What is Product-Led Growth? How to Build a Software Company in the End User Era
June 14, 2021
How did your company adopt Slack?
I don’t know your company’s story, but I’m guessing this is how it happened: Jane heard about Slack from a friend, so she signed up and started using it with her team. Pretty soon the whole company was on Slack, and no one can remember life before it.
Most software companies dream of seeing people adopt their product like this. But they don’t know how to get there. From the outside, it looks like magic.
It used to be hard for a company to adopt new software. Long sales processes, complex implementation, formal training and certification—the list goes on.
All this took a lot of time—months, quarters, sometimes even years.
But today, software just shows up in the workplace unannounced. End users are finding products on their own and telling their bosses which ones to buy. And it’s all happening at lightning speed.
This dynamic is new, but it’s not magic. The best software companies have recognized this market shift and have put end users at the core of their business.
In its S-1 filing, Slack stated, “Many organizations adopt Slack initially as part of our self-service go-to-market approach. Organic growth is generated as users realize the benefits of Slack.”
And it’s not just Slack. Atlassian’s S-1 says, “We recognize that users drive the adoption and proliferation of our products.” And you’ll find similar quotes in the S-1s of Zoom, Shopify, Twilio, Dropbox and other recent IPOs.
What about your company? Is your product being “magically” adopted by new customers? Do you describe your business with the same end-user language that Slack and Atlassian use in their S-1s?
Or is this idea still a total head-scratcher to you?
We are at an inflection point. The software market is continually evolving, and we’re witnessing the rise of the end user. Here’s the harsh truth: software companies must adapt and embrace the end user if they want to remain relevant.
Product led growth: How did we get here?
When I first observed this trend, my goal was to get down to first principles. I wanted to see if this thing was real and if it deserved further attention.
After some digging, I uncovered four foundational elements that drive evolution in the software market:
☁️ Infrastructure: Where does software live?
💰 Cost: How much does it cost to build and buy software?
👩💻 Buyer: Who evaluates and selects software products?
🛒 Distribution: How do software products get in front of the buyer?
These interconnected factors all feed off of each other. As infrastructure evolves, software becomes cheaper to build and easier to buy. These cost savings are passed on to the customer and the purchase price falls. More affordable software that’s easier to buy drives decentralization in purchasing power and the buyer persona moves down the org chart. As you might expect, distribution continually adapts to fit the evolving market landscape.
A history of software in three eras
When you examine the history of the software industry with these drivers in mind, things quickly snap into three primary eras: the CIO Era, the Exec Era, and the End User Era.
1. The CIO Era
The CIO Era dates back to the 80s and 90s when the software industry really got going. Back then, software lived in a physical box installed on a physical rack inside of a physical data center. This monolithic on-prem software was expensive to build and expensive to buy—think 6- to 7-figure CAPEX purchases.
The CIO was the buyer and her key decision-making criteria was IT compatibility—will this product work in my environment?
During this period, software distribution was defined as “sales-led growth” with blazer-clad field sales reps taking CIOs out to fancy steak dinners in hopes of winning the RFP.
Yeah… the CIO Era was the stone ages.
2. The Exec Era
The Exec Era began in the 2000s, and you know the story. Virtualization eventually drove software out of the data center and into the cloud. On-prem became on-demand, and SaaS companies made sure to specify that their software was proudly “single-instance, multi-tenant.”
Development costs fell as it became possible to build, maintain and continuously improve a single codebase for all customers. This drove a huge economic shift for customers: you don’t buy the expensive software anymore; you rent it for a fraction of the cost.
The CIO went the way of the data center and we saw the rise of the non-technical executive as the new buyer.
The decision-making criteria was now all about the ROI and the KPIs—will this product help our team achieve its goals?
These huge paradigm shifts brought us “marketing-led growth” as a distribution model, and we all started using fun terms like MQL and SDR for the first time. Inbound marketing fueled high-velocity inside sales, and we jumped on the treadmill of chasing demo after demo, gong after gong.
The Exec Era should feel familiar. This is what the VCs and SaaS talking heads are still droning on about online, on stage, and in the boardroom—even though it’s rapidly declining in relevance as software evolution continues at a breakneck pace.
3. The End User Era
And so we come to the present day and the End User Era. While the shift in focus to the end user feels like a hard pivot, it’s just the next logical step in the market’s evolution. Infrastructure has become an elastic utility that scales as needed, and developers have gained further superpowers from APIs and other modular tools and services.
