What is product-led growth?
How to adopt, implement, and succeed with product-led growth.
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Authors of this article
Chase created Flywheel after founding Jira Work Management at Atlassian. He has executed product-led growth strategies over many years across multiple verticals and companies, ranging from SaaS to e-commerce.
Claire is the VP of Marketing for Magical, one of the fastest growing PLG startups in the world. Previously, she was Head of Product Marketing for New Products at Atlassian. She worked for nearly every single Atlassian product during her tenure.
Amir is currently a Director of Product Marketing at ClickUp. He previously brought Atlassian’s incident management products and solutions to market and most recently operated as the Head of Marketing for effx.
A basic overview of product-led growth
Product-led growth (PLG) is a distribution strategy focused on delivering an extraordinary experience for end users as the primary way to show value, often via a low-touch, self-serve go-to-market motion. This is different from sales-led, which relies on 1:1 conversations, or marketing-led, which often depends on high-volume messaging via content. Generally, companies using a product-led growth strategy offer a free trial or freemium packaging model to drive acquisition, conversion, and expansion.
Done right, product-led growth is more effective than sales or marketing-led at delivering value to users. It can also be a powerful differentiator in competitive landscapes. You'll have felt this pressure if you've ever competed with a freemium offering from a rival company.
Why is product-led growth suddenly so popular?
In short, because it can be wildly profitable and almost infinitely sustainable. Atlassian just announced faster revenue growth than last year, despite an annual revenue of over $2 billion. Rather than slowing down, growth is picking up. ClickUp went from $4 million ARR to $70 million ARR in an eye-popping two years. An effective flywheel, our namesake, spins faster and faster over time through the accumulation of many customers, contracts, and superfans.
The success of consumer B2C companies in delivering simple, user-friendly products with consumer-friendly experiences has led to a seismic shift in the way companies do business in B2B. Companies like Airtable, ClickUp, and Atlassian are using product-led growth strategies to drive record growth, and traditional revenue-oriented companies are rushing to adopt the PLG model lest they be left behind. Today, almost every company (no matter how they currently go to market) is evaluating whether product-led growth is a viable option.
Jay Simons, a Flywheel investor and former President of Atlassian, was critical to transforming Atlassian's sales model into its now-famous product-led flywheel. The reality, though, is that product-led growth is difficult to implement and even harder to iterate on without consistent frameworks. PLG consultancies are starting to emerge and VPs of successful PLG companies are in high demand. Previous Atlassian VPs are now CXOs of companies such as Airtable, Sentry, Freshworks and 1Password. The hype is real, but there are few real experts in the space.
Product-led vs Sales-led
Most companies today are sales-led. Some are marketing-led and a select few are product-led. What's the difference?
In sales-oriented companies, users interact with employees at the company and not immediately with the product. This allows a company to bring put their best foot forward and learn the needs of their potential customer. A secondary benefit is the ability deliver value quickly by explaining the product in real time. This might seem helpful for product and design teams on the surface as they don’t need to invest as much time into onboarding experiences. Our opinion, though, is that this actually keeps product and marketing teams further from users and their problems. Sales teams became a critical way to relay back learnings and ushered in call analysis tools such as Gong.
Product-led growth, however, exposes your product immediately and without the benefit of IRL sales assistance – requiring you and your company to be laser-focused on providing a great experience from Day -1. Software-as-a-Service (SaaS) companies are uniquely suited for this style of go-to-market motion. However, you can argue that free samples in physical stores also follow some variation of PLG.
PLG companies must attract users via the direct value of the product, guide them to finding success on their own, and create an experience that retains customers over time. Look to gaming to see the the forefront of this industry. Fortnite and mobile games excel at capturing user attention and explaining their value in 30-60 seconds. Their freemium model relies on product activity and effective feature gates. Retention is key and word-of-mouth creates smash hits. Following the same principles and standards of gaming sets a high bar for B2B SaaS (obligatory note that gamification is not the silver bullet to your distribution or retention).
PLG SaaS companies today generally take an approach that marries a great product experience with high-volume distribution. This is accomplished with 1:many distribution channels such as content marketing, email marketing, in-app messaging, and documentation. Other niche channels (like sandbox environments for dev tools, SMS for e-commerce, or webinars for B2B) can be especially effective depending on the industry.
Let's get into real-world implementations of PLG. Atlassian takes (roughly) the following approach to their marketing for every product line.
