Disrupted

by Dan Lyons

  All that stuff from Dharmesh about being lovable, engaging in delightion, having HEART, and creating a culture code—that’s great for the keynote speech at the Inbound conference. That’s the face we show to the outside world. But there’s not much delightion in this room. Yet this canyon of desperation, packed with beer-drinking shitheads trying to hit their quotas—this, I realize, is the real heart and soul of HubSpot. This is where the money gets made. VORP may be heartless, but it works. Halligan never lets up the pressure.

  Then again, Halligan is under pressure himself. He has taken $100 million from venture capital firms and is expected to deliver a return. His investors include Sequoia Capital, a firm with a reputation for throwing out founders who fail to meet expectations. HubSpot needs to pull off a big IPO, and to do that, the company must keep growing. By the strange rules of bubble economics, companies do not have to generate a profit before they can go public, but they do have to demonstrate revenue growth. Every month, every quarter, HubSpot’s sales must keep rising. A start-up that stops growing is like a shark that stops swimming: dead in the water.

  Unfortunately that is what has been happening at HubSpot in the autumn of 2013, when I arrive in the spider monkey room. Our growth rate has dropped. Nobody is panicking, but Halligan is concerned. One day in October he calls a come-to-Jesus meeting for everyone in sales and marketing, and he makes a big announcement—he’s booting out Karl, the guy who runs sales, and has started searching for a replacement. Karl is not being fired; he is being moved onto a special project. Still, this is a huge deal. Karl was one of Halligan’s first hires. He’s practically a co-founder. He is also one of HubSpot’s top executives.

  Halligan runs through a litany of problems. The biggest one is growth. HubSpot’s sales grew more than 80 percent in each of the past two years, but in 2013 the growth rate has slowed to about 50 percent. That’s still a lot but apparently it’s not enough. Our rivals are growing faster than we are, Halligan says. We’ve just hit the end of the third quarter, which means results are in for the first nine months of the year and management can estimate what full-year 2013 results will be. My guess is that Halligan and his board of directors have looked at the numbers and are not pleased—and the board has told Halligan to do something about it.

  That’s the second big piece of news: Halligan says that until he finds a new head of sales he is going to run the sales department himself. He makes it sound like he’s coming back ready to kick ass and take names. “I don’t want to get up in everyone’s shorts, but I’m going to be taking the wheel here for a couple of months,” he says. “The machine is just not working that well.”

  Slowing growth is only one problem. Our churn rate is too high, meaning too many customers fail to renew. Our close rate is too low, meaning we generate a lot of leads but don’t turn enough of them into customers. Zendesk, a software company on the West Coast that HubSpot’s executives recently visited, has a close rate that is far better than ours. Morale in HubSpot’s sales department has plummeted.

  “We’re going to make some hard calls,” Halligan says. “There are going to be winners and losers. People will just have to deal. We’re going to make things as fair as we can. But if you’re not performing, we’re going to put you on a plan.”

  Being put on a plan is the first step toward getting fired. Most people who get put on a plan don’t recover. It’s really a way to give you a few weeks to find another job.

  It seems to me that the problem is not that HubSpot’s salespeople aren’t working hard enough. The problem is that (a) HubSpot’s software isn’t that good and that (b) the way we sell it is inefficient. Despite all its rhetoric about reinventing how products are sold, HubSpot itself relies on an old-fashioned business model based on brute-force lead-generation tactics. We’re working too hard and getting too little back for it.

  Generating tens of thousands of new leads every month is ridiculous in and of itself; by definition most of those leads are shitty and worthless. The sales department tries to winnow out the best 20 percent and focus on those, but that still means the sales department is trying to chase ten thousand leads every month. “Boiling the ocean” is the business cliché for the way HubSpot hunts for new customers, and it’s only one problem. Another is that our software isn’t very intuitive, and people can’t figure out how to use the programs on their own. So we have to assign consultants to teach new customers how to use the product.

