The 3 Pillars of Product-Led Businesses
Back in 2014, we led Datadog’s Series B for a few big reasons: they solved a pain point nearly universal among developers, delivered value to customers without any friction, and tended to grow rapidly inside an account after the initial adoption. At that time, there wasn’t yet a term for what’s now known as Product-Led Growth (PLG).
We’ve been fortunate to be Datadog’s partners as they’ve rapidly scaled, launched major new product lines, went public in 2019, hit a $55 billion market cap and continue to exceed expectations as a public company. Today they’re worth twice what Slack was acquired for. As a developer-focused business with the ability to get started for free, Datadog is a shining example of how product-led adoption scales to the enterprise and how public PLG companies outperform their peers.
The success of Datadog, coupled with the IPOs and continued performance of other PLG businesses like Zoom, Atlassian, Shopify and Twilio, makes it clear that PLG is here to stay. As a result, we’ve found ourselves answering the question “What is product led growth?” a lot over the last few years.
What is Product-Led Growth?
Product-Led Growth (PLG) is an end user-focused growth model that relies on the product itself as the primary driver of customer acquisition, conversion and expansion. Companies with a PLG strategy—think Slack, Calendly, and Zoom—are able to grow faster and more efficiently by leveraging their products to create a pipeline of active users who are then converted into paying customers.
Although it’s rightfully associated with viral, freemium, bottom-up distribution, product-led growth is more than a simple go-to-market formula. Any company—even those selling to large enterprises or operating in niche vertical markets—can adopt PLG principles to improve user experiences and increase go-to-market efficiency.
Qualities of Successful Product-Led Businesses
As the evidence mounts that a PLG approach leads to better businesses, it’s time to start focusing on a different question: What make PLG businesses so successful?
This is a first attempt to answer that. Clearly laying out the characteristics that make PLG businesses work so well, with examples from PLG leaders on what you can do to PLG-ify your business when appropriate.
These are the three pillars of product-led growth.
Pillar 1: Design for the End User
End users are now the most important constituents in buying software. There are a couple of trends that show the enormous purchasing power that end users have today:
• Consumerization of the enterprise: You look at changes in usability expectations and attention span based on how people make purchasing decisions at home and apply those to work
• Rise of the developer, SaaS, and open source: The internet’s influence in lowering the barriers to entry to build and distribute software
Both of these factors put end users in the driver’s seat.
Unlike organizations (and the buyers who represent them) that think in terms of formal ROI, end users are people. And people want to solve the problem they have right now.
“Designing for end users is really understanding what they do—and it’s also truly understanding who you serve.”
As a result, the first step in designing for the end user is listening to them and solving their problems prior to the needs of the organization. According to Tope Awotona, CEO and Founder of scheduling tool Calendly, “When you’re building software, ultimately that software is going to be used and consumed by human beings. And you want to put the needs of those people first.” Designing for end users is “really understanding what they do—and it’s also truly understanding who you serve.”
This isn’t a one-time process or a get-product-market-fit-quick scheme. It’s an ongoing practice the most successful product led growth companies build into their DNA.
Tips and Ideas on Designing for the End User
At Postman, the collaboration platform for API development, CEO and Co-founder Abhinav Asthana built a “user-driven feedback loop where [they] would observe what’s going on, what things people are doing in the product, bake that back into additional capabilities, and then repeat.”
This iterative process allows a company to solve an increasing number of related end user needs and lets users speak with their actions rather than their words to identify those needs. Actions speak louder (and more accurately) than words.
Once a product led growth company is listening to the problems of their end users and consistently enhancing the product to solve those problems more completely and effectively, the next powerful concept to incorporate is personalization.
“Personalization works really, really well,” shared Todd Olson, CEO and Co-founder of Pendo, a product experience platform. “We often see it leads to a high conversion rate.”
A great example of this is how Alec McCaw, Founder and CEO of Clearbit, describes their signup process:
“The process begins before anyone even clicks ‘sign up.’ We de-anonymize IP addresses and figure out which company you work for, and then we customize the homepage to show customer stories that are specific to your company. We then auto-fill the signup form with as much information as we can. If we can answer a question for you, that’s one less thing for you to fill in.
Once you’re signed up, the entire dashboard is customized based on your company information, the technology your company uses, your role and seniority.
We send different emails for different roles. For example, engineers get an email with a code snippet in it. Marketers get an email with information about Marketo integration. And sales reps get a free Chrome extension that lets them use Clearbit instantly.
It’s a completely customized experience that extends to all forms of communication, like ads. As soon as you sign up for Clearbit, we’ll put you in a cross-sell ad campaign to show you all the other products that we have to really make sure that you’re making the best use of our product base.”
