So, you want to build a killer product-led growth (PLG) company? You want to be like Zoom, Stripe, Figma, Datadog, and Shopify. One of the cool kids, right?
Well, it takes a lot more than just building a great product. Let's get into what PLG is, why it's all the rage, and how to develop your badass PLG motion.
What is PLG anyways?
Product-led growth is a strategy where the product experience drives customer acquisition and growth. It's all about building a great product that people will want to use and then using that product to attract new customers. It's all about word of mouth and virality.
Why is PLG so popular?
It's a great way to build sustainable growth. Unlike other growth strategies that rely on ads, discounts, or other marketing campaigns, product-led growth focuses on providing so much value to customers that they bring you more customers. Once you've acquired a customer, you're more likely to be able to keep them for the long term.
Product-led growth is often cheaper than other growth strategies. If you can build a great product that people want to use, and those people bring you even more customers, then you won't have to spend as much on customer acquisition. If you compare the financial statements of PLG companies like Twilio to traditional sales GTM companies like Netsuite, you'll see a big difference in their sales and marketing expenses.
If your PLG motion is successful, users are coming inbound, potentially self-service deploying, and buying with little intervention. You're less bottlenecked on sales, sales engineering, and demand gen capacity.
I'm sold! How do I build it?
Hold up. The hard truth is that PLG isn't suitable for every product. For every Figma, there's an Okta. For every Zoom, there's a Workday. Let's agree on what's required for PLG to work.
Fine, how do I know if PLG is right for my product?
When an organization buys something, multiple people are typically involved in the decision. There are users who will use the product regularly, economic buyers who are paying for it, decision-makers who get the final say, influencers who help sway the decision, and approvers who rubber-stamp the decision. Salespeople manage all these stakeholders to close a deal. They focus on the decision-makers or a heavy-weight influencer. However, in PLG, it's all about the user.
So, the first criterion for PLG is that users drive adoption. You have to have a product that users not only feel they need but one they'll fall in love with. User love is critical because you need them to seek out the product, sign up, and advocate for it within their own company and to friends at other companies.
Good example: Slack's users are all the employees at the organization, while the buyer is IT. Users love slack. Hell, they even sneak it into an org if they need to. PLG works for them.
Bad example: A CRM's buyer is sales leadership or sales ops. They love and need it, but its day-to-day users are salespeople begrudgingly doing data entry. Most salespeople don't love CRMs; they tolerate them. PLG is a problematic push to that user.
The second criterion is how long it takes for the customer to get to an "Aha" moment– that first moment the user understands why this product will be so great for them and falls in love with the experience. The best PLG experiences take under an hour to get an "Aha" moment, and the user can get there independently without assistance from you or someone else on their team.
Good Example: Signing up for Gmail and sending your first email happens in under 10 minutes. PLG works like a charm.
Bad example: Palantir is a powerful platform that helps customers find insight in their data. However, a Palantir field team needs to help shape the data and tune the product for the customer's use case to show off the power of the product. PLG wouldn't work. It takes weeks or months.
Third, deploying the product for actual use requires little coordination and effort. Can a single user deploy it on their own? If not, is it something that a team can quickly adopt and use without requiring a lot of integrations or approvals?
Good example: With Dropbox, you download, install, invite a few co-workers, and are up and running. IT might be pissed when they find out, but it's too late by that point.
Bad Example: Netsuite, an ERP, requires lots of integration to other systems by the IT team or consultants before the finance and ops teams can see the value. Rolling it out takes months and needs coordination across the entire organization. As valuable as an ERP is, PLG isn't an option.
Got it, now tell me how to do it!
Assuming you've built a good product that people will love and that your product fits the above criteria, you need to nail the onboarding experience, enable word of mouth, capture value through pricing, and integrate your PLG into a sales program.
Nail the product onboarding experience
The onboarding experience is how you turn a first-time user into not only a long-time paying customer but someone who will recommend your product to others. It's also the most challenging part of PLG, so give it the attention it deserves.
Start by defining who your target user is and the "Aha!" moment you want them to drive towards in your onboarding. That "Aha!" moment needs to be both functional and emotional. Functional means that they hit a feature or complete a task that shows enough value. Emotional means they fall in love in the process.
Twilio drives a developer to send that first SMS using an API call. Functionally, the developer discovers the API and sees it in action. Emotionally, "holy shit, that was easy!"
Shopify drives a non-technical small business owner to set up their first store using a sharp-looking pre-built template. Functionally, the user sees their new shop working without having to code. Emotionally, "It's beautiful! Could this be my store?"
Here are some pro-tips to build this right.
First, make sure that someone owns and is responsible for this experience-- typically a product manager or a founder acting as a product manager: specs, roadmaps, the works.
Second, measure everything. There are a ton of product analytics tools out there like Amplitude. Pick one. Gold standard metrics are activation rates and 1-day, 7-day, and 30-day retention rates.
