The Magnificent Product Led Growth – What, Why, and How

In recent months, “Product-Led Growth” (PLG) has been making waves. You’ve likely heard of its effectiveness and how it’s reshaping the way companies approach growth. How is PLG different from the familiar product development we are now used to? How to leverage it for product success? Let’s find out…

What is Product-Led Growth

Product-Led Growth is more than just a buzzword; it’s a strategic approach that places your product at the forefront of your growth efforts. Instead of relying solely on traditional sales and marketing channels, PLG leverages the inherent value of your product to drive acquisition, conversion, and retention. The idea is to let the product itself act as a powerful catalyst for organic growth. PLG is a customer-centric approach that transforms your product into the ultimate growth engine – where it’s ultimately making people’s lives easier and better. So much so, in fact, that they are seeking to use the product, and there is no need to sell them on it.

So, why the buzz?

From the outsider’s perspective, the product-led growth principle allows building a product that doesn’t require sales or marketing effort; instead, the product is supposed to sell itself just by being cool and pretty.

Well, we understand the allure completely. However, it’s sort of a misconception.

Although the standard Sales – Product – Marketing – Sales loop works differently in PLG, both sales and marketing efforts are still required. PLG emphasizes the product itself as a primary driver of growth; however, sales and marketing functions evolve to complement the product-centric approach, not work independently from it.

In a product-led growth strategy, sales efforts may shift from traditional outbound sales to a more consultative and supportive role. Sales teams can focus on understanding user needs, providing product demonstrations, and assisting users in making informed decisions. Marketing efforts, on the other hand, continue to play a vital role in creating awareness, promoting the product, and driving user acquisition.

The key difference is that, in PLG, the product takes a more central role in driving user acquisition, conversion, and retention. Sales and marketing efforts align with the goal of enhancing the user experience and facilitating the user’s journey within the product. It’s a collaborative approach where sales, marketing, and the product work together to achieve overall growth and customer success.

Product Led Growth Allure

Times have changed. Nowadays, users have become much more tech-savvy and now demand not only technical solutions but also a solid user experience, scalability, and broad applicability. According to the Considered Content 2022 study, more than half of buyers prefer to exclude interactions with salespeople from their shopping experience. In the same study, about 80% of people stated that their preference is to do business with companies that offer app personalization, a sentiment supported by another 2020 study conducted by Adobe. There are apps on the market that lose over 21% of users after the first interaction, and over 70% within the next 90 days.

In an era when consumers have access to a myriad of applications that pop up every day like mushrooms in a rainy season due to the ease of launching a tech startup, the market is flooded with less than stellar products that users are already fed up with. Users not only appreciate quality but also demand it. We are practically trained to “look and leave” the experience that immediately causes any kind of consumer dissatisfaction. Such short-lived trials absolutely don’t give any chance to products that have potential but do not meet all the high demands of the modern customer. And once gone, they are gone forever.

Modern products simply can’t afford to spend all this money on research, implementation, and promotion just to blow it for the reason of bad UI or a not well-crafted initial set of features.

Growth by Creative Effort, not Headcount

Product-led growth (PLG) is a business methodology in which user acquisition, expansion, conversion, and retention are all primarily driven by the product itself. It creates company-wide alignment across teams—from engineering to sales and marketing—positioning the product as the largest source of sustainable, scalable business growth.

Product-Led Growth is so much about shifting a traditional product mindset that is, in essence, revolutionary in nature, that it may take time to adopt—requiring time, effort, and commitment. No, it will not be easy and straightforward, just like any change in mentality. But yes, it will be worth it. While it might be easier to form a team from people who already carry the mindset, if you believe that product-led growth is the future, then there is nothing that can stand in your way.

To me personally, these are already pretty basic principles that any company creating a product should adopt for success. However, the fact that we are here going over the basics of this strategy implies that it’s still a novelty.

So, it’s all good and fun, very inspiring, you would say, but what would be those practical principles that would help a company shift to the product-led growth mindset?

Adopting the Product-Led Growth Mindset

A product-led mindset is centered around the belief that the product itself is the primary driver of growth. It involves aligning teams and strategies to amplify the user experience and product value. PLG is not just a growth tactic; it’s a comprehensive go-to-market strategy that positions your product as the key driver of customer acquisition and revenue. Think of companies like Slack, Dropbox, and Zoom. Their success is rooted in allowing users to experience the core product before making a financial commitment.

