Exploring Product-Led Growth: A Path to Business Success
Business success used to be driven by sales and marketing. But in a world where the user experience reigns supreme, businesses are seeking more innovative approaches to drive growth. One option is to focus all efforts on the product – product-led growth (PLG) – which focuses on leveraging the product itself to acquire and retain customers. In this article, we will delve into the concept of PLG and its potential to help businesses achieve product-market fit (PMF) while revolutionizing their growth strategies.
Table of contents
Understanding product-led growth: a definition
What is product-led growth? To quote the community-driven Product-Led Growth Collective:
Product-led growth is a business methodology in which user acquisition, expansion, conversion, and retention are all driven primarily by the product itself. It creates company-wide alignment across teams—from engineering to sales and marketing—around the product as the largest source of sustainable, scalable business growth.
Traditional sales-centric business models rely on sales teams and processes to drive growth. Users and customers are introduced to products via marketing campaigns, sales pitches, and demonstrations. Product-led growth, on the other hand, uses the product itself to engage with customers. It is a fundamentally user-centric approach based on a show-don’t-tell attitude (and therefore fits seamlessly with Agile methods of product development, which are similarly user-focused).
The standard tactic for product-led growth is to allow the user to try a free version of the product (think Slack, Drobox, or any other digital product with a freemium offer alongside paid service plans). Instead of a product demo by a salesperson, the user gets to know the product by actually using it and (hopefully!) seeing the practical benefits firsthand. This positive experience then leads to signing up for a paid plan.
With a PLG strategy, design, engineering, marketing, sales, and customer service are all focused – via the product itself – on providing the best possible user experience. No surprise that PLG often works best with products that are self-explanatory in use, with an intuitive user interface.
What are the benefits of product-led growth?
Product-led growth is increasingly popular with digital product businesses. There are a number of factors and benefits that make PLG a good fit for such organizations, including:
- User-centric – With PLG, the user’s needs, requirements, and interactions with the product determine both the strategy and its success. The goal of creating loyal customers and brand advocates is achieved via the product’s UX.
- Broader target market – In terms of the number of people reached, offering a freemium product version hits a wider audience than sales and marketing campaigns can.
- Word of mouth – As mentioned, loyal users become advocates for the product (people are more likely to ‘sell’ a favorite product when they feel they have discovered and adopted it themselves, as opposed to having been sold it via marketing). With this kind of organic growth, a PLG strategy has the potential to go viral.
- Rapid time to value – The direction of user interaction with product-led growth means that users see value more quickly.
Another benefit for the product development business is that we are seeing a rising cost for user acquisition when using more ‘traditional’ methods. A product-led growth approach means more contact, more directly, with more users; hence the benefits outlined above.
Show me a few product-led growth examples…
Product-led growth has emerged as an increasingly-popular business strategy over the last few years (though arguable, only now is it really hitting the mainstream). Let’s take a look at a few businesses that have successfully applied PLG.
- Zoom – Everyone knows Zoom as a big pandemic success story. But the foundation for that success was laid by the company’s PLG strategy in the years leading up to 2020. Launched in 2011, Zoom had 3 million users by 2013, and 100 million by 2015. By 2022, Zoom’s user base was 300 million and the business was generating $1.37 billion in profits. How? Because the product was good, it worked, it was easy to use, and basic entry was free with more advanced features in the paid plans.
- Slack – An unusual example of a B2B product that leads business growth. How? Because it targets employees as users, not just the C-suite. That broad user base means that 77% of Fortune 100 companies are paying Slack customers.
- Pinterest – You could say that Pinterest is built around ease of use and the potential to go viral. By offering users a broad canvas for self-expression with an engaging UI, the company achieved a 2019 IPO valued at 12.37 billion.
What these businesses– and many more – have in common is they offer a fully-functioning, consumer-grade product for free (or at least, for a free trial period). Instead of focusing on sales funnels and other marketing strategies, their goal is to get the user to try the product, use it in their everyday life, and ensure a great experience by means of intuitive interfaces, helpful onboarding, and supportive guidance or in-app messaging. Basically, sales, marketing, and customer service are all embedded in the product’s design.
Product-led growth implementation:
For a new business, you could say that a product-led approach to growth is easier to implement than the more common sales-led growth – put the user at the heart of your design and development process and get a functioning version into their hands. That said, the usual scenario for product-led growth implementation is that of a business looking to switch from sales-led to product-led growth, and that requires two things:
- A great product that delivers value to the user, solves their pain points, and ideally can become indispensable. This requires a user-focused, intuitive design, based on the users’ journey and goals and not the product’s features (i.e. features serve the user not the other way round). In fact, the more customizable the product’s features and operation, the better (so long as the customizing is easy to do!)
- An organization transformation that aligns all departments or functions with this user-focused perspective. Cross-functional teams are common, combining all aspects of product development and user engagement into a single, focused effort; as seen in Agile and DevOps methodologies. This kind of ‘silo-busting’ means not only better communication and cooperation within the business but also with users and customers, making it easier to know and address user needs.
Product-led growth metrics
With PLG, the usual metrics and measures – retention, acquisition, expansion, conversion, etc. – are driven by the product.
Common product-led growth metrics include:
- Time to value – ensuring that users can quickly get some value or satisfaction (e.g. during the initial user onboarding process) from the product is critical to engagement and PLG.
- User satisfaction, loyalty, satisfaction, and net promoter score – i.e. is the product meeting user needs?
- User retention tells you how effectively you are engaging with and satisfying over time (and not just the initial ‘wow factor’ that the product has for new users.
- Total addressable market (TAM, also known as total available market) is about the revenue opportunity for the product with its target audience. It works as a measure of market traction, user acceptance, and the resulting product potential.
- Referrals by current users resulting in new users tell you whether you’re achieving the viral/user loyalty/product advocate benefits of the PLG approach.
Moving towards product-led growth
Product-led growth is all about the user, and transitioning to a PLG approach means putting both product and user at the center of your operations, with a focus on continuously improving user experience. Collaboration between product development, marketing, and sales – and users! – is essential. The benefits include viral growth potential, expanded market reach, a loyal customer base, and achievingproduct-market fitfor your digital product.
The principles of product-let growth provide a framework for success for today’s digital products. Embrace the power of PLG and transform your growth strategy today.
Share this article:
