Product-Led Growth

We were using the same-old marketing playbook that everyone else did: Create content; use landing pages to capture leads; and nurture those leads with automated emails until, one day, they converted into paying customers (or unsubscribed). Sound familiar? (Location 156)

Trying a product is and always will be an essential part of the buying process. (Location 164)

As the SaaS industry evolves, I believe there will be two types of companies: (Location 167)

Today, a strong brand and social proof are no longer enough to build trust with the modern buyer. You need to let people try before they buy. Product-Led Growth is how you turn that approach into an executable business strategy. (Location 174)

a go-to-market strategy that relies on using your product as the main vehicle to acquire, activate, and retain customers. (Location 183)

On the surface-level, Product-Led Growth may look like a simple model for your buyer to try before they buy. However, if we look deeper, Product-Led Growth is a completely new way of growing a SaaS business. (Location 187)

Product-Led Growth means that every team in your business influences the product. Your marketing team will ask, how can our product generate a demand flywheel. Your sales team will ask, how can we use the product to qualify our prospects for us? Your customer success team asks, how can we create a product that helps customers become successful beyond our dreams? By having every team focused on the product, you create a culture that is built around enduring customer value. (Location 190)

The Three Tidal Waves Coming for Your Subscription Business (Location 199)

As a result,argues Andrew Chen,2 it’s becoming more expensive to acquire customers. Just take a look at these three channels: (Location 205)

There are other channels, of course, but these numbers hint that, well, marketing isn’t getting any cheaper.According to ProfitWell,6 CACs have increased by over 55% in the last five years. (Location 214)

Tidal Wave 2: Buyers now prefer to self-educate. (Location 221)

Three out of every four Business to Business (B2B) buyers would rather self-educate than learn about a product from a sales representative,according to Forrester. (Location 222)

If you’re like most people, you’ll opt for trying out the product on your own. This doesn’t apply just to small and mid-size businesses.As Gainsight notes,8 “Enterprise buyers also expect to try and evaluate software in an easy, frictionless way.” Trying out a product through a free-trial or freemium model9 is less hassle and can help you decide quickly on a product. (Location 228)

Tidal Wave 3: Product experiences have become an essential part of the buying process. If you’ve used Netflix, you’ve witnessed this first-hand—you didn’t need to reach out to a sales rep or book a demo before you were able to watch and eventually buy the service. The entire onboarding and upgrade experience was handled by the product. (Location 234)

To put your SaaS business in the best position to win, you need to pick a go-to-market strategy that will place your business on high ground. (Location 242)

Why the Sales-Led Go-to-Market Strategy Is at Risk If the only way you can sell a product is if someone talks to you, you’re using a sales-led strategy. (Location 252)

This is because relying on your sales team to make every sale prevents you from helping your users self-educate. Whether you know it or not, you are adding an incredible amount of friction to the entire buying process. It also keeps your CACs high—great sales teams aren’t cheap. (Location 255)

Pros of a sales-led go-to-market strategy 1. Ability to close high Lifetime Value (LTV) customers. A main lure of a sales-led GTM is that you can close customers with a high Annual Contract Value (ACV). (Location 261)

3. Perfect for new categories. When you’re launching a new category, you have to change the way people approach problems. This not only takes time but requires you to educate people on how to do things differently. As a result, it often makes sense to start with a sales-led approach to better understand the customer’s pain points, objections, and core problems implementing your solution. If you jump too quickly to a product-led model with a new category, you risk a high churn rate because you simply don’t understand what it takes for customers to succeed. If you don’t have successful customers, a product-led model may amplify the problem. Before you go down the product-led route, make sure you know what goes into customer success. (Location 273)

Cons of a sales-led go-to-market strategy (Location 280)

1. High customer acquisition costs (CAC) A big downside of the high-touch sales model is that the CAC is out of control, and the sales cycles are extremely long. As you might have guessed, high-touch sales is a leading indicator of CAC. 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. (Location 281)

As Paul Graham, founder of Y Combinator, states, “The more it costs you to sell something, the more it will cost others to buy it.” In short, a sales-led strategy passes costs to consumers that have no connection to product value. (Location 287)

2. The customer acquisition model is leaky. In a sales-led organization, the customer acquisition model has a big leak. According to SiriusDecisions, 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: It encourages marketers to gate content to hit their MQL goals. It focuses on content consumption as a leading indicator of intent. The entire process rewards creating friction in the buying process. As a result, there is often a disconnect between marketing and sales. Should we really be surprised? Does downloading a whitepaper mean you’re ready to buy? Absolutely not. (Location 291)

