What does "product-led growth" mean?

In 2019, Wes Bush outlined three tidal waves coming for SaaS businesses:

• Startups are getting more expensive to grow. True, it’s cheaper to build a SaaS product in this decade. But thanks to factors like abundant competition, lower willingness-to-pay, and spiking customer acquisition costs, it’s more expensive to grow a SaaS business than before.
• Buyers are leaning toward self-education. Heaven forbid you hand out a 1-800 number, don’t have FAQ, or prevent the customer from taking your product for a test-drive. Modern customers don’t want to take a leap of pocket—or faith. According to Forrester, three out of every four B2B buyers would rather self-educate than speak with a sales rep (you’re probably nodding).
• Experiences are becoming an essential part of buying. Tied to the point above, customers want their hands behind the wheel of your product. They want to see how the speakers sound, how it rides over potholes, and whether the seats are really as plush as they look. And they want to do all that before they type in a credit card number.

These swells are already lapping at the shoreline and Bush theorizes many SaaS companies aren’t ready for them. And while some businesses may weather one of these tidal waves, there’s no chance they survive the crash of all three.

Unless they learn how to ride them.

Product-led growth is how you do that. It’s how you harness the energy of those waves to see higher revenue, more satisfied customers, and a thriving business. Today’s post covers why, and here’s what you’ll find ahead:

• What product-led growth means and how we got here
• Which companies ascribe to it (hint: you know them)
• 4 tenets that define a product-led company
• Why this is a good fit for us

What the heck is product-led growth?

At its core, product-led growth is a new-ish way of growing software companies. Instead of relying heavily on marketing and sales teams to drive growth, founders of product-led companies rely on the product to drive growth. (The name makes sense now, yeah?)

You may have noticed I said “new-ish.” While the phrase has been gaining steam, the strategy itself has old roots. In part because it’s simply good business. Outside of the SaaS world, companies like Samsung, Ford, and Apple have practiced parts (if not the whole) of product-led growth for ages.

For example, Samsung hasn’t always been a go-to name for sleek TVs. Nearly 20 years ago, they were imitating the market, not leading it. Then, in 2003, they decided to change that. Interestingly enough, this change started with one very good question: what is the definition of a tv?

To find out, Samsung’s designers did ethnographic research and discovered TVs are off way more than they’re on. Their conclusion? Consumers view TVs as interior decor; they want something more elegant than bulky sitting in a room. So, starting with the Bordeaux model, Samsung deprioritized clunky speakers and emphasized a stunning appearance.                           

When the full product line came out, they sold a million units in six months. They also effectively shifted the TV industry and still lead it today with over 40% market share in North America and Europe. (And all I want for Christmas this year is Samsung’s frame tv. 😍 )

While Samsung’s success with Bordeaux doesn’t 100% encapsulate a product-led approach, their emphasis on customer understanding and explosive product-centered growth echoes a modern-day product-led approach.

So, if this isn’t totally new, why is it catching on now in SaaS? To understand why it’s gaining steam in software products, let’s rewind (yes, I’m a 90s Blockbuster kid) even further and trace how we got to current times.

The 80s to now: how we (the software world) got here

Venture capital firm OpenView Partners has been one of the forefront voices around product-led growth (PLG), and they break down PLG’s history in software this way:

• The 80s & 90s: In the yesteryear of Guns N’ Roses and Nirvana, software was in the “CIO era.” The CIO was the buyer and their criteria (e.g. installation, compatibility) determined how the software grew.
• The 2000s: Next came The Killers, Paramore, and the “Exec era.” Companies stopped buying original expensive software and started renting it for a lower cost. Non-technical executives became the buyer and their criteria (e.g. great demos, ROI) drove development.
• Today: Now, as rock takes a backseat to hip-hop and Korean boy bands, we’ve moved into the “end user era.” Costs of producing software are lower than before, and there are now hundreds of thousands of software products that are both affordable and easy to access. Purchasing power has shifted away from executives and toward consumers; end-users are the decision-makers, advocates, and/or purchasers. So, they now drive development.                              

