Hubspot Case Analysis
Halligan and Shah, the founders of HubSpot, are faced with the question of how to accelerate Hub Spot’s growth rate and increase profitability. HubSpot recently broke the 1,000 customer mark and management needs to decide whether to continue targeting both Marketer Mary’s (MMs) and Owner Ollie’s (OOs), or either the MMs or OOs exclusively. We have analyzed the revenue projections for the different market segments and arrived at our decision based on the potential customer growth in each segment, the churn rates, and the net present value (NPV) of the projected profitability over a period of four years.
Our analysis (Exhibit 2) suggests that by focusing exclusively on the OOs, who have a faster sale cycle, lower acquisition costs, and whose market is roughly three times larger (Exhibit 5) than the MMs, HubSpot will generate $44.5 million in net present value over four years. We attribute this to the increased number of leads (Exhibit 6) and subsequent increase in customers that would result from targeting the OOs (Exhibit 1, Assumption 9). Focusing exclusively on the MMs or continuing to serve both the MMs and the OOs will only generate $19.2 million and $31.8 million in NPV respectively (Exhibit 2). Further, while the analysis shows that the overall retention of the MMs is higher, the difference in churn rates between the OOs and the MMs customers does not significantly impact the NPV difference. By increasing CMS usage and reducing the churn rates, HubSpot can increase revenues within the OO segment (Exhibit 3). Qualitatively, the OOs are easier to acquire and rely more heavily on HubSpot’s expertise for results than the MMs. Also, HubSpot can retain higher independence in the OO segment due to its fragmented nature. Individually, the OOs do have higher macroeconomic risk, but their broad distribution across various industries provides insulation during an economic slowdown. In a period of economic contraction, the OOs are more profitable than the
Our analysis (Exhibit 2) suggests that by focusing exclusively on the OOs, who have a faster sale cycle, lower acquisition costs, and whose market is roughly three times larger (Exhibit 5) than the MMs, HubSpot will generate $44.5 million in net present value over four years. We attribute this to the increased number of leads (Exhibit 6) and subsequent increase in customers that would result from targeting the OOs (Exhibit 1, Assumption 9). Focusing exclusively on the MMs or continuing to serve both the MMs and the OOs will only generate $19.2 million and $31.8 million in NPV respectively (Exhibit 2). Further, while the analysis shows that the overall retention of the MMs is higher, the difference in churn rates between the OOs and the MMs customers does not significantly impact the NPV difference. By increasing CMS usage and reducing the churn rates, HubSpot can increase revenues within the OO segment (Exhibit 3). Qualitatively, the OOs are easier to acquire and rely more heavily on HubSpot’s expertise for results than the MMs. Also, HubSpot can retain higher independence in the OO segment due to its fragmented nature. Individually, the OOs do have higher macroeconomic risk, but their broad distribution across various industries provides insulation during an economic slowdown. In a period of economic contraction, the OOs are more profitable than the