Product-led growth is a business strategy in which a company uses its product as the primary tool to gain customers. Companies using a product-led growth strategy expect their product will sell itself. These companies make it easy for potential customers to try their products. Customers save time without talking to a sales representative or viewing a demo first. For this strategy to work, the product has to solve a meaningful problem for the users. It has to be easy for users to start and continue using. Here’s a closer look at the characteristics of product-led organizations, the benefits of being product-led, and comparisons to other organizational structures.
Characteristics of product-led organizations
To determine if your organization is product-led, look for three characteristics in your approach to building products:
1. User experience drives design
A product-led growth company considers its product the primary source of new customers and users. For the product to attract new and retain existing users, it needs to solve actual problems quickly and easily.
You’ll need to let user experience drive your product design choices. You achieve this through understanding your users. To truly understand them, you listen to their problems and consider their feedback when you build a solution. That also means that you need to make consistent improvements to your product. As you gain a deeper understanding, you will better understand how people use your product.
A focus on user experience means you’re not concerned solely with cranking out feature after feature. Instead, you decide what to release and not release. You base this decision on whether it improves the chances your product satisfies your user’s needs.
When users have time to use your product and find that they can use it without too much effort to solve their problems, they are more likely to continue to use your product and encourage others to use it as well.
Slack is a prime example of where user experience drives design. They make significant efforts to understand their users’ communication needs. The team at Slack uses that understanding to not just sell software, but to sell a positive user experience that leads to more products and streamlined communication amongst team members.
2. Try before you buy
A fundamental premise of product-led growth is that if someone could only try the product before paying for it, they’ll immediately see the value they can get and want to continue using it.
For that to work, you need to allow people to use your product in their daily work. They can utilize the product to solve their problem or gain clarity on its use as a solution. This is the ultimate application of the “show don’t tell approach” and is much more believable than a salesperson saying, “Yeah, it will do that. Trust Me!”
You must ensure your product has functionality that helps users solve their problems. You also need to keep functionality out of the product that impedes users from getting their problems solved quickly.
3. Self-service trials
Common ways to accomplish this early access is through self-service free trials. These free trials last for a certain period, or you can opt for a freemium model. The latter offers some features, but not all, for free. The option you choose depends on the problem you’re solving. The goal is to remove as many barriers as possible that prevent users from getting immediate value.
If people can adopt your product through self-service, keep your initial product experience as simple as possible. Here at ProductPlan, we let product managers sign up for a free trial without a credit card and get access to the features in our entry-level plan. That way, they can try ProductPlan out on their own products and determine if it will work in their organization.
If your product requires human touchpoints to get people set up, make sure the first people in your organization that customers interact with are concerned about customer success instead of sales. Airtable, the spreadsheet-database hybrid, put customer success before consultative sales in the buyer journey to convince their users that it was worth investing time and money to build on Airtable.
If your users need to invest a bit of time before they can get value out of your product, such as implementing APIs or infrastructure software, provide rich documentation and enabling technologies to ease that initial implementation. Twilio, the customer engagement platform, provides a free trial to everyone who signs up, including a free balance you can test with. To support your setup efforts, Twilio offers access to an extensive set of API documentation.
Build your product with go-to-market in mind
To make informed product design decisions, product teams in product-led growth companies need to collect data about how users interact with their products. They pay special attention to where users find value in the product and where it proves frustrating. The teams use this data to make the proper investments to drive acquisition, conversion, and expansion. As an example, Jim Semick relates how the team at GoToMeeting “experimented zealously and continued to optimize the purchase flow and experience”
It’s important to note that product-led companies still have sales and marketing teams but with different focuses.
Instead of being involved in every sale, your sales team can focus on bigger, more complex enterprise sales, leaving it to the product to attract individuals and small business clients. Some sales teams help individual users spread the use of their product to the broader corporation. Datadog, a monitoring and security platform for cloud applications, offers a free trial to get grassroots support from developers who use the product daily. They also have a sales team to sell large contracts to executive-level buyers.
The marketing team, meanwhile, changes its approach to inbound marketing to be educational. At ProductPlan, we take a low-key, educational approach to content that allows product managers to learn about us through high-quality articles, books, webinars, and other content. Product Managers can choose to engage with a trial when they are ready.
Benefits of being product-led
Before we dive too much into benefits, it’s important to note that Product Led Growth is best suited for products that are inexpensive, transactional, and easy to use. When your customers can use your product with little help, they are more likely to self-serve, which meets key criteria for product-led growth.
With that in mind, here are some key benefits when applying product-led growth in the proper circumstances.
