Product-led growth (PLG) seems to be the new buzzword in the SaaS world today. What does PLG mean and is your company ready for it? In this article, I provide my views on PLG based on the key insights from the two books “Product-led growth” by Wes Bush and “Product-Led Growth Playbook” by OpenView.
The core to a PLG strategy is using your product(s) to drive viral growth rather than using a traditional sales-led growth approach. But the PLG is not for everyone. Before you think about adopting a PLG strategy, it’s important to take a good look at your organisation and the products you sell to check for suitability. For example, if you are selling in a highly regulated industry or your product is very complex by nature, then viral growth may not be practical and a traditional sales approach may be more appropriate for your business. Alternatively, you might have a product that could benefit from PLG but the product itself is not ready ie.
- Product doesn’t have product market fit
- Product doesn’t solve customer problems or meet customer needs
- Product has poor customer experience
Then it’s important that you focus on building a product it can sell first. “By its very nature, a product-led strategy is only ever as successful as the underlying product.” Wes Bush.
Now, if you have a stellar product and you are ready to grow virally, it’s time to look at “how you sell” using the PLG strategy.
What is product-led growth?
OpenView defines PLG as a go-to-market strategy that relies on using your product as the main vehicle to acquire, activate and retain customers. This suggests that the PLG is more than an acquisition strategy – it’s a growth strategy for the entire customer lifecycle.
A product-led organisation uses the Product team to work across the business to drive growth. For example, the product is used by the Marketing team to generate more leads, Sales team to better qualify prospects, Success team to help more customers without manual intervention and the Engineering team to create a quicker time-to-value.
Having the Product team involved throughout the business drives collaboration and cohesion between the various departments as they work towards the same goal ie. to leverage the product(s) to increase operational efficiencies and create an amazing customer experience at every stage of the customer life cycle.
How does product, pricing, marketing and sales play a part in a PLG?
The product is a shining star in a product-led organisation. It starts with a seamless onboarding journey and allows the users to quickly experience value before the paywall sets. The idea is to make the users fall in love with your product and convert them to paid customers. But it doesn’t just stop at acquisition. The product-led organisations ensure their product continues to provide an amazing customer experience by investing in ongoing product enhancements. This is vital for growth and minimising churn.
Trying a product is an essential part of the buying process. Customers expect the same in software products. There are three options that a software company can adopt when allowing the users to try before buying:
- Demo: provides an overview of the product often using sample data
- Free trial: provides a partial or complete product to prospects free of charge for a limited time
- Freemium: provides access to part of a software product to prospects free of charge without a time limit
Demos are often associated with a traditional sales approach where the Sales team engages the buyer to provide a one to one demo. Although this option is more labour intensive, it may be suitable if your products are complex and require a detailed explanation of the product features and functions by a Salesperson.
Both free trial and freemium models are often used in a PLG strategy as they allow the users to experience the product before committing to buy. Free trial allows users to experience a complete or nearly complete product for a limited time. It also creates a sense of urgency, which can translate to more conversions. Freemium is great for generating leads and works well for companies operating in markets with millions of potential users. The conversion rates on freemium plans are low, typically hovering between 3 and 5%. In addition, if you make the free offering too good, you could end up competing against yourself in a deal where the users don’t upgrade to the paid version.
Deciding on the option is important as the wrong option can easily bankrupt your business. In the book “Product-led growth” by Wes Bush, Tony Ulwick’s jobs to be done growth matrix is used to illustrate which pricing model would work best based on the growth strategy.
Dominant: When your product can do something much better than your competitors and you can charge significantly less. Both freemium and free-trial models work much better than the traditional sales-model (i.e. demo requests) because you keep costs low and prevent competitors from stealing your market share.
Differentiated: This requires your product to do a specific job better than the competitor and you charge significantly more. This is not a one-size fits all model. This approach works well with free trials and demos. It is difficult to create a freemium experience with a quick time to value given the inherent specialisation and complexity of these products.
Disruptive: This requires you to charge less for what many might consider an “inferior product”. The freemium model thrives in the disruptive environment. You can also use a free trial but it’s not as effective as the freemium model.
Product-led companies understand users are different from buyers. They target marketing messages at the users – why their lives will be better because of your product. This is different to sales-led marketing where the messages are often targeted at the buyer ie. senior executives who have the ultimate approval. In addition, what sets product-led companies apart from sales-led companies is that they aren’t just focused on the top of the funnel but the end-to-end customer experience. This means the marketing is centred on customer advocacy with a goal of ensuring that each and every customer is successful in their use and adoption of the product. The product-led companies realise that paying customers is an extension of the Marketing and Sales team. Keeping these customers happy will in turn fuel your growth.
How you sell is just as important as what you sell. There are two selling strategies:
- Top-down selling strategy (sales-led): where Sales team targets company executives and sells to the decision makers at the top of the organisation. This strategy is often used for selling large enterprise deals for complex software products. It may take months or years to close a sale (and another year to understand how to use the product!).
- Bottom-up selling strategy (product-led): where businesses deploy a free-trial or freemium model to attract more users and ensure customers experience value quickly to upgrade them to a paid version of the product.
In a sales-led business, a Sales team is a group of individuals focused on acquiring and accelerating new revenue for the company. In product-led businesses, this often takes the form of customer experience, customer support and/or customer success. Their role is to ensure customers get the most out of the product.
A PLG strategy can be an effective way to grow your customer base, win loyalty and scale your business. A PLG is more than acquisition. Building ongoing customer value and great experience is a crucial part of the growth strategy as without these your customers will leave your product. If you are looking to grow your business and already have a product that meets customer needs, it’s easy to sign up and use, then you are ready for product-led growth. My advice is to start small, test and learn when implementing PLG strategies. For example, you don’t need to go from zero to a full freemium pricing option. You can implement an online demo that is easy to access and allows the customers to “try” the product with sample data. There isn’t a cookie cutter model. You know your product and business the best. Sometimes you need to try a few things before striking the jackpot. Test, learn and quickly iterate.