What is Product-Led Growth? (Definition and Examples)
Product-Led Growth is an alternative go-to-market strategy that uses your product to acquire, activate and retain customers.
The difference between product-led companies compared with sales-led companies is that they use their product to do the heavy lifting. Instead of paying expensive salespeople to convince executives to sign large contracts, these companies impress the pants off the end user with a free version of the product. The end user then kicks off bottom-up growth by spreading the product within their organisation and creating an internal request for the paid version.
Let’s explore further how these companies put their product at the centre of everything they do…
Acquire
Companies that successfully adopt Product-Led Growth have turned customer acquisition on its head. Instead of expensive advertising or a team of salespeople, they reach enormous scale through word-of-mouth referral.
Think about it. If you've used Slack, Calendly or Dropbox, you didn’t join because of a persuasive advert or sales rep. It was more likely a persuasive colleague who loved using the product and convinced you to join.
Activate
Product-led companies avoid the need for a manual product demo. Instead, they allow users to take the product for a test drive themselves and experience the ‘wow moment’ on a free plan. This approach helps users become familiar with the technology and its benefits before they ever consider making a purchase.
Retain
Product-led companies usually benefit from network effects. This means that the more people who use it, the more valuable the product becomes. The best product-led companies provide so much value that you would never consider using anything else. Nobody wants to go home early from the best party in town.
Customers are Demanding Product-Led
Customers never complain that your company isn’t product-led because that phrase isn’t part of their vocabulary. Speak to them in their own language and you will quickly discover that product-led is exactly what they want.
Customers today demand convenience. ‘What’s the easiest way I can start, succeed and scale with this product?’ Minimising friction just so happens to be a defining feature of product-led companies. Consider this…
Self-Education
People don’t want to be bombarded with information about your product’s benefits or to schedule a demo with your preppy sales rep. Instead, they want to try it out for themselves and learn about it in their own way at a time and pace that suits them.
If you’re anything like me, when you sign up to a new platform you jump straight in without reading the instructions. You fiddle with the settings and use Google to diagnose and fix your mistakes. This is how people choose to learn today.
‘Freemium’
People want to try before they buy. And who can blame them? There’s so much free software out there now that people want to know whether the product is really going to make their life better before they part with their hard-earned cash.
And if you are thinking that ‘customers these days are sooo demanding’, then you’re right. They are and they can afford to be. If you don’t want to offer a free trial, then someone else probably will.
You Benefit from Product-Led Growth
You can breathe a sigh of relief because I’ve got good news. Product-led is not only great for your customers, but it’s also great for you too. One of those mythical win-win situations. Here’s why…
Lower CAC
Advertising for your SaaS company likely involves targeted ads. But in the last 5 years, the average Customer Acquisition Cost (CAC) has increased by nearly 55%. And while you can work on organic SEO, ranking at the top of Google is a real challenge. Product-led growth removes enormous advertising costs by enabling easier customer-to-customer referral, faster self-service onboarding and better time to value.
Virality
Product-led companies thrive by meeting the needs of the end user. They bypass the exec level decision makers by focusing their messaging on the end user’s pains. These users become advocates for your brand — even evangelists — and will sell your product for you through word-of-mouth.
Think of companies like Calendly. Calendly makes booking meetings super easy. It was born out of a genuine pain many people have of that back-and-forth dance over email for scheduling a meeting. Every time someone sends out a Calendly link, they are both using and promoting the product. Over time, Calendly gains exposure to a mass audience and becomes accepted into peoples’ daily routine. As a strategy for scaling your company quickly, there is no better option than virality!
Product-Qualified Lead (PQL)
A product qualified lead is a user who has experienced the value of your product, usually defined by a specific high-volume action. This is often described as an ‘Aha! moment’ and has a strong correlation to retention or conversion. Teams using a PQL model enable people to start using a free version of the product and then look for signals that they are ready to convert to premium.
For example, Slack might look for workspaces that have hit 2,000 messages sent or Dropbox might look for users that are down to their last 2GB for space. Marketing-Qualified Leads (MQLs) or Sales-Qualified Leads (SQLs) have just filled in a form or opened a few emails. PQLs have demonstrated that they are getting value from the product and are therefore much more likely to convert, helping you to prioritise your sales efforts. According to OpenView, the number of PLG companies using their product to qualify leads jumped from 26% in 2019 to 50% in 2020.
Is Product-Led Growth right for you?
As you may have guessed, Product-Led Growth is not for everyone. So when should you opt for a product-led growth model?
- Are you addressing an end user pain?
A core principle of PLG is shifting the buyer from the non-technical executive to the end user. Rather than trying to sell the COO a scheduling platform, Calendly sells a scheduling tool to the Account Manager. Rather than selling efficiency metrics to management, they focus on the frustration the end user feels going over and back on countless emails organising a suitable time to meet. - Is your product is collaborative?
Product-Led Growth works best when the product is centred around collaboration, sharing and network effect benefits. Word-of-mouth referral will be the driving force behind your growth. Think Slack, Dropbox or Revolut. - Do you have a large Total Addressable Market (TAM)?
The problem you are solving needs to be common enough so that you can benefit from referrals and support a free tier product financially. If instead your product is very niche with a smaller number of potential customers, consider sales-led growth. Each customer is likely a high ticket sale that would benefit from a high-quality human relationship rather than a self-service onboarding.
The key to successful Product-Led Growth
The success of Product-Led Growth is dependent on having a great product. If the product doesn’t impress users enough so that they tell their friends and come back time and time again, then the whole strategy becomes redundant.
How do you build a product this good? By focusing on an amazing user experience. Amazing user experience is reliant on an in-depth understanding of user behaviour and perceptions. And this is all made possible through in-depth user research.
Companies that survive this tidal wave of change will invest heavily on user research and focus on addressing the Three Pillars of UX Research.
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