Faster growth as your organization scales
OpenView’s 2022 Product Benchmark report stated that product-led companies are twice as likely to grow quickly (over 100% year-over-year revenue growth) than sales-led companies. That’s especially the case for companies offering a freemium product.
So why do product-led businesses grow faster, especially at scale? The primary reason is that lead-generation, sales, and customer success processes don’t require large sales and support staff. When products are easier to use or provide self-service for support and the sales cycle, the organization can grow without adding on large numbers of staff.
Better cost structure
Product-led organizations can grow faster, but their cost structures are more favorable.
Smaller sales and marketing teams mean you don’t have to spend as much to acquire each customer. And since you don’t need as many people to support your users once they sign on, you can generate more revenue with fewer employees as measured by Revenue Per Employee (RPE).
On top of lower sales costs, the heavy focus on user experience leads to delighted customers who are more likely to continue using your product. That means higher revenue from existing customers.
Better user experience
An improved user experience is a benefit. That better user experience shifts focus from features to experiences and emphasizes how your product impacts your customers.
The improved user experience streamlines your company’s and your customers’ sales process. Your customers can tell immediately if your product provides value because they can try it. They don’t have to trust the word of a salesperson that the product will work, only to be disappointed later. This reduces the sales cycle and time-to-value.
Comparisons with other structures
To get a full picture of what a product-led growth company looks like, it’s helpful to compare it with other organizational structures. The differences in structure often come down to what drives organizational decisions.
Product-Led vs sales led
The biggest difference between the product-led versus the sales-led model is how much involvement is required from people in your organization during the sales process.
In a product-led model, the user can reach a meaningful outcome through self-service, usually without help. In a sales-led model, the sales cycle requires extensive involvement from one or more members of your sales team to help your user promptly reach the first meaningful outcome.
The type of leads each model chases down is different, as well as the chance that those leads will convert to a sale. Product-led companies focus on Product Qualified Leads (someone who has experienced value from using a product). Sales-led companies focus on Sales Qualified Leads (someone asked about the product, often site unseen). As you might expect, Product Qualified Leads have a higher chance of converting into an actual sale because your potential customer has much more information to base their decision on.
The product-led model is better for products that target smaller businesses and individuals. The sales-led model is ideal for products targeting enterprises where buyers differ from the users and with complicated sales and implementation processes.
Product-Led vs revenue led
Most organizations that sell products want to accomplish two things: build a great product and make a lot of money.
The difference between product-led and revenue-led models comes down to which of those goals an organization focuses on. A product-led company emphasizes building a great product expecting revenue growth will come along. Their decisions are based on what will drive the product’s potential forward.
A revenue-led company emphasizes revenue growth. The company expects everyone to base decisions on what will drive revenue (often in the short term) even if that decision is not the best for the product or its impact on customers.
Product-led companies pour most of their expenditures into the product and its experience for the user so that the products sell themselves. Think of Zoom offering free calls for up to 40 minutes or Slack offering a full-featured product for free.
Revenue-led companies rely on expensive marketing campaigns and sales blitzes to generate sales. Consider brands like Microsoft or Apple that produce products people ask for, but keep a close eye on increasing sales margins. A revenue-led company’s emphasis on making money means they involve everyone in cutting costs, boosting profits, and growing the customer base.
Product-Led vs marketing led
When a company takes a marketing-led approach to growth, it places a large emphasis on acquisition. They assume that if they can get enough people through the door, a sufficient number will buy their product. As a result, marketing-led companies spend a large percentage of their revenue on marketing to get people’s attention. Their focus is on the buyer, not necessarily the user.
Product-led companies put an equal emphasis on acquisition, activation, and retention. They are more cost-effective, and their focus is on the user. They assume that either the user is the buyer or the user will have a powerful influence on the buyer when it comes time to make a purchase decision.
The two models also have different views on value. Market-led companies focus on perceived value. They seek to make potential buyers perceive their product will bring value. Product-led companies prefer to give users a chance to experience value.
Product-Led is not a panacea
While product-led sounds like a great approach for product people, remember that it’s better suited in some situations than others. A product-led approach may not be your best bet if your product requires significant integrations and configuration. Although, you might adopt some user experience focus to make your product more intuitive.
You may also find that it makes little sense for your organization to be only product-led, especially if you have multiple products. In that case, you may find that some of your products are suited to self-service. However, other products require more hand-holding from your sales staff to get a sale across the line.
Even if you can’t use a product-led growth strategy in its entirety, you may find value in some of the key ideas, especially the focus on user experience and focusing on outcomes.