Week 10 - Product Led growth
Quote
Growth starts with a deep understanding of the user value - Chamath Palihapitiya
💯 Framework // Concept // Mental Model
How product-led growth is changing the tech landscape
Introduction
In recent years, there has been a shift in the tech landscape. Startups are no longer focused on growth at all costs but instead on creating a great product. This shift is known as product-led growth.
Product-led growth is a business model where the main goal is to grow the customer base by getting them to use the product, rather than through marketing or sales. This focus on the product has led to a new breed of startups that are focused on creating a great user experience.
In this blog post, we will explore how product-led growth is changing the tech landscape and the implications for startups. We will also look at some product-led growth stories.
What is product-led growth?
Product-led growth is a business model where the main goal is to grow the customer base by getting them to use the product, rather than through marketing or sales. This focus on the product has led to a new breed of startups that are focused on creating a great user experience. The belief is that if you create a great product, the users will come.
There are a few key components of product-led growth:
A focus on the product: The product is the key driver of growth. The focus is on creating a great product, rather than on marketing or sales.
A focus on the user experience: Startups believe that if they create a great user experience, the users will come.
A focus on virality: Startups use virality to grow their customer base. In other words, they try to get their users to invite their friends to use the product.
A focus on retention: Startups focus on retaining their users by providing them with value. They also use data to improve the product.
Ideal PLG Products would have these in common
Great user experience
Users are able to use your product and appreciate its value quickly without anyone explaining how the product works. The more intuitive the product is, the easier it will be for users to adopt and integrate it into their daily lives.
Freemium model or Valuable Before the Paywall
Companies using the PLG model mostly offer free products or free trials allowing customers to test your product before buying it. This approach will demonstrate the value of the product to a customer and remove any hesitations that could stop or delay a purchase. A limited set of features with great user experience in the free plan will enhance companies’ chances to retain users and convert them to pay more for enhanced features.
Value goes up with time
As you try and use the product more, you discover new relevant features and it seems like you sort of become more dependent on it over a period of time.
Network effects
The product value will help you expand your customer base rapidly. Moreover, satisfied customers cannot stop talking about your product and will promote the product for you, creating a network effect and widening your pool of prospects even further.
Calendly PLG Success Story
Calendly is a simple meeting scheduling App. The product needs more than one user to function; it works when a user sends a meeting request to another person via the platform. This allows both users to see the value of the product. The collaborative nature of the product creates a “viral circle of value.”
For example, when a user sends their calendly link to others, they not only use the product but they also support it. Let’s say they send the link to a new user who has never heard of Calendly. When a new user clicks on the link, they see Calendly’s branding displayed automatically. To book a meeting with the other person, they use the platform and see how easy it is. Then, they start to use Calendly themselves and give people their calendly link. Without any extra work, Calendly is able to attract new users through this viral loop.
Check out the image below which lists all the PLG companies and the time they took to reach $100 Million in Annual recurring revenue (ARR). You see calendly meteoritic rise of achieving 100 Million Annual recurring revenue (ARR) over 5 years with an 80% YOY growth, some times PLG strategy can lead companies to exponential growth like this. Calendly focused on a simple problem that big tech giants like Microsoft or google with millions of users were not able to solve.
Source: https://sacra.com/research/calendly-the-docusign-of-scheduling/
Notions PLG Success story
Notion's growth, in comparison to that of its competitors, has not come from large marketing budgets for paid social, search, or display advertising, but from its value to the community it fosters. Over 90% of its traffic is direct search, with paid search accounting for a little over 5%.
SaaS companies traditionally invest heavily in paid social channels. However, when we look at Notion's social media and advertising channels, we don't see much activity. They simply relied on the traction they got from their community of users who already loved their product.
From the beginning, it was clear that Notion was focused on developing a unique identity through its branding principles. They focused on two specific trends:
Creating a product that would allow people to work better
Creating a product that buyers could respond to with good design and great stories
These basic principles are what created the flexibility and love for the product and ultimately fuel their entire growth loop.
Source: https://nogood.io/2022/01/21/notion-growth-strategy/
Notion Pricing strategy
If you observe the below image on how the notion has priced their products, it’s absolutely free for single users with the ability to share with 5 guests. As you would want advanced features for more collaboration you have a paid plan. Notion being a productivity and collaboration tool users can get a taste of its full value using its note-taking and productivity tools and as they collaborate more they convert to paid plans.
List of companies using the PLG Strategy
Source: https://openviewpartners.com/blog/what-is-product-led-growth/
Cumulative market cap of public PLG companies
Source: https://openviewpartners.com/blog/what-is-product-led-growth/
Post IPO stock performance of PLG companies
Source: https://openviewpartners.com/blog/what-is-product-led-growth/
What are the benefits of product-led growth?
There are a few key benefits of product-led growth:
Startups can grow without spending a lot of money on marketing and sales.
Startups can focus on creating a great product.
Startups can use virality to grow their customer base.
Startups can focus on retention.
Startups can use data to improve their product.
How can businesses make the most of product-led growth?
There are a few key ways businesses can make the most of product-led growth:
Make sure you have a great product.
Focus on the user experience.
Focus on virality.
Focus on retention.
Use data to improve your product.
To wrap things up
Product-led growth is a new business model that is changing the tech landscape. Startups are now focused on creating a great product, rather than on growth at all costs. Product-led growth has several benefits, but there are also a few challenges. Businesses can make the most of product-led growth by focusing on the product, the user experience, and virality.
📚 Book
Product-Led Growth: How to Build a Product That Sells Itself (Product-Led Growth Series)
🎧 Podcast:
😎 Meme
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