Product-Led Growth  🔗 **Source:** [Product-Led Growth]() ## Highlights - A go-to-market (GTM) strategy10 is an action plan that specifies how a company will reach target customers and achieve a competitive advantage. - Tags: aqua - A main lure of a sales-led GTM is that you can close customers with a high Annual Contract Value (ACV). This sounds great but can often lead to poor revenue diversity, with several customers making up a large percentage of your Annual Recurring Revenue (ARR). - Tags: aqua - Total Addressable Market (TAM), it often makes sense to forgo a product-led model in favor of a sales-led model. - Tags: aqua - customer acquisition costs (CAC) - Tags: aqua - To make sure the high -touch sales model remains profitable, the LTV of a customer has to be high enough to recoup the investment in acquiring each new customer. 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. - Tags: aqua - 98% of marketing-qualified leads (MQLs) never result in closed business. One reason this conversion rate is famously awful is that the MQL model has a few hidden flaws: 1. It encourages marketers to gate content to hit their MQL goals. 2. It focuses on content consumption as a leading indicator of intent. 3. The entire process rewards creating friction in the buying process. - Tags: aqua - A 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?” - Tags: aqua - 1. Dominant growth engine Product-led businesses tend to scale faster than their competitors in two powerful ways: 1. Wider top-of-funnel. A free trial or freemium model opens up your funnel to people earlier in the customer journey. This is powerful because, instead of prospects filling out your competitor’s demo requests, they’re evaluating your product. 2. Rapid global scale. While your competitors are busy hiring new sales reps for each region under the sun, you can focus on improving your onboarding to service more customers around the world in a fraction of the time. - Tags: aqua - Faster sales cycles: By having your prospects onboard themselves, you can significantly reduce your prospect’s time-to-value and sales cycle. - Tags: aqua - High revenue-per-employee (RPE): Software was always built to scale well, but with a product-led approach, you’re able to do more with fewer people on your team. - Tags: aqua - Better user experience: Since your product is built for people to onboard themselves, people can experience meaningful value in your product without any hand-holding. - Tags: aqua - This is not for everyone. You don’t need to be a product-led business. If you don’t know what you’re doing, adopting a product-led GTM strategy might kill your business instead of helping it. - Tags: aqua - MOAT framework to help you pick the right go-to-market strategy for your business: 1. Market Strategy: Is your go-to-market strategy dominant, disruptive, or differentiated? 2. Ocean Conditions: Are you in a red- or blue-ocean business? 3. Audience: Do you have a top-down or bottom-up marketing strategy? 4. Time-to-value: How fast can you showcase value? Let’s quickly go over the difference between a free trial and freemium model so we’re on the same page. - Tags: aqua - The dominant growth strategy works great if you can do something much better than your market and can charge significantly less. Companies that employ the dominant growth strategy include: • Netflix; • Uber; • Shopify. The freemium model is vital in a dominant growth strategy and can help you take a sizable chunk out of a market. - Tags: aqua - Questions to ask yourself when deciding if a dominant growth strategy is right for you: 1. Is your TAM big enough to support a freemium model? 2. Does your product solve a specific job significantly better and at a lower cost than anyone else in the market? 3. Can your user realize significant ongoing value quickly with little-to-no help from company personnel? 4. Do you want to be the undisputed market leader in your category? - Tags: aqua - Differentiated growth requires you to do a specific job better than the competition and charge significantly more. This is not a one-size-fits-all model. This approach works well with free trials and demos. However, due to the inherent specialization and complexity of these products, it’s difficult to create a freemium experience with a quick time-to-value. - Tags: aqua - Questions to ask yourself when deciding if a differentiated growth strategy is right for you: 1. Is your market comprised of underserved customers? 2. What is your TAM? 3. Is your Annual Contract Value (ACV) high enough to support a low- or high-touch sales team? 4. Could your prospects experience an “Aha!” moment during a free trial? - Tags: aqua - Disruptive SaaS Growth Strategy Most fast-growing SaaS companies are labelled “disruptors,” but don’t let the label fool you. Few ever deploy a disruptive growth strategy. Why? The disruptive growth approach requires you to charge less for what many might consider an “inferi- or product.” Most people think this is a bad idea, but it’s not. If you’ve used Canva (a simple custom-graphic tool), you’ve witnessed this first hand. If you compare Adobe Photoshop’s features against those of Canva, Canva loses every time—by a lot. - Tags: aqua - Questions to ask yourself when deciding if a disruptive growth strategy is right for you: 1. Is your market full of over-served customers? 2. Are you competing in a hyper-competitive market? 