As a customer data company, Clearbit is at the leading edge of personalization. Even small steps in this direction can lead to substantial improvements across the funnel.
When you’re designing for the end user, listen to their needs, iteratively incorporate that feedback into the product, and personalize wherever possible.
Pillar 2: Deliver value before capturing value
The most common application of this is allowing users to access some or all of the product—often through a self-serve free trial, freemium model or open source model—before they need to pay.
For open source, this is built in from the beginning, often long before a company is even incorporated, in order to capture some of the value the software has created.
“The big advantage you have is distribution,” said Sid Sijbrandij, CEO and Co-founder of GitLab, a web-based DevOps lifecycle tool. “People are familiar with open source licenses, and a lot of companies default to open source software, which allows you to be a product-first company.”
Increase Time-to-Value: Why Paywalls and Product-Led Businesses Don’t Mix
When a company isn’t built around open source, it’s important to “deliver a tremendous amount of value when somebody signs up without asking for a credit card,” according to Ashik Ahmed, CEO and Co-founder of Deputy. “Asking for a credit card when someone signs up for a subscription product is like asking for marriage on the first date. You don’t do that.”
Yet, not putting the paywall prior to product access is only the first step. The key insight is minimizing the time between signup (or even exposure to the product) and solving the user’s problem or reaching the “aha moment” of value creation.
In other words: Deliver value quickly.
While most of the effort to deliver value quickly will go into creating features and functionality that embodies that value, it’s just as important to focus on removing things that distract from or create barriers to reaching the core value. That means keeping the initial product and experience simple.
“One of the things we always followed was to keep the product simple,” shared Abhinav. “If you’re coming into Postman to send a request, we want you to do that job quickly. We want to make sure that we don’t overload the experience with too many things so that people get that first unit of value quickly.”
Delivering value quickly is just as important to the operation of customer-facing teams as it is to product. “Even though we advertise an SLA of three hours to paid users, it’s not unusual for people to get responses back within 15 minutes from Calendly,” said Tope. “We know that when people reach out to us with a question about the product, not having that answer is preventing them sending out a link, which may prevent them from acquiring a customer. So the sooner we can get back to them, the sooner they can get back to the outcome they want.”
This principle of reducing all potential barriers to users solving the problem they have in the moment is a cornerstone of building a successful PLG business.
Delivering value before capturing it extends well beyond products that can be adopted through a purely self-serve, or support-assisted, experience. In that case, the way to deliver value before capturing it is to put customer success before sales in the user journey.
Liat Bycel, VP of Customer Engagement at Airtable, who is responsible for all customer facing teams including sales, customer success and support, does just that. “The go-to-market team actually starts with customer success and not sales,” said Liat. “It’s about making sure that we’re decreasing the time to value that customers get when experiencing the product for the first time.”
Focus on Value Creation Before Value Capture
In PLG, where the first transaction represents a small fraction of the economic value of a customer due to the length of relationship and expansion of product usage over time, having customer-facing teams focus on customer value creation before value capture leads to much more value for both the customer and the business over time.
For products where the creation of value for the end user requires upfront investment of that user’s time, such as in infrastructure software and API-driven developer tools, investing in rich documentation and enabling technologies can help customer success scale to meet the demands of being at the front of the funnel.
At authentication platform Auth0, CEO and Co-founder Eugenio Pace modeled customer success from early on. “For every feature we shipped, there was documentation, a tutorial, an SDK and enablement,” Eugenio explained. “Because what good does it do to make a product that cannot be easily understood?”
To deliver value before capturing value, it’s important to provide access to the product first, deliver value quickly and introduce customer success before sales.
If someone can’t easily understand how to derive value on their own or with the assistance of customer success, capturing that value will require substantially more effort.
Ultimately, “every function has to be conscious about the value that they’re delivering, about every interaction they have with users and customers, whether it’s within the product or outside of the product,” shared Abhinav.
We couldn’t agree more. To deliver value before capturing value, it’s important to provide access to the product first, deliver value quickly and introduce customer success before sales.
Pillar 3: Invest in the product with go-to-market intent
PLG is a go-to-market strategy that relies on product usage as the primary driver of acquisition, conversion and expansion. In order to do that, a business has to invest in the product with the intent of driving acquisition, conversion and expansion. More simply: Invest in the product with go-to-market intent.
While simple to say, building software to intentionally participate in, if not drive, the go-to-market of the company built around it is profound. Software companies have created trillions of dollars of enterprise value by replacing professional services with software, and they’ve been able to extend that value creation into domains where the cost of human service delivery was simply too high to support.
While the upfront cost to create software is often higher than that of delivering professional services to a first customer, the fact that the marginal cost to deliver the value to a second customer is near zero can make the investment highly profitable in the long term. This isn’t controversial—it’s the foundation of the software industry.
Product-Led Businesses Market Their Product from the Inside Out
Investing in the product with go-to market intent takes this insight and applies it to the professional services software companies use to bring their software to market—support, success and sales.
Just as the marginal cost to deliver value to a new user with software is dramatically less than with a human, the marginal cost of distributing software, enabling users and customers, and capturing value using software is dramatically less than with a human.
In other words, it’s highly profitable to augment—and in some cases replace—the human-delivered services associated with bringing software to market with software itself. This insight is why PLG businesses tend to grow faster, more consistently and more profitably at scale than their sales-led counterparts.
The first step in making product investments that drive go-to market outcomes is being able to know how users interact with your product and how changes to the product affect those interactions. That means investing in product data.
Zapier did this early on, and it’s something that their CEO and Co-founder Wade Foster considers a smart move. “We tried to make sure that we had events on tons of little things that were happening in our product, so that we were tracking a lot of those different elements. Even though we couldn’t properly analyze them yet, we were still collecting a lot of that data.”
Eventually, when Zapier brought in data scientists and analysts, they were able to utilize historical data. “They didn’t have to set event tracking and say, ‘Okay. Well, from here on out, we’re going to start measuring,’” said Wade. “If you’re going to do one thing early on, just get really good at logging.”
Invest in a Growth Team to Partner with Product Teams
Growth is the function that’s responsible for investing in the product with go-to-market intent. Just as the product team is responsible for ensuring that the product creates value when users and customers interact with it, the growth team is responsible for ensuring the product enhances its own distribution, enablement and ability to capture value.
At Deputy, Ashik explained that “the product team builds something awesome that adds significant value to users and the growth team makes adoption and value realization much, much, better and easier.”
In many ways, growth is a parallel function to product. Both leverage the resources of the company (often with an emphasis on marketing and engineering) to make long-term investments in the product to scale.
An additional advantage of investing in the product with go-to-market intent is the ability to run, and scale, go-to-market experiments that improve the user journey. As a result, building and managing a system of experimentation is often a key responsibility of the growth function.
For Rajat Bhargava, CEO and Co-founder at JumpCloud, the “growth team is looking at data and telemetry from even before a user has entered into the product to understand what the person is trying to accomplish and give them the right journey through the product that unlocks value for them as quickly as possible. To do that, we run experiments as a way to unlock what different users are trying to do in a way that’s as frictionless as possible for them.”
The more a user’s journey is influenced by their interactions with product rather than humans on a team, the more scalably you can improve those interactions through a system of experimentation.
In the limit, just as software can fully replace professional services to deliver customer value, it can also eliminate the need for professional services to distribute, enable and capture that value. Products that do both literally sell themselves, a paragon for most software founders (and investors).
By investing in the product with go-to-market intent through product data, building a growth team, and running experiments to enhance the user journey, any software company can move closer towards that ideal.
PLG Growth Leads to Better Products
The three pillars of product led growth—designing for the end user, delivering value before capturing value, and investing in the product with go-to-market intent—are what make PLG businesses so commercially successful.
But what makes them so valuable to the world, and ultimately why we love partnering with them at OpenView, is because they’re even better than traditional software businesses at improving people’s working lives.
Abhinav said it best: “Product-led growth models lead to fundamentally better products. They are designed for the end user first, rather than being designed for the buyer, so you really care about who is using it, how they are using it, and whether the actual work is getting done or not.”
Now that’s how software should be.
A special thank you to the PLG leaders who shared their expertise, without whom this resource would not be possible.
- Tope Awotona, CEO and Co-founder of Calendly
- Abhinav Asthana, CEO and Co-founder of Postman
- Todd Olson, CEO and Founder of Pendo
- Alex MacCaw, CEO and Co-founder of Clearbit
- Sid Sijbrandij, CEO and Co-founder of GitLab
- Ashik Ahmed, CEO and Co-founder of Deputy
- Eugenio Pace, CEO and Co-Founder of Auth0
- Liat Bycel, VP of Customer Engagement of Airtable
- Wade Foster, CEO and Co-founder of Zapier
- Rajat Bhargava, CEO and Co-founder of JumpCloud
If you’d like to hear more of their thoughts on PLG, company building and their path as founders, check out OpenView’s BUILD Podcast.