The way users experience and demo software products has changed, leading many software companies to change their entire business models to keep up with the industry-wide shift. The rise of APIs and modular tools has empowered end users to create personalized solutions and integrate products into ultra-customizable software stacks that power their daily lives.
We’ve entered the era of the end user, and the dominance of an entirely new growth model: product-led growth. In this blog post, we'll take a look at what product-led growth is and how you can use it to grow your startup.
What is product-led growth?
Product-Led Growth (PLG) is a go-to-market strategy where the product itself is the main driver of customer acquisition, activation, and retention.
While traditional marketing- and sales-led methods push content downloads and calls with the executive buyer, PLG attracts bottom-up virality through product adoption by end users.
The goal of product-led growth is to: 1) get as many users on the product, and 2) keep them using the product through an excellent user experience. The thinking is that if people can see the value of the product for themselves, they're much more likely to become long-term “land-and-expand” customers or even evangelists for the brand.
The fact is, to pull this off, software companies have to design a highly intuitive product that allows users to easily (and quickly) discover its value. This requires alignment and support across all teams and organizations involved with designing, engineering, selling, and marketing a company’s product.
Company-wide buy-in is critical to executing a PLG sales motion.
How does product-led growth work?
The exact process behind any product-led business strategy will depend on the product and space you’re in. However, whether a company is B2B or B2C, there are some common principles of PLG that make this growth model so effective.
PLG relies on five key pillars: a free plan, low time-to-value, PQLs, community-growth, and a flywheel effect. Let's take a more in-depth look at each of these pillars.
Offer a free plan
For a product to become a lead generation machine, it must have a type of free plan that lets prospective customers try before they buy.
The easiest way to spot a PLG company is to check if it allows anyone to sign up for free. You’ll be able to find this on a company’s homepage (“Try for free”) and on the pricing page (“Free Forever” or “30-day trial”).
That said, freemium and free trials aren’t synonymous with PLG. Our friends at Arcade wrote, “Product-led growth is way more than just a free trial — it's a culture, and a way of thinking about customers, products, and growth.” The signup button is just one tactic in PLG.
Decreasing Time to Value (TTV)
Once you have a free plan, the next step is to reduce friction to the ‘aha’ moment. Reducing friction is the most critical component of a PLG strategy.
Make it easy for users to get in and start seeing the value. Users are more likely to stick around and continue using the product if they see value in it from the very beginning.
When friction is decreased, the time-to-value decreases as well. But truly successful PLG companies don’t just deliver value quickly. To achieve exponential growth, you have to deliver the ‘aha’ moment, that moment where the user understands how your product is about to completely transform their workflow, as quickly as possible.
Product Qualified Leads (PQLs)
In a PLG sales motion (also known as Product-Led Sales), the product is not only utilized as the primary driver of growth, but also as a powerful lead qualifier.
The best way to unlock the full potential of your user base is by finding product qualified leads (PQLs). PQLs combine signals from both what the lead is doing in your SaaS product and who they are. Showing sales reps exactly what features users are not only interested in, but already rolling up their sleeves and using the product.
Engaging with prospects using product signals gives you the ability to target folks who have experienced your product's value and are more willing to engage with a salesperson. It’s no wonder PQLs convert 5X better than MQLs.
And there are many different types of PQLs. These include:
- Free signups ready for upgrade
- Active trials that can be converted to paid plans
- Paid accounts who are expanding / ready for enterprise plan
With these PQLs in place, the role of salespeople at PLG companies becomes to drive high-velocity deals from this product-led lead volume. They encourage expansion revenue by offering additional features or upgrades that appeal to power users.
Virality & community-growth
Virality isn’t new and neither is the concept of a viral loop. What’s new is regarding viral loops as a product requirement.
PLG companies build viral components into the standard user journey of their apps and products to ensure their users become promoters. Delighted users attract more users, creating a self-driven growth engine that paves the way for endless expansion.
To amplify these effects, PLG companies tend to place a heavy emphasis on community growth. Investing in the practices and people that help users engage with each other creates a second layer of virality that fuels the original viral loop within the product.
The result is the coveted Flywheel effect every PLG company is chasing.
The Flywheel funnel
The flywheel effect: building a product experience that creates a virtuous cycle of acquisition, conversion, and retention.
Traditional sales and marketing funnels are effective ways to generate leads and acquire customers, but they leave cash on the table, so to speak, in terms of customer acquisition. See, in these growth models, once customers are acquired, they largely become afterthoughts. Sure there’s customer success, and referral marketing, and plenty of other ways where customers do get their deserved attention. But these activities aren’t a core component of the growth machine.
In contrast, the Flywheel funnel used in a PLG sales motion leverages acquired customers as the primary driver of customer acquisition. How does this work?
Software companies with this growth model invest heavily on building a product that delivers a customer experience that’s so good people have to talk about it. It’s also important to make it easy for users to share your product with their networks. This could include team plans, referral codes, or discounts that give users an incentive to spread the word.
The result is compound acquisition. The more customers you acquire, the more your customer acquisition rates begin to accelerate.
Meanwhile, the follow-on advantage is your customer acquisition cost, CAC, metrics trend downwards.
How do I know if product-led growth is right for my business?
The first two questions to ask to understand if a product-led sales motion is right for your business are:
- How much of our product can be “self-serve”?
- Do our end users drive adoption?
For a PLG motion to work, end users need to be able to easily access the products ‘aha’ moment by themselves. If users experience too many pain points in the first moments spent with the product, you won’t achieve the flywheel effect and you’d be better off with a marketing & sales-led motion.
If your product is able to become self-serve, the next thing to ask is whether or not your end users are the personas driving adoption of the product.
Typically, a product’s buyer persona is whoever makes the final decision to convert into a paying customer. In enterprise SaaS, this is often the leader of a department. However, these folks aren’t always the power users of these products — more often, the individual contributors within these departments are. So in these cases, the end users are typically not driving the internal adoption.
But with PLG, the product’s buyer persona is not necessarily the person who makes the final buying decision. Instead of thinking of a PLG buyer persona as the person with the purchasing authority, think of them as the person with the purchasing influence.
For example, consider Slack, Asana, and Notion: end users discover these products, (often through word of mouth) fall in love with the experience (via some form of a freemium entry price) and then convince whoever has the company credit card to get it for the whole team, turning a 2-person account into a 500-person account.
This is what end user-driven adoption looks like.
The benefits of product-led growth
There’s no way around it: implementing a product-led sales motion requires significant collaboration and support across an organization. Taking this approach may even cause a company to grow less rapidly in the beginning as problems with the user journey are ironed-out and the revenue teams get a handle on conversion.
But once the necessary foundation is in place, PLG companies are able to grow faster and more efficiently at scale.
OpenView Partner's data report shows that PLG companies scale faster than their non-PLG peers once they hit a magic number of the $10M ARR mark. PLG accelerates growth by making lead generation, sales, and customer success processes more efficient and high intent. This allows companies to sustain hyper-growth at scale.
So, while it might take longer to turn users into high paying customers in the beginning with PLG, using the product to qualify users is ultimately more efficient.