Product-led growth is a business methodology. In this paradigm new user acquisition, expansion, conversion, and retention are all driven primarily by the product itself. This means that the optimisation of a company’s resources and structures centres around the product as the best source of product adoption for sustainable and scalable growth. It has become an increasingly key part of product adoption strategy for SaaS in recent years. In this article we explore why it had become important as well as some features of companies that take on product led growth.
Why Product Led Growth
In the last decade we have seen a significant shift in the way people and enterprises think of and use software, a shift that has been the catalyst for the 145-billion-dollar Software as a Service (SaaS) Market. This revolution has not just been the shifting of a business model to cloud based software subscription but has also seen a transition towards a more refined user experience for enterprise B2B SaaS.
It comes as no surprise that UX is important to users. However, the rise of a plethora of options and ease of switching in recent years means that competition has substantially increased. Tech-savvy users are no longer willing to tolerate backward UX that seemed to be a common feature of legacy systems and are happy to look elsewhere.
It is in this context that product led growth has become increasingly important as a paradigm for establishing your SaaS solution. People are no longer happy just to engage with marketing and sales but instead purchase and renewal decisions are increasingly being driven by product experiences.
Features of Product Led Growth
Product led company operate with the product as the focal point for their efforts across all business units. This has led to some aspects of business methodology that differs from traditional businesses.
User First Rather Than Customer First
In product led companies, the central concept is that nothing can sell your product better than experiencing first-hand the product itself. This translates to the entire experience of a customer from being a prospect all the way to becoming a product adoptor being optimised along these lines.
Bottom-Up Freemium Approach
One of the ways we see this user first approach being expressed is via the use of a freemium model of business. A free version of the software is offered to prospects with the goal of letting them experience the product first hand and discover the value it offers for themselves.
There are different ways that companies offer a freemium product such as:
1. Reduced Features
a. Hubspot limits the features made available to users such as Linkedin Integration.
2. Reduced Capacity or Usage
a. Dropbox varies the total allowed storage limit based on different plans.
b. Zendesk limits the number of licenses that can be used.
3. Reduced Support
a. Heap Analytics limits access to support documents and customer support hours.
In reality freemium products usually limit a combination of all of these for their freemium customers.
In order to get users started, companies often adopt a scalable means of training via a number of different onboarding techniques that sit in contrast to traditional instructor led training. These include:
1. Automated In-application Onboarding/Walkthroughs
2. On-Demand Learning Resources (Video + Articles)
3. User Forums
Purchase without a Sales Rep
The purchase experience is often semi-automated allowing for a purchase without engagement with a sales rep if desired. More technically savvy users can come onboard without ever engaging with sales.
UX Analytics Drive Decision Making
Product led companies are focused on building engaging experiences based on a deep understanding of their user journeys, needs and problems. Apart from adopting methodologies such as Agile as opposed to Waterfall, UX analytics is also more important particularly for decision making.
Traditional organisations often focus on sales data for company decision making. In Product led companies, the increase in emphasis on UX means that UX Analytics can often be equally important if not more important in shaping strategy and decision making. Some examples are metrics like:
1. Time To Activation
a. For an individual user, how long does it take for them to reach an activation event. An activation event is an event where the user is able to derive value from the software and is determined via usage of the software (E.g. logging in, creating & deploying their 1st walkthrough).
2. Time To Value
a. For the customer (I.e. organisation), how long does it take for them to start seeing a return on their investment/start seeing value (E.g. If customer brings us on for the purpose of reducing support inquiries, how long does it take to see a reduction in support inquiries).
Ultimately product companies are addressing not just the question of does this product address the user’s needs but also the question of how well and/or smoothly it addresses user’s needs. Where the product is performing unsatisfactorily in terms of how well and/or smoothly it is performing, the company is more likely to take the time and effort to quickly resolve this first rather than focusing on sales or marketing efforts to drive sales.
Impact of product led growth
Product-led growth begins with the product but it doesn’t end there. Product led growth is a means to a slew of advantages such as happier users, less spent on sales efforts, reduced marketing expenditure and more. In totality, this generally translates to more revenue per employee.
Product Led Growth is also important in helping companies maintain their momentum for growing. Happier customers translate to less churn and a higher number of referrals thus creating a engine for growth. Momentum is driven not just through the company’s own efforts but organic inbound interest and word-of-mouth promotion.
This impact is one that has been noticed by investors as well.: In their analysis of 2018 SaaS IPOs, OpenView found that “PLG companies perform better than their non-PLG peers in the SaaS index” and that “[p]roduct-led businesses are valued more than 30% higher than the public-market SaaS Index Fund.”
Product led growth is already a new paradigm of business operation and it will continue to remain important especially in the world SaaS. The opportunities for sustained growth and better returns means that it is an attractive proposition and one that has already shown that it can work in practice. Switching to product led growth is not easy and often involves a rethink of company structure, organisational roles and responsibilities as well as implementing new tools to support operations. However, the rewards are surely attractive and will continue to attract companies for good reason.
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