To assess the value and potential applications of Product-Led Growth (PLG) within a company, we need to have an understanding of its characteristics.
More specifically, for a company that grows through traditional sales today we need to point out what’s different when applying product-led principles. For example, a Marketing Qualified Lead (MQL) is not the same as a Product Qualified Lead (PQL). And if you treat them the same, you will not get the product-led model to work for you.
So let’s explore the different parts of the customer journey where PLG can add value, to understand the specifics of the product-led journey. We’ll cover one area per edition, starting with the holy grail of PLG:
PLG for Customer Acquisition
For most people, the idea of gaining new customers through the use of your software is the definition of PLG. And because companies who are successful at this tend to grow fast and get a lot of visibility, everybody knows them and is talking about them.
Some examples of companies that executed very well on this strategy are Slack and Zoom and I’ll cover them in more detail in future editions.
The basic principle behind customer acquisition through PLG is that a user of a product gets incentivized to invite colleagues, business contacts, or friends to an application so that they can get more value out of the solution themselves.
If I for example want to talk with my co-worker on Slack or with a prospect on Zoom, then I will have to invite them to do that. These motions are heavily driven by network effects, because even if my co-worker doesn’t join on the first invite, they will likely join after receiving multiple from different people.
And because these invitations are sent by actual people, it is not considered spam by the receiving party. The invite is coming from someone the prospect typically knows and trusts, instead of a general marketing message or an email from a sales rep.
On top of that, there is a relevant context to the invitation. The prospect will need to start using the product to participate in the conversation or access the content/experience which is being shared with them.
Trust and relevance are everything when reaching out to new customers, and in a good product-led acquisition motion both come in at a high score.
A category of its own
It’s important to distinguish between customer acquisition and marketing. The two easily get mixed up in the PLG context but they are very different.
When we’re talking about acquisition, that means that the interaction itself directly leads to a new user signing up for the product. A new user gets created as part of your product experience and often experiences first value immediately or soon after signing up.
Using PLG for customer acquisition is a category of its own as it becomes a reinforcing flywheel where the more people who use it, the faster it will grow, typically without time delays or human interference.
This is how a relatively new company can suddenly become the talk of town without spending a big marketing budget. Most importantly, each of these interactions are new leads into the pipeline which can become possible revenue.
When we’re talking about marketing in the PLG context, it means using the product gets the brand in front of a wider audience but it doesn’t require the receiving end to become a customer/user to engage with the experience.
So no user needs to be created to interact with the product, but it creates brand awareness which might lead to a signup later in time when the customer has the problem your company solves. Think for example of filling out a survey with Typeform branding on it.
We’ll cover the marketing application of PLG in more detail in the next edition. For now it’s enough to know that the two are different.
There is a natural fit for this
As powerful as it can be, using PLG for customer acquisition is not a natural fit for everyone. It depends on the nature of the product your company offers.
Obvious candidates are collaboration or communication categories, where the product facilitates an interaction for which it requires the other party to have an account (like Slack and Zoom). The invite in this case comes with context of the content to be discussed or shared, which often leads to high conversion rates. But there are other scenarios possible.
When Dropbox came to market, they had a program that rewarded users with additional storage if they would successfully invite new users to the platform. While this example is often classified as a referral program, I would say it is more than that.
Dropbox deliberately designed a free experience with storage limits and allowed users who are not ready to pay to increase this limit by inviting new people. This approach still comes with trust, but relevance is lower because there is no specific context why the person is getting this invitation (apart from “maybe you also need storage”).
This approach therefore works best with products that have a broad audience for it to be effective, as conversion rates are expected to be lower.
But even if not…
For other product categories like bookkeeping software or CRM software it can be harder to come up with ideas for PLG to drive customer acquisition, because either they are internal niche solutions or the customer wouldn’t want to make it clear to others that they are using that software (for example with sales technology).
Still, even in those cases I wouldn’t go as far to say that it’s impossible for companies like this to drive customer acquisition. It always depends on the specifics of your company, product and customer base.
