Buyer , User , Startups , Scaleups — 01.11.2023

PLG Isn’t a Feature, It’s an Organizational Structure

I recently read a compelling newsletter from Tomasz Tunguz that shared statistics showing poor performance among PLG-oriented SaaS companies. And while it certainly piqued my interest, these statistics didn’t indicate the why behind the poor performance.

Ultimately, I’m not sure how a SaaS company is defined as PLG. Similar to the term agile, everyone says they apply the methodology, but they admit they don’t do it the right way.

But as someone who has covered PLG on a podcast and encourages founders to adopt a product mindset, I take these statistics seriously. Since the data’s methodology, and whether it’s causation or correlation aren’t clearly defined, I’ve triangulated these numbers with challenges I’ve observed when companies attempt to implement PLG.

At the root of the problem, companies are advised to implement PLG without any organizational or procedural support. Often, this stems from guidance given by lead investors or a co-founder’s prior PLG experience.

Here’s how these distinct cases manifest in poor results:

Investors typically advise PLG based on financial rationale. The multiples are higher, and when done well, can result in leaner companies capable of lower customer acquisition costs (CAC) and operating margins. In short, the idea of smaller sales and customer support teams is attractive to investors. This is then passed on to founders. 

But this advice goes awry because the outside-in approach leads with the end result in mind, instead of how a PLG organization is built or even how to build a PLG-ready product.

So founders create self-service products or offer free trials without a broader organizational strategy. While high results of free trials look promising at first, the low conversation rates end up disappointing the founder and the investor. 

In the second case, the co-founder has prior PLG experience at a more mature and successful company. They’re relying on experience from a company that already had the infrastructure and capital to support PLG. 

There’s a massive difference between scaling PLG and starting PLG. 

PLG works best when the product’s brand and marketing have laid the groundwork for future growth and existing adoption is higher. Many PLG companies require more upfront capital because the flywheel takes longer to spin and revenue results take longer to materialize (see my previous breakdown of Figma). Unlike agile development (which is easier to institute at a startup), PLG is more challenging at an established company.

Okay, I’ve established why I think PLG is poorly implemented, but what contributes to the gap between theory and practice? 

Here are three concepts to consider:

  • Bad product. Hidden in Tunguz’s charts is the value of charismatic salespeople. In tech, salespeople are skilled at selling lackluster products and overcoming clunky demos. In fact, the history of most SaaS successes can often be attributed to salespeople having a superhuman ability to sell a bad product. 

    To successfully acquire PLG users, you have to build a product that people will willingly use. It has to connect with users quickly, be easy to adopt and keep them coming back. Most companies don’t invest in the right product strategy and design resources to support PLG.
  • Underspending on brand. From 0-1, I’d argue brand is a bit negligible. Between those integers, companies are discovering traction and ultimately, product-market fit. But once fit and traction emerge, brand becomes a top priority. This happens because when product expands beyond early adopters, it also expands beyond the reach and influence of sales and marketing. As a result, if a product finds early success, it will also draw potential buyers that sales and marketing never meet. This is where brand comes in. It establishes the bridge between product and potential prospects.

    Brand may seem like an expensive investment, but for successful PLG motions, it dramatically reduces CAC and sales costs.
  • Putting PLG in the backlog. Too often I see Seed companies itemize PLG as something they’ll get to later. In Series A companies, they try to “chip away” at it. But for early-stage companies, PLG has to be in the DNA. For later-stage companies, it has to be considered a transformation. 

    I remember going through “agile transformation” a decade ago at my previous MarTech company. The months-long process involved extensive training and on-site advisors. While that’s not required for PLG transformation, I want to stress that it’s not a movement to dabble in. At any stage, companies should start by ensuring they are building a product that is led by product, designed by UX professionals and incorporates product marketing and brand from the outset — regardless of whether that’s in-house or outsourced.

It’s important to recognize that PLG isn’t a feature. It’s an organizational structure. 

There are likely a dozen other areas where I see the gap between PLG theory and practice rear its head in the work I do, but these are foundational concepts to consider from the start. Before you can begin to talk conversion numbers or implement in-product metrics, you must ensure you’re building a product that is strong enough to lead.

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