Sales and marketing have long carried the torch on the marathon journey to revenue for digital and non-digital companies. As digital products continue to take a front seat in both the B2C and B2B markets, some shifts have occurred that are worth looking into by existing revenue leaders and product leaders — such as product-led growth.
Product-led growth is not a new concept, but what started as a trend in the past two years is now seen as table stakes for all digital products.
Coined and defined first by OpenView Ventures, product-led growth is a go-to-market strategy that relies on product usage as the primary driver of acquisition, conversion and expansion. Let’s break that down further:
- Acquisition — how to acquire new prospects
- Conversion — how to get new prospects to become paying customers
- Expansion — how to get paying customers to use your software longer and more extensively
How can product impact these three areas? Why should it? What should you know to get started? Who is doing it well? Let’s dive into those specifics below.
Why product-led growth is here to stay
The Old Days of IT
Remember when we received CDs in the mail for software products? I distinctly remember my first Adobe Photoshop CS4 that arrived in a big, white box with lots of booklets on how to use the product.
It’s been a while since we purchased software in that manner. It was so difficult and expensive to get updated software to market that there were heavy downstream effects, such as:
- Sales teams only interacted with the highest-level person at the company
- Extensive customizations for big buyers
- Static training and documentation
- A lengthy buying process
The processes of acquisition, conversion, and expansion were all sales-led or marketing-led, meaning some one from the sales team or a piece of marketing material was the buyer’s only way into the software, whether it was to learn about it, to try it, to buy it, or to upgrade it.
The New Days of IT
Some things have changed — like that big white Photoshop box is now an email with a download button thanks to the rise in cloud computing and SaaS (software-as-a-service) delivery.
An ability to purchase software directly as a download made CDs obsolete, requiring more flexible upgrades and training mechanisms.
Anybody at an organization can purchase software with a company credit card, no longer requiring sales discussions to only happen at the top.
And with all of this happening at a rapid pace, consumers started driving product needs and looking for best-in-class solutions, knowing that they can try multiple software products due to easy access, implementation, and on-the-fly independent training.
With this unprecedented level of easy access for anyone, software can now be product-led, meaning that the product itself can be the channel for users to learn about it, to try it, to buy it, and to upgrade.
How does product-led growth work?
Let’s break down the three revenue functions that product-led growth can support and identify best practice examples for each.
Acquisition is people being aware of your product, having a way to experience your product, and having a reason to come back.
If there’s no salesperson to explain what your product does, who it’s for, and what the benefits are, then your brand, your website, and your product are your only representatives. They can do the heavy-lifting by ensuring:
- The brand conveys who you are; it’s approachable and has a recognizable identity that a user will want to engage with and work with.
- The site properly guides a user to understand why they should engage with you, and most importantly, gives users a mechanism to engage with your product.
- The product has features that anyone can use that immediately demonstrate its value and why they should come back.
Slack is a common example for discussing product-led growth in the acquisition cycle.
- The brand is friendly, personal, and inviting.
- I can set it up right away, without account reps or sales hand-holding me through the onboarding process.
- I can invite someone and immediately start seeing value.
- A friendly onboarding process guides me and points out the value along the way.
- The “freemium” tier lets me enjoy the product, bring other people into it, and build it into my daily routine.
Key takeaways of how product-led growth can be applied to acquisition:
- Brand identity must be powerful and speak for itself
- There must be a “way in” (“Get Started,” “Try Now”) so that users can experience the value prop themselves quickly
- The value prop must be obvious and available to be experienced easily
- The experience must be intuitive, uncomplicated, empathetic, even enjoyable
Conversion is turning a prospective user into a user, and a user into a paying user. It means providing the right value proposition, the ability to inform themselves, and a way to start paying.
You’ve likely been a customer for another product where you participated in their conversion funnel through a product-led growth tactic. Great product-led growth tactics don’t feel like sales or marketing tactics. They feel natural and generous.
The questions around conversion are: If you have a free tier, what value triggers do you have to move people up to a premium tier? If your product is fully premium, how have you created ways to try out the product, maybe via a free trial? And how do you move people from the trial to a paid account?
Key takeaways to how product-led growth can be applied to conversion:
- Value builds trust and trust (and good UX) will enable conversion
- Identify use cases that people are willing to pay for
- Build the pathways for people to see what they can pay for and to start paying for it
Expansion is turning your users into a marketing channel while growing your user base, and upselling within that base.
Once a customer starts to use your product, you have their valuable time and attention pouring into that product – it’s the easiest and most natural time to help them understand how to get the most out of it, to point out what value they might see from upgrading, and to give them tools to share it with others.
Expansion tactics to consider building directly into your product:
Easy to share: Provide ways for your users to show off the value of your product to others by sharing it. For example, when you share an online photo album with someone else, they get to enjoy the value of the photo app and see how they might use it themselves.
Just in time upgrading: Make your premium features visible to lower tiers of users in the natural workflow of the product so that they can see what is available to them if they upgrade, understand how they might use it, and even kick off the upgrade process from there.
Incentivize invites: Your existing users are often your most enthusiastic and trusted channel, and if you give them a little something for inviting other people to your product, you not only have a chance to gain users but you increase the loyalty and usage of those existing users.
Key takeaways to how product-led growth can be applied to expansion:
- Don’t make it hard for people to give you their money: Show users how they can get more value when they need or want it.
- Capitalize on your value to incentivize your users to invite others.
- Give users pathways to share your value with others to create digital word-of-mouth
What product-led growth is and isn’t
Product-led growth is more than just providing a free tier, and it doesn’t mean replacing sales and marketing with product-led growth features.
It does mean you have a bunch of new tools in your toolbox to capitalize on the fact that your buyers and users are ready and willing to learn about what you do, to try out your product to solve their problems, and to pay you if you provide the right value, and to tell others about you. Not only do these new tools not replace your existing teams, but they may also provide ways to make them more efficient and ultimately more successful.