In the Executive era, the Executive’s need drove product development. Today, the customer’s needs are front-and-center.  Via https://openviewpartners.com/blog/what-is-product-led-growth/                                

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Product-led growth is about leaning into that last era (and those three tidal waves I mentioned up top). As Hiten Shah put it, “it’s about a product being the core DNA of your company, so much so that the default mode for solving problems—including growth challenges—is to figure out how to use the product to address whatever issue is at hand.” Issues such as acquisition, retention, growth, and revenue.

TL;DR: the business is the product.

Who’s already on board this way of thinking?

If this is the first time you’re hearing about PLG, it’s not the first time you’ve heard of the companies using this strategy.

Shopify (yup, the one who just partnered with TikTok), Zoom, Twilio, Slack, Hubspot, Dropbox, Cloudflare, and many others are all product-led companies. They’re doing exceptionally well, too. As of August 2020, public product-led growth companies have a 13% higher median growth rate and close to double median revenue compared to other public SaaS companies:

 If the data is any indication, a product-led growth approach works—but not just because investors and consumers think it’s nifty. Turns out, the core tenets lay a strong foundation for success in today’s world.

4 smart approaches product-led companies have in common  

As you’ve likely guessed, simply having a product, product manager, or growth strategy stamped as “customer-centric” doesn’t automagically make a company “product-led.” There’s more to it than that.

And while there’s no one mold product-led companies fits into, they do share a few distinguishers. These include collecting and acting on customer insights, delivering value ASAP, and building a sticky experience (mastering retention).

1. PLG companies collect AND act on customer insights

The only way a PLG company thrives is by providing a firehose of value to their customers. To do that well, these companies have to understand who the customer is, what they want, why they want it—and then act on this information.

Oji Udezue, VP of Product for Calendly, elaborates, “Since PLG is all about creating value for the customer, it makes sense that the first thing you need to do is talk with your customers. It’s amazing to me how many companies fail to invest time in this critical step.”

To stay in touch with their customers, Calendly uses a weekly process where they collect nearly every piece of customer input and then triage to zero. It’s time-consuming but worth it. As Calendly uncovers pain points and solves them, their proactive approach (“we hear you and we made it better”) encourages customers to keep sharing pains. It’s a great self-perpetuating cycle.

Other teams are figuring this out, too. When Fullstory surveyed product teams at over 100 SaaS companies, they found these teams are heavily investing in collecting customer insights:                               

Why? Because customer data is an actual gold mine for brands. Laura Borghesi, Senior Director of Growth Marketing for MongoDB, explains, “Data is your window into the minds of your buyers and customers. It helps you understand their needs through both explicit input (data they share directly) and implicit input (behavioral and engagement information).”

Of course, that data is only useful when it’s put to use. That’s why PLG companies like Calendly and MongoDB collect and then act on what they learn. They take key customer insights (pain points, frustrations, hopes, usage stats) and translate those into actual product improvements—removing friction and adding value.                             

In fact, this cycle of collecting, learning, and acting on customer insights is so central to PLG companies, some argue product-led growth is a misnomer; in practice, it’s more like customer-led growth.

PLG companies:

• Solve a real customer pain
• Listen to the customer instead of blaming them
• Regularly collect various forms of customer data
• Use qualitative and quantitative customer insights to answer questions like, “how do we make this better?” and “what do we build next?”
• Repeat the bullets above indefinitely

2. PLG companies make time-to-value as short as possible

Time-to-value is how long it takes your customer to go from (a) meeting your product to (b) experiencing “AHA! This is amazing.” The most successful PLG companies have a very short customer journey from point A to point B.

A primary way PLG companies do this is through a free trial or freemium plan. Wistia, for example, added the latter about seven years into business.                                 

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CEO Chris Savage reflects, “this move ended up being a phenomenal success. It delivered an exponential increase in the number of people who were willing to give our product a try now that there wasn’t a time limit on how long their video would remain on the platform. Today, the free plan continues to be a great way to get new prospects engaged with our products. “

A free trial gets the customer in the door, and then Wistia’s onboarding keeps them around. Wistia provides a stellar “welcome aboard!” experience that caters to their top 20% most valuable signups. They’ve used user interviews (asking existing customers “why did you sign up for this?”) and usage data to identify that 20%, improve the experience, and get those most valuable customers to “how do I upgrade?” quickly.

