HubSpot, the Cambridge, Mass.-based purveyor of content marketing tools, filed for a $100M IPO this week. This is one of the most significant IPOs in the marketing technology world since Marketo went public in 2013, so we'd better pay attention.
What's the Big Deal?
We live in a world's fair of marketing technology. There are now about 1,000 marketing automation vendors. Many of these companies are venture capital financed, but few will make it. My guess is that 90 percent of the 1,000 other marketing technology companies will go out of business.
HubSpot is one of the more successful venture-backed marketing tech (MarTech) companies. It has had immense revenue growth, it's got an active and growing user base, and its own marketing techniques generate a lot of buzz.
It's important to point out that although HubSpot is growing rapidly -- revenues increased from $28.6 million in 2011 to $77.6 million in 2013 -- it's still not profitable. The company had $17.7 million in net losses for the six months ending June 30. But there is no doubt that it has emerged as a market leader, with more than 11,000 paying customers and 1,900 marketing agency partners.
HubSpot's S-1 statement, which companies vying to go public must file with the US Securities and Exchange Commission (SEC), was a good read on the history of the company. It also yielded many insights into the company's success.
Here are the five secrets of success I gleaned after reading the S-1.
- Hubspot Leads the Content Marketing Movement — There is probably no hotter trend in marketing then "content marketing," in which you align potential customers with interesting content and force them to download a form so that you can capture their email addresses and then pummel them with a barrage of sales calls. Cool. HubSpot became a leader in this movement. It is a great marketer of content marketing. It's leaders have been militant evangelists about content marketing. They have been great content marketers about content marketing. From the S-1:
Our founders, Brian Halligan and Dharmesh Shah, wrote the best-selling marketing book Inbound Marketing: Get Found Using Google, Social Media and Blogs. We also have one of the largest social media followings in our industry, and our INBOUND conference is one of the largest inbound industry conference events."
- HubSpot Picked its Market Well — HubSpot uniquely positioned itself in a good market that many ignored, HubSpot decided not to do battle with software and MarTech Goliaths and go after large enterprise accounts. Instead it focused on growing small and medium size businesses (SMBs) and mid-market firms. This was a play out of the Salesforce.com playbook. This strategy paid off big time. From the S-1:
We focus on selling our platform to mid-market businesses, which we define as businesses that have between 10 and 2,000 employees. As of June 30, 2014, we had 11,624 customers, and in the second quarter of 2014, our average subscription revenue per customer (on an annualized basis) was $8,823. According to AMI Partners, in 2013, there were 1.6 million of these mid-market businesses with a website presence in the United States and Canada and 1.3 million in Europe. According to a January 2014 study by Mintigo of 186,500 US-based B2B companies of varying sizes, only 3% of those companies had implemented any of the most common marketing automation applications."
HubSpot understood something may larger software vendors did not: There was a huge untapped market for SMBs that wanted powerful, reasonable, and easy-to-implement content marketing software. And they wanted marketing automation that didn't require an army of IT experts to spend months integrating with other platforms. That leads me to the next secret of success ...
- HubSpot Integrated Disparate Tools — HubSpot figured out something very early in the game: There wasn't one really easy-to-use tool to set up a fairly basic content marketing system. Back to the IT headaches: Many companies were forced into integrating complex, disparate applications to set up a content marketing machine. Content Management Systems (CMSs) were good at managing content, but not necessarily great at managing marketing databases. HubSpot's innovation was to combine content management and inbound marketing, and set up a system designed for this. From the S-1:
Businesses typically need to use one point application for website content management, a different point application for blogging, another point application for social media management, another point application for email and marketing automation, another point application for content personalization, another point application for analytics, another point application for sales management and CRM and yet another point application to alert salespeople of key customer signals in real time. This disparate collection of point applications makes it difficult to develop a 360-degree view of a customer’s interactions."
An integrated suite of content management and inbound marketing tools: Brilliant idea. It's interesting, even after HubSpot's big success, there are not many other companies are focused on combining these sorts of tools.
- HubSpot Believes Inbound Beats Outbound — Really there are two kinds of marketing: Inbound and outbound. In outbound, you blast a selected audience and hope somebody responds. In inbound, you set out the cookie jar (content or services), and see who comes in to taste it. When HubSpot went into the market, it realized that most MarTech systems were set up for outbound marketing, but few were set up for inbound. HubSpot focused on inbound because that was where the bulk of Web marketers were headed. Google provided the dominant solutions for search-engine marketing, but once you got people to come to your site from the search engine, what did you do with all those potential customers? HubSpot focused all of its energy around capturing these customers. From the S-1:
Our platform was architected from the ground up to enable businesses to transform their marketing and sales playbook to meet today’s demands of their customers. Our platform includes integrated applications to help businesses efficiently attract more customers through search engine optimization, social media, blogging and other useful content while optimizing interactions with their customers across customer touchpoints."
HubSpot believes so strongly in inbound marketing that company executives listed their ability to maintain thought leadership in this area as a risk factor in the S-1. The risk factors sections lists the possible threat to the business, and here's what HubSpot wrote:
We believe that maintaining our thought leadership position in inbound marketing, sales and services is an important element in attracting new customers. We devote significant resources to develop and maintain our thought leadership position, with a focus on identifying and interpreting emerging trends in the inbound experience, shaping and guiding industry dialog and creating and sharing the best inbound practices."
- HubSpot Created a Community — It's not enough to just sell software. You need to be influential enough to help educate your customers to help them grow so that they then become agents of your software. HubSpot has done this successfully.HubSpot runs its own conference, INBOUND, which has become an influential industry event. It has cultivated a following among marketing experts and agencies, building up a cast of 1,900 marketing agencies that help resell its products.
HubSpot has also made some quirky marketing moves, like hiring high-profile writers such as technology journalist Dan Lyons, to write for the HubSpot blog. HubSpot's own website has 1.5 million monthly unique visitors, largely because it turned it into a content destination, not just another corporate website.Nobody is a better at content marketing about content marketing than HubSpot. From the S-1:
We have built a large and growing ecosystem around our platform and company. We have built what we believe is the largest engaged audience in our industry. As our engaged audience grows, more agencies partner with us, more third-party developers integrate their applications with our platform and more professionals complete our certification programs, all of which drive more businesses to adopt our platform."
All of these elements came together to help HubSpot stand out from the MarTech noise and be successful. But if I were to summarize the collection of HubSpot's strategies, it's that it picked a mission and story and stuck with it. It will be interesting to watch the IPO, and you might want to consider buying the stock.