A New Era for PLG: Introducing the Age of Connected Work
OpenView first coined the term product-led growth (PLG) in 2016. In those six years, PLG has transformed into one of the most important trends shaping the software industry. Among other notable events, Slack was acquired for $27.7B1 by Salesforce, admitting that even the sales-driven CRM giant wants in on PLG and Zoom topped a whopping $150B market cap before the SaaS correction in early ‘22.
As one of the founding members of the PLG community, we see it as our responsibility to share insights and lessons learned for PLG entrepreneurs all over the world. We’ve noticed a number of subtle, but crucial shifts in the way leading PLG entrepreneurs are building their businesses and today are summarizing those shifts in OpenView’s 11 Principles for PLG. Individually, each might not raise an eyebrow. Together, we believe these 11 principles constitute a new era for PLG: the Age of Connected Work.
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The Age of Connected Work
In this new era, the Age of Connected Work, software has become a fundamental utility powering our working lives—just like water, electricity, the internet, and mobile broadband. We used to “own” and then “rent” software; now we simply use it.
Imagine an everyday occurrence: meeting with a customer. In the past we might’ve emailed back and forth to find a time, traveled to meet in person, and jotted down notes in a journal. Now that meeting is scheduled via Calendly, automatically logged as a CRM record, takes place via Zoom, gets recorded in Gong, and ends with a follow-up assisted by Grammarly. It’s a fully connected workflow powered by automation that allows us to be more productive, make fewer mistakes, and collect valuable data. If any of our services experiences an outage, we’re left in the dark.
To win in the Age of Connected Work, software companies must rethink the principles that underpin how they build, distribute, and charge for their products. They will be product-led in its truest sense; product usage will drive customer acquisition, retention, and expansion.
The ways of applying PLG must adapt to our new context. PLG is no longer just an end-user focused growth model. In fact, with the rise of automation, AI, and APIs, the users of a product are increasingly other products rather than people. The next generation of winners will evolve what it means to turn their products into a growth engine, incorporating PLG principles into how they build, deliver and monetize their products.
Consider Datadog, which recently became one of only a handful of cloud software companies to reach $1 billion in revenue. Datadog did so while still growing 70%2 year-over-year and being highly profitable. Datadog isn’t a traditional sales-led software company. The company’s emphasis on frictionless adoption allows its products to be used by everyone and deployed in minutes. Datadog’s products are inherently open, available on the AWS, Azure, and GCP marketplaces and have 450+ integrations out of the box.
Datadog has a usage-based revenue model where customers start small—experience near immediate value—and then rapidly ramp up their spend over time. Usage-based pricing has an intrinsically brilliant attribute, in that it allows users to immediately correlate value with spend, triggering a positive psychological event in their minds. As they derive more value, their usage grows.
How did we get here?
Software used to be optional, purchased to improve business KPIs relative to a traditional process. It was something executives pushed to employees, hoping for future adoption.
Software is now the default starting point for everything. Anyone can discover it. Ordinary people customize it, with no specialized knowledge required. It creates value by communicating with other software—even when people aren’t logged in. People access it where they’re already spending time, whether that’s in-browser, in-app, a mobile device, or even a connected machine. And the cost flexes up or down based on usage.
We’re in the Age of Connected Work. Here’s how we got here and what it means for you.
Trend 1 – Software has become core infrastructure
Digital transformation went from “happening” to “already here”. Accelerated by the COVID-19 pandemic, every industry had to rethink their digital strategy. This wasn’t about adopting apps like Zoom or Teams to allow employees to work from home; it was about making digital experiences the core way of doing business with customers.
Businesses now depend on software as the connective tissue of their operations. Large companies support an average of 187 apps, up from 129 in 2018, according to Okta’s Businesses @ Work Report. The cloud infrastructure market reached $178 billion in 2021, up by almost $50 billion compared to 2020. This figure is now larger than the amount the US spends each year on water supply and wastewater treatment ($113 billion)3. We’re even seeing entire industries built around creating and making sense of data flows to and from apps so that data finds users where they need it.