  This is all incredibly labor-intensive, and that effort is reflected in the amount we spend to acquire each new customer. This metric is called customer acquisition cost, or CAC, and HubSpot’s is soaring. The numbers are going in the wrong direction.

  The irony of this is that we tout our software as a modern miracle that lets companies attract new customers and grow faster, while spending less. Our sales pitch is basically Jack and the Beanstalk: Buy our magic software, and your business grows to the sky. You’ll get more customers, and save money. That’s what we tell people.

  But we use our software. Our business is built on top of our software. We “eat our own dog food,” as they say in the tech industry—or, as Cranium likes to put it, “We drink our own Champagne.” If our software really does what we claim, why are we working so hard to find new customers? Why do we need an army of sales reps and an army of marketers and an army of consultants? For that matter, why, after seven years in business, does HubSpot still not make a profit? Why does it cost us more to make, sell, and deliver our software than customers will pay to use it? Isn’t HubSpot itself the ultimate test case of how well its own software works, and doesn’t our own financial performance raise questions about the efficacy of our software?

  Halligan tells us that he plans to boost spending on research and development. He wants to invest in technology tools that will help the sales reps sell more stuff and make them more productive. But he’s not going to create a new business model, not at this stage of the game. Yes, it costs a lot of money to sell our software, but this is the machine that Halligan has built. It seems to me that the only course of action is to crank the machine into higher gear. Get marketing to generate even more leads every month. Whip the sales department to work harder. Hire more spider monkeys, make more cold calls, chase down more prospects. Get to the IPO.

  Halligan caps off the meeting by telling a story about the software company where he began his career, called Parametric Technology Corp., or PTC. When he joined PTC it was tiny, and by the time he left, a decade later, the company was doing $1 billion a year in sales. A lot of people got rich at PTC, and the same thing is going to happen here, he says. People right here in this room are going to make millions of dollars, enough money to change their lives. Halligan’s personal goal, he tells us, is to have more money than anyone else who worked at PTC. He knows their net worth, and he’s determined to beat them. He’s pretty sure he’s going to make it.

  That’s great for Halligan, but I’m not sure how this is supposed to pump us up. He is basically telling us that we should work hard so that he can have more money than his friends.

  But Halligan knows his audience. Sales reps love this stuff. They’re just like Halligan. They bounce from the meeting all pumped up. Back in the spider monkey room, the lax bros start drinking beer and hitting the phones.

  As for me, I’m not feeling so enthusiastic. When I joined HubSpot, it seemed certain that the company would pull off a huge IPO. Today, after hearing the numbers that Halligan just divulged, the place seems a bit rickety.

  Nevertheless, I’m hoping they can pull it off. After all, when I joined I was granted twenty thousand options. To get all of my options I need to stay for four years. I doubt I can survive here that long. But even if I stay only one year, I will get five thousand options, and if the IPO goes well, those options could be worth some money.

  Ten feet away, Loud Pete is braying into his headset. For the first time ever, I don’t mind the noise. Bark away, you male cheerleader madman. Make those calls. Sell that crap
py software. Hit your numbers and get us all paid.

  Eleven

  OMG the Halloween Party!!!

  There are two big party days at HubSpot. One is Cinco de Mayo, when the company ships in a truckload of tequila and Dos Equis beer and Mexican food, and five hundred twenty-something gringos go mental in the first-floor conference room drinking margaritas and chowing down on nachos, and Halligan roams around wearing a huge straw hat—the kind that people wear in Mexico, geddit?—like a real-life version of Frank the Tank, the beer-bong-hitting character played by Will Ferrell in Old School.

  But Halloween is an even bigger deal, a sacred tradition in the cult of the orange people, a day when the entire company comes to work wearing costumes and spends the day running around behaving like idiots. In the afternoon the company brings in food and beer, and work grinds to a halt.

  HubSpot people are incredibly proud of this tradition, which they view as part of their culture. Dharmesh even included a Halloween photo in his Culture Code, with this message: “We dare to be different.”