Third, user-test your onboarding regularly. Find people on Upwork or some other channel who fit your target profile, and have them run through your onboarding from the landing page to signup thru to your "Aha!" moment. Record it. Don't intervene. Time them. Let them fail. Rewatch the videos. Take notes. Hone the product. Iterate.
Enable word of mouth and virality
For PLG to work as a go-to-market strategy, you must acquire users through word of mouth. Of course, you can just "let the product speak for itself," but you can also push hard to try to increase the odds in other ways– to kick start it.
I'm partial to content marketing and evangelism so that your product shows up first in various relevant Google searches and social media discussions. But there are many other ways to kick start and accelerate your community.
No one method works for everyone, but here are a few tactics I've seen work.
Invite features: Slack depends heavily on a streamlined co-worker invite workflow, so users directly pull in more users with little to no effort.
Incentives: Wealthfront successfully implemented a discount program for inviting others to join. They incentivize happy users to pull in more users.
Passive Marketing: Hotmail (remember them?!) promoted their product at the bottom of every email users sent, so their users were constantly, passively marketing the product to new users.
Reviews: Jasper directly asks for reviews, testimonials, and social media sharing so that users will promote and show off the product to other users.
Influencer marketing: Auth0 and Twilio successfully invited users and key influencers to write about the product, build tutorials, or other content– content that helped build SEO and social media presences that attracted more new users.
Capture value through smart pricing
Look at any PLG company; they're free to get started (Slack, Shopify, Zoom, Figma), or the entry price is trivial (Twilio, AWS). They keep the barrier to entry as low as possible so that you can get in, fall in love, start using it, and integrate it into your work.
But as you start to scale, the price quickly adds up. Most of these vendors make 80% of their revenue from 20% of their customers. These vendors have many customers paying them well over $100k/yr.
Sadly, pricing strategy is rocket science. There's no silver bullet, and you're not going to get it right the first time. You have to start with something you think makes sense and iterate throughout the company's life.
Here are some pro-tips I've picked up from banging my head against the wall for years on pricing.
First, figure out the right metric of pricing. A few questions: How will you tell if someone is getting more or less value from your product? What will be easy for the customer to understand?
Per user: Slack charges per user. It's easy to understand, and the more users a customer has, the more value they get. They also charge more per user depending on the features a customer needs. Conversely, charging per message might also align with value but would be hard for customers to understand.
Usage-based pricing: Twilio has a per API call model. Easy for a developer to understand, the more SMS messages a developer sends, the more value they extract from Twilio. If Twilio instead charged per developer, it would be easy to understand but challenging for Twilio to scale revenue.
Flat fee + percentage of revenue: Shopify has a monthly fee and receives a % of sales through the platform. Again, it is easy to understand and helps Shopify extract more value from the bigger stores that generate the most revenue through their platform. Similarly, charging per user would be easy to understand but might not align well with the value they're generating.
Next, make your pricing expensive. Like "I'm worried this is too expensive" levels. If you're not uncomfortable, it's too cheap. No one will complain if you eventually drop prices or give people discounts to close them. Do yourself a favor and start high.
Finally, sanity-check your pricing against common buyer patterns. How does your pricing get a 100-300 employee company to pay you $10-20k/yr, a 300-2,000 employees company to pay $50-100k/yr, and an over 2,000 employee company to pay $500k-2M per year?
Integrate with sales
Yes, sales. Twilio, Stripe, Zoom, Shopify, Atlassian, and Datadog have over a thousand salespeople. That 20% group of customers making up 80% of your revenues are unlikely to swipe credit cards for a >$50k deal without talking to someone.
PLG or not, every customer has a similar buying process once a purchase gets into five figures and above. They figure out what they want, research some products, try one or two, pick a winner, and then buy and deploy. The larger the purchase, the more likely multiple people will be involved in the decision.
A sales team earns their pay by helping customers navigate their processes and organizations to drive a transaction.
To integrate sales to PLG, you first start by watching the email addresses of signups. See that @jpmorgan.com email address? Sales needs to reach out to them immediately to understand their use case and see if there's an opportunity for your company. If there is a real opportunity, give them the white glove treatment: whiteboard with them, help run their proof-of-concept, help your champion sell internally, up-sell, cross-sell, propose and negotiate pricing, navigate legal and procurement, and nag them until they issue the purchase order. You know… a sales cycle.
To make this hum, tie your product measurements to customer records in the CRM and lead scoring. That @gmail.com account just invited five people to the account and has had a 100x increase in API activity? That's probably not a hobbyist. Alert sales, get them on it.
Product-led growth is a powerful way to build and grow a business. I hope this post has helped you see where PLG is and isn't suitable so you can focus your energy on the right go-to-market strategy. Moreover, I hope you've picked up a few tips and tricks to help get your PLG motion off the ground and moving in the right direction. With some luck, I hope that someday I'll be reading your post on how you built your own incredible PLG motion, and I'll pick up several tricks from you!
You got this.