Accelerating Growth With The Extended Product Led Growth Strategy
First-time founders care most about product.
Second-time founders care most about distribution.
— Sahil Lavingia (@shl) August 26, 2019
This recent thoughtful tweet from Sahil Lavingia, Gumroad’s founder & CEO, was followed by an engaging series of inputs from other growth fanatics. More than minimizing the importance of building a great product, through this tweet, Sahil aimed to emphasize the crucial role of distribution in building a successful company.
In other words, it means that founders should spend — at least — as much time thinking and executing on their go-to-market (GTM) strategy compared to their product.
Why? Because, ultimately, a product is successful when you get customers using it. Therefore, as a founder, you should never lose your focus on what truly matters for your company in the long run: understanding your customers’ needs, what they value in your products and improving how they experience your product.
This article will mainly focus on showing that there isn’t a one-size-fits-all product led growth strategy and also helps understanding its subtleties.
State of Acquisition Models
A Really Brief History of Acquisition Models in SaaS
To date, the customer acquisition process in the SaaS era has been following a 3-step evolution.
First, it used to be predominantly sales-driven. Sales teams were primarily responsible for driving revenue through outbound calls. In a global industry, this hardly scalable (and expensive to sustain) approach quickly became outdated.
Then, for companies like HubSpot, customer acquisition started becoming more of a science than an art. The leading growth platform structured their process by putting the 3-step buyer’s journey at the core of their strategy. This customer-driven approach highlighted the fact that not all website visitors are equal.
As such, adopting a one-size-fits-all acquisition strategy was not as effective as segmenting the audience based on their buying intent.
Marketing and sales teams started working hand-in-hand to offer a better experience by educating and nurturing leads with low buying intent first, until they became sales-ready. This is the idea behind the traditional inbound marketing framework.
Ever since, the capacity to accurately qualify incoming leads became the secret weapon in building a sustainable customer acquisition model. Growth marketing teams started building tools, called lead magnets, that would help them better qualify their leads. A lead magnet is a free tool that helps you generate leads and analyze their buying intent based on the information shared or their behavior.
The most widely-adopted ones are the marketing lead magnets (MLM). A marketing lead magnet (MLM) is a free marketing tool that helps you generates leads by offering a long-form resource in exchange for a prospect’s information. Marketing lead magnets can take the form of ebooks, whitepapers, templates and similar downloadable assets.
Although being the dominant strategy for a while, the adoption by the masses combined with the evolution of customer behavior has made this MQL/SQL model the victim of its own success. Marketing lead-magnets started following Andrew Chen’s famous Law of Shitty Clickthroughs.
As a rule of thumb, when an acquisition model becomes less effective due to its massive adoption, a new adjacent one becomes valuable. Consequently, the most recent acquisition model is called product led growth. Product led growth (PLG) is a business methodology in which user acquisition, expansion, conversion and retention are all driven primarily by the product itself. It creates company-wide alignment across teams — from engineering to sales and marketing — around the product as the largest source of sustainable, scalable business growth.
While the SaaS industry became flooded by marketing lead-magnets, consumers’ demands and behaviors started shifting away. The B2B SaaS environment now became subject to consumerization. Buyers want to self-educate and experience the product they are buying. This is now the “Show, Don’t Tell” Era.
Limitations of Product Led Growth
As people don’t want to interact with sales reps anymore, adopting PLG is now seen as a prerequisite for any SaaS company.
The adoption rate of this growth strategy has skyrocketed and most of the recent successful companies (not to say all) are using it.
However, beneath the shiny façade, the reality is that only a few companies manage to make this plan successful.
Thinking that PLG is always the go-to strategy whatever the typology and the stage of your SaaS product is wrong.
The two most important aspects to take into consideration before choosing a PLG strategy are:
Another basic rule of thumb is that, in general, complex products (usually designed for the enterprise) with a long learning curve tend to require a more traditional approach to growth such as the MQL/SQL acquisition model. On the other hand, products mostly designed for small businesses or teams with a faster time to value are more suited for PLG.
