a priority? And then the third part of it is what do you commit as outcomes based on the work that you're doing this year, and are you accountable for that outcome? And this strategy to priority to outcome, you know, is something that I've obsessed about for the last couple of years. Just so I get an example of like what strategy. So the strategy is three-fold, Harry, super simple: focus and obsess on our customer, everything starts with the customer; second, make our product easy, fast, and unified; and third is have a growth mindset and become grow-getters ourselves. That structure of going from strategy to priorities to outcome is something that you need as you scale and you become even bigger and distributed. I can't see Brian. Brian is awesome. He probably would have done a lot of things. I don't know if he would have put a framework like that with the process that we have driven.

That is not true. I'll push you on that. Go on. I mean, people love the comfort of what they have done every single day. I mean, look at AI, which is coming. You know, and one of the things that we're talking to the whole company about is: can we become AI-first ourselves? Can we learn how to do prompts? Can we start using AI every single day? Well, the answer is not everybody wants to do that because they're comfortable. Some of us are comfortable doing whatever we've been doing for, you know, the last decade. And so I think growth mindset, the alternate is, you know, comfort in how you do what you do, and maybe even comfort in the expert level that you have based on what you have done for a long period of time. So asking questions, being curious, learning, adapting, that is not a given in, you know, any company, or that's not even a given in the mindset. And I think the larger you become, you do have people who like the comfort of, you know, I've done this before and I've done it a certain way and I know how to do it and I'm very comfortable doing it the way that I have done it before.

Look, one of the biggest changes when you go from any, you know, position into a CEO, the number of stakeholders that you have is massive. You now have the board, you have investors, you have founders, and you have like a broader employee population across a lot of teams. And so it's like the number of key stakeholders that judge you, that focus on what you're doing, and look at you is just broad, right? So that's number one. What I got comfortable with is that no matter how hard I try, I'm not going to perfectly hit the approval of all those stakeholders. At some point, I'm going to do something which, you know, is super beneficial to customers. At some point, I'm going to do something that employees are happy about. At some point, I'm going to do something that board members are satisfied with, and maybe investors are not. So you're never going to hit that perfect equilibrium where you're satisfying and maybe even overachieving the expectations of all of your stakeholders.

I think you have to have, again, some very strong north stars, right? Like, what are you optimizing for? And within HubSpot, we've said solve for the customer, SFTC, and solving for the customer is the north star. So if there is, you know, ever, you know, kind of a decision between are we solving for the company or the customer, it's always the, you know, customer. And there's something that we say, it's like customer over company over team over self. And that is a guiding framework and a principle which means when in doubt, always do the right thing for the customer, then for the company, and you shouldn't be solving for yourself, right? And so I think like there are guiding principles in terms of how you think about decisions which will, you know, shift it one way or the other, but you're still not going to get every one of those decisions right.

Politician? No, I don't want to be a politician, and no, I don't think of my job... I think I would not do this job if I had to be very political. In fact, I want none of politics or none of those considerations in terms of how we make decisions. You know, I took on this role as a CEO for HubSpot because I think we can, you know, we have such a big opportunity. The mission of what we are trying to do, which is to help small and medium businesses grow, is just so personal to me, and it's so motivating and inspiring that that is the focus for me. And, you know, how do you make, you know, decisions on a given day? How do you pivot? You said it comes from resource allocation. I actually think about it as resource alignment. You know what I mean by that is you have, you heard this term that culture eats strategy for breakfast. You know, I said this to our team: alignment eats strategy for lunch. And what I mean by that is the biggest job, you know, job number one is setting up strategy, but I think what is even more important and critical in terms of a CEO is aligning all of the resources to accomplish that strategy. And as teams grow and as they get like distributed, as they get like much bigger, vectors are totally not aligned.

