What is Product-led Growth? Compared to Traditional Sales-led Growth

Starting a new venture in a sea of competitors is difficult. Every choice and decision is daunting.

Take marketing, for example. You have to decide what channels to use at the start and allocate budgets for each one. Next, you have to determine which leads to pursue and which to cut off.

Imagine adding this kind of guesswork in building a product. But wait, that’s exactly what most companies do. They let their sales teams determine the product based on how easy it is to sell.

This archaic model worked when sales created the tightest feedback loop with the customer. The product would ship in six months to yearly cycles, and by the time customer feedback was received, a feature freeze was already in place for the next release.

But that’s not the case anymore. Now usage data, continuous release cycles, and freemium offerings mean customer feedback is constantly guiding product priorities on a near-hourly basis.

Today, startups need to cater to their users if they want to survive. Startups must embody the principle of product-led growth to prosper.

What is Product-Led Growth

A Product-led growth strategy is the favorite method of marketing for new-age startups. Unlike sales-led techniques, PLG uses the product to acquire users.

The product drives revenue, leads, engagement, and marketing. Because of so much emphasis on the product, companies ensure that it is up to the mark.

One of the by-products of product-led growth is that companies become customer-centric. The only valid metric for a good product is customer satisfaction. That means you need happy customers.
PLG companies take out time to listen to users and take feedback using platforms such as DevRev. Developers then make required changes to benefit the user.

It is hard for most companies to resist the urge to release features that their competitors offer. PLG companies, on the other hand, prioritize features that users want and request.

That’s why PLG companies stand out from the crowd.

Benefits Of Product-Led Growth

In the previous section, I talked about how PLG makes companies customer-centric and increases customer satisfaction. While that benefit alone offers immense value, there are a few more noteworthy ones.

Growth without dependency. Product-led companies can operate at much higher margins as they can allocate resources back into the product instead of chasing leads.

The best part is that there are no barriers to try out the product. Users get started in minutes through an intuitive experience that gradually adds more functionality and complexity.

This is possible because product-led companies make use of freemium pricing models. You can access most of the features at no cost, like in Figma. Power users who require more features can opt for paid plans to meet their requirements.

Thanks to free trials, users can try out the product. Once they like the product, they share it with their friends and family, which works as a form of word-of-mouth marketing.

Every happy customer of your product acts as a salesperson allowing product-led companies to grow exponentially.

Product-Led Growth: A Look Back

We have entered a new era of technology. Software is not just a tool anymore but a part of life. People find the best software and apps to make their lives better. Or you could say that we have entered the Age of Connected Work.

It’s important to note that this wasn’t always the case. Software didn’t have mass adoption before. This was largely due to a steep learning curve and high prices. Software wasn’t made to help the mass end user with productivity. Instead, it was built for executives to manage their employees better.

Today, everyone has access to the best software thanks to product-led companies. You might be wondering how we got here. To explain this shift, I will break down the past few decades into different technological periods.

1980s — 1990s: The On-Premise Era

Software in this period had to be installed from a physical box. These software programs were both expensive to build and buy. Software was only sold to enterprises. Salespeople would try to convince CIOs of companies to buy their software.

The 2000s: The Cloud

In the 2000s, development costs became lesser. Companies such as Salesforce were driving software into the cloud. Sales teams used marketing-led sales tactics to sell software to non-tech execs. These execs cared about improving team productivity and getting a good investment return.

The 2010s: Software to All

During this period, everyone could access the best software thanks to affordability. Small business owners and individuals started using software that previously would be commercial grade.

Developers did not have to create software from scratch. The infrastructure was better and more scalable.

In 2016, Blake Bartlett coined the term Product-led growth for companies that followed certain principles. We will discuss these principles in a later section.

The 2020s: Connectivity and Collaboration

In the current era, we have access to so many apps and software. We use Notion, Grammarly, Zapier, Jira, DevRev, and Github daily.
Redundant tasks are all automated. That allows us to increase productivity and focus on important work.

Companies are using product-led growth principles to leverage their product for exponential growth.

Businesses now rely on software to carry out most tasks. It helped them operate efficiently during the pandemic when remote work was the norm. Slack, Zoom, and Teams helped colleagues feel connected while being physically distant.