When your organization leads with sales and follows with product, you’re forced to move upmarket and get on the elephant-hunting treadmill. (Location 308)

These are the exact words from the CEO of a company11 that recently raised a Series C from great investors, is growing rapidly, has strong customer retention, and a top-notch leadership team. My biggest regret is that our first customer was $1M ACV. Ever since that first customer, our product, go-to-market, our support model have all been pulled in one direction — high-end enterprise. Our first $1M ACV customer forced us to get on the elephant hunting treadmill, and we’ve never been able to get off it. (Location 311)

His words12 reinforced something I have long believed: Truly great SaaS companies are built to be product-led. (Location 320)

“The future of growth belongs to product-led companies. (Location 323)

Market dynamics and consumer behavior have changed - increasingly consumers expect to use software and extract value from it before buying. (Location 327)

Over the years, countless SaaS businesses have opted to switch from a sales-led GTM to a product-led GTM strategy to create a moat around their business. This is the same strategy that many respected software companies have adopted, including Grammarly, Slack, and Dropbox. (Location 331)

What makes a product-led business unique is that all teams leverage the product to hit their goals. 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?” (Location 337)

Product-Led Growth isn’t easy to implement. It’s not just giving people the option to try your product before they buy. Your entire approach as an organization needs to shift. Instead of leading with sales and following with product, you need to make sure that every team has a hand in helping each user become successful. (Location 349)

1. Dominant growth engine Product-led businesses tend to scale faster than their competitors in two powerful ways: (Location 355)

2. A significantly lower CAC Free software also builds a moat around your business in three powerful ways: (Location 362)

The benefits of a product-led GTM strategy don’t stop there. According to OpenView,13 product-led businesses are valued more than 30% higher than the public-market SaaS Index Fund. (Location 372)

Part of the reason many SaaS businesses fail to transition from a traditional sales-led strategy to a product-led one is that there’s no battle-tested playbook. You need to figure out whether a free trial or freemium model will work for your business. (Location 381)

In this chapter, we’ll walk through my MOAT framework to help you pick the right go-to-market strategy for your business: (Location 395)

Take Salesforce. When they first launched, the sales team had to educate potential customers on why a cloud-based CRM made sense. The sales team met resistance from companies that, among other objections, worried about their data being lost or stolen. Had Salesforce started with a no-touch, product-led model, it would have been hard, if not impossible, to combat those objections. As a result, most people wouldn’t buy the product. You don’t become a market behemoth by selling products nobody can understand. For this reason, most companies leverage a sales or marketing-driven go-to-market strategy in a blue ocean. (Location 514)

“Product-led is the only distribution model worth undertaking once the market is mature.” (Location 535)

Audience: Do You Have a Top-Down or Bottom-Up Selling Strategy? (Location 546)

Slack is a perfect example of a bottom-up selling strategy. The product spreads organically, typically starting with one user who invites a colleague—then an entire team—to join. Product use reaches a tipping point at which the team manager invests in Slack because it has become invaluable. This strategy of leading with value took Slack from zero to a $4 billion valuation in three years. (Location 552)

When using a top-down selling strategy, your sales team targets key decision-makers and executives. Typically, these deals include large product rollouts throughout an entire business. (Location 559)

What is a bottom-up selling strategy? Companies that use the bottom-up selling strategy: Slack, DocuSign, and Atlassian. 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. (Location 569)

Benefits of a Bottom-Up Selling Strategy (Location 611)

Your product is your growth engine for a bottom-up selling strategy. Your product is responsible for onboarding users, showcasing its value, and even upgrading users. In many organizations with a bottom-up selling strategy, you don’t even need to talk to someone for them to buy your product. Netflix and Spotify are perfect examples. (Location 612)

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. (Location 666)

Time-to-Value: How Fast Can You Showcase Value? “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.” (Location 689)

Regardless of your product or industry, these are the four types of users: (Location 697)

In the graph below, I challenge you to identify the top two user types who sign up for your product. (Location 707)

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. To make Product-Led Growth more accessible, I created this playbook to arm you with the core elements of what it takes to build a successful product-led business. That way, it’s less risky. (Location 768)

In this section, we’ll go through the UCD framework, which shows you how to build a solid foundation for your product-led business. (Location 772)

Let’s say you’re selling live-chat software like Intercom. You’re not really selling live-chat software (fun fact). You’re selling a new and better way to acquire customers. Often, it’s easy to think that we sell products based on the functional outcome they accomplish. Businesses need live-chat software, right? No. Businesses do not need live-chat software. But, businesses do need a new and better way to acquire customers. (Location 790)

