Product-led growth gets a lot of attention these days, and for good reasons. It even has its own acronym, “PLG.” I don’t think that the product-led growth model is anything new per se, however, it is an emerging mental model in the product industry that originated from the business-to-consumer (B2C) world.
Before we even define what product-led growth is or what product-led growth (PLG) companies are, let’s focus on the business-to-consumer (B2C) industry and establish some of the characteristics of this industry:
- Margins are thin.
- Churn can change very rapidly in any direction—exit costs are low for users.
- Unless a monopoly/duopoly emerges (Google, Facebook, Amazon, etc.), competition is fierce in most categories, like streaming, to-do lists, writing, collaborating, grocery delivery, entertainment, etc.
- The user = the buyer. (In this context, they’re the same person.)
These characteristics are why product teams in the B2C world have had to find creative and inexpensive ways to market their product using the innovative tactics of the moment. These tactics include freemium models, frictionless onboarding, gamification, virality loops and, in general, enabling new users to rapidly experience the product’s value with minimal investment of time or money.
In addition, because this is a very fast-paced environment (you can cancel your Netflix subscription and choose a new provider in 5 minutes or so), they also had to control their product usage metrics very closely as an early-warning signal for their overall company performance. These teams had to dig very deep to ensure they understood their user’s context, develop usage-based metrics and KPIs to detect any unintended behaviour change, and change/adapt their product accordingly. We now have well-established literature on product development principles like empowered product teams, continuous discovery, lean analytics, growth hacking, A/B testing, etc.
The cost of failure for these teams is very high: usually, the company ceases operations or is purchased with no discernible benefit to the funding team. Success is very rewarding for everyone involved in the venture.
What is product-led growth?
It is a combination of in-product choice architecture, customer experience, company-wide strategic decisions, and company-wide pricing decisions that:
1. Enable users (and sometimes buyers) to experience the value at the individual level provided by the product with a low-effort user journey and low costs.
2. Empower users to discover, try, and adopt unknown features in a self-service way.
3. Monetize usage so that the product generates net profit for the organization.
If you are in product management, all this must seem like well-known and well-documented strategies and tactics.
So why is product-Led growth a significant trend these days?
Let’s now focus on the business-to-business (B2B) world.
We’ve seen that the first wave of product-centricity (or product-led growth) occurred in the B2C world. But product-led growth is now hitting the B2B arena. According to specific estimations, the B2B total addressable market is twice the size of the B2C one. While these product-centric techniques were once practiced only within the highly successful B2C companies (Google, Facebook, Amazon, Netflix, etc.), we are now reaching a point where lots of B2B companies have been using the same toolkit to challenge the B2B market with product-led businesses like Slack, Shopify, Dropbox, HubSpot, and other SaaS companies. We now have many examples at scale that successfully apply the product-centric best practices in a B2B context.
Said differently, product-led growth is a direct consequence of the Digital Transformation wave that now impacts every sector of society.
What are the challenges of pure sales-led growth?
In contrast with a product-led company, let’s have a look at a typical sales-led organization in a B2B company today, particularly B2B software companies. Traditionally, the sales team was the main driver of revenues in the B2B world. Consequently, the VP of sales dictated most of the roadmaps. This is how the traditional direct sales model plays out: the marketing team is in charge of finding marketing-qualified leads (MQL). In this business model, the sales team now calls these leads and does its best to qualify them as sales-qualified leads (SQL, not to be confused with the SQL database standard!). The goal of the sales team is to close this SQL with all sales reps incentivized to “always be closing” (a shared meme in the sales field!).
In this context, each time the sales department encounters a buyer with some unmet needs, there is a meeting with the product team, and it usually goes like this:
- VP of sales: This feature is absolutely critical to winning an enormous deal with a new customer. You have to do it and do it before the end of this quarter.
- Product Owner (there is usually no strong product leadership): Yes, but then I have to drop this and this.
- VP of sales: No, we can not drop any of those or we will miss our target. Find a way to make it work.
- Product Owner: …
In real life, it may be more balanced and nuanced. Check your product roadmap: do you have features containing one or more customer name(s)?
