Brian Balfour, VP of Growth at Hubspot, on How to Grow a SaaS Business

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“I’ve learned over time, no matter how big or small you are, you’re always constrained by resources. So you have to get really freaking good at answering the question, “What is the highest-impact thing I can work on right now given my limited resources? Whether that’s people, time, or money.” – Brian Balfour

Brian Balfour has started multiple VC-backed companies and grown user bases to millions of daily active users. He’s currently VP of Growth at HubSpot as well as a thought leader who writes regular and insightful essays, that you can find on, sharing his knowledge about growth and user acquisition and helping start-ups to build an effective growth machine.

Brian spoke to Michael Cullen for the SaaS Revolution Show podcast which you can listen to on SoundCloud or download on iTunes. The following is the lightly edited transcript of the conversation.

Brian, as you know we are all about SaaS here and SaaS start-ups are growing faster than ever before. Recent statistics highlighted by Tomasz Tunguz shows that publicly traded SaaS companies founded between 2008 and 2014 needed 50% less time to reach $50 million in revenue than their counterparts founded between 1998 and 2005.

So what do you think it is about SaaS companies in particular that allows them to grow so rapidly? The likes of Zenefits and Slack and even your own HubSpot? How can these companies grow so much faster than the traditional software companies in the past?

Well, I actually don’t think it’s just SaaS companies. I think it’s the ecosystem as a whole. James Currier has this amazing chart that shows that since the start of the internet, as time has gone on, more and more acquisition channels have emerged over time as well as the cycle time between those new acquisition channels launching and at their peak effectiveness and then decreasing in effectiveness is shortening.

The more explosive these platforms are, whether you’re talking about Facebook or Twitter or the explosion of content marketing or whatever it is, all these things are accelerants. So you see consumer companies going from zero to a million users in a fraction of the time. You see SaaS companies going from zero to a million ARR in a fraction of the time. The whole ecosystem is accelerating.

As a marketer or as an entrepreneur looking at growing your company, that should really start to raise a lot of questions around, “If things are really accelerating, how do I stay ahead of the curve and really take advantage of all these new channels popping up?” As well as, “How do I make sure that I’m always at the bleeding edge of more mature channels as they get more crowded and mature?” I think that’s definitely one thing.

I think the second thing is, for SaaS specifically, just way better understanding of SaaS economics and subscription economics and how those things work and play out over time. Because as you really learn your economics and understand things like CAC to LTV, you can start to pump more money into the company, lengthen your payback period, and accelerate growth in the company.

The magic of subscription is basically no longer a secret. Now, both consumers and businesses are used to the SaaS model and paying those subscription fees so that has certainly been a big part of it as well.

I think the third, last but not least, is that we’ve just had an explosion of technology tools that have made marketing, customer success, and sales just much more productive. When you do that, when you increase that acceleration, you basically accelerate everything else. So I think that’s certainly been a part of it as well.

What would you consider the key differences between scaling and growing a B2B software company as opposed to a B2C business?

First and foremost, it’s the education cycles and who is actually doing the adoption. In most B2B companies it’s a much more of a considered purchase, it’s a longer education cycle and therefore your growth and channel mix look very, very different versus a consumer product which has a much shorter consideration cycle. It’s much more instantaneous, and it typically tends to happen in one session versus all of these touch points over a long period of time.

And typically in a B2B world, it’s not one individual making the decision. It’s one individual leading the decision but there’s a bunch of other people at play. So that’s very different.

However I’ll also say that I think that that’s changing. The whole trend of consumerisation of the enterprise is basically moving B2B companies to act much more like consumer companies where the adoption path into the product is not so much about holistically adopting it, it’s about one individual adopting a piece of it and having it spread within the organisation.

Now, everybody’s favourite example of this is obviously Slack, but there are a bunch of other examples too. New Relic is a great example where they targeted individual engineers. That one engineer could take action, deploy that one piece of code, get value out of it, show value out of it, and then they would have an inside sales rep call in and try to help them expand that within the organisation. Once again, a very different path than what you see in other cases.

We see the same thing. One of our new tools at HubSpot called Sidekick, which is at, it’s really targeting what we call relationship-focused professionals: sales people, externally-focused marketers, PR folks, recruiters, things of that nature. A lot of the tools in those spaces are really designed for groups or for the company and we’ve really designed that for an individual. What we see is since we’ve optimised for an individual, we see one person makes a decision of whether or not they’re going to use it. They get really quick time-to-value out of the product and over then over the course of a month or two months we can just start to see it naturally spread via word-of-mouth within the organization.

