Embracing product-led growth: Principles, strategies, and metrics
When was the last time you got so excited about a product that I couldn’t stop talking about it? Think about it for a bit, and I will soon share a product that blew my mind.
Before answering this question, I have an announcement for you.
I upgraded the premium subscription of Untrapping Product Teams! All premium members get unlimited access to my Product Strategy self-paced course. I’m doing that because I want to help you level up your product game. Let’s rock it together!
Back to exciting products, let me share a little story with you :)
I’m not a native English speaker, but I do love writing. Yet, reviewing my drafts had always been troublesome, and I had many blind spots. Once I heard about Grammarly, I immediately got my Chrome plugin and started using it.
I couldn’t get enough of it. My writing leveled up, and I talked to everyone about it. A few weeks after using it, I upgraded to Premium. That was in 2017, and since then, I’m still an advocate of the tool because it helps me be a better writer.
Grammarly uses a Product-Led Growth strategy. It reduces time to value, increases user engagement, and continuously focuses on improving its value proposition. From 1M to 30M daily users in five years, curiously, the company has about only 300 employees.
Let’s take this episode to elaborate on PLG, SLG, strategies, metrics, challenges, and real-world examples.
What’s product-led growth?
Product-led growth (PLG) is a way of using the product to boost business success and user growth. It focuses on simplifying user acquisition, activation, engagement, and referral.
The core of PLG relies on reducing time to value and relentlessly improving the user experience by creating multiple a-ha moments. Here are a few examples:
Spotify: You discover a new song matching your taste through a weekly recommendation
Substack: You receive shareable images in your mailbox to post on your social network
Trade Republic: You earn interest rate on cash sitting in your account
Goals of PLG
The core of PLG is creating a self-sustaining growth engine. Users stay because the product continuously increases value creation, which leads to referrals and organic growth. Breaking down to five goals, I’d see the following:
Organic acquisition: The product should be highly intuitive with an outstanding user experience. Users should feel the product was made for them. The time to value should be as short as possible so organic growth becomes natural. Example: Let the user experiment with the product before sharing relevant data, e.g., credit card.
Retention: Continuously deliver value to users so they have a reason to stay. The more the user interacts with the product, the better the experience. That’s the case for Netflix and Spotify. The more you use, the more precise the recommendations become.
Premium conversion: Users should acquire as much value as possible without being a premium, but companies need revenue to survive. Giving users a reason to convert without a sales pitch is fundamental. You can use Spotify without paying a dime, but you need to listen to ads. You can use Dropbox on your devices, but you’re limited to a few gigabytes.
Community: One of the keys to PLG products is building communities. For example, Slack has become better with more people using it. When users add, they increase the product value, which leads to the community while improving retention.
Viral: A key goal of PLG is driving exponential growth from satisfied users. That’s why enabling users to bring their friends to the product as efficiently as possible is essential. This can be done by giving users advantages or rewards.
Product-led Growth vs. Sales-led growth
Shall we talk about the big question? What about sales?
Product-led growth is a relatively new model compared to sales-led growth. For decades, companies have invested significantly in sales teams because that is how they drove customer growth.
Product-led and sales-led have several key differences. The most important are:
Growth driver: In PLG, the product drives sales because of the value it creates and how users perceive it. In SLG, the relationship drives sales. The personal touch is fundamental, and a personalized sales approach will take place.
Customer journey: Another core difference is how customers interact with the product. With PLG, users generally have a freemium version, meaning they use the product without talking to anyone. Meanwhile, SLG is more traditional. Users receive presentations before any interaction with the product.
Scaling: PLG has a tremendous advantage for scaling because it needs more users to grow instead of more people to sell. SLG has a slower scaling model as it requires hiring more sales representatives. It’s essential to recognize that the product’s nature is critical. PLG works well when products can be easily understood, while SLG is a better fit for complex products, e.g., enterprise solutions.
PLG and SLG are different strategies with advantages and disadvantages. It’s critical to understand what you aim to achieve and the complexity of your product so you can deploy the best strategy.