Most technology companies get caught up in the features and don’t really know why people buy their product. So, they create bland headlines that read, “We sell live-chat software for website and mobile support.” From the copy, we know what this business sells, but why choose one option over another? The copy assumes we know the outcome that live chat solves for. It also shows us that the company didn’t take the time to do customer development. As Steve Blank would say, “Cheating on customer development is like cheating on your parachute-packing class.” It’s not worth it. To build a successful product-led business, you need to understand the three main outcomes that motivate the purchase of your product. Let’s walk through each. (Location 800)

The three reasons that people buy a product (Location 807)

One of the biggest differences between sales- and product-led companies is that the latter consistently monitor these usage patterns to see if users are accomplishing meaningful outcomes. (Location 833)

What the Heck Are Value Metrics? (Location 837)

Ultimately, value metrics are the linchpin to successful execution of a product-led go-to-market strategy. Why? Because you’re aligning your revenue model directly with your customer acquisition model. (Location 841)

For a communication application like Slack, a value metric could be the number of messages sent. (Location 846)

Before we dive into how to find your value metric, let’s step back and identify what makes a good value metric. What Makes a Good Value Metric? (Location 862)

How to find your value metric (Location 918)

Step 1: Subjective Analysis (Location 925)

Step 2: Data-Driven Approach (Location 937)

Communicating your value is at the crux of a Product-Led Growth strategy. Sales-led companies love to hide their pricing behind closed doors, asking potential buyers to request the price. Product-led companies eliminate this unnecessary friction with up-front pricing for most starter plans. (Location 972)

How to Treat Your Pricing and Customer Acquisition Model Right Don’t overcomplicate your pricing page Before signing up for a free trial or freemium model, most users check out your pricing page. If it can’t pass the five-second test (i.e. users understand which plan is right for them almost immediately) you’re hurting customer acquisition. Instead of signing up for your free offer, they’ll bounce. (Location 986)

It may sound simple, but we send a triggered automatic message to visitors simply saying “Have any questions about our pricing?” when people have been on our pricing page for more than 30 seconds. It’s helped us convert 100s of visitors in real-time. (Location 993)

One of the most common questions I get from companies launching a freemium model is “What happens if we give away so much that our paying customers downgrade to a free plan?” There’s no way to avoid this entirely, but you can minimize risk. Look at the number of customers who use only the tools and features you’re about to give away for free: (Location 1010)

Four Common Pricing Strategies (Location 1026)

But in SaaS, the only viable option is value-based. Your SaaS company exists to offer value to your customers. By finding out how much they are willing to pay for your product and what features they want to see you develop, then you will be able to not only give customers what they want, but you’ll also be able to attract and retain these customers better. All while making more profit. (Location 1068)

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: Survey tools (Typeform, SurveyMonkey); Interviews. (Location 1193)

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: (Location 1221)

According to Kyle Poyar,31 there are only three main categories: (Location 1232)

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: It allows your audience to self-segment quicker. It helps you prioritize the features and benefits that are most valuable to the target audience. Once you have all these components, you can put together your pricing page. (Location 1242)

The same thing applies when selling software. What we promise in our marketing and sales is the perceived value. What we deliver in our product is the experienced value. Ideally, the perceived value aligns with the experienced value. (Location 1255)

The bigger your value gap, the leakier your funnel. You’ll see users sign up but never return to your product. As you might remember from before, 40–60% of users who sign up for your product will use it once and never come back. (Location 1264)

Tackling your value gap can be the single, most profitable lever you can pull. (Location 1266)

Ask yourself these questions while going through your product experience: Does the first product experience lead to a specific, relevant, meaningful “quick win”? Do tooltips and hotspots spur meaningful action in the product, not just point at buttons? Do social and directional cues indicate high-value behaviors? Are key task completions indicated with a success state, such as Mailchimp’s famous high-five? Are all unnecessary points of friction and distraction removed from critical workflows? (Location 1296)

When you understand why people use your product, you can catapult them to the right destination. (Location 1326)

What outcome does your product help people with? Is it lead generation? Is it getting more fit? This may sound straightforward, but many businesses don’t know the main outcome that people want to achieve in their product. (Location 1328)

Whom do you need to convince to launch a product-led strategy? (Location 1342)

How to launch a free trial in 24 hours (Location 1362)

In your first meeting with the new trialer, do several things: (Location 1373)

Just like in the Snappa.com example I shared earlier—in which an email activation step kept 27% of new signups from ever logging in—you need to challenge each step. By removing the email activation step from the initial onboarding experience, Snappa boosted their MRR by 20%. (Location 1403)

At the Product-Led Institute, we developed the “Triple A” sprint, which focuses on rapidly identifying problems, building solutions, and measuring impact. The process follows a one-month sprint cycle and consists of three “A’s”: (Location 1465)