Developers increasingly compose software by stitching together building blocks with new logic, rather than hand-coding everything from scratch. The efficiency gains passed along to customers mean that it’s cheaper than ever (usually free) to try out a new product. Thousands of shiny new products are just a few clicks or taps away. The affordability and accessibility of software has fully democratized purchasing down to the end user.
The decision-making criteria is now personal productivity—will this product actually help me day-to-day?
Software distribution today is best described as “product led growth,” and it looks a lot like consumer growth models. When you need to attract tons of individual end users to a free product, human-dependent growth doesn’t scale.
The only choice is to de-labor the distribution engine behind your product by empowering end users to find, evaluate and adopt your product on their own.
Related read: The Ultimate Product Led Growth Resources Guide
There is an inexorable march toward the End User Era that simply can’t be stopped. As a software company, you can’t opt out of this secular shift. It’s pretty damn obvious that you wouldn’t build an on-prem product geared for the CIO Era. While you can still get away with building your business for the Exec Era, that wave has already crested and its days are numbered.
The End User Era is here. Product led growth is how you thrive in it.
What is product led growth?
Product led growth is an end user-focused growth model that relies on the product itself as the primary driver of customer acquisition, conversion, and expansion.
Many companies will say they’re fully aligned with the end user, but they’re usually only thinking about a small aspect of it, like consumer-grade design or freemium pricing. Those things are important, but they’re only small parts of the greater whole.
In order to succeed today, software companies must go all in by building a product for end users and distributing that product directly to the same end users.
How to build a product for end users
Successfully building a product for end users is rooted in two fundamental principles:
🎨 Design is not enough
🤕 Solve end user pain
Design is not enough
Design first became critical to software success around 2011-2012 when the consumerization of IT was all the rage. The basic premise was that legacy software was clunky. But as consumers, we had gotten used to well-designed apps and websites. Naturally, we all wanted the software we used at work to look and feel more like the well-designed consumer apps and websites we loved.
So product design became a thing. And for a while, it was a differentiator. A new product could upset a clunky incumbent by focusing on design. The consumerization of IT totally worked, and we are all its beneficiaries.
Good design is imperative today, but it has been downgraded from a differentiator to table stakes. It’s not unique, and it can’t take sole credit for the dominance of companies like Slack. There is clearly more to their success than pretty pixels and intuitive navigation.
Solve end user pain
In order to attract end users, your product must solve end user pain.
Every software product has two possible personas: executives and end users. And they each think about pain very differently.
Executives are usually looking to increase ROI by improving an underperforming KPI. This is your standard businessperson fare. At the other end of the spectrum, end users are usually looking to automate or simplify an annoying task.
Successful software products are tailored to a primary persona and their pain. For example, check out Slack vs. Salesforce:It can be tempting to dismiss end user pain as petty whining. The ROI-oriented lingo of the executive sounds much more business-y and professional, so it’s no wonder we are drawn to it when building business software. But this is a mistake in the End User Era. The most successful software companies have figured out that end user annoyance spells opportunity:Building a product for end users is about aligning to their pain. Beautiful design, friendly mascots and emoji support in the app aren’t enough. You have to actually solve a problem.
How to distribute a product to end users
You’ve built a product for end users. Now you have to get it into their hands.
It’s important to avoid the trap of trying to sell an executive on the value of a product designed around solving end user annoyance. They just won’t get it. It will always feel like a nice-to-have to a KPI-focused executive. In other words, pick a lane and stick to it.
Aligning distribution to the end user requires that you think like a consumer rather than a businessperson. After all, end users are just consumers who happen to be at work.
With that in mind, what do consumers hate when looking for a product online? Friction. To effectively distribute your product to end users, you must remove the friction from the process by:
🏠 Distributing your product where users live
🏃♀️ Making it easy to get started
🏅 Delivering value before the paywall
📞 Hiring sales last
Distribute where they live
End users are always looking for solutions to their pain. Your job is to make it easy for them to find your product. Which screens do your end users live in all day at work? Sales reps live in Salesforce. Online merchants live in Shopify. Knowledge workers live in Chrome or Slack. Non-desk workers live on their smartphones. And with so many people working and learning remotely, we’re all pretty much living in Zoom.
Every end user has 2-3 primary screens where they live at work. It’s probably while working in these screens (or toggling between them) that they get annoyed. Your product’s proximity to end user annoyance is key.
If your end users live in Chrome, distribute through the Chrome Web Store. If they live in Slack, distribute through the Slack App Directory. If they live on their smartphone, distribute through the App Store. You get the idea: multiple screens, multiple distribution channels.