In general, the team delivering these features are not empowered: they want to get done with it, meet their deadlines, and please the stakeholders (not the customer!). This, in turn, creates an unsustainable environment with crazy deadlines, no discovery, and poor quality—not exactly the foundation for a successful product! In fact, these buyer-centric features are often hidden behind feature flags and only available to a few customers. They are rarely marketed publicly: only the folks that did interact with the feature have a real understanding of it—and it’s typically a feature that solves a single-client problem (not a market problem).
Why is the PLG wave pounding the B2B world now?
It is happening now because, these days, you’ll find 10+ startups with a great product, founded by ex-employee of product-led growth B2C companies that are perfectly happy to target the smaller customers with a pure self-service product and PLG tactics (viral loops, self-service, free trial or premium, etc.). These customers are considered “small fish” by the current market leaders because they don’t have the spending power to be worth a traditional sales organization’s time. The startups then take the time to build a product-centric organization that delivers a product-growth engine. And as they grow, they start to take precious market share from sales-led legacy players who suddenly take notice—like a grizzly bear suddenly noticing that ants have hauled away a quarter of his honey.
If you work in such a start-up, understanding the incumbent’s context (and the benefits of direct sales growth) is also crucial. With the popularity of PLG increasing, you should expect more and more incumbents to pay attention to this weak spot of theirs. If you can outmaneuver them and continue to grow the outcomes, maybe a super-happy ending (think Slack or Figma acquisitions) is in your future. If not, your startup could be crushed into oblivion by a competitor with 100x your revenues that applies a product-led approach while leveraging its direct-sales capabilities.
Key differences between direct sales and product-led sales
These two sales channels do not have to be opposed. In fact, successful organizations are meshing these two channels together (and any other sales channels like partnerships, marketplace tactics, and referrals) and reinforcing each of these channels by offering the prospects and current users more choices to buy from them. Let’s zoom in on the key differences between direct sales and product-led sales:
|Direct Sales||Product led sales|
|Customer Acquisition Cost||Very high (all the sales + marketing team + R&D team)||Very low (R&D team with some marketing)|
|Viral Loops||Word of mouth, referral customer||Some can be built in the product (invite friends, referrals, etc.)|
|Monthly Recurring Revenue (MRR)||Higher (SQL leads need to have a certain contract value)||Smaller to 0 (if you use a freemium/free trial approach)|
|Lifetime Value (LTV)||Higher (contracts tend to be yearly and longer)||Smaller (usually no contract and monthly agreement)|
|Total Addressable Market (TAM)||Smaller (large & enterprise only)||Larger (long tail: from single business owner to enterprise size)|
|Ownership||Sales organization||Product organization|
What are the connections between direct sales and product-led sales?
There are a few bridges that you have to create for both sales channels to thrive.
- Leverage product signals to create product-qualified leads. Like the traditional Marketing Qualified Leads (MQL), these will usually delight your sales team! Make sure to get attribution to the product-led growth engine, but the more you can send accurate purchase signals to your sales team to meet their goals, the more they will also help you succeed.
- Leverage product signals to create churn signals. The lifecycle & maturity models you will develop for your users can also be used to detect at-risk customers for large organizations. You will be able to save a few major accounts via your account management or sales team with this information—another great way to build goodwill and help the direct sales team thrive.
- Make sure to consider the direct-sale buyer journey—not only the product-led one! While the main focus of product-led growth has to be the user, make sure you also understand the direct sales cycle and how large clients onboard your product. Minimally, you don’t want to break their experience. But what would be even better would be actually to help the onboarding team be successful by enabling self-service for your biggest customers.
- Prioritize with a data-driven approach. Make sure to leverage the sales feature request backlog and investigate/discover each of these carefully. Those are great data points. To prioritize these featured, assess whether or not this is a shared need in the industry. If yes, you should make every effort to get this prioritized and then provide regular feedback to the sales team.
- Promote sales enablement. Usually, investment in product-led growth leads to a better product experience and simplifies the sales team’s work. The sales team can now confidently direct product users to your product so that they can, by themselves, experiment with the functionalities that the sales team is trying to sell. Make sure to champion this approach and give the sales team visibility on these organizations’ product activity metrics (including sales & purchase signals). You need to continuously empower your salespeople to become more proficient with the product as the product evolves which becomes easier and easier thanks to your investment into a frictionless self-service product experience..
