Behind the Scenes of Product-Led Growth
As an extension to my series on SMB software, I want to dive into a key trend I mention in my first post — the growing movement of Product-Led Growth. In this post, I underscore the types of companies making it possible: Enablers of PLG
Product-led growth is a term coined by Blake Bartlett of OpenView Partners. It refers to the notion that the product itself is the primary driver of customer acquisition, retention, and expansion.
Recently, we’ve seen a wave of software companies implement this strategy to achieve outsized growth while maintaining capital efficiency. Rather than invest heavily in sales and marketing, companies like Atlassian, Slack, Zoom, Smartsheet, Datadog, MongoDB, etc. have prioritized data and analytics to create intuitive, highly viral products that get seamlessly adopted by end-users. The value of being product-led is clear — it’s a cost-effective way for companies to quickly amass large user bases, maximize product adoption, and organically grow within and across organizations. For reference, below is a comparison of publicly-traded product-led and non-product-led software companies. As you can see, “PLG” companies average not only faster growth rates, but also higher net dollar retention, sales efficiency, and CAC ratio.
Product-led companies are capitalizing on several shifts in the enterprise buying process — increasing trust in employees to choose their favorite solutions, rising consumer-like expectations of knowledge workers, declining barriers to entry decreasing customer willingness to pay, etc. While there are several potential reasons this approach has become popular, one thing is for certain — PLG is here to stay. If you don’t believe me, look at the recent Enterprise Tech 30, an annual ranking of the top startups with the most potential to shift the enterprise landscape. Of the 30 companies mentioned, 24 (or 80%) have adopted the product-led growth model.
The value in adopting a PLG strategy may seem clear — grow faster by spending less. But what allows these companies to build successful product-led growth engines?
Well, that brings me to a key element of the PLG value chain — the startups enabling product-led growth.
A successful product-led strategy centers around creating as much value for customers in the shortest amount of time. As opposed to a traditional GTM motion where sales leads and product building follows, PLG starts with a product that solves a real pain point in a way that customers feel inclined to “sell it” to colleagues, friends, and even the internet. However, this doesn’t happen overnight — there are critical steps to building a PLG engine that I’ve summarized into 4 high-level steps:
- Commit to being product-led
- Know and understand the customer
- Maximize independent adoption
- Expand and monetize
This takes time and discipline to successfully execute. Fortunately, we’ve recently witnessed the emergence of SaaS solutions designed to support teams and organizations looking to create an effective product-led motion. Below, I’ve highlighted some of the startups I’m most excited about and how they accelerate companies in their process of becoming product-led
Commit to PLG
For an organization to be product-led, there needs to be buy-in, but also alignment across each relevant function — sales, marketing, product, customer success, and engineering.
Disseminating key customer and product information allows teams to quickly gather feedback, iterate, and launch feature updates that best address the target user’s pain point. In a time where switching costs between software options are so low, delivering relevant and immediate value is a huge difference-maker in driving adoption. To be successful, guardrails need to be set in place for teams to clearly understand their goals and deadlines, prioritize and implement product updates, and seamlessly communicate with all relevant stakeholders involved.
There are a number of tools today that provide these capabilities, ranging from setting and measuring OKRs (Workboard) to managing engineering and product teams (Jellyfish) to catalyzing open communication / collaboration across different departments (Miro). While these solutions play an integral role in building any successful organization, it's more glaring in PLG businesses as the roles and information flow across departments tend to overlap and depend on one another more frequently and naturally. Product-led organizations move fast, prioritizing the needs of users while collecting and leveraging contextual feedback. This requires coordination and collaboration and leads to more informed and aligned decision-making across departments.
Understand the user
As mentioned, the key to a successful product-led strategy is the ability to provide immediate value to users. To do that, it’s critical to understand the user and their pain point, and know exactly how the product addresses it. Unlike traditional enterprise companies where sales teams communicate with, educate, and understand the buyers of the product, PLG companies must sit at the intersection of real-time customer and product data to holistically understand the value the product drives for the user — creating PQLs rather than MQLs.