3. Is your market large enough to support a freemium model? (Hint: Look to your competitors to gauge the market size.) 4. Do you have the resources to support a freemium model? 5. Can your onboarding be completely self-service? - Tags: aqua - Questions to ask yourself when deciding on your market strategy: 1. Do you want to offer the best solution for the lowest price? (Dominant strategy) 2. Do you want to offer the best-customized solution for the highest price to underserved customers? (Differentiated strategy) 3. Do you want to offer the simplest product for the lowest price to over-served customers? (Disruptive strategy) 4. Or are you planning on using a hybrid strategy? - Tags: aqua - Red-ocean companies try to outperform their rivals to grab a greater share of existing demand. - Tags: aqua - Blue-ocean companies access untapped market space and create demand, - Tags: aqua - If you’re in a blue ocean and creating demand, your product may have a steep learning curve. Before you can make the sale, you need to educate your market on why your new way of doing something is better. - Tags: aqua - most companies leverage a sales or marketing-driven go-to-market strategy in a blue ocean. - Tags: aqua - if your product is complex, start with a sales- led go-to-market strategy to educate your audience and create demand. Still, ask “when” not “if” you’re going to launch a product-led arm of the business. - Tags: aqua - A Product-Led Growth model also helps you convert “non-customers”—people who typically won’t reach out to request pricing or sign up for a demo request. - Tags: aqua - Blue Ocean businesses lead with a sales-led GTM. • Red Ocean businesses lead with a product-led GTM. - Tags: aqua - Takeaway: If you’re in a red ocean, use a product-led model to widen your funnel, decrease your CAC, and expand globally. You need to grow as fast and profitably as possible. - Tags: aqua - Questions to ask yourself when deciding between a blue or red ocean: 1. Am I creating or capturing existing demand? 2. Does the product have a quick time-to-value? 3. Will a marketing, sales, or product-led GTM suit my business the best? Before deciding if Product-Led Growth is right for you, make sure you’re targeting the right audience. - Tags: aqua - With a top-down selling strategy, you’ll typically make the sale to the decision-makers at the top of the organization. But the real selling has just begun. Now, you have to convince internal teams to use your software. - Tags: aqua - Bottom-up selling strategies are the norm in the consumer market. Take Facebook, Twitter, or Evernote: Each created a product that can be adopted in minutes. Unlike the top-down selling strategy, where it may take months or years to close a sale (and another year to understand how to use the product), bottom-up selling strategies demand quick adoption and simplicity. - Tags: aqua - Benefits of a Top-Down Selling Strategy 1. High ACV. Employing a top-down selling strategy almost always results in more significant contracts. If you’re starting out, this can be a great way to boost your monthly recurring revenue fast. 2. Additional Services. Top-down selling strategies often benefit from selling additional training and services. Selling these services isn’t a guarantee but is often needed with large product rollouts. 3. Low Customer Churn. Given that implementing product rollouts is expensive and time-consuming, most customers are reluctant to change products. As long as your product solves the customer’s pain points adequately, you can usually count on these customers to continue paying for your product. - Tags: aqua - Disadvantages of a Top-Down Selling Strategy 1. Poor revenue distribution. Relationships are the growth engine of top-down selling. Often, your sales team will target “whales.” Although I think it’s rude to refer to buyers as whales, it’s what a lot of sales teams use to refer to big buyers. When it comes to top-down selling, you have to be okay with a large percentage of total revenue coming from one place. Losing one contract can result in a sharp (and often unpredicted) decline in revenue. 2. High CAC. Given the sheer number of hours it takes to build relationships with key decisionmakers, your CAC will be substantial with a top-down selling strategy. It should come as no surprise that high-touch sales are a leading indicator of CAC. 3. Long Sales Cycles. In addition to a high CAC, the sales cycle typically takes a long time to finalize. - Tags: aqua - These are the top six benefits of a bottom-up selling strategy: 1. Wider top-of-funnel. A free-trial or freemium model opens the funnel to people earlier in their customer journey. 2. Lower CAC. Since there’s minimal interaction with the sales team, the CAC is often significantly lower with a bottom-up selling strategy. Another benefit of the bottom-up selling strategy is that middle management is often rooting for you to win because they’re the ones championing your product to the company. 3. Predictable sales figures. With a bottom-up selling strategy, you can see how many free-trial and freemium users are in your funnel and what percentage of them will upgrade at any given time. Compare this to the top-down selling strategy, where it’s almost impossible to predict when a deal will close. 4. Revenue diversity. The bottom-up selling strategy often has a much smaller deal size. You can attract a broader market and profitably service more customers than competitors with a top-down selling strategy. Doing so spreads your revenue among many customers, and losing one customer doesn’t cause a painful blow to your revenue. 