- Step 0: Design a remarkable product. We won't focus on this until later articles, but a great product is key
- Step 1: Create foundational content, such as home and pricing pages, to drive freemium signups
- Step 2: Design an in-product onboarding experience that walks through primary features
- Step 3: Write a sequence of email journeys that are sent to new users, mirroring or complementing the in-product onboarding. These journeys are segmented by firmographic data and in-product behavior
- Step 3.5: If a recent trial comes from a large enterprise company, the "owner” of that account will reach out to known contacts at the company and initiate a sales-led process
- Step 4: Write product guide content that explains, in-depth, how the product functions and talks through features
- Step 5: Write use-case resources that translate the product value for specific scenarios in specific industries
- Step 6: Transform the above content into assets that can be distributed via webinars, whitepapers, and videos
- Step 7: Focus on keeping users engaged through the Day 14 milestone – the point where active users are much more likely to stay active over time
- Step 8: Persuade free users to become paid users – whether by feature set or user quantity (Atlassian gives most features away for free but limits the number of users to 10)
As you can see, Atlassian does a tremendous amount of marketing after the trial, rather than focusing only on bringing in more leads. This brings product and marketing together much more closely as they work towards a common goal – increased product usage and user value.
Buyers are known to make about 70% of their purchasing decision before they initially sign up. For PLG companies, however, free trials significantly lower the barrier to entry. Thus, buyers do less upfront research and instead do much of their investigation after the initial product experience. As a marketer, focusing primarily on signups, and not in-product usage, will significantly reduce your ability to convert customers.
Becoming a product-led company
Product, marketing, sales and customer success teams all need to work together to implement and maintain a product-oriented growth strategy. Deploying and scaling a PLG framework requires companies to not only realize their product is the best source for sustainable growth, but also that they need alignment on goals and strategy. A critical component of PLG strategy is an in-depth understanding of how users interact with products, which is then translated into better experiences. This is done through sophisticated product analytics. PLG companies apply these insights in their go-to-market strategy and invest heavily, directly, and often, into their products with the intention of driving acquisition, conversion and expansion.
Product-led growth is often used by companies aiming for rapid growth because it lends itself to a larger top-of-funnel lead volume. This strategy hinges on the experience of "testing before buying" the product instead of using conversations to demonstrate and explain value. It also provides a user-driven moat to keep competitors at bay. While competitors focus on building their sales teams, product oriented companies focus on improving onboarding and serving their customers. The compounding value is incredible.
Simply put, a PLG strategy is all about your product experience as the primary growth driver at all levels of the funnel. The product experience is the heart of the strategy and applies not only to your product development team, but also to sales, marketing, CS, support, and other teams that engage with users and drive the growth of your company.
Finding success via product-led growth
Companies with a PLG strategy rely on product features and immediate time-to-value as primary drivers for customer acquisition, retention and expansion. Thus, successful PLG companies can grow by way of their products to create a pipeline of active users who turn into paying customers. By allowing users to sign up and use a great product without friction, businesses can enable end users to find fast value out of their product. If a company has a free product, for example, the product itself and word of mouth become a sales and marketing tool. Done well, it is an effective way to accelerate the user growth and maximize the number of people willing to pay for your product. Done poorly, free users will languish in your product without ever buying.
Data plays an obvious role in product-led growth. Every product has different metrics uniquely suited to understanding its effectiveness, but there are common metrics amongst all PLG companies. Some of those include:
- Signup volume
- Active to Inactive user ratio
- Time to Purchase
- Purchase rate
- Customer lifetime value (LTV)
If you're still figuring out in your analytics journey, check out our comprehensive guide to product analytics. Flywheel brings these metrics to life for your company, but data analysts and data scientists can help your organization sift through product usage metrics to find key "high-value" actions. Or, as we call them, milestones. A high-value action could be configuring an integration, adding a new user, completing the in-product onboarding flow, etc.
All that matter is that your chosen high-value actions align with down-funnel actions such as purchase, upgrade, or retention. Your PLG marketing should encourage users to take these specific actions rather than explaining potentially irrelevant features.
PLG companies often have a Chief Revenue Officer that brings marketing and sales together in the same section of the organization. Other companies have dedicated Revenue orgs that have a growth mindset. Experimentation, iteration, and conversion rates are primary goals for these organizations. We'll have longer write-ups about this topic in the future.
Activity = Success
Flywheel and other PLG-related products have product usage at their heart. An inactive customer is a customer that will churn or not buy in the first place. Show value, deliver more value every week, and keep users as engaged as possible. Accomplishing these three things will help your product stand out among the masses.
Product-led growth as the future
Product-led growth may have only surfaced as a phrase in the past few years, but SaaS marketers are rushing to develop PLG motions to keep up in an increasingly competitive market. The proliferation of the SaaS ecosystem has made it easier than ever to deploy software to businesses in days or weeks, not months. In order to succeed in the current end-user-first era, more software companies need to rise to meet the demands of the market by providing a white-glove experience to their users – without the aid of 1:1, direct conversations.
Bringing clarity to this process is hard. User journeys are winding and bespoke, metrics are difficult to accurately gauge, and giving users direct access to your product is intimidating. The rest of the articles in this series are here to help you navigate the nuances of product-led growth in the same way industry leaders do today.
Sep 12, 2022
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