Product-led growth(opens in new tab), or PLG, has long been associated with the kind of frugality that characterizes smaller, less generously funded software companies. While it’s true that PLG relies on cost-effective engineering to power lean marketing efforts, the strategy isn’t just for the small fry anymore. Evidence suggests that we’ve turned a corner, and that traditional marketing-heavy growth plans are giving way to—or at least sharing the road with—product-oriented approaches for software providers moving beyond startup mode.
We recommend that large, established software companies take note: A full-on PLG model isn’t a universal fit, as we’ll discuss. But upstart competitors are betting on PLG to drive disruption. Some of its tenets, like using product analytics for decision-making and formalizing referral programs, can benefit even marketing-led providers.
Need proof? A recent survey by SaaS VC heavyweight and PLG advocate OpenView Ventures shows that, among companies with $10 million in ARR, those with a product-oriented strategy can scale faster while worrying less about hiring and funneling leads to sales. (Overview of the findings here(opens in new tab).)
What makes PLG such a growth driver?
First, a PLG strategy is all about customer connections, often (but not always) driven by direct end-user product adoption. It’s a challenge to keep that intimacy and stickiness as you grow if you disaggregate the relationship by adding layers of direct or indirect sales and gated content. With PLG, your products are the primary drivers of customer acquisition, not cold calls.
This represents a major departure from established growth models, which rely on heavy marketing budgets and robust sales operations to move software on the strength of projected ROI and KPIs.
Thus, we can challenge the concept that software procurement should always involve stakeholders throughout the purchasing organization. Complex, expensive-to-execute marketing campaigns that draw firm relationships between a product’s contributions to a company’s financial growth have tended to work best in that environment. But the cost of these campaigns gets piled on to the engineering behind a given product and limits the terms a software company can offer while recouping its investment.
Because PLG appeals directly to end users, bypassing gatekeepers, it allows software providers to demonstrate potential ROI and establish provisional KPI scores even before an enterprise deal is struck—without big marketing and sales operations, and sometimes without a penny having changed hands.
Second, from a business perspective, the numbers bear out the benefits of PLG.
Development teams are going more and more modular. Reusing blocks of proven code rather than writing from scratch is a core tenet of modern application development, and APIs and other connector tools(opens in new tab) are mainstream. That means the development costs associated with SaaS products have declined significantly. Still, programmers are expensive, with average salaries topping $105,000 for developers employed by software companies, according to the BLS(opens in new tab).
PLG holds down cash burn. Engaging directly with end users by providing free or freemium versions of their products, versus spending on sales and marketing, allows SaaS startups to survive long stretches of slow growth. Once users come to depend on an application, you don’t need a big-bang ad campaign to convert them into paying customers.
PLG has also been proven in the B2C arena. Think about the last time you did or bought something based on that viral voodoo, where a new product or service bubbles up into our collective consciousness. PLG is bottom up, not top down. No one had a 45-page marketing plan for the ice-bucket challenge, which raised $115 million for ALS research. It was all viral(opens in new tab).
None of this is news to CFOs at early-stage SaaS startups. No one gets together with three or four other smart people to found a company and says, “Let’s get really great at marketing—we can come up with something to sell later.”
The conversation always starts with a pain point, and a product that fills that need. The value proposition was baked in from the start.
But what about enterprise software providers? If you sell ERP, payment processing or BI, can you get in on PLG?
According to the OpenView survey, just 25% of SaaS providers with more than 1,000 employees consider PLG a significant part of their growth strategies.
That makes sense, because going all-in on a product-led approach isn’t feasible for companies offering specialized, complex applications that may take months to implement. You can't go grass roots if your product requires extensive expertise to install and customize, instrumentation or back-end tie-ins to enterprise databases, and formal user training.
A recurring theme of tools that succeed with pure PLG is that while they’re primarily B2B, they take a B2C implementation approach.
Still, as we discussed, there are lessons to be drawn from PLG no matter what your product. While PLG-oriented SaaS providers are about twice as likely to offer a trial versus the general market, according to the OpenView survey, free and freemium versions are only part of the story. These providers are also more likely to use product analytics for decision-making and provide a self-service buying experience as much as possible.
OpenView has some universal advice for keeping PLG at the core of customer acquisition:
Once companies get past their first few rounds of funding, there is a temptation to emphasize building the marketing and sales organizations. And that’s necessary. But don’t abandon the PLG ethos. Customers want that product focus wherever possible, and they’re willing to pay for it. It’s why SaaS, with its lower cost of entry, reduced time to benefit, better scalability and more frequent updates, is so popular.
IDC predicts SaaS revenue will grow from $99 billion in 2018 to $218 billion in 2023, about a 22% CAGR. The consultancy spoke with enterprise SaaS buyers and found that PLG principles are top of mind: Unified platforms with the same code base or look and feel and API-based integration were extremely important. Users want the product to just work, immediately. Self-service is also critical.
“We liked that there was a demo platform,” said a buyer from a U.S. bank. “For most of them, it was a case of ‘well, I’ll come and see you.’” The institution selected a product where they could go in and access the demo on their own time. More efficient for the buyer, less expensive for the seller. That may be the real bottom line for PLG.
Anthony Stames helps manage NetSuite’s go-to-market strategy for the software industry, collaborating with development, product management, sales, marketing and business development.