More and more companies are adopting a product-led (PLG) approach to their go-to-market strategy, and with good reason. The case for PLG as an effective and efficient way to grow a business has been building for a few years now, and then—when the pandemic hit—a lot of companies found themselves having to lean into PLG because they didn’t have any other choice.
Over the past few years, and the last year-and-a-half in particular, we’ve learned that PLG companies are generally much better equipped to land on their feet after an unexpected market shift. It seems that PLG gives organizations a more stable foundation from which to weather any storm. Realizing this, even companies that were already committed to PLG pre-Covid have doubled down by enhancing their offers: Shopify extended their free trial from 14 to 90 days, GitHub—which has always been free for individual users—launched a free product for teams, and Atlassian made almost every product in their portfolio free for up to 10 users.
PLG is clearly a force, but what is it exactly? And how do you prepare for a successful and strategic PLG launch?
I had the pleasure of speaking with Kyle Poyar, VP of Growth at OpenView and a leading authority on PLG. At OpenView, a Boston-based expansion stage software VC firm, Kyle works with a lot of up-and-coming companies on everything from PLG and pricing strategies to research and go-to-market initiatives.
Kyle shared some great insight into what it means to be a PLG company, how to make it work well, and what kinds of results companies can expect if they commit to the strategy.
The Definition of PLG
OpenView coined the term “product-led growth” back in 2016. It’s an intentionally broad term that serves as an umbrella over a collection of terms that were common back in the day: freemium, B2C2B, consumerization, viral loops, growth hacking, and so on. The intent was to create an overarching term under which to craft new frameworks and best practices while also building out a community for next generation companies.
Kyle defines PLG as, “an end-user focused growth model in which the product is front-and-center in how you acquire, convert, and expand your customers.” He’s quick to clarify that there are still roles for marketing and sales within PLG, “PLG doesn’t mean that product management leads everything, it just means that the focus is on finding ways to get the product into the user’s hands (so they can try before they buy), helping users be successful in a self-service manner, and eventually bringing people in to accelerate the flywheel.”
The results of a successful PLG strategy are the things every company wants: a better customer experience and efficient revenue/growth acceleration.
The Role of Research in a PLG Strategy
One of the areas Kyle works in is end user-based research. I asked him about how he uses research to uncover the kinds of feedback he needs to inform and refine a strong PLG strategy. He shared a few specific insights about various stages of the research process.
⏰ Capturing The First 30 to 45 Minutes
“Once you have a way for the end user to just jump in and start using your product, the next step is really honing in on their first 30 to 45 minutes with the product,” Kyle says. To do this, his team often recruits people in the target market so they can observe them working with the product, and also ask them questions as they make their way through the experience.
Some of the questions they might ask include things like whether the value proposition is clear, what task the user thinks the product will help them accomplish, whether the sign-up process is confusing, and so forth. The point is to uncover opportunities to make the product more and more intuitive. “The aim is to create an experience that encourages users to activate by quickly getting them to the point where they’ve seen the product value, and they are doing the things that ultimately correspond with the business outcomes you want to see—typically that they convert when they remain a user.”
🌳 Scaling Research
In addition to qualitative research methods, it’s important to also implement more scalable ways of collecting feedback. This makes sense given that a PLG company typically has 10 or 100 times the number of users that you might expect from a product that’s sold via a traditional, sales-led approach. For this kind of research, Kyle and his team use a wide range of products including, UserLeap, Amplitude, Mixpanel, Pendo, FullStory, and HotJar as well as in-app analytics.
🕵️ Developing Your Ideas List
The goal of all this varied research is to collect cross-functional feedback that touches on a wide variety of possible growth levers. For example, you might get feedback about whether your messaging and positioning is doing a good job of speaking to users’ real-world pain points. You might learn that there’s an opportunity to change in-app copy to better showcase the value of integration or some other key step. And you might uncover issues that require engineering solutions to adjust the experience. Each of these issues and possible solutions represents an idea to consider.
📈 Prioritizing Your Growth Objectives
“Once we’ve developed a long list of all the different ideas that came out of the interviews and other research, we start to look at how we might adjust things,” Kyle says. “And then, we start to map them against the potential impact and how hard each idea will be to implement.”
