September 22, 2022

How startups can build a product-led growth company

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At NGP, we’re obsessed with great companies that can make our lives easier. Product and user experience can be a key differentiator in how companies win over their competition. Product Led Growth (PLG) is becoming an important go-to-market strategy for companies. In this two-part blog series, we put together tactical tips for founders as they navigate this new landscape.

For PLG focused companies, individual end users easily adopt software that addresses their specific pain points without needing to talk to a salesperson, involve their central IT department, or go through weeks or months of negotiation. The product, in the hands of successful end users, essentially sells itself.

Examples of PLG products: Source – NGP Capital.

However, adopting a PLG strategy is more than just providing a “try before you buy” option for your product. It means using your product – and the success of users with your product – to drive lead generation, adoption/conversion, retention, and expansion at all stages of the customer funnel.

Adopting a product-led growth strategy ends up being more than just a branding or go-to-market exercise. Becoming product-led often requires bringing about changes in a company’s DNA.

The following advice, based on lessons learned from our conversations with founders and industry practitioners, may help you be more successful in implementing a PLG strategy.

Lessons from the frontline

1 – Develop a product-driven culture

Every organization has a power center. In some companies, power resides in the engineering teams (e.g., Google); in others it resides in the sales and marketing teams (e.g., Oracle). In a product-led company, the power center must reside in the product management teams, which are responsible for ensuring that the product creates value for end users and customers. The product and user experience need to drive marketing and sales, rather than marketing and sales results driving the direction of the product.

In many companies, this means that you will need to make changes to reporting structures so that product management teams are matrixed with the engineering, marketing, and sales teams. In addition, some successful PLG companies have invested in a separate “growth team” with a specific mission of finding better, faster, and easier ways for users to derive value from the product and drive growth.

DocuSign, as an example, invested in a “product experience” team, which works very closely with product management. This team is specifically responsible for finding ways to improve the user experience in ways that will drive growth. In another example, Dropbox was an early pioneer in the use of a growth team. Initially this team reported into marketing, but they found that they were more effective reporting into the product management organization.

2 – Invest in product instrumentation

Successful product-led companies often deliver new features as quick experiments. In this way, they can quickly determine whether or not a new feature actually addresses a customer pain point. Product managers need to collect data on these experiments and analyze that data quickly in order to make decisions about whether or not these experiments are delivering value to the end users. Fortunately, there are a number of product analytics tools, such as Mixpanel, Amplitude, and Heap, that provide product instrumentation and fine-tuned analysis.

One example of this comes from the AI cloud platform provider, DataRobot, which used Amplitude’s automated analytics to understand user behavior and experiment with new features, enabling them to tailor the user experience with their platform to different user “personas” and rapidly grow adoption within different cohorts of users.

3 – Invest in customer on-boarding workflows

With a self-serve delivery model, it is important to guide your customers to use your product in a manner that lets them derive value almost immediately. There are several tactics that can help you improve your on-boarding process:

  • Design a short and thoughtful signup flow (which should use 3 clicks, maximum). For example, Platform9 found that simplifying their signup flow to a 3-click process greatly improved initial adoption.
  • Invest in walkthrough tools (such as Pendo), to build an interactive, multimedia guide to the product.
  • Invest in a live-chat solution (such as Intercom or Drift), so that a customer success team member can quickly assist the user.
  • Build carefully thought-out sandbox/sample workflows that can help users derive value quickly. Docusign, for example, uses sandboxes specific to each user persona, each with a different measure of what constitutes deriving value. For real estate agents, the point in the workflow where they share closing documents for signature is measured as the “aha” moment when they get value from the product.
  • In the case of infrastructure and developer products, invest in documentation and developer ergonomics. For example, Postman, which provides a platform for building and using APIs, has invested in an easy-to-use web UI that can be used to quickly test sample request responses.

4 – Monitor cloud spend

A product-led growth strategy can quickly shoot up your cloud spend, especially in the period before users convert to paying customers. This is particularly true of infrastructure products, where each new user requires significant dedicated cloud resources. It is important to monitor this spending, and find creative ways to make sure it doesn’t get out of control.

As an example, Platform9, which provides a SaaS-managed hybrid cloud infrastructure solution, overcame this issue by providing a “bring your own infrastructure” option to its self-serve offering.

5 – Carefully manage code branches

With PLG, you will have two code repositories: one for the self-serve free or trial version of the product, and one for the full enterprise product.

Since your self-serve branch is an experimentation playground, the delta between the two branches can grow quickly. To make this work, the product and release management teams need to come up with a regular cadence to achieve some acceptable degree of parity between the two development streams. If you don’t manage this well, your enterprise customers may notice that they are missing out on new features that appear in the free product.

6 – Revisit pricing

Clear and upfront pricing is a big driver for adoption and conversion in PLG products. If pricing is not clear, and buying is not easy, it is that much more difficult to convert free products/trials into paying customers.

There are basically two options for pricing PLG products, more traditional seat-based pricing, and usage- or consumption-based pricing. In seat-based pricing, there are commonly three pricing tiers (after the free/free trial version of the product): tier-1 for an individual, tier-2 for a team or department, and tier-3 for a broader, enterprise-wide implementation.

Usage-based pricing, by contrast, allows customers to pay for products according to how much they use or consume it. In this model, any number of users can access the software, and price tiers are based on a product usage or consumption threshold based on the value the customer gets from the product. This metric is very product-specific, but should be something that can scale quickly and be measured easily. HubSpot, for example, bases the pricing of its Marketing Hub on the number of marketing contacts it maintains. DataDog’s infrastructure monitoring product uses the number of hosts monitored per month, while its log management product uses the amount of ingested/scanned GB per month. Zapier uses the number of tasks automated per month to determine their pricing tiers.

The key is to be clear at each tier what additional users/features/capabilities are included, and to make it as frictionless as possible for users to convert to paying customers and expand adoption of the product as usage grows. Enabling self-service, credit-card-based purchases, either when some seat or usage threshold is met, or when the free trial period ends, helps to drive initial adoption and conversion. Investing in a payment platform like Stripe can enable you to provide self-service payment options for multiple price tiers.

7 – Define and track product-qualified leads

With PLG, leads are product-qualified, rather than sales- or marketing-qualified. Product-qualified leads (PQLs) are determined by users signaling their readiness to buy based on their usage of the product. This means that product-qualified leads are an important metric to track when adopting a PLG strategy.

Defining and tracking PQLs comes with several unique challenges. We recommend Product Qualified Leads: A Guide for Scaling PLG GTM Teams from HeadsUp, which is as an excellent resource on how to think about and implement PLQs in a variety of situations, with examples from a number of successful PLG companies.

8 – Track win/loss data

One of the challenges of a PLG go-to-market strategy is understanding your win/loss data. In a traditional sales-led go-to-market model, your sales team would explicitly track wins/losses against competitors. One of the challenges of a PLG go-to-market motion, and the self-service on-boarding it involves, is that you do not have this type of direct visibility into how you are doing against your competitors.

One way to deal with this is through investment and active participation in user communities. Not only does this enable you to see how you stack up compared to your competitors in the minds of your potential users, but active participation in user communities is also a way to drive viral adoption of your product.

Adopting a PLG strategy can involve significant product, process, and organizational changes, all of which come with their own unique challenges. Finding creative ways to address these challenges will enable you to take advantage of PLG strategies that lower customer acquisition costs, speed adoption, increase retention, and drive rapid growth.


Read part 2: Key metrics to measure product-led growth success