Product led growth is a situation where a company leverages on the product to drive growth. That means that the company has worked on the product eliminating any barriers. This ensures at product launch there is customer satisfaction.
OpenView Partners describes PLG as a customer-focused growth model which depends on the product for customer acquisition, expansion and conversion. It relies on giving customers a high value experience that can help in steering its growth.
Many companies such as Slack, Calendly and Data Dog are leveraging their product to drive growth.
According to a research done by Forrester, 75% of buyers would rather buy from an app or website than buy from a salesman. 93% of those would rather make a purchase directly once they decide what they want than consult a salesman. That is a clear indicator that the future is product-led sales.
In the recent two years, there are up to 50% of companies that are embracing product led growth.
To be successful in product led growth, it starts with user understanding. It is only by understanding your buyers that you will be able to know their triggers and meet their needs. Once you know the triggers and the job they are hiring the product to do, you can tailor the product to meet their needs.
One common trait of PLG companies is that a customer has to try the product first to decide if they like it or not. If they do then they spread the word.
Why Product Led Growth?
It is cheaper
Product Led growth(PLG) is cheaper as it is the customers telling other customers about the product. Since it is organic, it has a lower CAC and higher LTV. This explains why many companies, especially in SaaS, are embracing it.
For SaaS companies such as Slack, when one customer tried the product, they told their friends about it and finally onboarded their team onto the platform. In a short time, Slack exploded with growth.
PLG companies have a shorter sales cycle as customers can onboard themselves. Once they are satisfied with the product, they can upgrade and this is a way to convert free users to paying customers.
Product led growth strategy is cheaper as compared to sales led growth strategy. That explains why there are over 14 large public companies that use the PLG model. Examples are Dropbox, SurveyMonkey, Facebook, Pinterest, Airtable, Figma, etc.
As mentioned earlier, PLG companies scale faster than competitors. For most companies, the funnel is wider at the early stages of the customer journey. This brings many customers into your web to try out your products.
Unlike the sales-led companies where you rely on sales rep to do demos and onboard customers, for PLG companies the onboarding process is different as customers onboard themselves. This is an easier way to give a great customer experience as the customer decides what value they are getting from your product.
According to research done by OpenView partners, PLG companies face slow growth in the initial stage and once they hit the $10 million ARR scale faster than their peers.
The unique factor of PLG companies is that they are not constrained by sales or marketing efforts; hence they’re able to scale with ease.
Main fundamentals of PLG companies
For product led growth to take place, there has to be customer satisfaction. A happy customer will tell other customers about the product which will lead to a higher growth and a fast ROI. A customer hires a product to do a certain job. If the product does the job well, then the user has no business looking for another alternative to do the job.
As mentioned earlier, this starts with customer research to understand the end users. With a clear understanding of the end users it’s easy to customise products according to needs.
If you’re planning to be a PLG company, then you need to focus on delivering value. This is because customers are always on the lookout for more value for money
Most product led companies focus on short time to value. That means they want to deliver value before they can get value. A good example is in the case of a SaaS, whereby users can access a product before they have to pay for it. It is only through accessing the product that they would know if they love the product or not. And if they want to continue using the product or not .
PLG companies have ways of giving end users the chance to interact with the product for free. It is in the form of free trials, freemium, or open source models.
Paywalls discourage customers from engaging with the product. The product should be such that it can be accessible to a client. The less the number of touch points and an LPG wants the better for the customer.
Having the right go-to market strategy
Although the initial costs of creating a software are high, the marginal cost for delivering the value to customers is near zero. That means that the software is profitable. In the long run the marginal cost of distributing the product to the market is low.
To be able to come up with the right go to market strategy, a company has to do market research to have enough data that they can use to track, measure and analyse customer behaviour.
Most companies will be able to do experiments to know what works and how they can improve the user journey. Through testing and learning, you can make iterations until you find your perfect fit.
The link between product led growth and Product Market Fit
PLG and PMF have a direct correlation as you have to achieve a PMF to be a PLG company.
For both you have to do the basics, which is customer understanding and using data to make decisions. This will ensure that you can deliver customer satisfaction, which is important for growth.
Once you have customer understanding and know buyers expectations, you can customise the product to meet the needs and demands of your end users. That means the product use will be in the right way, which can lead to the spread of the word.
