Product-led growth startups: Should startups pursue product led growth strategies off the bat?
Updated on 21/05/24
You can’t just offer a free trial and keep your fingers crossed someone will renew or, worse still, forget to cancel, just ‘cos your competitors do.
When working in-house I was in love with the idea of pursuing a product-led growth strategy. The idea that we could attract visitors who’d sign up for a free trial, navigate the platform, and watch our courses... and I didn't have to get involved or speak to a human being at all sounded great.
I’d look at what LinkedIn Learning, Slack, Spotify and Hubspot were doing, and think… yep, we’re going to be just like that.
[insert tumbleweed].
It turns out there’s a *little more* required than just a free trial, a few onboarding emails, reading articles on Profitwell, and saying you’re product-led.
How I learned our early-stage startup couldn’t pursue product led growth strategies out of the box
It’s not like startups can flick the switch, turn into product led growth startups, offer a freemium offering and then expect traffic to just fall in. Trust me, I tried it once at a previous startup and surprisingly, we built it and they didn’t come (!)
There’s a lot of work you need to do beforehand to even consider if product-led is the right go-to-market strategy for your startup.
You need to invest in your customer research and experience, you need to understand what value your user is looking for, you need to ensure your onboarding isn’t made up of 500+ steps, and you need to set up your traction channels, all whilst focusing on getting your retention rate to near as 40-60% as you can.
But, let’s face it, as startups we haven’t got all this stuff sorted. Even when we are grown-up startups, we still won’t have everything in place; we’ll be fighting new fires.
What does make our lives a little easier, however, is experience from someone who’s been there, right? So here’s a super quick crash course on what I needed in place to even consider pursuing PLG as a go-to-market strategy.
What is product-led growth (PLG)?
Product-led growth or PLG is a go-to-market strategy “that relies on using your product as the main vehicle to acquire, activate, and retain customers” - that’s according to Wes Bush. He literally wrote a book on it, and a good one at that.
The best way to think about it is like a test drive. (Or, at least how I imagine one. I’m a total Gran when it comes to driving).
You see a car you kind of like the look of, you get the keys, and you drive it around for a bit. You do this because it’s potentially a big investment and you want to reduce risk. Organisations that pursue product led growth strategies are doing the same thing: they allow new users to sign up for an account and test a few, if not all, all its features*.
Whilst the investment required to sign up to a SaaS product in monetary terms may not be as significant as a car, the user still needs to make a few trade-offs when considering to use it. E.g. the time it takes to learn another new system, evaluating what it does, taking it to their boss for sign-off.
*That’s not all what product-led growth is, by the way. It’s using the platform itself to acquire and keep the user, ensuring they experience value from the product. It doesn’t stop at the test-drive stage.
Companies pursuing this approach “have gone from novelty to norm, with three in five software companies having adopted PLG strategies”, according to Kyle Poyar of OpenView Partners in his talk, How to Grow Faster with near 0 CAC.
It’s clearly being adopted by more and more companies, but just because you can… should you? Is it naturally the way your customer would research and buy a product like yours? Let’s look at an example to get your brain ticking.
How Hubspot uses product led growth strategies to attract and onboard new customers (example)
I recently signed up as a Hubspot customer. I visited their website, created an account, and explored the free CRM on offer. Within 15 mins, I knew where to store my contacts, was prompted to check out the basic email tools on offer, and dug into the basic reports. At no point did I need to speak to a salesperson.
1. A free trial or a freemium model is not your pricing. It’s a way to acquire new customers.
In my example, Hubspot was operating a freemium model. It allowed me enough access and feature usage to allow me to check out just how good the product is and go on my merry way in setting up the CRM to manage my leads.
A day goes by and I realise that actually, I need to add more contacts and access slightly more advanced reporting. I’m prompted by the platform to upgrade every time I want to explore something that’s outside of the remit of the core offering.
I eventually paid to upgrade. Once again, there was no need to speak to a salesperson. I just added my credit card details and all of a sudden a new wave of features are presented. They understand how to design an effective onboarding and upgrade experience.
2. I represent a low-value Jobs to be Done (JTBD) for Hubspot. That’s why I don’t get to speak to a person.
By this I mean, it’s likely - due to the size of my business - I won’t ever need to pay for an enterprise-level account. They’re never going to make much money from me, as they aren’t going to reserve an expensive salesperson to show me around. There’s no opportunity to expand my annual contract potential here.
