Field Guide

Field Guide

The Modern GTM

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Introduction to PLG (product-led growth)

TL;DR

Is product-led growth (PLG) the right strategy for your startup?

If you can answer yes to these questions, you’re on the right track to a PLG motion:
  1. Can your customers quickly experience an “Aha!” moment without help?
  2. Can your customers have more than one solution for the problem you address?
  3. Does your target market include fast-moving SMB and mid-market companies?

The 3 primary PLG modes and their criteria

  1. Fast-working products must deliver immediate value.
  2. Habit-forming products must drive group behavior change.
  3. Paradigm-shifting products must radically unblock executives.


What is product-led growth (PLG)? 

A product-led growth (PLG) strategy is where a self-serve product experience forms the core foundation of your customer relationship, driving both customer acquisition and retention. All other factors — whether you offer a credit card–based payment flow, whether you’ve hired sales representatives, etc. — are tactics that you choose to fit your target customer’s needs at the right time in the right way. 

A brief history of B2B SaaS and product-led growth 

B2B software-as-a-service in the form that we know and interact with today was born in the early 2000s with Concur and Salesforce. However, software that was free for customers to try has a much older history. In fact, 1983 was the true birth year of product-led growth. 

  • The free trial: AOL incorporated in 1983 and later based its growth strategy on offering 500–1,000 free hours of internet access bundled into its ISP product. 
  • Open source: The GNU Project was started in 1983 to give computer users the ability to collaboratively create and publish open source software that everyone could use for free. 

These ideas were revolutionary at the time and sparked a whole generation of engineers and builders to think of free software as the right way to experience technology. These same builders were starting to join SaaS companies in the ’90s. Not long after SaaS took off in the early 2000s, B2B software companies started adopting these ideas. 

By 2006, startups like Box and Skype were giving away free plans and trials to entice their end users to adopt software that could grow virally within companies in a “bottom-up” motion vs. the traditional “top-down” sale. 

Unusual Ventures Founder, and my partner, John Vrionis experienced these winds of change first hand while investing in a new generation of enterprise software startups between 2005–10: 

In my world of investing in early-stage enterprise software startups, we saw a second generation of founders who were rebels from the very inception of their companies and innovated as much in their technology ideas as they did in their go-to-market motions.
— John Vrionis, co-founder of Unusual Ventures

By 2014, the meteoric rise of products like Slack and Dropbox shifted focus to the importance of user experience in B2B software and how it could drive buyer behavior. In 2016, the tech community began using the phrase “product-led growth” to encapsulate these ideas of free-to-use/try software combined with a bottom-up GTM motion and great self-serve user experience.  

There are many clear benefits to this motion when chosen and executed well. It can give the right customers a great friction-free evaluation and buying experience with instant gratification, like Calendly. It can help companies grow at faster rates and more efficiently, like Monday. It can help companies establish beachheads with customer accounts that are currently locked into incumbent vendor relationships with top-down selling motions, like Zoom. 

  

Is PLG the right strategy for your business?

 

Choosing product-led growth should be based first and foremost on your customer and their problem. There are three critical questions you need to answer before you decide to build a company with a product-led growth strategy. The good news is that you can answer these with market and user research long before you build your product. 

  • Can your customers quickly experience an “aha!” moment without help? 
  • Can your customers have more than one solution for the problem you address? 
  • Does your target market include fast-moving SMB and mid-market companies? 

If the answers to all three of these questions are a resounding “YES,” congratulations! Your company can thrive with a product-led growth strategy. If not, you should consider the decision more carefully. Here's more on how to interpret these questions and why the answers matter. I hope these three questions will help you ignore the hype around PLG and instead decide from first principles whether PLG is the right strategy for your startup.  

3 guiding principles for a product-led growth strategy


1. Can your customers quickly experience an “aha!” moment without help? 

A quick “aha” moment signifies low time to value (TTV). In other words, your customer can see some value from engaging with your solution within a few minutes of using it. This isn’t always achievable for every company, in particular when your target customer needs help. There are multiple kinds of help your customer might need to get to an aha moment:

  • An engineer/member of an IT or operations team might need to help them with non-trivial work to set up your product. Salesforce continues to be a great example of this for sales leaders.  
  • You might be introducing a brand-new concept or solving a new problem created by market and regulation changes, which often require significant training and support. As an example, when GDPR (General Data Protection Regulation) was passed by the European Union, many marketers had to learn how to interpret it and implement new software for their digital marketing stack in 2018.  