I think back to your original question, what the differences are, I think the lines are very, very quickly blurring between what B2C and what B2B growth looks like. As a result, you see a lot of B2C methodologies and tactics in terms of a much more quantitative-driven approach, a much more experimental approach, a much more technical approach to these as marketers start to take shape in the B2B world as well.


Are there particular channels that are most effective in the B2B and in the SaaS world or does it entirely depend on the nature of the business and the nature of the product?

It definitely depends on the nature of the business and the product. However, even given that, there’s really a very limited set of proven things. The easiest point to make would be something that would be like more B2C2B. This thing that’s closer to the consumer under the spectrum like a Slack, like a Dropbox, like an Evernote, like those things. In those types of models, what you typically have is a very low value per user. Therefore, what you need to do is target a pretty wide market and the only way to really economically acquire a large swath of those people is via virality.

So there’s some cases like what about Dropbox versus Box? The same thing, but Box doesn’t really have a lot of virality and they’ve taken much more of a sales approach. But I think the big thing that people are missing is that Box actually plays much more up in the enterprise. They’re selling year-long contracts in a lot of cases to much larger organizations. So on a whole, their average customer is bigger.

In the middle end of the spectrum you’ve got basically companies like HubSpot who target what we call the mid-market, companies that are between 11 and 2,000 employees. In that stage, there’s a mixture of things that work. Obviously, content marketing and inbound are the big things over the past 5 years. Over time, content marketing has proven in HubSpot and a couple of other cases to get a level of efficiency in the model to acquire these mid-market companies and to make a really big business. Whereas before the economics didn’t work and they were too expensive to acquire and very few people could really get that to work.

The other things that tend to work if you’re playing in this kind of level of market is middlemen or partnerships. So HubSpot does a lot with what we call our VAR Program or Value-Added Reseller Program. We work through agencies to sell the platform in to clients. A lot of other companies who are in similar types of markets sort of take the same approach. Xero, the SaaS accounting software, Shopify does a ton of integrations, or even something like FreshBooks.

In the far end of the spectrum you’ve got people selling into much larger companies at much larger values. You tend to see the thing that takes shape there is it’s a much more outbound approach – cold emailing, cold calling, that type of stuff. That’s typically mixed in with content and inbound marketing but the predominant thing is the outbound type of mentality.

So those are the proven ones. So really the way to scale is you get really damn good at one of the proven ones because there’s very few proven channels that can be massive scaling channels to your organization. Or you take a bet and you figure out a new channel, a new emerging channel. So you got to do one of the two or both. To play in either one of them, to be really good at a mature channel or to figure out the next big one, you have to have a very experimental frame of mind.


Is it the case then that companies need constantly innovate in terms of their marketing channels and their growth channels or is it a case of finding something that really works and just keep hammering it?

You constantly need to be experimenting. What I typically recommend is the way we built my team internally. If you’re a new product and you’re starting out, what you tend to find is that 100% of your time is spent on experimentation because you’re figuring things out, you’re figuring out what the viable channels are.

As you figure things out, you start to shift that mix of time more towards repeating things that have been proven to be successful. But even at the most mature state, I always recommend that 70% of your time should be spent on repeating and scaling things that have proven to work and 30% of your time should be spent on experimenting with new things. Because the things that are currently working almost all the time will stop working at some point and you need to replace them with more continued and effective tactics.

Now, there’s some types of channels that have much longer life cycles than others. Facebook, for example. Facebook has gone through multiple lives and the time for each one of those lives has been really, really short.

But you look at something like SEO or content marketing, it seems if you are successful there, the lifetime of that tends to be much longer. We’ll see how long that lasts because that ecosystem is basically getting much more competitive, but that’s one thing to consider. And no matter what stage you’re at, you have to have a minimal level of experimentation if you want to keep growing and stay in the game. Otherwise you’re going to get caught behind the curve.

To be honest, it’s not just on marketing channels and growth. At certain mature stages it’s also with the product. So HubSpot has done a very good job of that. We’ve got a core marketing software but we’re planting the seeds for the future. That means doing a lot of experiments with new products and new models and new types of users. Most companies die because they basically get too comfortable or they get in the state of just preserving and protecting the current profit machine and not allocating enough resources towards planting the seeds towards the future.


How would your advice differ to a start-up that’s 6 months in with initial traction to, say, a start-up that’s 18 months in, has achieved product/market fit and is looking to scale their business?

