Disrupted

by Dan Lyons

  Meanwhile, I will be the podcast secretary. What the hell? After the meeting, in private, I remind Trotsky that the idea he is proposing, the project he wants to hire Sandra to run, is the exact idea that I pitched months ago.

  Trotsky nods. He seems to be mulling this over.

  “I’ll tell you what,” he says. “If Sandra comes on board, and if she needs any help, I will definitely want you to work with her.”

  At this point the message could not be more clear. Trotsky is doing everything short of hiring a skywriter to scrawl GET OUT, DAN in the airspace above HubSpot headquarters.

  I will be happy to oblige him. I’m making some progress in my job hunt. But I don’t want to leave until I’ve found a new position. I’m the sole breadwinner in our household, and we depend on HubSpot’s health insurance.

  From this point on, however, I find it pretty much impossible to take HubSpot seriously. One day I come back from lunch to find that Keytar Bear is performing in a conference room near my office. Keytar Bear is a busker who performs in Boston subway stations, wearing a bear costume and playing an instrument that blends a guitar and a keyboard. He’s here because it’s Tracy’s birthday—she’s the vice president of brand and buzz—and the people in her department thought it would be fun to have Keytar Bear serenade them while they eat birthday cake. They invite me in, so I stay and have a piece of cake and take a bunch of photos of them. At Halloween I do the same thing, roping people in for photographs, snapping away as they strike crazy poses and act like they’re the shit.

  Along with his constant stream of happiness surveys, Cranium asks us to submit suggestions (anonymously) for new ways we could all have fun at work. “Sundaes on Mondays” is one of my ideas—every Monday, Cranium should truck in a huge supply of ice cream and toppings so we can all make sundaes. Another week I suggest that we should take the hammock of out of the nap room, replace it with a massage table, and hire full-time massage therapists. Neither idea succeeds.

  In meetings, where previously I would say as little as possible, I now pitch the most ridiculous ideas I can think of, while keeping a straight face. One day Trotsky convenes about a dozen of us with the goal of coming up with big, new, outside-the-box ideas, revolutionary approaches to marketing that will put HubSpot on the map. He says he’s looking for a “Thom Yorke moment,” referring to the singer from Radiohead, who in September 2014 sidestepped the entire music industry and put out a new album as a bundle on BitTorrent, got millions of downloads, and earned $20 million, without having to deal with a record label.

  We’ve had a week or so to come up with our own ideas that are as revolutionary as the one Thom Yorke had. When it’s my turn, I pitch this: “We take five thousand one-dollar bills, and we stamp the word HubSpot on each one, in big red letters, along with our web address. We take the dollar bills to a city—let’s say it’s Cincinnati, because my brother lives there, but it doesn’t matter which city. We scatter the dollar bills—all over the city. It’s a metaphor for marketing. Do you get it?”

  They don’t. The women from the blog team stare at me with hate-filled eyes. I can’t tell if that’s because they don’t like my idea or because they just hate me.

  “Right now the way we get customers,” I say, “is we take millions of dollars and we pay people to create content on a blog. Then we hope that some tiny fraction of the people who see our content eventually turn into customers. Our conversion rate is tiny.

  “I propose we cut out the middleman—that’s us—and just literally give the money away. People in Cincinnati start spotting these bills all over the place. They start wondering what’s going on. The press gets wind of it. The local paper does a story. Then we get on local TV. Halligan talks about his crazy marketing scheme. It’s free coverage! Let’s say, after all this, we get one new customer in Cincinnati. We just spent five thousand bucks and got a customer. That’s way better than our current customer acquisition cost.”

  They’re not buying it. But I continue anyway to phase 2 of my plan: scavenger hunts. Lately these have been in the news. Some mysterious philanthropist has been putting hundred-dollar bills in envelopes, stashing them all over San Francisco and New York, and posting clues about how to find them.

