The Essence of Product-Led Growth
The key ingredients to a product-led growth SaaS business
We've met with the founders and execs of today's most successful and emerging product-led growth (PLG) companies, including Airtable, Atlassian, Figma, Census, Coda, Dropbox, Freshworks, Loom, Twilio, and more to learn how they've gone from 0-1 and what worked and didn't work along the way. We've distilled this down into a series of posts that we'll cover through the coming weeks. Interested? Read on.
The Quick 101 on Product-Led Growth
Product-led growth is now the holy grail across SaaS. Public and private markets reward PLG (also referred to as "bottom-up SaaS") companies for their flywheel business models. Propelled by a frictionless purchase model, high-volume growth, and minimal-to-no salesforce, PLG companies outperform traditional SaaS companies on both growth and capital efficiency.
Years ago, this exact model was considered unique to companies like Atlassian ("the company without a salesforce"), but it's now far more mainstream as founders have leaned into product-led growth (and have decided to ditch hiring a dedicated sales team, at least in their early years).
One of the most fascinating things about this shift is that PLG companies turn the enterprise sales model on its head. The most significant transformation being the shift in power from the traditional economic buyer (i.e., C-level executive champion) directly to the end-users in software adoption and purchase decisions. End users are essentially democratizing what tech they want to use to get their work done effectively. And, why wouldn't they?
In a nutshell, here's how bottom-up SaaS differentiates from top-down SaaS:
PLG companies remove the traditional adoption barriers to a sale using low friction trial and purchase models. There no longer needs to be a one-size-fits-all approach to software adoption in the enterprise, as dictated by employers. That said, the two approaches are not mutually exclusive. In fact, basically all PLG companies require layering in top-down enterprise sales models as they scale. PLG is simply a fairly new approach for SaaS businesses to get to scale.
So, what are the ingredients to a product-led growth SaaS business today?
Despite the increasing volume of blog posts and Twitter threads out there, it's the question we still most often get asked by enterprise SaaS founders at early stages (how do I do it?!?). It's also **a question we were thinking deeply about for ourselves. We decided to pen our thoughts in a series of posts in an attempt to distill down the essence of product-led growth companies.
Through our interviews, we uncovered key ingredients we believe most PLG startups need to be effective in scaling their business. We believe all 5 ingredients are fundamental to: (1) increasing end-user value, and (2) driving a robust go-to-market (GTM) engine.
Note, we recognize that there are many other ingredients critical to PLG SaaS businesses; this framework is meant to intentionally simplify the core areas of focus.
Here's how each ingredient contributes to great PLG companies:
Intuitive & powerful product - Building a highly intuitive, short time-to-value product is unsurprisingly the core ingredient to build a product-led growth motion in enterprise software. The product needs to address an immediate pain point and quickly trigger ‘aha moments’ for users. Value discovery must be fast optimizing for ‘minutes-to-delight' factor in most cases.
High engagement & retention - As users get 'hooked' on the product, user engagement and retention data precisely show patterns more clearly and directly. This results in more optimized net promoter scores and disappointment scores; users are happy and less likely to churn.
Viral growth loops - A sticky base of users early on multiplies the effects of the growth engine and enables expanding the quality of the product to new users. As engagement is high, in-product viral loops (typically around multi-player, collaboration features, or community engagement tools) multiply the effects of the growth engine, provides social proof, and keeps CAC very low. A low-cost customer acquisition funnel delays the need for a dedicated salesforce.
Lower friction to adopt - Easy product trial mechanisms (freemium or free trial) are fundamental to the GTM motion in helping new users quickly experience product value. Low and transparent pricing, as well as self-serve checkout, enables the end-user to be armed with everything they need to adopt directly and without prior employer permission. Monetization eventually scales with product usage.
New user personas - While many founders we spoke to opted to build their product horizontally (intentionally), they ended up running a tight GTM focus against a select few user personas in the early stages of growth. Some empowered new buying personas in old and established markets; others created entirely new market categories by focusing on traditionally underserved or overlooked user personas. Because it's hard to center your messaging and growth engine around being "all things to all people"; focus is critical. That said, as CAC and ACVs are typically kept low, the addressable user base and eventual TAM needs to be much larger than traditional top-down enterprise SaaS products. This typically results in PLG companies seeking to expand into new markets/verticals by attracting net new user personas and further growing the base.
So, what's next?
The next series of posts will seek to delve into each of these 'key ingredients' and the nuances of each.
We'll dive into early product decisions by companies like Airtable, Coda, Loom, and Twilio that were paramount to their success, including what metrics to look at to determine whether you’ve achieved product-market-fit.
We'll talk about the nuances of churn, why it's one of the most important metrics to track, and how Atlassian focused on metrics like the MAU-to-paid-seat ratio as an early indicator of license churn.
We'll discuss viral growth loops, and how Loom and Dropbox's simple approach of incentivizing users to share the product early on landed them hundreds of thousands of users.
We'll talk about monetization philosophy with leaders at Freshworks and PagerDuty, on why 'try before you buy' is a must-have for PLG companies, along with the features that typically make the best paywalls to drive better conversion.
We'll explore expanding to new user personas, and when to amp up your GTM engine to expand into new verticals and markets, while increasing the mindshare of your product.
We hope you're just as excited as we were to go deeper on these topics! Hit this button if so…👇
A huge thanks to Ariel Winton, Aydin Mirzaee, Bebe Kim, Eric Dolan, Hannah Chelkowski, Jake Saper, Jessica Ko, Kevin Zhang, Karam Nijjar, Lenny Ratchitsky, Sudheendra Chilappagari, Todd Simpson, Yuri Sagalov, and Harpaul Sambhi for reviewing early drafts of this post.
Reading! Super interesting