I’ve realised over time is that 70-80% of my advice is actually pretty similar. I’m relentless with focus. I think lack of focus is one of the top killers of any start-up as well as any later stage company. You get de-focused and it just kills everything else.

I think the other thing about focus is being unbelievably good at prioritizing. I used to think in my first company when I was an entrepreneur, I was like, “Oh, well, man, next year when we get to this point, we won’t be this constrained by resources. It will be just so much better.” I’ve learned over time, no matter how big or small you are, you’re always constrained by resources. So you have to get really freaking good at answering the question, “What is the highest-impact thing I can work on right now given my limited resources, whether that’s people, time, or money.”

Third is having this constant mind-set of experimentation and never getting comfortable. Having the grit to really hammer this out and experiment in a very structured and formal way.

I think where it differs is in what is the most important thing. Typically when you’re 6 months in trying to gain initial traction, a lot of people have the wrong mindset towards traction. The actual number one most important thing that you’re trying to figure out at that point is product/market fit. And the number one thing that proves you have product/market fit is real customers, real users that are retaining over time. Looking at that retention curve and retaining over time.

So I tend to rephrase the mission at that point which is traction is about how do you generate enough consistent volume to prove out that retention, giving yourself enough cycles and iterations on the product to basically prove that some of the users that you’re acquiring, you’re retaining and they’re healthy customers or users over time. It’s not about scaling a channel or any of those things.

Then once you’ve figured out that product/market fit, then you start moving in the stage of now I need to really put a formal machine in place of how to continually scale some of these viable channels around this audience that we found product/market fit with. Those are two very different missions.

So I think that’s where most of the differences lie but I think everything else is the same. So as part of that, if you think about traction and it’s just about generating just enough volume to prove out that product/market fit and that retention, you can think about all of these hacks and tactics out there, whether it’s forum posting or posting on Reddit or guest posting or any one of these things. But as soon as you get to that product/market fit stage and you look at really scaling and trying to grow meaningfully as a business, you quickly realise that those things just aren’t big enough to be worth your limited time and resources. You have to go after one of the really scalable channels depending on your company, whether that’s sales, content marketing, search, paid acquisition, or virality. There’s just not that many things that have massive ceiling rooms to help you grow. Or if it’s not one of those five things, it’s something brand new like the next game-changing thing. So that’s probably where I start to differ on advice.

How important are activation rates in terms of the activation rates attached to your growth? Given the importance of retention and customer success, is a daily active user essentially the only user that counts in terms of growth rate?

It depends. Any of these big metrics, whether it’s like acquisition, activation, retention, referral, revenue, they’re all important. The question is what is the most important one for you right now? Where is the highest impact area? So in some cases, depending on your product and your acquisition channels and stuff, activation is not necessarily the biggest issue. It might be elements in your model around retention or your conversion rates around that acquisition or maybe you are trying to go after that B2C2B play and you don’t have the virality. Well, you better work on that.

So basically what I typically recommend for any of these things is you got to build a very basic growth model that takes all this stuff into play and kind of drag it out, Excel spreadsheet it out, a year or 2 years. You can start playing with the different pieces in the model, the different pieces of the funnel to say, well, if we focus here for a while and we improved this metric, what would that do to our model over the course of the next year? And when you do that you can start to evaluate once again that really important question. What is the highest impact area I can focus on right now given limited resources? Sometimes it’s activation rate, sometimes that’s retention, sometimes that’s virality.

Sidekick for example, when I first came in there a year and a half ago, we had an activation rate that was abysmal, just absolutely abysmal. So we looked at that and we said, well, it doesn’t matter if 10x the top of the funnel or increase virality. As long as we’re activating people at such a low rate, this thing never really starts to take off and never really grows. So we chose that as our highest impact thing and we massively improved it. Then after that we looked at, well, now the next biggest area of opportunity is really cranking up top of funnel, so we spent a bunch of time on that.

Then the problem became a little bit around retention and so we just spent a bunch of time around that and really improved that and so on and so forth. So these things shift over time depending on all sorts of factors. Depending on your model, there might be some metrics that are more important than others but you constantly have to be playing this game. To some people it feels like a game of Whack-A-Mole, but the thing is this stuff never ends. Things are never fully optimized. Things are always changing. You’ve got to have a really long-term focus on it to make it through to the end.

At what point should a start-up switch some of their focus from purely user acquisition and customer acquisition to retention and to customer success? Or does that start from first paying customer? From day one?

