“One of the common mistakes that marketers make is to believe that their customers are different than they are.  They’re not.  Just like us, our prospects hate cold calls, throw away junk mail, and ignore most advertising.“ 

Dharmesh Shah, Founder & CTO of HubSpot, Serial Software Entrepreneur and Startup Blogger 

The Rich Niche Group blog interviews and enables you to hear directly from successful entrepreneurs, product managers, venture capitalists and others about the steps they took to grow their businesses/products and how they were able to create, penetrate, and/or dominate their niche.  This week we interview Dharmesh Shah.

Interviewee:  Dharmesh Shah, serial entrepreneur, author and startup blogger. 

Why Selected:  Dharmesh is the founder and CTO of HubSpot.  HubSpot provides marketing software for small businesses.  The company, based in Cambridge, Massachusetts, has raised over $30 million in venture capital, and has over 1,700 customers. 

He developed grader.com – a free suite of online tools for marketing measurement.  These tools, including WebsiteGrader.com and TwitterGrader.com have won numerous awards and have been used by millions.

Dharmesh is the co-author of the new book “Inbound Marketing: Get Found Using Google, Social Media, and Blogs,” published by Wiley in October, 2009.  The book has been consistently ranked in the top 100 business books on Amazon.

He also authors OnStartups.com, a top-ranking startup blog with over 15,000 subscribers and 100,000 members in its online community.  He is an active member of the Boston area entrepreneurial community and a frequent speaker on the topic of startups and internet marketing.

Dharmesh has a B.S. in Computer Science from UAB and an M.S. in the Management of Technology from MIT.

In the following interview, Dharmesh discusses how he used inbound marketing techniques to help his company’s grow and how any business regardless of the sector it is in can use these same techniques to reach its customer base.  During the interview, Dharmesh provided some great insights on what it takes to launch, grow and sustain a company in today’s market.  The key points you’ll take away include:

1. It is critical for entrepreneurs to figure out a way to efficiently gain access to customers and to really reach people, you need to give them something that is valuable and compelling. 
2. As your company grows, one of the challenges you needed to be prepared for is how to stay on top of rapid growth and ensure that the organization shares a common vision and maintains the culture that has made it successful thus far.
3. Successful companies that enter a niche have a good understanding of how the existing players are failing to deliver sufficient customer value.
4. Companies that dominate a niche find some sort of “network effect” whereby each additional customer adds value to the remaining ones.

In your new book, Inbound Marketing: Get Found Using Google, Social Media, and Blogs, you show how any business can use inbound marketing to help their business drive prospects and clients to them; can you describe how you have personally used these techniques to build the companies you started? 

 My startup HubSpot was built from the ground-up with inbound marketing techniques.  We’ve used several different forms of content to effectively draw prospects in.  For example, in the early days of the company, we started a blog on the topic of small business and marketing.  This blog (http://blog.hubspot.com) is now one of our top 5 sources of leads for the company.  Another example is our suite of free tools, including Website Grader and Twitter Grader, both of which have been great marketing vehicles.

 

 Many internet and high-tech start-ups use inbound marketing, can you talk about how important it is for other smaller businesses and sole proprietors such as doctors, lawyers, plumbers, interior decorators, etc. to utilize the techniques you describe to help them maintain and grow their businesses? 

Inbound marketing actually works even better for mainstream, non-technology businesses.  The reason for this is that high-tech businesses are often very innovative — and pursuing an entirely new market or creating a new category.  Though inbound marketing can certainly help businesses, one challenge is that in these new, emerging industries, there may not be strong existing demand for the offering (people are not searching for those products, because nobody knows about them yet).  On the other hand, mainstream businesses like lawyers and interior designers often have very strong existing demand.  Inbound marketing is a great way for these kinds of businesses to connect to that existing demand and pull in customers.

 

 If inbound marketing works best for mainstream companies, how do you suggest they get started?  Most of them have never used inbound marketing and thus could use a few simple steps to get started.

 The best way to get started with inbound marketing is to start getting involved in the blogosphere.  Before writing the blog, it’s helpful to start finding relevant blogs in the industry and start engaging in the existing discussion.  Then, begin engaging in social media sites (LinkedIn, twitter, Facebook) and find relevant people/discussions there.  The idea is to start forging connections with those in the industry.  Then, start producing valuable content (usually a blog).  

 

 In today’s market business professionals and consumers are bombarded with marketing messages in everything we do, in your opinion, what can a small business and/or start-up do to ensure their message gets through to their target audience and drive them to come to your business to either learn more or buy?  

 The answer is very simple — but not easy.  Product content that is useful and interesting:  One of the common mistakes that marketers make is to believe that their customers are different than they are.  They’re not.  Just like us, our prospects hate cold calls, throw away junk mail, and ignore most advertising.  To really reach these people, we need to give them something that is valuable.  We need to create content that is compelling and will pull them in.  Websites that are nothing more than brochureware just won’t work — people ignore those.

 

 You are currently on your second start-up (HubSpot), what have been the biggest obstacles at the different stages of each of the two companies? 

 Each company had different challenges.  In my first startup (Pyramid Digital Solutions), the challenge was always one of resources.  The company was bootstrapped and did not raise any venture capital.  This meant that we could only grow as fast as our revenues allowed.  In many ways this was great, but it was tough because there were never enough people to pursue all of our ambitions.  At HubSpot, we have a different problem. We’ve raised significant outside funding ($33 million) and as such, have been able to hire exceptional talent consistently.  The challenge now is — to stay on top of this growth and ensure that the organization shares a common vision and maintains the culture that has made it successful so far.

