Why product-led growth is relevant to you and how founders can use it to drive sales
PLG 101 + PLG Co Q&A with Earl Lee at HeadsUp
I’ve been in sales my entire 15+ year career (everything is sales) and the evolution of sales has fascinated me throughout! And if you ask me, scaled and cost-effective sales today need to be community-driven sales. What does that look like? There are variations. For today, I’m going to focus on Product-led growth (PLG).
Inside this post
- PLG 101
- PLG Co Q&A
If you’re wondering why PLG is relevant today, I’ll share why. B2B tech has been consumerized. We’re in the user era where sales are leaning harder into user-centric and less so on CIO and exec sales to start.
And you know what? The PLG market is growing because:
- It’s easy/cheap to start a SaaS co.
- Buyers want to self-educate and self-serve.
- COVID accelerated shifts from field sales to inside/online sales.
More than that, the PLG market is growing fast because of the successes of PLG companies such as Zoom, Slack, Datadog, and MongoDB. What’s more interesting are the trends shaping the market. There’s definitely signal here. PLG cos are bought at higher multiples, and PLG co IPOs perform better in the stock market vs all other SaaS cos. More than that, PLG companies are proving to provide lower CAC, higher LTV and faster time to value.
At this point, you may be wondering about the characteristics and customer flows of a PLG company. Here’s what happens:
- User signs-up for freemium product (no salespeople involved) > users use product w/o restriction & get immediate value > user buys (to get additional functionality/capacity)
- Users become the target buyer and then evolve into > advocates/champions/word-of-mouth saleswomen and men > they create a community-driven company effect.
Circling back to the positive impact PLG has had on the market, more companies are turning to PLG sales motions. This makes sense because no one loves the accelerated rising cost of CAC and the deceleration of customers’ willingness to pay for a company’s product without first kicking the tires. Also, let’s not forget PLG companies have noticed faster growth, lower burn, and stronger valuation multiples.
We all desire to ride the next wave (get in on the new norm first), and PLG companies get that. So, they’re building companies that efficiently provide value to customers and achieve better ROI for them faster. But there are still gaps. Companies need to design for the end-user. Adopt self-serve, deliver value (remove sales friction), API developer tools, invest in product data, and understand when/if to shift from self-serve to human-led sales expansion.
PLG Co Q&A w/Earl Lee at HeadsUp
Let’s dig in deeper on PLG and decipher how founders can use it to drive sales by speaking with a PLG company founder, Earl Lee at HeadsUp.
LT: What kind of startups should leverage a PLG approach and which should not?
EL: It depends on the product and end-user/buyer.
On product, it’s critical for there to be a single-player mode: when the first user of a product within an organization can realize value on their own. This is important because successful PLG motions need the product to land within an organization with limited hand-holding and stakeholder involvement.
Once there is single-player value, startups can figure out levers to activate the viral spread within organizations and start to unlock multi-player value, but it all starts with there being some kind of single-player mode.
Consider a product like Dooly. Individual sales reps start using Dooly to make logging notes in Salesforce easier. They evangelize it to fellow sales reps (viral spread) and once enough of the sales team adopts Dooly, the sales operation team starts using it to review pipeline, standardize playbooks, etc (multi-player mode).
On the end-user, consider whether your end-user is the type to prefer being walked through new technology by hand or whether they have a more DIY temperament. Take Developers, for example. Given the problem-solving nature of their role, developers prefer trying out a new product and figuring it out on their own rather than to sit through a sales process, answer discovery questions, schedule a time block for the demo, etc. A product focused on executives likely requires less of a PLG approach and more of a traditional sales approach.
Lastly, from a business perspective, consider constraints such as average contract value. No matter the product or end-user, if your contract sizes are below a certain size you might not have any viable options other than a PLG approach.
There’s a great podcast interview we did with Calvin French-Owner, co-founder and former CTO of Segment, where he talks about when a PLG approach to GTM makes sense. I highly recommend checking it out here.
LT: What KPIs do you look for to determine if product-led growth is working for you — in marketing, in sales, in other functions?
EL: PLG when it’s working will inevitably result in proportionally lower sales and marketing spend, more efficient customer acquisition, faster sales cycles, and more. See these public SaaS spend benchmarks by Kyle Poyar at OpenView. Conceptually, PLG should serve as demand generation, so you should expect less marketing spend. PLG can also mean you have an onboarding experience that requires less hand-holding, so expect lower spend in customer success. Lastly, the self-service nature of PLG means fewer sales reps or at least much higher efficiency reps, so again, lower spend on sales.
What’s lesser known is how much even strong PLG motions benefit from layering on proper sales spend to drive expansion revenue through enterprise contracts which require a human to navigate multi-stakeholder deals, e.g., getting IT executives involved.
One of the KPIs that is unique to PLG is free signup to paid conversion. There’s sparse data on this, but we generally see conversion rates around mid-to-high single digit percentages and sometimes low teens at best. Now, when you end up with activated users, the conversion jumps to roughly one-third.
LT: What tools do you use (CRM, marketing tools, product tools, etc)? What gaps do they leave?
EL: We see a lot of PLG companies start with HubSpot and eventually graduate towards Salesforce. HubSpot often serves as both the CRM and marketing tool. We’ve even come across some companies using Intercom as their CRM when exclusively product-led.
For marketing, Customer.io is popular.
For product tooling, we see Segment and Amplitude for tracking user behavior. We also recommend Sprig for driving faster product iterations and capturing user insight.
The biggest tooling gap for PLG companies is marrying the traditional GTM stack with product data that’s integral to driving a successful PLG process. That’s where HeadsUp comes in and helps by defining, identifying, and engaging Product Qualified Leads (PQLs). We do this using product usage and other customer data that is being collected by existing GTM and analytics tooling.
LT: Any PLG tools company that you are considering using?
EL: Not at this time.
LT: Outside of your company, what’s your favorite PLG company and why?
EL: I really like Grain.co, a call recording app. We use it at HeadsUp to review and socialize our learnings internally. It’s easy to get started as a solo user to record calls for personal review. There are hooks to drive sharing within an organization which then gets others to sign up.
To learn more about PLG companies, I list some categorized by market wedge.
- Marketing: Mutiny
- Sales: Endgame, HeadsUp, Topline, Pocus
- Community: Orbit.love
- OpenView | What is product-led growth?
- Product Led | Product-led growth definition
- Bessemer | State of the Cloud 2021 — PLG company growth
- J12 | PLG and the “Modern” GTM — what’s the hype about?
- HeadsUp | Everything you need in your PLG GTM stack
- Unusual | Introduction to PLG (product-led growth)
- Hubspot | Product Led Growth: Everything You Need to Know
Author Lolita Taub is a stealth mode GP and Scout at Lightspeed Venture Partners, where she invests in community-driven companies. With 15 years working within the Silicon Valley ecosystem, she has accomplished $70M+ in sales and made 70+ investments as an angel investor and VC at Backstage Capital and The Community Fund. Lolita is also a Co-Founder of the Startup-Investor Matching Tool, the GP-LP Matching Tool, and LaaS. Forbes and Inc Magazine have featured her as a woman promoting investment in underestimated founders and funders. She has a BA from the University of Southern California and an MBA from the IE Business School. Most importantly, she is a dog mom to the cutest Dachshund mix, Choco.