The State of Product Led Growth
How people use and buy software has been changing, creating a new go-to-market playbook: product led growth. The most successful product led companies (think Zoom, Slack, Expensify) flip the script on everything from how they design their user experience to how they approach pricing and packaging. We’re no longer in the era of the top-down, buyer-centric sale. Instead, these companies are orienting everything they do around the end user, and are being rewarded for it in public and private markets.
But how far along are companies in adopting product led growth? To find out, we surveyed 500+ SaaS leaders about how they leverage (or don’t leverage) product led growth to scale their business.
Here are the top ten insights from the survey, which shed light on the popularity of freemium pricing, how companies are using product analytics to make better decisions, the role of sales in a product led company, and much more.
1. Allowing customers to ‘try before they buy’ is the new norm.
Offering a free experience is a baseline tenet of product led growth. The name of the game is to remove any friction from getting end users to sign up and try the product before they buy. Paywalls should come only after a user has ‘activated’ and seen value in the product (but more on that later).
Three-in-five respondents (58%) say that they offer a free version of their software, indicating it is becoming the norm in the market. When a free version is available, it is most frequently a time-limited free trial. One-in-four (25%) have a freemium version; most with a freemium offering also have a free trial (likely to serve larger customers with more complex needs).
2. Emerging startups are embracing freemium at 2x the rate of their later stage peers.
A few years ago, SaaS companies seemed to be abandoning freemium, recognizing that it can be extremely difficult to convert free users into paying customers and fearing that free users would be too much of a drain on scarce resources. Since then, SaaS companies have gotten smarter about how they design freemium offerings to open the floodgates of user acquisition while still preserving the ability to monetize those users over time (for example, by pairing freemium products with targeted sales engagement and a product qualified lead methodology).
Take HubSpot for instance. The formerly sales and marketing-led company now offers freemium versions of their CRM, Marketing and Sales products. CEO Brian Halligan has described this revamped go-to-market motion as “a flywheel where the customers are the main driver that pulls in prospects” and boasts that half of HubSpot’s new customers use the free product before they buy.
We’re now seeing emerging SaaS startups building with freemium in mind as a way to outmaneuver later stage peers. In fact, seed stage companies in the survey are 2x more likely to offer a freemium version compared to later stage ones (41% vs. 20%, respectively, had a freemium version). We’re seeing that play out in our investment pipeline, too. Our newest portfolio company, balena, introduces freemium to the complex world of IoT infrastructure.
3. Free offerings aren’t only for consumer-like products.
There is a misconception that offering a free version is only applicable to consumer-like products that can be used with minimal setup (read Evernote, Trello, Zoom). The reality is that three-in-five companies with a free offering actually say that there is some complexity and friction to start using their product. In other words, friction isn’t an excuse to gate your product!
But…we would definitely advise keeping an eye out for these hiccups in order to improve the user onboarding experience over time.
One useful example is Pipefy, an enterprise-grade process management platform used by the likes of large brands such as IBM, Randstad and Santander. Pipefy mitigates the complexity of their product by giving free users easy-to-use process templates based on the most common use cases that customers have. This helps free users see the potential value of the product, even if their specific use case requires a more in-depth implementation.
4. All companies, especially those with a free offering, need to optimize their in-product onboarding.
Users now expect the same quality of experience in their SaaS applications that they have in their personal apps. They want to comprehend the product quickly (ideally in hours or minutes) and without sitting through formal training. To achieve this, it is critical to onboard and guide users in-app. The stakes are especially high for companies that have a free offering, since free users have no ‘skin in the game’ and will quickly abandon something that seems too complicated in favor of a simpler competitive product.
The data shows that we’re still in the early days of smooth in-product onboarding. Almost nobody, even those with a free offering, believes that their product can thoroughly explain itself to new users. Those without a free offering are especially bad; more than 80% of them admit that their in-product onboarding experience is lacking. This negative experience will naturally impact a user’s likelihood to recommend the product and invite others into it.
The good news: companies don’t have to build this capability in-house with their own engineering resources. There are now a number of third-party tools that can help.
