What is PLG?
It used to be hard to adopt new software…
.. Requiring long sales processes, complex implementation, training and certification.
Now software just shows up.
Everything we buy starts with a little project at the edge of the organization. Some developers tinkering with something. A couple of sales people, a couple of marketers, and then it’s up to the CIO’s desk.
Software buying has been turned on its head, and you need to market and sell to humans and enable those humans to put it to work for you.
Brian Halligan, Co-founder and CEO Hubspot
The quote above perfect summaries the product-led go-to-market strategy of winning software companies like Hubspot.
Product led growth (PLG) is an end user-focused growth model that relies on the product itself as the primary driver of customer acquisition, conversion, and expansion.
The core of the PLG is keeping the user at the centre and ensuring that the users of the products find the product meaningful, and get value out of it. The penetration of digital products in our everyday lives has exceeded far more than we expected. Especially in the past two years, we have been dependent on products such as Slack and Zoom to communicate and collaborate with our team members. Users choose the products.
Appeal to end-users. Unlike organisations that think in terms of formal ROI, end users are people. And people want to solve the problem they have right now. Designing for end-users means putting the needs of real people first, listening to their problems — and committing to making consistent improvements to your product to solve those problems more effectively.
Make it easy to get started. Product-led companies prioritise a short time to value (TTV). A common application of this concept is to allow users to access some or all of the product before they need to pay, often through a self-serve free trial, freemium model, or open-source model. But a delayed paywall does not inherently deliver value.
Why are more companies adopting this model?
- According to Forrester, 68% of B2B buyers prefer doing business online versus with a salesperson, and when they engage with sales.
- Gainsight notes, “Enterprise buyers also expect to try and evaluate software in an easy, frictionless way.”
- During 2020 and 2021 there has been a massive acceleration of software IPOs with premium multiples that deploy different levels of PLG (Snowflake, Zoom, Bill.com, Datadog, etc).
On average PLG companies have faster growth rates faster than non-PLG Companies (+4% YoY Revenue Growth).
- More revenue at IPO (+$152m ARR), though this is likely skewed by IPOs like Dropbox, Slack, Zoom, etc.
- PLG companies on average have higher net dollar retention (10%+ Net Dollar Retention).
- Higher Rule of 40 (LTM FCF % + Revenue Growth %) (+7%). PLG companies are on average faster growing and more capital efficient than non-PLG companies.
While defining what being product-led may look different between companies, this GTM strategy is certainly worth considering for SaaS companies.
