What is Product-Led Growth?
The simplest definition of product-led growth (PLG) is a software product that allows an end user to start using the product without any restrictions. Some examples of products many of us use everyday that employ a PLG model are Slack, Zoom, Calendly, Dropbox and Expensify.
By allowing users to sign up and start using great products without any friction, these companies enable end users to get value from their products immediately. This puts the power of buying software in the hands of end users.
So why is PLG an effective business model? Before we dive into the benefits, let’s first look back at how software was traditionally bought and sold.
How enterprise software used to be sold
Historically, if you wanted to use software at work, you had to spend weeks, months, and sometimes even longer going through a purchase process that was centrally managed by a business function and usually the IT department.
Before you could use web conferencing software, deploy an email server, share files, or do expenses, you needed to talk to a salesperson, see a demo, go through procurement, and any number of additional steps.
Control over this process was often in the hands of the central buyer (IT or the business executive running sales, marketing, HR etc) and the sales team of the vendor. The vendor could decide how to provide access to a demo or trial, controlled pricing, access to features, and had any number of other levers at their disposal during the negotiation period.
The rise of PLG
The traditional motion of buying and selling software has been upended with the advent of product-led growth. Now individual end users are able to easily adopt software that solves their problems without needing to talk to a salesperson or involve their central IT department. Let’s walk through a few of the key benefits, and new challenges, this model unlocks.
Benefits of PLG
- The Product Sells Itself... to an extent. One of the core business model benefits of PLG is that great products often have natural virality that leads to organic expansion. Individual users invite their teammates, they want to access more features and integrations, and the natural expansion and adoption happens. Many of these events can be monetized automatically, meaning users pay and upgrade themselves, though it often is helpful and provides a better experience when companies involve the sales and CS teams.
- Lower Cost to acquire a Customer (CAC). Because of the virality that the best PLG products often have, the cost to acquire customers is lower and their lifetime value (LTV) is higher than traditional software products. (read: investors will be sending Valentines)
- The Power of Land and Expand. Related to the prior two bullets, but worth mentioning on its own, is the power to land customers at a low amount of revenue and expand them over time. This leads to a >100% Net Dollar Retention (NDR) metric that many of the best PLG SaaS companies like Snowflake (158% NDR), Twilio (139%) and Datadog (130%) have.
Challenges of PLG for Sales and Customer Success
- Which Customers are Ready to Convert or Expand? While it’s true that product-led growth companies see a lot of organic conversion and expansion, every PLG company also has a sales and CS team. Those teams often find it challenging to determine which customers are ready to convert from organic/self-service to sales-led and which are ready to expand to new features or a higher tier plan. Sometimes this is solves by using a PLG CRM. (*cough* *cough* This is something we help with at Correlated so if you’re having this problem, reach out!)
- Who Should We Speak With? At scaling PLG companies with thousands of customers and sometimes hundreds of thousands or even millions of users, it can be extremely challenging to know which users to speak with in a Sales or Customer Success context. Finding your champion is often the best way to expand and upsell within an organization.
- Alignment Across Business Teams Product, marketing, sales, and customer success teams all play a crucial role in successfully launching and maintaining a product-led growth strategy. Because of this, one of the biggest challenges at any PLG company is making sure each respective business team is aligned on which metrics are most important for the company, and each team’s role in achieving those goals.
Where is PLG going?
It seems clear that the genie can’t be put back in the bottle. The business and dev tools of today need to be immediately accessible to end users. The success of large PLG software companies that have IPO’d in the last two years like Zoom, Slack, Datadog and MongoDB is a testament to the effectiveness of the business model. In fact, according to OpenView, all of the top IPOs in 2019 were PLG companies.
The challenge going forward is how do these companies continue to effectively scale as they grow? What is the role of Sales and CS teams at PLG companies to fuel that growth? At Correlated, we’re excited to have a front-row seat and we can’t wait to show you what we find!
Talk to our team
If you’d like to learn more about how we’re helping companies be more proactive in expansion and upsell conversations using Slack, reach out and let us know!