  “I propose we kick it up a notch. We announce that on a certain day we will hide a bag containing five thousand dollars somewhere in San Francisco, say in Golden Gate Park. Or in Central Park, in New York. We create a frenzy. Imagine you have hundreds, or thousands, of people racing around trying to find the money. They all descend on the park at the same time. They’re blocking traffic. They’re causing accidents! It’s like that old movie, It’s a Mad, Mad, Mad, Mad World, where all the different teams are trying to find the treasure. The press would be all over this. They’d all do stories about the chaos. They’d do stories about whoever finds the money. They’ll do stories about us. We’ll be on national TV.”

  The thing is, this really isn’t a bad idea. It’s controversial, and maybe crazy, but it’s not outside the realm of possibility.

  Nobody likes it.

  “Okay,” I say, “so we could even take it one step further. We build a money cannon. It’s a big cannon that shoots dollar bills. You just need a big fan, in a box, and then a tube sticking out. We mount the cannon on the back of a Hummer, with HubSpot in huge letters on both sides, and we drive around a city blowing money into the streets. Think of the disruption! People rushing into the streets, trying to grab as many dollar bills as they can. They’d be fighting over the money, like people at Walmart on Black Friday. It would be a nightmare!”

  They all just sit there, looking down at their hands. Trotsky clears his throat and says, “Okay—anybody else?”

  We spend an hour listening to various lame ideas. One is called Uber-a-Marketer, and it’s a ripoff of a promotion that Uber did with a vaccine service, where you could have a nurse with a flu shot driven to your door. With Uber-a-Marketer, you’d pay some money, or win some kind of competition, and HubSpot would send one of its marketing people to your office and teach you how to do marketing. After all, we’re the best marketing team on the planet! People would kill to have us teach them about marketing!

  This idea actually generates some responses. But someone worries that Uber might not want to play ball with us. What happens then? We could go to Lyft, or some other car service.

  I chime in, saying that I love this idea but maybe there’s a way to kick it up a notch and make it even more dramatic: “Why not have a marketing person parachute in?” I say. “Like Google did at their I/O conference last year, when they had people wearing Google Glass skydive onto the roof of the venue. You win the prize, and zoom—a plane flies overhead and a marketing person comes skydiving out of the plane and lands on your roof. How cool is that?”

  Dead stares.

  “Or,” I say, warming to the topic, “we could fire someone out of a cannon. We could make Spinner do it. I’d pay to see that. Or hey, Fatima would do it.” Fatima is an unbearably ambitious and energetic young woman who recently graduated from college, loves HubSpot more than life itself, and would do just about anything to get a promotion. “She’s tiny,” I say. “We could put her in an orange jumpsuit and an orange helmet and fire her right through an open window and into a cubicle. Bang! There she is! She doesn’t miss a beat. She just starts giving a lecture about marketing.”

  A few people laugh. But then they look around and see that the others aren’t laughing, and they stop.

  For a moment there’s nothing. Crickets.

  “You know,” I said, “I really think you should consider that money cannon. Because that one seriously would work.”

  Twenty-three

  Escape Velocity

  Fortunately, as it happens, my job hunt has been going well. I’m pretty sure I will have an offer lined up soon and can give my notice.

  Meanwhile, on October 9, HubSpot manages to pull off its IPO. I’m rich! Not really. My options are worth about $45,000 more than what I will pa
y to exercise them. Still, I can’t complain.

  When companies go public they have to file paperwork with the Securities and Exchange Commission and reveal information about their business, including their financial performance. After looking at the HubSpot prospectus I cannot believe anyone would actually buy shares in the company. The losses are huge, and instead of getting smaller, they are getting bigger. Losses in fact are growing faster than revenues.

  According to its IPO prospectus, in 2013, HubSpot generated $77.6 million in revenue but lost $34.2 million. In the previous year, HubSpot posted $51.6 million in revenue but lost $18.9 million. Losses are growing faster than sales. From 2009 through the middle of 2014, HubSpot has generated $231 million in revenues but lost $118 million doing it, meaning that for every dollar generated in sales, the company has spent nearly a dollar and a half.

