The average person on the street might not be familiar with the phrase ‘product-led growth’ but we’ve all experienced it first hand. If you’ve used Zoom, Spotify or Dropbox, then you’ve been a part of it.
Put simply, product-led growth is the ultimate ‘cut out the middle man’ strategy. Traditional sales took client through a funnel, with various hoops to jump through before having any direct contact with the product. This model allows them to access most of the functionality of the product in an instant, selling through the benefits of the product itself.
But it’s not only about streamlining sales. In this article we’ll dive deeper on how going product-led sparks innovation and rapid growth across whole organizations.
First we’ll give you the lowdown on how product-led growth works, which big name companies use it. Then we’ll get into why it outperforms traditional models and how you can start integrating it into your strategy, without overwhelm.
So first things first:
What is product-led growth, and how does it work?
The most visible indicator of a product-led strategy is the ‘try-before-you-buy’ offer through a freemium or free trial model. However, the methodology goes even deeper behind the scenes.
Going product-led means that the product itself is the main way you attract customers, keep them engaged, convert them into advocates, generate revenue. When done right, it even becomes the driver of organic marketing.
As Wes Bush explained in his 2019 book on product-led growth, the advantage of this model is in flipping the ladder that the customer has to climb.
In other words, by creating a spotless customer experience and demonstrating real value in the free format, you make the next step a no brainer.
If you already made the customers life tangibly easier free of charge, who wouldn’t pay a small fee for more of the same?
Once stakeholders are on board, the idea is to integrate product-led growth into the whole company strategy, using the following universal principles:
- Providing value quickly and in a self-service format
- Streamlining the onboarding experience through tech and processes
- Prioritizing continuous product improvement over marketing
- Avoiding paid advertising and favoring organic strategies
- Cross-functional collaboration
- Strong focus on user testing, communication and feedback
Let’s take a look at the big names who are putting those principles to work.
Which companies use the product-led growth model?
Product-led companies are innovation-driven companies, because they automatically focus on the user, and involve all departments, skills sets and perspectives in the product design.
The product-led phenomenon started as a B2C concept, with familiar names like Spotify, Duolingo and Bumble proving its potential.
The B2B SaaS sector, traditionally more sales led, was a little slower to react, but the companies who adopted early are reaping the rewards on a huge scale. From Slack or Zoom, to Calendly or Shopify, many SaaS names that are now part of the business dictionary either started or switched to a product-led model.
What are the disadvantages of the traditional sales-led model?
So why are companies who are serious about innovation moving away from the sales-led strategy? Four main reasons:
Although it’s never been cheaper to found a start-up, it’s getting more expensive to grow one through traditional methods.
Whether it’s the cost of paid advertising, or the sales staff, the Cost per Acquisition is much higher, which means you need a higher revenue per client. And if you’re competing with product-led businesses, you’re offering a similar product for a higher price.
It makes for siloed and slow organizations
A sales-led process creates an artificial divide between the development side vs the customer facing side of the business, blocking innovation and collective creativity.
It doesn’t make sense to the customer
As freemium models become the norm, customers are not used to buying without trying. If you don’t give them a way to experience the value for themselves, they’ll simply go elsewhere.
It creates too much friction
On the same note, now that customers are accustomed to instant access, dealing with a salesman feels like a chore. If the whole sales model is based on gating content, you’re naturally creating friction in the customer experience.
Which brings us to the alternative:
What are the benefits of product-led growth?
Going product-led can feel like a big step, but the advantages are powerful. Here’s an overview:
Retains customers longer & reduces churn
When the product is designed with optimum value in mind, and the customer has already seen it in practice, no convincing or persuading is necessary. Rather than creating a prospect, you’ve created a fan. This self-qualifying process increases customer satisfaction, and dramatically decreases the drop-off rate long term.
Removes siloes & sparks innovation
In product-led businesses the priority is an optimum user experience, which forces companies to get rid of traditional decision-making hierarchies, and get a diverse team involved at every stage of design and development.
Cuts costs & maximizes profit
As we discussed, this model allows customers to self-educate and makes the buying process as friction free as possible.
This not only boosts sales but makes many elements of the buying and continued support self-service, streamlining overcomplex departments and processes, and freeing up your brightest brains to spend less time on admin and more time on innovation.
The efficiency-friendly method radically reduces the cost per acquisition and skyrockets revenue per employee.
If these benefits sound great to you, you’re probably wondering…
How do you get started with product-led growth?
Whether your organization has a sales-led system in place and you want to transition, or you have a new idea that you’d like to set up as product-led from the start, it can feel daunting to break away from the traditional processes.
The good news is, you don’t need to completely restructure your organization or throw out previous plans all at once. The first and most crucial step is to discover the true value of the product, in order to start refocussing your strategy with that value as the root.
The best way to do this with minimal resources and time is through a Design Sprint.
By implementing a Design Sprint, you work through all of the key product-led growth principles in a lean, 5 day format. Involving diverse perspectives, user testing and validating, and answering all the important questions at the earliest possible stage.
So you set the path for a product-led strategy before spending precious time and resources on implementing.
If you’d like to learn more about how Design Sprint can kick start product-led growth for your organization, get in touch to request a free 30 minute consultation.
By the way… in initial consultation calls, we always give honest advice, free of charge and no strings attached, but we only have three slots each month. So if you’re keen to go product-led, request a call now.