So think about this, Harry. You have a sales organization that's optimizing for this quarter. You might have a customer success organization that's optimizing for the segment of customers staying and not churning, and those two are not always the same. And then you might have a product organization that's trying to launch a product. And how do you align, you know, every one of these functions that are trying to do what they think is right? They're trying to optimize for subsystems. How do you get them to align on the system? And the way to think about this is most of the work that gets done in a larger organization is cross-functional in nature. They're not functional in nature. And most organizations grow up with a functional mindset: what am I doing in my team? What am I doing in my function? How do I optimize? And so really the alignment is, can we be clearer on what moves the needle for the company? Now, I gave you an example of our strategy earlier, which is we want our product to be easy, fast, and unified. Now, that's not just the product's job. It is the job of marketing to communicate that value proposition to our customers. It's the value of sales to be able to demo that and help our customers understand that. It is the job of customer success to make sure that we're delivering based on that, right? Those are very, very cross-functional priorities. Now, if I go to our team and we say the number one priority for HubSpot today is to make our product easy, fast, and unified, that aligns the entire set of sub-functions to optimize for that outcome that we want to drive based on that strategy. And in most organizations, it's not just about resource allocation, is it? When you allocate the resources, is there duplicate work? Is there clarity in what the resources are going to accomplish in what period of time? Do we know what the goals are? And if something does not work well, is there clarity in who takes accountability to get the right outcomes? And that's the job. And, you know, once you set that up, you begin to see that flywheel.

First of all, I love Jay Simons. Amazing. He's been on our board for a long time, and he's added so much value. We go to him, you know, to soundboard almost any part of the strategy. Look, I don't know if I like the word wartime and, you know, peacetime. It just, now there's like real war going on, so I don't know if I want to use those words. But I think what you're getting at is good. Are there different modes, you know, that a CEO needs to operate in? Maybe hard times or not. And maybe the modes optimize for different things. You know, when you are maybe in a wartime or a hard time, you are optimizing for speed of execution. And when you are maybe in peacetime, you are optimizing for getting a consensus around what you're trying to do. And those modes are completely different, and you do have to operate. And the question is, you know, should you be good at one or the other? The answer is you've got to be good at both and many other modes of operating. And, you know, there are years where you get into the year and you're like, this is, you know, go, go, go. You are optimizing for speed, which means we are going to be very clear in terms of what we want to accomplish this year. We've got to get, like, you know, people just follow there. That's the north star for this year. We're just going to go, and it's optimizing for speed of execution. And that's completely different when you need to enroll everybody in your strategy. You're doing roundtables, you're getting everybody to align on what the priorities are, and the mode of execution is really different. You've got to do both. And sometimes, you know, you've got to change the mode, you know, in a year or maybe even a given quarter.

There's a moment with people where they know something in their head, and it's like, do I say that story? You know, I laugh, Harry, because so I've been getting, like, performance reviews forever and ever. Oh my God, yes, exactly. And the consistent theme, you know, across now 25-plus years of my performance reviews is go slow, because I have, you know, my natural mode is really going super fast. And very early on, I was in sales, you know, I had just gotten promoted to a sales manager role, and that was the first time I got that feedback: go slow, because your team is not, you know, behind you. You need to, like, explain things to them. You need to ask questions rather than give answers. And I have a sticky that is probably a decade old, and I can't take that sticky off my computer because it says slow down and ask questions. And so, you know, I smiled and laughed because, you know, this is a lesson in the making. My mode of operation is always, you know, for speed and speed of execution. And I found that when you spend the time providing the context to your team, when you ask more questions so that they can get to answers, when you enroll them in what you want to accomplish as a whole organization, then you go far. And sometimes you opt for speed, and you turn around and you're the only one there. And so what I've learned is that there is a ton of context building when you are making a pivot or when you're changing a direction of something. You have to provide the context. You have to provide the why behind the what you're asking to do. And that is a process of slowing down in order to go far.

You know, that's a great question. I'll tell you, then, when I joined HubSpot, this is January 2020, I looked at how we were running the company, how we were running marketing, sales, and service, and we were running HubSpot on HubSpot. And guess what? At that time, we were a 4,500-person company, so well out of our target segment zone and our ICP. And it was working beautifully. I could get all the reports, I could get all the insights, I didn't have to ask anybody, it was right there. And we were customer number zero for HubSpot, so product was absolutely ready. Then the question is, you know, can you get the partner ecosystem, can you get the whole company behind moving up market? And just so we know, we're talking about 2 to 2,000. We're not talking about a 20,000-person company. We're not talking about a 200,000-person company. We're still talking the segment that we were originally focused in, which is 2 to 2,000. But the opportunity to go to a 1,000-person company and help them grow across marketing, sales, and service was huge. Our product was already there. And so the next step was to state that as part of the strategy and to get the whole company behind serving an upmarket customer in that space. And it's worked out.