  Sure, top line revenue is growing, but HubSpot is accomplishing this by spending more and more money on sales and marketing. According to the prospectus, in 2013 HubSpot spent $53 million just on sales and marketing—that’s about 68 percent of total revenues. Sales and marketing represents by far the biggest expense on the income statement. HubSpot spends more than three times as much on sales and marketing as it does on research and development.

  According to HubSpot’s balance sheet, from the end of 2012 to the middle of 2014, a period of just eighteen months, HubSpot’s assets have declined by 20 percent, from $65 million to $52 million. Its liabilities, meanwhile, have more than doubled, from $27.6 million to $57.4 million.

  Also revealed in the prospectus is that HubSpot has started borrowing money against a line of credit. In total the company has borrowed $18 million, which will be repaid out of the money raised in the offering. Management hopes to raise $100 million in the IPO.

  The prospectus contains a warning: “We have a history of losses and may not achieve profitability in the future.” Note this does not say it will take a while to achieve profitability, or that profits will one day arrive but the company cannot predict when this will happen. Rather, the prospectus says the company might never become profitable. Sure, this is partly just a way to be conservative. Companies always exaggerate the risks to their business so that they can’t be accused later of misleading investors or overpromising.

  So what are you getting if you buy this stock? You’re not really investing; you’re speculating. You’re hoping that whatever price you pay, someday someone else will be willing to pay more for it. No doubt there are people who will buy HubSpot shares without ever reading the prospectus or looking at the income statement or balance sheet. They’re just buying a story. They’re also hoping that the IPO will deliver a little “pop,” meaning the stock will go up on its first day of trading, giving them an instant profit.

  In the end those people got their wish. In the days leading up to the IPO, HubSpot starts seeing strong enough interest from investors that it raises the price of its stock, from a range of $19 to $21 to a range of $22 to $24. On October 8, the night before HubSpot shares will start trading, the company raises the price again, to $25. The next day, when the market opens, HubSpot shares surge past $30 on the New York Stock Exchange.

  Halligan and Shah have overcome tremendous odds to get where they are. In 2006, the year they founded HubSpot, more than 600,000 new companies were launched in the United States, according to the Bureau of Labor Statistics. Fewer than 1,500 of those companies raised money from angel investors and venture capital firms, according to a 2015 report by CB Insights, which tracks the venture capital industry. Of those 1,500 companies, only 1 percent made it to “unicorn” status, achieving a market valuation of $1 billion or more, CB Insights says.

  What’s most remarkable is that HubSpot pulled this off even though the company had come within a hair’s breadth of running out of money. Apparently this happens more often than I realized. “It’s called ‘Go public or go broke,’ and it’s not at all uncommon,” says Trip, a former investment banker and venture capitalist. “The one thing people do not appreciate is that these companies are incredibly fragile. There is so much less to them than people believe. The difference between success and failure is so much smaller than people recognize. The whole thing is based on companies trying to achieve escape velocity before they blow themselves up.”

  Trip says pulling off an IPO is “like a caper movie. You know they’re going to try to rob the place, but you don’t know how they’re going to do it, and you don’t know if they’ll get away with it. There’s the promised land, over there, but will they make it?”

  Halligan and Shah and their investors have pulled off the caper. HubSpot has gone public. The investors have made a fortune.

  On October 9, the first day of trading, Halligan and Shah and a team of top executives go to New York and ring the bell at the New York Stock Exchange. They all wear goofy orange HubSpot sunglasses, like a bunch of clowns. The rest of us gather in the big conference room in Cambridge, watching a live feed from the floor of the stock exchange. Two young women sitting in front of me have loaded the Yahoo Finance app on their iPhones and are trying to figure out how much their options are worth.

