Loading summary
Transcript38 lines
- [00:01]
A
So what if every time you hired too fast, launched a new channel, or added a service line, you were making a bet that your business actually wasn't prepared to win? Hello, and welcome to another episode of the Duct Tape Marketing podcast. This is Jon Janss, and my guest today is Mark Roberge. He's the co founder of Stage 2 Capital, founding chief revenue officer at HubSpot, and the author of a book we're going to talk about today, the Science of Scaling. Mark helped grow HubSpot from zero to IPO, and then brought what he had learned into Harvard Business School, where he taught founders how to grow without blowing up what they built. This framework gives business owners a way to use evidence rather than instinct or outside pressure to decide when they've truly earned the right to. To scale. So, Mark, welcome to the show.
- [01:00]
B
Thanks, John. That's not my copy. And I love it. Seriously, I love how you put it.
- [01:06]
A
Awesome. Well, good. Well, you know, we were talking before we got started, you and I met some 20 years ago when HubSpot was a nascent business. I think maybe the first conference, there were 500 people.
- [01:18]
B
Yeah, I was thinking that name in Cambridge. Cambridge. I have like, I remember specifically a couple things about you. I think you were the most famous one of our early partners. I think I remember my last in person chat with you was in some steakhouse in like South Boston or something. Because I remember two people came up to you and asked for your autograph and you were like, super humble about it. And I'm like, oh my gosh, this is crazy.
- [01:42]
A
Well, I'm glad I wasn't a jerk, that's for sure. Awesome. Well, let's get into your book a little bit. So I mentioned HubSpot, you know, Harvard now you back companies as a vc. Did something you learned or showed up across all three of those roles kind of make you say, I need to write this book.
- [02:01]
B
Yeah, it's like in. It's kind of funny that we. We can unpack as much as you want, but in reflecting the last 20 years of my life professionally, I've given up on having a plan because I never intended to go into sales. I never applied for HubSpot. I never applied or intended to be a professor at Harvard. I never intended to start a venture capital firm, and I never intended to write either the sales acceleration formula 12 years ago or the science of scale in last year. These were all things that, like, people were like, would you be willing to do this? So they did. They do just like show up. And the way that this one, as both books unfolded was like you, I am blessed with the opportunity to do a number of keynotes every year. And I for the big ones like Saster, I tend to try to do something fairly original of the year. So I've, you know, every year I do something original. So I've given like 20 to 25 brand new speeches over the last decade. And this one was just like a pattern I saw after like eight years of being out of HubSpot as an independent board member, as a professor, as an advisor, as an investor in why companies, the few that went IPO and billion dollar valuations versus the ones that went bankrupt was just this really non strategic, non rigorous perspective on when to scale and how fast. And half do it too early, too fast, half of em wait too long and go too slow. It's more about going the optimal time. I started speaking about it and I'm like, it's ridiculous how many classes and rigorous frameworks we have on accounting for and accruing revenue, but not on scaling revenue. And it just went viral and kept speaking about it, kept writing about it. And then Stanford was like, hey, can you write this up? And here we have it.
- [03:50]
A
So the term, you kind of alluded to it, but I'll say it directly. Earn the right to scale does a lot of work in your framework, in your talk. So what does a business owner actually have to prove or do to prove that's true? Like what do they know? I have the right to scale.
- [04:08]
B
Yeah, it's kind of interesting how it unfolds right now. I mean I've done this with like tractor companies in Brazil and pharmaceutical companies in Japan, but mostly with software companies in Silicon Valley. And it's kind of funny how it's decided. Like the decision on when to scale is usually when someone, you know, hands you a fat check, which is, doesn't sound that strategic. And so I try to unpack it as two steps that are sequential. One is product market fit and the other is go to market fit. And usually like product market fit, like duh. Product market fit, duh. But like what is product market fit? You know, I think a lot of people will say I'm ready to scale when I have product market fit, which I think is a great answer. But then when I ask them what product market fit is, I get a lot of different answers, most of which are about a certain revenue number, a certain customer number, or a certain number of inbound leads. And then I'm like, well, okay, cool, let's say that you have 200 customers or like a 500 inbound leads and everyone's buying but like people stop using the product. Do you have product market fit? And they're like okay, no, but I'll just start, I'll just listen to them and build the product to, to appease their needs. And I'll be like, okay, well how will you know when you've achieved it? And they'll be like when they keep using the product and don't churn. And I'm like, exactly. So like that's like the first kind of like pivot mentally for folks is I encourage you to define product market fit not as a revenue acquisition metric, but as a revenue and customer retention metric. And the book talks about how to extract that long term lagging indicator back to something that you can evaluate in the first week of a customer being with you. Okay, so that's step one in product market fit. And then if you think about it, once you've achieved product market fit, all that means is that when you sign up 10 more customers, they're going to see value that you promised and stick around. It doesn't mean that you've proven that you can acquire and serve them profitably. And that's what go to market fit is. And it's measured by unit economics. So that's really probably the, the simplest way to describe the work is these two sequences of product market fit and go to market fit as measured by retention in the first one and positive unit economics in the second.