No, I don't think it is that different, especially if you think about how we went about doing it. We were already serving, you know, companies with 200 employees, and then we started serving companies with 500 employees, and then we started serving companies with thousands. So I think, like, there is a myth that, you know, there's a completely different motion and you've got to, like, go and hire all these enterprise-class, you know, reps to come and sell. And in fact, if you do that, that will break the system and that will break the culture. But if you think about a more incremental approach of getting the product to be a perfect fit for the next higher segment, so going from 200 to 500, and then looking at the kind of sales and support organization that you need and upleveling them incrementally the next year to make sure that they can serve a 500-person company, and then taking it up to 1,000 and taking it up to 2,000, that is a much better way of scaling up market. And we've been able to bring along our reps by upskilling them. We've been able to bring along our partner ecosystem by upskilling them. We've been able to continuously drive innovation in the product as we go up market.

When the complexity of the buying process on behalf of the customer goes from I'm making decisions, I got the budget, to I have a committee of people that now need to make the decisions, that includes IT, that includes procurement, that includes security, that includes maybe the board, then it gets different. Not different, it probably gets a little bit more different. And that's where we had to, like, upskill our sales team. How do you sell to a committee versus an individual owner or a sole proprietor or a VP of marketing? How do you make sure that you're driving a process that makes sense, that works for customers up market? Right. So I think there is an organic way of upskilling that you can do to, you know, make sure that your team is enrolled in the process, the skills are getting better, and then, you know, you begin to set that flywheel in motion.

Look, it's a very large market, and B2B apps are not winner-take-all markets. It's different than consumer apps. You know, consumer apps, you see one use case, there's an app that comes in, and then it's like 90% of the market is just like one provider. That's not been the case in almost any of B2B apps. Whether you look at, like, HR or finance or recruiting or, you know, you look at, like, CRM, they all have multiple players. And I think the way we look at it is for the 2 to 2,000 segment, you know, we have a great product and we have a great go-to-market fit, and so we're really good at that. And then, you know, Salesforce has got, like, this amazing, you know, enterprise segment that they're really good at. And so, yes, is there an overlap, you know, in the upper end of our upmarket, you know, 2,000-person company?

Sure, we see them, and you know, they probably are like, yeah, we have a whole space in Enterprise, and okay, there's some overlap there. So yeah, are we, you know, competitive in one portion of the segment? Yes, but we also focus on really delivering for that entire hub, which is the 222,000 space we've been talking about.

You know what I always respect and learn from, you know, competitors? The best competitors make you better. Salesforce does a really good job of marketing and telling the story and creating the narrative, and we look at that and it's like, we're, you know, we're very impressed and we learn from it, and hopefully they learn something from us.

Look, I will say that if you look at a thousand-person company that's using CRM, we want to be able to put a customer application in, and you know, the next week people should start using it and adopting it and intuitively getting value out of it. And we focus on that. We've been talking about our strategy. Our focus and strategy is really making our product super easy, super intuitive, and that's not what customer platforms and B2B applications have been. And so part of what we've been doing is to train the market, train our customers, that easy is a really important attribute.

If we really had to make a choice, it would be product first. You know, the more you can invest in the product for it to be easy, intuitive, unified, crafted, the easier it is to get, you know, sales and marketing engine going.

50% of companies that get started fail within the first five years, and starting is hard. Starting a company is really hard, you know this, but scaling a company is absolutely brutal, right? And if you think about why is scaling so hard, especially for small and medium businesses, they operate under constraints, and particularly three constraints: they are headcount constrained, they cannot add the next headcount; they are capital constrained, they don't have big budgets; and they are expertise constrained, they don't have an army of consultants and resources to kind of like bank upon. So they operate under constraints, but yet have grand ambitions. And when I said that AI is a, you know, equalizer for SMBs, it removes each one of those constraints. So think about headcount, you know, if you're using AI for support, you may not need to hire the next support person for a bit longer, right? So I think it just unblocks the headcount constraint. Think about it for marketing, you know, if you have like a huge budget, then you can personalize every single message that you send out, but if you don't have a huge budget, you're not going to be able to do that. But now AI can help you look at your ICPs, look at segments not as broad segments but as individual, you know, customers that you want to be able to prospect and, you know, get much better conversion rate. So no need for like huge budgets if you're leveraging AI to send personal messages. And then think about sales, like the expertise that you need to sell, and you said this earlier, you need a pre-sales consultant, you want a demo, you want a solution consultant, you want all these experts to be able to scale selling. Well, you can get demos done through AI. AI can actually help in a lot of those areas. And so when, you know, generative AI came on the scene, we got like super excited not because it was a shiny cool technology that we all wanted to hype about, but because it unblocks SMBs in the core areas that we focus on: marketing, sales, and service. And that is exciting, taking a pretty sophisticated technology, making it super simple.