They’ve designed the product experience in such a way that onboarding and upgrading is a straightforward process and it’s likely I will never speak to a human on the phone for the duration of my contract.
One of Hubspot’s sign-up / qualifying questions
In this example, we’ve seen a few examples of how Hubspot uses product-led growth. Here’s a recap.
With their freemium model, allows me to test drive their platform and learn at my own pace;
Their onboarding process asks me how many staff I have, which signals if it’s worth for sales to get in touch with me;
The product’s prompts get me to where I need to, fast;
They use freemium, likely, because I represent a mass market audience;
They know which features are most valuable to me - and gate them behind a paywall.
So, in my opinion, you can’t just be product led growth startups unless you’ve considered the following.
There’s a ton of strategy going on here that will inform your customer acquisition model, your messaging, your in-app prompts, whether sales should get involved or not, the type of market they operate in. I could go on.
How to tell if your startup should pursue product-led growth:
Your customers are comfortable test-driving: they like to jump into similar tech and can use it effectively
You’ve run your initial customer research and can connect customers’ “JTBD” with your product experience
You know (or have a gut feeling) who represents your high value and low value customer JTBD segments
You’re keen to open up your funnel and use content to nurture people’s experience
You regularly review your customers’ experience and can see opportunities to nudge them and create habits
You’re realistic; you know your freemium model - if you use one - will only ever convert around 2-4% into paying customers.
At Oh Blimey, our services are designed to help early-stage startups avoid common pitfalls. I help product-led startups with their marketing strategy, helping to create a growth model and find gaps within your ideal client’s journey.
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Lessons I learned from exploring the product-led growth strategy:
1. A free trial / freemium / usage-based customer acquisition model - whatever you choose - makes your product much more discoverable by users.
But pick the wrong model and you can screw up your likelihood of getting customers to pay. Deciding which acquisition model to offer your customers can be tricky. There are a number of things at play. For us, we really focused on the TAM, SAM and SOM available to us.
We catered to a niche market. At one point, we were selling to education providers in the UK which meant our total segment was 118 organisations. Offering freemium - or, rather, offering freemium and getting it wrong - would see us cannibalise our pricing efforts.
2. You can’t just stop marketing and getting people to the platform in the first place.
I’ll speak to some teams who think that just because there’s a free trial element to their product, they don’t need to invest as much effort into getting leads. This couldn’t be more wrong in my opinion, especially if you are an early-stage startup.
You don’t have the scale, the marketplace or the established channels. You still need to create demand. You need marketing to get people aware of you in the first place. Product-led growth is just making it easier to try your product. Think of it in this case as replacing the human showing you around.
We operated a channel-led / product-led model hybrid at the beginning. The majority of our traffic came from content marketing, specifically YouTube and SEO. The rest was from unscalable marketing efforts - those you’d expect to see when setting up channel marketing for a startup.
For instance, in Kyle Poyar’s talk he shared stats that, when comparing product-led companies to sales-led companies, much of their effort is geared around pursuing organic SEO (40%), product/virality marketing (16%) and paid marketing (16%).
3. Your focus needs to be on onboarding your users and getting them to experience the value of your product as soon as possible.
Ah, the term “value”. It can mean so many things… but in this context, it means getting your user to experience the aha! moment. The moment when everything sets in place, and they see how your product can help them to progress. It’s also known as the stage whereby the product fulfils the customers’ Jobs to be Done if you’re into that.
I raise this because at the beginning we had very low free trial to paid conversion rates. Like, really low. But we saw people signing up and doing *something* on the platform.
(Side note, I’ve written about how we eventually got around the reasons why my leads won’t activate their trial).
Unfortunately, we turned our attention back to getting traffic to the site and not optimising the experience for those who had gone through the signup process. That’s the bit people don’t always listen to: you need to get your retention rates up… then you can focus on getting more traffic in.
In summary
Product led growth strategies aren’t silver bullets that’ll sort your acquisition, retention and growth goals. Na-ah. There’s so much to consider - your growth strategy, the market, how your customer usually buys this type of product. Then there’s the emphasis on ensuring your customer experiences value straight away.
If I can recommend anything it’s this: onboard your first few paying customers in person if you can. It’s easy to want to automate straight away, but nothing beats talking to a customer and understanding what forces are at play, pushing them to and away from making a purchasing decision.
And, let’s not forget, if your product is complex, you’re going to need a sales person to help guide a potential customer to help them evaluate things.
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