If you are bullish on your company’s growth this year, you need to carefully assess your overall go-to-market strategy. Are you still reliant on traditional marketing approaches for lead generation and sales? If so, your strategy is dated and growth will likely be an uphill slog with low conversion and a high CAC.
According to research conducted by OpenView Partners, 98% of MQL’s never even convert. As a go-to-market advisor for Investors and CEOs, I have the chance to meet many companies whose leadership teams pour hard-earned cash flow or venture capital into sales and marketing-led efforts — such as outbound calling, paid traffic, and lead generation programs — resulting in poor unit economics and sub-par growth prospects.
What is wrong with a sales-led growth model?
First, let’s talk about cost. It’s not uncommon for companies to spend 15% of their total revenue on marketing. Very few early-stage companies have a strong product-market-fit, which means most don’t have the right messaging, positioning, and potentially also, pricing. Given these limitations, low conversion and retention will likely lead to an unfortunate outcome of high burn with limited growth. Furthermore, sales-led approaches focus on acquisition, rather than activation and retention. Lastly, many campaigns focus on the buyer, not the users. If you aren’t yet aware, it is the users that wield the vast majority of the power. These same users can outnumber the buyer in an account by up to 50:1 (possibly higher, depending on your product).
If this is your sales approach, I deplore you to read this entire article!
To share an example, I recently met two cybersecurity companies in the same market space. One had a better product, but a sales-led growth model. The other company had an inferior product but invested in a product-led or a PLG model. Guess who was doing better? The product-led company created a robust community of over 50,000 freemium users and experienced growth that had almost 2.5x better customer retention.
Given the poor outcomes, it’s time to reconsider the traditional sales-led approach and prioritize a “product-led” growth strategy. A strong brand and social proof are no longer enough to build trust with the modern buyer — You must let people try before they buy. In fact, according to Forrester, three out of four B2B buyers want to self-educate rather than talk to sales reps to learn about products.”
PLG 101
First, let’s begin with a simple definition: Product-led growth is both a go-to-market strategy and a business growth strategy. Unlike a traditional sales cycle, where a sales team leads the buyer through a journey, the PLG model leverages the product as the primary vehicle to acquire, activate and convert customers.
In this refreshing paradigm shift, companies allow the user to “take the keys” to use the product and go for a “test drive” to experience life with the product first hand. This leads them to become an advocate, develop a strong desire to become a customer, and — to extend the analogy — own the car and continue the drive.
There are significant business benefits to the PLG model from shorter sales cycles, to lower customer acquisition costs (CAC), better retention, and higher Revenue Per Employee (RPE). Beyond business metrics, the obsessive focus on great customer experiences results in better products.
So you want to Implement a PLG Model? What are some key considerations?
PLG cannot be an experiment in your marketing team. To become transformational, it must be a carefully architected strategy understood and embraced daily by everyone from investors and board directors and every employee in your company. It is as much a tactical overhaul of the business as it is cultural. There are broad implications to product design, team structure, metrics you track, the financial plan, and many more areas. At this point, you may be asking some of the following questions:
Is PLG Right For My Business? A shift to PLG is not merely providing a free tier or trial version of your product. If you sell a complex enterprise product with a direct sales force, PLG may not be a fit for you. Even if you already have a SaaS software product, assess your current time to value. Products that take weeks to configure, onboard, or integrate are suboptimal candidates for PLG because the heavier lift from sales engineers and onboarding creates too much friction for the model. Companies with SaaS products sold through lower-touch and inside sales teams are a better fit.
Do I have the right Product? Success will be heavily dependent on a great user experience. Your product should not need any human intervention or training to get started. If it does, now is a great time to optimize your product around a better user experience:
Make signup fast, simple, and frictionless. Don’t start with a long sign-up form, ask for a phone number, or have a sales rep reach out immediately. While these may sound obvious, I see all three of these bad practices too often.
Personalize onboarding and use a product like App Cues or Walk Me to more effectively engage new users. Studies show that personalizing onboarding can increase user activation by over 100% and retention by over 50%.
Monitor user behavior and capture everything you can. Design your product to monitor user behavior to help constantly improve user experience and make real-time recommendations to the user to provide additional value incentives (for example: invite your team and unlock additional capabilities.)