I mean, look, I think this is why the North Star for us has always been customer value, and we talked a little earlier about companies slapping an AI SKU and pricing it, and then you begin to see there's churn. And one of the things that we focused on is let's build great product and let's make sure that there is repeat usage, repeat value with customers, and when we see it, then we can scale it, and then we can price it, and then we can, you know, do all kinds of things with it. And so to your point, it's early, but we are seeing clear signals in terms of agents.

Look, I think support is a very clear signal. We have agents, you know, that a customer agent that we have, we have 1,500 customers, and within weeks we saw 42 to 45% of tickets being deflected by AI, and that's a handful of weeks, right? Internally we've been using AI to resolve tickets 35% in year one, and now we'll be on to 50%. So very, very clear signal in terms of leveraging AI in order to scale support. I would say the same thing in terms of marketing. We've used marketing to drive conversion by having more personalized emails that has, you know, driven conversion rates, and that has helped us like scale marketing. So it's early, but at this point in the technology, we're looking for signals.

Well, I think, think about this from an end-user perspective. When a product is kind of like neat and novel, they're going to use it for one day, and then they're probably going to check it out again once every two weeks, or maybe they're not going to, and then they churn out. So it's really the difference between neat and necessary. And necessary means you're using it every single day, you cannot get your job done without it. And so the best way to think about leveraging AI and building it into your product is: can that feature go from neat to necessary, and can it become like essential as part of the workflow of your end user that they cannot live without it, right? That's the thing that we have to do. And you can't get it — it's not a slam dunk. You can't just like launch an AI feature next day, you know, it's like millions of users. There's a lot of iterative work that needs to happen to figure out which, you know, features are going to go from neat to necessary, and that's the way to think about building it into the product rather than slapping one feature.

And what is unique about AI is that every day you're getting customer feedback, and it's getting reinforced whether a product is being used, you know, what's the feedback that you get. I'll give you an example of content creation, right? When we launched content agent, one of the first things is like people attempt to create blogs, people attempt to, you know, move that into different social posts and social media, and we can, we can get the feedback, you know, this was good, I'm going to use it, this was not good, it didn't work, and that gives us the opportunity to iterate. And then as we iterate on, you know, some of these agents, we begin to see people start using it, you know, every week, and then there are some features where we begin to see repeat usage and a pattern of usage, and that shows that we're on the right path. I think, don't you think like this is the time where you got to dream big and you have to iterate small, and you got to like start with a couple of use cases and continue to build, you know, patterns in terms of customer usage.

Yeah, I don't think that. First of all, model costs and cost of inference has come down pretty significantly. You know, you look at it in 2023 to where we are now, it's come down significantly. I think cost curve is going to continue to, you know, decline. I wish we had a margin problem, that means the usage is going to be really high. I think we're still in the early parts of getting the features out, getting people to use it on a daily basis. So I don't think that there is margin degradation, and I continue to believe that the cost of inference is going to continue to come down, that we won't see that. There'll be a lot more value that we can generate for our customers.

I think companies with speed will win. It doesn't matter whether you're a startup or a scale-up or a grown-up like HubSpot. Anybody who operates with speed, who can innovate, will win. And at this point, HubSpot is operating like a startup. We have the speed, the agility, the focus, the urgency like a startup.

No, no, I think, you know, I think this is a pretty big shift in our culture. And as soon as we really pivoted the organization towards building an AI-first platform and building all the features for AI, we also said that we needed to become agile, we needed to move with urgency.