Dharmesh Rao’s Journey:
Dharmesh Rao, co-founder and CTO of HubSpot, has written extensively on startups and co-authored the books “Inbound Marketing” and “Get Found Using Google Social Media and Blogs.” He founded onstartups.com, a popular startup blog, and published HubSpot’s Culture Code, which gained significant recognition. He is an active angel investor and has invested in over 80 startups.

HubSpot’s Success:
HubSpot has grown significantly, reaching a market cap value of over $22 billion and annual recurring revenue exceeding $1.1 billion. The company has over 113,000 global customers and more than 4,000 employees worldwide.

Introversion and Public Speaking:
Dharmesh Rao considers himself an introvert and initially found public speaking challenging. He views speaking as a learnable skill and has dedicated time to improve it. He encourages introverts to recognize that talent can be compressed through effort and practice.

HubSpot’s Founding in Boston:
Dharmesh Rao and Brian Halligan co-founded HubSpot in Boston in 2006. Brian grew up in the Boston area, and Dharmesh moved there with his wife in 1999.

Choosing Boston Over the Bay Area:
Dharmesh Shah chose Boston over the Bay Area for HubSpot due to the city’s culture, loyalty, and long-term focus of its people. The Bay Area, while having great talent and successful companies, has a mindset of changing companies frequently, which may not be ideal for building a software company.

Benefits of Boston for HubSpot:
Boston’s culture promotes longevity among employees, leading to increasing compounding returns for software companies. Senior engineers with long tenure can carry large parts of the system in their heads, enhancing code reuse and deliberate decision-making. Boston’s institutional knowledge and talent density, with numerous educational institutions, provide a strong foundation for HubSpot’s growth. The city’s compact layout allows founders to easily access various resources and events, eliminating the erratic commute times faced in the Bay Area.

Challenges of the Bay Area:
The Bay Area is bimodal, with companies concentrated in Palo Alto and San Francisco, leading to long and unpredictable commute times between the two. Founders may find themselves in the wrong location for their desired activities, whether it’s in Palo Alto or San Francisco. The commute between the two areas can be a significant time drain, impacting productivity and overall well-being.

Boston Tech Ecosystem’s Potential:
Boston has a disproportionately lower number of high beta startups compared to the talent pool. Many talented individuals leave Boston after completing their degrees, resulting in a loss of potential entrepreneurs. More early-stage capital is needed to support high-risk startups.

Boston’s Advantages:
Diverse set of industries, including healthcare, life sciences, and financial services. Expectation of increased startup activity in the next five years.

Mafia Companies:
HubSpot has become a notable mafia company, with many early employees founding successful startups. Dharmesh Shah’s perspective: intentionally promoting a culture of entrepreneurship among employees. Acknowledgment that top talent may eventually leave to start their own ventures.

Recruiting and Retaining Talent:
HubSpot recruits individuals with entrepreneurial mindsets and creativity. Recognition that these individuals may eventually start their own companies. Transparency during recruiting about the potential for employees to leave and pursue entrepreneurship.

Entrepreneurship and the Startup MBA:
Dharmesh Shah encourages individuals with startup ideas to pursue them and offers HubSpot as a valuable learning experience for aspiring entrepreneurs. HubSpot provides exposure to real-world challenges and opportunities, increasing the odds of success for future startups.

Building Great Entrepreneurs:
HubSpot intentionally hires talented individuals with entrepreneurial potential, fostering their growth and development. These individuals contribute significantly to HubSpot’s success while gaining valuable experience for their future ventures.

Software Solutions for Diverse Problems:
Dharmesh Shah’s passion for using software to solve problems extends beyond business challenges. He developed a name generator algorithm to create a short, marketable name for his son, Sohan.

The Algorithm-Generated Name:
The algorithm generated a list of potential names based on specific criteria, such as length, letter combinations, and uniqueness. The final name, Sohan, was chosen after consulting with his wife and ensuring it had been used on Facebook, indicating its familiarity.

HubSpot’s Culture Code:
Dharmesh Shah’s work on HubSpot’s culture code has been recognized, with the company being ranked among the best places to work. HubSpot’s culture emphasizes transparency, accountability, and a strong sense of community.

Culture Keeper without Direct Reports:
Dharmesh Shah holds the unique role of defining and maintaining HubSpot’s culture without having direct reports. This responsibility was assigned to him after Brian Halligan, HubSpot’s CEO, recognized the importance of culture during a CEO group meeting.

The Importance of Culture:
Brian Halligan, CEO of HubSpot, initially overlooked the significance of culture, prioritizing product development and growth. His CEO group emphasized the crucial role of culture, stressing that it’s the foundation for long-term success.

Dharmesh Shah’s Involvement:
Dharmesh Shah, initially reluctant due to his introverted nature, took on the responsibility of working on culture at HubSpot. He approached it as an engineering project, aiming to document and understand the existing culture.

Initial Negative Reactions:
When Dharmesh shared his plans to work on culture, he faced strong negative reactions from the team. Team members expressed concerns that HubSpot would become a conventional company with empty mission statements and imposed platitudes.

Misconceptions about Culture:
People often associate culture with corporate impositions and inauthenticity. In the startup world, there’s a belief that culture should be organic and discussing it makes it unauthentic.

The First Version of the Culture Code:
Dharmesh created a 16-slide culture code deck that addressed a single question: estimating the probability of success for any given HubSpot employee. This deck focused on identifying the key factors that contribute to individual and team success within HubSpot.

Culture Code as a Heuristic Decision-Making System:
HubSpot’s culture code was developed as a probabilistic model to identify attributes of successful employees. The culture code emerged from internal discussions on the attributes that define HubSpot’s best employees. Humility and transparency were identified as key attributes.

Culture Code as an Operating System:
The culture code is envisioned as an operating system that guides decision-making and trade-offs. It helps to answer questions about hiring, team dynamics, and company direction. The culture code is a living document that iterates and evolves as the company changes.

Culture as a Product:
Culture should be treated as a product that needs to be optimized and iterated upon. The people in the company are the customers of the culture product. The culture should be constantly monitored and adjusted to meet the needs of the people it serves.

Culture Code’s Resilience During Global Events:
The culture code has been tested during global events such as the pandemic and social justice issues. It has helped HubSpot navigate these challenges and make decisions that align with its values. The culture code has enabled HubSpot to adapt to new realities, such as remote work and hybrid work models.

Flexibility as a Top Feature:
Flexibility has become a highly sought-after feature in company culture. Employees value the ability to accommodate personal needs, such as caring for elderly parents or children. Flexibility can outweigh other factors like compensation and titles for many employees.

The Pajama Principle:
Success is proportional to the degree to which employees can work in comfortable attire. The events of 2020 have highlighted the importance of flexibility and remote work.

Digital Transformation:
Businesses are increasingly recognizing the need to digitize all aspects of their operations. This shift is particularly relevant for SMBs.

Customer Experience:
Customer retention and meeting customer expectations have become crucial in recent times. Businesses are focusing on “hugging their customers” to maintain loyalty.

HubSpot’s Response:
HubSpot is well-positioned to help businesses deliver transformed digital experiences to their customers.

Customer Expectations Have Shifted:
The traditional outbound marketing model, such as cold calling and spam, is no longer effective. Customers now expect a higher level of convenience and digitization from businesses. They want personalized and seamless experiences that cater to their needs.

SMB Opportunities:
The SMB market has become more attractive to venture capitalists due to successful precedents like HubSpot and Shopify. SMB businesses can charge for solving problems in a traditional way while still having enough scale to resemble a consumer business. SMBs offer short sales cycles, less revenue concentration, and the ability to solve problems the old-fashioned way.

HubSpot’s Success in SMB:
HubSpot has achieved remarkable success in the SMB market with an ACV of around $10,000 and a billion-dollar valuation. Dharmesh Shah and Brian Halligan, the founders of HubSpot, were motivated to start the company due to their negative experiences with long sales cycles and the lack of control over the roadmap in enterprise software.

Advantages of SMB over Enterprise Software:
SMB businesses allow for shorter sales cycles and less revenue concentration. They provide the ability to charge for problem-solving in a traditional manner while still having the potential for consumer-like scale. SMBs offer a more balanced outcome compared to the bimodal outcomes often seen in the consumer market, where businesses either become highly successful or fail entirely.

Key Points from Lily Lyman’s Discussion with HubSpot CTO Dharmesh Shah:
HubSpot’s focus on SMB, MBAs, and platform-building contributed to its success. Building a platform that’s a joy to build on involves designing it with the developer in mind, similar to how UX is designed for customers. Dharmesh Shah emphasizes the importance of “time to joy” for developers, the amount of time it takes for them to see results from their work on a platform. HubSpot’s unique approach to building a technical team includes a strong focus on user and developer experience, as well as a commitment to diversity. Dharmesh Shah regrets not starting to work on culture and diversity earlier, as it’s harder to fix later on. He advises startups to at least make an effort towards diversity, even if it takes longer, and to avoid hiring pipelines that are not diverse. The negative trade-offs of not investing in diversity are significant and long-lasting, referred to as “culture debt”. HubSpot implemented the Rooney Rule, which requires a diverse candidate to be considered for every hire above a certain level. Dharmesh Shah highlights the importance of giving Brian Halligan, HubSpot’s CEO, time and space to heal from his medical condition.

Additional Notes:
Brian Halligan’s health status is improving, and he is expected to make a full recovery. HubSpot’s deep bench of talent allows them to operate effectively while Brian Halligan is away.

Capital Consumption and Scaling:
Despite easier and cheaper access to customers and marketing, more opportunities remain for businesses to be transformed by moving to the cloud and SaaS. The Boston area has enough founding talent and companies to deploy more capital for hyperscaling and blitzscaling. Boston’s flagship venture capital firms have shifted their focus towards the West Coast, impacting the availability of capital in the region. Dharmesh Shah believes Boston can attract talent with great universities and make a case for staying in the area rather than moving to the West Coast for startup ventures.

HubSpot’s Long-Term Focus:
HubSpot’s strong and deliberate culture values transparency, sharing everything with employees unless legally prohibited or not their information to share. The company faced concerns about maintaining its culture and focus on long-term goals amidst Wall Street’s emphasis on short-term quarterly results during its IPO. Dharmesh Shah shares an anecdote about how HubSpot’s transparency allowed employees to voice their concerns and propose a solution to address the issue. HubSpot’s solution involved creating a document that outlined the company’s long-term vision and guiding principles, which helped align employees and investors.

Designated Insiders List:
HubSpot extended the designated insiders list to include every single employee, granting them access to raw financials and sensitive information. This decision was made to maintain the company’s culture of transparency and trust. Employees have the option to choose whether they want to be included on the list, considering trade-offs such as restricted trading during certain periods.

Focus on Long-Term Value Creation:
HubSpot does not obsess over the stock price, recognizing that it oscillates around the actual value created for customers. The company’s valuation over the long term is seen as more relevant than short-term fluctuations. This approach allows HubSpot to run the business as usual, focusing on solving long-term problems and customer satisfaction.

Cash Flow Positive and Independent:
HubSpot’s cash flow positive status eliminates the need to raise funds from the market. This independence from external funding allows the company to make decisions based on long-term goals rather than short-term market pressures. HubSpot can continue to prioritize profitability and sustainable growth without compromising its values.

Transparency:
HubSpot has maintained transparency with investors by consistently reiterating its focus on SMB (small and medium-sized businesses) and its lack of plans to target Fortune 1000 companies. The company has been open about its financial performance, including its ACV (average contract value) and ARR (annual recurring revenue). Shah appreciates the real-time valuation that comes with being publicly traded, as it provides a market-driven assessment of the company’s value.

Going Public:
Shah believes that the downsides of going public have been overplayed. The process of going public has become less painful over time, and there are alternative options available. The burden of having investors is not as high as some may think, and Shah values the real-time valuation that comes with being publicly traded.

Earnings Calls:
Shah had his first earnings call since Brian Halligan’s departure. He found the experience to be positive, as the analysts and investors asked good questions and demonstrated a deep understanding of the company. HubSpot’s approach of transparency and providing investors with the same numbers that the company uses internally was well-received.

Mistakes and Learning:
Shah acknowledges that HubSpot has made mistakes in the past. The company is open about these mistakes and shares what it has learned from them. This approach fosters trust and transparency with investors.

Remote Work:
The pandemic forced companies to adapt to remote work, building skills and capabilities that will continue to be valuable. Some companies may return to traditional ways, while others may embrace flexible work arrangements, such as allowing employees to work from home on certain days.

Digital Transformation:
The pandemic accelerated the need for digitization and efficient systems to deliver customer experiences. This creates opportunities for businesses to innovate, improve customer service, and scale their operations. Startups can capitalize on this need by offering innovative digital solutions.

Advice for Startups:
There is never a bad time to start a startup, but the current climate presents unique opportunities. Startups can leverage the lessons learned during the pandemic, such as the importance of remote work and digital transformation, to create value for customers.

Taking the Entrepreneurial Leap:
Overcome the fear of taking risks associated with starting a business. The majority of entrepreneurs, even those who faced failures, do not regret taking the entrepreneurial plunge. Having access to the internet, literacy, knowledge, and marketable skills provides a safety net in case a startup fails, making the risk of failure less daunting.

Importance of Collaboration:
Find people who you genuinely enjoy working with. Having compatible and enjoyable working relationships is crucial for success. The best ideas often emerge after starting a company, rather than before.

Valuable Insights:
Flexibility is essential for adapting to changing circumstances and embracing opportunities. Culture debt refers to the accumulation of negative cultural traits that can hinder a company’s growth and success. SMBs (small and medium-sized businesses) represent a significant opportunity for growth and innovation.

Appreciation for Dharmesh Shah’s Leadership:
Dharmesh Shah is recognized for his leadership and contributions to the Boston community and the business world. HubSpot’s success and growth are inspiring to others.

Q&A with Dharmesh Shah:
Follow-up questions for Dharmesh Shah can be tweeted to Lily Lyman, who will answer them for the rest of the day.