With the core cloud infrastructure and apps in place, businesses want to extend existing investments to deliver even more value rather than buy all-encompassing platforms. It’s no longer about lift-and-shift, it’s about extend-and-automate. Modern software needs to be built to not only be hosted in the cloud, but to take advantage of the unique opportunities afforded by universal cloud adoption: real-time interconnectivity with data flowing freely where it’s needed.
Trend 2 – Work happens everywhere
People are working from home, but also in the office, in their car, at a cafe, in a co-working space and even increasingly obscure places like while waiting in a doctor’s office. Simply put, work happens wherever and whenever. Workers have earned this flexibility as their productivity continues to climb, but they owe some of the credit to how technology has evolved to enable this type of work. Hardware has become increasingly powerful and the software running on these devices has made leaps to allow work to happen anywhere with an internet connection.
We have high expectations for how seamlessly our software should flow from location to location and device to device. PLG taught us that great software is built for end users. Now that people’s lives are changing, the software that has been built for them needs to keep up.
Businesses that are able to be in the right place at the right time have always won. As place and time have shifted, software that can be discovered—whether you’re trying to launch a survey from your phone or get updates on daily sales from your wrist—will be the new winners. Don’t force people to change their workflow in order to use your product. Instead, meet your users where they work.
Trend 3 – Engagement with software sets the tone, buyers follow users
For too long, software development has been restricted to an elite group with access to special training and equipment. Software engineers are finite and companies have been fighting over the same pool of talent.
The Cloud Era, with easy and affordable access to cloud computing, began the process of democratizing software development. You started to see a shift of departments outside of IT building digital solutions to solve workflow problems that were previously sitting in backlogs.
Today the barriers to building software have dropped almost entirely. It’s not just that software moved closer to users, the users moved closer to software with condition-setting interfaces, smart forms, and API-based connections. We are all becoming developers, just different developers than we were used to as no-code/low-code technology becomes the norm. These new developers will create their own personal tech stack and then bring it with them from company to company. They’ll talk up the products that they love, producing a community of evangelists that feel ownership over their software because they had a large part in building it.
11 PLG Principles for the Age of Connected Work
Compared to when we defined the term in 2016, many more companies are either starting with a PLG motion from Day 1 or are looking to add PLG to their existing model. Despite this growth, still only 30% of the startups we see have a PLG motion4 and fewer still truly embrace the principles of PLG at their core.
We’re often asked “How do we become PLG?” While there is no one way to PLG, we have accumulated a number of principles below to guide entrepreneurs. Building upon our inaugural post on what is PLG, we are launching our PLG principles for the Age of Connected Work. Public company PLG leaders like Datadog, Snowflake and HubSpot have adopted at least nine of the principles and are rewarded with outsized valuations–more on that later.
You don’t need to adopt all 11 principles to be PLG, but use as many as are applicable for your market to build a defensible competitive advantage for your business and win in the long-term. Start by embracing the Build principles; otherwise you’ll be optimizing from a shaky foundation. Then layer on Deliver and Monetize principles to amplify your efforts.
#1: Build for the end user
Software companies used to be laser-focused on their buyers. End users were an afterthought, only getting access to a product after it had already been purchased and implemented.
Now users are discovering products, sharing them with their colleagues, and then telling their boss what to buy. In some of the most tech forward companies in the world, users are the new kingmakers. Engagement with software sets the tone and buyers follow users. You need to build for these users and enable them to go to bat for you.
We’ve long seen this dynamic play out among technical products, with developers becoming the most important audience. Developers’ power has even started to extend into newer areas like security (Snyk) or software testing (Cypress). Now these dynamics are playing out all across functions from sales (Calendly, Loom) to product management (Miro, Trello) to marketing (Asana, Typeform, Monday.com).
Principle: End users are the new kingmakers. Provide real value for your end users, not just for executive buyers.
#2: Build to be discovered
Software used to be marketed and sold. There’s a cottage industry of SDRs whose sole responsibility is to inundate potential buyers until they finally agree to a meeting. While this model worked for a long time, and is still working now, we’re feeling bombarded by the constant barrage of emails, InMails, and voicemails and desperately want to opt out.
Now products are bought, not sold. And they’re discovered, not presented. Ordinary folks seek out solutions to their everyday problems whether through Google, friends, or their chosen communities. Users find products when they need them through SEO-optimized templates (Zapier, Miro), how-to guides (Twilio, Ahrefs), and ungated free tools (SafetyCulture’s checklists, HubSpot’s Website Grader).
Principle: Be easily discoverable by users in their moment of need.
#3: Build to meet your users where they work
You used to go to software when you needed to do a specific task. If you were in HR, you went to Workday. If you were in sales, you went to Salesforce. Software was a destination that had to be sought out.
Now software lives in your context; it lives wherever you live rather than being a destination. Grammarly, the writing assistant, gets used as a Chrome extension because most of your writing happens in the browser. Toucan, the language learning app, automatically translates a set of words or phrases whenever you visit a webpage, helping people learn a new language without even trying. Speechify, the text-to-speech app, gets downloaded as a mobile app since that’s where people encounter the most written content. Even CRM products are being built to be used in Slack (Rattle) or in their note-taking apps (Dooly.ai).
Principle: Don’t force people to change their workflow in order to use your product. Instead, meet your users where they work or experience pain.
#4: Build for openness
Software used to be a walled garden. Companies were relatively standalone systems. Integrations with other products were optional and required substantial costs to build.
Now software can’t be a walled garden. Users are going to choose what they want and you need to play well with others. Open-source software products have long understood this principle and open source products are ubiquitous with over 140 million projects listed on GitHub alone. Open source projects have historically been limited to developer audiences. As everyday people become developers themselves, all software companies need to build for openness.
We’ve gone from people living in apps, to apps living in apps, to data finding users where they need it. ETL, Reverse ETL, CDP, DMP, etc. have made it possible to get the right data into the right user-facing app entirely in the background.
API-first companies embody this principle fully. In a real sense, openness is their product. Whether it’s Contentful (digital content), Twilio (communications), Auth0 (identity), Plaid (financial services), project44 (shipping and logistics), Deliverect (restaurants) or Checkr (background checks), they’ve built large businesses on the basis of connecting data and applications.
Principle: Make your product open by default. Allow people to connect your product to fit into their specific context.
#5: Build for flexibility
If your products are truly open, your users can build it themselves.
In the past we considered too flexible customization a bug; something to avoid or outsource to a consultant. Large, high-paying customers could dictate what got built in the product; everyone else had to hope that innovation would eventually trickle down to them. Companies tried to pack more and more features into their products so they could solve for as many customer needs as possible in one single app.
You don’t need to be everything to everyone if you’ve built an open, flexible product. Now products give ordinary users the tools to become developers, letting users build perfectly customized solutions for their own needs. In fact, software companies now learn from what their users create and turn those into recipes that help future users. Whether it’s Airtable’s library of hundreds of app templates, Asana’s workflow automation builder, or Miro’s community gallery, PLG companies are giving people the tools to build for themselves. The value store created in this process quickly becomes a key part of the product itself through crowdsourcing, social sharing, curation, training sets for AI and more.
Principle: Give users the tools to customize your product for their exact needs. Be flexible, so your users can be creative.
#6: Build community as a competitive advantage
When users have a hand in creating your product, they feel a sense of ownership in the brand itself. These creators show off what they’ve built, teach others how to do it, and foster community around the product.
In the past, software companies established their brand bona fides the old fashioned way: through marketing. They wrote thought leadership content, attended trade shows, and spent small fortunes on ad campaigns. Brands were tightly controlled and consistency was the hallmark of success.
Now users are the brands. People respond to people, and look to folks they trust for advice. Forward-thinking companies cultivate community as their core differentiator. Community isn’t just about creating another Slack channel. It’s about convening and connecting your target audience to help members achieve their own goals.
Whether you look at Webflow’s community of designers or Notion’s Ambassador program, community has become intertwined with product-led growth. The next generation of winners will even cultivate community before they have a product, helping them craft the perfect product for their users.
Principle: Build community around your product, offering users connection, belonging and inspiration.
#7: Deliver instant product value
Remember when fast time-to-value meant that your product could be deployed in a matter of weeks or months? Expectations have changed. We’ve been conditioned by our consumer apps to see results instantly and on our schedule. If you aren’t doing this, your customers are going to adopt another product before they even schedule a demo with you (who has time for that anymore?).
We’re seeing all kinds of companies win on the basis of speed. Whether it’s in CRM software (HubSpot), content delivery (Cloudflare), project management (Asana), eCommerce (Shopify) or payments infrastructure (Stripe), no product category will be immune. Today we have to reimagine our products to deliver instant product value.
What folks consider to be instant product value is always relative to what folks expect and how you compare to your peers. It’s worth mentioning the intermediate steps that ladder up to instant product value: time to understanding the product value, time to deploying the product, and time to sharing it with others.
Principle: Users find success with your product as fast as possible, ideally measured in minutes and not days or weeks.
#8: Deliver instant customer experience
How long does it take for you to respond to a customer issue? If your competitor does it instantly, what does that do to your business?
We have shorter and shorter attention spans, and less and less tolerance when vendors don’t live up to our expectations. Users now expect help to be available at their fingertips and in the moment of need. Yes, this can still mean human interactions with sales or customer support. But it can also mean in-product guides, in-app chat, bots, documentation, helper libraries, or community forums.
Snyk, the developer security company, makes for a great example by treating customer experience as an extension of the product. When developers get stuck, they turn to Google first. Snyk has invested in SEO-friendly content like detailed user documentation, onboarding guides, and an extensive self-service portal to get found for nearly any help-related topic. Users can go further if they choose, enrolling in self-guided training courses or joining the purpose-built community to master their Snyk skills.
Principle: Users get their issues resolved as fast as possible.
#9: Monetize after you deliver value
We’ve been trained to expect software companies to charge us anytime we want access. If we want to try a product, we have to pay for a subscription. If we want to invite a peer, there’s a fee. Even if we want something straightforward like SSO, we have to opt for the enterprise edition.
If you want to deliver instant value, you have to ungate access before asking folks to pay. Once you’ve hit a critical inflection point in terms of value delivered, then it’s time to ask customers to take out a credit card. Ask yourself: is your free product good enough for the customers you want to attract?
Pay special attention to ensuring that your pricing is transparent and clear. Part of monetizing after you deliver value is garnering trust with your prospective users. Users don’t want to sink hours and hours into your product only to later feel gouged by unexpected pricing.
JumpCloud – the identity, access, and device management software – does this by allowing new customers to try its full platform for free for their first 10 users and devices. There are no time limits and no artificial feature restrictions. JumpCloud is confident that people who are seeing real value from the product will decide to pay eventually, and they’ll promote JumpCloud to their peers in the meantime.
Principle: Deliver real value for users, then charge for the value you deliver.
#10: Monetize based on usage
When we think of SaaS, we think of seat-based subscription pricing like how we pay for Salesforce. We usually get sold an annual or multi-year commitment, which too often becomes shelfware. There’s a cottage industry of emerging SaaS management companies just trying to help businesses optimize their bloated SaaS licenses.
In this period of shorter and shorter attention spans, asking people to make a commitment before using the product increases friction and slows down adoption. Users now demand flexibility. Folks want to be able to start for free and pay when they’re seeing value, then opt into a committed agreement as their spend increases.
Pioneered by AWS, usage-based pricing models have long been preferred by developers. Today they’re popping up everywhere from marketing (Klaviyo, Attentive) to finance (Stripe) to security (VGS) to legal (Logikcull) and even to environmental compliance (Encamp).
Algolia, the site search and discovery company, decided to introduce its most customer-friendly pricing ever in 2020. They now allow customers to start for free and then pay-as-you-go beginning at only $1 per month, no commitment required. Customers get volume discounts as their usage grows or as they opt into a committed-use plan. The move has paid off; Algolia landed a $2.25B valuation in 2021.5
Principle: Your pricing is flexible and scales based on how much a customer consumes.
#11: Monetize beyond software
Software companies used to focus on building, delivering, and monetizing only software assets. They stayed in their lane, weary that blurring the line between software and other services might confuse customers or hurt their valuations.
Users now expect a seamless and connected workflow to do what they need to do. If a software product touches a financial transaction, why shouldn’t that transaction be embedded in the software itself? We’re seeing the rise of payment processing, data services, marketplaces, marketing, and financial services become natural extensions of software. Ask yourself: if a competitor gives their software away for free and monetizes only on financial transactions, what does that do to your business? There’s a real possibility that your users might prefer to pay for something else other than software access.
Shopify, the eCommerce platform, generated more than $1 billion in Q4 revenue6 from its Merchant Solutions business, nearly 3x as much as its software subscription business unit. The company has long been known for monetizing based on payments and the Shopify app marketplace. Shopify has since expanded into financial services, shipping, fulfillment, and consumer-facing products like ‘buy now, pay later.’
Toast, the restaurant point of sale company, has similarly diversified its revenue streams far beyond software subscriptions. The company generates the majority of its revenue from integrated payment processing, financial technology products, as well as hardware.
Principle: Consider alternative ways to monetize your product beyond the software itself.
The impact of the new era for PLG
We’re starting to see more and more of today’s software winners incorporate these PLG principles to achieve wildly successful outcomes.
The leaders have adopted at least nine of the eleven PLG principles and include software standouts like Snowflake, Datadog, HashiCorp, Confluent, DigitalOcean, and Zoom. These mature companies have a median EV/revenue multiple of 15.7x, according to an OpenView analysis using data from Pitchbook as of May 9, 2022. PLG leaders are growing at 50% year-over-year, driven by industry-leading net retention rates (128%). These metrics far exceed traditional SaaS companies who grow at just 21% year-over-year and see 114% net retention.
If we compare the leaders to their traditional SaaS peers, the differences are stark. PLG leaders are trading at nearly 2x the EV/revenue multiple of their peers driven by faster revenue growth, better net retention, and incredibly impressive efficiency (Rule of 40). These differences might even be more pronounced if not for the SaaS sell-off and declining valuations over the past year.7
The data is clear: PLG is the way to build a large and enduring software business in the Age of Connected Work. The best companies push what it means to be PLG even further, catalyzing faster growth along the way. Adopting PLG isn’t as simple as simply introducing a free trial; PLG is a set of principles that impacts how you build, deliver, and monetize software products.
The Age of Connected Work isn’t going anywhere. For companies looking to lead in this new era, acknowledge the hard but worthwhile work ahead. No matter your PLG maturity, ask yourself: Is my business adapting to the new demands of a work-from-anywhere workforce? Is our software truly accessible and open? Are we focused on our users beyond acquisition?
Get ready to get honest. And prepare. For now is the time to build.
Special thanks to Or Weis, Wias Issa, Alexa Grabell, Jimmy Fong, Ran Ribenzaft, James Wood, Curt Townshend, Margaret Kelsey, Shannon Curran, Mackey Craven and Blake Bartlett for their contributions and feedback on this report.
Note: Some of the companies referenced are OV portfolio companies. For a full list, please see our website. Also, OpenView is the source of all the images in this post, unless otherwise specified.
- Salesforce to Acquire Slack for $27.7 Billion
- Datadog Announces Fourth Quarter and Fiscal Year 2021 Financial Results
- The $113B figure is from a 2017 report by the Congressional Budget Office.
- Internal OpenView data on expansion stage software companies.
- Search API startup Algolia raises $150 million at $2.25 billion valuation
- Shopify Announces Fourth-Quarter and Full-Year 2021 Financial Results
- Valuation and performance data from Pitchbook as of May 9, 2022.
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