Both of them revolve on customer understanding, product development and customer satisfaction. Customer understanding leads to customer satisfaction and it also leads to product development if need be.
The needs of the consumer are always evolving and, thus, your product should also evolve according to the needs. Customer research from time to time is important to understand what are the concerns and needs of the buyer.
There are up to 42% of startups that fail due to product market fit. This is a concept that is still hard to grasp for many. Sulma & Sulma is filling the gap by providing product market fit services as it understands the importance of meeting the needs of the market and being product-led.
Is PLG the future?
The startup trend is changing and people are looking for convenient ways to run their operations. Some of the notable trends that favour PLG include:
Customer acquisition costs are on the rise
The cost of running a startup is getting expensive with time. Marketing and advertisement cost has been on the rise. The main channels such as Google and Facebook have experienced over 100% increase in costs. The irony of it is despite the increasing CAC, the customer willingness to pay is on the decline.
As Sulma & Sulma would have said, you are better off fixing the foundations so that the end is strong. This ensures that your CAC is reasonable all through even when customers are not willing to pay.
Buyers want to own the buying decision
Unlike in the past where the buying decision depended on a salesman, the trend has changed and now the buying decision is in the hands of a buyer. Most of the time the buyer is more aware of their needs and will search for a solution on his own. There is plenty of information online which makes buyers feel empowered. If a buyer has the option of trying out the product before purchase, the better for the company.
Buyers are the future and that is why you are better off working on your product-market fit to ensure you match the needs of your buyers.
Can any company adopt PLG?
The truth is PLG is cheaper as opposed to other strategies and so, it’s desirable for any company to adopt. It means a lower CAC and a higher LTV.
Some of the situations that are friendly for a PLG strategy include:
- The right product market conditions.
They are situations where the marginal costs by an individual user are low and buyers have a high influence on buying decision of your product
- Meets the needs of the users.
- Users can understand your product and use it the right way.
- The product delivers value according to its creation.
- Your product can have a built in network effect whereby the more a user uses the product the more they tell people about it.
Mistakes to avoid in the PLG journey
There is no doubt that being a product-led growth company does not happen overnight. It is a journey that takes time. There are mistakes that one can avoid to ensure they are a successful PLG. They include:
There is a misconception that PLG companies do not need sales and marketing teams as the product sells itself. Truth is that there is no company that can run without sales and marketing. You need them to understand what job the customer hires the product to do. For a PLG company to work, there has to be alignment of goals between different teams. That means alignment of goals between sales and marketing, production, finance, data science, customer care, etc. All the teams need to know they are working towards a common goal.
“Product-led growth means that every team in your business influences the product. Your marketing team will ask, “how can our product generate a demand flywheel.” The sales team will ask, “how can we use the product to qualify our prospects for us?.” Your customer success team asks, “how can we create a product that helps customers become successful beyond our dreams?.” By having every team focused on the product, you create a culture that is built around enduring customer value.” Allan Willie, Co-Founder & CEO, Klipfolio
Lack of Consistency
The difference between success and failure is lack of consistency. Your company needs consistency and transparency of the processes involved in a product journey from the first time the customer interacts with the product. The process should be visible to all disciplines in the company for the different departments to know what they can improve on for a better customer experience.
Not being data-driven
In the current world, numbers are everything. It is only through measuring data that a company can tell its performance. Through analytics, you can know if you are closer to the goal or not and how to get closer to it.
Even though you have high value to deliver to your customers, they will not be able to know about it if it is not communicated in the right way. You need to communicate in the right way such that customers understand well what is at stake.
From the article it is clear that PLG is the future. There are many benefits that are associated with it that are worth giving a try. As mentioned before, going to PLG is a journey and does not happen instantly. If you were using a sales-led approach or any other approaches, you can strategize and adapt to a product-led strategy.
If you are in the woods and wondering how to get started do not worry as Sulma & Sulma are experts in that. The company uses a data-driven approach to help any company understand its buyer and meet their needs. The company has a platform which helps companies understand their buyer personas, ideal customer profile and their customer journeys. This is fundamental in delivering the needs of the buyers. The main goal of Sulma & Sulma is to help companies focus on the product while they address other aspects that ensure companies remain profitable.