Product-led growth is a go-to-market strategy that emphasizes the product as a vehicle of acquiring, converting, and retaining customers. This strategy is commonly used in the software and software-as-a-service sectors. Companies using a product-led growth strategy are considered to be able to grow faster than those using a sales-led or marketing-led growth strategy, both of which are considered to be more traditional. This is, in part, due to the emphasis on the product and the creation of a pipeline of active users who can be converted into paying customers.
This means product-led growth is a strategy through which the end-user product experience is the primary driver of growth at every stage. This begins with a product that helps users, and users can come to love, while reducing dependence on paid media and high-touch interactions to grow a product. And while product experience is the focal point of this strategy, the principles apply beyond a product development team, but for sales, marketing, support, and any other teams necessary for company growth. Furthermore, there is no one-size-fits all approach in product-led growth, and the product and market can often dictate which strategies will be more effective than others. But there remain some key components and strategies to product-led growth.
Product-led companies have a few characteristics in common. They tend to have a freemium model, low barriers-to-entry, a focus on user experience, expansion beyond their existing network, a habit-building product, and a product solving a need in a lower-friction way than competitors.
In following a product-led growth strategy, it is considered a key component to reduce friction to help people who are busy and people who are lazy. This can include spelling things out to help a user get a product working as quickly as possible. And includes reducing overall friction, which can inhibit usage and limit adoption. There are common sources of friction in software products:
- Complex sign-up processes
- A lack of onboarding and/or activation training to get new users up-to-speed
- Asking users to do too much, too quickly
- Unnecessary features or steps
- Limitations that prevent multiple users from collaborating
A product can be friction-less, but if it does not solve end-user pain or offer early value to a user, then it will not eventually be adopted. This can be contrasted with software that aims to increase return-on-investments for executives, where this may be the most important metric for the adoption of a software product, in favor of satisfying the end-user. This can include aligning a product to solve pain points, which means doing more than offering a beautiful design, friendly mascot, or emoji support. And when end-user pain is solved and a product offers obvious value for the problem it works to solve, it is adopted in a more grassroots way, which is a key to product-led growth—as the product speaks for itself.
While the upfront costs of creating software are typically higher than those of delivering professional services, especially to a first customer, as those customers increase the cost to deliver the same value becomes near zero. This can make the upfront investment highly profitable in the long term, and in bringing a product to market following a product-led growth strategy, the upfront investment to create as valuable a product can be of increasing importance. Investments that can help develop a product with the intent of driving acquisition, conversion, and expansion can happen by:
- investing in robust data for teams to track, measure, and analyze user behavior;
- building out a growth function responsible for ensuring the product can enhance its own distribution, enablement, and ability to capture value; and
- running go-to-market experiments that lead to incremental improvements.
While there will always be customers who want to talk to a salesperson before buying, optimizing a purchasing experience for online transactions and reducing the need for any sales interactions can maximize the efficiency of a conversion funnel. This can include simplifying pricing and packaging to make customers feel more confident in purchasing decisions and designing a website to make the checkout process feel well-informed and lightweight. In the case of a company with a freemium model or trial-based model, this can include nudging users toward a paid offering with tools such as paywalls and usage limits. However, if these paywalls, usage limits, and related tools are too aggressive and reduce the value a free user receives from a product, it can ruin the product experience and send the customer away.
Part of the growth strategy of product-led growth is the use of network effects built into the product to drive exponential growth. This can include giving a user more value as more people sign up. Another way is through referral programs in which a user can unlock features or increase usage quotas in exchange for inviting new users.
Companies with a product-led growth strategy often rely on product features and usage as primary drivers of customer acquisition, retention, and expansion. While the strategy is often thought of as one that allows companies to grow faster with large cash, as they can forgo spending on traditional marketing and sales activities, this cash needs to flow into the product and the development of relevant and customer-centric features, which can create a pipeline of satisfied customers willing to convert into paid users. However, features cannot be the only thing a product offers, as it is too close to a "if you built, they will come" mentality, but rather features should understand customer needs that may be missing from the market or from competitor products.
While a product-led growth go-to-market strategy emphasizes the product as the key to growth, that does not mean it does not still need sales and marketing teams. Instead, it offers a chance to change the conversations and tactics used by these teams, and rather than have them operating independent from product and customer groups in silos, all teams can be integrated to provide marketing and sales stories the product is able to deliver on. Thereby, the teams ensure customers approach a product with appropriate expectations, which can reduce customer disappointment and increase customer conversions; as the growth strategy requires word-of-mouth marketing, it gives customers something positive to talk about in regard to a product.
Although the names of the different go-to-market and growth strategies are somewhat self-explanatory, it can be important to emphasize the differences in order to understand what makes each approach different, and to understand where product-led growth is seen as a different approach. One thing all three approaches have in common is that every strategy requires there to be a product, and in order to bring attention to a product, even in a product-led growth strategy, a company requires sales and marketing teams. Often the lines are drawn on the emphasis of a given company, and some go further and see product-led models to bring all three teams together to have a more unified message.
As the name suggests, this growth strategy puts the sales team at the forefront of revenue driving efforts. This strategy has seen incredible growth in the early stages of some large companies, such as Microsoft. And with this strategy, the leads gained across a company's efforts are funneled into a sales team, who are relied upon to close deals and make final sales.
Similar to sales-led growth strategies, marketing-led rely on a company's marketing efforts to drive revenue. Often this is done through content marketing and traditional advertising, including companies creating learning hubs for users, which can consist of e-books, whitepapers, and webinars. This content can generate attention to a product and create a growth loop that turns an audience into a community, which in turn generates sales. Further, such a community can generate word-of-mouth growth and interest in a product, with customers becoming advocates for a given product.
Product-led growth models continue to use some of the same strategies as above, but are often seen to be a more sustainable choice, as they can be less expensive for a company, with more of the company focused on making a product that customers can understand without need for webinars or free content, and allows a company to scale back sales and marketing in favor of building a product. Often, this strategy makes use of a freemium model or a free trial period to help get a customer using a product without risk. And the quicker a customer is using a product, the less time a company spends nurturing those customers to download a product. It also allows a company to generate user feedback on a product, which can be used to further develop the product with customers in mind.
Sales and marketing-led models create a need for a product through a focus on the promise of what a product can deliver. Often these sales and marketing efforts are directed toward someone at the top of an organization and offer things to pique a potential business leader to try a product for their business, with return-on-investment often being a key selling point. Many see product-led growth to turn this on its head, with the product focused not on users at the top of the pyramid, but rather focused on receiving support from a large group of users, and in the above purchasing example, creating a groundswell of support from the bottom of a company and from a majority of users.
Product-led growth has been associated with a frugality that characterizes smaller or less generously funded software companies. This is because the growth strategy relies on cost-effective engineering to complement lean marketing and sales efforts. However, advocates of the strategy suggest it is not just for use for small companies. Rather, evidence has suggested that a product-led growth strategy has begun sharing similar track as traditional marketing-heavy growth plans and product-oriented approaches for software providers have, in some cases, moved beyond startups and emerged in mature companies' strategies.
That said, the product-led growth model is not a universal fit, but those who have used the strategy have seen significant market traction, and some of the tenets used in product-led growth can be used outside of the strategy in order to ensure users are getting enough out of a product. Further, many of the metrics considered important as part of this strategy, discussed further below, can benefit sales- and marketing-led companies. This is especially as the approach emphasizes customer connection and end-user adoption, with the emphasis of the approach on driving customer acquisition rather than sales calls.
The main benefit of product-led growth is that the go-to-market strategy is considered to be a faster, and more efficient growth strategy. This is, in part, because the strategy and growth relies on the idea that if a product is good it can stand on its own, and relies on freemium offerings or free trials, word-of-mouth, and shared user bases. As well, the strategy has a reliance on the product having built-in methods for driving customer acquisition, which can reduce the cost of acquiring a customer.
A product-led approach is often considered unfeasible for companies offering specialized, complex application that can take months to implement and require extensive expertise to install and customize, such as the instrumentation or back-end tie-ins for enterprise databases. Tools that succeed with product-led growth tend to be B2B products with a B2C implementation approach. They often have applications and uses outside of a business environment, but can thrive in that environment.
These products tend to focus on a simplicity in their use and design, with some of the more famous examples of product-led growth companies offering intuitive and relatively simple to use interfaces and design. And many software providers can take lessons from the approach, such as free trial offerings or freemium versions, the use of product analytics, and providing a self-service buying experience, where capable to improve their offerings.