- [06:43]
A
Well, well since we're defining terms, we probably better step back because I bet you if I asked a hundred people, well now 10 people, 100 people sounds like too much work. What the word scale means. Sure, you know, we'd probably get a bunch of definitions, more leads, more staff, more tools, you know, but how do you define.
- [07:01]
B
Yeah, so once you are ready to scale the way and that to your point, yeah, that can mean a lot of things. It could mean how do we scale our culture, how do we scale our engineering team, how do we scale our office space, blah blah, blah. First off, I'm, I should be more clear that I'm talking about scaling the revenue and to your point, scaling revenue. The inputs to that vary quite a bit by business. If you're a consumer business, you may just have to spend more on marketing something that you know a lot about. John, if you're a B2B, sometimes you have to scale fancy outside salespeople. If you're selling like rockets to governments and sometimes you do it through PLG and Again, it's more of like a marketing exercise. So I really talk about scaling the revenue and the principles apply whether you're doing it through pure marketing or through sales headcount. But let's, for simplicity, let's just talk about scaling through a sales headcount. And the big pothole that people make there is even if they follow the guidance of like, let's achieve product market fit first and then go to market fit. And it could take a day, it could take a week, it could take a month, it could take a year, whatever. And now we're ready to scale. They raise money and then they have a target for the year and they hire like 27 reps the next week even though they only have one on the team today. And there's just no appreciation of the new capabilities that are needed to hire and onboard and manage 27 reps. Like just like let's take one piece of it, which is let's kind of pontificate that the hiring quality might be correlated to the number of interview screens. We do qualified interview screens to the hire. If I do two interview screens and make a hire, I'm probably not going to make as good of a hire as If I did 10 interview screens and make a hire.
- [09:02]
A
Right?
- [09:03]
B
So if we're trying to do 10 and we're making 27 hires, that's 270 qualified interview screens. Where are we getting those candidates? Who's doing the interviews? Never mind. Where's the demand gen gonna come from? Who's gonna ramp them? What about the managers? There's just, it's just too driven from a Google sheet or Excel. And so the simple pivot philosophically is don't think about it as putting the annual plan together and hiring all those reps on January 2nd. Think about it as establishing a hiring pace every month or every quarter. 10 reps a month as opposed to like 37 at the beginning of the year.
- [09:41]
A
So there's all kinds of horror stories of companies that blew up because they grew too fast. Would you say that they scaled too fast or they didn't scale fast enough?
- [09:53]
B
Both. I have, I, like I said it's about half and half. I mean I would say like the classic examples out there, like an old school one is Groupon, which I think if you look at it from this lens never really had product market fit. Like they just like it's buzz. The promise was like, if you're a Chinese restaurant and give these coupons away, you'll get new customers. But it was really just the Existing customers and then maybe like wework never really had go to market fit. And that was pretty famously documented story. Yeah, the ones that didn't scale fast enough, we just don't know. Right. Because they're like, they're, I can name some in our portfolio or people I've worked with over the years, but they, the reason why we don't know them is because they just sat there and they were like they had something. But the co founders just like wanted to just go too slow and continue to do founder selling and wanted to run a profitable business when it needed to be a blitzscale business. And there's nothing wrong with running a profitable business. It's just if you're trying to be a, if you're trying to win in the AI customer support category today, you can't be profitable right now. Like there's just certain blitz scale risk that you have in your category that needs to dictate how fast or slow you go.
- [11:02]
A
So, so one of the key elements in science of scaling is evidence over instinct. So if I don't have a giant data team and I know AI is actually solving some of this right now, but, but what does evidence actually look like using know at a kind of a startup or smaller business level?
