Enterprise software leaders: add a PLG backbone
This post is for enterprise software firms that have not started to add a self-serve component to their existing sales & service motion.
I spend a lot of time talking with B2B SaaS leaders who started working in cloud sales in the early 2000s with (only) a sales & marketing led motion. They ask themselves, “why should we change a go-to-market model that has created so much success for us? Our business is growing, and customers are not asking for something like Product Led Growth (PLG). So why change?” The simple reason is that if they do not add a PLG backbone to their existing sales & service motion, their business will be eaten by a future PLG competitor. The more successful they are, the more likely this will happen.
My peers often argue that their category is too complex to introduce self-serve components. This may be true in some cases, but technology advances and buyer habit changes are challenging this position. For example, one of the toughest hurdles for some enterprise software companies is to onboard data so users get value from the application e.g., a corporate search engine. In the past, onboarding data required many weeks of effort in long implementation projects. But today, even this hard problem can be solved with self-serve data onboarding in minutes, using the modern data stack. PLG will disrupt enterprise SaaS in the same way SaaS disrupted on-prem. I am not writing anything new here — these arguments have been explained by great PLG leaders (see reference list below). But I am writing to help enterprise software leaders using a sales-led-growth motion to understand the business benefits of adding a self-serve component (and the risk of not doing it). My point is not to replace your winning sales team building relationships and selling to executives, but to equip that sales team to operate on a PLG backbone that scales growth.
Before we discuss the benefits of adding a PLG backbone, let‘s discuss the benefits of selling to executives and not to users, and what PLG means in an enterprise software context.
Benefits of selling to executives
I sold enterprise software for 14 years to large corporations like P&G, Unilever, Coke, American Express, generating 6–7 figure ARR accounts for my business. We followed a typical land & expand model … land the deal with a first product module and expand (upsell) with additional modules. To do this, we put the “customer’s future” at the center of our sales message. Selling the future is great, because you skip past the users and middle managers, to pitch to executives who care about capability building to stay competitive. Executives have the budget and the authority needed to create the urgency that gets the deal done. They are always interested in the future of their discipline, so if you combine this with compelling industry insights and benchmarks, you nearly always get a meeting at short notice. Show the executive a plan that explains how your product modules help them to transform their organisation, and how this can help them to (personally) succeed, and you will almost certainly win a deal. The delivery plan starts with quick wins, often with products your point competitors also sell. But potential point competitor user champions get overruled by the executives, because they share your belief in a joint “transformation to the future” story. Of course, the proof of concept (POC) experience of your product, the next step after promising the value, must confirm it. In this way, I have always found “future selling” to be a very effective strategy for selling software to executives.
PLG from an enterprise software perspective
What does PLG mean from an enterprise software perspective? It means the product not only extends vertically, but also horizontally.
The vertical product extension is your current sales strategy to capture more and more of your customer’s value chain, with a land & expand model. The horizontal product extension is the new self-serve component of your product strategy which we call the „PLG backbone“. The PLG backbone delivers the end-to-end onboarding, using, buying and expanding capability of your product. A user or an administrator should be able to enter the horizontal process without any human support to try or buy your product. Here, many best-practices can be deployed to keep users on their way to the aha! moment of experiencing the first product value, including product and conversational bumpers. The goal is to program the entire process into the product, including all unit economics. In this way, a horizontal product extension delivers self-serve product capabilities (your customer PLG experience) and vital user activity data for your existing marketing, sales, success and product management teams (your employee PLG experience). Many new technologies and out-of-the-box software packages are now available to build horizontal self-serve product extensions cost efficiently, such as the modern data stack, no-code/low code customization and onboarding software.
Four reasons why enterprise software vendors should add a PLG backbone
The four reasons why you should add a self-serve component are:
- Win the POC experience
- Entry-level protection
- Scaleable sales & service
- Lower CAC, higher gross profit & NRR
Win the POC experience: let’s say you and your competitor use a sales-led-growth motion to “sell the future” to executives. Let’s further assume that you both have nearly the same vertical capabilities and almost the same price. After presenting the value prop, the typical next step in the buying journey is a POC (proof of concept). With the PLG backbone, your POC can start the next day, to deliver a super-positive experience for test users and system administrators. You’ll win your test users over, before your non-PLG competitor has even started to set-up and train them with a lot of hand-holding! Even if you have fewer vertical capabilities, or your product is more expensive, the POC team will overwhelmingly vote for your solution, because they are confident it will be adopted by users across the organization (always a key concern). So in top-down sales-led motions, the PLG backbone wins the POC experience.
