All about Product-Led Growth, Failure Case Studies & Persistence
Product-Led Growth
Product-led growth(PLG) is a go-to-market strategy that essentially has a product as its core. The product becomes the main vehicle to acquire, activate and retain customers. It started out primarily for B2B SaaS, but it has now become the primary vehicle for other verticals too. The key idea is to rely on product usage and customer experience as the driver to gain adoption and essentially establish market leadership. Most of the KPIs business cares about like revenue engagement, reach, etc, have product usage at the center of it.
With the bottoms-up adoption to acquire users and gain that engagement, PLG becomes a core engine and it can be later and is integrated with enterprise sales whether it’s inside sales or top-down enterprise sales based on the maturity of the startup. The trend shows that we are now in the end-user era, the business success is driven primarily by people and the end-users being in the driver’s seat.
By leveraging PLG you can control how and when you’re spending in your marketing and sales, you can calibrate how much money you’re spending on other things and how to optimize these expenses.
So by focusing on the product you’re focusing ultimately on solving real customer problems, understanding those needs, and then aligning the entire company to support the product and the mission.
This concept is fundamental to making those products very sticky and therefore having a very scalable go-to-market and therefore having very scalable unit economics and profitability for those companies as they grow bigger.
Why PLG?
To make a business successful you need to have metrics fulfilled like short sales cycles, you need to have lower customer acquisition costs and a higher revenue per employee, etc. These metrics for the startups become much more attractive and therefore you get higher valuations and more funding to invest in your startup. According to recent trends, buyers now prefer to self-educate, they don’t want to be told they want to be able to educate themselves, try before they buy so the experience of the product has become fundamental as part of the buying process. People need to be shown rather than to be told, so it’s really important how the selling is done and not just what you’re selling.
In a self-service model, the product is being used to draw the user and then convert the user into a buyer. The key thing is the mechanism, having a bottoms-up approach to attract the users to start using the product, build the critical mass, and when there is a critical mass, then enterprise sales come into the picture and then convert that into a buying motion with the help of proof points in the company.
Modern Go To Market Strategy
If we compare traditional GTM with the new way, earlier the focus used to be on the sales process, now it’s on the buying process. Earlier it used to be aligned around funnels/product life cycles, now it’s around customer lifecycles. Earlier the company was organized around individual interactions and operated in siloed teams, the new way is to focus on the complete journey and customer experience.
The marketing goal is to get the prospects to use the product, and the sale is to understand the needs of prospects and educate them on how the product meets their needs.
When is Product Led Growth relevant?
Christoph Janz (Partner at Point Nine Capital), in one of his blogs, has nicely illustrated the number of potential customers in your total addressable market. He describes how your business’ annual contract value dictates your hunting strategy, which means how you will acquire, onboard, and retain new customers.
So, according to the “Five ways to build a $100M business” and combining it with the buying process complexity, we can plot a two-by-two matrix.
Sales-Led onboarding companies (having high Annual Contract Value and high buying complexity) have to focus on winning customers one at a time and focus on the sales cycle. At the other extreme that is product-led and getting meager average contract value, like the given example. Netflix has a simple self-checkout process and a comparatively low subscription fee annually.
The guiding principles for the company to adopt a product-led strategy can be directed/clarified by some parameters. Whether the customer can quickly experience an “Aha!” moment using the product without any help, Do the customers have multiple solutions for their problem, so that the companies have a better chance to influence the buyer, and the third is about your target market. Let’s take the B2B market, for example, if your target market comprises fast-moving SMB and mid-cap companies, or is it a high-end enterprise. For later-stage product-led is questionable, we still can have PLG go to market strategy in place, but the company will depend more on enterprise sales and top-down adoption.
The 3 Strategic modes of product-led growth
The PLG strategy depends on the level of commitment required to try the product and the number of stakeholders that are involved in making the purchase decision.
Three modes can be:-
- Fast-working: It solves a well-scoped problem and delivers instantly. Low commitment is required, and where the user is the buyer. E.g., Calendly
- Habit-forming: Still, the level of commitment is low, but the number of stakeholders increases, and the company has to focus on group behavior change. E.g., Zoom, Dropbox, etc.
