When a company builds a product, it generally has two main goals: build a great product and make money. They’re both integral to long-term viability. But most companies end up prioritizing one more than the other. Product-led companies prioritize on the excellence of the product while revenue-driven companies are more focused on financial growth. Both options can still result in great products, but how they get there can be quite different for their internal team. But what does product-led vs. revenue-driven really mean?
Exceptions to the Rule
Before we go any further, we do need to point out that not every company or product fits squarely into one category or the other.
There are times when a company may not care about their product generating revenue. The company might see the product as a “loss leader” intended to suck customers into its orbit and then upsell them on other profitable products or services. In this case, the company may genuinely not care about a product’s revenue potential and solely focus on the product experience.
On the flip side, there are plenty of companies that don’t care about making great products. They want to make as much money as possible. Think of “fast fashion” outfits making cheap clothing that disintegrates after a few wash-and-wears. Customers “get what they paid for.” The product served its purpose, and they’re happy to come back for more (although it should be noted that fast fashion purveyors are having quite a bit of trouble these days).
What does it mean to be Product-Led vs. Revenue-Driven?
Both flavors of companies are trying to create great products and make money. The difference is in what unifies the company and drives their decisions.
Product-led organizations focus on infusing the well-being of the product into every aspect of the business. The business is the product, and the product is the business. Everyone—regardless of their role—makes decisions with the sole intent of driving the product’s potential forward.
Revenue-driven companies ask all employees, including product managers, to feel like they’re responsible for the financial success of the company. Every decision is about driving revenue, even if they’re an engineer or a customer service rep. It’s all about the bottom line.
The Product-Led Approach in Practice
The best way to represent product-led growth is by the wave of free trials and “freemium” offerings. Once upon a time, try-before-you-buy was limited to test driving a car. Even then, a salesperson sat next to you, ticking off all the reasons why you should buy it as soon as you drove back to the dealership.
But now product-led companies hand prospects a set of keys and tell them to use it for a month, gratis. You can then pay for additional usage if you like it. With no chatty company representative in the passenger seat, the product must sell itself. Net promoter score becomes an invaluable KPI for the product team.
That said, companies aren’t being completely passive during this period. They’re investing in onboarding, training, and value-based messaging to ensure that trials lead to engagement and a full understanding of the product’s capabilities. But ultimately, the only thing closing that deal is a successful product experience for that particular user. This leads to increased customer empathy as companies meet user demands and exceed expectations.
And, not only will that excellent product experience make that sale, but it will lead to others. For product-led companies, gaining new trials comes via referrals and viral messaging versus traditional marketing campaigns and advertising.
Sales is a bottom-up approach; you’re selling to users, not buyers. Once a trial has gone well, or a freemium paywall is hit, the user must go up the food chain to the person holding the pursestrings and ask for a budget to make the buy.
This represents a fundamental shift from sales, marketing, and messaging. Typically, you would target the people who control the money. You’d sell them on how great the product will be for their company, even though they will never actually use it. Now your users are doing the selling for you. They explain to their management teams why it’s a worthwhile investment based on their first-hand experience with the product.
“Product-led means being guided by the potential of products and product teams, and breaking down the silos between ‘the business’ and ‘the product’,” says John Cutler of Amplitude. The business is the product.”
Product-led companies are universally obsessed with their products (and not just the product teams). Passion creates more opportunities for cross-department collaboration and innovation coming from less-obvious sources. When every employee is trying to make the product better, ideas can come from anywhere.
When Revenue-Driven Rules the Roost
With a singular emphasis on making money, revenue-driven companies involve everyone in cutting costs, boosting profits, and growing the customer base. A heavy focus on analytics drives decision-making because every approval must be justified in terms of its contribution to increasing revenue. How will it drive the bottom line?
These organizations can mercilessly cut ties with anything that’s not paying off. For example, marketing campaigns with poor results end or adjust rather than languishing. Also likely, the product will be tugged in many directions to satisfy customer demands.
For revenue-driven companies to be successful, financial transparency is a must. If you want everyone focusing on making money, they need detailed insights into how much things cost and how it’s coming in. The company requires a level of trust and disclosure to maximize income and reduce unnecessary spending.
