What VCs Really Look for in a PLG Company

September 21, 2021

When it’s done right, product-led growth delivers powerful and predictable sales and marketing efficiency. Blake Bartlett describes PLG as a way to essentially de-labor growth by productizing the go-to-market engine. 

In the best-case scenario, PLG delivers the ability to have your cake and eat it, too. It gives you the ability to grow fast on the top line while remaining capital efficient. And in many cases, PLG also drives bottom-line profits. “PLG bucks the historical tradeoff that you can either burn a lot to grow fast, or burn less but grow less,” says Blake. PLG tosses that traditional assumption right out the window.

But, as appealing as PLG is, it’s no magic bullet. You have to have patience and a well thought out plan to get it right.

Blake recently hosted Ed Sim on the BUILD Podcast for an investor-to-investor chat about PLG companies. Ed is the founder of boldstart ventures, a day one partner and true believer in developer-first and SaaS founders. Their conversation covered what they look for in a PLG company, the red flags they’ve seen over the years, where to start, and what lies ahead for PLG. 



What Investors Look For – Maniacal Product Focus

While Ed and Blake invest in companies at different times—Ed in the pre-product phase and Blake post-product market fit—they both look for similar traits when assessing a PLG company. Most importantly, they look for great founders who have a maniacal focus on product. Ed specifically seeks out technical founders. “We love investing in companies that were born out of pain,” Ed says. He loves working with engineers who got tired of dealing with a particular problem, decided to fix it themselves, and realized lots of other people had the same problem and would be willing to buy their solution.

Whether the founder is an engineer or not, they have to be product obsessed, which means also being obsessed with the problem and the user. “When you’re thinking about what makes a product, you have to think deeply about who it’s made for and what problem it’s solving,” says Blake. “It’s kind of like thinking about a startup opportunity from first principles—boiling it down to the exact person and exact problem.” 

Ed agrees, noting that the founders he admires most have an incredible ability to zoom in on the user persona. “Only by understanding and optimizing for that one user can you build a product that really makes sense,” he says.

“You need to ask how your product can make that user’s life ten or a hundred times better.”

Guy Podjarny, the founder of Snyk, is a fierce adherent to this approach. The developer-friendly security product has become a $5 billion company by ensuring a constant focus on their North Star: solving the security problem for developers. That mission never changes, and it permeates everything they do. By living and breathing the day-to-day challenges and achievements of their core user, they are able to make the best decisions for their users and their product.


What to Avoid – An Inability to Walk the Walk

On the flip side, there are plenty of warning signs that investors should watch for when assessing a potential PLG investment. Blake and Ed covered three of the most common red flags.

Misaligned Strategy

It’s easy enough to say you’re building a PLG company, but your actions need to match your intentions. “Part of our job as day one investors is sniffing out the folks who say they have a PLG business, but the end of their deck is all about enterprise design partners and top-down sales. And there’s no metrics on user activity or growth,” says Ed. “If you’re truly PLG, show me the numbers.”   

An example of a company that is truly committed to a user-centric, bottom-up PLG approach is Dooly. Founded by Justin Vailancourt and Kris Hartvigsen, this company just landed their latest round of funding, a Series B of $70 million. The press release and other media on this milestone is all about the user and how the team at Dooly is always optimizing for the individual sales rep. Their work is 100% about the user and the user workflow. It’s totally PLG. 

Inconsistent Hiring Decisions

Hiring velocity is always a consideration for investors. They want to know that the founder has a team waiting in the wings and ready to go. But Ed also points out that it’s important that a company is bringing the right people on board at the right time. For instance, he says,

“I want to know where the designer/UX/UI person comes in. It’s really important in a PLG company for the product to be beautiful and the experience to be frictionless. I want to hear that language from a founder, and see support for that in the hiring. If there’s no designer on board by employee number ten, that’s a big red flag for me.”

Ed admires Rahul Vohra’s attention to design detail and experience for Superhuman—his super-fast, super-sleek email client. “Rahul is so obsessed about the product that he built his own font, based on the New York Times font, into Superhuman,” Ed says. “That’s the kind of product obsession we look for in founders.”

An Inflated Marketing Budget

“The best founders are really good at building community,” says Ed. “This is critical because, once it’s out in the world, people can copy your product. Building a rabid community around your product, however, is like building a very strong moat that will protect your business over time.”

If a founder isn’t confident that they will be able to create a lively and mutually beneficial community that facilitates productive dialog between their engineers and their users, they may fall back on dumping a lot of financial resources into marketing and advertising to close the gap. That’s a warning sign that the product might not be strong enough to speak for itself and the company might not have a plan for reaching their audience in critical non-traditional ways.