 

You talk about maintaining the culture as HubSpot has grown, what specific steps did you take to ensure the culture did not get outstripped by the company’s growth?

 Several things:  First, we make “cultural fit” one of the key hiring criteria.  You’d be surprised at how many companies don’t have this in their list of priorities when recruiting.  We try to maintain an environment of “passionate and fun” in the office.  It’s a good work environment and it’s not possible to spend 15 minutes in the office without hearing someone laughing.  We have regular work-but-not-work activities that help people come together.  This includes a live weekly web TV show on Friday afternoons where we invite anyone from the outside to be part of the studio audience.  The idea is not to be overly serious, but not be frivolous either.  It’s not just about free beer on Fridays.  It’s about recognizing that HubSpot occupies a large part of our people’s lives and we’d be silly not to recognize that and make the environment as pleasant as possible so great people can work with other great people and do spectacular things.

 

How have the two start-ups differed and what key piece of knowledge from your first company (Pyramid Digital Solutions) helped you the most when launching your second business?

 The two companies were very different.  Pyramid was focused in a very niche (but lucrative) market whereas HubSpot is in a much broader and bigger market.  The big lesson from Pyramid was that in order to build a very big company, there needs to be a market opportunity to support it.  Though Pyramid was very successful, there were intrinsic limits to how big it could grow. Though I learned a lot from the experience, I always felt that I wanted to pursue larger opportunities.  So, with HubSpot, I made sure that the opportunity was large enough that I could potentially build a big, successful business.

 

When the CEO of a start-up and/or small business is putting together their Board, what advice would you give them and how often they and the company’s executive staff should be interacting with Board members? 

 This varies a lot based on the situation.  A common board meeting schedule is usually once every 2-3 months — particularly if the company has raised capital and has investors as board members.  The key to a functional board relationship is to ensure that there’s a good balance between standard “governance” and strategic decisions.  The board and executive team should be able to have candid discussions around company issues and opportunities.  Done correctly, the board can bring great value to the management team because there’s often a wealth of experience and wisdom.

 

How often do/did you interact with your Board and how important are/were they to the success of your business?

 When we first formed our board, we met about every 6 weeks.  Now we meet every 10-12 weeks.  Our board has been extremely helpful with some key issues — particularly during the early stages.  Areas where we received the most help were around marketing, sales, finance and strategy.

 

In general, what piece of advice would you give to someone who is either starting a new company or getting ready to launch a new product which they are hoping to either create and/or penetrate a niche?

 Today, it is critical for entrepreneurs to figure out a way to efficiently gain access to customers.  Most of the startups that I talk to don’t have issues with building a reasonably good product, they struggle with marketing and sales.  As such, my advice would be to start very, very early with inbound marketing efforts (the topic of my recent book, Inbound Marketing: Get Found Using Google, Social Media, and Blogs.  The idea is to start creating content and building a network within your target community.  This should happen well in advance of a product launch (and in fact, done correctly, can help you figure out what product to build). 

 

What are the key characteristics of companies that have been able to penetrate a niche, even niches dominated by another company?

 Usually, successful companies that enter a niche have a good understanding of how the existing players are failing to deliver sufficient customer value.  The key is to figure out what’s wrong with what’s out there now, make sure the problem is worth fixing and talk to as many customers as possible to figure out a viable solution.  It also helps to find industries that are going through a transformation whereby the existing offerings are becoming less and less effective.  The important thing is to be realistic as to whether or not your solution is *significantly* better such that some number of customers are willing to take the risk and adopt a new product.

 

When you think of companies that dominate a niche, who do you think of and what do you see them doing to keep that dominating spot?

 They generally deliver a fair amount of customer value (or at least they did in the early days).  They leverage this be deepening the relationship with the customer and making switching costs higher.  Often, they find some sort of “network effect” whereby each additional customer adds value to the remaining ones.  This kind of effect can act as a major barrier to entry for new market entrants.  (NOTE: for more on this see the earlier blog interview with Ara Bagdasarian and how this “effect” played an important role in his company).

 

What are the biggest threats to losing that dominating position? I would assume these same threats would be the opportunities for those looking to penetrate a niche?

 The biggest threat to a dominant player is to have the level of “unhappiness” in the customer base exceed the switching costs.  If customers are unhappy enough, they will consider switching, regardless of the level of vendor “lock-in” that might exist.  The other big threat (discussed in depth in the “Innovator’s Dilemma“) is that a new market entrant can focus on a different dimension of performance than the existing players.  A good example would include Southwest Airlines.  Often, a simpler, easier product will beat out existing players (over time) despite being much worse on a primary dimension of performance that historically was important and defined the industry.  But, a new class of customer often has different needs. 

 

Finally, which companies come to mind who once held a niche dominating position and then lost them and why do you think they lost that position?

 One example that jumps to mind is Siebel.  They had a dominant position in the CRM industry.  However, salesforce.com entered the market with a much simpler, lower risk option.  Despite the fact that salesforce.com was not nearly as powerful and had a fraction of the features (when it launched), it was “good enough” for many companies.  Over time, the product got better and better, and salesforce.com wedged its way into significant market share. 

Please let others know about the blog and our Entrepreneurs & Small Business Leaders group on LinkedIn.  The larger we can make the group, the more helpful it can be to everyone. We are also always looking for new topics and/or people to interview for the blog, please send any recommendations to Ken Balog at ken@richnichegroup.com