5. Scale globally fast. While competitors are busy setting up expensive offices throughout the world, you can hone your onboarding to help more users across the globe succeed quickly and cheaply. - Tags: aqua - 6. Fast sales cycles. By having users onboard themselves, you can significantly reduce your prospect’s time-to-value and sales cycle. - Tags: aqua - Disadvantages of a Bottom-Up Selling Strategy The main disadvantages are financial. 1. Contract size. For one, the contract size is often significantly smaller than the top-down selling strategy. You need a higher number of sales to make ends meet. As we mentioned in the benefits section, this can also be a blessing in disguise—losing one customer won’t cripple your business. 2. Non-paying customers. If you launch a freemium product and don’t know what you’re doing, you could easily wind up with a significant portion of non-paying customers. This often happens when a product gives away too much for free, and users have no reason to upgrade—the free plan suits their everyday needs. Luckily, you can fix this problem, but it’s tough to get someone to pay for something they’ve been using for free. 3. Significant investment. Non-paying customers are a drain on resources. Customer support can become overwhelmed, and sales wastes time on users who are satisfied with the free product, among other resource drains. 4. Expertise shortage. Finding someone exceptional at launching and optimizing a free-trial or freemium product is exceedingly rare. These people are in demand because so many businesses are trying to adopt a bottom-up selling strategy. - Tags: aqua - If your product has a freemium model and a top-down selling strategy, the two approaches will repel each other. - Tags: aqua - if you align your product-led model with your selling strategy, you’ll have unmatchable synergy. - Tags: aqua - Freemium and top-down selling. The freemium model rarely works with a top-down selling strategy for a few reasons. First, you’re expecting decision-makers and executives to understand how to use your product. Most decision-makers won’t be everyday users of the product, so it doesn’t make sense to onboard them in the first place. - Tags: aqua - Freemium or free trial and bottom-up selling. If you go with a bottom-up selling strategy that attracts middle management and teams, you help your potential buyers use the product, experience meaningful value, and make the case to purchase your solution to upper management. - Tags: aqua - Free trial and top-down selling. Having a free trial with a top-down selling strategy is a grey area. When I was working at a B2B SaaS startup, we employed a top-down selling strategy and a free trial. But after people signed up, there was no onboarding, no helpful emails, and no support. The experience was bad. - Tags: aqua - “From a marketing and sales perspective, Product-Led Growth is a game-changer. It means you can deliver on your promise to prospects. It also means the product sells itself if you get in front of people at the right stage of the buying process.” - Juliana Casale, Head of Marketing, CrazyEgg - If you’re confident that Product-Led Growth is right, you need to decide between a free trial or freemium model. - Hybrid Model 1: Launch a new product When you’re an established business and want to derisk your business, launching a new product-led arm is a solid option. This allows you to experiment with a product-led model, build the inhouse expertise, and vet if the model will work—without disrupting your cash-cow products. - Hybrid Model 2: Go freemium, with a trial If you have a product with lots of features, this strategy can work well. As long as your freemium version is valuable, you can layer on free-trial upgrades within the freemium product. - Hybrid Model #3: Go free trial, follow with freemium - Risk comes from not knowing what you’re doing. - Warren Buffett Like any big business decision, building a product-led business can be risky. There are a lot of unknowns along the way. Your free product may cannibalize demo requests. Free users can overwhelm your support team. There’s no shortage of potential surprises! - Product-Led Growth is a life raft that will save you from the flood of rising customer acquisition costs and decreasing willingness to pay for your product. - 1. Understand your value. 2. Communicate the perceived value of your product. 3. Deliver on what you promise. - selling an outcome. - What outcome do people expect when they buy your product? - As Steve Blank would say, “Cheating on customer development is like cheating on your parachute-packing class.” It’s not worth it. - 1. Functional Outcome: the core tasks that customers want to get done. - Emotional Outcome: how customers want to feel or avoid feeling as a result of executing the core functional outcome. - Social Outcome: how customers want to be perceived by others by using your product. - A value metric is the way you measure value exchange in your product. - Your value metrics play a vital role in how you price your product, set up your product metrics, and build your team. - Functional value metrics are “per user” or “per 100 videos.” Pricing scales around a function of usage. - Outcome-based value metrics charge based on an outcome, like