Product-led growth (PLG) is a business methodology where user acquisition, expansion, conversion, and retention are primarily driven by the product itself, forming the basis of the product led growth model. This strategy aligns teams across the company, from engineering to sales and marketing, focusing on the product as the key driver of sustainable, scalable business growth.
Product-Led Growth Foundations
Introduction
What is product-led growth?
Examples of product-led companies
Product-led growth as a go-to-market strategy
Becoming product-led
Product-led growth metrics
The benefits of product-led growth
In a product-led growth strategy, customer success plays a crucial role by ensuring every team in the business influences the product and creates a seamless customer experience across every department.
The Shift in Software and User Expectations
We are witnessing a significant transformation in how people use and purchase software. Since Salesforce introduced cloud software and Apple launched the iPhone in 2009, the market has been flooded with consumer and B2B products. Yesterday’s exceptional product experiences are now baseline expectations.
Freemium or free trial models cater to tech-savvy users' demands for immediate gratification and personalized experiences.
Tech-savvy users demand software that is beautiful, intuitive, powerful, and affordable. According to 2022 research by Considered Content, over half of buyers prefer to purchase without sales interaction. Additionally, 80% of people are more likely to do business with companies offering personalization, and 89% of marketers see a positive ROI with personalized campaigns. Immediate gratification is now critical, with 21% of users abandoning apps after one use and 71% churning within 90 days.
The Market's Response
The increasing ease of starting a company has led to more competition, and consumers now have access to a vast array of products that meet their expectations. This shift has decreased user patience for outdated software. A 2023 RevOps report found that 67% of respondents had their software budgets cut, accelerating the turnover of subpar software.
In this competitive market, tracking net revenue churn is crucial for understanding customer retention and expansion. Net revenue churn provides a clearer picture of the current customer base by accounting for expansion or upsell revenue.
The Future of Product Strategy
Exceptional customer experience has always been crucial. Previously, sales teams controlled this experience. With the internet, early digital marketers began to measure engagement and acquisition metrics. Understanding the customer journey is essential for creating exceptional customer experiences by tracking user actions and identifying gaps. Today, people prefer experiencing the product firsthand over interacting with sales or marketing.
What is Product-Led Growth?
Product-led growth focuses on using the product itself to drive user acquisition, expansion, conversion, and retention. This approach aligns all company teams around the product as the primary growth driver.
Product qualified leads (PQLs) play a crucial role in this strategy by identifying users who have completed key actions within the product, recognized its value, and are ready to convert.
Product-Led Growth is Not PM-Led Growth
PLG involves the entire company in creating better, stickier products, not just product managers. It’s about democratizing product decisions, leading to more innovative business outcomes.
Customer success teams play a crucial role in ensuring a seamless customer experience and contribute significantly to product-led growth.
The Necessity of Becoming Product-Led
If you’re not minimizing friction, maximizing product adoption, and driving customer loyalty, your product-led competitors will outperform you. Becoming product-led requires a significant shift in mindset and operations.
In contrast, sales-led growth relies on the sales team to drive business growth, whereas product-led growth leverages the product to acquire and retain customers. Balancing these approaches and shifting organizational culture towards a product-led model is crucial.
Examples of Product-Led Companies
Zoom Founded in 2011, Zoom faced stiff competition but grew exponentially through a well-executed product-led strategy. By 2022, Zoom generated over $1.37 billion in profits with 300 million users.
Companies like Zoom generate expansion revenue from existing customers through upsells and add-ons.
Other Examples
Airtable: Achieved $142 million in revenue in 2022.
Slack: Used by 77% of Fortune 100 companies.
Figma: Sold to Adobe for $20 billion in 2022.
Product-Led Growth as a Go-To-Market Strategy: Freemium or Free Trial
PLG impacts go-to-market strategies by making the product the focal point. This strategy answers critical questions about who buys the product, where they find it, why they buy it, and how they purchase it. Integrating the sales team with product-led growth principles can accelerate sales by aligning sales efforts with the product's value proposition and user experience.
Who is buying your product? Sell to users, not just buyers.
Where will they find out about your product? PLG relies on virality and word of mouth.
Why are they buying your product? Your product must be trustworthy, valuable, and user-friendly.
How are they buying your product? Users should become buyers after experiencing the product firsthand.
Becoming Product-Led
Transitioning to a product-led approach involves transforming both the product and the organization. This includes building an intuitive, user-friendly product and fostering a culture that prioritizes user needs.
In this strategy, sales reps play a crucial role in working with product-qualified leads (PQLs) to ensure that promising leads are effectively nurtured and converted.
The Product-Led Growth Flywheel emphasizes the importance of user experience in driving growth.
Product-Led Growth Metrics
Successful PLG requires a common language and metrics to ensure internal alignment. Important metrics include time to value (TTV), acquisition, activation, revenue, retention, and referral.
Tracking monthly recurring revenue (MRR) is crucial in a product-led growth model as it helps measure the ongoing financial health and success of the product.
Benefits of Product-Led Growth
PLG leads to higher revenue per employee and financial productivity. It lowers customer acquisition costs, shortens sales cycles, and increases customer satisfaction and lifetime value.
Measuring customer lifetime value (CLV) is crucial in understanding customer value and retention in a product-led growth strategy. CLV helps identify highly valuable customer segments and provides insights into reasonable acquisition and retention costs.
PLG companies are valued higher than the public-market SaaS index fund, highlighting their superior performance.
Conclusion
Product-led growth is the future. It offers a path to greater team alignment, faster decision-making, and ultimately, more successful products. Unlike sales-led companies, which rely on traditional sales models and extensive sales, marketing, and service efforts, product-led growth companies enable users to experience the core value quickly, leading to rapid revenue growth. Embrace PLG to stay ahead in the competitive market.
