Think product-led growth is just startup lingo? We found it tells a story on how the software industry adapted to a rapidly changing market, and we want to tell you all about it.
Do you remember when you first started using software you use every day today?
Have you ever started using an app almost by accident and then it became a central part of your life?
That’s the magic of the product-led growth methodology.
When we first started selling and buying software, we had to buy (pretty expensive) products before even seeing or trying them.
It doesn’t happen so often anymore, and that’s because the people who buy software (us humans) have changed the way we buy them, and the industry has changed with us.
In this article we’ll walk you through this huge industry shift and share a few benefits about growth led by product, hoping it’ll help you navigate your software business.
Previously in the software industry
The software industry has rapidly expanded and changed since it started sprouting in the 1980s and 90s.
As we write this, our industry is moving from a sales and marketing led era to a product-led one. Let’s see how that happened.
The marketing-sales-led era
The software industry exploded in the 2000s.
Although software existed before, it was only acquired by people who had technical knowledge.
With the rise of personal computers, technology costs started to go down. This allowed the industry not only to be able to sell more and more software at lower prices, but also to implement a “software rental” system (SaaS business model)
This brought about a change in consumers. The experts were no longer the only ones who bought software, now people who did not know how to program were beginning to acquire and use software too.
Now as software users grew, so did the knowledge on how they use it. Companies started leveraging all the information they suddenly had about their users to grow their business.
Most acquisition strategies became a mix that leans towards marketing (for consumer products) or sales (for B2B products) as the sole driver of growth.
We’re still relying on MQLs and SQLs to sell our software. But other traction drivers are starting to gain leverage.
The users thoughts and opinions when consuming these types of products began to become more important.
The end user era
Even if marketing and sales growth strategies are still pretty much standard in software, it’s becoming harder and harder to rely solely on them to grow.
Today, end users are able to find, get, and use software on their own. Thus, any member of a company is able to bring the value of an application to their own work or to the workflow of their team.
Customer success became not just a service to customers, but an ongoing strategy that includes improving the product itself to keep people from moving to a competitor.
Andrew Chen wrote a few years ago about how lower barriers to the software industry and rising costs on advertising are making it harder on small companies to grow.
That’s where Product-led makes its entrance on the scene.
Product-led growth: know your new methodology
The Product-led Growth methodology (or PLG for short) according to Blake Bartlett, who coined the term in 2016, is:
an end user-focused growth model that relies on the product itself as the primary driver of customer acquisition, conversion and expansion.
This means you don’t have to spend tons of money on marketing or sales, but rather start by investing time and money in making a product that is viable, usable and potentially loved by your future users.
Please don’t fire your marketing team yet. Continue reading.
Unlike the sales-led or marketing-led model, the product-led does not focus on the product promise, but is responsible for effectively bringing it to reality, in the hands of the users.
Product-led works by removing friction from end users’ lives.
It manages to provide them with a tool that they can use practically from anywhere and at any time. The software designed from this model is easy to start using, which provides value from the ground up.
To put it simple: try before you buy.
But being product-led isn’t just having a freemium or talking about virality in your team meetings. It is not a go-to-market magic formula either. It’s a methodology and a set of principles that any company can adopt to improve their product, their product experience and, at the end of all, their efficiency.
There are 4 axes to this strategy:
- End users are always first
- Invest in your product to grow your business
- Giving before receiving
- Integrate your sales or marketing team into product design and development.
What Product-led Growth can do to your business
Now you know how the industry changed and what most users expect from new software.
But being product-led isn’t just a survival method for startups. It can bring multiple benefits for your company (and your team) as well.
Firstly, more communication and collaboration between areas is needed as you move from marketing or sales led growth towards product-led growth.
Quick iterations and feature development is key, as it’s making the right product decisions for your users and prospects.
Furthermore, according to Wes Bush, CEO of ProductLed, some of the main benefits that PLG can offer for your business are:
Rapid global scale
With PLG each user can test the product on their own, where they are, without having a sales manager drive (or fly) into their premises. There are fewer geographic limitations to marketing as well, since product adoption isn’t driven by targeted or physical ads.
It’s much easier for companies adopting PLG to have a global reach in less time.
With product-led strategies you can reduce acquisition costs per customer (yes, the one that’s been increasing dramatically over the last 10 years).
Less ad spent means lower CAC and a profitable business.
Faster sales cycles
PLG does not focus on having more users in less time, but instead focuses on getting quality users, who trust your product and like it.
Leaving the product in the hand of your users will reduce distribution costs and efforts of your sales team.
Showing people how your product works not only shortens sales cycles, it builds trust in your brand and your product.
Integrations between companies would have sounded crazy 15 years ago, and now it’s one quick traction channel.
As you have seen, Product-led growth is not a passing fad, but the logical result of a whole process that has been in the making for more than 20 years.
Applying these principles and learning from how new features impact your users will allow your business to grow without burning your runway in advertising.
We’ll write about these principles and tips in upcoming posts, so make sure to subscribe if you want to get them in your inbox.
And if you’d like us to talk about how to follow up on your users to learn and improve your features, feel free to book a demo of Palabra.