Implementing a product-led growth strategy
I imagine you may wonder about how to bring PLG down to Earth. Let me help you with that.
The first aspect is to understand your current scenario. When a company is sales-driven, moving the PLG will be a considerable shift and journey, yet possible. The critical aspects of implementing PLG are:
Focus: The organization needs to focus on making the product more attractive so it sells by itself. This is a tremendous focus as the product becomes the core of the growth drive. This means that making the product more valuable to the user is everyone’s focus.
Metrics: The ability to measure results is vital to thrive with PLG. Yet, there’s a hint: PLG is about speed, so you need to use leading metrics instead of laggard ones. For example, think about a short experience and measure the Customer Effort on that (CES) instead of relying solely on NPS at the end of the flow. Proper analytics is essential for PLG.
Reduce time to value: How long does it take users to collect value from your product? How easily can users receive value? PLG means reducing time to value and facilitating user onboarding. You need to answer those two questions.
Feedback loop: You want satisfied and engaged users, so creating opportunities to collect feedback becomes the core of your approach. The faster you learn, the quicker you thrive.
PLG isn’t a process; it’s cultural change. To accelerate the process, you may consider hiring a specialist. Some names would be Leah Tahrin, Elena Verna, and Wes Bush.
Examples of product-led growth companies
Let’s look at a few companies nailing PLG
Notion: A flexible workspace all in one
Freemium model for single users
Easy to share templates, customize, and engage with other users
User-generated content, templates, and guides
Dropbox: Cloud storage
Freemium model with limited space
Auto sync with all devices
Easy to collaborate
Extra space in exchange for referrals
Collaborative spaces
700M+ users, including 18M+ premium
Spotify: Music streaming
Freemium model paid with ads
Extensive library
Improved recommendations based on listening habits
Users generated & curated playlists
Collaborative playlists
600M+ users, including 236M+ premium
Canva: SaaS Design platform
Freemium model excluding pro-assets
Wide range of free templates
Design trends and continuous recommendation of new templates
Design share triggers organic user growth
Note that all the above gives incredible user value for free users, yet they have enough premium users to sustain the whole platform.
Measuring product-led growth
To measure the success of your PLG strategy, you need to monitor the following:
Activation rate: Signing up the users isn’t enough; you need to get them to use your product and collect value from it.
Engagement: How often do users interact with your product? First, you need to understand the desired frequency to find the right metric. For example, social networks would measure Daily Active Users, while Airbnb would benefit most from Weekly or Monthly Active Users. Whatever number you choose, you want that to be at least stable, preferably growing.
Referral: PLG heavily relies on organic growth, so how is your referral rate? To achieve virality, every user needs to bring another user or more.
Churn-rate: PLG means a great product in focus; you want a small number of users leaving you to measure that. Some users will inevitably bounce, but you do need to monitor them and ensure the churn rate is as tiny as possible.
Premium conversion: Driving user engagement is great but won’t fuel the business. You need to have a minimum number of premium users. Having a sustainable premium conversion rate is fundamental to scaling up.
Challenges and pitfalls of PLG
PLG won’t fit every single product. Some products are complex and require personal interaction. For example, enterprise solutions are highly complex and unlikely to fly without building relationships. Deploying PLG with a complex product will lead to undesired results.
Another common challenge is the transition from sales to PLG. With SLG, salespeople hold the customers and are responsible for growth, but PLG changes that upside down. It requires a cultural change, which can only happen with the full support of the company leadership.
User acquisition costs and monetization are sensitive topics requiring learning to balance. How much value can you give for free so enough users will convert to premium ones? It’s not a science; it’s an art.
Key Takeaways.
PLG means that users will collect value from the product as fast as possible without any strings attached
PLG requires cultural change as the product becomes the core of the business
SLG still has its place. The more complex the product, the better fit SLG is
Having fast and straightforward ways of measuring key metrics is a crucial enablement of PLG
PLG is an art, not a process
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Another example of PLG: Your newsletter!
Amazing as always, congratz my friend for this great text