In this blog post we explains what is PLG and how it is different from other GTM strategies that were introduced earlier. We also cover some of the prerequisites of building a robust PLG GTM motion that results in having a PLG Conversion challenge. Then we discuss the challenges that transitioning to the model includes and how to overcome them, which is basically by taking baby steps.
What is Product-Led Growth (PLG)?
Product-Led Growth is a strategy that focuses on using the product itself as the main driver of customer acquisition, retention, and expansion. It involves understanding your customer and their journey completely, building a product that caters to their needs and desires, and creating a seamless user experience that naturally leads to conversion and retention.
Below is a quote that describes PLG really well by known PLG expert, Elena Verna
”In product-led growth, users acquire other users, effectively acting as marketers. They’re led to purchases or upgrades without a human touch, and their usage can trigger more usage. This is often because the product is attuned to their interests or needs, which leads to increased personalization or value.”
First some historical context. All sales have been sales-led forever in the software industry. This is the case where sales reps utilize their rolodex and reach out customers they already know, building relationships by winning and dining. This is an expensive one to one process that works when the ACV (Average contract value) of your product is high and can accommodate the expense involved.
Over the years the shift has been to pull users into your funnel rather than reach out to them. This has been done by creating targeting marketing material and events that showcase the value proposition of the product that you are building. The marketing and sales teams work closely together to understand the requirements and buying capacity of the customer before showing them the product. This is called MQL (Marketing Qualified Lead). This is cheaper than the sales process but still quite expensive. Companies have to put together compelling marketing conferences and other events to incite users to show up.
Since the past decade there has been an increasing focus on using the product itself as the tool to attract customers. Product-led is sometimes also called Data-led because it generates a lot of user activity data that can be utilized to optimize the outreach. We are going to learn a lot of how to utilize this data in this module and subsequent ones.
Product-Led growth is in fact becoming the go-to approach for SaaS and micro-SaaS solutions and some like Elena Verna, PLG influencer boldly predict it will become the only way software is sold.
So let's dig into how you transition into this new way of selling.
As shown in the diagram here Marketing does a lot of activities with generating content, running paid ads, SEO, SEM etc to get visitors to the site. The CTA (call to action) for these users is to sign up and try the product.
Once a user signs up the product and growth team is tasked with onboarding the first time user to derive value from the product. At the same time Revenue teams need to continuously understand which one of these sign up’s needs attention.
Statistics show that 25-35% of new accounts sign up, poke around for a few minutes, and then leave - never to return. These are the major components that constitute the dark pipeline, they have very little user activity and are hard to identify with third party data. Therefore, most PLG companies ignore these sign ups as they are not considered Product Qualified Leads. (Read more about the Dark Pipeline here)
The second kind of sign up’s are those that can convert through self-service and can be nudged by a promotion, incentive, notification or product improvement (See more about this framework at Reforge)
There are also sign ups from large companies that will convert based on sales people called sales-assist.
But all three of these sign up namely - the ones that signed up and will never return, the ones that will convert with the self-service flow and the ones signed up but will require sales-assist are all part of being Product-Qualified (and also Product-Not Qualified).
Harnessing these sign ups is what Product-led growth is all about. Our particular focus at Humanic is on converting the users that do not convert on their own and set up a system that continuously optimizes your Sign up Funnel.
Those users who convert then are monitored by product and customer success teams and given to sales at the appropriate time to up-sell to higher tiers of service
But first let's pause and think through a few things that are a prerequisite for PLG conversion.
When it comes to product-led growth success, an existing understanding of the need your solution serves is key. Without a market already aware and accepting of the issue at hand, trying to spread awareness with this approach can be quite challenging! For products in new categories or ones that cannot easily be explained within a few words, other methods may have to take priority for wide distribution. However, markets with commodities undergoing commoditization are prime candidates for taking on product-led growth as customers likely understand their needs perfectly well.
Product-led growth is the perfect strategy for SaaS businesses due to its low-risk subscription model, easy cloud access and ability to serve up products. Conversely, in markets where there are no customer connections with hardware or advertising business models—PLG distribution may be a challenge.
For companies that are still small or just beginning to grow, product-led growth (PLG) is a more viable approach than sales and marketing. By having smaller teams adjust certain elements of the PLG model early on in their journey, they can be better positioned for success when ready to fully embrace it. Outcome-driven goal setting like tracking behavior metrics enables them further down this path while allowing flexibility at later stages - empowering them with potential pivots if needed without needing major shifts from multiple aspects previously altered by larger ones post implementation.