Let’s take CRMs as an example. Generally, there is no incentive for a CRM user to expose their relationships and deals to others. However, this might be different if you look at specific verticals.
A company called Affinity launched a CRM that is focused on investors, and it turns out that for investors it can actually be valuable to share their networks and activities. So their product allows investors to send invites to other investors to connect their networks and find potential new deals and shared relationships. This helped the company grow a customer base in that vertical.
The right approach for your company to acquire customers through PLG will depend on the use-case you offer and your target audience. Be creative, but don’t force it.
Think of your customer and ask yourself if there is truly an added value for both the inviter as well as the invitee in the scenario you have in mind. And make sure the person to be invited is often enough actually a potential customer for your company.
If you can tick those boxes, then this can be a strong engine for growth and is probably worth investing in.
PLG for Marketing
In the previous section we touched on the difference of using PLG for marketing versus using it for customer acquisition. So let’s discuss this marketing use case in more detail.
Similar to using PLG for customer acquisition, this application of PLG leverages the use of the product to present your brand and often your value to a wider audience.
The difference is that the audience is not required to become a user or customer to engage with what’s being shared. But they will become aware of the existence of the company and ideally the value it offers.
What’s especially interesting about this form of marketing is that by using your brand, the user is implicitly endorsing the brand. In addition, the audience can immediately see how the user is getting value out of it.
This beats any pre-recorded commercial or staged advertisement. Especially once the model reaches a scale at which someone keeps encountering the brand and starts wondering what they are missing out on.
The oldest PLG trick in the book
This type of marketing has been around for a long time - long before the terms PLG was coined - and is especially popular under sports and luxury brands.
Just think of any sports gear and you’ll realize people who wear it are a walking advertisement, and the same goes for a Louis Vuitton bag.
While in B2B software we don’t really have the impact of celebrity endorsements in the same way, this approach can still be an incredibly powerful tool to get your brand out.
In the software space, this approach to marketing was initially mainly used by consumer apps. Think of the famous “Sent with Hotmail” example or the “Shared with Instagram” notifications on social media.
At the time, being successful with this tactic was known as “going viral” and everybody wanted to go viral. (Quick note: PLG for customer acquisition as discussed in last week’s edition would also be called “viral”)
This has since then evolved further into the B2B software space where it eventually became categorized under Product Led Growth.
Specifics for B2B applications
In the consumer examples the marketing can always be tied back to a person. You might see a celebrity using a product or one of your friends. In B2B software this works slightly differently, because it’s the company that’s using the software.
Think for example of Webflow, a website builder that leaves a “Made with Webflow” badge at the bottom of the website on certain pricing plans, or Docusign that provides a Docusign branded experience when you send someone a contract to sign.
Generally, applications where you need to send, share, request or publish something are well suited for this model.
Some companies are somewhat in the middle of the personal vs company spectrum, like scheduling solution Calendly. While having a strong B2B offering, many individuals also sign up for a free account and benefit from having their own scheduling page with the Calendly brand included.
While this might not be Calendly’s biggest revenue driver, it’s definitely getting their brand in front of many potential new customers every day.
What’s important to keep in mind is that this is a marketing approach, and therefore conversion matters. These are typically bigger investments that require time to truly pay off.
Make sure you are confident that you are reaching the right target audience and that you can convert them at some point along the journey.
Segmenting your users
Another pattern in B2B is that when the product is driving marketing, this often gets applied to the lower or free pricing tiers. As customers pay more, they typically expect this advertisement to be removed.
This is applied differently across companies though. For example, Web flow as of today only brands the free tier, whereas Docusign’s branding remains even on its first paid plan.
When to remove the advertisement is a judgment call and depends on how much you can get away with without the customer objecting. Or said differently, it depends on how much value is the customer getting by accepting the advertisement.
There’s no fixed rule for this. What you might be able to do depends on many factors, like the pricing tiers you offer, what your competition is doing, and the buying patterns of your customers.
Always listen to your customers and find creative ways to serve them better, regardless of what everybody else is doing.