"There's usually a heavy misalignment between sales, product, customer success and marketing because sales has probably traditionally been using the product as an acquisition machine." - Leah Tharin
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The audio will be released on March 28th 2024
Video
Podcast notes
[00:22] Introducing Leah Tharin
[00:56] The Evolution and Impact of Product-Led Sales
[02:21] Combining PLG and Sales: Strategies and Challenges
[03:51] Identifying and Leveraging Buying Signals
[12:14] Navigating Sales Concerns
[16:42] Expanding into Enterprise with PLG
[23:42] Common Approaches when Introducing PLG
Transcript
You've worked with many different companies on their Product-Led Sales strategy. Can you share what you're seeing in the market? What's working well, and what are some of the common mistakes that are being made on that front?
An interesting movement that we see is that traditionally we thought about Product-Led Growth and Sales-Led Growth as separate functions. Then we started to have some kind of combination with Product-Led Sales, which was also a little bit fuzzy. So what are we doing with it, what are we not doing with it? The way that I'm looking at this is, this is about data driven sales.
On a conceptual level, I always talk with companies from two perspectives. The first one, which we do really well in PLG, is about understanding the behavior of someone. We try to measure what they're doing in the product, but we really do not know who it is. We don't have a lot of knowledge about the firmographics.
Whereas, if we talk about what sales does really well, it's the complete inverse. They don't know what people are doing in the product, but they know exactly who it is. If you think about a company account in five, six figures, it matters a lot who you are talking to. Is it the buyer? Is it a bigger company account? Are we talking to a team? Are we talking to a division?
And what we see right now that seems to work really well is if you combine the best of these two worlds into each other, as much as you can. That's usually the starting point and this works really well. Rather than just like looking at your pipeline in regards to, we have self-serve and we have a sales led pipeline, we try to combine it as good as it gets.
That is much more complicated than it sounds right now but that's a very good starting point. And we see some movements in the markets as well, that this is going to fortify itself. So this is becoming much more important. We see this for instance with HubSpot that was doing the Clearbit acquisition.
This is about data enrichment of your leads. So you're trying to give a little bit more meat to who you are actually talking to.
All of this is about getting data for sales before they call someone up in the first place. We try to arm sales with data as much as we can, through enrichment and the behavior side, to help them close better. And that is a different word for making sales more efficient. So it is not only about getting new leads. It's also to identify which leads are worth reaching out to and how can we drive our CAC, and more importantly CAC payback, down? The goal is to get ahead of this commoditization that is happening right now in the markets where more and more players are starting to compete for the same amount of revenue per account.
When you say you look at the behavior, that can still mean a lot of things. What are the most typical types of behavior that you look for?
The first decision that you have to make for yourself is am I looking at the behavior of an account and what is an account for me? For some products, this is a team. But there are some companies that have enterprise value customers that are like single users. Like traders or anyone that is giving you a lot of money if they make a lot of money. So high value based transactions or asset managers.
The first decision that you have to make is on the scope. What am I analyzing? Am I analyzing the individual user? Am I analyzing the team? This is usually where we start from. Now, when you talk about a company like Slack, that is also doing Product-Led Sales, then the account of their typical customers, is a collection of a lot of teams. They're still measuring on the team level, but they are defining some of their metrics on the account level.
A very good example of this is that if you think about what does Slack defines as behavior that is telling you that an account is worth reaching out to, then you come across some things like: they have sent 2000 messages in the last 30 days across the account. And for usage-based products this is very valuable because they know as a commonality, it doesn't matter how many teams are in there, but if they start to send that many messages, the chance that the entire company is starting to onboard onto the tool is very high.
And that makes the job much easier. So what we usually try to do as a very first step in every sales led company is to get alignment on what is a common aha-moment. Something that is giving us a signal, that is measurable as well, that the team or the account has now received value. They now understand what the product is and have moved from being promised something to having experienced it. At this point they should be informed enough to know what we're talking about. That's usually the conceptual side of this question.
Do you have any examples of what doesn't work well if you try this approach? What should people not try to measure vanity metrics or anything?
I think a very common mistake is that people mistake engagement always as a buying signal. When we're doing Product-Led Sales, what we're trying to make sure is that we really only look for signals that also indicate buying pressure. That depends on your pricing. It depends on what kind of product that you have. Does it make sense that if someone is using something a lot that they also want to buy it? That's not always the case. So we are dealing now with a couple of new problems.
Let's say you have a self-serve motion that is giving you a lot of new leads. And let's say you have a thousand new leads per month from your sales funnel. Just because you look at the ones that are starting to interact with the product a lot does not mean that they're becoming good sales targets.
There's a complicated question behind this where you try to figure out what actually is a good buying signal. Rather than telling you like a very specific signal that is always wrong, which I cannot tell you, I can tell you that processes that do not consider this and are iterative about it usually fail.
It’s very rare that the signals that you're starting with are staying in place the way that they are after six months. The very first approach that we have is usually just a starting point. We see what works and in Product-Led Sales it's very commonly not just one signal, but it's multiple signals. For instance, a good one would be that if you have a very specific page that you would only look at if you're actually interested in buying the product. A very detailed pricing page or some kind of SLA agreements. Even though those by themselves are also not buying signals, they're important if you want to figure out whether they are more likely to be interested.
Then those are usually generating a score together and if the score goes above a specific threshold, then we would consider them to be interested parties that want to buy with us. And that's the principle. So figuring out this threshold and what kind of signals are going into this is quite a piece of work and also a reason why I make money with it as an advisor in giving companies this kind of context on where to start and how to get there.
When we're talking about this combination of Product-Led Growth and sales in the end what we're often trying to do is making a Go-to-Market possible that else just wouldn't have happened. That just wouldn't be possible if you do it by themselves. Do you have any examples that come to mind?
I think all companies right now have to deal with this and one of the reasons is that if you're doing this well, then you're doing it cheaper than the competition. A very good example of this is I usually have calls with companies that are asking me "should we have a freemium or should we not have a freemium?”. That's the wrong framing of the question. In some ways it's correct, but the problem is not whether if you should have one or not. The question is if it's possible to deliver value for free to your customers or your pipeline in some kind of way. And if you're not doing it and your competition is, then your competition will be cheaper.
Why does this matter? Because at the moment capital is not that cheap and everybody wants to have efficiency. We need to work with the money that we're getting in most of the time. VC money is just harder to come by. So you cannot afford to let go of that efficiency. That's the first reason. And the second reason for this is that we see a lot of pressure on the very classical sales metrics, like CAC payback. What is a good payback period for whoever we acquire and so forth.
This goes a little bit into the same topic in that there is something happening in the market. People are paying less for the same solution but expect a higher quality and an easier onboarding. And this is due to two factors. One of them is AI. Everything becomes easier to build. Everything becomes therefore easier to be competed with and therefore the prices are starting to come down. And the other thing is that companies themselves do not have that much money anymore, because of these interest rates that we started to have in the last two years. And therefore if they have less money, that means they can spend less money with you.
So these two effects are making this a topic for everyone. Unless you are in a vertical that really cannot be commoditized in some way. Very few verticals are not affected by AI. So I just want to make this clear. We are in some ways always affected right now. And this is an interesting move because it makes companies much smaller for the revenue that they create afterwards.
When we're looking at a company with a sales team that's already in place. When people start sharing the idea of "let's have a freemium" or "let's give something of our product away for free" it often raises concerns. People start wondering if we introduce a lower price tier, does that cannibalize our revenue, or are we giving something away that we could have sold? How do you usually deal with this?
So why sales are getting scared when this conversation starts is that this is the one function in the company that you're telling now that their salaries are in danger. Very commonly the way that we are incentivizing sales is that we have an OTE compensation plan where a bigger part of their money is actually coming from how much they close. And it's usually when the signature is happening, depending on how mature that your organization is and so forth.
Of course we are threatening people's livelihood there. So how do we get this kind of story together that we are talking about Product-Led Growth because in the heads of people, Product-Led Growth is a freemium. It's not what it is though! And even people that are very prominent in the area, they're still misunderstanding this. It is not about freemiums. It is about self-serving value where it is possible. That can be a freemium, but can also be a trial, or an interactive demo.
Conceptually, I always think about it in these three levels. For almost every company, even API businesses without an actual interface, you can think of self-serving value in kind of three stages. One of them is a freemium. We give something for free for an indefinite amount of time that is giving you some kind of experience with the product. It's usually limited by usage. Or you have a trial where you tell a customer they can experience the full thing for a limited amount of time. Or you have an interactive demo, which is this emulation of what a product could feel like from different perspectives.
Why does this matter now? Because it's very rare that I tell a company that is sales led that they should jump straight away into the freemium, if they have never done a trial or an interactive demo in the first place. Because to them, interactive demos usually mean going to a marketing agency, that creates a nice video, and then this is somehow the interactive demo.
We have a lot of new companies right now that are trying to take care of sales demos. We have interactive demos from Navattic, Storylane, that kind of stuff. Gong is starting to get much more sophisticated with their sales tools. There's a lot of market out there to make sales processes easier and some of them are dealing with this.
Now, when you jump to a freemium right away, then you have problems because your existing pipeline will ask themselves, why should I pay $5,000 per user per year when you're giving it away for $30? So that's what's happening in sales people's heads and we need to address this slowly and carefully, of course.
This is the reason why they are scared. So to your question, how can we avoid this? First of all, by making a layered plan. A good approach on this is coming usually from two ways. The first one is we make sure that sales is still earning the same money that they did before, at the individual person level.
And the other one is with an existing sales pipeline, you should make sure that your pricing is more aggressive rather than very lenient. The reason for this is that we want to make sure that we can open it up. Making things cheaper is always easier than making them more expensive. So that's usually how you want to approach this. Be more aggressive with pricing, so more expensive rather than cheap, and the other thing is tackling them with the compensation plans.
As long as you don't know what you're doing, you have to figure this out in a slow way. The first time you have a trial going is also probably the first time for a sales led company where they have to do something with this data. The UX researchers suddenly have now trial users. They've never had that before. They probably had just customers. The designers now have to deal with the growth onboarding flow. When do we limit someone like this? When does this show in the product? And marketing is also somewhere. How do we reconcile this? There's a lot of structural changes that need to happen and those are challenging for a lot of companies. So do it step by step.
You mentioned an example where you go from $5,000 a year to a much lower amount, but what if a company is selling six figure deals, $100k, $300k, and they're wondering if PLG is for them? Would love to hear some examples of where you've seen that work well.
Very good examples that are combining both of them requires a little bit of an asterisk first. If you look at the ACVs that we're talking about in terms of how much money do they pay with us the first time, then this view is a little bit dangerous. What we are really looking forward to in PLG or Product-Led Sales or in any way is usually expansion revenue.
Expansion revenue is when do we consider an account to be matured? Now, this is extremely important because it is possible that you are offering some kind of trial version that allows a team to onboard, instead of an entire account, for a very low price point. So to your example, let's say your typical product costs $100k and now I'm going to introduce a trial that allows you to use some parts of the product in a limited way for $5,000.
Now sales might say that maybe we could sell them on the bigger plan but if you have a good strategy in this regard, then this might be the plan all along. What we were trying to do is we're trying to show people the free value. If you have this, all this is fine. We start to see now a trend where companies try to use these trials to get the foot into the door with the bigger accounts. What does that mean? If you take a CRM like a HubSpot that can be deployed at an enterprise levels but also works in a team.
If you have an autonomous team it works, but it could also be rolled out onto the bigger company. If you have a discretionary budget where you can buy the software for $3,000 without approval, then what's happening is two things. The first one is if you buy the software then we are open as a vendor to this company. We are in their system. We start to have champions in the company, we're starting to spread. So we're starting to grab some value from them, even though it's not the full one.
Now, if you have a good Product-Led Sales motion, you will know with huge teams, let's say you're starting to sell into Microsoft. If we start to have five teams that are using our tool individually, then I can start to group this and I can start to reach out to the director of the entire department. I can start to move up. And even though the ACV will still be around $100k, so we demand much more money, it is incredibly useful at that point to say that they’ve been using us already for one year.
With this the due diligence process becomes much easier. The duration to close is going from ten months to three to four months. And this is important to understand because you might think that you have four teams in your pipeline when you actually are working on the big account. So we’ll take the lower value accounts and we cannot convert everyone to the bigger accounts, but the goal is still to go after enterprise. This is a very clear momentum that we see in the market. Everybody wants to go up market and the ultimate goal is to get enterprise value before it becomes enterprise value
Alright, Leah thanks for sharing your insights.