How to start product-led growth in a sales-driven organization?
Firstly, you should assess your maturity regarding the product organization and the company strategy. We will review three common scenarios.
No commitment: get one!
If you are at the beginning of implementing product-led growth sales channels, you’ll have to evangelize a lot to your stakeholders and C-suite to establish clear goals for the product team. Ideally, you need a budget and a commitment to running experiments to try to convert more users without the need for a sales call or for a demo. Until you have this commitment (it should be reflected in the company strategy as well as the mission/vision of the product organization and in your roadmap), it will be challenging to move the needle and implement a product-led growth approach.
Some level of commitment: experiment, learn, and repeat!
If you have some level of commitment, congrats! You can now start to experiment, measure and learn. The main challenge you will face is that many folks do not understand exponentials. Initially, the revenue and conversion rate will be terrible, as will the MRR and LTV of your first customers; your initial numbers will be low and depressing compared to the enterprise revenues. Also, it will challenge the organization: because the customers are smaller, the cost of goods sold (COGS) may suddenly become an issue, as will the pricing model you’ll need to hit the right numbers.
Be pragmatic. Optimize what you can and then focus on the biggest hurdle you are facing—be it free trials, a freemium model, self-serve, pricing model, etc. Do your research, select the critical factor, and work to improve it with the key stakeholders; usually, C-Level has to be involved in these decisions. Once you have product analytics, conversion numbers (in $), expansion (in $), product qualified leads ($), churn and churn signals; you will have all the data required to determine the right improvement areas.
As the product-led cohort matures, grows in revenue and represents a higher share of the revenues and profits, you will be able to have a great conversation with all key players in order to bring the product-led sales channel to the next level.
Running on all four cylinders: optimize the touch-points with the key sales channel!
At this stage, the low-hanging fruits have all been harvested. Now it’s time for cross-team collaboration, and global sales funnel optimization on some well-identified, high-impact areas. Your main levers to improve product-led growth performance are not directly within the product team but require coordination, learning, and change from more than one team in your organization.
For each sales channel in your organization, you can ask yourself:
- How can we remove friction/fluidity from these flows?
- How can the internal team’s experience be improved?
- What can we do to improve the experience both for these teams and the users?
Each sales channel has its own specificity and growth engine, but at some point, all successful sales end up with more product usage. Typical sales channels with specific growth need the enterprise sales, SMB sales team, partnership team, marketing team, community team, and customer success team to speak the same language, adopt the same definitions, and work collaboratively to improve the buyer and user experience at the same time.
Once you understand each of these channels’ needs, as well as the prospect and customer lifecycles, you will identify key areas of improvement that can greatly impact the company’s top and bottom lines.
How to start direct sales in a product-led organization
Great question, but this is out of the scope of this article.
If you don’t have direct sales and your only growth engine is your product-led growth—and if you start interacting with medium to enterprise businesses more often—it may be time to set up additional sales channels like a direct sales team or an enterprise sales team. You are most certainly losing a lot of opportunities.
Product-led growth is nothing new in the B2C world. However, because of the digital revolution (computers are now effectively everywhere!), it is now sweeping the B2B world with the strength of a category 3 hurricane—and it can cause the collapse of some well-established structures. A good way to avoid unnecessary tension is to promote product-led sales as an additional sales channel. If you start from scratch, this sales channel will start small (really small!) and must be carefully woven with the existing sales channels, like direct sales, partnerships, and referrals.
From a product organization point of view, it usually corresponds to the establishment of a strong product culture (including an independent leadership structure for the product) to balance all the sales-channel needs and solve shared problems by very diverse users and organizations—from individual consultants to Fortune 100.
In the B2B world, the cost of not paying attention to the product-led growth trend is obsolescence and oblivion: our own human experience from the B2C world is much more enjoyable and fun than our typical B2B experience. Hundreds of startups are being funded to execute a pure product-led plan to capture the market and undermine legacy competitors that only operate a costly sales channel. By design, these legacy competitors can not meet the needs of smaller businesses with their high CAC, slow sales cycles, and terrible end-user experience. If that sounds like your organization, you’ve been warned.
More resources on product-led growth
For a deeper dive, refer to some of the thought leaders on product-led growth like: