Product-Led Growth Demystified14 min read
The technology industry is under a big shift. From products sold with perpetual licenses, implemented via big customizations over a long period of time, we have moved to an era of subscription or consumption-based XaaS models where value is expected to be realized as quickly as possible. This significantly changes what is sold, how it is sold, and how the customers are served. Hence, product management professionals are under heavy pressure. One needs to find an innovative idea that solves a real problem, verify offer-market fit by talking with prospective customers, fence it with an unfair advantage, identify the right pricing schema, craft a product strategy around these and glue the entire company on this journey. Not so easy! Hence, good product managers are in high demand.
How does this work? What is different in the product management practices of successful XaaS companies? How do they leverage the blessings of digitalization and embed them into their business model?
What is different in the product management practices of successful XaaS companies?
Introducing Product-Led Growth: There is No B2B Market Anymore. It is All B2C!
Let's go back to the 90s and remember how software was sold. First of all, the product was complex and had to be installed on-prem. So, the CIO of the company had to be convinced. You were explaining all the one hundred features of your product to the technology department, making them PoCs or demos, and navigating through the hierarchy of technology organization. In response, they were paying you some seven-digit numbers and bearing all the complex customization projects. This was the era of sales-led growth.
Then came the marketing-led growth. Software started to move from on-prem to cloud. Target audiences started to change. Apart from CIOs, you started to talk with business executives, i.e. CXOs. Hence, the jargon started to change from technical features to ROIs or business gains.
Starting from the 2010s, thanks to the advances in technology, infrastructure became more consumable and scalable. Hence, the cloud became mainstream. Instead of ROIs, you started to talk about outcomes: “How will this product help me achieve my business results? How will it ease my daily job?” And with this, your audience significantly changed. You started to sell to the end-users. This is the era of product-led growth and below I will try to drill down a bit.
What Does It Mean to Sell to End-Users?
I will explain it based on what we experienced at DefineX. We are a Microsoft shop and are using Microsoft Teams for collaboration. One of our executives used Slack in his previous company and was continuously promoting it to us whenever we had an issue with Teams. Then, one day, one of our teams serving a client started using Slack for that project. And now, we are evaluating whether we should start using Slack or not... What did the Slack sales team do? Nothing. Who started the sales? A satisfied end-user.
The story was very similar also for the Atlassian products of Jira and Confluence. In one of our Labs projects, we started using Jira to manage our agile delivery and Confluence for the architectural documentation. Soon after they became the mainstream for the entire Labs projects. And, last week, it was me to recommend Jira to one of our new clients. You can procure it from the internet with a credit card, configure monthly users and the respective feature set, and if you just want to stop using it, it is just one click away. From Atlassian’s perspective, it is like a dream. They had no sales or marketing expenses. User adoption is done by us. Renewals are automatic. Expansion to other Atlassian family products was driven by us, thanks to the positive impression users had. Think about it this way: if users are happy and productive while using a product, what would their management say if you go and try to sell the product to the entire organization?
We are in the end-user era and it seems there is no way back. Selling on-prem products to CIOs is now a minority and disappearing day by day.
Product-Led Growth Demystified
We are in the end-user era and it seems there is no way back. Selling on-prem products to CIOs is now a minority and disappearing day by day. So, what to do in this new era? The answer is to start putting end-users in the center. Jira solved our issue with assigning, tracking, and managing our teamwork. Miro relieves the pain of organizing and running workshops. Figma fulfilled a similar need for interface design. OneDrive fixes end-user issues around file sharing and backup. Think about the user pain that you are trying to solve with your product, and align your product strategy and roadmap around it.
You have the product. What now? Sell it. How? Not through a salesman; it was for the 90s. You need to get the product used by end-users. It has to be easily discoverable, straightforward to get started, and quick in solving users’ pain (i.e. delivering the promise). To be discoverable, you need to be where your end-users are. If they are at Chrome, you have to be at Chrome Web Store. If they are at Microsoft Teams, you have to be at Teams App Catalog. To be straightforward to get started, you need to remove the friction in front of the users. If you need a sign-up function, make it smoother by adding integrations with Facebook and Google. If your product needs customization per company, make it easy with simple interfaces or configurations. Think about the Tripadvisor app, and how much time it took for you to get used to it. It is not different. Your software does not need to be less careful with user experience just because it is serving the B2B market. In the end, business users are consumers who just happen to be at an office. To be quick in solving the user’s pain, think about the “Wow moment”. Remember the first moment Shazam identified a song for you. You have to leave behind such amazing stories so that those users can market your product for you, and for free! Finally, ask for money from those users only after the Wow moment. You have to guarantee that every user experiences that “Wow” feeling. Let’s look at Zoom videoconferencing plans. With Zoom, you can schedule meetings for up to 40 minutes completely free. Only if you need longer meetings, or if you need more than 100 attendees, you look for their pricing plans. This way, everyone can try Zoom and verify if it is a cure for their pain.
You need to get the product used by end-users. It has to be easily discoverable, straightforward to get started, and quick in solving users’ pain.