A product-led company is characterized by a relentless focus on delivering exceptional useexperiences, data-driven decision-making, and a culture that prioritizes product innovation as the core driver of growth. PLG marketing is based more on the idea of the product selling itself or “Social Proof” or “Network Effect.” Social Proof emphasizes the influence of others in shaping individual behavior, while the Network Effect highlights the idea that a product becomes more valuable as more people use it. Both concepts play a crucial role in attracting and retaining users through observed success or the presence of a large user base.

Product-Led Growth in a Nutshell

1. User Acquisition: Increase the number of users through the inherent appeal and functionality of the product.
2. Conversion Optimization: Enhance the user journey to convert free users into paying customers.
3. Customer Retention: Foster a loyal user base by consistently delivering value and addressing user needs.

The Five Pillars

Here are the Five Pillars of PLG you may want to study before starting the work on your product product:

1. Who: Identifies the users who will be benefiting from your product, not the buyer who will be purchasing it.
2. Where: Determines the channels through which customers discover your product with focus shifted from traditional marketing to word of mouth and “networking effect“.
3. Why: Explores the motivations behind their decision to purchase your product vs the products offered by your competition.
4. How: Analyzes the methods and processes customers employ to acquire your product and develop loyalty to it through that experience.
5. Next: Analyzing user’s ways to use the product features and mounting the product growth strategy based on the users’ evolving needs.

The Transformation

Although it sounds beautiful, commonly any transformation is rather painful. There will be hits and misses, there will be loss, and there will be pain. Just think of body building. No muscle damage – no growth. Same with any kind of transformation, and especially transformation that involves shifting mentality. It will be a transformation like no other, changing pace and goals. And if you are trying to move an existing organization over to the product-led growth approach, it will entail extensive training and potential staff alterations. Which may be much harder than just gather a new PLG-oriented team, therefore, bigger companies may take longer and harder path to PLG. But it goes beyond that.

Besides changing the way you and your people think about product development and marketing, you need to change the way you think about the product itself. It has to be absolutely amazing – the user experience, the features, the solution it provides, the customer relations, – everything. And in the ideal world, a good product provide solutions that facilitate people’s growth and help them become better versions of themselves. Only then this kind of product will be able sell itself.

Onboarding Excellence and Customer Education

PLG implies enabling users with the necessary resources and educational materials to unlock the full potential of your product and dedicating efforts to creating a user-friendly onboarding process that leads users to explore and comprehend the value your product offers. In product-led growth, the conversion rate is significantly impacted by the smooth onboarding experience and the perceived value in the product. A heightened conversion rate indicates successful transitions of users from free to paid tiers.

In essence, the acquisition within product-led growth should resemble the rapid spread of an invasive weed—once a few users adopt it, others are compelled to try it to keep pace with the initial users. This results in them not only trying but also developing a fondness for the experience, leading to a long-lasting commitment to the product.

User-Centric Design and Experience

The whole product experience should be easy and intuitive. There are cases when a product is more complex and may not be completely intuitive to every single user, especially for professional tools with a variety of features that may be utilized by different types of customers. However, there is a way to make the experience as easy as possible. A simple example is TurboTax, which provides a solution in one of the most complex areas of taxes, yet it has found a way to build the most simple and smooth ride for its users.

Shifting to Flywheel

However, in the product-led growth mentality, the concept of user experience goes beyond just smooth feature usage. PLG companies are encouraged to view the user experience in its entirety, as described in the “flywheel model“.

The flywheel model, as adapted by HubSpot, serves as a metaphor for the momentum gained when an entire organization aligns around delivering an outstanding customer experience. Invented by James Watt, the flywheel is highly energy-efficient, with its stored energy dependent on speed, friction, and size. Unlike other models that view customers as an outcome, the flywheel utilizes the momentum of happy customers to drive referrals and repeat sales. By focusing on attracting, engaging, and delighting customers, the flywheel model fosters a more holistic and efficient approach to growth compared to traditional funnel models.

