The Future Belongs to Product-Led Growth

We are currently experiencing a significant transformation in how software is utilized and purchased. 

This shift began more than ten years ago when Salesforce introduced cloud-based software, and in 2009, Apple revolutionized the industry by placing digital experiences in people’s hands with the first iPhone. 

Since then, the market has become saturated with a multitude of consumer and B2B products that claim to fulfill almost any requirement imaginable. What used to be considered extraordinary product experiences are now the norm and no longer generate the same level of excitement they once did.

This ongoing shift is more significant than any previous ones, as it encompasses changes in both consumer demand and market supply. Referred to as “consumerization,” the movement towards user-friendly experiences in B2B SaaS products is being propelled by tech-savvy users who now seek software that is visually appealing, intuitive, powerful, and cost-effective compared to their previous tools.

Buyers now prefer self-education, as highlighted by a 2022 study from B2B marketing agency Considered Content, which revealed that over half (53%) of buyers would make purchases without interacting with sales personnel. 

Personalization has become an expectation, with 80% of individuals more likely to engage with a company that offers personalized experiences. A 2020 Adobe study further showed that 89% of marketers witness positive returns on investment when employing personalization in their campaigns. 

Furthermore, people now seek instant gratification and abandon products that fail to provide it. For example, 21% of mobile app users open an app only once before altogether abandoning it, and by the 90-day mark, 71% of users will have churned.

The market is adapting and striving to meet consumer expectations in response to these changing demands. Starting a company has become more accessible, leading to increased competition. 

Moreover, recent economic conditions have accelerated software turnover, as indicated by a 2023 report from RevOps titled “The Impact of an Economic Downturn on the SaaS Industry,” which revealed that 67% of survey respondents experienced budget cuts for their software during the year.

What implications does this have for the future of products?

The truth is, delivering an exceptional customer experience has always been crucial for success. In the past, this experience was primarily owned by the sales department. 

When you wanted to purchase a new product, you would engage with a salesperson who, if you were fortunate, would be knowledgeable and understanding, guiding you toward the best product for your specific needs. 

With the advent of the internet, early digital marketers gained the ability to measure results and take ownership of growth metrics like engagement and acquisition.

However, people no longer want to rely on interactions with salespeople or be inundated with marketing campaigns that distract them from actually experiencing the product they intend to purchase. To stay competitive in the market and stay ahead of the curve, businesses must revamp their marketing, sales, and service strategies and fundamentally reassess the roles of their customer-facing teams.

Sales-led and marketing-led growth eras have had their time in the spotlight. The future lies in product-led growth, where the product itself takes center stage in driving customer acquisition and retention and overall business growth.

What is product-led growth?

Product-led growth (PLG) is a strategic approach in which the product drives user acquisition, expansion, conversion, and retention within a business. This methodology fosters alignment across various teams, including engineering, sales, and marketing, by recognizing the product as the primary catalyst for achieving sustainable and scalable business growth. 

By prioritizing the product’s value and user experience, companies can create a cohesive framework that leverages the product’s inherent strengths to propel the entire organization forward.

Let’s clarify something upfront: Product-led growth should not be confused with PM-led growth. PLG emphasizes leveraging the collective contributions of your entire company to develop superior and more engaging products. It is not about establishing an autocratic approach.

Does this result in more challenging and intricate discussions? Yes, it does. However, do these difficult and complex discussions ultimately lead to better, more innovative business decisions? Absolutely.

The alternative approach would be to rely solely on scaling through hiring. However, doing so will likely result in slow progress, an inability to respond quickly enough to secure victories, organizational bloat in an attempt to meet customer expectations with a human workforce, and higher costs paired with lower profit margins.

If you are not actively contemplating how to minimize friction in every customer interaction, maximize product adoption, and foster customer loyalty and advocacy, it’s crucial to be extremely concerned about your product-led competitors.

Becoming product-led is not a sudden transformation that companies achieve overnight. It is a gradual process and voyage that demands a change in mindset both at the individual and organizational levels. It necessitates investing time, effort, and unwavering dedication. 

However, the success stories of the companies mentioned below vividly demonstrate that, when approached correctly, the rewards can be truly remarkable.

Examples of product-led companies

Let’s begin with an intriguing tale of an unexpected protagonist.

Back in 2011, amidst a crowded and well-funded industry, a new company emerged. Their competitors included industry giants such as Cisco, Microsoft, Adobe, Citrix, and Polycom. It seemed far-fetched to imagine that this company would secure any significant market share.

However, by 2013, their service had garnered 3 million users. The number skyrocketed to 30 million in 2014 and reached an impressive 100 million users in 2015. Fast forward to 2019, and the company went public with a staggering market capitalization of $15.9 billion. By 2022, they had amassed over $1.37 billion in profits and boasted a user base of 300 million.

The company we’re referring to, of course, is Zoom. Zoom’s triumph can be attributed to various factors, but it serves as a prime example of a well-executed product-led strategy.

CEO Eric Yuan, who had previously worked at Cisco through the Webex acquisition, built Zoom out of his own frustration with the inefficiencies of existing video conferencing services. 

The product proved to be highly effective, and its appeal was further amplified by a seamless entry point (free to use for calls up to 40 minutes), advanced features and controls available through paid subscriptions, and integrations with popular software like Slack.

Naturally, not every product-led company achieves success. There’s no magical solution, and anyone should be cautious of claiming otherwise.

However, many of the most prosperous and admired companies today follow a product-led approach. If you peruse the following lists, you’ll recognize some of the best-funded, fastest-growing, and most captivating products in the market. These exemplify the practical implementation of product-led growth.

Here are notable examples of product-led companies in the B2B and B2C sectors:

Product-led B2B companies:

• Airtable: Airtable achieved $142 million in revenue in 2022 and introduced Airtable Universe, a platform that expands the range of use cases, typically handled by customer success teams.
• Slack: With 77% of Fortune 100 companies as paying customers, Slack stands out due to its company-wide devotion to delivering an excellent user experience, garnering strong advocacy.
• Figma: Adobe acquired Figma for $20 billion in 2022, recognizing its product-led approach in addressing pain points for designers, such as project organization, file management, and real-time collaboration.

Product-led B2C companies:

• Pinterest: Known for its curated feed, personalized user onboarding, and inherent virality, Pinterest exemplifies product-led growth. It went public in 2019 with a valuation of $12.7 billion.
• Typeform: Typeform gained popularity by launching as a free beta in 2013. Its conversational approach to data collection and user-friendly form builder helped it go viral. In 2022, they closed a $135 million Series C funding round.
• Warby Parker: As a digital-first eyewear retailer, Warby Parker’s omnichannel consumer experience and free Home Try-On program (a type of free trial) contributed to its successful IPO in late 2021, valuing the company at $4.5 billion.

The list goes on, including successful companies like Twilio, Expensify, Atlassian, InVision, Zapier, Hootsuite, Buffer, among others. These companies have achieved rapid and scalable growth by prioritizing their products since their inception. Some companies, like HubSpot, have successfully transitioned from a sales-led to a product-led approach.

In particular, these companies adopt a bottom-up strategy by offering consumer-grade products through freemium models or free trials. Their marketing efforts primarily focus on encouraging users to try the products themselves rather than pushing them towards sales representatives. 

Once users engage with the product, these companies provide thoughtful user onboarding experiences and ongoing in-app messaging, effectively integrating sales, customer success, and marketing communications within the product itself.

Product-led growth as a go-to-market strategy

Product-led growth transforms your company’s go-to-market strategy by placing your product as the driving force. Like other go-to-market approaches, product-led growth requires a comprehensive action plan involving sales, marketing, customer success, engineering, and product teams, all contributing to growth and measuring success.

Effective go-to-market strategies address key questions such as:

• Who is buying your product?

In a product-led approach, the focus is on selling to users rather than buyers.

• Where will they find out about your product?

Product-led growth relies on virality and word-of-mouth referrals instead of traditional promotional tactics. Satisfied users become advocates and share the product with their peers and colleagues.

• Why are they buying your product?

To succeed in a product-led approach, your product must be more trustworthy, deliver greater value, and offer a superior user experience compared to your competitors.

• How are they buying your product?

In a product-led strategy, users should transition into buyers within the product itself or after experiencing the product firsthand rather than through interactions with sales representatives.

Product-led SaaS companies often adopt a freemium or free trial revenue model, allowing users to experience the product without the need for sales or marketing intermediaries. 

OpenView describes this as a product-led experience where the value the user receives leads the way, and pricing scales as usage increases and more value is delivered.

Implementing this strategy widens the top of your sales funnel or flywheel, exposing a larger number of potential customers at an earlier stage in their journey. However, it also necessitates having a valuable product that effectively demonstrates its worth within a short timeframe to convert users into paying customers.

In a freemium or free trial model, the focus is on selling to users rather than buyers who may be higher up in an organization or part of a procurement team detached from the product’s actual workflows that optimize efficiency. Product-led growth adopts a bottom-up approach that directly addresses the needs of end users.

Freemium and free trial revenue models can take various forms. Free trials typically offer the full product experience for a limited period, such as 14 or 30 days. On the other hand, freemium allows users to continue using the product indefinitely but with certain limitations or restrictions.

The three primary types of freemium models are:

• Reduced features: Additional features or functionalities require upgrading to a paid plan (e.g., Slack).
• Reduced capacity or usage: Usage is limited by storage capacity, data quotas, etc. (e.g., Dropbox).
• Reduced support: Access to support documentation or customer service is tiered (e.g., Heap Analytics).

Many companies combine elements from these three models. For instance, Heap Analytics offers reduced bandwidth and support in their freemium plan.

Regardless of the specific structure of your free trial or freemium plan, the goal remains the same: to onboard users into your product as quickly as possible and allow them to experience its value firsthand.

Becoming product-led

Becoming a product-led company is not a simple choice between two options. Many successful companies that are driven by product-led growth (PLG) actually adopt a hybrid approach, combining a PLG motion for general operations with a sales-led approach for enterprise-level engagements.

Every aspect of your business can be approached more product-led, including customer engagement and team enablement. However, each company’s journey to becoming product-led is unique and can be lengthy and complex.

So, once you decide to embrace a product-led approach, how do you actually transition your company into a product-led organization?

Two crucial transformations must occur one in your product and another in your organization.

First and foremost, your product needs to be exceptional and deliver on its promised value. You’re correct if you’ve drawn parallels between product-led and design-led thinking. The empathy and innovation inherent in design-led approaches are essential for product-led growth.

Having a well-designed product is a prerequisite for PLG. Being well-designed doesn’t just mean visually appealing; it means creating a lightweight and intuitive product with minimal friction, sticky features, and a short time to value.

To build a truly engaging product experience that demonstrates its value, you must deeply understand your users’ journey and the problems they are trying to solve. Your entire product should make it easier for users to address their pain points, which entails removing obstacles, offering user-centric onboarding, and providing contextual in-app communications such as feature announcements and upsell prompts.

Successful product-led companies also leverage user data to iterate on their product, provide personalized experiences, and identify bottlenecks in the user journey. To gather this data, you can employ tools like Fullstory, Mixpanel, or Heap, alongside qualitative feedback from your customer-facing teams.

Product-led growth necessitates sophisticated and personalized product experiences that empower users to improve themselves. This goes beyond superficial product tours and requires designing products that, through a combination of user journey mapping, testing, and intelligent data implementation, understand each unique user’s goals and adapt the experience accordingly. 

Your product should effectively serve as support, customer success, sales, and marketing, all in one.

The good news is that products and product teams are becoming more intelligent. We now have the technology to develop software that can respond to users’ wants and needs in real-time. Furthermore, the availability of data storage at a lower cost makes this a widespread reality.

The second, and more challenging, transformation takes place within your organization. Product-led organizations operate quickly, prioritizing users’ needs and desires and fostering a culture of collecting and leveraging contextual feedback. 

Additionally, becoming a product-led company requires alignment across departments, as PLG is a comprehensive methodology that extends throughout the entire organization.

Cross-functional teams are necessary for product-led growth and offer numerous benefits. Breaking down silos is a crucial step on the path to PLG and improves communication and coordination within your teams, leading to more informed and aligned decision-making across your business.

Product-led growth may seem daunting to those accustomed to traditional sales, marketing, and customer service approaches. While adopting a PLG strategy will change the expectations for roles like sales and support, it doesn’t mean completely discarding your customer-facing teams. 

Instead, it involves scaling these functions through your product, which reduces the burden on your staff and allows them to focus their time, energy, and creativity on high-value strategic work.

Product-led growth metrics

Establishing a shared language and reporting system within your team is vital for fostering internal alignment. To achieve this, it is crucial to select the appropriate success metrics and align your teams around them. 

These metrics should not exist in isolation; instead, they should be reported on and influenced by cross-functional teams. These teams can leverage the data to make well-informed decisions and implement coordinated changes across your entire business.

Now, how do you measure success in a product-led growth model? What are the key metrics for PLG?

It’s highly likely that your team is already tracking several metrics that are relevant to product-led growth. Many of the essential SaaS metrics also hold significance in the context of PLG, although their relative importance and usage may vary compared to other business methodologies.

One crucial metric in a product-led approach is the short time to value (TTV). This refers to the duration it takes for new users to reach their first “aha” moment or activation event. A seamless user onboarding experience should aim to minimize TTV, enabling new users to recognize the value of your product as quickly as possible.

Here are the metrics that are crucial for measuring success in a product-led growth model:

• Acquisition: This metric quantifies the number of users who sign up for your free trial or freemium plan, indicating the initial interest and engagement with your product.

• Activation: Activation rate measures the percentage of users who have achieved value or reached a significant milestone out of the total acquired users. It shows how effectively users are onboarded and how quickly they experience the value your product offers.
• Revenue: Revenue can be assessed through various metrics such as average contract value (ACV), monthly recurring revenue (MRR), average revenue per user (ARPU), and others. These metrics help evaluate the financial impact and sustainability of your product-led growth strategy.
• Retention: Retention measures the number of users who continue using or paying for your product over a specific period, typically month over month. It indicates the ability of your product to retain and engage users, highlighting the strength of your customer base.
• Referral: Referral metrics gauge the percentage of current users who successfully bring in new users to your product. It demonstrates the level of satisfaction and advocacy among your existing user base and the potential for organic growth through word-of-mouth.

These metrics collectively provide insights into the effectiveness of your product-led growth strategy, user engagement, revenue generation, customer retention, and organic user acquisition.

Here are additional SaaS metrics that are valuable for measuring product-led growth:

• Expansion Revenue: This metric captures the revenue generated from existing customers through upsells, add-ons, cross-sells, and other expansion strategies. It is a critical lever for SaaS growth and should not be overlooked in favor of new customer acquisition. ProfitWell recommends that at least 30% of your revenue should come from expansion.
• Average Revenue per User (ARPU): Calculated by dividing total Monthly Recurring Revenue (MRR) by the number of customers, ARPU is often considered a vanity metric. However, it can provide valuable insights into the overall health of your business and serve as an indicator of revenue potential.
• Customer Lifetime Value (CLV): CLV predicts the total revenue your business is expected to generate from a single customer over the duration of the relationship. It helps identify high-value customer segments and provides insights into reasonable acquisition and retention costs.
• Product-Qualified Leads (PQLs): PQLs replace Marketing-Qualified Leads (MQLs) and represent leads who have already experienced value from your product through a free trial or freemium account. These activated users have had their “aha” moment and recognized your product’s value firsthand.
• Net Churn: While customer churn is essential, revenue churn is a more valuable metric for SaaS growth. Net churn, in particular, provides a clearer picture of your current customer base by accounting for expansion or upsell revenue alongside lost revenue.
• Virality and Network Effect: Virality refers to a product’s adoption rate increasing with each additional user, resulting in rapid growth up to a certain point. A product with a network effect becomes more valuable for users as more people join, as seen in 2-sided marketplaces like Airbnb or social platforms like Facebook. While these terms are sometimes used interchangeably, they represent distinct concepts that often occur together.

These additional metrics help provide a comprehensive understanding of your product-led growth, encompassing expansion revenue, customer value, lead qualification, customer retention, and the impact of virality and network effects.

The benefits of product-led growth

PLG is far from a “set it and forget it” strategy. Transitioning to product-led growth from a sales-led or marketing-led approach requires extensive alignment, dedication, and, initially, increased effort from every individual in your company. This business methodology disrupts the traditional way of doing things.

Now, why should any company invest in product-led growth? One word: money. OpenView describes product-led growth as a capital-efficient model that enables companies to scale rapidly. 

By making the product the driving force behind acquisition, engagement, retention, and expansion, companies can reallocate or save significant sums that would typically be spent on scaling sales, marketing, and service efforts. This, in turn, leads to higher revenue per employee, indicating improved financial productivity.

Product-led companies take a bottom-up, lower-touch approach to acquiring new customers. By offering a freemium model or free trials, they open up the flywheel and rely on the product itself to handle a substantial portion of sales, marketing, and customer service tasks. 

This approach reduces customer acquisition costs (CAC) and shortens sales cycles. Additionally, the smaller deal sizes associated with PLG lead to greater revenue diversity and minimize the impact of losing individual accounts.

Beyond financial gains, a product designed for a product-led approach tends to be superior in terms of usability, intuitiveness, and user-friendliness. While building a consumer-grade product may require more thought, empathy, and resources, the result is a product that users genuinely enjoy. This translates to happier customers, higher customer satisfaction and Net Promoter Scores (NPS), longer lifetimes, increased customer lifetime value (LTV), and more viral growth.

The power of product-led growth lies in its foundation: the product itself. However, what amplifies its impact is the sustained momentum and exponential growth generated by increased inbound interest and word-of-mouth promotion resulting from a well-designed product.

Investors are well aware of these advantages. OpenView’s analysis of 2022 SaaS IPOs revealed that PLG companies are more than twice as likely to experience rapid growth (100%+ year-over-year revenue growth) compared to sales-led companies, especially those offering a freemium product. Furthermore, PLG companies tend to outperform their peers post-IPO.

Undoubtedly, one of the most significant advantages of embracing a product-led growth methodology is the enhanced alignment within your team. When aligned, teams can work together swiftly and effectively to accomplish their goals and objectives.

Product-led growth paves the way for the future.