Freemium or trial? This is such a common question, and companies switch between both, as they test for greater success. Freemium product offerings feed the top-of-funnel much more than any trial or sales demo. Studies show that freemium models generate 33% more free accounts for every web visitor. Companies I previously led embraced this model over the free trial, and it helped proliferate brand awareness (over 1,000,000 sign-ups in one case) and create powerful user communities enhancing virality. This model requires more patience, and may initially delay growth, as you wait for customers to build the affinity required to convert to paid. Conversely, product trials drive urgency to evaluate and purchase — thus conversion from free to paid will be higher in the trial model. In terms of driving near-term revenue, a free trial is the better option.
3. How quickly can we transition? Do you have an existing revenue stream and sales-led model? If so, it will be important to make a delicate transition to avoid disruption. You are making a bold step toward a higher-growth model, so commit to making the transition, but avoid shutting off your existing model too abruptly. Doing so can place your business in a trough with a meaningful revenue hit, while you are still learning to grow an early PLG-enhanced model.
4. What Expertise Is Necessary? Do you have a team with past PLG experience? If not, you can educate yourself, and your team through great online resources such as OpenView Partners’ Blog, or books like Product Led Growth — How to Build a Product That Sells Itself, by Wes Bush. Both of these resources provide great information and are easy to consume. Do not rely solely on these materials. As they say, “team is everything” — recruit team members who have significant past PLG experience and proven success. While I am very supportive of growing and developing teams, you cannot afford to rely on an entire team that is learning PLG “on the job” — hire the best team you can find for this transformation.
5. Who Owns PLG? While Product Management, Marketing, and Sales, are most impacted by the pivot to PLG, EVERYONE in the company has a role and must commit! This will obviously require a change in daily responsibilities and focus. The good news is that customers want a PLG model, and roles will generally shift toward educating and helping users get the most out of the product.
6. What is the role of marketing? Thischanges dramatically with a PLG go-to-market. The product is your key channel for marketing. This means that significant focus must be placed on performing daily experiments to cost-effectively drive more trials. I suggest creating a PLG experiment playbook. I recently created a playbook with over 40 experiments for a company to test which “on-ramps” were most effective for bringing the best users into the freemium funnel. Have multiple experiments running at once, and measure everything. These are not A/B tests, but efforts to go where your desired users are online and experiment with engaging them. The team must become comfortable with failure as many experiments will be learning experiences, but will not yield desired results.
Marketing teams also need to identify key product activation points that drive usage and conversion and use these insights to improve messaging and strategy within the product.
Discard the notion of the MQL/SQL and embrace the product qualified lead (PQL). The PQLuses in-product behavior to measure when users activate (define the exact criteria) and also to determine when a user may be ready to buy.
The PLG model works best when you have established trust with targeted users. If you aren’t yet a known brand, work to establish social proof. This can be in the form of industry awards or a quote from Gartner, but by far, the best social proof comes from users of your product. If you don’t have these, offer incentives for your users to review your product on sites like Capterra, G2 or TrustRadius. Display these to gain confidence and trust to help improve conversion to freemium. One company that does an excellent job leveraging social proof is a startup called Remediant. Their social proof is compelling and professional and is well before they get into features or a product pitch.
As you delve into customer reviews and hopefully also connect with freemium users, identify power users and product advocates. Turn these customers into a megaphone, helping to promote the story on your behalf.
7. Do I still need a sales team? Yes! Product-led growth does not remove the need for salespeople. The salesperson’s role changes. Instead of focusing on presentations and pushing products, the role shifts to become an evangelist or consultant to the individual needs of the customer. You may want to change sales reps’ titles to something like product expert to better support users through their experience. Make sure your team is equipped to support users and not try to aggressively convert to paid, which will become a major detractor to success. Be generous, let users have a lot for free. If you have proper conversion incentives in place, they will raise their hands to purchase.
PLG as a catalyst for growth
2020 proved that software platforms, tools, and ecosystems are mission-critical for businesses to run smoothly both inside and outside the office. Last year sped up digital transformation for enterprises and also upended many sales tactics. Gone are the days of glitzy dinners, traveling enterprise sales teams, and top-down tactics. If you haven’t made a change to your own go-to-market motion and embraced your product as a means for cost-effective growth, now is the time to do so. If you found this article helpful, please share it with your network. Helping others is good karma, and we need more of that in this world!
We have only scratched the surface of PLG implications in this article. If you have any questions, aren’t sure if PLG is right for your business, or find this all to be overwhelming, drop me a line and I would be happy to be your sounding board. You can find me on LinkedIn or directly at dan@hightide.advisors.com. Thanks to Josh Stephens, Michael Massad, and Mark Beavers of Elsewhere Partners — a venture fund for early-stage, capital-efficient companies—for their input and help with this article.