Product-led growth (PLG) is one of the fastest-growing business strategies, responsible for the hyper-growth of Slack, Dropbox, and other SaaS companies.
In the coming years, we expect the adoption of PLG to become even more widespread as competitors see the success of early adopters.
First things first: What is product-led growth?
Product-led growth is a business strategy that leverages your product as the primary channel for acquiring and retaining customers.
A common assumption around PLG is that companies need to offer customers free trial software. However, PLG is more than just offering a free trial or freemium product. The goal is to get users to experience the value of your product with as little friction in the journey as possible. PLG accelerates the timeline from feeling the pain to getting value.
If users are happy with your product during the trial stage, they are more likely to convert into paying customers. The strategy is different from sales-led growth and the traditional buying journey, which begin with an interaction from sales before users ever see the product.
In a product-led growth model, this paradigm is flipped, so the first interaction a user has after your marketing content is with the product.
However, this certainly doesn't mean that sales doesn't have a place in this model. In a PLG strategy, the sales team just enter the journey at a different stage.
Fun fact: 67% of U.S. customers prefer self-service to human contact or dealing with a sales rep.
Seeing a stat like that, you may start to wonder: Should my business consider adopting a PLG strategy?
We're glad you asked.
In this article, we'll discuss the meteoric rise of PLG, examples of companies using PLG effectively, and how to determine if PLG is right for your business.
If you're ready to press go, we also have a handy PLG playbook for you to get started. Ready? Let's dive in.
The meteoric rise of Product-Led Growth
While PLG has existed for about a decade, it was not until 2019 that the concept started drawing widespread attention. Below is the data from the past five years. You can see massive growth in online search for PLG over the past two years.
Currently, we have 20+ large public companies operating with a PLG strategy. According to data gathered by OpenView, all of 2019’s top IPO companies are PLG organizations. These companies include Zoom, Slack, and Datadog.
Why are these PLG companies so successful? PLG companies have recorded huge successes at the macro level because they can reach more customers efficiently.
Since the product is self-serve, a PLG company does not have to hire teams of salespeople to convince prospects spread across the globe. The strategy has enabled product-led growth companies to experience a 150x increase in cumulative market capitalization over the last seven years.
At the micro-level, PLG companies grow faster and outperform non-PLG competitors because of the following benefits:
- Capital Efficiency: PLG companies can avoid many expenses that sales-led companies shoulder. For instance, PLG companies have a lower cost to acquire a customer (CAC). A company that spends less on customer acquisition and retention can acquire more revenue and boost profitability.
- Better Buying Experience: Offering a freemium product or free trial will allow customers to test drive your product before buying it. Taking this approach will prove the value of your product to a customer and eliminate hesitancies that may stop or delay a purchase. The companies with the best buying experience have less trouble converting and retaining customers.
- Network Effects: The viral nature of the product will enable you to reach prospective customers and grow your customer base faster. Even better, customers who love your product will promote it on your behalf, helping you reach even more prospects.
All these benefits contribute to helping PLG companies outperform sales-led organizations.
Companies using PLG to their advantage
Many of your favorite SaaS companies, such as Slack, Dropbox, Calendly, and Salesforce, are product-led growth companies. Besides SaaS companies, B2B and B2C enterprises operating in other niches can adopt a PLG strategy to improve their competitiveness and customer experience.
Zoom is an excellent example of a company that owes its success to using a PLG strategy. The company launched in 2011, long after older and already popular video conferencing tools like Skype and Webex. Even though it arrived late to the party, Zoom snagged a huge chunk of the video conferencing market by 2019 and raised an IPO with a $15.9 billion market cap.
They give users a frictionless entry point - free meetings for up to 40 minutes - and the product is inherently viral because users will invite their contacts to Zoom meetings. If customers want more, they can access it without assistance by upgrading from freemium Zoom to a paid plan. All plans (Basic, Pro & Business) are self-serve, with the exception of the Enterprise plan.
