Product-Led Growth: What is it and Why is it valuable?


Published November 9, 2022

Product-led growth (PLG) has become a critical and much-hyped strategy for software companies, especially startups. At it’s simplest, it focuses on putting the product at the centre of your marketing strategy. This might sound simple, and there’s a lot more sophistication to PLG.

So what is product-led growth, where did it come from, and why is it so valuable?

Growth Hacking: The Source of Product-Led Growth

To understand product-led growth, it's important to first understand the trend it has emerged from: growth hacking.

Growth hacking is a flexible, adaptive marketing strategy designed to power rapid growth. It involves experimenting with creative marketing techniques, rapidly cycling through options to find which ones deliver the fastest growth for a business.

It’s an approach that’s often associated with early-stage startups, who need fast growth in a short time to prove their value and who only have small budgets to achieve this. Many of these businesses have made a virtue out of necessity by focusing on unusual, low-budget marketing strategies. Because of their scale, it’s relatively easy to experiment, adapting and abandoning techniques, and a limited budget means that they have to stand out through innovation rather than a large marketing budget.

The techniques they use often exist outside of traditional marketing and advertising channels. Instead of buying their sales through ad space, growth hackers leverage their existing channels to reach new users. Many try to build a viral loop into onboarding, with each customer bringing in friends and colleagues through personal recommendations. Another option is the development of products that get better the more people are on board, like social media platforms, for which users are therefore motivated to recruit.

The benefits of growth hacking, especially for startups and new SaaS companies, are obvious. If they can reach a wide audience with a limited marketing budget then they can stand out from the crowd, as products such as Zoom and Instagram have done.

What was less obvious at the start, but in retrospect seems inevitable, was the way this would drive product-led growth.

From Growth Hacking to Product-Led Growth

From early on, product design and development played a different role in growth hacking from the marketing-led models of more traditional companies. This was a natural result of growth hacking’s “anything goes” approach to marketing. If you can’t spend a lot of money on convincing people that they want a product, then why not try making the product itself a growth driver?

This led to a lot of products that had growth mechanisms built into them, from social platforms that encouraged you to invite friends to freemium systems that let anyone try the product for free, with plenty of upgrades encouraging them to pay. With these, the product became its own marketing.

A growth hacking framework doesn’t separate product design and effectiveness from marketing in the way that traditional businesses do. The company’s potential growth is built into the product, and conversations around the design of that product often incorporate how it can reach a wide client base fast.

This involves collaboration across teams, with marketers and developers working hand in hand. It’s easier to do with the smaller organisation of a startup, where there aren’t large teams and established hierarchies to negotiate. But with a flexible attitude and a willingness to adapt, it can be applied in larger businesses. The key is achieving that critical collaboration.

Product-led growth is a form of growth hacking that focuses on this element, making the product itself the centre of the marketing experiments and the primary driver of growth. It involves a lot of short product cycles and fast improvements, as the company experiments with new product forms to hook in customers and achieve fast growth.

For this to work, the product must be designed in such a way that it is easy to use and provides value to the user. This encourages the user to keep using it and recommend it to others. The product is the marketing. The product is the growth driver.

What Is Product-Led Growth?

As a business strategy, product-led growth (PLG) moves the primary focus firmly away from marketing or sales and onto the product. The goal is to grow the business by developing and delivering a great product that solves a customer’s problem.

That might sound like basic business practice, but anyone who has paid attention to modern marketing knows that it’s not the norm. Large enterprise companies regularly achieve their sales through huge marketing budgets, with little dependence upon the quality, usefulness, or appeal of the product. High-profile failures from this strategy are so rare that New Coke is still the most-cited example, nearly forty years after its launch and twenty years since it was discontinued. A company seldom fails by throwing big bucks at the wall.

This makes PLG a surprisingly radical strategy. Acquisition, expansion, conversion, and retention are all driven by the product itself, not by marketing campaigns. That doesn’t just mean a high-quality, useful product. It means a product with the tools for growth built in. It means a different way of thinking.

There are several elements to how this works, some of them internal to PLG companies, some drawing on a wider context.

Firstly, there’s the collaboration discussed above. In PLG, a more diverse group of stakeholders are involved in decision-making around the design of a product. Marketing and sales teams are present on the ground floor, helping to shape the product into something that will sell, rather than being handed a finished product and told to find its market. They work closely with design teams, providing an understanding of customers and markets that helps in creating something that will market itself.

As with other growth hacking strategies, fast iterations and experiments are important. The company has to pay attention to how users interact with its product, then make quick alterations based on those interactions. SaaS companies are particularly suited to this strategy, but anyone working in software can use it, drawing in data from users, analysing the results, and then pushing out updates that lean more heavily into the features associated with growth.

It’s common for these products to be set up so that end users can onboard themselves. This saves time and effort on the company’s part, but more importantly, it makes adoption easy, which encourages rapid uptake. Products are built to keep the early stages simple and introduce new features only as users need them.

With this approach, there can also be a shift in who is targeted. End users are becoming more critical for B2B software companies, as they bring useful products into the workplace in a faster, less formal way than old-style buyers, sometimes working around the poor choices those buyers have made. As an exercise in design as marketing, PLG often markets to those end users, as they’re the ones who will experience the product, advocate for the product, and encourage its wider adoption.

Letting customers try products for free is crucial to this approach. Free trials and freemium models let people discover a product’s quality before they spend money on it.

In the modern world, word can spread quickly about bad products and services, but the same can happen to good ones as well. Product-led growth builds features into the product to encourage the word to spread, so that products reach a wide audience fast.

The Benefits of Product-Led Growth

For companies that adopt it, there are several benefits of product-led growth. These include:

Increased customer loyalty and satisfaction

When customers have a great experience with your product, they are more likely to be loyal and satisfied customers. PLG is all about creating that experience, even before the user becomes a paying customer. The fact that they then choose to pay for the product reinforces their sense that it’s worth paying for.

Decreased customer acquisition costs

If your product is great, customers will be more likely to find it and use it, which reduces your customer acquisition costs. PLG involves low spending on traditional marketing and sales, including customer acquisition, because the product markets itself.

Increased customer lifetime value

PLG works by providing an easy-to-use, satisfying product. If customers are satisfied with your product, they are more likely to continue using it, which increases your customer lifetime value. They’re also more likely to recommend it to others.

Increased revenue and profitability

For businesses that can adapt to a product-led growth model, these benefits can lead to increased revenue and profitability. Upfront costs to create a high-quality product before launch, and the costs of repeated iterations, are more than offset by the reduced costs for marketing and the increased revenues from satisfied customers.

A Model For Fast Business Growth

Product-led growth is a powerful tool for businesses that want to grow and be successful. By focusing on quality rather than sales, it increases customer loyalty and satisfaction, decreases customer acquisition costs, and increases revenue and profitability. For the team involved, it can be a particularly satisfying experience. Creating a product that sells on its merits, instead of the persuasive powers of a marketing team, leaves everyone feeling like they’ve made something worthwhile.

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