In the early days of your product development, it is usually a good practice not to adopt PLG.
It is essential to keep in mind that “you only get one chance to make a good first impression.” So, you should think twice before offering a broken product-led experience to your users. Both your product and the onboarding process have to be nailed down first to provide an amazing end-to-end experience.
The Extended Product Led Growth (EPLG)
A PLG strategy responds best to the expectations of the consumers in terms of customer experience. Nevertheless, it also has its own limitations as seen above.
The reality is that to be really effective, a product-led acquisition model requires both:
- Product fit (cf. see product led growth limitations)
- High buying intent from the user with a desire to dedicate time trying the product
So, if you start doubting that product led growth is the best option at this moment, what are your other options?
Going back to a more traditional inbound marketing acquisition model is one option, even though we highlighted the fact that this strategy has become less efficient due to its en masse adoption and because it ultimately doesn’t provide a great customer experience.
Another option that we want to introduce here, which has already proven to be highly effective is a hybrid model of both PLG and inbound marketing strategies.
This alternative, Extended Product Led Growth (EPLG), is about taking advantage of both strategies to offer the best customer experience to a certain typology of consumers.
Fundamentally, this model is particularly suitable when you have a complex product with a long time to value and yet still want to provide a product-led first experience.
In this case, what you want to keep from the MQL aspect is the capacity to engage and educate users even though their buying intent is pretty low. A marketing qualified lead (MQL) is a lead who has been deemed more likely to become a customer compared to other leads. This qualification is based on what web pages a person has visited, what they’ve downloaded, and similar engagement with the business’s content.
On the other hand, what you want to keep from the PQL aspect is the capacity to qualify your leads based on their product usage and behavior. Product qualified leads (PQL) are when a prospect signed up and demonstrated buying intent based on product interest, usage and behavioral data.
Extended Product Led Growth Overview
In comparison with product led growth, EPLG adds an extra step for the user between their acquisition channel (outside of the product) and the sign-up for the main product’s freemium or free trial.
While this extra step could be seen as requiring an unnecessary effort from the user and adding a level of complexity in the acquisition model, conversely, its purpose is to make it smoother and ensure the user will never experience the feeling of being overwhelmed.
The fact is that everyone — without exception — has felt clueless when trying a product for the first time. And this is the type of feeling you don’t want your users to experience when using your product. If the churn rate after your users’ initial product interaction is abnormally high, then the chances of them having these bad feelings are high.
That is when the EPLG strategy might become interesting to take into consideration.
As you can see, in the schema above, the extension part of the strategy is represented by the following three characteristics:
- Product Lead Magnet (PLM)
- Product Marketing Qualified Lead (PMQL)
- Product Lead Magnet Customer
Extended Product-Led Growth (EPLG) is a two-step business methodology that first leverages a subproduct as a leading channel through which the company acquires users. Then, these users become customers of the adjacent main product that is in charge of the company’s growth and profitability.
In a PLG strategy, a unique product — the main one — is responsible for acquisition, retention and monetization. It usually works well when the product learning curve is relatively low and the user buying intent is high.
Conversely, when the product learning curve is relatively high and the user buying intent is low, offering an easy-first-step with a sub-product that provides both high value and a very quick time to value, might become a great source of user acquisition and reduce the activation churn rate.
Product Lead Magnet (PLM)
The same way that a traditional inbound marketing strategy requires a Marketing Lead Magnet, an extended product led growth strategy requires a Product Lead Magnet.
A Product Lead Magnet (PLM) is a free standalone sub-product that helps you generate leads. Ultimately, the value leads get from it should encourage them to use the main product. Product lead magnets can take the form of extensions, widgets, and similar downloadable assets.
Great PLMs usually follow a common set of characteristics listed below:
- Unique functionality (single feature product) that solves a specific and niche problem.
- Low Technical Cost: a PLM should be built within a short period of time (Sprint or Hackathon).
- Low Operational Cost: once built, a PLM shouldn’t cost much to sustain.
