Product-led growth is a business strategy focused on delivering an excellent product experience that drives customer acquisition and retention. As a startup, achieving product-led growth can be challenging, but it’s not impossible. Here are 10 tips on how to achieve product led growth.
How to Achieve Product Led Growth: The Ultimate Guide
Product led growth is a go-to-market strategy in which the primary way to acquire and grow customers is through the product itself.
This means that the product is the primary driver of growth, and acquisition and engagement efforts are focused on getting people to use and love the product.
Continue reading to get some tips on how to achieve product led growth for your company.
What is product-led growth?
A product-led growth strategy is a strategy that centers a business around its software products. This strategy is centered around the software itself, and the entire company is often built around it.
A product-led growth strategy focuses on the product to generate sales and grow the company. This strategy relies on the product’s features, performance, and virality to drive customer acquisition and growth.
What makes it unique?
Product-led growth is unique because it focuses on the product first and foremost. This allows for a more seamless and effective go-to-market strategy centered around the customer’s needs.
In product-led organizations, sales teams orient themselves around letting the product (and the social proof that it creates) take center stage.
The product becomes a sales and marketing tool as it attracts new users without spending money on ad campaigns or additional sales hires. This is especially beneficial for companies with a freemium product, as they can show the product’s value before asking users to upgrade to the paid version.
Product-led growth strategies are unique in allowing users to experience a product for free before deciding whether or not to upgrade to the paid version. This allows companies to save on marketing and sales costs, as the product can act as a tool for attracting new users.
A short history of PLG
It’s hard to believe, but once upon a time, it could take months or years for an organization to adopt a new piece of software.
People are now using their initiative to introduce new software into their offices. This shift in power means users are now buying the software, not their product managers.
Ultimately, the end-users, not their product managers, decide which products to purchase.
The rise of the end-users is at an inflection point. The end-users are becoming more and more important in the software industry.
The harsh reality is that software companies must adapt and cater to end users if they hope to remain competitive.
This shift in business may seem massive, but it’s not that big deal.
The IT world has been moving toward end-users for a while now, and companies must adapt to remain competitive.
So, how did we get to this point?
The 80s and 90s were when companies had to buy and install massive, on-premises software packages. These packages were so expensive that 6- to 7-figure capital expenses were the norm.
In the “Sales Led Growth age,” sales reps were the main drivers of revenue. They generated sales by meeting with CIOs over dinner and on the golf course. The key factor in this age was IT Compatibility.
The Cloud Revolution: 2000s In the 2000s, companies like SalesForce and Oracle began offering their CRM solutions in the cloud, which enabled companies to dramatically lower their upfront costs and access their systems from anywhere.
In the 2000s, the marketing and sales process was focused on reaching out to the new buyer: the non-technical executive.
Executives evaluated software based on how well it helped their team members achieve their goals. They used KPIs and ROI as metrics.
This period was characterized by the “rise of ‘Marketing-Led Growth’ as a Distribution Model,” as well as the introduction of “new terms” such as “Sales Development Representative” and “Marketing Qualified Lead”. This “model” relied on “inbound” “leads” to “fuel” “high velocity” “inside” “sales”.
Inbound Marketing helped fuel the fast growth of Inside Sales, and we were all running after demos, bong after bong.
The “exec era” of sales is quickly dying out as more and more companies adopt modern, agile methodologies.
We now live in the End-User era.
The infrastructure for cloud-based phone systems is much more flexible than it used to be. And thanks to API tools and modular design, programmers can now build programs without having to code everything from the ground up.
The availability of cheap, accessible software makes it easier to try new products.
The availability of affordable, accessible software allows consumers to buy directly from manufacturers.
For these consumers, the deciding factor is not “how will this benefit the company?” but “how will this improve my day-to-day life?”.
A bottom-up approach is required to attract and convert large numbers of users. This empowers the end-user, allowing them to find, evaluate, and adopt the solution independently.
Product-led growth is a strategy that focuses on building a compelling product to attract and convince users to adopt it on their own. This strategy has been very successful for companies that use it, allowing them to grow their user bases exponentially.
As explained clearly by Blake:
The rise of the end-user era is inevitable. As a software provider, you cannot escape this inevitable change.
You wouldn’t build a business for the “CIO era.” While you can probably still get away with it, that “wave” is already cresting, and its days are over. The “End User” age is here. “Product-Led Growth” is how you thrive within it.
The end-user era is here. How can product-led growth work for you?
The Benefits of Product-Led Growth In A Business
An end user-focused growth strategy is good for both you and your customers.
Twenty-one publicly-traded companies operate with a private equity firm model, including 2019’s hottest IPOs, which continue to grow as more companies backed by a private equity fund go public each year.
Product-driven companies have outperformed their competition post IPO. This is because they experience higher growth as they scale.
While it may be slower initially, once a company hits $10 million ARR, it typically grows faster. Why?
Because product-led companies are less dependent on traditional, labor-intensive lead gen, sales, and customer service, they can scale quickly.
They grow efficiently, with a low CAC (customer acquisition cost).
Unsurprisingly, the median enterprise value multiple for private equity-backed companies is 2 times greater than that for public software as SaaS businesses.
So far, we’ve helped our clients create more than $208 billion of shareholder value—and we’re only getting started.
3 Pillars of Product-Led Growth
Pillar 1. Design your product with the end-user in mind
People now want to solve their problems, not yours.
And people want to solve the issue they have now.
As the CEO of scheduling app, Calendly, Awotona, puts it: “The best design happens when it’s designed with the end-user in mind.” This means that the best designs come from paying attention to what real users need and solving their problems with effective solutions.
Relationships are built on trust. Give your customers something valuable before asking for anything.