The key lies in increasing speed, decreasing friction, and creating promoters who contribute to the ongoing spin of the flywheel. HubSpot has realigned its entire company around the flywheel, using it as the foundation for the inbound methodology, with phases of attract, engage, and delight. The flywheel model recognizes the changing landscape of customer decision-making, emphasizing the importance of customer experience and trust. In contrast to the funnel, the flywheel considers customers as a driving force, leading to more effective growth strategies and revealing significant areas of opportunity.

The journey from funnel to flywheel requires adapting business strategies to be more customer-friendly, recognizing that a bad customer experience poses the most substantial threat to growth. HubSpot’s customer platform offers tools to implement the flywheel model effectively, unifying marketing, sales, service, and commerce for a comprehensive view of the customer.

Data-Driven Iteration

Unlike traditional sales growth, which heavily depends on sales efforts, PLG takes a different approach by prioritizing product usage and experience to fuel growth. In a product-led paradigm, the success of customer relationships is closely connected to the product’s capacity to fulfill user needs and provide consistent value. Success isn’t solely measured by satisfaction but also by continuous product usage and engagement.

Utilizing data and analytics will help in consistent improvement of your product, drawing insights from user behavior and feedback. Sustain the ongoing feedback loop with your existing and potential customers. The essential elements for ensuring long-term product growth in a PLG strategy include continuous iteration, user feedback, and staying responsive to overall market demands.

The Right Metrics

Besides a standard Time to Value (TTV) that measures how quickly users derive value from your product, there are a few to consider. I am not going to invent anything but provide you with information about a model that was created by Appcues and that I absolutely like and endorse.

• Acquisition—the number of users who sign up for your free trial or freemium plan
• Activation—activation rate is expressed as the percent of users who have achieved value, out of total acquired users
• Revenue—can be measured by average contract value (ACV), monthly recurring revenue (MRR), average revenue per user (ARPU), etc.
• Retention—measures the number of users who continue using or paying for your product (typically month over month, but can also be year over year or even day over day)
• Referral—the percentage of current users who successfully recruit new users to your product

Other SaaS metrics from Appcues that are useful for measuring product led growth include:

• Expansion revenue
  Also called expansion MRR or upsell revenue, measures the revenue generated from existing customers through upsells, add-ons, cross-sells, etc. Expansion revenue is often overlooked in favor of net new acquisition, but is actually one of the most important levers for SaaS growth. In fact, ProfitWell recommends that at least 30% of your revenue should be expansion revenue.
• Average revenue per user (ARPU)
  Calculated as total MRR divided by the number of customers. Sometimes considered a vanity metric, ARPU can actually be a very good indicator of the overall health of your business.
• Customer lifetime value (CLV)
  A prediction of how much revenue your business will receive from a single customer over the duration of your relationship. CLV is used to identify highly valuable customer segments and gain a more thorough understanding of reasonable acquisition and retention costs.
• Product-qualified leads (PQLs)
  Bye, MQLs! Hello, leads who have already experienced value from your product through a free trial or freemium account! Product-qualified leads are essentially activated users—folks who have completed a key action within your product, had their aha moment, and have seen the value that your product can offer first-hand.
• Net churn
  Generally speaking, revenue churn is a more useful metric for SaaS growth than customer churn.  Even more useful is net revenue churn, which can often give you a clearer picture of your current customer base than gross churn, which does not account for expansion or upsell revenue.
• Virality and network effect
  These terms are sometimes used interchangeably but are, in fact, very different. However, they do often occur hand in hand. “A viral product is one whose rate of adoption increases with each additional user. The more people join, the faster it grows — until a certain point.” A product with a network effect, on the other hand, becomes more valuable for users as more people join, such as in the case of a 2-sided marketplace like Airbnb or a social platform like Facebook. 

Go-to-Market Strategy

Product-led growth shifts the go-to-market strategy approach from sales-driven to user goal-driven. It’s all about how sales, marketing, customer success, engineering, and product teams define success metrics and actively contribute to overall growth.

Freemium Models – Good, Bad, and Ugly

The freemium model is well-known and heavily leveraged in the space of product-led growth, allowing users to have a free experience of an otherwise paid product. Clearly, the strategy opens up the top of the funnel to a substantial audience of potential customers in the early life of the product.