Is PLG right for your business?
Just because you choose to go PLG doesn't mean you'll be an overnight success. Before switching to a PLG strategy, you must verify if the model is right for your business and industry.
The ideal product will be:
Self-Serve Compatible: Product-led growth strategies work best if you have a product users can easily trial without too much friction. If your product has an extremely high price point and your user journey contains complex implementation then PLG may not be right for you.*
*Note that High ACV products and complex products can still reap the benefits of PLG by leading users to experience product value or reduce friction in the evaluation and buying process - like interactive demos and sidecar apps (more on that below 👇 ).
End-User Focused: Oftentimes, your end user is your buyer, which makes it easier to demonstrate value and get to a conversion quickly. If your end user is not your buyer, your offer should make a compelling case to buyers as well. Think about how to create incentives in your pricing and packaging for enterprise consolidation.
Easy to Understand: Users should be able to use your product and appreciate its value quickly without anyone explaining how the product works.
Your product is the SDR and the AE in this case - it needs to do the job of those roles in many instances. The more intuitive your product is, the easier it will be for users to adopt and integrate it into their daily lives.
Valuable Before the Paywall: If you're able to offer value before a paywall this can be the greatest growth lever at your disposal. However, users will only convert if they experience genuine product value before hitting your paywall.
One new tactic is un-gating trials so you get asked for credit cards and other info at the end of the trial instead of the beginning.
Able to Go Viral: A PLG strategy is most potent when the product is multiplayer in some way. For instance, you get more value by inviting your team, sharing things through the product, etc. If users enjoy your product, they will gladly sing its praises to their friends and colleagues and attract more prospects for you.
Does your product check those boxes? Adopting PLG might be right for you.
As mentioned above, some people believe that PLG isn't ideal for higher annual contract value (ACV) businesses, but the experience of some experts from the PLS community proves otherwise. Higher ACV products can take advantage of PLG if you can reduce friction in the buyer journey and expose customers to the product early in the buying process.
What does it mean to expose customers to the product earlier in the buying process?
This can be achieved a few ways like offering interactive product tours (via tools like Navattic, Reprise, Arcade) or by building and offering a 'sidecar app'. A sidecar app is a product that offers value adjacent to your core product. It gives users a sense of your product experience without having to sign up for your core product.
Examples of companies who use sidecar apps to improve top of funnel and become more 'PLG' include:
- Hubspot - website grader, email signature generator
- Wix - logo generator
- Snyk - vulnerability database
- Nutanix - test drive
How to create an effective PLG strategy
To implement a successful PLG strategy, check out a few key steps below to get started.
Note: There's truly no one-size-fits-all approach to PLG. It all depends on your company's specific goals. Use these steps as a starting framework and iterate to build your own guide to PLG.
Step 1: Get buy-in
PLG is a team sport, and the entire organization needs to make an investment into this approach.
While larger organizations can get by with a PLG-lite approach where it's incubated in a smaller team, buy-in is still a key first step. Create a 1-page summary to capture your strategy on one page and use this to gather consensus and buy-in. The goal of this 1-pager is to set expectations, ensure there is clear communication across the organization, remove any silos between teams, and establish a framework for experimentation.
- Set goals that align to overall business OKRs. Your PLG strategy needs to impact the company level growth metrics that matter to the decision making teams. Show how your PLG goals directly impact company-level OKRs.
- Outline where the gaps are in the business. Highlight what is working well and where there are gaps. Pick a few key areas where PLG might be helpful. For example, our sales cycle for product X is too long because it requires multiple stakeholders. Feature Y is very sticky with end users, can we offer a self-serve version of this feature as a PLG product to speed up the sales cycle? Or our customer onboarding could be much faster if we make it self-serve, how can we guide users to value without a salesperson or CSM guiding them?
- Create the high level strategy. There are many ways to summarize a strategy but a helpful exercise is to list all the questions your are trying to answer and then defining experiments you will run to help answer those questions. When moving from sales-led to product-led you might be building your strategy around the question of whether you can reduce time to value for customers or increase net dollar retention.
