Understanding the rise of Product-Led Growth (PLG) from Wes Bush
If I would have to assign a theme to my product learnings this year, it would be Product-Led Growth (PLG). I acquired a few new terms in my product vocabulary this year like PLG and Product Qualified Leads (PQL), thanks to Wes Bush’s phenomenal book, Product-Led Growth - How to Build a Product that Sells Itself
I also got an opportunity to speak to Wes Bush on my channel and I absolutely loved the interaction. Wes Bush is the real deal.
Here is the interview:
I am going to be writing a series of posts on Product-Led Growth (PLG) in the coming weeks as there is so much happening in the space.
In this post, I will put together my thoughts on why PLG is rising in popularity and why should it matter to us.
In the book, Wes identifies the three tidal waves that are influencing the move to PLG.
The 3 market shifts in subscription business (Tidal waves)
Startups are more expensive to grow: Building a SaaS business is becoming extremely cheap almost to $0. But because of the low barrier to entry, there is hyper-competition in all spaces. As a result, it is becoming more expensive to acquire customers through traditional channels.
Buyers prefer to self-educate: Customers including enterprise buyers are expecting to try and evaluate software by themselves in an easy, frictionless way.
Product experiences have become an essential part of the buying process
Sales-led business vs product-led business
Cons of Sales-Led business
High customer acquisition cost
High-touch sales results in high CAC and the sales cycles are extremely long. To make sure that the high-touch sales model remain profitable, the LTV of customer has to be high enough to get back the investment of acquisition.
Customer acquisition model is leaky
In a sales-led organization, the customer acquisition model has a big leak. According to SiriusDecisions, 98% of marketing-qualified leads (MQLs) never result in closed business.
Org structure doesn’t support great product culture
The left side of the graphic below has the profit center - sales, marketing, customer success. The right side of the graphic is the cost center, which creates the product. In this kind of structure, the product is often an afterthought. When your organization leads with sales and follows with product, you’re forced to move upmarket and chase big enterprise customers. Product vision is often driven by the needs of sales that bring requests from the few large customers.
High-touch sales results in high CAC and the sales cycles are extremely long. To make sure that the high-touch sales model remain profitable, the LTV of customer has to be high enough to get back the investment of acquisition. To reach that LTV, most sales-led businesses charge their customers a hefty premium. That premium price isn’t because the solution is more valuable but because the customer acquisition model is more expensive.
The above paragraph from the book was the most insightful of all. It hit me like a ton of bricks. The premium price isn’t because the solution is more valuable but because the customer acquistion model is more expensive.
Pros of product-led business
Dominant growth engine
Product-led business tend to scale faster than other in two ways:
Wider top of funnel: A free-trial or freemium model opens up your funnel to people in the customer journey. Instead of people filling demo requests, they are evaluating your product.
Rapid global scale: While in sales-led world, businesses are busy hiring new sales reps for each region, you can focus on improving your onboarding to service more customers around the world in a fraction of the time.
Significantly lower CAC
Faster sales cycles: By letting your prospects try the product by themselves, time-to-value and sales cycle reduces significantly. Once people experience the value in your product, the next logical thing to do is upgrade. The quicker your users can accomplish a key outcome in your product, the quicker you can convert your free users into paying customers.
High revenue-per-employee (RPE): With a product-led approach, you’re able to achieve more with less people. Less hand-holding of prospects leads to better profit margins per customer.
Better user experience: When a product is being designed for prospects to try themselves, you pay a deep attention to experience and thus improve the product drastically.
Product-led creates a moat for business
They lead with product across every department. When a product team is involved throughout the business, it creates seamless customer experience across every department. And every department leverages the product to hit their goals.
Product-led marketing team asks:
“How can we use our product as the #1 lead magnet?”
A product-led sales team asks:
““How can we use the product to qualify our prospects for us? That way, we have conversations with people that already understand our value.”
The product-led customer success team asks:
“How can we create a product that helps customers become successful without our help?”
While the product-led engineering team asks:
“How can we create a product with a quick time-to-value?”