  Photos of the Halloween madness are also featured on the website, so that prospective customers can see what a cool, fun place HubSpot is. The idea seems to be that this will make people want to work at HubSpot, and will make customers want to buy our software. I don’t understand why prospective customers care whether HubSpotters have fun at work. If our software can’t save customers money, or make them money, or both, all the kooky Halloween parties in the world won’t matter. (As an aside: I urge you to count the non-white faces in that Halloween photo and consider the claim about “daring to be different.”)

  As it happens, on the day of the Halloween party I have a friend in town. Rose is a friend of mine who works in marketing. She lives in New York and has come to Boston for meetings. She is in her forties and is executive vice president of marketing for a big sports brand. We meet for breakfast at a hotel near the Charles River. Seeing Rose makes me remember my old life, when I wore a suit, moderated panels in Washington, DC, and participated in actual journalism.

  I tell her what’s happened to me at HubSpot, how I was promised one job but given another. Rose doesn’t seem surprised—or sympathetic. Rose is British. She has no patience for complainers.

  After breakfast she has some free time, so I offer to give her a tour around our offices. She’s heard of HubSpot and is curious to see the software. She thinks her company might be able to use it. I set her up with a sales guy, who gives her a demo, and after she’s seen enough I take her for a spin around the offices. I show her my sad little desk in the telemarketing room, which is a bit of a step down from the office I had in New York, which had a view out over Central Park. I show her the nap room and the shower rooms and the groovy kitchen with the candy wall and the little spot on the second floor where they keep the musical instruments for impromptu jam sessions.

  I’ve heard that Halloween would be crazy, but even after six months at the company I am not prepared for what we’re encountering. Everyone but me has come to work in a costume. All over the place, packs of actual adults are racing around, whooping and shrieking, posing for selfies. They’re dressed up like Smurfs and witches, sexy pirates, sexy Snow Whites, naughty devils, characters from Harry Potter. They’re all trying really hard to show everyone how much fun they are having at this totally rad company with all these totally cool people.

  But it’s not cool. It’s sad. And weird.

  “I must say,” Rose says, “I don’t think I’ve ever heard of a company where people come to work in costumes on Halloween.”

  She does not seem to mean this in a good way.

  “Well,” I say, “we dare to be different.”

  I bring her to the content factory, the room where the blog team works and where I used to work before I was banished. I introduce her around. Three women have come to work dressed as the mean girls in the movie Mean Girls. The HubSpot mean girls seem not to realize that in the movie the mean girls are the butt of the joke. Our mean girls seem to believe that the mean girls were the heroes.

  “We even made a burn book,” Fatima tells me. “Look, you’re in it!”

  Sure enough, they really have printed out an actual burn book, which in the movie is a book where the mean girls make fun of people they don’t like or consider to be losers. Fatima flips to my page. “You see?” she says. Indeed, there I am. They have created a page about me, with a photo of me looking old and stupid. There are words, too. I don’t read them.

  I walk Rose outside and put her in a cab to the airport.

  “You have to get out of here,” she says. “This place will destroy your soul.”

  “I know. I figure I’ll put in a year and then I’ll—”

  “No.” She cuts me off. “Right away. Right now. Today. Get out.”

  She closes her door. The cab zooms off. She never becomes a HubSpot customer.

  Rose is right: I really should find a new job. But it’s November, and the holidays are arriving, and nobody will be hiring at this time of year. I figure I can ride things out for a few more months. I’ll go into the office a couple of days a week, just enough to keep up appearances. Over the winter I’ll do a lot of skiing. I’ll take a trip to Utah and visit some friends. By the time ski season ends it will be April, and I’ll have hit my one-year anniversary and can slip out quietly from HubSpot.

  I remind myself that I have a lot to be thankful for—realizing, even as I do, that the only people who say this are people who are desperate and miserable. Nonetheless, my health is good. I’m employed. The family is happy. My son has been playing soccer, and this season I have seen all of his games. My daughter has a piano recital and will dance in the local Nutcracker, and this year I can attend both of them. Last year I was in San Francisco. Sasha’s migraines are under control. She’s happier and less stressed out. So what if my job sucks? I’m working. I’m getting paid. Things could be worse.