how many views a video received or how much money you made your customer. - What Makes a Good Value Metric? - It’s easy for the customer to understand. - It’s aligned with the value that the customer receives in the product. - Grows with your customer’s usage of that value. - Subjective Analysis By now, you should have at least a couple of hypotheses about your value metric: • Is it messages sent? • Number of users? • Total revenue generated? - Step 2: Data-Driven Approach - For instance, if we look at the product data for your best customers, we could streamline the onboarding experience for your perfect-fit customers while simultaneously filtering out bad-fit customers. - To get meaningful insights out of your product data, look for patterns among your best and worst customers. - Product-led companies eliminate this unnecessary friction with up-front pricing for most starter plans. - Best-Judgement Pricing This is much like it sounds. You and your team decide your price based on what you think is reasonable. - Best judgement pricing is the least effective pricing strategy because you rely on the collective experience of your team, and you make assumptions about what your buyer values and is willing to pay. - Cost-Plus Pricing works when you calculate the cost of selling and delivering the product, then add a profit margin on top. - The problem with cost-plus pricing for SaaS businesses is that although you could charge $100 per customer each month, your marginal costs of supporting a new customer may be quite low (e.g. $1–5). - Competitor-based pricing benchmarks your pricing based on their data. - Value-based pricing bases your price on the value you provide. You determine this by taking into account how prospects value your product. A significant benefit of value-based pricing—and, as part of the process, doing pricing and customer research—is that you’ll learn what to include in each package. - To determine your price, go through both options below: • Option 1: Pricing Economic Value Analysis. How you can use an economic value analysis to come close to the perceived value of your product. This analysis is perfect if you’re just starting out, don’t have a lot of data, or don’t have buy-in to talk to your customers about pricing. • Option 2: Market and Customer Research. A battle-tested method used by Simon Kucher & Partners, Openview, and Price Intelligently to figure out your customers’ willingness to pay. If you have lots of customers, I’d recommend choosing this option. It’s more accurate than an economic value analysis. - Functional Outcome: The core tasks that customers want to get done From a functional perspective, what does your product help people do? Typically, a functional outcome breaks down into factors such as incremental revenue, reduced cost, reduced risk, or time savings. - Emotional Outcome: How customers want to feel—or avoid feeling—as a result of executing the core functional job Do people really like to “crunch the numbers”? If you were a creative director like Marko, you didn’t. It was that one quarterly activity you hated. You did it only because the output was so essential. - Social Outcome: How customers want to be perceived by others - Option 2: Market and Customer Research Basing your pricing on market and customer research is one of the best ways to understand how much your customer is willing to pay for your product or service. - Finding an acceptable price range is especially important because we want to avoid two disastrous consequences: 1. We set our price too high and lose out on the majority of sales. 2. We set our price too low and lose out on the majority of profits (while also hurting our brand, which appears “cheap”). - Step 1: Prepare Questions to Ask In the Van West Model, you need to ask four questions to discover your ideal price range. You want to know at what point people find your product too expensive or cheap: 1. Too Expensive. At what price point would you consider [our product] to be so expensive that you would not consider buying it? 2. Expensive. At what price point would you consider [our product] so expensive that, while not out of the question, you would give it some thought before buying? 3. Bargain. At what price point would you consider [our product] to be a great deal for the money? 4. Too Cheap. At what price point would you consider [our product] so inexpensive that you would feel the quality couldn’t be excellent? - Step 2: How to Ask The ideal people to ask are your customers and Product Qualified Leads (PQLs). As for how you ask, there are two main ways: 1. Survey tools (Typeform, SurveyMonkey); 2. Interviews. - What Should You Put on Your Pricing Page? Putting together a pricing page doesn’t have to be complicated. You need four elements to make it work: 1. Value Metric; 2. Willingness to pay for all packages; 3. Valued features; 4. Demographic Information. - Which features should we include with each plan? According to Kyle Poyar,31 there are only three main categories: 1. Leaders “are the hamburger in your McDonald’s value meal; they are what everyone wants and comes to you to buy. These must be included in all packages.” 2. Fillers “are the fries and coke. They are seen as nice-to-have and sweeten the deal. Customers will cherry pick fillers when sold a la carte, and so a bundle helps drive uptake and a higher average revenue per user (ARPU).” 