Product-led growth (PLG) is a business model that emerged in the last decade with the enormous success of vendors like Slack and Datadog. Unlike traditional sales-led models, PLG models cut out the middlemen (sales reps, for example) and let customers just download and use the product without third-party onboarding.
The relative novelty of the pricing model and its demonstrably successful application in growing these companies attracted a lot of attention. PLG can be especially useful to startups, as putting a good product directly into users’ hands can help a small company make a big impact—and garner valuable press and VC attention—in a crowded market.
But winning with the PLG model involves much more than posting a freemium version of your product and waiting for the dollars to roll in. In a recent Snowflake webinar, Itxaso del Palacio, General Partner at Notion Capital, and Nadine Torbey, Investment Director at AlbionVC laid out an informal playbook to help companies determine if PLG is a good fit and how to execute a successful PLG strategy. Let’s take a look at six secrets from this playbook that can help your company drive product-led growth.
1. PLG companies are born, not made
PLG models aren’t for every business. Early-stage startups should think about their products and goals and consider whether it’s more appropriate to develop sales-led or product-led strategies. For users, a product that requires a complicated integration process into their workflow or tech stack just to try it out isn’t productive. Nor is it productive for startups to pour resources into test-version onboarding when those resources could be better directed at sales, development or other activities to improve the bottom line. Companies that already have traditional sales-led models in place have a much harder time switching to product-led models. Think about whether the product merits a product-led approach—and if it does, think about being a product-led company from day one.
2. The product must speak for itself
A product should not only be self-serving but also deliver a great user experience for consumers. That is, the product itself should be good. Think about the perspective of someone who’s using Slack for the first time: it’s intuitive and accessible, but it also provides solid communication and collaboration functionality. Further personalizing the user experience or even gamifying some features can also make a product more engaging. Ultimately, users are judging the quality of the product itself.
3. Nurture your existing customers to maintain growth
While capturing new customers is important, nurturing enthusiasm for your product is equally crucial for retaining existing customers and keeping them happy. It’s easy to overaim your efforts on acquiring more customers and ignore your existing users’ changing needs. Your community of current customers is an invaluable source of constructive product feedback. Adding features to or tailoring your product according to their input can help you keep a competitive edge as well as retain their loyalty.
4. Stickiness creates product vitality
Many PLG companies generate revenue by designing a paywall after their customers use up the free trial. But user retention often suffers when the paywall emerges. Your product needs to be “sticky” enough that consumers want—and have no second thoughts about paying for—the full set of features. The hook for Slack, for example, is that the trial version severely limits teams’ abilities to productively collaborate. For Zoom, the free 40-minute time limit for meetings is just not enough for business use. Limitations and urgency create incentive. Think about which features are useful enough to offer to your customers for free and which ones are valuable enough to encourage a paid upgrade. Then consider the price point and your target demographic: you’ll need one low enough for your intended customers to feel it’s worthwhile, but also high enough to generate revenue for your business.
5. Personalization gives you a customer experience advantage
Companies often fall short on a crucial but overlooked criterion of PLG: personalization. A product’s ease of use is not always enough to retain consumers. Making users feel as if the product was made for them, however, amplifies the effectiveness of the user experience. Tailoring the general features of the product to a consumer’s personal environment (generating personalized content based on a user’s defined role, for example) creates a greater sense of investment in the product, making consumers more likely to keep using it in the long run.
6. Consumption-based pricing helps capture value in an account
PLG companies often employ pay-as-you-go solutions rather than a subscription-based system, meaning that users pay according to how much or how often they use the product. These consumption-based pricing models fit the PLG strategy for two reasons:
- Consumers get to maximize value, instead of wasting operating costs on a subscription they don’t use very often.
- Startups themselves can adopt a consumption-based pricing model for their product and provide this value for their customers, while also taking advantage of their own vendors’ pay-as-you-go pricing to reduce overhead costs.
Put PLG to work in your company
PLG strategies can dramatically improve a startup’s user acquisition strategy. This business model can also drive customer retention by maximizing value and reducing costs on both sides. Get more details on these six secrets and other PLG best practices by watching the full webinar, available on demand.
