Dear Brian and Dharmesh:
I have to admit that when I read a while ago that Dan Lyons had been hired by SaaS firm HubSpot, I was gobsmacked. I mean, Dan Lyons, former technology editor for Newsweek, which itself was started at the same time Moses was publishing the Ten Commandments, is old. How old? He’s over 50. Do you know how old 50+ plus is in high-tech?
Those dinosaur fossils at the natural history museums? Infants compared to Dan. The therapsids? Children. Diploceraspis? (They look exactly like they sound). Teenagers. The only prehistoric life contemporaneous with Dan is maybe the Archaea, Latin for “Live Goo in a Jar.” When he showed up at HubSpot for his first day of work, he didn’t need at a spot at an open desk. A warm petri dish would have done just fine.
You have to give HubSpot a great deal of credit for hiring Dan. I mean, if a triceratops showed up for a job interview at your shiny startup, would you hire it? I don’t think so. Now, maybe you should hire that dinosaur. This giant reptile might be the hottest Ruby on Rails coder out there and can even prove it! But then you look down at its resume and spot that once upon a time, it wrote a program in UCSD Pascal. A little red flag goes up and after asking the requisite number of questions to avoid the appearance of violating U.S. job discrimination laws, you smile brightly at the ceratopsid in front of you, help direct its 12-ton body out of your office and building, and promptly consign the resume to the virtual circular file.
But this didn’t happen at HubSpot. They hired Dan at a decent salary and gave him a pre-IPO stock package that came in at around $60K. (HubSpot went public in 2014 at $25 per share and now trades between $40 to $45, a tidy return on an initial investment.) When he showed up for his first day of work, we find out that the company offers its employees, among other things, free food, free beer, exercise rooms, unlimited vacations and fully paid for Blue Cross health insurance.
(There’s a word some people use for a workplace providing the aforementioned perks. That word is “Heaven.”)
Alas, things didn’t work out between HubSpot and Dan and for its troubles, the company ended up with a big sharp PR horn shoved up its fundament, its marketing chief was fired for apparently trying to filch an unreleased manuscript of the book, Dan’s boss was fired, and HubSpot co-founder Brian Halligan received a stern dressing down from the company’s board and was made to go stand in a corner. Oh, and the FBI is criminally investigating the whole mess. (I really think the Bureau has better things to do with its time.)
Dan got position number 95 on Amazon’s bestseller list and a $250K advance on his book deal.
Somehow, it just doesn’t seem fair. To HubSpot.
I’ve read Disrupted and believe any fair observer will conclude the company was royally trolled. Dan gives the game away in the first chapter of the book. In this section, the things he learns include:
- He will be working with and under people younger than himself. Dan believes this is beneath Dan.
- He dislikes the color orange and the HubSpot logo, which he thinks resembles a penis. It doesn’t, but Dan has a point to make.
- He doesn’t like the fact that HubSpot sells a package of inbound marketing services aimed at small and medium-sized businesses so they can sell, as he puts it, “more stuff.” One wonders why Dan accepted a job at the company, as HubSpot makes no attempt to hide its business model.
- He’s upset the company founders don’t meet him in person to conduct his first-day orientation. I didn’t feel bad for Dan when I read this. My first day of work at the first company I worked for, sometime during the early Carboniferous, the guy who hired me had already been fired. This is high-tech, Big Guy.
- That when you put a group of hormonally charged 20 and 30 somethings working at a high-pressure startup in close proximity to one another, they will want to have sex. And do so. Sometimes at work. This, of course, never happened in a place such as Newsweek. Journalists are monks.
- Sales people in high-tech companies like to have wild parties.
- HubSpot has a telemarketing arm that makes lots of phone calls, the reps read from scripts, and their performance is measured. This is the journalistic equivalent of reporting that humans breathe air.
- HubSpot doesn’t use cube farms, but prefers to arrange its offices in “open desk” configurations. Not even upper management is allocated offices.
- Employees are allowed to bring their dogs to work.
- HubSpot is not profitable.
- HubSpot has an internal corporate culture it promotes to its employees. Vigorously.
- High-tech companies discriminate against older people.
Upon reading this, my first reaction was “Dan, you were the chief technology guy for Newsweek, wrote about the industry for Forbes, and are part of the writing staff for the TV show Silicon Valley for chrissakes. What was your beat all that time? IBM mainframe marketing?”
Let’s take ageism first. Perhaps Dan only discovered this phenomenon when he first went to work for HubSpot, but some of us have known about the situation for a long time. Take this excerpt from my book, In Search of Stupidity: Over 20 Years of High-Tech Marketing Disasters. I wrote this in 2006 for the second edition, back when I was a therapsid:
High tech is awash with barely disguised age discrimination. High-tech companies vigorously deny this because U.S. law forbids age discrimination; the companies, of course, are lying. In most cases, if you decide to make a career in high technology, you will be fawned over whilst in your 20s and respected until your late 30s. At age 40+, if you have not escaped into upper management, it is assumed you will be either a) rich from the money you made working for a hot start-up or b) preparing for a second career, perhaps as a fries preparation specialist at the food court of your local mall. At 50+ a perk of your job will include a shiny new shovel, with which you are expected to dig your own grave, jump in, and then drag the dirt over on top of you. If you are 60+ and are spotted in the halls of a high-technology company, it is assumed you are either a) the grandparent of an employee or b) a ghost.
