In the ever-evolving landscape of startups and technology companies, one term that has gained substantial traction in recent years is “Product-Led Growth” (PLG).
I am an investor at an Australian seed specialist fund and I interact with a myriad of entrepreneurs each day, all aiming to crack the go-to-market code. In amongst these conversations Product Led Growth stands out as a buzzword, but what does it mean in the context of rapid scaling?
Over the last 12 months I’ve taken a detailed look at the discipline of PLG alongside expert operators and founders, who are building product led companies around the globe.
To kick off, we’ll cover what Product Led Growth really means and some of the biggest misnomers about PLG that bug the experts.
At its core, PLG is a growth model where the product itself serves as the primary driver of customer acquisition, retention, and expansion. The idea is captivatingly simple, profoundly impactful and quite hard to achieve. In the words of experts:
create a product so intuitive and value-driven that customers can easily understand its benefits and make a purchase decision without any external input
where the product can passively grow itself without actively throwing money or people at it
a seamless flow of people who get value and set themselves up to become a valued user
It is hard to define PLG exactly as its structure will vary depending on who your customer segments are, and the market you’re in. You will quickly notice that two of these quotes talk about product value and that none of them talk about strategies or tactics for acquiring customers. Which leads me to some of the persisting myths about PLG.
Great Myths and Misnomers of PLG
Misnomer 1 — PLG is a Distribution Strategy
PLG is often mischaracterised as merely a distribution strategy when, in fact, it is a holistic way of thinking about how a company can deliver value and grow. The product isn’t just a tool for customer acquisition; it becomes the epicenter around which all other business activities orbit. This means that
- product development
- customer success
- marketing
- and even organisational culture
should align to focus on delivering a product that provides maximum value to the user.
Freemium models, for instance, allow users to experience the product’s value without an upfront cost. However, freemium is only effective within a PLG framework if the free tier aligns closely with a product that effortlessly guides users toward becoming a paying customers.
Similarly, referral programs can fuel growth but they need to be integrated seamlessly into a user journey. Referral programs tend to work best when the product is shared within the context of its use (for example: splitting the cost of an Uber ride on the app during the trip).
Content can be part of PLG but without a seamless product conversion experience a company may see high funnel drop out or churn. All of the above can be levers to accelerate growth, but they are not standalone solutions. Their success is highly dependent on how well they are integrated into a broader, product-centric approach.
You are either product led or you are not. It must be the entire company.
A founder can sidestep this myth by outlining the entire PLG strategy to an investor and outlining how the company supports that strategy at every level of the organisation in addition to outlining the front line tactics they will implement.
Misnomer 2 — PLG will kickstart itself or PLG is a Quick Growth Fix
There is a cold start problem with PLG, similar to a marketplace. A viral sharing mechanism will not spontaneously appear. It takes a lot of work to consciously build a PLG product.
Value is mentioned above because whether you are using a PLG model or not you need to benefit your users and customers enough that they are willing to part with their cold, hard cash. PLG needs users generating the data mentioned above, no value means no users, no data, and no PLG.
PLG founders will spend a lot of time with customers before they build their product and do a lot of unscalable, unsexy things before a sexy PLG motion will be seen. A PLG company will understand customer purchasing habits and the difference between its users and its customers to match its PLG motion to its customers. Achieving product-market fit is an important part of a PLG strategy.
First make the product useful, then think about how to distribute it
A founder can avoid falling into this trap by outlining both a strategy to get the product in the hands of early customers (often unscalable) and a strategy to transition into a scalable PLG mechanism.
0 to 1 is often founder-led; even a product spark will need a push early
Misnomer 3 — PLG is Set and Forget
PLG companies not only establish product metrics (even a North Star Metric), product teams are assembled around core metrics that are led by the product. They are likely to build only what may move those metrics. The product team does not only watch the metrics but is accountable to those metrics, much like a sales team would be in a sales led company. Collecting customer use data is critical for PLG and user feedback loops are needed to collect new data quickly.
If customers are not converting, it must be solved with product changes, not by throwing bodies at the problem
A founder who knows their data, how they will collect it, and what benchmarks are important will be able to help an investor understand what good looks like, in their case, and how they will achieve it.
Data moves the product
Misnomer 4 — PLG is a Cheap Way to Acquire Customers
PLG can be a highly efficient way to grow a company at scale, but that is not a given, even with a successful PLG motion. There may be hidden costs associated with PLG.
- Developing deep customer knowledge demands substantial investment in research and development, user experience design, and frequent iterative updates based on user feedback. These activities require expensive skilled talent and resources.
- Continuous customer engagement through educational content, community building, or customer success initiatives can be resource-intensive. While these may not be direct costs associated with acquiring a customer they can grow over time.
- Maintaining a freemium offering can be expensive once server costs, support, and other operational expenditures are included, if there are a high number of non-paying users.
- PLG is highly data driven so sophisticated tools and skilled personnel are needed to manage and interpret this data, adding another layer of expense.
Early users can be hard to monetise, leaving an expensive to maintain freemium tier
A founder who can articulate the whole cost of their strategy and link that cost to revenue generated will demonstrate a good knowledge of their ‘go to market fit’.
Product Led Growth can lead to an amazing outcome when used properly, like many high potential tools, but also like those tools it takes skill to wield effectively and effort to maintain.
One quick rule of thumb to use, is to ask yourself:
“how dependent is my growth on hiring people?”. If you need to hire people to grow, you are moving away from pure PLG.