- [11:22]
B
Yeah, I mean you don't, you definitely don't need like a sophisticated data science team. You don't even need AI agents doing this stuff. Let me just give you like a really simple example. All right, so we talked about product market fit is where I'm proposing to everyone that it's more about customer value and retention as opposed to customer acquisition. And obviously you need to acquire customers to eventually make them valuable. So it's an input to it. The retention is a lagging indicator. So we need to define a leading indicator of retention. We can't wait a year to know if we have product market fit. I need to know like the week after I acquired the customer or the month after. And so what the book and the work I've been doing with companies for the last decade is to help them define their leading indicator of rent retention. What is it that we can observe in the first month of a customer's experience with you, your product, your service, whatever, that if we see that, they'll be with you forever and if we don't, they'll probably churn. And so like I, I frame it as P percent of customers do E event every tee time. Okay, so that sounds like the programmers on the audience are like loving this right now. The history majors are like Totally lost. Right. So like just to bring that to life, Slack. 80% of customers send 2,000 team messages every month. HubSpot. 80% of customers use five or more features in the platform every month. Right. So like these are things that can be measured in the first month to give us insight. If we're at 80%, we probably have product market fit. If we have 10%, we definitely don't. I don't need a data scientist to evaluate that. Okay, so these are not overly complicated, like PhD math type things.
- [13:08]
A
One of the things I've been preaching for 20 years is that when we talk about the customer journey, that retention and advocacy and all the things that come after somebody becomes a customer are part of the customer journey or should be part of the customer journey.
- [13:22]
B
Yes.
- [13:23]
A
And so many, for so many people it's let's get a customer. And I think what you're really certainly hammering home here is this idea that, that you're not going to scale without retention and without referrals or whatever you call it.
- [13:38]
B
Spot on. I mean when I hear people like you say this, it like the conviction continues to escalate. Right. Because it's like another way to say what John is saying here is let's just talk really tactically. Do not let the dashboards and sales funnels in your CRM end a closed one. That is like literally step four of seven. Right. Like let's just like really step back like very like basic, like you know, opportunity. Stage one is you know, business like discovery call and like business analysis, you know, metrics definition. Step two is product validation, demo, blah blah blah. Step three is closed one. Step four is set up. Step five is regular engagement. Step six is retention. That's the funnel.
- [14:34]
A
Yeah, I actually refer to it have been referring to as the hourglass. You know, with the idea being that you have the funnel. Right. But then it goes back out again.
- [14:43]
B
Exactly. Because you expand more and like a lot of people like winning by design with jocko and like that's just a great way the bow tie a lot of people like it's, it's a really good way to think about it because that usage, it represents that the usage and should grow.
- [14:56]
A
So you were at Harvard and name a dozen schools, you know, Stanford that you know, a lot of people go to those because they've got a big idea or they want to have a big idea, they want to turn out the next Google. I'm sure you encountered many founders or would be founders in those environments. What would you like if you're I'm sure you did this in your class environment. Tell them they're going to get wrong or you know, what would you, how would you coach them of the how there's how you think they're thinking about it incorrectly.
- [15:26]
B
I mean there's a lot to that. I think we covered a lot of them related to the work in terms of like, you know, being more precise around having the business fundamentals in place to be prepared to scale and how you go about scaling. I would say, I guess I'll add two more to it that come up a lot. One that's related to revenue development to some degree and one that it really isn't. The, the one I'll mention is having a plan for a moat. And I would say like when I ask people what their long term defensibility will be, they often tell me about a feature and when I ask them if they are correct and they start crushing it and start winning and then the competition realizes it, how long will it take them for them to build that feature? And they say six months. And I say that's not long term defensibility. So, so you really have to like, you don't have to prove it on day one because oftentimes it might take something that you have to kind of take one of those design, big start, small approaches to it. But you really need to have a vision around. If you are right, there will be lots of copycats and the incumbents will try to take you out. Yeah, the other one that's interesting, I think it was a study done at London School of Economics where they looked at like, I don't know, 5,000 seed funded businesses like 15 years ago and, and tried to evaluate the commonalities for those that like exited at, you know, a very strong exit. The number one correlation was the founder's ability to uplevel the executive team around them as they went through the various phases of growth. And it's like it's so pronounced in my journey with some of these folks. It's like it's so hard to do too. Like it's so hard for like a founder to like stare someone in the eyes who've been there in the trenches with them from day one for three years and be able to communicate that they are over their head and that the business needs someone ready for the next stage. How you deliver that, how you recognize it, how you have the guts to say it, how you like move through that and still feel like a human and still feel like that person has been made whole, like that's such a difficult skill to build. But that is, there's so much correlation with successful founders and CEOs and in developing and executing that skill well.
