SaaS Product-led Growth Strategy
Intrigued by the growth trajectory of companies like hubspot, zoom, calendly, etc., I wondered what they did differently. Turns out their growth strategy is well differentiated and is product led. I believed that product led growth meant product decided what to build next using the data on actual product usage. This understanding doesn’t fully capture the essence of product-led growth. In this write-up, I will try to summarise what I have newly learnt about this growth strategy.
Let’s first know that companies measure growth in terms of revenue and all the leading indicators of revenue. Leading indicators of growth are the numbers that show at every milestone in a user/customer journey. Most businesses classify these milestones as steps in a funnel (funnel because there’s an expected drop after every step). However, funnel doesn’t capture all the steps that reflect true growth.
For eg. in a subscription based business model, sales funnel of Lead > MQL >SQL > Opportunity > Customer doesn’t cut it. It keeps customers at the bottom of the funnel and assumes the work stops at acquisition. The process of growth in businesses that risk loosing customers every month, quarter, year, involves more than just acquiring customers. Hence, the flywheel of Acquisition > Activation > Retention > Referral or more commonly called as Acquire > Engage > Delight which keeps customer at the center of the process and assumes delight/referral is a necessary step in growth, is a much better strategy. It makes the sales funnel just a part of the process of acquisition and activation. The flywheel gives more specific milestones to track growth of product, therefore, these are leading indicators vs lagging indicators like customer churn or dollar churn.
Product-led growth (PLG) is a business methodology in which user acquisition, expansion, conversion, and retention are all driven primarily by the product itself. This goes against the common understanding of marketing, sales and product disciplines. PLG doesn’t dilute the positions of marketing, sales, but shifts it considerably. A product led business is marketing and sales assisted. The decisions for sales and marketing are product led.
A complete dependence on product for growth also restricts which businesses can be product-led from the beginning. Enterprise products require people-led growth. Acquisition of such products requires sales demo and activation is usually led by customer success. In contrast, products that offer value instantly to consumer can result in quick acquisition and activation if the actual value is same as or more than perceived value. Therefore, self-serve products are well suited for product-led growth strategy. Many a successful self-served product-led businesses start with B2C or prosumer (professional consumer) with a tier for enterprise, eg. calendly, slack, zoom etc.
While product-led growth is promising and feels like first-principles thinking, whether or not you can use a product-led approach is affected by other factors like the maturity of the market, the complexity and sophistication of the product and the proficiency of the user. All of these challenges will take time, yet, I believe these aren’t insurmountable. Hence, product-led growth will emerge as an important element in most SaaS playbooks.
The reason I closely watch SaaS playbook trends is that they take risk away from SaaS businesses and keep focus on real indicators of growth. For someone as risk averse as me, anything that gives a clear indication of growth or lackthereof, assures that atleast some aspects of businesses can be predictable.