  Once the stock starts trading, the “reporters” (they’re actually PR people) on the stock exchange floor conduct interviews with the executives from HubSpot, asking them if they have anything to say to the folks back in the home office.

  The best comment comes from Dharmesh. He owns 7 percent of the company, more than any other individual. At a $30 stock price, his 2.3 million shares are worth nearly $70 million. This windfall has come to him thanks to a single daring bet, one that probably seemed crazy at the time: Back in 2006, he took $500,000 of his own money out of the bank and used it to start HubSpot. He was the only seed investor.

  Dharmesh holds the title of chief technology officer, and he wrote the HubSpot culture code, but he doesn’t seem to be around much. By October 2014, when the IPO takes place, he is mostly working on a new project, an online community for marketers, called Inbound.org.

  But now he’s the richest person at the company. I’m anxious to hear what he will say to the people back in Cambridge—the engineers who write the code, the bros in the boiler room who sell it, the grunts in the content factory who generate the leads, the customer service reps who deal with angry people all day.

  Most of these people will get next to nothing from this IPO, but their hard work had just made Dharmesh an immensely wealthy man. How will he thank them? He embodies our culture: humble and modest, remarkable and transparent. He’s the creator of HEART, the inventor of delightion, the pundit who proclaims, “Success is making those who believed in you look brilliant.”

  This man who has just reaped a $70 million windfall, whose stock will soon be worth more than $100 million when HubSpot shares keep climbing, looks into the camera and says something amazing: “Get back to work.”

  I will never forget it.

  On the way out we each get a mini bottle of Freixenet Brut with a HubSpot logo. Penny, the receptionist, checks names off a list so nobody can duck back and grab a second bottle.

  It’s perfect.

  Twenty-four

  If I Only Had a HEART

  About a month after the IPO, in November 2014, I get an offer from Gawker Media, a blog publisher in New York with a reputation for doing some salacious stuff but also for doing some good investigative journalism. They want me to write about Silicon Valley on a blog called Valleywag. After months pretending to be an anthropologist at HubSpot, studying natives who have been growing increasingly resentful of my presence, I will return to my own tribe.

  By pure coincidence, on the day in November when I am expecting to receive a letter from Gawker that makes their offer official, I also have my annual review with Trotsky. I consider skipping the meeting, because I’m guessing he’s going to insult me. The review is pointless, because as soon as I get the letter from Gawker I’m going to give Trotsky my notice. On the other hand, why miss it? I’m sure Trotsky has somethi
ng special planned. Also, if I’m really going to do this anthropologist thing, I should carry it through to the end.

  Trotsky has set the meeting to take place in a tiny room on the fourth floor, a room named after Dustin Pedroia, a Red Sox player. They call it a meeting room but it is about the size of a closet. There are two chairs and a tiny round table between them, big enough to hold two laptops. The room has a glass wall and glass door, so everybody walking by can see inside.

  When I arrive, Trotsky is still finishing up with a young woman named Kacie. They’re smiling and laughing, having a good time. I walk down the hallway and wait for my turn. After a few minutes, Kacie comes out, beaming. Her review went well! “Hey!” she says.

  When I walk in, Trotsky has his laptop open on the table and a pained expression on his face. Clearly this is not going to go well. For some period of time I clung to the belief that Trotsky didn’t really mean all of the shitty things he was saying to me, that he was only abusing me because Cranium had told him to drive me out of the company. But lately I have started to think otherwise. Lately I have come to suspect that Trotsky is getting off on this.

  He begins by explaining how HubSpot reviews are conducted. We are graded in three categories: job performance, HEART, and VORP. In each category we get a score from one to five. The numbers make the process seem scientific, or, as people here like to say, data-driven. At other jobs when I’ve had an annual review it basically has entailed having a conversation with my boss. But HubSpot likes numbers.

  In job performance, “I’m going to give you a three,” Trotsky says. He looks up at me, then stares at his MacBook Air, as if as if there is some matrix of numbers on his screen, data that support the score that he has given me.