The Product-Led Growth Playbook: Europe Edition (Pt. 2)
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Welcome to the second part of the PLG Playbook — Europe Edition. If you haven’t read the first part, make sure to check it out before reading on. The first two steps of the PLG Playbook we discussed were: (1) Focusing on the end user to define the core value proposition and (2) getting in front of them through waitlists and referrals, leveraging utility and virality, SEO and community.
The remaining three steps to be discussed in the PLG Playbook are the following: early value creation for users, data-driven conversion & retention optimization, and — last but not least — sales-led expansion to get the full picture. Let’s jump right in!
💡 Create value before charging anything
One of the core aspects of the PLG Playbook is to let the users try the product before they buy it. It is the product that onboards and trains the users.
Users should take the least number of steps to understand a product’s value and to get to their “aha moment“ before paying anything.
Freemium or free trials are a good way to provide value before charging users. Zendesk (DK, 2007, NYSE:ZEN) is an example of a product applying the free trial pricing strategy. Users choose their plan depending on their respective feature requirements and try out the full Zendesk product during a certain time period. It’s like a test drive for a new car: you try to provide as much value as possible in a short period of time. A free trial strategy is usually more suitable for high price and high complexity products.
Pitch (GER, 2018, $137.7M), a collaborative presentation software, offers a freemium pricing strategy, i.e. providing access to parts of the product for free without a time limit. Their pricing page is easy to understand, applies the three pricing tiers approach and has a clear call to action. Furthermore, the whole onboarding process is super smooth, allowing users to sign up with Google and Apple SSO. During onboarding, you can invite team members to the workspace and a pop-up explains the product in four simple steps with clear advice on where to start (user activation).
Both companies charge on a per user per month basis, billed annually. However, there are many other potential value metrics —such as per message, per API call, per seat — based on which to define your pricing. Initially, you can get the value metric through qualitative user interviews by asking users to rank the value drivers of your product. Later on, you should optimize the value metric through product usage data and move towards a more quantitative approach.
Zendesk and Pitch also have different tiers for different user segments, such as individuals, teams, enterprises. Thereby, different feature requirements can be better addressed.
Julian Lehr from Stripe wrote a great overview on how to experiment with your pricing strategy if you want to dig deeper into the topic.
💎 Generating leads for your B2B SaaS product is closely linked to how you price it and how convenient it is for users to onboard. Lucy Chen has written a great post on how to make onboarding more effective if you need some inspiration. Successful companies aim for low friction, self-serve onboarding in combination with a freemium or free trial pricing model — you can only monetize something that provides actual value.
🔎 Optimize for conversion & retention with data
The main challenge in PLG is to convert enthusiastic users into paying customers. To succeed in doing so, you first need to understand how your product is being used, where users struggle and churn, and which features best solve their problems. A solid data-driven understanding of product activation and usage — both qualitative and quantitative, ideally shared across the whole organization — will help you increase your paying user base.
Qualitative data points can be derived from user feedback through support, success and sales teams. Ideally, the product is set up in a way that customers opt-in to talk to you, resulting in a continuous pipeline of users to get insights from. We also see more and more tools providing quantitative insights for PLG-driven companies, leveraging and productizing best practices from hundreds of top tech companies. They shed light on real-time product usage, user journeys before payment and other sales-relevant aspects of your product and make it available across all sub-teams. Players from the US include Endgame (USA, 2020, $47.5M), Appcues (USA, 2013, $13.7M) and Calixa (USA, 2020, $16.3M). In Europe, June.so (remote, 2020, $2.4M) allows anyone to self-serve actionable metrics and to identify opportunities in seconds. According to Enzo Avigo, Co-founder and CEO of June, the benefits of leveraging product data with June are threefold: 1) better access to data results in a deeper understanding of what users do; 2) better initiatives since data helps to draw and test hypotheses at scale; 3) more initiatives as data provided through June is fast to query. Sensible.app (DK, 2021, n.a.) also aims to build a system of intelligence that helps traditional, sales-led companies better understand the whole user journey through (product) data.
