Product-Led Companies: Why and How They Work
The term product led growth (PLG) is now well known in SaaS, but some companies still miss out on the full potential of the concept because they think of it more as a pricing model, or maybe even a variation on the bottoms-up growth concept.
Yes, product led growth is related to those things, but there’s much more to it. It’s about a product being the core DNA of your company, so much so that the default mode for solving problems—including growth challenges—is to figure out how to use the product to address whatever issue is at hand.
Related read: The 3 Pillars of Product Led Growth
PLG has far-reaching applications across a wide range of product types—and eventually it’ll spread across all categories. It’s an attractive model for all kinds of businesses because being able to drive growth through product usage is critical if you want to lower your customer acquisition costs and increase customer lifetime value.
These days, the majority of my growth conversations are about PLG. Whether I’m talking with internal teams at my own companies (Crazy Egg, Product Habits, FYI) or consulting with other brands, everyone is excited about the prospect of being able to harness the power of PLG for their own company.
While there’s no one way to do this, you must address a few key things if you’re going to make a run at a PLG approach:
People like free stuff
When I’m thinking about markets to focus on and businesses to build, I’m always looking for opportunities to build a product that’s free. People like free.
Typically, I find that if I can build a free product, I’ll be in the market. If I can’t build a free product, I won’t be in the market.
It’s that simple.
Free fits the way people want to buy—they don’t want to have to pay to get started. I love freemium because I love product, and freemium is the best way for me to get a product into the hands of more people faster. This doesn’t mean that there isn’t a time and place for a sales-led, enterprise go-to-market strategy.
If that’s the kind of product and business you want to build, go for it. I prefer to take advantage of the fastest go-to-market option available, and that tends to be a product-led freemium model.
“Free fits the way people want to buy—they don’t want to have to pay to get started. “
This model not only eliminates a lot of barriers to product use, it has the added benefit of creating an exponentially larger user base. This is obviously an advantage in that it provides more opportunities to ultimately convert free users to paying customers, but having that larger audience also makes it easier and more effective to run various kinds of tests to refine the product and optimize the user experience, thus driving even more adoption.
In a product-led company, who’s responsible for revenue?
People considering a product-led approach to growth often find it difficult to wrap their heads around exactly who in the company is responsible for the revenue and growth numbers.
In a traditional, sales-led model, the responsible party is usually the VP of Sales or the CRO. But in a PLG company, which individuals or functions are responsible really depends on the culture of the company.
There are two basic ways to go: a dedicated growth team or a more “distributed” approach.
With a dedicated growth team, the key is ensuring that the company culture is built to handle having one team responsible for the “ins and outs” of customers, because that’s really what a growth team does—it manages the whole process of customers coming in and customers leaving.
Related read: Building a System for Growth
The company also has to be set up so the growth team can collaborate closely with each piece of the organization, similar to how a team like finance works with every other department. When companies dismantle dedicated growth teams, it’s usually because they were set up ineffectively—in silos instead of in a way that allows them to help all the other teams. The optimal role for a dedicated growth team is helping all other areas of the company be successful.
The other approach is to make everyone in the company responsible for growth. While I have a lot of respect for folks who have built dedicated growth teams, in my opinion everyone in the company should be focused on growth. Everyone should be responsible for revenue.
“Everyone in the company should be focused on growth. Everyone should be responsible for revenue.”
What this looks like will vary from company to company based on which teams have the most say on what ends up getting built and shipped. Usually, the groups with the most influence on product will include product engineering and founders; but sometimes it might be sales or even marketing.
Each member of the team needs to understand how what they’re doing impacts the business—otherwise this model won’t be successful. They need to have hyper clarity about their role and why they’re doing what they’re doing, down to the level of which metric they’re focused on improving.
This really gets traction when a team starts implementing OKRs, or other metrics-based accountability framework, and looking at how individuals can affect specific leading and lagging indicators. For example, at Uber everything bubbles up to the GMV number. Knowing this, Uber measures all activities against that single focus point, aligning everyone around the same ultimate growth goal.
Product-led and sales: Can/should you do both?
Just because you’ve adopted a PLG approach doesn’t mean you have to turn your back on sales altogether. Sometimes it makes sense to put bandwidth toward talking with larger customers pretty early (assuming you have the features and certifications they require).
More typically, a PLG company should start to layer in some sales-oriented individuals and activities when the company not only has the product right, but also has some amount of inbound coming from larger companies.
When the time is right, I strongly recommend having founders do sales for at least the first year. Being on the front lines of sales-based customer conversations will provide them with a deep understanding of how to sell the product–insight they can then share with other salespeople as they come on board.
“When the time is right, I strongly recommend having founders do sales for at least the first year.”
If your company founders have an aversion to sales, you might try having them look at sales as part of customer success. Challenge them to think about the sales process not as trying to sell something, but as trying to solve the customer’s problem. Suggest that they position themselves as a customer champion, someone who will walk them through the conversion process. After all, if customer success is proactively helping people who already pay you money, sales is really about proactively helping prospects who aren’t yet paying you.
Both groups of people need support to move through their journey, and some need a little more handholding than others. Salespeople don’t need to live up to the stereotype. They can put themselves in the role of a partner who is there to help the prospect become a customer so they can get maximum value out of the product.
How is marketing different in a PLG company?
On the marketing side of things, I’ve found that product-led companies lend themselves to a more direct approach that doesn’t require you to spend a lot of time and energy producing a ton of content in order to capture emails.
Instead of relying on the gated content model, I like to cut to the chase by focusing efforts on creating a home page or landing page experience that drives a very high—in the 20%, 30%, 40%-plus range—signup rate. With my companies, we don’t really care about getting someone’s email. We care that they sign up and start using the product as quickly as possible.
This is a very different strategy from capturing contact info and then pursuing prospects via an email-based nurturing campaign. For a product-led company, I recommend skipping all that and figuring out how the product leads to conversion. Learn what kind of product experience gets people to sign up, and then—down the road—what the product needs to do to retain those people, engage them more deeply and potentially upsell them.
The key to all of this is successful onboarding. A good onboarding experience leads to high retention, which leads to paid conversion. To get onboarding working properly, you need to really understand your customers—their needs, pain points and typical behaviors. You can then use that information to create an effective product experience.
“You need to create such a great experience during onboarding that people feel compelled to tell other people about it.”
I have a similar philosophy about word of mouth. People are always looking for ways to crack the code on word of mouth, but it’s not really that complicated. The “secret” is to deliver value.
You need to create such a great experience during onboarding that people feel compelled to tell other people about it. For my company, FYI, this means ensuring that when someone signs up, within two minutes they can connect to the apps they already use and find the document they’re looking for in three clicks or less.
That’s the promise. Our goal is to deliver on it as quickly as possible in order to prove our product’s value to people who sign up.
It’s an absurdly simple concept, but—as with most things in life—simple does not translate into “easy.” In terms of execution, we have to do a lot of things right in order to successfully deliver the value we promise.
That’s part of the beauty of a product-led approach. The byproduct of addressing all your business challenges through the product is that you wind up with a stellar product that customers love.
Editor’s note: This story was first published in June 2019 and was updated in October 2020.
More on becoming product led
Thanks to the rise of product-led growth, it’s more urgent than ever to revisit freemium.