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Sandhya Hegde, a B2B SaaS expert and investor, explains the three product-led growth modes and how to decide if PLG is the right strategy for your business.
A product-led growth (PLG) strategy is where a self-service product experience forms the core foundation of your customer relationship.
It drives critical parts of the customer journey like customer acquisition and/or upsell and retention. All other factors — whether you offer a credit card–based payment flow, whether you’ve hired sales representatives, etc. — are tactics that you choose to fit your target customer’s needs at the right time in the right way.
Here’s a brief history of SaaS GTM strategies: B2B software-as-a-service in the form that we know and interact with today was born in the early 2000s with Concur and Salesforce. However, software that was free for customers to try has a much older history. In fact, 1983 was the year product-led growth in software was born:
These ideas were revolutionary at the time and sparked a whole generation of engineers and builders to think of free software as the right way to experience technology. Not long after SaaS took off in the early 2000s, B2B software companies started adopting these ideas. By 2006, startups like Box and Skype were giving away free plans and trials to entice their end users to adopt software that could grow virally within companies in a “bottom-up” motion vs. the traditional “top-down” sale.
Almost a decade later, the meteoric rise of products like Slack and Dropbox shifted focus to the importance of user experience in B2B software and how it could drive buyer behavior. In 2016, the tech community began using the phrase “product-led growth” to encapsulate these ideas of free-to-use/try software combined with a bottom-up GTM motion and great self-serve user experience.
There are many clear benefits to this motion when chosen and executed well. It can give the right customers a great friction-free evaluation and buying experience with instant gratification, like Calendly. It can help companies grow at faster rates and more efficiently, like Monday. It can help companies establish beachheads with customer accounts that are currently locked into incumbent vendor relationships with top-down selling motions, like Zoom.
Choosing product-led growth should be based first and foremost on your customer and their problem. There are three critical questions you need to answer before you decide to build a company with a product-led growth strategy. The good news is that you can answer these with market and user research long before you build your product.
If the answer to all three of these questions is a resounding “YES,” congratulations! Your company can thrive with a product-led growth strategy. If not, you should consider the decision more carefully.
Below, I have provided more details about how to interpret these questions and why the answers matter. I hope these three questions will help you ignore the hype around PLG and instead decide from first principles whether PLG is the right strategy for your startup.
A quick “aha” moment signifies a low Time-To-Value (TTV). In other words, your customer can see some value from engaging with your solution within a few minutes of using it. This isn’t always achievable for every company, in particular when your target customer needs help.
There are multiple kinds of help your customer might need to get to an aha moment:
In these situations, investments in education and community become paramount for customer acquisition strategy. You can still run a modern GTM motion, but it’s unlikely to be driven by a completely self-served product experience.
Product-led growth works well for problems that are either “decentralized” or “parallelized”:
If different teams can buy and implement different solutions to the same problem, it is decentralized. If the entire company (or at the very least, a subsidiary) can only have one solution at any time, it is centralized. If a team/company can try multiple solutions to the same problem at the same time, it is parallelized.
For instance, Carta (an Unusual Ventures portfolio company) offers equity management solutions for what is an extremely centralized problem. However, a project management tool like Asana solves problems that are decentralized as well as parallelized.
If your product solves a decentralized or parallelized problem, you can get a small team to try your solution on their own in conjunction with whatever the company does today. This is the ideal setup for a self-served product experience.
Note: what a small team can do on its own can also vary wildly from company to company based on how big or conservative they are.
If your product is only truly valuable for large businesses and government agencies, you need to first understand how they “try” new software. If they have well-established processes for all vendor evaluations — including security reviews and sign-offs from IT before someone can even trial a product for free — product-led growth may not be the right strategy for your business. You might learn that to get adoption with these customers, a great sales team along with partnerships and reseller channels are what you need.
The SMB/mid-market buyers, on the other hand, are a good fit for product-led growth but might not be an attractive market segment for every company. Some problems only really exist or are valuable to solve at scale. For instance, a 50-person company doesn’t need to invest a lot in software to manage team performance reviews and collect employee feedback, but a 5,000-person company would find it critical.
In the simplest possible representation of your ideal customer journey, there are three phases:
You can deploy a product-led approach in either one or all three of these phases. As your company scales and starts serving multiple market segments, you will likely end up with a blended model, called product-led sales.
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As a startup or a mature company first thinking about product-led growth, you can start by implementing it in just one phase of the customer journey. Below are the trade-offs as well as the tactics for each phase.
A self-service experience is not something you can force on your customer base. The problem needs to lend itself to self-served adoption of solutions, which sometimes is simply not the case. For instance, if your product leverages the customer’s private data set in any form, they might need to do a security review and have an NDA signed before they onboard. In those situations, the customers who sign up for self-service are small startups that may not want to buy your software at all but are just using it for free. This is still a good strategy for building awareness if the pain point translates across small and big customers.
Check out our article on how to create a great self-serve experience. Offering referral credits and free usage in exchange for badges and logos is a great way to marry product and growth marketing tactics when you have a strong self-service experience.
The foundation of product-led conversion is a freemium or free trial that offers users enough value to test/adopt your product upfront with clear gates for upgrading. The recent macro environment has capped price points for self-service paid software shifting the onus of monetization to sales teams. However, for single-user professional experiences, having a self-service conversion funnel from free to paid is still very compelling.
Our article on choosing the right free/trial conversion experience goes further into complex customer journeys.
Every software company should be driving product-led expansion. It doesn't matter what the product does or who your customer is — if they are already paying you to use the software, they should be able to grow their usage organically without having to talk to sales. The sales team should ideally convert this increased usage into better long-term contracts.
How can you make it valuable for your existing users to use your product for other problems or pain points? How can you get your existing customers to invite other users on their team to your product? Think about elements of product functionality such as user roles, invitation flows, and admin permissions, and how each of these either add or remove friction. Investing in this process will set your company up for a higher net dollar retention rate.
What’s important to note is that there are many different ways to implement PLG strategies depending on how complex your product is to adopt and evaluate. In our next article, we’ll cover the three strategic modes of PLG. If you are interested in learning how iconic companies such as Snyk, Nextdoor, and Webflow executed successful PLG motions with different strategies, check out the case studies in our PLG masterclass episode of the Startup Field Guide Podcast.
Check out the following episode of the Startup Field Guide podcast where Sandhya shares her framework for the three modes of product-led growth and how some iconic companies pursuing PLG found product-market fit: Snyk, Webflow, and Nextdoor.