I think retention is the mission from day one. But like I said, to really figure out that retention, you’ve got to be acquiring a consistent amount of consumers or customers. It’s kind of a balancing act in the early days. But assuming that you’ve got enough customers coming through then you should be focused on retention because without retention literally nothing else matters. You can crank that top of the funnel or whatever else you want as high as you want but you will basically just drop like a rock at some point. You might be able to trek and get by for a while but you’re just basically prolonging a problem in the end. You look at a lot of these companies that have had meteoric rises and then just plummeting to earth. That is the problem. Retention is always the problem.

The latest example that everybody loves to pick on is Homejoy. That was their big problem. They ignored their retention problem and it bit them in the ass. Before that, the best example was Vidi. So assuming you’ve got enough people coming in to really focus on retention, you should be just freaking hammering on figuring out how you make users and customer successful.


Is there a case to be made that you should focus on achieving growth within existing customers and adding users, like in the Slack example, rather than trying to constantly acquire new customers?

Yeah, I think upgrade and expansion is partially dependent on the model. So I’ll give you two very different examples.

One example would be a SaaS company that’s very focused on per seats. Expansion revenue in their case is much more important, just based on like their pricing model and stuff because most companies will start with a low number of seats and then hopefully if they’re successful will expand into more seats. You see this very commonly with things like CRMs. That’s a really key sign of success.

But if you look at HubSpot, there’s an all-in-one solution. We sell it to you in this one, nice, big package. Typically upgrade and expansion revenue doesn’t come down the line until a year into the relationship or even longer. So when you’re still in the early stage, that expansion revenue doesn’t really become super meaningful for the business until you get to a certain base of customers and a certain baseline of revenue. So really the focus should be on just building that base versus the expansion. But if you’re in much more of a per seat land, trial and expand model then, yes, that expansion path is really critical to look at in the early days.


There are some notable SaaS companies like Box who achieved huge growth but have struggled to achieve profitability post-IPO having invested hugely in sales and marketing to drive growth.

Do you think there’s a stage in the life cycle of a start-up where growth isn’t the number one objective and a company needs to scale back their sales and marketing efforts somewhat and settle for slower growth?

Yes. When I think about growth, I think of growth as like a very holistic thing. It’s not just about acquisition, it’s not just about revenue. It’s about the whole funnel: acquisition, activation, retention, revenue, referral, etc.

So there are certainly cases where you end up with really big holes in certain parts of the funnel so you need to pull back in other pieces of the funnel. So the most common example is you’ve got a hole on retention then you should probably pull back on top of funnel efforts until you fix and make some progress on that retention.

But you’re still in the grand scheme of things working on growth. You’re figuring out how to grow in a more sustainable way because if you increase that retention you will eventually grow. Just like you might not see the output of that for a longer period of time but you’re essentially still working on growth.

Once again, it’s all about resource allocation. If you’re nailing certain pieces of the funnel and those things are humming, but there are other holes elsewhere that are going to be huge blockades for you, obviously you need to shift some resources figuring out those holes if you want to keep the growth going.


I’m interested to get your take on the valuations that SaaS companies have been achieving in the last couple of years. So it’s gone from an Enterprise Value to Revenue ratio of maybe 3-5x five years ago to maybe 12-20x with companies like Zenefits getting almost 50x valuations on revenue.

What’s your take on that? Are they overvalued or is it a function of the huge market out there, the growth potential that’s out there, and investors seeing that?

Yeah, I’m sure some are. I mean, it’s hard to talk about this broadly because every customer has a different set of economics, so I’m sure there are certainly some that are overvalued. But I think on the whole I would say maybe slightly overvalued but not as much as people think. I think the markets have certainly basically weighted and rewarded growth over profitability and been given higher multiples depending on that growth rate.

At the same time I think a lot of this stuff is very sustainable in very big markets. Like with these SaaS software solutions. 95% of companies will just be running the cloud at some point. You’d be surprised at how little penetration these big companies still have in these huge markets.

For example, HubSpot is a billion-and-a-half market company. There’s also Marketo, there’s also other companies in there. Some research analyst report came out at some point earlier in the year saying that less than 10% of B2B companies had a marketing automation solution. Just think about that. You have got to ask yourself do you believe that most companies in the future will have some form of online marketing automation solution? I would probably say, yes. So I do think there’s still massive untapped potential in these markets. It’s not necessarily so obvious to us within the tech bubble where every company you’re typically exposed to has all of these things already installed. The real world is much bigger than that, and most companies are actually not tech software companies. So I think it’s really easy to forget when everybody’s so heads-down and into the tech and start-up world.

by Michael Cullen @michaelcullen87

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