The ultimate goal of every company is too grow and to do so in the fastest way possible. However, growth by itself doesn’t mean much, nor it contributes to the overall success of the organisation unless it’s sustainable, manageable, measurable, and healthy. Of course, a crucial part of growth is a product that can satisfy the demands and expectations of customers.
Needless to say, this is not easy to achieve and requires a lot of work, especially with modern consumers who are more educated and savvy than ever and expect products that are more functional, more powerful, more intuitive, and more visually appealing than before.
All this results in a market that’s quickly shifting and rising to satisfy the needs of these modern customers and often becoming saturated and highly competitive. In turn, this also leads to users who swiftly and easily ditch the products that don’t offer the expected experience.
This shift in consumer behaviour means that, now, the product itself and the product experience are the drivers of their attention instead of sales pitches and marketing campaigns. So, the companies who want to survive and remain competitive must adjust their approach to the market and the best way to do it is by adopting the principles of product led growth.
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What is Product Led Growth?
Product led growth (PLG) is a business methodology and strategy which is shaped around the product as a primary driver that moves the business forward. This means that businesses using this method build their acquisition, expansion, and conversion capabilities around the product itself.
As a most important resource for sustainable and scalable business growth and development, the product is the point where all teams across the company, including engineering, sales, and marketing departments, align and rally around a common goal – product led growth.
So, the successful application of PLG requires not only making the product the core of the business, but also full company-wide alignment around that product.
The product led growth can only be achieved when the company emphasises with the end user and fully understands their needs, expectations, and problems. If a business is able to solve those consumer issues through a self-serve product, natural growth will most likely follow. Basically, when applying PLG, the focus of the organisation is on the product, while the focus of the product and its features is on the customer.
When the business is organised like this, customers will be able to easily access and use the product, quickly discover the values it brings, return to find more features, and, in the best case scenario, spread the word among their friends about the great experience they’re having with the product. Therefore, the product on its own becomes the driver and source of revenue and retention
Unlike sales or marketing-led growth strategies which rely on communicating to the customer what the product can do and investing heavily in marketing and sales process, product-led growth implies a more direct product-customer relationship that can be established quicker and with significantly less spending. Therefore, this method works best for companies whose business revolves around everyday services, includes social interaction, and has fairly simple objectives.
History of Product Led Growth
As the product led growth methodology is mostly tied to the software industry, the history of the method is closely connected to the history of software and the way it was sold to customers. As the users’ needs and expectations changed and the way we use software evolved, businesses had to evolve, too, and develop their abilities to deliver the products in a way that would match these new expectations.
In the early days of the software industry, back in the 80s and 90s, software products were delivered in actual, physical boxes and installed and used on-premise. These products were expensive both to buy and to create. Convincing customers to buy such products was not easy, so the main role belonged to sales representatives who had to convince buyers (commonly CIOs of the companies, not the end users) to make the purchase.
Things began to change in the early 2000s with the emergence of cloud-based software and companies such as Salesforce. The change meant that software products moved from the on-premise data centres to the cloud and became available on demand.
This also led to drastic cost reduction, making the product cheaper and more available and paving the way to mass adoption. It also marked the shift from sales-led business strategies to a more marketing-driven approach.
The next shift happened over the past decade when business strategies began to revolve around the end user. The technology and infrastructure development allowed for better products, while at the same time making their products less costly and more scalable.
As a result, product led growth methods emerged and companies looked to make their product as self-serve as possible to be able to meet the new demands of consumers. The purchasing decision now lies almost solely with the end user who commonly has the opportunity to test the product for free and decide how they match their expected experience.
Benefits of Product Led Growth
Opting for product led growth instead of other strategies can bring several meaningful benefits to organisations. Some of the key advantages of the PLG are listed below.
Shorter Sales Cycle
This PLG method gets rid of targeted approaches, stakeholder lists, demos, onboarding, and other processes characteristic of the slow-moving traditional sales models. This means that the sales cycle is significantly sped up.
The product led growth speeds up the sales cycle in three main ways. It provides a wider top-of funnel by directly approaching consumers and, in that way, removing extra barriers for the product. Instead of approaching selected decision-makers with sales pitches or demos, end users through trial or freemium options can directly access the product and evaluate its value.
Additionally, PLG allows the implementation of self-onboarding providing users the opportunity to learn how to use the product through the very process of using it. This simplifies the sign-up and onboarding process, delivering much more value in a shorter period of time. At the same time, potential users will much more quickly upgrade and convert to paying customers.
Finally, with product led growth, the company can count on rapid scaling. PLG eliminates the need for hiring and training numerous sales representatives in every region the company wishes to sell its product. Expanding to new markets will commonly only require the regionalisation of the onboarding process.