- Paradigm-shifting: On top of multiple stakeholders involved, the commitment required is high. The return on investment for the executive( and the user company) once implemented the product must be very high. E.g., AWS, Webflow, etc.
How do you know if PLG is working or not?
These are some top KPIs that every product leader and entrepreneur should know.
- Product Stickiness: This will gauge if the users keep coming back or not. It can be done through stickiness ratio (DAU/MAU or WAU/MAU), the higher the better.
- Product Usage: Based on their persona and role, it is important to see if the customers are engaging as expected. What are the popular features, and what are those that are being ignored? Breadth, depth, frequency all three aspects are covered while studying the overall user journey.
- Feature Adoption and retention: Are users/customers adopting the users and being inculcated in their life.
- Net Promoter Score(NPS): Surveys and customer satisfaction levels will be comprehended.
- Leading indicator: Conversions, renewal, expansion.
- Top features request: demands of a specific feature
- Product bugs and performance: Quality and efficiency of the product.
In conclusion, PLG means that we need to reimagine sales. PLG changes the role of sales and customer success, blurring the lines between the two.
Failure Case Studies
We frequently hear about the stories of successful companies, and what they did to reach the level they are. It’s important to hear about the businesses that failed due to one reason or more. The failure case study can provide valuable lessons and a guide for budding entrepreneurs for avoiding pitfalls.
ELXSI & the Osborne Effect
Elxsi was a minicomputer manufacturing company established in the late 1970s. Founders had a strong technical background but lacked business expertise. So the investors had brought an operation guy and later a sales guy as a CEO.
The CEO was so excited about the product that he pre-announced the new R&D breakthrough technology which took at least 2 years to become a product. This made the current product obsolete and customers stopped buying them and wanted a new product. This effect is called the Osborne effect named after Osborne computers 1st gen PC).
Due to the failure in execution, the sales of the company dipped. The CEO should be someone who understands the product and the market and understands how to run a startup, which is different from running a big company.
Enabling
The product was to create a landline phone-based E-mail system and service. Similar to Elxsi, the founders had a telecom and engineering background and little business experience. The investors brought the head of the TVS 2 wheeler division to be a CEO.
The company ended up buying 2.5M worth of inventory without the board’s approval. Orders never came and the company was stuck with the inventory. Even after having a great product, the company ran out of money and filed for bankruptcy.
It is important that there is a culture in the startup where every person can express their opinions freely. Boards should implement checks and balances for spending, and the founders should be heard.
WOXI Media
They aimed to create a ROKU kind of product for the Indian market. Founders were great engineers with degrees in top universities. Founders were not able to sign distributing partners aggressively. Orders never came and couldn’t generate excitement in the market.
Business execution is as important as engineering execution. The company could not find the right product-market fit and then couldn’t execute.
ScaleArc
It is a database load balancing software to run applications faster. They had raised $40M from Nexus, Accel, Trinity, Bain Capital; The founder was a media company CTO, brilliant operation guy. They had a sales guy as a president.
The company had 6M ARR revenue, and to be surprised it failed because of management disarray, personal issues, several wrongs hires, and eventual execution failure. The company couldn’t find the product-market fit at the sales and execution level.
Persistence
The life of starting a startup isn’t easy. Getting your startup running off the ground can be difficult with hurdles on the way and the sense of urgency to succeed.
Paul Graham has illustrated this in a startup curve — ‘Trough of sorrow’. The path of success is not an exponential graph from a start, it’s like a long and seemingly never-ending time period after the initial enthusiasm (Which he describes as Techcrunch initiation).
The reality is hard and can be stressful especially when the founder has to deal with it alone, it needs consistent efforts of determination and persistence to find the right product-market fit to scale it up.
This stage of a startup is inevitable. The founder has to plan in advance, research, know about the customers very well, have a team and just keep fighting for their idea and have a mindset for the company to make it reach after the ‘Scale stage’.
