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HubSpot Inc: This Company Is Making Cold Callers Irrelevant

Consumers no longer tolerate aggressive sales tactics. The internet has exposed slimy sales techniques, making transparency and trust necessary ingredients for successful marketing. The world is moving toward a customer-centric focus, and companies unwilling to make this transition will be left behind.

HubSpot (NYSE: HUBS) is one company at the frontier of this movement.

Image source: HubSpot 

It's a movement

Specifically, HubSpot is leading the charge for "inbound marketing", a phrase coined by CEO and co-founder Brian Halligan.

What does it mean? Well, it's not cold calling and spamming your email. The aim of inbound marketing is to lead consumers naturally to products that solve their problems and meet their needs.

For instance, big-data company Splunk manages a blog to teach people how to use its platform most effectively. If someone is researching data analysis already and comes across Splunk's blog, they become a potential customer. Inbound marketing is a mixture of content management, search engine optimization, and analytics to help companies attract and keep more customers. HubSpot's cloud-based platform manages this whole process.

Thought leader

The idea for HubSpot came from two MIT business school students. Brian Halligan had been working with a venture-capital firm and was tired of seeing the same old slide decks with the same ineffective marketing strategies. Around the same time, Halligan noticed that classmate Dharmesh Shah's blog, onstart-ups.com, had exploded in popularity. Combining their strengths, the two started HubSpot and the inbound movement.

The company has since has taken the marketing world by storm, and the results are clear for all to see. Halligan and Shah have written a best-selling book on the advantages of their approach. And recently, over 19,000 people attended a conference the company presented, appropriately named INBOUND. HubSpot's blog averages more than 4.4 million monthly views.

All of this bears out in the financials as well -- the company has grown its top line by an average annualized rate of 57% over the past five years, from just $29 million in 2011 to almost $300 million last year. Meanwhile, the customer count has grown to over 31,000.

One HubSpot

HubSpot's platform consists of three segments: marketing, sales, and customer relationship management (CRM), or the "Growth Stack". The company attempts to upsell customers between the three services into "One HubSpot", a single touch point for businesses to interact with customers. The centralized database allows businesses to manage client relationships effectively and efficiently. Once customers buy into two or three segments of the Growth Stack, retention rates are through the roof, in the mid-90% range.  

To enhance the offering, HubSpot has transitioned to a freemium service, meaning companies can try out the bare bones of the platform and then upgrade for access to more features. Feedback has been positive -- in the last earnings call, management recalled multiple wins through the freemium offering, including a software company named Parking BOXX.

Moreover, the company is focused on becoming a light-touch service, meaning customers don't need to interact with a HubSpot representative to subscribe. Normally, software-as-a-service companies need a huge direct sales team to onboard customers and teach them how to use the platform. But HubSpot is trying to move away from this, which will allow it to spend comparatively more on research and development and employee retention. Since 2013, the percentage of revenue HubSpot spends on sales and marketing has decreased from 89% to around 75% today. However, R&D spend only decreased from 19% to just under 17% in the same time period. Plus, the company is still in the midst of the transition so it looks like the numbers will only get better. 

HubSpot doesn't just sell software. It sells the entire movement of inbound marketing and the idea that business is about relationships, not just making a sale. Companies working toward a larger purpose tend to attract better employees and become more successful -- HubSpot is one such example.

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Ryan Reeves owns shares of Splunk. The Motley Fool owns shares of and recommends Splunk. The Motley Fool has a disclosure policy.