Product Led Growth, the new trend in go-to-market for start-ups and scaleups

We are in the middle of a big shift in the way people use and buy software. The decision making has shifted from the buyer to the user. This strategy is called product-led growth (PLG) and it enables companies to quickly scale in a capital-efficient manner.

In the past, if you wanted to buy a new (digital) product, you talked to a salesperson that helped you buy the best product for your needs. But people don’t want to interact with salespeople or marketing campaigns anymore. Sales-led and marketing-led growth have had their time. Today end-users are exploring great software and telling their boss which ones to buy. The power centre has shifted from the buyer to the user.

Think about the products you are using on a daily basis, like Dropbox, Slack, Zoom, Atlassian or Expensify. For these applications, product usage is the primary driver of their growth and success.
These companies rely primarily on the products themselves (and not on sales teams or marketing) to supply a pipeline of satisfied users they can turn into paying customers.

This strategy is coined as product-led growth (PLG), a model through which companies can scale quickly in a capital-efficient manner.

The IPO Wave of PLG companies

This PLG wave is growing. In 2012 only 1 PLG company (LogMeIn) filed for an IPO. By the end of 2019, that list has grown to more than 19 PLG companies, including Dropbox, Shopify and DocuSign.

In a recent study by OpenView (OpenView SaaS Metrics Survey, 2019) 639 participants from different regions including the US (56% of respondents), Canada (11%), the UK (6%), Australia & New Zealand (4%), the Nordics (4%) and Israel (3%) were surveyed. The research shows that PLG companies grow slowly in the early days, as it takes time to build a community of users and convert those users from free to paying customers. But research shows that after $10M in ARR (annual recurring revenue), the advantages of PLG become clear as these companies can scale faster.

That is because their rate of user acquisition, expansion and retention is not limited by their ability to hire sales, find leads or onboard customers. And they’ve built significant goodwill from their users, who will invite others to use the product.

According to the same research, product-led growth is especially present among companies targeting very small business or SMB customers. Still, 1 in 4 companies targeting large enterprises embraces a PLG strategy.

But how do you know if your product is right for a PLG strategy? What do PLG applications have in common?

Annoyance is opportunity

First of all, the company should have a thorough understanding of their customers and needs. PLG products solve a clear and urgent pain, so the core audience needs to be well defined.

Becoming product led means that annoyance and friction are turned into opportunities. Think about Dropbox (‘I hate file sharing’), DocuSign (‘I hate paper contracts’), and Slack (‘I hate internal emails’) as some examples. It is clear what the product does, it requires little explanation and it integrates easily into the user’s ecosystem of products. The user experiences significant value immediately, which will make them want to come back over and over again. The goal here is to make it extremely fast to get started with virtual no product onboarding. The user is guided by the product to complete the key functions they need in the context of what they want to do.

So unlike traditional companies that market to buyers and use a top-down approach, product-led growth companies build their user base from the ground up. The user plays the additional role of being the buyer or has reasonable influence over the buyer.

Low cost to serve

Since PLG companies want to grow in a capital efficient manner, the marginal costs of serving each user has to remain low. These companies often apply a bottom-up approach by offering a freemium or free trial to show the value and build credibility. Their marketing efforts are largely centred around getting people to try their products, rather than engaging them with a sales team.

PLG companies all offer excellent user-onboarding experiences and in-app messaging. They basically embed sales, customer success and marketing into the product itself. And as user needs or usage grow, the user can switch to a paid version that delivers more value. PLG companies get paying customers by being strategic about the features they include in paid plans.

Viral potential

Users often discover the product when looking for a solution to a problem and they have a strong incentive to invite others to use the product (viral potential). They can also connect with other users to learn and exchange ideas, through forums, online training, meetups and so forth.

PLG products take advantage from a built-in network effect. This means that the more people are using the product, the more valuable it becomes. And by encouraging users to invite their co-workers, they extend the network effect and build a user base that can grow to department or company-wide adoption. And if the product is a platform, the more services you connect to it, the stronger its added value. That is how PLG companies make their product stick. They focus on driving usage and integration, and by monitoring user behaviour they can predict when a customer is likely to upgrade, add additional users or renew their subscription.

PLG companies are focused on the end to end customer experience and not just on the top of the funnel. Marketing is centred on ensuring that each and every customer is successful in their product usage. The paying customers are an extension of their marketing and sales teams. Keeping these customers happy will, in turn, help growth.

Where should PLG companies look to drive growth? The most obvious answer are organic channels. Users search daily for ways to solve their pains. And you want to be there when they do. So, you need a strong content marketing strategy. Your content should educate prospects and customer and should focus on quality over quantity. The brand should become a trusted advisor.

PLG is here to stay

PLG can be an efficient and effective way to grow your customer base and scale your company. But this strategy is only as successful as the underlying product. Product-led companies aim to build truly fabulous products that put the user in the driver’s seat. And they simplify and streamline the whole end-to-end process to make onboarding as simple and seamless as possible.

I would encourage companies to at least look at some components of PLG strategies, to try to drive growth and product adoption.