Entry-level protection: today, approximately 50% of enterprise users already want to try products first and then make recommendations to their managers (buyer), without talking to the vendor. It‘s a shift from a top-down to a bottom-up or hybrid buying process. Vendors can respond with a Product Led Sales (PLS) or modern GTM motion — the main attack path for your future competitors, who will present an attractive offer to solve an urgent need to users and middle managers. This attack will happen first in decentralized enterprises with local market budgets and decision-making. (Centralized enterprises with corporate centers of excellence are open to PLG attacks to a lesser degree). The PLG point competitor will enter with a very simple first value prop, building out to the same product offering that you have, in collaboration with their growing customer base. They’ll also add an enterprise sales team over time. This is simply the recommended playbook VCs teach their PLG portfolio companies. As the incumbent, only a PLG backbone protects you from these attacks. Users test your “competing product”, which serves the urgent need, with the understanding that they can also grow vertical capabilities when they choose your offering (grow as you go). Alternatively, you can offer a freemium as a moat to stop new PLG competitors entering your market.
In addition to better top-down and bottom-up win rates, the PLG backbone offers operational and financial advantages:
More scalable sales & service: enterprise sales often depend on solution architects and sales engineers to translate your product value into the customer’s unique environment. Consequently, many special adaptations must be negotiated and incorporated in an extensive statement of work (SOW). But when working with a PLG backbone, the customer conversation changes. Here, the opportunity to test a solution that solves 80%-90% of the problem extremely quickly is a game changer. The customer simply starts testing (and adopting) the standard software. No more massive PowerPoint meetings, demo sessions and implementation kick-offs with multiple stakeholders — operations are radically simplified and ready to scale. Invest in the horizontal product extension, to divest complex sales & service operations.
Lower CAC, higher gross profit & NRR: as a result of radically simpler and faster acquisition and deployment cycles, your Customer Acquisition Cost (CAC) will be much lower, and your gross profits much higher. In enterprise software, marketing & sales costs range from 25%-45% of revenue, while professional services add a further 10%-25% of all costs. B2B software vendors can reduce these costs by investing a part of this money into the horizontal self-serve product extension, for a much better return on investment. Self-serve onboarding of additional users and modules will also increase Net Retention Rate (NRR) per customer.
Watch-out’s when adding a PLG backbone
As mentioned, the horizontal self-serve product extension equips you to track user activities and define product qualified leads (PQLs) with the most engaged users in target accounts. (See reference list for tips to define good PQLs). But watch-out! You can’t just handover these user leads to the enterprise sales team that sells to executives — users didn’t click a “call me” button. It’s important that the PQL is enriched with the name of the executive buyer so the sales rep can reach out and talk to the decision maker, not the user. When reps are armed with real data points on how much value a customer is already getting out of the product they become rockstars vs. their sales-led counterparts without a PLG backbone. Of course you can segment the market and run a product-led-sales (PLS) motion as well. Here, the PQL discussion with end users is supported by a dedicated inside sales rep who guides them through the buying journey.
Another watch-out is sales compensation, especially when your enterprise sales team is split into farmers and hunters. The hunters like the clean challenge of acquiring new logos, but dislike the product complications that follow deployment. In contrast, farmers or account executives are very good at driving relationships and expanding the product across complex organizations. If you compensate hunters for the first deal only, their incentive is to make this deal as big as possible, neglecting the customer’s interest in growing over time. My organization had good experience keeping accounts in one hand (without the hunter/farmer split) to align sales compensation with the customer’s interest. This will avoid ARR contraction and achieves better gross dollar retention (GDR).
Start adding PLG today
Ask yourself this question: how will you sell your product in three years from now? The same way you do today, despite buyer purchase habit changes and technology advancements? Most probably not! Do you need to have everything in place (e.g., self-serve data onboarding or no-code / low-code customization) to start benefiting from PLG? Not at all. This is a journey existing enterprise software vendors can start today. Start small — just change your “Request a demo” button to “Free trial”. When a customer requests a trial, deliver a managed service experience — basically, a sandbox system with demo data. My company had great success with this approach, winning many important enterprise customers. Of course, this is only a first step, while you develop a horizontal self-serve product capability roadmap. Another strategy could be to segment your product into a scaled-down free version (freemium), which helps a prospect to achieve a limited, but immediate outcome, while providing a runway for sales to pitch a full product demo to the executive when the time is right. When you already have an established direct sales force, adding a PLG backbone is a journey that needs product extension and organisational changes over time, but there’s no reason to wait. Get started today to be future proof.
References
Wes Bush, Product-led growth, ProductLed Institute
Ramli John, Wes Buch, Product-led onboarding, ProductLed Press
OpenView, Product-Led Growth
John Vrionis, Dakota McKenzie, Scott Schwarzhoff, The Modern GTM
Martin Casado, Growth, Sales, and a New Era of B2B
Userpilot, The best onboarding software for SaaS companies in 2022
