Many early-stage PLG companies try to launch faster and monetize as soon as possible. But, the path to success lies in taking it slowly and focusing on acquisition through engagement.
Therefore, every business should aim for quality rather than quantity and bring value to each customer regardless of whether they use freemium or paid services.
In this episode of Product-Led Revenue, our host Breezy Beaumont chats with Rajan Sheth, Partner at Hypergrowth, former VP of Growth and Self-Service Business at JumpCloud, and Ex-Head of Growth, GTM, and Marketing at Heroku.
Rajan and Breezy discuss acquisition strategies, data, and pricing in the PLG space.
💡 Name: Rajan Sheth
💡 What they do: Rajan is a Partner at Hypergrowth & Ex-Head of Growth at Heroku.
💡 Company: Hypergrowth
💡 Noteworthy: Heroku was acquired by Salesforce for $212 million in 2010
💡 Where to find Rajan: LinkedIn
⚡Time to value is critical for PLG companies
Companies evaluate their success using different metrics. For instance, a PLG company relies on "time to value" — the time it takes for a customer purchasing a product to experience its value. However, it all revolves around acquisition and how organizations approach and evaluate it. ''Before I joined, we were measuring acquisition by sign-ups, and sign-ups are worthless if they don't do anything. The number one metric that we changed was quality sign-ups, which means that they need to activate or have that meaningful ‘aha’ moment within the first seven days. And that was the metric we moved towards.''
⚡ Focus on data
Regardless of the industry, companies aspiring to grow must rely on data. Also, the choice of tech stack and tools can make many processes straightforward and help companies streamline operations. Here's how the team at Heroku approaches data. ''We pipe a lot of our product usage data from the usage activities into our data warehouse. We also did the same thing with our marketing data and put them into a data warehouse. We did the same thing for our billing data, and the sales data from our Salesforce instance and the data warehouse was our single source of truth.''
⚡ We must bring value to customers
Early-stage PLG companies should focus on acquisition through engagement rather than monetizing their work instantly. You need a solid customer base to grow, and people will come and stay if they see the value. ''As a high growth company, we continuously improve on the product offering. We have continuously introduced new features and products for the customers to use in different use cases. But existing customers don’t always understand how they can leverage it and when they should be using it. The gap is solved by using the data, getting in front of the existing customers, and being very targeted and specific."
💜 Running Growth at Heroku
"Heroku is a cloud platform that lets companies build from an idea to an application within minutes. [...] When I joined Heroku, we were at around 15 million ARR; we were a PLG-first company. So most of our usage, as well as the acquisition, came from developers, word-of-mouth in development communities, and 90 to 100% of our ARR was cell service at that point. And the initial goal, when I joined six years ago, was — how do we get the right developers who would eventually pay for the platform?
We saw a lot of hobbyists, students, and individual developers building personal applications signing up for Heroku. And as a company, we want to cater to these because they will eventually join a company and take Heroku with them. But, we also wanted to have a dedicated, singular focus on how we elevate the messaging and positioning of Heroku and go after developers in a team-based environment, SMB mid-market, and eventually scale to the enterprise."
💜 Building an Acquisition Strategy
''There are a few aspects. One is a singular focus on the ICP. We need to know the customers who are going to pay and if there is a product-market fit. Naturally, for Heroku, there is a product-market fit for developers.
The first thing that we did was to identify the customers who are paying us. Who are these customers? It was natural that 95% of our ARR came from that single segment of developers in SMB mid-market, who were focused on using Heroku in a team-based environment.
So the number one thing was — where do we find these developers? And we did a gamut of things on the acquisition side. We partnered with several developer platforms. We went to several developer events.
But one of them that turned out well for us was our focus on SEO. [...] Some of the other strategic bets that we made were more around partnering with incubators, accelerators, [...] as well as running acquisition programs on the paid side with a singular focus on getting those professional team-based developers onto the platform and using it.''
💜 Different Meanings and Use of PQLs
''PQL for us meant many different things. Back in the day, we called them high-value actions. For example, we had a high-value action or a PQL defined at the point of sign up — identifying, based on the intent data, who they are and what they want to do.
At the same time, we had high-value actions or PQL across the customer journey. [...] Then, we had defined some usage activities along the journey — even if they are free — and how fast they are using the breadth and the depth of the platform, and then, for us, it was also the monetization part."
💜 Upsell and Expansion: Challenges and Opportunities
"For the growth team, we had two opportunities. One is how do we identify the self-service customers and put them in front of others online or the technical sales team so that they can help grow them. And then, identify the right opportunities to expand the sales service customer and move them into an enterprise plan based on who they are and what their need is. So those are two different motions. And for us, identifying those upsell signals was a multi-dimensional approach.
[...] We also have multiple product lines, and we offer multiple features. All of them generate additional revenue for our users. Once they start using one feature or platform, we help them grow and scale on that, based on the usage, but then you also identify opportunities based on data.''
💜 Ways to Approach Data
"We use a multiple-dimensional approach. One was — identifying the intent and the technographic, firmographic as well as the demographic information of our users. [...] Then, we also added behavioral data.
Not every user is ready to purchase from you, especially in the PLG world, on day one. They want to evaluate and test. They want to see if this is something they would want to use in the long term."
💜 A Piece of Advice for Early-Stage PLG Companies
''If you are starting product-led growth and if you are in an early stage, the key focus there should be getting quality acquisitions that also activate and come back. So think of it as if you're measuring sign-ups plus activation plus return rate. If you find that, then you would have a really good base of users who would be using your platform, and then you'll be able to monetize in the future.''
[16:54] ''For all the PLG experts out there, it is a very different tech stack than you have for your B2B sales-led motion, where a marketing automation platform and a CRM are fine. The stakes are at a whole different level here, and there's a huge effort involved from many different teams versus just one team.''
[23:14] ''Our goal was not to sell; our goal was to add value to their existing work and how to make that job easier. And I think that was the main focus for us. So, for us, it was not, 'Hey, buy this or buy that. Try this because you're using this. You may also want to try using that.' And if they find value in it, they would buy from us.''
[32:06] ''Pricing for us was more flexible and consumption-based on the self-service side. And on the enterprise side, we still managed to estimate the consumption that the users would have in the one-year contract that they would sign.''
[37:39] ''I always say that for early-stage companies, don't focus on monetization only. If you are starting PLG, focus on the engagement and if the users are sticky and would pay you. If you're just focused on monetization, you would piss off a lot of the users.''