Product-led companies prioritize a short time to value their product or service.
A great way to allow customers to try your product before paying is through a self-service trial, a freemium product, or an open-source project. This allows them to get value from the product faster.
But a paid subscription does not automatically provide value to users.
Pillar 2. Make sure you’re offering something of value to your audience.
To show users the value of your product, you need to quickly solve their problem or get them to the “ah-ha” moment when they understand how your solution can improve their lives.
This involves adding features and functionalities that align with that core value proposition and eliminating anything that may distract or impede people from achieving that.
- You should keep the first purchase process as simple as possible for products that can easily be adopted by simply purchasing them.
- For products that are more dependent on human interaction, you should focus on delivering value to users before trying to make a sale.
- For products requiring some degree of end-user time commitment, such as in infrastructure and APIs, investing in documentation, tutorials, and user onboarding programs can make it easier for customers to succeed.
A key principle of building a highly successful business in the pay-per-lead industry (PLG) is removing as many obstacles as possible that prevent your users from solving their problems. This holds for both low- and high-contact businesses. By eliminating these roadblocks, you make it easier for your customers to use your product or service and, in turn, see its value.
Pillar 3. Invest in your product with “go to market” or “GTM” in mind.
The up-front cost of developing software is much higher than the cost of providing professional services to clients.
The up-front investment in developing software can be higher than that for services, but the incremental cost of delivering the same service to multiple customers is virtually zero. This makes for an extremely profitable long-term strategy.
The costs of developing, marketing, and distributing software products are much lower than the costs for services.
PLG companies invest in their product to drive acquisition, conversion, and expansion. By doing this, they can provide a better service or product to their customers. This, in turn, leads to more customers and more conversions.
Companies that focus on PLG invest heavily in their products to acquire, convert, and expand. They do this by investing significantly in rich product information, building a growth strategy, and conducting A/B tests.
How to Measure Product-Led Growth
The Natural Rate of Growth (NRG) metric allows subscription-based businesses to determine how much of their monthly or yearly revenue from their product or service comes from organic growth.
This growth indicator measures how quickly a business can scale without requiring additional sales and marketing investments. This shows how successful the product is on its own.
The formula for this trick is:
NRG = 100 x Annual Growth Rate x Organic Signups (%) x ARR from Products (%)
The NRG is great because it:
- Predicts the future success of a company.
- It can be traced back from the beginning of its revenue generation to its initial public offering.
- This applies to all software and technology companies, regardless of where they are on the PLG journey.
- Is easy to measure.
- Can determine if a product can help a company grow efficiently through the product.
The companies with a strong focus on their product—such as zoom, slack, and Expensify—have a strong natural growth rate.
These PLS companies have optimized their self-serve motions and added additional marketing and sales later.
Other companies like Hubspot have made an effort to become more customer-focused and have seen their NPS increase.
As Hubspot has made an effort to become more customer-focused, they should expect their Net Promoter Score (NRG) to improve. This is because of the “Flywheel” approach, which abandons the traditional “marketing” sales funnel.
How Companies Can Be Product-Led
Most organizations are not led by by-products, especially those that have roots in the IT and executive era. To achieve product led growth, these organizations must undergo a major transformation.
Software companies can improve their customer experience, increase market efficiency and gain a competitive edge by adopting the product-led growth strategy. This strategy is scalable and can be implemented by any company, regardless of size or background.
Some companies can be product-led if certain conditions are met.
Is Product Led Growth Business Methodology Suitable for Your Product?
We have identified the 8 key characteristics of a product-led growth strategy. For a company to transition to a Product Led Growth Strategy, these 8 traits must be present.
1. The market conditions are favorable.
When product led-growth strategies are successful, they:
A Product-Led Growth Strategy is best suited for products where the cost to acquire a user is low, the user base has purchasing power, and the existing solutions are inadequate.
2. Your company’s product or service helps customers complete their tasks more quickly and conveniently.
3. The users can quickly realize the benefits without much help.
Your product should be easy to evaluate, understand, and integrate with your existing workflow.
4. If your product can deliver real, tangible value to users before requiring payment, it might be a good fit for a Pay-What-You-Want (PWYW) model. This is because you can charge more as your product’s utility and popularity increase.
5. Your product can provide acquisition channels for marketing and user growth.
A Product Launch Guide (PLG) is a strategy that rewards users who invite others with incentives. This strategy can be very successful if a product has strong social sharing capabilities and the product owner can track and reward their users.
6. Your marketing campaigns should lead your prospects to your product, not your salespeople.
7. Your product is more useful the more users it has.
The more services a platform is connected to, the more valuable it is.
8. Your customers’ companies have employees champion your products’ use. These employees are called “product champions,” and they help expand your software usage.
If your organization meets most of these 8 requirements, you should be using Product-Led Growth (PLG) strategies to increase the adoption of your product. However, the transition won’t happen immediately.
And, naturally, you shouldn’t. You have to make room for your products to grow.
Attempting to do too much at once is a bad idea.
When we asked Kipp what it took for organizations to be true “product-led,” here’s what he had to say:
Trying to change everything at once is a recipe for disaster. A company’s “anti-bodies” (or employees) will push back against changes, especially if they’re used to doing things a certain way.
So, it would be best if you dedicated people, time, and resources to it until it’s grown large enough to be no longer resisted and accepted as your own.
Finally, you’ll want all of your recordings to be merged.
Product-led growth is a great way to grow your startup, but it takes focus and dedication. By following these 10 tips on how to achieve product led growth, you can give yourself the best chance for success. Keep in mind that product-led growth is about delivering an excellent product experience, so always keep that at the forefront of your mind as you work for your business growth.