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The why's and what's of product-led growth!

The why's and what's of product-led growth!

A definitive guide to the why's and what's of product-led growth!

November 1, 2021
Min Read time
The why's and what's of product-led growth!
The why's and what's of product-led growth!

The why's and what's of product-led growth!

A definitive guide to the why's and what's of product-led growth!

November 1, 2021
Min Read time

Table of contents

Why PLG? 🤔

Today’s software landscape looks a lot different from ten years ago. A proliferation of development platforms, responsive web frameworks, and relatively affordable access to reliable, enterprise-grade infrastructure with public cloud vendors has made it much easier to build products to solve customer needs.

But at the same time, there’s been a sea change in the buyer mindset as well. Today’s SaaS buyers don’t want a salesperson-driven buying model. According to Gartner, 44% of millennials prefer no sales rep interaction in a B2B sales setting!

So, what do buyers want?

Today’s buyers prefer product experience before purchase decisions and self-service to sales-driven buying. McKinsey says 70-80% of business decision-makers today prefer digital self-service.

Traditional sales and marketing-led growth models rely on a robust sales organization to drive product sales. Unfortunately, these models cannot work with what buyers want today, even if an organization manages to get sales going. Customers will move on unless the product itself is the driver for adoption, retention, and satisfaction. The Blissfully SaaS Trends 2020 Report stated that companies typically churn over 30% of their SaaS apps every year. Companies don’t think twice about dropping products that don’t meet their needs.

The Problems with Sales and Marketing led to selling motions.

High CAC, Reduced Addressability

Sales-driven motions can be costly. Maintaining a sales force across multiple geographies, client meetings, marketing events, and promotions and the top culprit - discounted sales - can lead to a very heavy CAC (Customer Acquisition Cost). Also, the addressable audience with a sales force is restricted to the customers they can speak with. As a result, it leaves vast chunks of the market out of your potential customer base.

Focus on high ticket purchases, not a good driver for micro-purchases

Sales motions are driven by quotas, which naturally prioritize big-ticket, large value deals over micro-purchases from individual customers. Unfortunately, it means thousands, even millions of dollars in lost revenues.

High friction, high involvement selling motion

Sales-driven motions can involve lengthy signups, documentation and frequent calls, and involvement with sales for negotiating pricing, discounting, available features, and several other needs.

It relies on the customer’s willingness to trust the product organization.

In a sales-led motion, the customer must trust that the salesperson gives them accurate information about the product. They rely on the information received to decide whether the software can fulfill their goals. Therefore, it can create a situation where the churn mentioned above is a considerable risk.

Sales-led motions can be deadly for a SaaS product business. Enter Product Led Growth (PLG) 🥳

What is PLG?

Different organizations define product-led growth differently. In our view, the complete definition comes from OpenView -

PLG is a go-to-market strategy that relies on the value of a company’s product to enable them to attain rapid growth. The principle is that as users gain value from interacting with a product, they will begin to weave it into the way they operate day-to-day. As more people at the company use the product, it becomes integral to the business as a whole.

Others, such as the PLG Collective, term it more simply as a strategy where

“user acquisition, expansion, conversion, and retention are all driven primarily by the product itself.”

What it means

From these definitions, it may appear like PLG is a simple strategy where a firm’s success depends on making a great product. But it isn’t as simple as that. PLG requires vital changes to the way your product is offered to your customers -

  1. Many product-led firms adopt a freemium offer model. The focus of this model is to give customers easy, frictionless (read: easy signup, no three-page forms) access to product features that can drive value.
  2. Identify the suitable gates where a customer may be ready to pay for a capability. It involves identifying the right mix of features where customers see the essential value while keeping items of additional value gated.
  3. For example, Zoom, a poster child of the PLG revolution, offers free 40-minute meetings to everyone with a single email-based signup - true value, low friction! (Want more than 40 minutes as your organization grows? Simply upgrade from the user portal)
  4. Make advocacy easy by implementing a no-cost invite model. Several PLG firms incentivize customers who refer other users (with an offer for access to premium plans, for example)

PLG involves keeping track of the customer at all stages of the customer lifecycle. For a PLG firm, the sales cycle is not a funnel but a flywheel (HubSpot, one of the big SaaS success stories of migration from a sales-led to a PLG GTM strategy, pioneered this framework).

Why is PLG effective?

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PLG is very well aligned with the modern SaaS customer’s thought process. But it also presents many other advantages -

- Eliminates dependency on the competence of your salespeople to close deals

- Reduces friction in the buying cycle, enabling faster customer signups and upgrades

- Aligns the organization to work through a single channel - so your teams work better together

- Product planning spreads across the organization, driving more innovation as ideas flow in from marketing, finance, sales, and engineering.

- The low-touch selling model avoids the need to push information to customers (No white papers necessary).

The challenges with PLG adoption

As with any new business model, PLG also has its challenges. Any organization looking to adopt PLG has to invest resources for -

  • Providing the right balance between free value and identifying gates where payment is required
  • Ensure the right level of customer value to ensure purchase
  • Achieving a constant focus on the customer, from adoption to usage to feedback
  • Constantly absorbing feedback and improving
  • Enabling faster development cycles
  • Provide value early to ensure customers don’t drop the product

Cautions and Conclusion

Bear in mind; there can be some banana skins on the path to PLG adoption. Democratized product development can complicate decision-making. Ensure a good, efficient process is in place for decision-making. (One way to achieve this may be to take votes from different departments. New features can be presented to the various business functions on a call.)

We hope this helps you on your way to PLG. Good luck! 🙌🏻

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