The use of a product-led growth model can help sales find better leads as the data generated from the product offers sales teams an idea of who is engaging with the product and who is generating value from the product, and therefore who is more likely willing to pay to get more out of a product. Further, customer success teams can find users who are not finding value in the product and find what features they might be missing out on. Because the focus in a product-led growth mode is on how users are interacting with a product, sales and customer success teams are offered data on user engagement to better inform their upsell and churn reduction activities.
Because product-led growth strategies focus on the user experience as a key metric to the development and adoption of a product, the product should, therefore, provide a better user experience than competing products. And as it requires users to find value before they pay for a product, this can include more straightforward user onboarding without pressuring users to pay, and only suggests users begin paying when it seems they can derive more value from the product through paywalled features. In this model, there are fewer promises of value in the product, with customers able to discover the value through interaction and companies can focus on creating value in their product at the same time.
As explored above, when the product is central to a go-to-market and growth strategy, the focus will in turn be on making the best product. In this scenario, user feedback becomes increasingly important as it offers insight into what users are looking for in a specific product, what features they want, and allow a company to create a better user experience.
As in any product and go-to-market strategy, there are key indices and metrics for understanding both how a product is performing in the market and how customers are engaging with the product. These all work to understand how successful the product is, and especially in software, how best to iterate and improve the product.
This is the percentage of users that go from a free trial to a paying customer, and can apply to freemium users as well. The conversion rate is an important metric for any business, and can provide a better sense of whether or not a marketing or sales outreach effort is targeting the right people, whether or not onboarding is pushing users to find value or not, and the overall value users are getting from a product. A high conversion rate can indicate that products and teams are performing well, and can continue to do so with minimal tweaks toward optimization. A low conversion rate can indicate that there is a need for substantial changes to help users find value and increase the conversion.
This metric is a measurement of how far along before a user or account finds value from a given product. This can start with a list of actions a user needs to take to set up and use a product, which varies by product, but should, according to some, be around five to ten actions, also known as an activation checklist.
Activation rate ends up being the percent of those checklist steps that are complete and can be measured by user, account, or for a product as a whole. Activation works in conjunction with other metrics, and when paired with a conversion rate can better tell a company how well it understands what it means to find value in their product. When paired with engagement and leads, it can offer indication of who is and who is not a product qualified lead for the business.
This is a measurement of how much a user or account uses a product. A unifying element among all product-led growth metrics, engagement scores tell a company how engaged users and accounts are with a product. If the company measures this score on the account-level, it can show them which accounts are at risk, ready for an upsell, or should adopt a new feature. When measured on the product level, it offers a chance to see trends and how the business is doing overall.
The churn rate measures the percentage of customers who cancel or do not renew their subscriptions during a given time period. Overall, these metrics can be considered capable of measuring how happy users are with a product in the long term, including how long customers are likely to stick around, and what staying power the product has. The emphasis placed on churn and retention rates can be seen as another way product-led growth puts a product front and center. This also works to focus on introducing new features, better existing features, and increasing engagement with a product, in order to stop customers from leaving for a product experience.
This is the measurement of the number of active users in a product for a given period of time, including daily, weekly, or monthly active users. Understanding how many users are using a product for any given set of time is further key to understanding if a company has been successful in its mission to keep the focus in the right place and offer the best possible user experience.
These terms often used interchangeably, although they are different and often occur together. A viral product is one in which rate of adoption increases with each additional user; the more people join, the faster it grows, to a point. A product with a network effect, on the other hand, increases in value as more user join and engage with the product, such as in a two-sided marketplace like Airbnb or a social platform like Facebook.
There are a variety of myths and misconceptions that come with product-led growth:
- Product-led growth means the product team is in charge. The strategy has less to do with the product team, and more to do with the focus on the product itself. This means all the teams in a company focus on the product to better enable their work, while the product team is relied on to deliver the product that can provide tangible business outcomes.
- Product-led growth does not work in a given industry. This is an objection often heard with companies whose products are focused on specialized industries with entrenched practices. However, even in these industries, a focus on the end-user, as emphasized in this strategy, can offer built-in case studies to show an organization is ready to make a purchase decision.
- Product-led growth is the most dominant go-to-market strategy. While it seems like every company is trying to build a product-led growth product, between 2015 and 2020 the number of product-led growth companies increased from seven to twenty-seven, or 6.6 percent of all public companies, and only 27 percent of respondents in the 2020 Expansions SAAS Benchmarks. According to the report, seven in ten enterprise companies do not employ product-led tactics at all.