As employees evaluate the customer journey, everyone must have eyes on how they can reduce friction and accelerate growth. This results in more efficient acquisition and onboarding processes with an emphasis on reducing churn.
Let’s get Real-World
“Philosophies” are great, but what kinds of companies are all-in on the product-led approach?
Product-led companies allow their products to sell themselves. For example, Atlassian generated hundreds of million dollars annually without hiring a single salesperson.
“The growth of our marketplace has been totally organic—just like the rest of Atlassian,” says Atlassian’s Jay Simons said. “We let our products speak for themselves rather than relying on a traditional sales team.”
Many successful product-led companies offer some aspect of the product for free. This lets users get a taste of how the product can improve their lives or help them do their jobs:
- Zoom lets people use the product for free calls up to 40 minutes in length
- Warby Parker made a splash with free, at-home customer try-on
- Slack offers a limited feature set for free
- Dropbox only charges for more storage after a user surpasses their free allotment
- Heap Analytics only offers particular layers of support and documentation to paying customers
“A product-driven strategy requires a product team to make the product so intuitive and easy to use that users intuitively understand it without extensive training,” says Scott Maxwell of OpenView Partners. “The better products get to the ‘aha moment’ exceptionally quickly, may have free trials or freemium pricing models to help lower the bar to adoption, and may have built-in functionality that better engage users more deeply over time, and encourages users to get other users to adopt them.”
This stands in stark contrast to revenue-driven companies. They invest large percentages of their budgets into advertising, marketing, and sales. Familiar brands like Coca-Cola, L’Oreal, and Disney might churn out products people love, but they’re doing it with a consistent eye on increasing sales and improving margins.
More established companies are often better suited to be revenue-driven. They’ve already found a successful product-market fit and have high awareness. Now it’s all about increasing volume, brand extensions, and loyalty instead of education and trial.
Tell-Tale Signs You’re Dealing with a Product-Led vs. Revenue-Driven Company
Product-led companies will keep doubling-down on product quality. User experience, customer journey, solving real problems elegantly, and with minimal friction. Any addition to the product must enhance and augment a winning product experience.
Product-led companies also highly prize data. KPIs are carefully considered and then obsessed over. They can spotlight which changes sparked usage and growth (or are disappointing users and turning them off).
Product-led firms focus heavily on feature usage rates, customer happiness, and churn. The product must fulfill its purpose and have a legit value prop to become a reality. The whole organization cares about the state of the product and how well it works for its intended purpose.
“A short time to value (TTV), for instance, is a critical component of consumer-grade products. TTV is the time it takes new users to reach their first aha moment or activation event,” according to the Product-Led Growth Collective. “The goal of any good user onboarding experience should be to reduce TTV as much as possible, helping new users realize your product’s value as soon as possible.”
Sales and go-to-market strategies are the most obvious indicators that a company is product-led. If all their activities focus on getting people trying and using the product (instead of only telling them about how great it is), they’re trusting the product to sell itself. The company spends minimally on outbound activities and focus their investments and hiring primarily on product development.
“They interact with their customers directly. They bring the voice of the user right into the heart of decision-making at every stage of the process. To do that, they work directly with the customer instead of outsourcing to a centralized research department and make sure that the product team is the expert on the customer,” says Justin Bauer of Amplitude. “They go beyond vanity metrics and dive deep into their data to understand their customer’s journey.”
Revenue-driven companies vocally socialize whether efforts are driving sales. Processes are continuously reviewed and questioned to see if they’re still contributing to the bottom line. Things are ultimately approved or disapproved based on that mindset. The direction steers towards ROI.
You can also identify a revenue-driven company by looking at how they spend money. Companies with extensive sales and marketing teams, making big ad buys, investing in branding, and other “funnel-stuffing” activities are clearly looking to non-product sources for growth. This stands in stark contrast to a product-led company.
Don’t get too excited and assume product-led organizations put their product managers on a pedestal and let them call all the shots. Remember it’s “product-led” not “product management-led” organizations we’re talking about here.
If anything, product managers will find more people involved with the product in these environments. They all care more about what the product can do and the overall product experience. The product becomes the company, so everyone becomes a stakeholder.
Think about what your team falls under and how it makes you feel. Consider your preference and keep it in mind whenever you choose to switch companies.