Create a recurring calendar notification to remind yourself to analyze your previous month’s results on the first workday of each new month. (Location 1485)

In a product-led business, these are the macro outputs you need to track: Number of signups; Number of upgrades; Average Revenue Per User (ARPU); Customer Churn; ARR; MRR. (Location 1495)

If you really have no idea what your organization’s goals are, you should read Measure What Matters36 by John Doerr. (Location 1509)

According to Jay Abraham’s multiplier perspective, there are three levers you can pull for growth: Multiplier 1: Churn; Multiplier 2: Average revenue per user (ARPU); Multiplier 3: Number of customers. (Location 1523)

Breaking down your business by three levers lets you quickly identify which levers will help you your business grow fastest. Unless you’re just starting out, reducing churn and increasing ARPU will almost always have the biggest impact. Once you nail your churn and ARPU, you can start multiplying your business with each additional customer. Here’s the multiplier formula you can use: Churn > ARPU > # Customers (Location 1534)

I use an Input Log38 as a prioritization system. It helps you track and prioritize every idea that could help your business grow. Then, I use the ICE prioritization method, developed by Sean Ellis, to score each input on three elements: (Location 1564)

The first step in adding freemium to our go-to market strategy was setting the overarching vision of where we wanted to go. Then, our goal was to run experiments to iterate towards the vision or inform how we needed to evolve the vision. (Location 1586)

Here’s the high-level process that worked for our growth team: (Location 1592)

I recommend sending an expiry-warning email at least three days before the end of each user’s trial. This gives users enough time to make a decision to move forward with your product or not. (Location 2132)

One thing Spotify has done really well is to remind users why they upgraded, showcasing the value of the platform. This email increases user motivation to check out the product and listen to some great music without ads. If you have a freemium product, recap your premium features so that users can explore them right away. Key Takeaways: Customer-welcome emails must be sent as soon as users upgrade. The point of customer-welcome emails is to reassure users that they made the right decision, remind them what they can now do with the platform, and set expectations for what comes next. (Location 2171)

Based on your response, Autopilot48 enrolls you in an automated sequence. Autopilot recommends starting with this list: Still evaluating → Offer a trial extension Not a fit → Drop into nurture Too complex → Schedule a customer success call Too expensive → Provide a one-time discount Went with another solution → Send top-of-funnel lead-nurturing emails to stay top-of-mind if the other service doesn’t work out Just doing research → Add to nurture (notice the nurturing trend?) Missing product feature or integration → See if it’s on your product roadmap; if so, let them know when it’s live (Location 2200)

User Onboarding Emails Overview Even with the best copy in the world, if your onboarding experience lacks personalization, you’ll lose out on conversions. Imagine that I just signed up for your product and spent several hours using it during the first couple of days. I’ve gone through all of your onboarding tooltips and experienced the value of your product numerous times. I’m a power user and am sold on your product. I love it! (Location 2220)

The only way to avoid these scenarios and improve your free-to-paid conversion rate is to create a smart conversational bumper system. Create a Smart Conversational Bumper System Smart signals tell us when we should send a specific conversational bumper to keep users on a straight line. Here are the four main signals: Signup; Quick win; Desired outcome; Customer. (Location 2245)

Conversational Bumper Track 1: Quick Win (Location 2258)

As we covered earlier, usage-tip emails do three things: (Location 2264)

In the first onboarding track, the only thing we care about is getting someone to experience a quick win in the product. If we operate a business intelligence software solution, our first quick win might be setting up a dashboard to visualize our analytics. At first, every email we send to new users should focus on that outcome. You don’t need to send usage-tip emails to users if they accomplish the quick win the first time they use your product. Remember, product bumpers also guide users toward achieving their desired outcome. (Location 2269)

Conversational Bumper Track 2: Desired Outcome (Location 2285)

Conversational Bumper Track 2 starts as soon as someone gets a quick win and ends when someone experiences a desired outcome in your product. Once again, we’ll use usage-tip emails; however, we’ll focus on helping users experience a desired outcome. (Location 2289)

On the flip side, if you have a complex product, your quick win might have been uploading a piece of JavaScript. Track 2 can drive users closer to their desired outcome. (Location 2292)

Conversational Bumper Track 3: Convert (Location 2300)

You see, most people go wrong with their conversational bumpers by trying to monetize users too quickly. Skipping the first two bumper tracks, as the English would say, “is a bit forward.” If that’s you, go back and implement the first two conversational bumper tracks. Without that solid foundation, the strategies and tactics in Track 3 won’t be nearly as effective. (Location 2303)