3. Bundle killers “are the coffee of your value meal. Few people want a value meal with a burger, fries, coke AND a coffee, and adding coffee to the value meal might even turn people off from buying entirely because they’d end up with more than they need. There will be a handful of caffeine-starved customers who do want the coffee, though, and they can purchase it a la carte outside of the value meal.” Lastly, where does demographic information fit into a pricing page? Often, savvy businesses will name the pricing tier after each of their personas or give it a similar nickname to signify the type of buyer who regularly purchases that plan. This serves two purposes: 1. It allows your audience to self-segment quicker. 2. It helps you prioritize the features and benefits that are most valuable to the target audience. - What we deliver in our product is the experienced value. - Value Gap 2: You Don’t Understand Why People Buy Your Product. - Value Gap 3: You Suck At Communicating Your Value - Whom do you need to convince to launch a product-led strategy? - Write down the key outcome(s) that someone wanted to accomplish. - Focus on where you need to offer a helping hand. - Lastly, clear the damn path. - 1. Where Do You Want to Go? Some businesses use a North Star Metric to symbolize this focus, while others pick a revenue number. How you break down your business’ goals is not what this book is about. - One way to find opportunities to improve the buying experience is to buy your product once a month. You’ll quickly spot easy improvements. Too often, we set up our onboarding and assume it works without a hitch. - Increase the number of customers; 2. Increase average revenue per user (ARPU); 3. Reduce customer churn. - Label each step throughout your onboarding experience using the colors green, yellow, or red: • Green is absolutely necessary. Ex. Uploading a piece of JavaScript to your website; asking for an email address to setup an account. • Yellow is for advanced features that can be introduced later. Ex. Setting up a custom signature for your email address; running split tests on your video thumbnails. • Red can be removed completely. Ex. Changing the color of your profile picture; asking for someone’s nickname when setting up their account. - Product bumpers are mission critical. They help users adopt the product within the application itself. • Conversational bumpers work to educate users, bring them back into the application, and eventually upgrade their account. - Common product bumpers: • Welcome Messages • Product Tours • Progress Bars • Checklists • Onboarding Tooltips • Empty States - Common conversational bumpers: • User Onboarding Emails • Push Notifications • Explainer Videos • Direct Mail - What outcome does your product help people with? Is it lead generation? Is it getting more fit? - Ask them about the primary outcome they want to achieve with the product. - Watch the trialer try to achieve an outcome in the product. - Once you’ve put your tiger team together, give them ownership to do whatever it takes to help people become successful with the product. - When users get sidetracked or leave the product, it’s our duty to bump them back in the right direction. - Product tours should ask users what they’re trying to accomplish in the product. 2. Product tours should cover important step(s) that set users up for success with the product. 3. High-performing product tours often use a “focus mode” that strips away unnecessary elements, like the navigation bar, until the user completes the product tour. 4. Product tours are typically between three and five steps. - Checklists can motivate new users to complete crucial set-up tasks. 2. Checklists can turn complex, multi-step processes—such as scheduling a month of social media content—into simple, achievable tasks. 3. Onboarding checklists employ the Endowed Progress and Zeigarnik Effect. - Show first-time users how to use the product. 2. Offer helpful tips to new users. Think of this like coaching. 3. Show experienced users new areas of the product they might never have tried otherwise. This is great for increasing retention. - Use onboarding tooltips to guide users toward experiencing meaningful value in the product. 2. People do not use software because they have tons of spare time and love to click buttons. - To decide what to include in an empty state, ask yourself: • What steps does a user need to complete to experience a quick win? • What is the most important step in my straight line? • How can I make sure that the majority of users complete this step? - Here’s why you need conversational bumpers in your onboarding: 1. Educate users. 2. Set the right expectations. 3. Meet users where they are and pull them back into your app. 4. Increase motivation to use and buy your product. - Use case-study emails to combat objections that users might have before they enter the buying phase. • Make sure that each case-study email answers “What’s in it for me?” for users. - a good user engagement score isn’t simply a valuable product metric—it’s an essential business metric for any software business. - Restate your value when invoicing. When you send invoices, remind people that they’re paying for a product that they may or may not be using. - Create churn-prevention campaigns. - “Product-Led Growth will soon become the norm, making it table stakes for SaaS companies that want to win in their markets.” – Blake Bartlett, Partner, OpenView