Lower Customer Acquisition Cost (CAC)
Acquiring new customers is the key to organisational growth. However, customer acquisition usually comes at a cost, and PLG methodology can help the company significantly cut down those costs. Firstly, the scaled-down customer acquisition needs mean that the company won’t depend that much on new customers as it will improve the lifetime value of existing users.
Furthermore, as the product itself acts as the customer acquisition channel, the budget needed for marketing will be significantly lower. Plus, customers who have directly accessed the product have already expressed a level of interest and, thus, are much more valuable as qualified leads. Of course, focusing on the product will mean that more money will be spent on some other parts of the process, engineering, for example.
Higher Revenue per Employee (RPE)
The whole point of product led growth is to make the product self-serving. That means that the product itself will take care of distribution, trials and sign-ups, upgrades, or support, all with a minimum of human involvement.
If the product is doing most of the work, the company will need fewer employees on the payroll and, in that way, achieve more revenue per customer and per existing employee. In addition, this also allows each employee to invest more time and effort into their particular roles and help the company thrive even more.
Better and Optimised User Experience
Focus on the user experience is the main component of adopting the PLG approach. As the product is meant for people to onboard and use themselves, the company should strive to provide them with the best possible experience of using that product. This means that the product has to be easy to understand and use, meet the customer’s expectations, and solve their problems.
The product should bring value to customers both in the short and long term. This is where product led strategy excels as the focus is exactly on delivering value to consumers which, in turn, makes them more likely to go from free to paid and renew.
Improved Analytics
Product led growth makes it possible to directly work with users and within the product which provides a great opportunity to collect valuable data based on customer insight into the product and their feedback.
The company can evaluate how users use the product, keep track of their engagement and, based on data collected that way, target them with upsell they’re likely to find useful. Plus, this data can be used to further enhance the product so it could suit customer expectations and preferences even better, which will then lead to better user experience and retention.
Product Led Growth Strategies that Companies are Adopting
As each company operates in a unique environment due to the variations in markets, resources, products, talent, or size, there’s no one-size-fits-all approach to product led growth. Each organisation makes its own journey and adjusts the process of adopting PLG methodology to fit its needs. Still, there are some basic strategies that most companies will implement.
- Ensuring organisation wide alignment – the alignment across the whole organisation, starting from the executive level and all the way down the ladder, is vital to the successful implementation of the PLG approach. If each team within the company is working towards a disparate goal, product led growth will likely be impossible. All the resources, effort, and time must be focused on achieving a single goal – creating a world-class product and fostering a great user experience.
- Designing the product with the end customer in mind – the customer and their experience should be the main focus in the process of developing a product. However, to create the best possible user experience, it’s necessary to first understand why the user may want the product and what problems it’s supposed to solve. Only then can that problem-solving
function be integrated into the product and make a difference for the customer. - Making data driven decisions based on analytics – as we already noted product led approach allows you to track the customer’s engagement with the product and extract all kinds of useful data. Every action the user reveals what they may like or don’t like about the product. The data gathered this way should then be used to improve the product and enhance the user experience.
- Viral loops – virality is probably the most efficient way to spread the word about the product and a powerful tool for rapid scaling. It’s essential that the company connects with product users and encourage them to share their experiences with their friends and contacts. By targeting those who already love and know the product, the company can create viral loops that help the word of the product get around without investing significant amounts not marketing.
- Creating freemium models – even though it may be counterintuitive to offer something for free, depending on a business model, offering the freemium option can be a great way to acquire new customers and have the product in hands of users as quickly as possible. By allowing customers to have something of value without reaching for their credit cards, the company can develop valuable relationships with its customer base and build a community around the product. Plus, with many customers using the product, it will awaken curiosity among others who may want to try it too in fear of missing out.
Examples of Product Led Growth Companies
Even if you may not be aware of it, some of the leading companies across the globe are implementing the product led growth methodology. Some of the most notable examples are below.
- Zoom is probably the best-known among the companies that use the product led growth model. Founded in 2011, the company had 3 million users by 2013, and in 2015, it reached 100 million. In 2019, Zoom was IPO’d with a $15.9 billion market cap. The company was so committed to product-led growth that in the first two years, Zoom didn’t even have a marketing team. They were aware that their product had built-in virality as it served to connect people and had a smart freemium model by offering free calls for up to 40 minutes. More advanced features were left behind the paywall.
- Slack is another PLG success story. Today their product has 10 million users and the company was valued at $23 billion when they IPO’d in 2019. A big part of their success is their devotion to customer experience. Most organisations initially use Slack as a free-trial self-service for internal communication, only to later realise the additional paid benefits and provide organic growth for the company.