HubSpot Co-Founder and Chairman Brian Halligan on AI and SaaS, Board Meetings, and The Incumbent Advantage

"On my life list I wanted to take a company public,” Brian answered. “I was focused on that. But here’s the thing, a lot of companies aren’t going public now."

SaaStr CEO and Founder Jason Lemkin recently sat down with HubSpot Chairman and co-founder Brian Halligan, going deep on the current state of SaaS, evolving board meeting formats, and how AI is reshaping the industry.

Key takeaways:

• Economic Recovery in SaaS: The downturn ended in Q3 of 2024, with signs of growth and improved retention rates.

• IPO Experience: Halligan shares the emotional experience of HubSpot’s IPO, highlighting the joy it brought to the team and the importance of celebrating milestones in a company’s journey.

• Board Meeting Innovations: The podcast introduces a new format for board meetings that prioritizes discussion over presentations, leading to more engaging and productive meetings.

• AI in B2B: The conversation explores the competitive landscape of AI in B2B, noting that while startups are innovating rapidly, incumbents like HubSpot and Salesforce have advantages due to their existing data and distribution channels.

• Challenges of AI Implementation: The discussion emphasizes the importance of data quality and implementation in AI applications, suggesting that even with advanced technology, success depends on how well the systems are integrated and trained.

• Future of Pricing Models: The podcast raises questions about the evolving pricing models for AI services, suggesting that companies should focus on delivering value first before determining how to extract value from customers.

Reflecting on Company Outcomes as a Founding CEO: Tears At The IPO and More

We started with Brian flipping the tables a bit and asking Jason a question to kick off the interview: “ I know this is a podcast supposed to be interviewing me, but do you regret selling your company?”

“ I regretted it almost every day until about a year ago,” Jason answered.

Why?

“The bigger mistake I made,” Jason explained “Was I didn’t realize the team wasn’t remotely done at the time. Our revenue team went on to be the CROs of Brex, Rippling ,Gong, so many SaaS leaders, like 10 of them. We had this monster team and I missed how good I had it in some areas. I knew how bad I had it because I didn’t have enough folks to emulate and that’s why we started SaaStr.

I didn’t have enough lessons to learn from. I thought we were B minus tier, right? But I didn’t realize we were not S tier, but we were A tier. That was my met. So that’s what I regretted. And then there’s certainly a financial aspect. Like it would be nice to be a billionaire today. It wouldn’t change my total life though.

The last couple of months, I’ve now seen the effects on some folks that said no to M&A and I think this might be the worst advice I’ve given in 12 years was ‘always say no, if you have something good. ‘ Oh, I see. It might’ve been wrong.”

Building off this, Jason asks a similar of Brian, “Did you want to be a public company CEO?”

“Yeah, I would say on my life list I wanted to take a company public,” Brian answered. “I was focused on that. But here’s the thing, a lot of companies aren’t going public now. But I think what people underestimate is the joy. The happiest day of my life was the IPO and I remember the day when Darmesh and I got dropped off around the corner from the stock exchange and as we rounded the corner, they wrapped the New York Stock Exchange in like orange and our colors and our logo.

And I just remember I stopped and I turned around because I didn’t want Darmesh to see me crying.”

The SaaS “Downturn” Turned The Corner in Q3’24

According to Brian, who sees the market through multiple lenses as HubSpot’s Chairman and through his role at Sequoia Growth and Propeller VC, the SaaS downturn that dominated 2022-2023 ended recently. “It felt like we came out of the recession in Q3 of 2024,” Brian noted. “The universe slammed SaaS down at the beginning of 2020, then splashed it way up, then slammed it down again. Now it’s flashing back up.”

“The  size of the sine wave will get down over time, but I think we’re in a different place in Q4 of this year than we were Q4 of last year,” Brian explained. “Economically, SaaS people overbought, people had too many employees, and the downgrades were high. The gross retention for people was low and I think we’re just getting back into a better spot.

So if you’re listening as a founder and you had a bad Q3 or Q4 2024 and it’s not looking good, it’s not the market.”

The core issue wasn’t just interest rates – companies had overbought during the pandemic and needed to dial back. Now that we’re through that overcorrection, the market is showing signs of recovery.

The Challenge for Slower-Growth SaaS Companies: No Clear Answers

However, Brian expressed concern about companies at $100M+ ARR growing at less than 20%: “I’m worried about that whole cohort of companies…Maybe they combine with each other. Maybe they just continue to live along for a long time.” While PE buyers might step in, these companies face a challenging path forward as public markets still demand stronger growth rates.

Reimagining the Board Meeting Format: 90% Strategic Discussions

“ We’ve been doing the same board format for about a hundred years,” Brian joked. “And honestly, I get a little bored in the board meetings. And I think a lot of the board members did too.” So here’s how Brian recently transformed HubSpot’s board meetings with three key changes:

1. Flipping the format: Instead of 90% executive presentations and 10% discussion, they now focus 90% on strategic discussions
2. Replacing readouts with tough discussion: They stopped treating the board meeting like a QBR and shifted to open discussion on ‘tough’ topics
3. Balancing participation: They aim for 50/50 speaking time between HubSpot executive management and board members

The result? “We had the best board meeting we’ve ever had,” according to Brian.

AI in B2B SaaS: The Incumbent Advantage

On the AI revolution in B2B software, it’s the age-old ‘startups are innovating and racing to get distribution, and the bigger companies have distribution and are racing to innovate.’ The twist this time is the data is very hard for startups to acquire or accumulate. So it’s not just the innovation piece, but you need a proprietary data set to do something more meaningful with AI. Brian believes incumbent players like HubSpot and Salesforce have some key advantages:

1. Proprietary data access: “We’ve got the zoom data, the calling data, the email data…If you’re a startup breaking in and you want to do some amazing AI work, it’s tricky.”
2. Engineering resources: With thousands of engineers, companies like HubSpot can make substantial AI investments when they choose to
3. Existing distribution channels: While startups are racing to build distribution, incumbents already have it

However, the business model disruption around AI pricing remains a challenge for larger players to navigate.

The Future of AI in Customer Support

While many vendors are achieving similar baseline results with AI customer support, Brian believes we’re still early in unlocking its full potential. Success with an AI agent involves:

• A well-maintained knowledge base prior to implementing an AI agent

• Training the model on support calls and best practices

• Integration with data sources like Snowflake and Amplitude

• Continuous improvement of avatars and interactions

“Even though that’s a use case that’s working…I think there’s still a long way to go to make it what it could be,” Brian noted.

Part 2 with Jason + Brian Coming Soon!!

Stay tuned for part 2 of the conversation!!