Traditional ways of growing a business require significant resources. You hire more salespeople to hit higher targets. You pay for additional ads to acquire more leads.
But happy customers can be the best marketers for your company. Several businesses have ditched the old-school way to scale in favor of product-led growth — an often less costly, more sustainable approach to expanding.
What is Product-Led Growth?
Product-led growth (PLG) is a business model that relies on the product to drive acquisition, activation, retention, and expansion. PLG centers the organization on the product as the main source of sustainability and scalability, as opposed to marketing or sales.
Investment partner Blake Bartlett coined the term in 2016 after observing the growth of SaaS companies Datadog and Expensify. Bartlett noted these B2B companies served a wide range of consumers without breaking the bank on marketing and sales, as their products did those jobs for them.
Companies with product-led growth achieve it through a number of ways. Some offer free trials or products, such as software with limited features. Others invest time and money in finding the most effective solution to customer pain points. But, in everything they do, product-led growth firms always focus on the end user.
Today, major companies — from Slack to Dropbox — use a product-led growth strategy to increase profits and scale.
Product-Led Growth vs. Sales-Led Growth
Companies that use a product-led growth strategy create products that speak for themselves. They achieve this by focusing on a number of elements, including:
- A smooth, seamless onboarding process
- End-user independence when trying the product
- User-friendly interfaces, websites, and touch points
- Free trials and freemium services
- Potential for virality
- A market-leading product
HubSpot product lead Eric Peters explains that product-led growth reduces the need to hire people to handle different parts of the buyer’s journey. Interested buyers can purchase different features without a salesperson. Customers can watch tutorials or read articles instead of interacting with customer service.
Product-focused companies typically still have marketing and sales departments — say, a salesperson might help an enterprise client upgrade their services. But these more traditional growth methods are used to complement a product-driven focus.
Product-led growth companies prioritize building a product that acquires and onboards users because of its features and ease of use. If successful, those users stay onboard. They might pay for additional features or share the product with their network, enabling the company to grow because their product brings users into the flywheel.
On the other hand, sales-led growth requires a network of salespeople and marketers to expand and increase profits. Marketers create content and run ads, generating a steady stream of leads. Salespeople then work to convert those leads into paying clients. The company holds a prospect’s hand almost through their entire journey with the product.
Sales-led growth requires creating a finely tuned machine. If one part stops working, the revenue pipeline dries out. If marketers fail to attract leads, salespeople will have no one to convert.
Optimizing the marketing and sales process requires extensive planning and resources, making product-led growth follow a more sustainable growth model.
Product-Led Growth Examples
Slack
Slack, an instant-messaging app used by millions, built its product as an easy-to-use alternative to internal communications tools like email. The interface had a casual, sometimes humorous vibe. Teams of any size, including massive corporations to small businesses, could use Slack.
The founders of Slack developed the tool by asking for barrels of user feedback — a key component of product-led growth. When it launched in 2013, the founders first asked companies in their network to try it and provide criticism. They squeezed feedback out of as many early users as possible, gradually improving the product and its positioning.
After a successful public-relations push a few months later, Slack received 8k+ requests to use the software on day one. In two weeks, that jumped to 15k+. Still, they collected as much feedback as possible. They figured out what teams of varying sizes needed, which helped them adjust features.
After teams get hooked on Slack, they help spread the product to other departments in their organization or when they join other companies. They might have used Slack during an internship and think their current company can benefit from it. Word-of-mouth helped propel Slack to hosting 10m+ daily active users.
Dropbox
Dropbox got its start by solving the burdensome problem of sharing computer files. They built a solution with an intuitive, easy-to-use interface, enabling users to share files easily — and for free.
The company debuted at Y Combinator’s Demo Day in 2007. Though they tried to grow using traditional paid advertising, it became too costly. So, the company created a demo video and posted it to forums on Reddit and Digg in 2008. Their beta waiting list grew from 5k to 75k overnight.
Because of how effective Dropbox worked as a product, it hooked users quickly. Later, Dropbox continued to leverage its fans to grow its user base — a key feature of product-led growth companies.
They offered increased storage to users when they referred Dropbox to others. They incentivized sharing on social media by similarly offering additional storage. They implemented shareable links so users could send files to non-Dropbox users.
Alternatively, if users want to upgrade to have greater storage and support, they can easily do it on Dropbox’s website. Today, Dropbox boasts 700m+ users — with 15m+ paying for its premium plans.
HubSpot
Customer relationship management software HubSpot popularized inbound marketing — attracting consumers by creating useful content and experiences. But after observing shifts in the tech industry, its global director of sales, David Barron, worked to convert the company to a product-led growth model.
Instead of only using salespeople to onboard HubSpot customers, the company made it easier for users to try their products — including free options. And if they wanted to upgrade to more premium features, they could do it on their own. “At HubSpot, you likely won’t talk to a sales representative to buy starter-tier products,” says Peters.
Salespeople complement HubSpot products by collaborating with higher-end clients who might need more evaluation and understanding. For the majority of users, however, HubSpot products automate most functions — including onboarding and purchasing. The company also builds education into their products, such as some HubSpot Academy courses on their CRM software, which minimizes outreach to customer support.
The Benefits of Product-Led Growth
A product-led growth model has a myriad of benefits, including:
Reduced customer acquisition costs (CAC): Product-led growth companies do not have to spend significant money on advertising or marketing. Word-of-mouth spreads your product, bringing in new users automatically via free or low-cost options and, with time, onboarding those users into more premium options.
Potential to go viral: Product-focused companies tend to create market-leading products. When users love your product, they tell their networks — thus making it more likely to go viral.
Increased product feedback: With your product as the centerpiece, you will spend more time collecting feedback, as it’s critical to listen to the user experience.
Higher retention: When a user tries a bad product, they stop using it. But product-led companies aspire to create intuitive products that solve real problems. So, when your company puts the product at the center, it results in higher user retention
Increased user satisfaction: More investments in developing the product and collecting feedback often means the product is highly optimized for your target audience, increasing user satisfaction.
What did you think of this article?