5. Product analytics have reached mass adoption. But are companies actually using all of this beautiful product data?
We were pleasantly surprised to see that nearly 80% of companies have adopted in-product tracking and analytics, mostly leveraging third-party software that they can plug into their application.
Collecting data on in-product activity is only part of the equation. The data needs to inform actual decision making. One tip: make the data accessible to all key functions in the organization: product (for prioritization of new features), growth (to optimize in-product onboarding), sales (to reach out to the right users at the right time), customer success (to flag users at risk of churn) and more.
6. Step one to leveraging product analytics: define user activation. Only 44% of companies are doing that today.
In-product analytics can be overwhelming and can lead even a strong data scientist down an endless rabbit hole. The first priority should be to leverage product data to define user activation, i.e. the minimum point when a user has reached their ‘aha’ moment and found value in the product.
Once a customer has activated, they are much more likely to continue to use the application (and thereby generate revenue in the future). The classic example is Facebook, which aims to get a new user to reach 7 friends in their first 10 days. A company could have one specific activation point or could have a suite of product actions that represent activation.
The idea of measuring user activation appears to be gaining traction in the market. While fewer than half of respondents have a consistent definition today, another 34% say that they’re actively evaluating it.
7. Sales isn’t a four-letter word: sales still plays an important role in product led companies.
Having a free version doesn’t necessarily mean that all customers convert via self-service. Of SaaS companies with a free version, only one-in-four see >50% of their paying customers buying purely via self-service.
Sales reps are still important to educate users and facilitate the buying process. Studies consistently show that salespeople increase conversion rates. But how can companies take a product led approach to sales?
8. Sales and customer success efforts should be directed at Product Qualified Leads. Only one-in-four do that today.
While sales has an important role in a product led company, we’re not suggesting that product led companies adopt a traditional sales playbook (i.e. hiring an army of inside sales people, running lengthy product demos and the like). A product led approach to sales should be more consultative, targeted and contextual, thereby providing a better customer experience while maintaining low customer acquisition costs. It should leverage product data to supercharge the sales team by helping them identify which targets are most likely to convert.
Enter the Product Qualified Lead (PQL). PQLs are users who’ve demonstrated in-product behavior that triggers sales engagement. This in-product behavior can be reactive (people who have more complex needs and want help) or proactive (people who are showing signals that they’re ready for an organization-wide purchase). PQLs already see value in the product and typically exhibit much higher rates of conversion than traditional MQLs. What’s not to like?
We’re still in the early days of PQL adoption. Only 23% of those surveyed track PQLs and their funnel conversion. Fortunately, that appears to be changing fast: another 32% say that PQLs are on the roadmap.
9. Product led companies need growth teams to drive these initiatives forward.
Yes, everyone in a company should be responsible for growth. But without a clear owner, growth initiatives can take a backseat to more urgent, day-to-day responsibilities. Growth teams are becoming more common, even at early and expansion stage companies. By the time a company has reached the growth stage (north of $20M in ARR), 62% now have a dedicated growth team.
Despite the rise of these teams, there isn’t always clarity regarding what these teams do and how to hire for the role. For more insight on the topic, we suggest Brian Balfour’s post from back in 2014, where he explained growth as the “blending of marketing, product and engineering into one tight knit team.”
10. Growth teams align their companies around key metrics and foster a culture of continuous experimentation.
The presence of a dedicated growth team dramatically impacts the pace at which companies embrace key elements of product led growth. Those with a growth team are 2.6x more likely to be running one or more experiment at a time, which drives continuous rapid improvement throughout the funnel. They’re also 50% more likely to have a definition of an activated user, which helps ensure that those experiments actually impact user behavior (and ultimately revenue). Tldr: growth teams are high ROI teams; hire them early.
Thank you to everyone who participated in the survey and to Miriam Richter for helping analyze the data. If you have questions or observations about this data, please send us an email or a tweet.
Thanks to the rise of product-led growth, it’s more urgent than ever to revisit freemium.
Every company wants to achieve rapid growth, but it can’t happen without cross-team collaboration.