Ed and Blake agree that marketing has a role to play. Their concern is more about the order of operations.  “Marketing is supposed to be more like throwing gas on a fire, like an accelerant,” Blake explains. “The fire has to be going already. The gas is not a substitute for creating the fire in the first place.”


Where to Start – A Mypoic Focus on the User

For founders trying to figure out how to think about the total addressable market (TAM) and where to start, Blake and Ed have one main piece of advice: start small—start with the user. “You always want to go back to that myopic, narrow focus on the user,” says Ed.

“The one question I always ask myself and my team is, ‘Can you actually make your product indispensable to the user?’ If users don’t love your product, if they don’t find value in it, they won’t renew or expand.”

Starting small doesn’t mean staying small. As Blake points out, the TAM you end up with is not necessarily the TAM you start with. There are multiple expansion vectors that can help you grow. The design platform Figma is a good example of how you can build initial messaging around a specific audience—in Figma’s case, designers—and then expand from there. This strategy doesn’t mean you need to build your entire product around a single audience, you just build your messaging for that audience. Then, once you’ve developed a loyal audience, you can reach out to adjacent groups. After conquering the designer market, Figma expanded its reach to include teams, launching a collaborative whiteboard product called Figjam. 

You need to think about how your product embeds into the user’s workflow. Can it be cross functional? Can it help collaborate? How can you get more people using the product in a kind of land-and-expand strategy that starts with an initial core group of users, but then branches out to touch the groups that interact with that core group?


How to Grow – Experimentation and Analytics 

Product-led growth does not exist without product, so step one for PLG success is to nail the product so that users become highly engaged and deeply loyal. Step two—which needs to happen more or less simultaneously—is to build in analytics. “You can’t have a PLG company unless you know how people are using the product,” says Ed.

What this looks like will vary from company to company. The analytics stack Ed sees most frequently is a combination of Fullstory, Segment, and Amplitude. And many organizations will also hire a growth hacker—an individual who is part engineer and part experimenter.

Whatever stack and staffing you choose, the main goal is to get as obsessed about the funnel as you are about the product. That’s the only way you will be able to accurately identify growth opportunities. “Rapid experimentation is part and parcel of PLG at all stages,” Blake says. “But if you’re not measuring anything, if you don’t have the tooling in place and can’t measure the efficacy of your experiments, it’s all for naught.”

In addition to having the right resources and tooling in place, you also need the right investor and partner. “You need an investor who is willing to experiment with you. Someone who understands that you’re probably going to fail three or four times, and wants you to keep testing and experimenting anyway,” says Ed.

Throughout the process, you need to continually focus and refocus on the right metrics to measure the actual results of your experiments. “Obviously ARR going up and to the right is good, as is high retention and low CAC,” says Blake. “But it’s also important to look at your activation metric and your DAU, WAU, and MAU. Also, what is your product’s primary purpose and how can you measure that? You need to know what your North Star metric is and have everything wired up to measure that.”


The Future Looks Bright for PLG.

The outlook for PLG is good. Today’s buyers are younger. They don’t want to be sold to. They tend to get their information from Google, social, and their personal networks of friends and colleagues. “To win the hearts and minds of a large enterprise, you’re going to have to go bottoms up,” says Ed. 

Ultimately, PLG success seems to come down to maintaining focus on the user and having the fortitude to stay the course. There may be temptations along the way, but don’t be lured by the promise of a big enterprise sale. Diverting resources to get that big-dollar, ad hoc sale means taking your eye off the ball, which can sabotage your bottom-up user adoption. Be patient. Be steady. 

While there will always be large companies that sell from the top down, Ed doesn’t see them as the primary threat. “It’s not the large companies that you can see that you have to worry about,” he says. “It’s the ankle-biting PLG company that comes out of nowhere, open sources your sh*t, and destroys you in two or three years because you never saw them coming.”

Blake wraps it up nicely, “Every software product has end users, and it’s not usually the VP or C-level, right? There’s someone who actually has their hands on the keyboard or the mouse, someone who has experienced frustration and who has ideas about how something can be more efficient. Build toward that person. Help make that person’s life easier. If you don’t do it, somebody else will.”


OpenView, the expansion stage venture firm, helps build software companies into market leaders. Through our Expansion Platform, we help companies hire the best talent, acquire and retain the right customers and partner with industry leaders so they can dominate their markets. Our focus on the expansion stage makes us uniquely suited to provide truly tailored operational support to our portfolio companies. Learn more about OpenView at openviewpartners.com.