Product led growth

Definition

https://productled.com/blog/product-led-growth-definition/

“Product-led growth is a business strategy that relies on using your product as the main vehicle to acquire, activate, and retain customers. If you’ve used Slack or Dropbox, you’ve witnessed this first-hand – you didn’t read a lengthy whitepaper on the benefits of strong internal communication or cloud-based file sharing. You wanted to see the product in action!”.

“Product-led growth (PLG) is a marketing strategy that focuses on using the product itself as the main driver of customer acquisition, retention, and expansion. Rather than relying on traditional marketing tactics, such as advertising and sales outreach, PLG companies aim to create a self-sustaining growth loop, where the product delivers value to customers, who in turn become advocates and refer others to the product.

The main idea behind PLG is to build a product that is so valuable and intuitive to use that it sells itself. By offering free trials, freemium plans, or low-cost subscriptions, PLG companies can attract a large number of users who can then discover the product’s benefits and become paying customers. PLG companies also focus on creating an excellent user experience, providing helpful resources, and continuously improving the product to ensure customer satisfaction.”

What is PLG

Product-led growth (PLG) is a marketing and business strategy where the focus is on building and improving the product itself as the primary driver of customer acquisition, retention, and expansion. Instead of relying heavily on traditional sales and marketing efforts, PLG emphasizes creating a superior user experience and enabling customers to realize value from the product quickly and efficiently.

In a product-led growth model, the product serves as the main marketing and sales tool. This approach is common among software-as-a-service (SaaS) companies and other technology businesses. Key elements of a product-led growth strategy include:

1. A user-centric approach: Prioritizing the needs and desires of users to create a product that addresses their pain points and provides value.

2. A strong focus on user experience (UX): Ensuring that the product is intuitive, easy to use, and visually appealing to foster user satisfaction and encourage recommendations to others.

3. Low barriers to entry: Offering a freemium or free trial version of the product, allowing potential customers to experience the product’s value before committing to a purchase.

4. Viral loops and network effects: Designing the product in such a way that it naturally encourages sharing and collaboration, which can lead to organic growth and new user acquisition.

5. Leveraging user data and feedback: Continuously improving and iterating on the product based on user feedback and data-driven insights to drive retention and expansion.

6. Self-serve onboarding and customer support: Empowering users to get started and find solutions to their problems independently, reducing the need for expensive sales and support teams.

By focusing on product-led growth, businesses can achieve faster and more sustainable growth, as satisfied users become their most powerful advocates, bringing in new customers through word-of-mouth and social sharing.

• Book: https://www.productled.org/foundations/what-is-product-led-growth#Intro

PLG at an open source vendor

Product-led growth can be a good match for a company developing open source software. In fact, many open source software projects have leveraged product-led strategies to achieve success. There are several reasons why this approach can work well for open source projects:

1. Low barriers to entry: Open source software typically has low or no cost to access and use the product, making it easy for users to try it out and experience its value. This aligns well with the product-led growth principle of removing entry barriers for potential users.

2. Community-driven development: Open source software projects often benefit from a community of contributors who help improve the product by adding new features, fixing bugs, and providing support to other users. This collaborative approach aligns with the user-centric focus of product-led growth, as the community works together to make the product better and more useful.

3. Transparent development process: Open source projects are usually developed in a transparent and collaborative manner, which allows users to see how the product is evolving and provide feedback directly to the developers. This feedback loop is critical for product-led growth, as it enables continuous improvement based on user needs and preferences.

4. Word-of-mouth and organic growth: Open source software projects often rely on their users to spread the word and attract new users. This grassroots growth aligns with the product-led growth strategy, which emphasizes organic growth driven by satisfied users.

5. Flexibility and customization: Open source software allows users to modify, customize, and extend the product to meet their specific needs, which can help create a more personalized and valuable user experience. This flexibility can contribute to higher user satisfaction and advocacy, driving product-led growth.

While product-led growth can be an effective strategy for open source software companies, it is essential to invest in the development of a high-quality, user-friendly product and build a strong and engaged community. Additionally, monetization strategies such as offering premium features, support, or services should be carefully considered to ensure the company can generate revenue and sustain its growth.

A plan for implementing PLG

Developing a product-led growth (PLG) plan for an open source vendor involves several key components that focus on delivering a high-quality product and fostering a strong user community. Here is a suggested strategy for an open source vendor to develop a PLG plan:

1. Focus on product quality and user experience:

• Ensure that the open source software is robust, reliable, and feature-rich.
• Prioritize ease of use, intuitive design, and good documentation.
• Continuously iterate and improve the product based on user feedback and data-driven insights.

2. Remove barriers to entry:

• Make the software easily accessible and simple to install, with clear setup instructions.
• Offer a comprehensive set of features in the free version to provide value to users and encourage adoption.
• Consider offering additional premium features, support, or services for advanced users or enterprise customers.