I suspect Dan is having some fun with us with the age stuff. It would have taken him about five minutes on Google to discover the average age of the people he’d be working with at HubSpot. But perhaps Dan is too old to use the Internet? In that case, he could have simply visited HubSpot HQ and taken a look around.
Let’s next look at that corporate culture complaint. This is facepalm material. Dan Lyons was Freaking Fake Steve Jobs, based on Real Steve Jobs. You know, the guy who hijacked half of Apple in the early 80s so they could build the first Macintosh? Who flew a pirate flag over the building the renegades fortified against the rest of the company? Who created high-tech’s very first Reality Distortion Field? Who preached “Making a dent in the universe?”
If by some miracle Dan had missed this development at Apple, there were hundreds of other companies where he could have picked up on the phenomenon. High-tech companies have been creating “corporate cultures” since the beginning of time or at least the 70s. (OK, I’ll admit that HubSpot’s 128-slide preso deck explaining its culture is a bit excessive. But hey, it’s shorter than the Bible.)
It’s also evident Dan showed up for his first day of work with an “unpositive” attitude to the whole HubSpot experience. This is his reaction when he discovers he’s going to be working for someone <50.
F**k f**k f**k f**k f**k , a little voice inside my head keeps saying as I follow Zack and his gelled hair down the hall, my pulse thrumming in my temples.
Nine months ago I was the technology editor of Newsweek. In that job I did not even notice people like Zack, or Wingman, or even Cranium. They are the kind of people whose calls I would not return, whose email I deleted without opening. Even Halligan and Shah were such small fry that I probably would not have taken time to meet them for coffee, and I certainly would not have written about them.
Louis XVI displayed a better attitude towards the peasants. Before the French Revolution.
Perhaps the most substantive charge Dan makes about HubSpot is that the company is not profitable. In my opinion, after reading several favorable reviews of Disrupted, this claim has resonated the most with the public, mainly because it’s true. HubSpot is indeed not profitable (to date). But Dan fails to provide the proper financial context for this statement and thus does his readers a serious disservice. Let’s look a little closer at the company’s business model to find out why.
In addition to writing business books and novels, I’m also the managing editor of Softletter, an online publication targeted primarily towards the SaaS (Software as a Service) and mobile applications industries. Without diving too deeply into the details, SaaS companies are distinguished from their earlier on-premise ancestors by three characteristics─you don’t install SaaS products on your computers, you don’t license them, and you normally pay for their usage on a recurring (subscription) basis, particularly in business markets. Salesforce.com, World of Warcraft online, and Google Docs are all examples of SaaS companies or services. It’s now the software industry’s dominant model.
Softletter regularly publishes a series of financial performance metrics we refer to as the Benchmark 53. This is a list of 53 publicly held software companies, most of them SaaS or mobile app firms. U.S. and international law requires these businesses to publish information about their basic sales, expenses, and revenues via 10-Ks and other forms and you can learn a great deal about a company’s performance by analyzing these numbers.
Our BM 60 in turn is broken into seven cohorts and a special Big Four category that includes Apple, Google, Microsoft and Oracle. The category relevant to HubSpot is SaaS Sales and Marketing. It’s comprised of companies who provide a variety of sales and marketing automation capabilities. The firms tracked are:
- Constant Contact
In an online webinar held for the U.S. and Europe on April 12th and 13th, we analyzed Operating Income (OI), a useful metric for measuring a company’s basic profitability. During the session, I noted that the SaaS Sales and Marketing category is a brutal place to be. The businesses competing in this market believe in sales and marketing and spend heavily to dominate their sectors.
Of these seven companies, how many do you think were profitable? I’ll give you a few seconds to guess. Get your hands away from that keyboard or smartphone.
Times up. One. Constant Contact. By a whopping 3.5% over two years.
What’s going on?
What’s going on is a financial calculation that Dan should know about after 25+ years of high-tech coverage. In SaaS, one of the chief reasons companies go public is to build a war chest to help fuel growth and market share over time. The decision to defer profitability in return for sales domination and ultimately a big revenue payoff is deliberate. That’s the reason Saleforce.com, with 2015 revenues of $5B+ and a stock price that hovers in the $70s range (the company entered the market at $15 in 2004 and its shares have split several times) has never been profitable. The investors, SEC, banks, government, and accountants all know the company is playing the long game. It’s not insidious nor stupid, and if you bought Salesforce stock in 2004 and held onto it, you’re one happy shareholder.