In this situation, investments in education and community become paramount for customer acquisition strategy. You can still run a modern GTM motion, but it’s unlikely to be driven by a completely self-serve product experience. 


2. Can your customers have more than one solution for the problem you address? 

Product-led growth works well for problems that are either “decentralized” or “parallelized”:

  • If different teams can buy and implement different solutions to the same problem, it is decentralized. If the entire company (or at the very least, a subsidiary) can only have one solution at any time, it is centralized. 
  • If a team/company can try multiple solutions to the same problem at the same time, it is parallelized. 

For instance, Carta offers equity management solutions for what is an extremely centralized problem. However, a project management tool like Asana solves problems that are decentralized as well as parallelized. 

If your product solves a decentralized or parallelized problem, you can get a small team to try your solution on their own in conjunction with whatever the company does today. This is the ideal setup for a self-serve product experience. 
 

Note: what a small team can do on its own can also vary wildly from company to company based on how big or conservative they are. 

3. Does your target market include fast-moving SMB and mid-market companies? 

If your product is only truly valuable for large businesses and government agencies, you need to first understand how they “try” new software. If they have well-established processes for all vendor evaluations — including security reviews and sign-offs from IT before someone can even trial a product for free — product-led growth may not be the right strategy for your business. You might learn that to get adoption with these customers, a great sales team along with partnerships and reseller channels are what you need. 


The SMB/mid-market buyers, on the other hand, are a good fit for product-led growth but might not be an attractive market segment for every company. Some problems only really exist or are valuable to solve at scale. For instance, a 50-person company doesn’t need to invest a lot in software to manage team performance reviews and collect employee feedback, but a 5,000-person company would find it critical. 

After reading through this, my colleague and sales guru Liam Mulcahy pointed out a great takeaway:

Product-led growth can directly accelerate revenue only if your user can find, try, and buy your product on their own. No help, permissions or consensus required. If your user has to involve others (for example, IT, security, legal, compliance, infrastructure) it might help accelerate awareness but not revenue.
— Liam Mulcahy, Director of Sales GTM, Unusual Ventures

The 3 strategic modes of product-led growth

There are now more than 30 publicly traded enterprise software companies with product-led growth strategies. (Quick note: they all have enterprise sales teams with significant sales and marketing budgets.) While these companies have some self-serve product experience in common (free plan/trial), the details of how they execute their PLG strategy differ wildly depending on the degree of commitment needed to try the product and the number of stakeholders involved in making the purchase decision. 

In the past five years of working with product-led companies and building a PLG motion at Amplitude, I’ve come to think of these patterns as three distinct product “modes”: fast-working, habit-forming, and paradigm-shifting. 


Before we dive into the three modes of product-led growth, let’s talk about the two vectors that matter: commitment and stakeholders. 


What degree of commitment is needed to try your product?
 

Commitment can add up in several forms, but these two are the aspects that matter most to product-led growth:

  • Investment: Does “new” time have to be found to try the product? Do new “skills” have to be learned? If the product trial is successful, how much would it cost to start using the product? In other words, what’s the minimum price hurdle? 
  • Risk: What’s the downside of the product trial failing? Is it just some wasted time (low), or could this affect the user's reputation, security, or business growth as well (high)?


If you’re like me and prefer quantifying everything, here’s a simple scale of 1–3 for commitment:

1 = low investment, low risk 

2 = low investment, high risk or high investment, low risk 

3 = high investment, high risk 


Upon reading this, John Cutler, who leads research for Amplitude, shared this great point:

If your product works with all the dysfunctions your company currently has, it’s low commitment. But if it needs to or promises to fix them, the commitment needed might be higher than anyone expects. — John Cutler, research for Amplitude

Slack is a great example of a low-commitment product where, in theory, no new time is taken up for anyone to try — essentially, email time shifts to Slack. The cost of using Slack for a small team is very low and at worst, a company’s customers/businesses are never exposed or affected in any way. However, Hubspot would be a high-commitment product where implementation requires new time, the price point would not be insignificant, and the wrong choice could affect company growth. 

Reputation and security risk are also becoming significant inputs into commitment. For example, if your product trial requires the customer to share user data (examples: Amplitude and Segment), even a quick, low-effort trial needs high commitment.

What number of stakeholders inform the decision to purchase? 

You could argue that all software in a company has multiple stakeholders, but a good sales executive will tell you that decision-making stakeholders are the most critical class of USERs and BUYERs. Many software purchases have a single functional decision-maker, even though the adoption can span multiple teams or the entire company. 

Webflow is a great example of a single-stakeholder purchase decision. While a company’s website matters to every team, the head of marketing is often the single-function decision-maker for choosing to use Webflow. Their decision involves input from multiple experts, including content, design, engineering, and agencies, but is owned by a single function. 

Based on where your product falls on the commitment and stakeholder PLG matrix, your company needs to use different PLG tactics to succeed. Here’s a snapshot of the underlying principles that we’ll dive into further in upcoming Field Guide articles. 

The core principles underlying the 3 PLG strategy modes

1. Fast-working products must deliver immediate value

The benefit of operating in the low commitment/stakeholder quadrant is that it’s very easy for your customers to start trials. However, this also implies that you have a very limited amount of attention from them, hence your product must work well and fast. 

In a fast-working product, the USER is the BUYER and can do a short, free trial to decide that this product does in fact solve their problems. Many companies successfully use checklists during onboarding to get the USER to their “aha” moment. This often lends itself to a great credit-card or credit-based checkout experience for a paid plan. Calendly and Docusign are good examples of fast-working products. They might have network effects but don’t need them to deliver value immediately. 

2. Habit-forming products must drive group behavior change 

Having multiple stakeholders can be both good and bad. While building the product to serve multiple users’ needs can be challenging, your activated accounts can be stickier with better organic retention and upsell drivers. 

In a habit-forming product, many USERs need to change their default behavior for the BUYERs to make a purchasing decision. In fact, the product might deliver little value before many people adopt it, making a focus on driving referrals and invitations paramount. The nudges for behavior change need to be built into the product and available with an always-free tier to give teams time to adapt. Zoom, Slack, and Dropbox are good examples of habit-forming products.


3. Paradigm-shifting products must radically unblock executives

Requiring high commitment from your customer in a trial can make it hard for a company to get initial traction. However, if you can radically unblock a company’s key executive to pursue new avenues of growth, your early visionary champions can help you build a completely new category of software. 

In a paradigm-shifting product, the ROI of embracing your product must be more than 10x and easy to quantify for executives. Great ways to get the initial commitment to try include creating sandboxes that your customers can experience upfront or leveraging a trial to offer instant visibility into what used to be a black box. Shopify and Amplitude are great examples of this. 


On reading through this framework, Alex Bilmes, CEO of the product-led sales company Endgame, quipped:

Don't expect a five-minute, Calendly-esque onboarding if your product fundamentally changes how a business functions. With Endgame, as an example, we help shift how companies take their products to market, so it takes some commitment, agreement, and chutzpah! That‘s OK, because our product offers value to the entire organization, not just an individual.
— Alex Bilmes, CEO of Endgame

In the next article, we’ll dig into the specific tactics you can use to create a great self-serve product experience for each of the three PLG modes. 


Up next in the PLG curriculum

Coming soon, we'll publish detailed articles with tools and templates covering these topics: 

  1. How to build a great self-serve MVP for each mode of PLG 
  2. Freemium vs. trial: how to design your “try before you buy” experience
  3. The early product metrics to measure for your PLG strategy
  4. How to avoid the retention pitfalls of product-led growth 
  5. Pricing and packaging for product-led growth
  6. Designing sales teams and compensation for product-led growth 


Acknowledgements: A big thank you to everyone who reviewed early drafts of this post, including John Cutler, Lenny Ratchisky, Alex Bilmes, Naomi Ionita, Wes Bush, Bill Hodak, and Liam Mulcahy. 



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Sandhya Hegde
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