How a Company can become Product-Led

If you’ve been reading till now, you are probably convinced that product-led is an important factor for a company’s success.
Changing your company’s approach from sales-led to product-led is difficult but not impossible.

It starts with carrying out the following steps:-

Create a Product-Led Growth Team

A sudden shift to a product-led approach can shock everyone in the company. It’s important to help everyone acclimate to this cultural shift. Assembling a product-led team of the most dedicated members is a great way to start.

The product-led team can strategize and create a plan to move forward. This plan will include changes to recruiting, customer interaction, features, and flexibility.

Understand the User Better

The user’s happiness is crucial for product-led growth. User research is the best way to understand your users and their pain points.

User research helps you understand what problem you can solve and how to offer value. You can also think of it as finding product market fit.

User research’s pleasant side effect is a smooth user experience. That’s because you take time to interact with users using tools like DevRev to understand their problems.

You can also distinguish your users by segmenting them into active, new, inactive, and churned users. You can set up calls with these users and get feedback. Prioritize the users who stop using the product the highest.

Small Incremental Changes to the Product

To become product-led, companies must build on the user’s requirements. Flashy features with no benefit should be avoided. Only features that users need should be implemented.

You can let a certain subset of your active groups try out your beta product whenever a feature is added. This will help your company get relevant feedback and make changes. It will also help the company to build incrementally instead of dumping a bunch of features after a year.

Build in Public

A company that has shifted to product-led will have to release features and get feedback early. Your users become your stakeholders and will know what happens behind the scenes.

Users feel more connected with the founders and the company when they hear about daily wins and hardships.

Scale

Once you are done with the previous steps, all that is left is to scale the product. That means you must now look at the global audience.
You will need to optimize pricing, automate the business, and use an omnichannel support system.

You will also have to hire more people, especially in leadership roles.

How to Measure Product-Led Growth

Product-led growth might seem very vague. You might say that everyone follows PLG.

That’s because PLG is measured on a scale. Different companies will use a different number of PLG principles.

You can measure the extent of PLG principles used in a company with the following metrics.

Time to Value

This metric measures the time it takes a user who has landed on your product to a new user.

PLG companies should strive to reduce this time. This means making the onboarding process very easy for better conversion.

Net Churn

This metric is used to determine the health of a company. It measures the money lost after accounting for new or expansion revenue.

Virality

Virality measures a product’s adoption rate with each additional user.

k = the number of invitations sent by each customer * the % conversion rate of each invite

When k is greater than 1, the product can grow exponentially with virality.

Customer Lifetime Value

This measures the revenue a company can expect from a single user throughout the user’s lifetime. You get enhanced statistics when you use this metric on the user segments we discussed earlier.

This metric helps you predict how much a customer is worth now and in the future. Based on this information, you can change your pricing and customer strategies.

Revenue per User

This is the average revenue from a user. It is calculated by dividing monthly recurring revenue by the total number of customers. It is used to determine the health of a company and its potential.

Expansion Revenue

Expansion revenue is generated from extra features, packs, and add-ons.

Expansion revenue is an indicator of the loyalty of your users. Companies should focus on increasing their expansion revenue. It is cheaper and easier to sell to existing users. This will also improve the total revenue significantly.

The 3 Pillars of Product-Led Growth

Unlike sales-led growth, product-led growth uses the product to drive sales and revenue. PLG is defined by three pillars.

1. Design for the End User

The users’ needs must be put before everything else. Have you noticed that the UI of Amazon hasn’t changed much in so many years? Some people might even call it an old design. But they do this on purpose to not confuse their older customers.

If users don’t like the design, they might get fed up and move to a competitor. End users are in the driver’s seat of the product. Their happiness is paramount.

2. Provide Value First

PLG companies release products fast to understand the market and users. They release an MVP with all the basic but groundbreaking features. Users can give feedback fast, which helps improve the product.

PLG companies let users try out products for free using the freemium model. They provide a great app at no cost. They only hope that the user continues to use the product and upgrades the plan in the future.

3. Use Market Data To Gain an Advantage

Product-led companies use the product as the primary driver for sales, acquisition, and expansion. That’s why collecting data about how users react to the product is important. This data is analyzed and used to improve customer satisfaction which results in more growth and revenue. This revenue can then be invested back into the product creating a flywheel of growth.

The company’s PLG team is responsible for analyzing data from different sources and using it to accelerate growth and find product market fit.