4. Build a strong and engaged community:

• Encourage users to contribute to the project by submitting bug reports, feature requests, and code contributions.
• Provide clear guidelines for contributions and a well-organized repository to make it easy for users to get involved.
• Foster an inclusive and welcoming environment by promoting a code of conduct and providing support to new contributors.

5. Leverage content marketing and thought leadership:

• Create and share valuable content that showcases the benefits of your software and educates users on how to make the most of it.
• Contribute to industry discussions, speak at conferences, and engage with relevant communities to establish your company as an authority in your domain.

6. Encourage word-of-mouth and organic growth:

• Design features that promote sharing and collaboration, which can lead to increased visibility and user adoption.
• Incentivize users to recommend your software to others, for example, through referral programs or by recognizing their contributions publicly.

7. Implement self-serve onboarding and support:

• Offer comprehensive documentation, tutorials, and guides that empower users to get started and find solutions to their problems independently.
• Provide a user forum or community platform where users can ask questions and help each other, reducing the need for dedicated support staff.

8. Monitor key performance indicators (KPIs):

• Track metrics such as user acquisition, retention, engagement, and conversion to paid users to measure the success of your PLG efforts and identify areas for improvement.

9. Explore monetization opportunities:

• Consider offering premium features, support, or services for a fee to generate revenue while maintaining the core open source product.
• Partner with other companies to offer complementary products or services that can enhance the value of your software and generate additional revenue streams.

By implementing these strategies, an open source vendor can create a successful PLG plan that drives growth and builds a sustainable business around its open source software.

The role of marketing in PLG

At an open source vendor like Abilian, marketing is involved in the PLG strategy along the following axes:

1. Engage all departments to ensure the product is tailored to the end user’s needs, rather than impressing the buyer.

Marketing team: Conduct thorough research to gain a deep understanding of your ideal customer profile (ICP). This goes beyond simply examining social media activity.

2. Provide users (not buyers) with a highly effective, free version of the product.

Marketing team: Emphasize the immediate value of the product and design web pages to minimize friction for users.

3. As users find value in the product, they become “activated” and drive “viral” growth by spreading the word through social channels.

Marketing team: Identify where users are discussing your product organically, seize opportunities to foster community, and leverage social proof to your advantage.

4. Introduce additional features on top of the free model, enticing users to upgrade as their requirements expand (often with minimal sales intervention).

Marketing team: Collaborate with the product and sales teams to determine the most effective positioning for transitioning and upgrading users to paid offerings.

In this approach, the product itself handles everything from onboarding to expansion for the end user. However, all departments actively contribute—their efforts are simply channeled directly into the product during the initial growth stage.

By prioritizing the end user’s experience above all else, the product-led growth strategy challenges the conventional top-down model. Traditional top-down growth strategies rely on authoritative implementation and yield inconsistent growth, whereas bottom-up approaches depend on social proof and generate sustainable growth.

IT professionals, especially those involved with cloud-native products, play a crucial role in this growth strategy. If developers, operations, networking, or security experts find value in the product, they can persuade administrators, managers, and executives to explore paid options.

How to derive revenues ?

Here are three classical methods to convert users and their teams/enterprises into paying customers that are used by many open source PLG companies:

1. Limit feature access

Pros:

• Encourages users to upgrade for advanced features that address their specific needs.
• Allows the vendor to provide a differentiated offering, targeting different user segments and pricing tiers.
• Retains the core functionality in the free version, which can still attract new users and grow the user base.

Cons:

• May lead to user frustration if essential features are locked behind a paywall.
• May discourage adoption if users perceive the free version as a limited or crippled product.
• May increase the complexity of the product, as users need to navigate and understand different feature sets and tiers.

2. Limit capacity/storage

Pros:

• Provides a scalable monetization strategy, as users are more likely to upgrade as their needs grow.
• Allows users to experience the full feature set of the software, potentially increasing satisfaction and advocacy.
• May be more transparent and easier to understand for users, as they can directly correlate the value they receive with the price they pay.

Cons:

• May not be applicable to all types of software, as not every product relies on capacity or storage constraints.
• Could lead to users finding workarounds or alternative solutions if they don’t want to pay for additional capacity or storage.
• May create a negative perception if users feel they are being charged unfairly for something that should be included in the core offering.

3. Limit access to support

Pros:

• Encourages users who need dedicated assistance or faster response times to upgrade to a paid plan.
• Allows the vendor to allocate resources more efficiently by providing premium support to paying customers.
• Encourages the development of a self-sustaining community, as users of the free version may rely more on community support and forums.

Cons:

• May lead to dissatisfaction and negative perception among free users who feel left out or neglected when they need help.
• May discourage enterprise adoption if businesses perceive limited support as a risk or barrier to successful deployment.
• Could result in lost opportunities, as users who don’t receive adequate support may abandon the product and switch to alternatives.