With confidence that your product-market fit is attained, you're ready to strategize your distribution. Defining the ideal customer profile (ICP) for optimal retention should be a prioritization: knowing who best resonates with and appreciates what you have to offer provides insight into initial success.
However it's not always so simple - gaining an accurate understanding of current position requires further analysis; one commonly employed framework used by Superhuman evaluates satisfaction on the basis of percentage numbers relating to user reactions if they’re unable to use their product anymore. Surpassing 40% indicates solid foundations are in place as far as PMF goes – yet there’s even more ground available when thinking about scaling possibilities through improved quality leads which encourages bigger audiences being “Very Disappointed" without availability or usage
Hila Qi, Growth Advisor, VP or Growth at GitLab points out several key aspects of building a free trial product if you don’t have one already.
In order to go to PLG, you need to have a product vehicle: a free version or a free trial of your product. Some companies have these vehicles in place already. For example when GitLab decided to move to a PLG model they already had a free version and a free trial, plus an open source product - the product already had a large free user base. In that case, the growth team could start developing usage-data insights and creating a PLG funnel right away.
But there are companies that enter the PLG era without an existing free version or free trials. When visitors land on their website, the only CTAs available are “request a trial” or “book a demo.” If that is the case, the first step is to open a free trial experience to everyone or create a free version. Without that, there is no “product” in your product-led growth.
Assuming you have a thriving free product, do you have the data instrumentation in place to track user activity in a reliable and robust way. This is covered in more detail in Module 5 Product-Led Sales.
Now, if you’re an enterprise-focused SaaS company, you might not be able to jump straight to a fully free self-service product. When you’re building a free product for the first time, you’ll need to overcome design and technical complexities to build that free experience. But more importantly, you’ll need to overcome the fear of “losing control” and resistance from current teams.
This is often the biggest challenge when an SLG company tries to layer on PLG:
For example, a marketing leader from a leading security B2B company shared her experience of advocating for the company to move from closed trials to open trials as first step toward PLG
“The closed trial means we only open our trials to end users who are in our ideal customer profile (ICP) because we have lots of resellers/service providers and tech partners who request trials, but we have different processes for those folks. The first step here was to convince the company to open up a little more to end users a bit outside our ICP—for example, we typically have not let in anyone under 100 employees.
The enterprise B2B sales cycle and PLG are inherently at odds—one is a very controlled experience and the other is not. In a PLG motion, your product is shaping the perception as opposed to the salesperson, so I think it’s simply getting used to giving up that initial control.”
If you face resistance, you can start PLG as an experiment. For example, instead of making a shift to PLG permanently, open a free trial to everyone for some time and see how that impacts your signups, leads, and upgrades. It is much easier to have a meaningful discussion when you can ship the change first and have some real data.
Here are three ways to proceed
By implementing these strategies, you can provide free trial options to potential customers without committing to a fully free self-service product. This way, you can continue to build your customer base and increase your conversion rate from trial users to paid users.
Product-led growth (PLG) can be a powerful strategy for companies looking to build on their customer base, but it is not an overnight success story. Despite the initial enthusiasm of many businesses diving into PLG, they often find themselves six months later with no tangible results and are tempted by big contracts leading them away from core customers and networks. The key here is that patience pays off - investing in PLG requires time spent both building up structures as well as refining these systems for maximum effect over time
As product-led B2B companies grow, they may be tempted by the appeal of a large enterprise contract and veer towards sales-led growth. But in many cases this move away from their PLG roots proves to be shortsighted: sustainable success requires striking an effective balance between both motions. To reap long term rewards, it's essential for organizations to traverse Product Led Growth (PLG) and Sales Led Growth (SLG).
Companies wanting to do PLG but not committing any meaningful resources to give it a chance to be successful. You need to think deeply about why you want to add a PLG motion. What is the problem you are trying to solve, and what is the goal you are trying to achieve, with PLG? Make sure you are considering PLG not because it’s trendy but for a clear strategic reason. Because the investment—and the change required to stand up a PLG motion—is not trivial.
Each of the following is a valid strategic reason:
You may need to spend some time to think deeper, conduct research, and collect evidence. But if you build enough conviction and believe PLG is a strategic fit, you should commit to investing in the roadmap, team, and infrastructure for the next one or two years at least.
Despite its potential, only 25% of SaaS companies have implemented a PQL strategy as noted by OpenView's 2021 Product Benchmarks report. Unfortunately many organizations are failing to capitalize on this opportunity due to lack of knowledge or perception that it will be too difficult and the returns too low.
Given that you have a free version of the product read on about PLG Conversion Strategies