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Is HubSpot reaching an inflection point?

anna-kendrick-inbound-2016-420x280 This week HubSpot held their annual conference, drawing 19,000 devotees of the marketing solution to Boston. Think of it as a sort of mini-me version of Salesforce’s mega-conference Dreamforce. While I am not a fan of celebrity-heavy and technology light conferences, there was much to admire about InBound beyond Anna Kendrick and Serena Williams. For in a remarkably short time, particularly for an enterprise application business, HubSpot has established itself with force in the world of marketing, generating a cult-like following that was clearly on display this week.

Not to draw too much of a parallel with this past week’s turbulent events here in the US, but HubSpot did identify and effectively tapped into, a poorly represented but nevertheless huge sub-market, small businesses. A market that even today largely runs manual processes and gets little love from the broader enterprise application industry. Even Microsoft, by far the best known SMB IT specialist, has done a relatively poor job of delivering its own marketing and CRM systems to smaller businesses.  This week at InBound HubSpot simply spotted, and championed, to address that gap.

Showing some love to small businesses

Throughout the conference program HubSpot recognized the need for simple to use, fully integrated customer lead generation tools that can be built out to a deeper integrated stack of functionality for managing customer records and marketing activities. The core of any business, big or small, is generating leads, converting those leads into business and supporting the customers. For greenfield SMB’s that are running manual processes today, a solid business case and fast ROI is not going to be hard to achieve for HubSpot. So while HubSpot gets a “Well done!” pat on the back for focusing in on this market’s need and delivering in spades, it faces many challenges and threats on the road ahead.

Not a wide open road

For starters, Microsoft has recently been showing a lot more interest in the world of marketing (as seen in its expanded relationship with Adobe) than it has before. Should it wish to start bundling more relevant functionality into Office365 and Dynamics then that will certainly rock HubSpot’s boat. Similarly, Salesforce remains a huge incumbent in the SMB space and could also start to simply bundle more and more functionality into its suite of solutions – closing out in advance any potential opportunities for HubSpot. Moreover, either firm could also simply buy HubSpot and close it out as a competitor altogether. Don’t snicker, it could happen.

Ten years in HubSpot continues to run at a heavy loss, and like many other newly minted software firms it is focused solely on the growth of its customer base and brand. Hence it is happy spending, and in turn losing, millions on its annual lavish, star-studded event in Boston. Should the economic winds change and patience with the “grow at all costs” approach wear thin, HubSpot would quickly find itself in a very difficult situation.

Everyone needs a little help

Another area to consider is HubSpot’s lack of any real channel. Again like other formerly VC-backed firms, it has seen little need for ‘traditional’ channel partners. But as Microsoft knows all to well, SMB’s need more love and attention to keep them as loyal and steady customers than many realize. The technology vendor itself is not in a place to give that love directly – hence the need for a much bigger widely spread, local, specialized, and committed SMB channel to serve that role.

Great story so far, but still room for improvement

I first met HubSpot’s CEO Brian Halligan in 2010 and have since watched with admiration the growth of this small Cambridge, MA start-up. From its start in 2006, to its acquisition of oneforty in 2010, a successful IPO in 2014, and on to watching 19,000 people converge in Boston to celebrate it’s success this past week. HubSpot is a great story, and really does make good sense for many SMBs – it offers a wide range of simple to use functionality. To be clear it is not the best at anything, be that social media management, content management, SEO, or CRM. But packing all those functions into a single, affordable and easy to use bundle is compelling.  And while HubSpot has deservedly seen massive growth over the past few years it is rapidly approaching a critical point in its evolution; one that will require it to deepen its relationship with SMBs beyond the marketing point-person. So back to my earlier point about its lacking partner network; it is at a point where HubSpot should build out a much larger channel. Not just to sustain growth, but to be able to provide the advice and guidance that SMB’s need (and demand) in each of their very specific niche markets. Halligan and team might also consider moving more quickly toward a profitable and sustainable business model. In this analyst’s opinion, investors may well be looking more critically and asking more questions about a “grow at any cost philosophy” in the coming few years.


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