PLG companies:

• Provide value before a paywall (often via a freemium approach, though others do this through content)
• Remove friction in the signup process; purchase and onboarding are lightning-fast and incredibly easy
• Rely on self-serve approaches: customers can sign up for products and navigate them without live human assistance

3. PLG companies make the product stickier than honey

Of course, acquiring customers won’t do you a lick of good if they don’t stick around. That’s why PLG companies are also masters of retention. They have to be to survive.

Here’s why: according to research by Profitwell, the costs of getting a new customer is going up—and up, and up. In fact, customer acquisition costs for both B2B and B2C companies are nearly 60% higher than five years ago.

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This means it’s increasingly important to keep customers around. It’s just not sustainable to spend all your team’s energy and dollars on a revolving door of new customers. So, great PLG companies get customers in the door and then entice them to stick around.

Like everything else, this circles back around to knowing the customer.

For example, Typeform discovered the number of Typeforms a customer creates correlates more highly with retention than any other action. They also found customers who use their team feature and integrations don’t churn. These two insights informed campaigns, educational content, and how well Typeform documented indicators.

Onboarding emails like this one inspire a specific customer profile (presumedly a small business or startup) and include targeted ideas for the customer’s next Typeform.                                

I love the way Kristen LaFrance summarizes PLG retention: “Product-led Growth is incredibly intuitive. It’’s understanding that no amount of flashy marketing or hard selling can replace the value a customer receives from a product built to fit their needs. Make something that consistently provides value and you can rely on your customers to come back again and again.”

PLG companies:

• Deliver value again and again after onboarding
• Strip out anything (features, processes, etc) that doesn’t add value
• Integrate into the customer’s daily lives
• Equip customers to use the product to its fullest potential

4. PLG companies are masters at word-of-mouth growth and virality

If a PLG company nails the three factors above—really understanding the customer, delivering value quickly, and making a sticky product—they tend to grow rapidly. This is usually by word of mouth, virality, or both.

Word of mouth can be organic or incentivized, and it occurs when customers love a product so much they tell their friends. Ashley Smith, a venture partner at OpenView, explains, “The key to WoM [word of mouth] is simple: have a product that is so awesome people just can’t stop talking about it.” (Simple, as you probably know, rarely means easy!)

PLG companies encourage WoM with:

• A phenomenal product
• Memorable and easy-to-share names
• Easy outlets for customers to share and show value
• Low complexity (it’s easy to explain and understand the product—think FYI’s promise to “find your documents in 3 clicks or less.”)
• Built-in collaboration
• Referral incentives (e.g. Dropbox offers more storage when you share with friends)

While word of mouth relies on the customer sharing the product, virality is more built-in. This is when a product can’t be used without someone else; there’s no “single-player” option. For example, you don’t use Zoom to video call yourself—by nature, it’s only useful when there’s someone on the other line. The same is true of Calendly and Slack.                                                         

Why product-led growth companies are a good fit for us

We're leaning into the product-led growth mindset, not because it’s trending, but because it’s a sweet spot for our skills.

Starting in late 2020, we’re focusing our services on product-led design and development for a few reasons.

The three biggest ones are:

1. PLG companies are engineered for success: For all the reasons we covered above, PLG companies are built to delight customers and last as businesses.
2. Our best projects to date fit a PLG approach: Our best-fit projects and clients have all placed a strong emphasis on understanding customers, delivering a firehose of value, and building a product so good, customers can’t help but share and talk about it.
3. Our core skill set is design, development, AND product: Last but not least, our team’s skillset suits PLG products and companies. We have deep experience in design, development, and product; that’s a potent combination for any company looking to put product front and center.

With our partnership (and a lot of stellar work on their end), clients have seen results like a 62% increase in daily active users, $2M in funding, and quick acquisition.

Check out more work and results at krit.com/work                                                           

So, if you’re looking to build or move a product into a leading role at your company, why not set up a free strategy session with Andrew, our CEO? Worst case: you get some free input. 😊