Jun 16, 2022
Why is everyone talking about product-led growth (PLG) lately in the SaaS* industry? Why are Venture capital (VC) firms so obsessed with it? Finally, is it something applicable to any SaaS company?
*Saas: software as a service
A few weeks back we posted some tips about product-led growth. Some of our early adopters have asked us to talk more about this topic and the lessons we’ve learned following this go-to-market strategy. After reading the book written by Wes Bush, one of the pioneers in this space, we want to share with you the key takeaways and highlights.
We believe every SaaS company will adopt this strategy in the next few years. We also can’t deny the SaaS space is crowded, and traditional channels are becoming more expensive. The user experience is more important than ever.
Successful companies such as Grammarly, Slack, Dropbox and Typeform have grown exponentially following this model.
With that said, this might not apply to the company you work for if your TAM (total addressable market) is small or if your ACV (annual contract value) is very high and concentrated in very few clients.
Why does PLG matter at all? The only reason why SaaS startups are allowed to lose money for many years before they become profitable is because of their growth, high margins, and a good LTV/CAC ratio (Customer Lifetime Value to Customer Acquisition Cost).
VC firms love this strategy as their game is to invest in outliers that can return 3x their fund. Even if it is difficult, the winners are more winners, because of the scalability that can be achieved with PLG.
When adopting a product-led growth strategy, users play a critical role. They want to extract value from the product before buying it, and we believe it is fair! Don’t you want to try on clothes before buying them?
It is not just a thing for the sales team, the whole company culture needs to be aligned to become successful with the PLG strategy: engineering, marketing, sales and customer success, all in unison.
Finally, each SaaS company is different, and what has worked for others won’t necessarily work for you. Wes Bush developed the MOAT framework, to help each startup define its ideal GTM strategy. He even has a quiz for it! https://productled.com/quiz/
Depending on your business, you’ll use the free-trial, freemium, or demo model, all of which are part of the product-led growth strategy.
If you execute well, your company will have an unfair advantage to reduce CAC significantly, grow faster and offer a much better user experience to increase LTV and margins.
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