Kyle likes the Intercom RICE framework—reach, impact, confidence, and effort—as a way to assess and prioritize potential ideas. He also considers which function would own the idea if they were to move forward. Would the effort be driven by product marketing, brand marketing, product management with an engineering team, or customer success? Who owns an initiative can make a difference on how feasible it is at any given time.
Ultimately, the goal is to narrow the list down to a selection of quick wins that you can implement immediately and bigger changes that may require additional validation (and will definitely require more resources). This gives you a clear path to prioritize each idea and slot each growth objective into the roadmap appropriately.
How PLG Makes a Difference
One of the reasons PLG is so appealing is that you can see real impacts to revenue pretty quickly. Part of what makes this possible is the way small optimizations can have an exponential impact on the overall KPIs.
Kyle summarizes the PLG customer journey in a few steps:
- Customer arrives at website
- Customer signs up and starts using the product
- Customer activates (usually by completing a sign up and performing an initial task)
- Customer experiences product value
From there, the next step is conversion, and beyond conversion you can start to look at what percentage of converted users went on to expand versus churn. Throughout the entire journey, you need to pay attention to where users drop off, and then systematically optimize those areas to reduce drop off at every step in the process.
The nice thing, as Kyle points out, is that all these pieces layer on top of each other to provide effective leverage that moves the needle on the entire journey, “If you get more people on your website, you’ll get more people to sign up. That means you have the chance to get more people to see your product’s value and activate, and from there you’ll have more people who are willing to pay for the product. All these steps have a compounding effect, meaning that a 10 to 15% improvement at each step might translate into actually doubling your revenue growth at the end of the day.”
Interestingly, PLG companies appear to grow a little slower than their peers in the early days, but once they hit $5 to $10M ARR, the magic of PLG kicks in, and they are able to sustain higher growth rates at scale. It’s also become clear that PLG companies are better protected against recession. SaaS companies have done really well despite recent market challenges, but the PLG companies have been performing even better than the broader SaaS Index.
And OpenView’s 2020 SaaS Benchmark Report found that the year-over-year growth rate for PLG companies was 31% compared to 18% for the broader SaaS Index. And PLG companies were trading at a 19x revenue multiple compared to 13x for the broader SaaS Index. “These companies are showing that they’re continuing to grow even after they go public,” Kyle says. “And investors are rewarding them with higher valuations.”
An Opportunity with a Lot of Untapped Potential
Despite greater stability, adaptability, and growth opportunity, PLG still isn’t the standard approach for SaaS companies. According to OpenView’s surveys, only about a quarter of companies are committed, and about another quarter are testing the waters. Kyle notes, however, that this isn’t the whole story, “What’s fascinating is that if you look at the IPOs over the last three or four years, half of those new public companies have adopted a PLG strategy. There’s something about PLG that seems to make these companies do better, especially at scale, and more ready to go public.” He cites examples like Snowflake, Twilio, and Datadog as successfully publicly traded companies that are all in on PLG. “I expect that the success of these companies will inspire a lot more of the next generation of software companies to build with the PLG model in mind.”
Part of the challenge companies face when thinking about implementing a PLG strategy is that it requires a really big cultural shift. “If you have a product that’s normally gated behind a sales conversation, pricing that isn’t transparent, and no rapid onboarding or end user-focused model, and you suddenly launch a self-service funnel, things can go wrong,” Kyle says. “You may have fewer people contacting sales, which makes it harder for sales to hit their quota. You can damage your product experience if it’s not set up to provide a really seamless and friction free self-service sign up. There are lots of things that can go wrong.”
Another problem is that PLG requires a big commitment over a period of time. Kyle has seen plenty of companies that make false starts, and then write PLG off as a failure even though they didn’t really give it a fair chance. He recommends taking baby steps if you’re unsure. “There are things you can do before going all the way to self-service,” he explains. “You can launch a sidecar product for end users to showcase the end user value proposition. Or maybe you allow for a developer experience that allows developers to start prototyping and building before they talk to sales.” The point is to start building a PLG foundation that will support future growth, because—clearly—PLG offers a lot of potential for growth when it’s done right.
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