Recently, a flurry of software startups have announced public offerings. About a month ago, Unity, Asana, Snowflake, Sumo Logic and JFrog all filed to go public. What is truly fascinating is that many of these software companies use a business model that’s still unfamiliar to many people: product-led growth.
Now, on the surface, product-led growth (or PLG for short) sounds like common sense. Some of you might say: “Of course I want my product to lead the way! With a stellar product, hordes of customers will flock to us, and I'll be a millionaire.” But anyone who has pursued this as a growth strategy has quickly come to the realization that it takes a huge amount of work to understand the end-user and personalize the product experience for them. Despite those challenges, embracing product-led growth is an excellent way to streamline your sales process and tailor your sales strategy to fit current trends in business.
Sales Has Evolved
For most of my professional career, I have led technology sales teams. Over that time, I’ve watched sales evolve into the more analytical discipline it is today. To understand this evolution, we need to understand the origin of modern sales. The contemporary era of sales as a profession began in 1925 with the publication of E.K. Strong’s book The Psychology of Selling. Strong’s work had a profound influence on Dale Carnegie’s still-popular tome on sales influence, How to Win Friends and Influence People, first published in 1936. For most of the 20th century, senior sales executives focused on the influential power of a salesperson’s presentation. The job was all about your skills as a presenter, persuading the customer that you have superior products to the competitors. The pitch was predominantly focused on telling the customer product features and benefits. The popular image of a traveling vacuum salesperson covering an area typified this go-to-market strategy.
Then, near the turn of the century, we began to see the popularity of consultative or strategic selling. In that era, salespeople recognized that the power had shifted to the prospect. Thus, salespeople placed a greater focus on understanding a particular prospect’s needs. Although the practice still used presentations and demos, this approach was more of a cooperative process with the buyer. Sales became much more of a formula focused on filtering out those prospects who were not qualified buyers. The downside of this model is that, since human sales reps must touch larger numbers of prospects, generating significant revenue requires a large sales force. In this paradigm, automation really only served to augment sales or marketing efforts. Both of these sales strategies still have many adherents in the broader field. About halfway through the last decade, though, a new model has emerged as we’ve seen an increase in companies using a product-led growth strategy.
How Product-Led Sales Works
Although we may not use the term, all of us have experienced a product-led growth model. Growing up, my mom used to walk my sister and me through Macy’s cosmetics department, and the associates there would simply ask mom if she wanted to try the perfume. Much to my chagrin, they often succeeded with the “try before you buy” method, and my mom left with perfume. Now, think about the previous sales methods I discussed. A salesperson could have come out to extol the benefits of perfume and what disastrous effects a stinky body has on friendships. They also could have given her a 30-minute explanation of how their state-of-the-art perfume development capabilities work. But sometimes, the best way to understand a product is just to experience it. Televisions, cameras and IKEA furniture are just a few other examples of items that are better understood through experience than description. In these cases, the salesperson lets you try the product, maybe via a trial or as a freemium offering, and then focuses on helping you have an amazing product experience.
Note that sales is still necessary to get some people over the finish line. Maybe the customer has questions, faces a complex situation or simply wants a faster experience. In these cases, the salesperson delivers service to ensure the prospect gets the most out of the product. But in product-led sales, the product itself is chiefly responsible for acquiring, onboarding, converting and upselling the customer. In this model, the sales team only jumps in once a user has derived real value from the product. In our example, a customer who makes a face of disgust after smelling the free perfume is probably not someone the sales associate needs to pursue. Similarly, salespersons in a PLG model focus on assisting prospects who have already experienced some value from the product.
Why PLG’s Stock Is Rising
Now, the first question many people ask is why PLG’s popularity is rising. After all, many, many companies still employ large sales armies that claim victory. The first point to understand is that product-led growth minimizes human labor. If you do it right, the product itself is the primary marketing, onboarding, sales and customer success engine. Think about products like Netflix or Spotify. When you were buying their services, did you actually want to talk to a human? Probably not. That’s because, when a human enters the equation here, it’s usually at a friction point for consumers. Connecting with humans takes more time and planning than interacting with automation.
Another reason product-led sales is popular is that traditional sales approaches often waste a good deal of prospecting effort without closing a sale. The first era of sales was all about the presentation and the expert knowledge of the salesperson. If you wanted that knowledge, you needed to listen to them. But thanks to the web, users don’t need to go through your full sales process to buy. Some people are going to want a trial first and then will ask to see a demo. Other times, a user may sign up for a trial but they don’t want to speak with a human. And many customers are willing straightaway to buy without any kind of interaction at all. This variance puts sales and marketing in a strange predicament. Sometimes they’re reaching out too early in the cycle, and sometimes they’re reaching out to people who don’t want to talk. No wonder 99 percent of marketing-qualified leads never result in closed business. PLG allows your company to travel light and avoid redundancy. You can employ a smaller salesforce to focus on those prospects who have truly derived value from the service. Better yet, PLG empowers your marketing team with real trial data to measure customer intent.
Finally, a growing trend among buyers is self-educating about products that interest them. This trend doesn’t mean that your marketing team needs to release a number of e-books and other gated marketing content. The absolute best way to educate ourselves about a product is to try it out in a seamless way. Executives using PLG scrutinize every obstacle preventing someone from trying the product. Should we require a credit card? Can we make the product or a portion of the product free forever? Can we start the trial from the homepage? Questions like these need to be considered to deliver a product experience more rapidly. Trying the product is the natural way to shop for things. And that rule holds for B2B sales as well. Companies prefer to try a product first and, if they see value, keep the service, much like a person would do with Netflix or the other B2C products we use in our daily lives.
Top-Down vs. Bottom-Up
This model is also a significant change from what has historically been the way enterprise sales happens in most industries. The old buyer journey involved an executive doing research on several vendors and then evaluating them based upon specific criteria. The executive would discuss possible vendors with a buying committee and, after negotiating, sign a contract with the vendor and implement the technology. Importantly, in this model, the vendor is responsible for finding the executive buyer(s), educating them, then qualifying the executive as well as closing and implementation. But this process largely ignores a fundamental shift that’s happened in the way people buy technology. In today’s world, the executive buyer is largely sidelined. Instead, end users look for solutions on their own to solve their problems.
PLG recognizes this change by focusing on the folks who will actually be using the product rather than a buyer who won’t ever touch it. The end-users want to get their hands on the product immediately, either through a free trial or some type of freemium offering. Then, assuming the product provides the promised value, they’ll tell other folks in their organization about how great it is. Today, tech companies tend to follow this model. Rather than hunting for an executive buyer, the best sales strategy is to find potential users, help them see the value a product proves, and leverage those converts into disciples for the product. This growth model takes a bottom-up approach to better serve the current buying practices of enterprise companies.
Let the Product Lead
Product-led growth is becoming more and more common. Since 2012, according to the OpenView 2020 SaaS Product Benchmarks Report, the number of software companies operating on this model has grown significantly. Moving to PLG takes time, but once you truly get going, you’ll be more lightweight and agile than sales-led companies. The product experience is at the center of your business. And while PLG has elements of sales-led growth, it’s a fundamental shift away from a sales process and instead focuses on the user product experience. After all, you believe in your product. Why not let it lead the way?
