Welcome to The Middle, your midweek rundown of the most interesting things we've read this week.
I'm currently 2.5 weeks away from having another baby in the house, so if you have any advice on handling two under two, just shoot it my way.
Also, I'm going rogue on the email this week. I researched HubSpot (based on a chart on my desk). It's crazy to read about some of the bets these companies make and how they pan out after 10+ years.
So, let me tell you about HubSpot...
THE MILESTONE:
In 2014, HubSpot went public, raising over $125 million in its IPO-
A key part of its success was its bold shift to offering a suite of free tools, which it used to generate massive user adoption and fuel its sales funnel.
By 2020, HubSpot's stock price had increased more than sixfold from its initial offering.
THE CHALLENGE:
Before their IPO, HubSpot had already positioned itself as a leader in the inbound marketing space.
However, they faced a common SaaS hurdle: continuously driving new users to the top of their funnel without significantly increasing customer acquisition costs (CAC).
The market was becoming more saturated, and competitors were getting more thoughtful about capturing SMBs and mid-market customers.
THE STRATEGY
HubSpot's key innovation was what might seem counterintuitive: giving away high-value tools for free.
This wasn’t just a marketing gimmick—it was a bet that offering something of significant value upfront would increase customers' overall lifetime value (LTV).
Launched Free CRM: In 2014, HubSpot launched its free CRM to the public. It was a powerful tool, especially for small businesses, and it helped remove the friction of signing up for more expensive marketing and sales tools later on. By getting users in the door with a free product, they could upsell premium tools over time.
Freemium Model: HubSpot adopted a freemium model across several products, including its email marketing and social media tools. The free versions were fully functional but had limitations that users would hit as they scaled, encouraging an upgrade to paid plans.
Content Marketing & Educational Ecosystem: They doubled down on content marketing by building an ecosystem of blogs, webinars, and educational content to teach users how to use their tools. By becoming a trusted resource, HubSpot built loyalty and established itself as a key player in helping businesses grow.
Focus on User Experience & Support: By focusing on providing excellent onboarding and support—even for free users—HubSpot ensured a seamless experience that increased product stickiness. Their customer success teams helped users move from free to paid versions as their businesses grew.
THE RESULTS:
Brian Halligan, HubSpot’s co-founder, was a vocal advocate of this shift.
Halligan often emphasized the importance of delivering value upfront and building trust. In interviews, he has admitted that while the freemium model was risky, it was the right move to differentiate themselves in a crowded market.
Lead Generation Explosion: Within two years of launching the free CRM (by 2016), HubSpot had attracted over 60,000 free users. This fed directly into their sales funnel, with 5-10% of these users converting into paid customers over time.
Lower CAC (Customer Acquisition Cost): Thanks to its freemium strategy, HubSpot reduced its reliance on costly paid acquisition. By 2018, their CAC had decreased by approximately 20% compared to when they were focused primarily on paid lead generation before introducing free tools.
Boost in User Growth & Retention: HubSpot’s user base surged to over 120,000 by 2019, compared to around 10,000 users before launching their free CRM in 2014. This user base served as the pipeline for paid plans, and many free users upgraded to premium versions. Their overall product retention rate improved by 25% post-launch.
Revenue Growth: Following the launch of the free tools, HubSpot's total revenue grew rapidly. From 2014 to 2016, it more than doubled, rising from $115.9 million to $271 million in two years. By 2020, its annual revenue had skyrocketed to $883 million, with the freemium model cited as a core driver of this expansion.
IPO and Stock Performance: HubSpot's stock price rose significantly after going public in 2014 when it was valued at around $880 million. By 2020, its market cap had exceeded $12 billion, marking over 1,260% growth in just six years.
There were a few takeaways while doing this research:
Leverage Freemium as a Growth Tool: Offering free tools isn’t just about getting users—it’s about building a pipeline for long-term revenue. By lowering the barrier to entry, you can attract a larger audience and strategically convert high-value users over time. Use this approach to lower CAC and boost LTV.
Focus on Helping People In Their Jobs: Position yourself as a resource, not just a product. Educate your audience through valuable content that helps them succeed, and they’ll see you as a partner in their growth. This increases brand loyalty and drives organic growth, reducing the reliance on paid acquisition.
Upsell and Right-Size: Ensure your free users have a clear path to upgrade, but don’t force it. The key is to let them experience the total value of your product first. When they outgrow the free version, the transition to a paid plan will feel like a natural progression, not a hard sell.
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