- [17:54]
A
And let's take it up one level. Many times the business outgrows the founder. Right?
- [17:59]
B
Sure.
- [18:00]
A
It's very rare they'd be having that conversation with themselves. Right?
- [18:04]
B
Totally. Yeah. And that lots of times the board has to manage that. I think we, we went from an like a culture or like a tactic around that. I would say in the 80s and 90s when venture capital was much smaller and startups were, it just, it was a much smaller portion of the economy, VCs were notorious for investing in these young technicians and then firing them. And I think in the early 2000s venture took a different approach. They didn't want to get a reputation for firing CEOs, so they did what I call the Cheryl Sandberg, which is to like bring in the operator but keep the CEO, which is good. I think that's great. I think a lot of times that CEO can sort of graduate up to being a face to the organization, a driver of the culture, a person to be in key meetings with customers, to be on the road, but like don't have to be or nor qualified to be like the day to day operators. Hence today's COO president role. So. But yeah, sometimes founders, they're like not willing to let go and I have to be like, I have to be like. Do you even understand that you have graduated to an era and scale that every CEO, founder dreams of? We're basically offering to pay for someone to do all the work that you hate and, and have you just do the work you love, which is product vision, talking to customers and talking to the market. So it's like, it takes a little reframing, you know.
- [19:42]
A
Yeah, yeah, so. So you. I think your PR people mentioned this. They're donating the proceeds of the book to McLean Hospital for mental Health Research. Is there, is there an intentional connection of.
- [19:55]
B
Oh my God.
- [19:56]
A
The subject of scaling to mental health?
- [19:58]
B
Not so much. It's very light. It's more of an intentional connection to the author. And it's just something as you've experienced, John, like you get up in the morning and do these things three times more aggressively when you have a cause like this around you. And there's two personal reasons and thank you for providing the platform to talk about them. The first one is mental health has played an enormous piece in my own life. I have been a caregiver, a direct caregiver to Many loved ones. And I've been a patient. And I can stand here and say this because I've been blessed with certain resume wins that society values. And I can be braver than most. And I'm sure by saying that some people may be hesitant to work with me. And I just think we need to fight that stigma more. Like, we've come a long way in a generation, but even to this day, I think a lot of people will be interviewing a candidate and find out they survived cancer 10 years ago and it will elevate their perception of them versus if they found out that they overcame a serious mental illness, they may have some concern. And both are just a disease, they're often genetic. So that's part of the personal driver. And the second one is I think in this moment in tech, there's a hundred times more capital, talent and effort going into building AI and next to nothing in helping society adapt to the world that about to become. And I think we as technicians need to change that. We can't delegate this to Washington or economists. They're just not close enough to it. And we just need to like, really diversify our efforts away from just building and profiting toward helping society adapt to this new world. Because like, with every tech revolution, we ended up better as a society. But there are scars along the way. It happened with the Internet. They're about to be really bad with AI if we don't do anything. So I think we all need to find a little thing to do. And right now that's my little thing to do. Awesome.
- [22:04]
A
Well, I appreciate you taking a few moments to stop by the Duct Tape marketing podcast. Anywhere you invite people to connect with you, find out more about your work as well as your latest book.
- [22:14]
B
Yeah, I'm all over. I mean, LinkedIn's probably where I'm most at. I'm trying to hang out on TikTok more, John, just to like, because I. I need to like talk to these 22 year old founders as well, which is awesome. So I'm trying to find where they are, but I'm mostly on LinkedIn if folks want to go on there and collaborate.
- [22:29]
A
Awesome. Well, again, I appreciate you stopping by and hopefully we'll run into you someday in a steakhouse in South Boston.
- [22:35]
B
I'd love it. And maybe I'll ask for your autograph, John.
- [22:40]
A
I don't know how much that'll be worth, but if you got a pen, I'll do it.
- [22:45]
B
All right. All right. It's great to see you. Thank you.