- Freemium use.
- Leads to rapid and repetitive delightful experience for the user.
- Short ‘aha’ moment and high value perceived.
- Generally, PLMs are easily replicable because of their low technological cost.
Product Marketing Qualified Lead (PMQL)
As mentioned earlier, we are, currently, in the “Show, Don’t Tell” Era. Consumers feel tech-savvy enough to learn how to use a product by themselves.
On the company side, though, we often notice a substantial gap between the not-yet-qualified lead and her being product qualified. While in theory, PQLs are the best way to predict whether a lead could become a paying customer, in practice, the amount of effort sometimes required to start using a product makes the product qualification impossible.
Adopting an EPLG strategy brings an intermediary lead qualification that helps to fill the gap between MQLs and PQLs.
A Product marketing qualified lead (PMQL) is a lead that fits the criteria of a MQL with a serious level of product qualification on top of it.
MQLs are educated leads but only at a theoretical level (through content interaction) which, in most cases, is not significant enough and hard to deal with for companies.
On the other side, PQLs are highly qualified leads but only for the ones who make the required effort.
Consequently, the PMQL offers this hybrid type of lead qualification with a low learning curve for the lead but still an in-product qualification for the company.
Summary table of MLM vs PLM vs Product Freemium or Free Trial
Building an Extended Product Led Growth Strategy
Developing an EPLG strategy requires the same four elements as in the PLG strategy.
McCaig, a venture capitalist and consultant with MaRS, recommends creating a detailed plan for what you’re selling, who you’re selling to, how to reach your target market, and where you should promote your product. These are the four must-have elements of a Go-To-Market (GTM) strategy.
This means that in addition to the GTM strategy for your main product, you need to develop a GTM strategy for your PLM. The PLM’s GTM should be seen as a smaller version of the main product’s GTM.
Therefore, the PLM’s Go-To-Market strategy should follow the same structure as the four must-have elements. What changes, though, is the scope of reflection which is narrower than the main PLG strategy.
#1 User (WHO):
- Which users’ segment among my main product users would be ideal to target?
- What pains do they experience?
- Can you describe a day in the life of your target users?
- How does your sub-product fit into the customer’s daily activities and workflow?
- Ideal user profile (IUP)
- Strategic messaging
#2 Market (WHERE):
- What submarket — as part of your main product’s market — do you want to pursue?
- How big is your addressable submarket?
- Market segmentation and analysis
#3 Product Offering (WHAT):
- What sub-product are you offering? What is your sub-product’s unique value proposition?
- How do you describe your sub-product’s value?
- Product offering
- Value proposition
#4 Channels (HOW):
- What are the most effective channels to reach your target users?
- What social media channels do your customers use the most?
- What channels enable the optimal CAC?
- Demand generation strategy
- Content and distribution strategy
Reading technical articles on growth strategy can quickly become a burden because of the jargon used. But, ultimately, what truly matters is to always bear in mind the objective you want to achieve when shaping your strategy.
When we discuss growth strategy, it is nothing more than an action plan that helps acquire and retain customers with no magic hook but only through a delightful end-to-end experience.
Then where to start? This might be a very basic but eternally true answer.
Develop empathy and start by putting your organization in the shoes of those that use your product. There is no one-size-fits-all strategy, but there is one single truth in our era: the most customer-centric strategies always win.
That is the reason why product led growth has become such a breaker for the SaaS industry. It has been developed by truly experience-driven companies with a deep customer-centric mindset (think Slack, Zoom, Notion, etc.).
Nevertheless, the first few years of product led growth showed that not every product are suitable for this approach. When your buyer intent is low and your enterprise product is complex, it usually becomes extremely hard to provide a great customer experience through a standard product led growth strategy.
In this specific use case, we’d recommend our readers to embrace the extended product led growth strategy to minimize the chances for your users to churn after the first interaction with your product.
What started out as an adaptive move to help Logz.io align with buyer behavior turned out to be a powerful way for them to open up the market and take advantage of incremental opportunities.