As a result, data becomes the foundation, providing necessary context that bridges the gap between users’ actions and their feedback. Pulling the right levers to collect, interpret, and understand key customer / product data, then implementing that feedback into new features, updates, or functionality (and repeat) creates a virtuous cycle that leads to rapid overall adoption and expansion within organizations. This can be difficult to execute, but fortunately, there are emerging tools that focus on aggregating and analyzing contextual data to influence product decisions.
While it varies, the typical product analytics stack can include a customer data platform (Segment), data integration and transformation tools (Fivetran & dbt), a data warehouse (Snowflake), BI / Data science platforms (Superset / Mode), Research / Feedback (Userleap), event analytics (Mixpanel), and NPS surveys (Typeform). There’s a new layer emerging focused on operational analytics, where customer/product insights are taken from a data warehouse and synced directly with various business tools. For example, companies can use tools like Census, Grouparoo, and Hightouch to auto-prioritize support tickets in Zendesk or score leads and segment users in Salesforce. Here’s a primer on this, appropriately coined “reverse ETL”.
Maximize independent adoption
PLG works only if the user can onboard and adopt the product themselves. Habits are formed when users independently reach their “aha” moment and continually discover additional features over the course of their journey, culminating in high retention and eventually a large user base. Onboarding is the starting point, and if done incorrectly, a product-led strategy can’t get off the ground.
The moment someone is trying your product is the MOST ATTENTION you ever get from that user. Take advantage of it.
— Josh Elman, Product Leader at Apple, Facebook, Robinhood and Twitter
A successful onboarding process provides an intuitive, easy-to-use experience and allows users to explore the product in an independent, non-committal manner. Enabling users to naturally navigate features and realize immediate value increases the likelihood they continue using the product and ultimately promote it to colleagues or friends. Additionally, any potential friction preventing the user from experiencing the core product value proposition must be eliminated. Part of this can be done by leveraging analytics to truly understand and fully address the user pain point, but another key component is eliminating any barrier for adoption — cost, complexity, confusion, etc. It’s equally important that the product delivers a differentiated user experience as much as it does differentiated functionality. By doing this properly, PLG companies can successfully allow users to get started for free and naturally upsell them as incremental features provide continued value.
A number of startups today enable this process by providing the tools to create a clear and concise UI (Figma), developing necessary onboarding tutorials to walk new users through the typical product lifecycle (WalkMe), creating in-product announcements to help deliver additional levers of value (Appcues), or engaging the user throughout the activation period (Drift).
Expand and Monetize
Individual end-user adoption is just the first step in creating a durable PLG company. Eventually, enterprise penetration is pivotal to gaining scale. The best way to accomplish this, outside of building a top-down sales motion, is by expanding organically within organizations and proactively identifying / converting upsell opportunities.
Strong product virality — users realizing incremental value by inviting more users or promoting the platform — catalyzes expansion within existing users’ networks. Since the majority of PLG businesses are cross-functional, a viral product will likely spread across departments rather than remain in strategic silos. Great examples of this include Loom’s one-to-many value proposition, Calendly’s sign-up option after using the product, or Intercom’s placement of “powered by Intercom” to increase brand awareness.
While virality can help maximize adoption, most of these users are free. To monetize, a portion must convert to paid and the most effective ways to do that is through:
- Self-serve payment
- Customer / Product data
Independent monetization prioritizes frictionless payment and can be achieved through variations of feature sets, usage limits, or pricing combined with an integrated checkout process (Chargebee). To independently convert, users must see a convincing path to incremental value and an easy way to get there.
Leveraging contextual customer and product data provides detailed context on usage, engagement, and the users themselves. This can be a huge advantage in identifying users / accounts with the highest propensity to convert to paid, churn, or buy an enterprise deal. It can be in the form of customer success solutions, customer engagement products, or even new startups like Pocus and Calixa that are focused on this exact use case — augmenting customer-facing teams with necessary data to identify, prioritize, and convert self-serve users into enterprise deals. As PLG becomes more common, these types of solutions stand to benefit as they provide necessary value to an essential step in the process.
A product-led strategy is one of the most effective ways to enable rapid growth in a cost-effective manner. As more companies become category leaders with this approach, we will continue to see startups become product-led. There are a number of products empowering companies to be product-led, and as a result, these solutions will continue to gain more attention and importance in the process. I’m excited to see these enablers continue to gain prominence as well as the next generation of PLG startups they’re powering.