This is not to say that this strategy is always successful. It isn’t. But Disrupted does not provide any financial analysis to help us decide whether HubSpot’s play is sensible or stupid.
Here’s another company that’s never been consistently profitable. You may have heard of it. Amazon, founded in 1994, went public in 1997. In 2015, it showed signs of consistent profitability for the first time in its history. (I’m waiting to see how this turns out in 2016.) That only took twenty years (maybe). Amazon stock currently trades at $600+ per share and the company generates $107B in annual revenue. It’s now “too big to fail,” which was the point of going to public markets to raise dollars for growth.
Another fact Dan neglects to mention is that SaaS companies often have more cash in hand than their revenue figures suggest. That’s because U.S. accounting laws and regulations prohibit service companies from recognizing subscription revenue until the service is actually delivered, even if the subscription has been paid for in advance.
Also, if Dan is that worried about HubSpot’s profitability, maybe they should dial down on some of those perks. Such as the fully paid for health package.
There are also some puzzling passages in Disrupted that don’t make logical sense. Dan thinks HubSpot is a spammer and attempts to prove it in this passage:
In training we’re taught that the billions of emails that we blast into the world do not constitute email spam. Instead, those emails are what we call “lovable marketing content.” That is really what our trainers call it. The convoluted logic behind this is that “spam” means unsolicited email, and we send email only to people who have handed over their contact information by filling out a form and giving us their permission to be contacted. Our emails might be unwanted, but they’re not, strictly speaking, unsolicited, and therefore they are not spam.
Now, I’ll grant you that “lovable marketing content” instead of the more prosaic “permission-based commercial E-mail” is a tad cutesy, but that’s not the issue here. Dan does not have the right to redefine the definition of spam. If a person or business fills out a form and agrees to be contacted, then they have agreed to be contacted. When you contact them, you are not sending spam. HubSpot does produce a steady flow of marketing information and articles and I’ve subscribed to some of the publications over the years. I’ve also unsubscribed and have never had a request to no longer receive email ignored. HubSpot is not a spammer, strictly or otherwise.
But all of the above is not what really bothers me about the book. It’s about the problems Dan has created for us aging antiques of tech, people who remember when memory was measured in kilobytes, Logo was cool, and that a floppy drive is not a form of erectile dysfunction. Because of Disrupted, not only will HubSpot never hire anyone over 40 again, it will treat seniors like escaped velociraptors if they do enter the place.
Therefore, in the spirit of May/December reconciliation, I’d like to offer myself as a replacement for Dan. I have the qualifications. I’ve written two editions of a book on the model, SaaS Entrepreneur: The Definitive Guide to Succeeding in Your Cloud Application Business. Softletter has conducted pioneering research on SaaS, everything from channel development to trends in UI design. From 2007 through 2015, I hosted 15 Softletter conferences on SaaS. In fact, in 2011, a former HubSpot employee, Jonah Lopin, spoke at our Denver session on measuring customer satisfaction. He and his information were excellent. And, as you can see, I already understand the numbers that drive the model.
OK, yes, I’m 62 and older than COBOL, so I realize I need to sweeten the offer a bit. So in addition to the above, I publicly promise that I will:
- Take the job seriously. No trolling.
- Require very little technical support. I still build my own desktop rigs.
- Understand product management. I was once the PM for WordStar. It was used to compose the Stele of Hammurabi. And George Martin is writing the Game of Thrones series using it. How cool is that?
- If asked, give you excellent advice on not committing avoidable marketing mistakes. As the author of In Search of Stupidity, I’m an expert on the topic.
- Not get upset when everyone calls me “Gramps.”
- If I accidentally come across two people having sex in an out-of-the-way broom closet somewhere, react only by glancing quickly at the duo in envy. (At 62, that’s kind of where your options end up anyway.)
- Wear a hoodie to work from time to time. (Something stylish, maybe from Banana Republic. Really, I don’t mind. When I went to work at my first high-tech firm, MicroPro, we all had to wear suits and ties all the time. Dressing down is nice.)
- Not write a book about my experiences at HubSpot. I’ve just written a novel that has fun with high-tech startups, Selling Steve Jobs’ Liver: A Story of Startups, Innovation, and Connectivity in the Clouds, which is about what it says. I’ve already gotten it out of my system.
- Not drool.
- Not die.
Taken all together, I think that’s a compelling package. Let’s give it 12 months and see where we end up. I’m easy to reach and ready to talk.
In the meantime, best of luck! My analysis of your firm is that you’re going to do well over the next several years.
Sincerely, Merrill R. (Rick) Chapman
Managing Editor, Softletter
P.S. If you decide to not take me up on my offer, please consider purchasing a copy of Selling Steve Jobs’ Liver. It’s funnier than Dan’s book and after what you’ve been through, you need a good laugh.