Some Myths Around Product-Led Growth
Let's elaborate a bit on some wrong beliefs that I encounter here and there:
Myth #1: We are not a born-in-the-cloud company, this does not apply to us. Productled.org defines product-led growth as a business methodology in which user acquisition, expansion, conversion, and retention are all driven primarily by the product itself. Naturally, it is easier for a born-in-the-cloud company to embed the ideas into their product offering, but it does not mean that traditional companies can not adopt it and transform themselves.
Myth #2: We are adopting Product-Led Growth, we do not need sales representatives. Well, while it is true that word-of-mouth marketing is essential, I can not think of a product company without sales representatives if you are talking to a customer who is willing to procure several modules of your product for 500 of their users. The question is not whether you will have sales representatives or not, but when will you hire them. Your main goal is to get your product sell itself through referrals and without any user payment upfront. In other words, take a leap of faith.. Then, those users may need some guidance during adoption, which brings the Customer Success team into play. Their main goal is to help customers not be disoriented or confused and provide adequate information so that customers realize the intended business outcome. Users may also have questions and some trouble. It is time to introduce Support Services. With adoption comes expansion, renewals, and bigger deals. Now you can start thinking of the sales workforce, sales cycles, and the handoff from sales to customer success.
Myth #3: As Product-Led growth requires free packages, we have to look for other ways for monetization. Of course, if you are able to find alternative revenue sources, go for it. For example, some companies offer benchmarking services based on the data they gather from their customers. However, this does not mean that you will not monetize your core service. Slack is free to get started, but you need to pay when your need for collaboration increases. Monitoring platform Datadog is free for initial use and out-of-the-box dashboards, but they monetize the service when you want custom metrics or outlier detection. Figma is free for up to 3 files but gets prices when your need increases to a professional level. All these are examples where the companies try to make you experience the Wow moment easily and then move that satisfied customer to a paid tier.
How to Get There?
Let’s start by saying that you do not become product-led overnight, it is a journey. It requires setting up a new direction for the company, introducing a new mindset, and establishing new processes, KPIs, and capabilities. This is not easy; it requires constant practice and ongoing calibration. Below, I tried to list some of the main considerations on that path:
- Check whether product-led growth applies to your context: Not all products are suitable for this mindset. If you are selling a core banking application for a financial client or a billing system for a telco, they will most likely want to talk to a sales rep, run some RFP cycle, attend product demos, and so on. The more complex the product is and the more it relates to the client’s core business, the less it is eligible for product-led growth.
- Plan the transformation: This is a significant change in how you make, how you sell, and how you ship your product. It changes your entire operating model. Therefore, leave no room for surprises. Plan the process, put it in a time plan with milestones, define the metrics that you will use to measure the success, and align the expectations of the management. Reiterate this every quarter and fine-tune where needed.
- Involve all the stakeholders: Transition to a product-led approach impacts the entire company and involves a cultural change. Therefore, all stakeholders have to be onboarded and aligned on the transformation. Who are they? 1) Marketing: They have to know the end user more than ever. With research through focused groups, interviews, and data collected from the product, they have to know how users utilize the product and define new features to increase the benefit delivered. 2) Customer Success: The early onboarded users are your potential brand ambassadors. You have to hold them in high esteem. Their smoother adoption will translate into bigger (and more profitable) sales from that client. 3) Product Teams: Not only do they have to deliver new features in agility, but also the team has to add a set of new capabilities (e.g. telemetry) to the product that they are not used to. They also have to build strong communication lines with the other departments to be effective.
- Make your product discoverable and consumable: When your brand ambassadors in the target client start to radiate positive feedback around their teammates, some of those colleagues will want to try your product. At that point, it should be VERY easy for those users to get (download, sign-up, etc.) your product from your website. Similarly, how to use the basic features of the product should be intuitive. Design in-app onboarding processes, welcome guides, or notifications to trigger the right user behaviors. All these have to be well structured like a space mission and calibrated with the jeweler’s precision. Finally, the business value or outcome should start to be delivered immediately. In that regard, give a close look at the paywall – consider freemium options to address some selected desires of users. Hence, when the time comes for the bigger decision making (i.e. your main objective of expansion at that target client), those users will all be acquainted with your product, putting you ahead of your competition.
- Do not forget to plan the support: Regardless of what you plan, some users will still have issues with the product. This can be due to a bug in your product, maybe a new persona that you have not thought of before, or a flaw in the user journey. Consider it as another moment to delight the user. With the knowledge base, FAQs, videos, ticketing system, or in-person support options, plan for addressing the user's need.
Product-led growth is not a buzzword, it is a reality. Remember how DefineX adopted Jira and how we suggested it to one of our clients. Many companies are aware of it and indeed expressing their strategy on this path. Look no further and read what Zoom says in their S-1 filing: “As free hosts realize the benefits of our platform, they often subscribe to a paid plan to gain access to additional functionality. For the fiscal year ended January 31, 2019, 55% of our 344 customers that contributed more than $100,000 of revenue started with at least one free host prior to subscribing.”
It is time to be a Zoom, a Jira, or a Slack. Send the good old sales-led growth to the holiday and welcome the product-led growth.