Building HubSpot to a Unicorn: Dharmesh Shah’s Amazing Entrepreneurial Journey (Part 4)

Sramana Mitra: One question that comes to my mind is how many of those existing tools were you able to bring into your product design in version one? 

Dharmesh Shah: We did it from scratch. Our thinking was that we could have tried taking WordPress and Google Analytics and integrate them into this larger platform, but we wouldn’t be able to control the user experience in the way we needed. You have to control the boundaries and control the user experience in order to make it easy enough. We created everything.

Every line of code was built from scratch. A big downside was that the product was nine miles wide and two inches deep. In every one of its categories, that product sucked. If you looked at every individual piece of HubSpot in those years, they won’t even be able to make the top three in that category. That was deliberate and unavoidable. We didn’t have the engineering resources to have the leading applications.

One of the weird things I told the team back then is that if any of our tools become number one or two, then we’ve misallocated resources. The goal was to have this breadth. Over time, we raised capital and built the engineering team. Most of the individual tools now are in the top three.

Sramana Mitra: What was your funding strategy? Once you and Brian hit upon this idea that you were going to build a comprehensive system to do all these functions that you would otherwise have to piece together, how did you fund that early stage?

Dharmesh Shah: I had the luxury of having sold my first company. I wrote the initial $500,000 check. The motivation there was just enough money for us not to use it unwisely. As we were progressing, we recognized that it was a venture-backable deal. Most of the time, raising money is a distraction. Lots of great ideas are just not venture-backable businesses. Just because your idea is not venture-backable does not make it a bad business.

When Brian and I had started it, I’d already made some money. I promised my wife I was not going to do another startup. In order to do this, we had the proverbial co-founder chat. We needed the money. We want to build a spectacular outcome that’s going to be a sustainable and impactful company.

We made a decision early on from day one of the company that anytime there’s a fork on the road, we were going to take the choice that would increase our probability of having that spectacular success even though it also increased the probability that we might go down and crash in burning flames. We got five rounds of private capital with a total of $105 million.

Sramana Mitra: Did it come from Brian’s firm?

Dharmesh Shah: Brian worked for a VC. I had a successful exit. We both graduated from MIT. In the early stages, we weren’t accepting funding. I’d just written the $500,000 check. We had done another million-dollar angel round from friends and family. Then we got introduced to a local venture capital firm through a friend. We even told that friend that we’re not raising funding. They really wanted to visit, so we welcomed them. They came in. We told them we’re not raising money.

Despite the fact that we had a bunch of chips in our favor, it was hard raising our Series A. It was not easy was that we were in the small business space. There was only one other company that was successful in focusing on small businesses. That’s Intuit. Intersect that with the fact that we’re in the marketing space. Nobody had created anything of any magnitude. The biggest exit that the industry has seen was Omniture. It’s not something that software was used for a lot. This was in 2005. 

This segment is part 4 in the series : Building HubSpot to a Unicorn: Dharmesh Shah’s Amazing Entrepreneurial Journey
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