HubSpot Inbound Marketing and Web 2.0

Company Name : HubSpot
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Country : USA

By The Steve Reinemund Era, Caitlyn Paige, Management 391

Professor Thomas Steenburgh and Professor Jill Avery (Simmons School of Management) and Naseem Dahod (MBA 2009) prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

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HubSpot: Inbound Marketing and Web 2.0

None of [the old rules of marketing] are true anymore. The Web has transformed the rules, and you must transform your marketing to make the most of the Web-enabled marketplace of ideas. — David Meerman Scott, author of The New Rules of Marketing and PR

Business was good at HubSpot. Founders Brian Halligan and Dharmesh Shah were thrilled with the progress their young company had made in the two years since they began their journey to convince corporate America that the rules of marketing had changed. To be successful in the marketplace, HubSpot needed to be much more than just a software company. Its founders had to become evangelists, preaching a new way of doing business that would fundamentally change how marketers reached their customers. To their great pleasure, Halligan and Shah were finding a willing audience for their ideas. HubSpot was now considered a thought leader in the Web 2.0 space, coining the term “inbound marketing” to describe marketing strategies and practices that pulled prospective customers toward a business and its products, through the use of Web 2.0 tools and applications like blogging, search engine optimization, and social media.

Halligan and Shah realized that their business was at a crucial juncture. They had just reached the noteworthy milestone of 1,000 customers, attaining this level of critical mass by practicing what they preached. HubSpot had built its business by turning its back on traditional marketing methods and was solely using innovative inbound techniques to acquire customers. Looking ahead, the founders wanted to accelerate their growth rate and increase profitability. Ironically, they were grappling with many of the same issues that their customers faced when implementing inbound marketing practices.

Halligan and Shah realized that they would need to work through these issues in order to achieve their goals for the company. First, they would need to decide which customers to serve, pulling the best opportunities from the diverse pool of customers who were contacting them. Second, they would need to make some decisions about their current pricing model to entice new customers to the company and to maximize the profitability of existing customers. Third, they would need to assess whether they could achieve enough scale through inbound marketing efforts, or whether they needed to supplement their inbound programs with traditional, interruptive outbound programs. This was more than a test of HubSpot as a company; it was a test of the inbound marketing business philosophy. If HubSpot couldn’t scale its own business using inbound marketing, then how could it convince its customers that inbound marketing would work for them? For the exclusive use of M. YORSTON This document is authorized for use only by Mike Yorston in GEM 2011 taught by Tom Kosnik from January 2011 to July 2011.

509-049 HubSpot: Inbound Marketing and Web 2.0 2 Founding HubSpot The two HubSpot founders met at the Massachusetts Institute of Technology (MIT). As early and eager students of Web 2.0, Halligan and Shah recognized the transformative power the Internet possessed for changing the way small businesses operated. After graduation, Halligan joined Longworth Venture Partners, a venture capital firm with an expertise in technology. As he worked with start-up companies, he recognized an issue with which they all struggled—how to harness the Internet to build a business. Halligan, like many of his clients, came from a traditional sales and marketing background, working for the high-tech companies Groove Networks and Parametric Technology Corporation. However, at Longworth, he began to realize that the traditional marketing and sales methods he had previously employed were losing their effectiveness in the new Web 2.0 world. Shah also grew up in the technology sector, holding a number of management and development positions in technology companies. Prior to forming HubSpot, Shah was founder and chief executive officer (CEO) of Pyramid Digital Solutions, an enterprise software company and the winner of three Inc. 500 awards, which was acquired by SunGard Data Systems. Shah also authored, a top-ranking blog and online community for entrepreneurs.

Halligan and Shah founded HubSpot in 2006. With Halligan’s marketing, sales, and venture capital expertise and Shah’s technological knowledge and experience as a successful entrepreneur, the two were a winning combination. Halligan became the CEO and served as HubSpot’s evangelizing front man. Shah became the chief software architect and focused on product development. On the strength of their business plan, Halligan and Shah attracted premier financial partners. After initially self-funding the business, Halligan and Shah raised $5 million from General Catalyst, a Cambridge-based venture capital firm, in 2007. Less than a year later, the team raised an additional $12 million from Matrix Partners, a venture capital firm with offices in Boston and Silicon Valley. For a young start-up, HubSpot had a solid financial foundation. Halligan and Shah strove to create a distinct culture at HubSpot. They headquartered the company near MIT in Cambridge, Massachusetts, a hotbed of activity for high-tech start-ups, and they staffed up with young, eager MIT graduates who were immersed in Web 2.0 culture. The HubSpot office buzzed with energy. The sleek, minimalist architecture contrasted with the animated and passionate young team, who craved a fast pace. The team battled over business with the same gusto that they battled over the last slice of pizza.

Inbound Marketing HubSpot built software products that helped companies execute inbound marketing programs to supplement or replace their traditional outbound programs. In the current environment, outbound marketing’s effectiveness was diminishing as consumers, feeling bombarded by the daily deluge of commercial messages, began tuning out. Increasingly, direct mail, trade shows, and telemarketing were yielding less new business. In contrast, companies were finding that search engines, blogs, and social media were generating new business at higher rates. These communication programs were more consistent with the inbound marketing approach. As HubSpot explained on its corporate blog: Outbound marketing is about pulling people away from their dinner, or family, or TV and interrupting their lives.

Do you really think you are important or interesting enough for them to want to talk to you instead of doing whatever they were doing when you interrupted them? They have not invited you into their home, and they certainly do not happen to enjoy being interrupted. Instead of spending your whole day interrupting people and hoping they pay attention, try setting up a blog and writing interesting content, so that people want to hear what you have to say and come find you when they’re interested in your products. For the exclusive use of M. YORSTON

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