And some alternate options, that do not resort to limiting feature access, capacity/storage, or access to support. Here are some options to consider:

1. Offer professional services and consulting:

Provide specialized services such as implementation assistance, custom development, integration, or training to help users maximize the value of your product. This can be particularly appealing to enterprise customers who may need more personalized attention and guidance.

3. Create a managed or hosted solution:

Offer a fully managed, cloud-based version of your open source product, handling deployment, maintenance, updates, and scaling for customers. This can be an attractive option for organizations that prefer to offload the operational burden of managing the software themselves.

5. Form strategic partnerships:

Collaborate with other companies to offer complementary products, services, or solutions, creating bundled offerings that generate additional revenue streams for both parties.

6. Licensing and OEM agreements:

License your open source software to third parties, who may incorporate it into their products or services. This can generate revenue through licensing fees, royalties, or revenue-sharing agreements.

7. Certification and training programs:

Establish a certification program that enables users to become experts in your software, and charge fees for the training and certification exams. This not only generates revenue but also helps to create a knowledgeable community that can support and advocate for your product.

When exploring these alternative revenue streams, it’s crucial to maintain a balance between monetization and the open source nature of your product. Ensuring that your core offering remains accessible and valuable to your user base will help sustain the growth and success of your open source venture. It is also essential for open source vendors to carefully consider the implications of each method, taking into account their target audience, product offering, and market dynamics. Ultimately, the most successful approach may involve a combination of these methods, tailored to the specific needs of the user base and the vendor’s goals.

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@ Hashicorp

Source: https://getpocket.com/read/3622136834

Here is a copy of the page:

Open Source is Key to Product-Led Growth

The product-led growth model is no secret. It’s as effective as it is popular, particularly in the B2B SaaS market. SaaS players like Figma, Slack, Notion, and countless others have used it as a growth catalyst. 

It allows startups and growing companies to focus on the singular pursuit of developing the ultimate digital tool while circumventing growth-related issues like: 

• The ever-increasing cost of paid advertising
• A preference for self-education among B2B consumers
• Direct product experience as part of the buying process

All stages of the customer journey—acquisition, expansion, conversion, and retention—are driven by the product itself. Not just sales or marketing. 

There’s company-wide alignment on delivering the best user experience possible. That means sales, marketing, product engineering, product design, and customer success all channel their efforts into creating a product that provides an unparalleled UX. Product development puts all departments on the same wavelength in terms of the end goal.

The perfect analogy for this growth model comes in the form of this image from the experts at the Product-Led Growth Collective: 

Image source: https://www.productled.org/foundations/what-is-product-led-growth#Chap1

It’s not about everyone deferring to the product team. It’s about each department making an equal contribution to creating the best possible user experience. 

Here’s a breakdown of the process and how marketing fits into the picture:

1. Deploy all departments to ensure the product is perfect for the end user’s needs—not wowing the purchaser.

Marketers: Put on your research cap and do a comprehensive deep dive into your ICP (P.S. It’s about more than just social media scouring).

2. Offer up this highly effective, free product to users (not buyers).

Marketers: Be direct about the immediate value of the product and structure pages to reduce friction.

3. Users become “activated” by the product, and become key drivers for “viral” growth by spreading the word through social channels. 

Marketers: Find out where people are talking organically about your product, look for opportunities to build community, and leverage social proof.

4. Additional features are layered on top of the free model, compelling users to purchase as their needs grow (often with minimal need for sales).

Marketers: Work with the product and sales team to determine the best positioning for extending and expanding users into paid offerings.

To the end user, the product itself handles everything from onboarding to extension. But all departments are actively involved—their efforts are just rolled directly to the product for the initial growth stage. 

By prioritizing the end user’s experience over everything, product-led flips the old gatekeeper model on its head. Top-down growth strategies rely on authoritative implementation and provide inconsistent growth. Bottom-up approaches rely on social proof and provide sustained growth. 

The IT pros we touched on in the first section are key for this growth strategy, particularly for cloud-native products. If the developer, operations, networking, or security pros like the product, they can convince admins, managers, and executives to investigate paid options.

Companies providing open-source products typically apply one of three methods to get users and their teams/enterprises into the revenue stream: 

1. Limit feature access
2. Limit capacity/storage
3. Limit access to support

This is one area where HashiCorp differs from the conventional. They know that developers and enterprise teams hate having functionality limited. Instead, they opt to limit scale (but more on that later).

This growth model has been proven time and again across different SaaS verticals, but the explosive growth occurring in the cloud space gives this strategy an outsized impact, particularly for companies with the capability to expand across the four key user segments of cloud: developers, operators, security, and networkers.

Case in point: HashiCorp’s multi-product long-term growth engine.

Page last modified: 2023-10-24 09:03:23