In the context of product-led growth, the “good” obviously lies in its ability to attract a broad user base through free access, aligning with the principles of PLG where users can experience the value of the product firsthand. It serves as a potent driver for virality, as satisfied free users become advocates, contributing to organic growth.

However, the “bad” emerges when the conversion from free to paid users faces challenges, requiring a delicate balance between providing value for free and incentivizing premium features. The challenge lies in ensuring that users perceive the added value in the premium features and that the transition process is seamless, addressing potential friction points that might hinder the conversion from free to paid users.

The “ugly” side involves potential resource strain and the need for effective monetization strategies to sustain the business. In product-led growth, mastering the freemium model entails not only acquiring users but also strategically guiding them through the journey from free adoption to becoming loyal paying customers. Experiment with freemium offerings to allow users to experience your product’s value before committing to a purchase.

Harvesting Innovation from Within

What that means is that another key difference Product-Led Growth mindset introduces is being smart about utilizing the contributions of your whole company to build better products—as opposed to growing through scaling the headcount increase. Similar to an effective democracy, product-led growth requires the shift in mentality where traditional leaders stop making all the decisions and instead manage the decision-making process now delegated to an expanded group of stakeholders represented by the best company’s minds.

Product-Led growth is absolutely an approach that adds complexity to decision-making, but at the same time, it expands the creative aspect of decision-making exponentially, and it’s only limited by the number of people you let make the decisions that ultimately become more progressive and innovative. So, basically, it allows you to facilitate better product success by keeping the creative talent and therefore product expenses under a certain limit and leveraging to the maximum the creative power of your existing team. Cross-functional collaboration is the cornerstone of PLG.

When Product-led Growth is not Working

That’s true; not every single product-led company is set for success. Failures in product-led growth are not terminal but rather indicative of areas needing attention. By understanding and addressing these failures, businesses can realign their strategies, ensuring sustained and meaningful growth.

If your company embraces the product-led growth approach, and the outcomes fall short of expectations, a thorough review of the five pillars of PLG becomes imperative. Below is a strategy to validate the five PLG pillars and find where the approach is not working.

Revisiting the 5 Pillars of Product-Led Growth and Exploring Potential Failures

Who – The Failure
A common failure is assuming user personas without ongoing validation.

Mediation Strategy
Implement a continuous validation process for user personas. Regularly gather and analyze user feedback and behavior data to ensure ongoing alignment between your product and the identified user needs. Regularly update user profiles based on actual behaviors and feedback to ensure accurate alignment with your product.

Where – The Failure
Overlooking emerging channels or relying too heavily on a single channel can impede growth.

Mediation Strategy
Diversify your approach, experiment with new channels, and capitalize on the interconnectedness of user networks. Conduct regular assessments of the effectiveness of your chosen channels. Stay agile in adapting to emerging channels and ensure a diversified approach to maintain a robust presence where your target users are most active.

Why – The Failure
Misunderstanding or overlooking evolving customer motivations can result in a loss of relevance.

Mediation Strategy
Stay attuned to market trends, conduct surveys, and maintain an adaptive mindset to align with shifting customer preferences. Establish a continuous feedback loop to monitor changes in customer motivations.

How – The Failure
Inadequate onboarding, complex processes, or neglecting user feedback can hinder growth.

Mediation Strategy
Establish a robust system for gathering and acting on user feedback. Continuously refine onboarding processes based on user experiences, ensuring simplicity and responsiveness to user input to enhance overall engagement.

Next – The Failure
Failing to anticipate changing user needs can lead to stagnation.

Mediation Strategy
Institute a proactive approach to adapt to evolving user needs. Regularly assess user behaviors, gather feedback through various channels, and implement strategic adjustments to ensure your product remains aligned with dynamic user requirements.

When Hybrid May Be the Way

So, yes, the product-led mindset is something that takes time and, especially, openness to adopt. Perhaps just “stealing” some best practices of PLG and implementing them one by one could be a good way to introduce the strategy to your company. Try the hybrid approach to your product development and popularization, track each way, and determine which one is working better. Maybe maintaining some sort of a hybrid approach would be your adopted strategy after all.

No matter what it’s called, what’s most important is to see the growth, to have a successful product, and know that your customers love it and want more of it.