When looking for relevant metrics to track, activation, active user growth (MAUs, WAUs, DAUs) as well as funnel conversions are key aspects to focus on. User activation measures certain actions that are predictive for future retention and are correlated to business performance, such as scheduling five meetings or inviting 3 colleagues to collaborate. Based on your most relevant metrics, defining Product Qualified Leads (PQL) as the highest potential leads should be the next step. PQLs are users that fit your target segment and “that have used the product and reached pre-defined triggers that signify a strong likelihood to become paying customers”.
OpenView has recently published a Product Benchmarks Report based on a survey with 258 startups with a variety of growth rates, ARR, and product types. You can find the most important metrics in the table below.
💎 A critical part of the PLG Playbook consists of understanding how your users interact and engage with the product and how the funnel looks like. Just as important is building a data-driven culture across all relevant teams. Data, user research and feedback — both quantitative and qualitative — are critical to develop new features, prioritize improvements within the product, increase conversion rates and ensure retention.
💸 Expand with sales-led distribution
The last part of the PLG Playbook takes place when you layer top-down sales on top of the bottom-up approach. After some time, many self-serve SaaS startups hit a growth ceiling. This is shown in smaller pockets of adoption, continual churn, and churn of larger customers to more enterprise-class solutions.
Sarah Guo, GP at Greylock, discusses this in her article Designing for Buying.
To fully capture the value of Product-Led Sales, salespeople double as solutions architects and/or customer success. They nurture existing users to become paid customers, to upgrade, or to expand within the organization. Consistently providing the best service is highly knowledge-intensive. Workbounce (UK, 2021, n.a.), a Collaborative Enablement platform, is building a system of intelligence that sits between sales reps, documentation, and FAQs from across the stack. This lets salespeople find the content and answers they need fast, through a Slack integration and Chrome extension.
However, the push for moving up-market is quite a delicate timing question. David Peterson, Partner at Angular Ventures, even argues that fast-growing software companies aren’t afraid to go after the enterprise market from day one. A recent survey by Pocus and FirstRound has shown that 48% of respondents made their first sales hire between $500K and $1M in ARR and that hire typically reported directly to the CEO/Founder.
97% of respondents either have sales AND PLG or plan to add a sales team to their PLG motion.
This post by Lenny Rachitsky takes a closer look at how the distribution approach of B2B SaaS companies changed over time. To take the example of Zendesk again, it started by selling to founders and early hires at smaller companies and then layered a sales-led distribution approach on top later on. In this article on Future by Sarah Wang and David George, it is mentioned that Zendesk switched to enterprise sales when a lead wanted to purchase more than 15 seats. The conversation was likely shifting towards more security and legal topics, resulting in a more complex sales process. Further learnings on transitioning to enterprise sales in a product-led growth organization can also be found in this recent post by Bessemer Venture Partners.
💎 A purely product-led sales motion eventually hits a growth ceiling. Layering a sales-led distribution approach on top of the bottom-up approach allows expanding from users to teams to the whole organization, catering to more demanding accounts and increasing the ACV (for bigger customers).
Conclusion
What fascinates us about the PLG Playbook is that it is all about the user and how to solve his or her pain point. As Caryn Marooney and Madhu Muthukumar have said in their talk on Trends and tactics from the frontlines of product-led growth: there is one thing that everyone in your company has in common 👉 serving the user! And while PLG has many advantages, such as higher efficiency of sales, organic customer growth, and more proactive product journeys, you still have to do the work of the other GTM building blocks.
Ultimately, product-led growth touches every part of your company. It’s a culture, not a product.
We hope to have given you an actionable playbook to get back to when thinking about growing product-led while highlighting exciting European companies along the way! If you are a founder working on PLG as your growth strategy and want to geek out over it, feel free to get in touch with us via Email & Twitter. And sign up for our newsletter to stay up to date about all things Lightbird.