Make it easy to get started
Once end users find your product, you want to make it as easy as possible for them to get started. No delays. No hoops to jump through. And definitely no commitment. End users demand self-serve signup and onboarding. Remember that end users are just consumers at work, so impatience is their default factory setting.
Friction in the signup and onboarding funnels is usually caused by humans. No matter how helpful and friendly your team is, end users don’t want to talk to them. Remove the humans from your signup and onboarding funnel, or end users will abandon the funnel.
Think of yourself as a consumer. You don’t want to order from an Amazon sales rep, you want the ease and speed of a one-click purchase. You don’t want to DocuSign a contract from Instagram to accept the Ts & Cs. You don’t want an onboarding call from a CSM at Uber before you can take your first ride. When in doubt, ask if you would tolerate it in a consumer app.
Deliver value before the paywall
Once an end user is set up on the product, you need to immediately solve the pain that brought them to you. And this has to happen before they hit the paywall.
Again, think of yourself as a consumer—how often do you pay for an app or subscription without trying the service first? You might happily subscribe to Spotify, but only after you’ve browsed the library and made some playlists. You want to get value before you buy. End users now expect the same from business software.
What is the “aha moment” in your product? For Zoom, it’s after you’ve hosted your first meeting. For Expensify, it comes at the end of the month when you realize your expense report is ready to submit and all you did was snap a few pictures.
If you put the paywall before the “aha moment,” you kill your conversion rate. It feels like a broken promise on the call-to-action that brought the end user to you, and they will bounce.
You are in a value exchange with end users. Deliver value before requesting value in return.
Hire sales last
Despite all this talk about end users being consumers at work who want a self-serve experience, you do still need a sales team. You just don’t need them right away.
In the old world of sales led growth and marketing led growth, you couldn’t get new customers without salespeople. Someone on your team had to pitch the budget-holding executive and convince them to buy.
But in the End User Era, hunting for executives with budget is a losing proposition. Software buying has flipped, so your hiring should follow suit. You used to hire sales first, but now you should hire sales last.
The goal today is to leverage product led growth to turn your product into an end user magnet. Once you have end users, the first thing they need is support. So you hire a support team to help end users with anything you can’t automate or defer to the community.
Related read: How to Pair Sales and Self-Service for Maximum Impact
The product itself then drives end user conversion and expansion through increased usage, viral loops, collaboration and word-of-mouth referrals. As your product footprint expands from individual end users to teams, they will need help with new use cases, deeper integrations and perhaps switching to a team account with an invoice.
And since these teams are all-in on the product, you should be proactively helping them get the most out of new features and releases. Sounds like a great time to hire a success team.
The end users and your success team are now working together to drive continued expansion inside the customer’s organization. As small teams become big teams, the customer needs more help. Your product has become a big deal to the customer—both in terms of value and cost.
It eventually becomes a big enough deal that you start running into the customer’s internal red tape—budget approvals, executive sponsors, procurement, legal, etc. All the fun stuff.
Your customer wants to buy more of your product, but they need your help. This is the perfect time to hire a sales team to help your champion navigate their company’s buying process, hand-in-hand.
Product led growth is not anti-sales. But in a product-led company, sales takes a consultative approach that looks and feels more like customer success than traditional sales. End users love your product and are happy to pay for it. Remove friction and help them expand usage by letting the product lead, while support, success and sales follow.
Product led growth is not just a trend—it’s taking over
Which software companies do you admire most? If you’re looking for companies to emulate, may I suggest the following:
A few years ago, only a handful of young public companies had adopted a product led growth model. Today, there are 21 large public companies with a PLG model. And the PLG IPO wave continues to build momentum. This slide comes from the 2020 SaaS Product Benchmarks Report:
Post-IPO, PLG companies perform better than other companies, including the non-PLG SaaS companies that were built for the bygone eras of selling to CIOs and Execs.
Product led growth has already created more than $200B of market value, and we’re still seeing exponential growth:
It pays to embrace product led growth. Your company wins when end users win.
Be like Slack
“Be like Slack” is not particularly helpful advice. But your favorite VCs and tech bloggers are saying things like that all the time. The appropriate response is, “Duh. How?”
The End User Era is upon us, but many software companies are still relying on decades-old advice about sales and marketing-led growth models that are human-dependent and untenable in the current market environment.
The software market is constantly evolving and you need to evolve with it. The forces driving us to the End User Era aren’t going anywhere, and it’s time to adapt.
Be like Slack. Remember how Slack got adopted at your company? It all started with Jane.
She’s an end user, and she’s calling the shots these days. So yeah… be like Slack. Go get Jane.
Editor’s note: This post was first published on August 6, 2019 and was updated on June 14, 2021.