- Define what teams will play a role in building out the PLG motion. It's a team sport so tell everyone what their roles are and the rules for engagement. Defining this early on and getting buy-in on roles and responsibilities will keep everyone from duplicating efforts or feeling territorial.
- Outline what new training, tools, and process might be required. Since your company is new to PLG, you must provide your PLG team with the training and tools needed to do their jobs.
- Set realistic expectations for how you will measure success. PLG is a long game, you won't be able to show direct impact on revenue overnight. Create a roadmap for success with many milestones and different metrics for success at each stage.
🔮 Tip: Consider pulling examples of PLG success (OpenView has a ton of great metrics here or join the PLS community and source primary research) to demonstrate to your leadership team why PLG is right for your business growth.
Step 2: Map out your full user journey
In a traditional sales-led world, each step is discreetly related to a function (e.g. marketing does acquisition, then sales to close the deal, then customer success handles product onboarding). Look at where there are points of friction in your current journey.
With PLG, review how each team is involved in each step. it's not a linear funnel, it's a cross-functional process. Think in loops, not funnels.
Some questions to ask your team may be:
- Where are your users getting stuck?
- Where are they not getting value fast enough?
- What are the touch points with product & human beings?
In this process, it's crucial to validate assumptions with data. You can collect valuable product data from existing paying customers and freemium or free trial users.
Product data is key to a successful PLG strategy, where you discover user pain points and track, measure, and analyze user behavior. You can then use the insights to create products that engage and convert prospects.
You can also use product data to identify the winning parts of your product or strategy, which also makes for valuable insights.
Step 3: Identify experiments you want to run
You've identified the opportunities, now let's break them down into experiments.
Let's start with an example.
You realize in your user journey that customers are struggling to complete steps in your onboarding process. This presents an opportunity to incorporate a human into your onboarding process (vs. self serve).
You might test creating an in-app message that offers a 1-1 live onboarding. The metric to track in this case might be click-through-rate. Are people using it? Or happy to try to figure it out on their own?
If you find it's the latter, invest in knowledge base resources like how-to guides. If the former, staff up a sales assist team to help earlier on in the user journey.
If you don't have a freemium product, consider your sales process. Where do you see churn? Could you do interactive demos or POC (proof of concept) to reduce friction?
Step 4: Staff the team
Once you've run your experiments and have data-driven insights, prioritize a roadmap of how you implement this strategy. Part of that roadmap is aligning teams and resourcing.
You need teams that can help execute your product-led growth plans. While you can train your existing staff, it helps if you hire individuals with experience working in PLG companies. These experienced individuals can provide insights that will guide you away from making avoidable, costly mistakes.
From there, prioritize the actual strategy. The best product-led growth strategies change with the times and needs of users. If you want long-term success as a PLG company, you must learn to anticipate future user needs and proactively improve your product to match those needs. Consistently doing so will increase customer loyalty, because your users will believe you care about their happiness and satisfaction.
If you fail to prioritize customer satisfaction, you may experience customer churn as customers uninstall and abandon your product. According to data gathered by Wyzowl, eight in ten users delete apps that are difficult to master.
🔮 Tip: If you're looking for more detailed strategy guidelines, check out our comprehensive Product-Led Sales Playbook. We've compiled a community-driven collection of resources on defining PQLs, crafting the Product-Led Sales user journey, hiring the role of sales-assist, and more.
Want to take your Product-Led strategy to the next level?
You now understand what PLG is and how the strategy can help you acquire and retain more customers, especially if you offer a self-service SaaS product.
If your business model involves a self-serve product, you may be wondering how to convert your freemium users into your highest value customers.
Good news: Pocus is the first Product-Led Sales platform that equips sales teams with the data they need to surface the best opportunities and drive more revenue - all without ongoing engineering support.
Join the beta today, and get ready to outperform your competitors.