- Product-led growth is a revenue-driving strategy. While product-led growth leads and tees up prospects to potentially be converted from free to paid, it does not drive revenue for enterprises or focus on getting the right user. For example, 13 and 9 percent of ARR in very small- to medium-sized businesses comes from self-serve channels, but only 1 percent ARR in enterprise-sized companies form self-serve channels.
- You do not need a sales team because products sell themselves. Products do not sell themselves. They can be inviting, can help start a conversation, and most companies need sales teams to turn free users into paying customers. Even product-led growth companies like Zoom, Slack, and Asana have robust sales teams when looking at data from LinkedIn.
- Buyers are completely self-sufficient. Buyers may start using products prior to direct engagement with the vendor, but typically they need help from experts to align needs with a solution. Most buyers do not know how to address use cases or identify how a product's features satisfy their pain points; and simply signing up to use a product is often not enough. Additionally, many customers need help to get buy-in that is necessary to implement a solution across an organization and drive consensus among users. Presales professionals are increasing in demand to help those buyers navigate and qualify a product as well as deploy it properly.
Technology product growth used to be mainly sales and marketing-led. Selling IBM PCs or copies of Microsoft Office was made possible with armies of regional representatives, big-budget print ads, and flashy billboards. A focus on sales and marketing was the focus on the industry's heavy hitters, and they sold more on brand than features. Since then, technology has become cheaper to produce, deploy, and distribute and the go-to-market strategies have followed along.
As computing power, internet speed, and programming language efficiency increased, it became possible for bedroom hackers to pose a threat to incumbents. Smaller teams, in this landscape, found freedom in being able to iterate quicker than their enterprise counterparts, and with the internet making global distribution trivial, products started to compete based on their intrinsic value rather than their sales and marketing power.
With that said, is product-led growth really a new concept? The definitions, when looked at, do not always offer much in the way of a new paradigm, and the way in which product-led growth is defined and described also describe what it takes to have a strong product-based company overall. A part of New Breed Marketing's definition reads: "Product-led growth is a go-to-market strategy that relies on the value of a company's product to enable them to attain rapid growth." However, as some point out, a product that is not valuable is not going to attain rapid growth or earn widespread adoption.
Similarly, while there are different referral and advertising schemes, products have to offer growth; at the end of the day, in order to grow, while advertising, referral, and marketing teams work to drive attention towards the product, they cannot make up for what the product lacks. And if the product has value, and that value positively impacts a user's life, then the product will succeed—and that is regardless of a product-led or a sales-led go-to-market strategy. For example, when Dropbox emerged, there was no concept of product-led growth, but the company focused on using the product to generate leads and drive business.
While there are questions about whether product-led growth can be truly considered new or unique, there is as much interest in whether this go-to-market strategy is the future of B2B buying. B2B buying has largely become participatory and transparent as buyers become evaluation-first buyers. Product-led growth could be thought of as more a signal of a larger transformation occurring and amplifying a trend: B2B buyers want a sure thing, and only then will they commit. These are buyers tired of twelve-month deployments, shelfware, and customizations. These buyers expect expert support and guidance, from trial to pilot to purchase, and going forward, and these customers want hands-on and transparent collaboration when deciding whether or not to commit to a company and purchase a solution.
Dropbox is an example of a product-led creation, and the brand was able to use this strategy to, in less than ten years, cross $1 billion in sales. The approach taken by the company is clear and delivers on two key aspects: first, Dropbox has created an intuitive product that clearly meets consumers' needs (making file sharing easy and accessible for end-users); secondly, the features built into the product enhance virality among prospective users. By sharing a referral page, users were offered more credit for storage, which helped Dropbox attract new customers while offering a better user experience.
Slack was another company that used a product-led strategy that was able to go from zero to a $7 billion valuation in five years and became a paradigm for a freemium, bottoms-up go-to-market strategy. The early success of the product also made them a leader in product-led growth as a discipline.
DocuSign is another example of a product-led approach in the legal software industry. The value proposition of the company's e-signature offering is obvious. DocuSign enables smooth onboarding, in which an individual can open an account free of charge and receive an e-signature from a user with no account. Even a free edition of DocuSign allows a user to deliver a signed agreement and enables the user to experience the product's value. Pricing for the product is straightforward and dependent on usage, while free users drive the conversion of the product as they experience the value of the product.