  HubSpot has a policy that says anyone can work from home whenever they want. I now take full advantage of this. When I have to work in the office—usually because there’s a meeting that I have to attend—I go in late and leave early. In meetings I say as little as possible. I stare at my laptop and pretend to take notes, when really I’m browsing the web and catching up on Facebook.

  Between meetings I return to my desk in the cacophonous spider monkey room, put in my earplugs and headphones, listen to Mozart, and gaze around at the doomed souls. It’s a lonely, isolated existence. Around noon I walk across First Street to the Galleria mall, eat sushi in the food court, then return to my desk and my headphones, burying myself in my cocoon. Sometimes I go for a walk around the offices. I visit different floors, just looking around. I’ll find a kitchen and make a cup of coffee and sit by myself on a couch in a lounge area, reading news on my phone. By around four o’clock it’s dark outside, so I put my laptop into my backpack and head home. Entire days go by when I do not speak a word to anyone. The whole thing feels surreal.

  Gradually I slide into depression, swinging between a restless, herky-jerky anxiety and a mind-numbing lethargy. Some nights I lie awake, unable to sleep, my mind racing, until finally I take an Ambien to knock myself out. Other times I do nothing but sleep. I go to bed at eight, sleep until seven, and still have a hard time waking up.

  Sasha and the kids can tell how miserable I am. Instead of regaling them with stories about the latest hijinks at HubSpot, as I used to do, now I arrive home and shuffle upstairs and put on my pajamas. There is no choice but to soldier on. Sasha is not working. The job of making money has fallen to me.

  A friend of mine, a reporter with a plum job at the New York Times and a second plum job teaching at UC-Berkeley, tries to cheer me up: “Man’s got to feed his kids,” he writes to me one day when we are trading messages and I’m complaining about the horrible hack work I’m doing. “Makes you respect the average bus driver and cafeteria worker a little more,” he writes.

  I send back a one-word response: “Ouch.”

>   In December a friend introduces me to the CEO of a technology company in Boston. Thomas is an engineer by training, a nerdy guy in his mid-forties. His company is publicly traded and turns a profit. He employs a lot of engineers and doesn’t engage in much hype. In some ways his company is the antithesis of HubSpot. But he’s friendly with Halligan and Shah, and knows a lot about HubSpot and its culture.

  We meet at a Starbucks in the suburbs. It turns out we know a lot of the same people, and we have kids who are about the same age. Thomas tells me he was a fan of my Fake Steve Jobs blog, and he was surprised when he heard that I was going to work at HubSpot. “It seems like an odd fit,” he says.

  I confess that things aren’t going so well, and that I didn’t know enough about HubSpot before I joined. “I thought I was going to work at a software company run by a bunch of smart engineers from MIT,” I say.

  He finds this hysterical. Thomas seems to have little regard for HubSpot’s culture, and even less for its software. He makes a joke about Dharmesh, the company’s supposed chief technology officer, who doesn’t seem to be around much. “I’m the CEO of my company, and I’m still working my ass off,” he says. “Then there’s Dharmesh. I want his job.”

  He’s quick to add that he likes Dharmesh, and thinks Dharmesh is a nice guy. He says he admires Halligan and Shah, and that while they may not be the best software developers in the world, they’re certainly good at sales and marketing.

  “They’ve done an amazing job,” he says. “I never thought they’d make it as far as they have.”

  I ask Thomas about something that puzzles me, which is that it seems pretty clear to me that HubSpot is losing a lot of money, and yet Halligan and Shah keep squandering money on ridiculous things—the parties, the beer, the nap room, the free massages, the fancy offices. HubSpot has an enormous kitchen on the first floor, and loads of little satellite kitchens all over the rest of the building, yet now Halligan is remodeling the second floor of the building and will install another kitchen, this one with taps for beer and hard cider. Just to be kooky, HubSpot is also building a replica of a bright red British telephone box, where people can have privacy for making phone calls.