A common question that comes up in my conversations is: should early-stage startups leverage product-led growth?
The answer is: it depends! But I will be more specific.
First, let’s calibrate on definitions
Here’s my attempt to define PLG in one sentence… Product-Led Growth is a strategy where the product is doing the work to acquire, retain, and monetize users.
In the tech world, sales-led was (and it still is) very common. Marketing-led hit the masses in the 2000s-2010s, alongside a push for more predictable revenue models, especially in SaaS.
To compare the three, Elena Verna has this great chart I’ve been using quite a lot:
Over the last few years, product-led has become a trend. Not as a replacement to the other motions, but as an additional strategy. And that’s great for customers, like you and I: we can do more by ourselves!
Picture the last time you tried an app by yourself, found value, and even upgraded to a paid plan without having to talk to a salesperson. Great, right?
While that concept has been leveraged for many years in B2C, it has found its way into B2B. We are finally debunking the myth that businesses want to engage with software differently. After all, we’re all people trying to solve a problem!
Understanding “success” comes first
I believe that many companies that claim to be product-led are skipping steps.
More commonly than not, people believe that adding a “sign up for free” option means you’ve “become” product-led. Acquisition is part of PLG, but – in my opinion – shouldn’t be the starting point.
Jumping to tactics without fully understanding the problem that your product solves is a very common miss.
There are many frameworks out there, but in a nutshell, you should be able to answer:
- What problem (or job) does your product address?
- Who has that problem (or job)?
- What drives or motivates them? Why do they care? From attitude traits to their background and circumstances.
- How often do they encounter it?
- What are the alternatives to get the job done?
- Why would they pick your solution over those alternatives?
Once you have those answers, you can form a hypothesis around user retention: how can users find success using your product? What does value mean, and how often do they encounter it?
A very hypothetical example: a product like Pinterest could be measuring “Weekly Active Repinners” as their retention metric. Based on their Use Case Map, the Pinterest team could have learned that “repinning” represents the action that leads to value, in their case. And “weekly” is the frequency that their target users encounter the problem stated by the Use Case Map.
The paragraph above is a very high-level abstraction of the process. There’s so much more (what does activation mean? where is the “aha moment” for your customer?), but – in a nutshell – you should have a hypothesis of what user retention means that can be validated with data.
Long story short: before you go all-in on Product-Led Growth, you need to be able to answer the questions stated above. And you should have data to support it.
As a startup, when should you leverage PLG?
While many organizations skip steps by not validating their understanding of success (retention), early-stage companies aren’t even in a place to go through the exercise above.
Why? The question is simple: do you have Product-Market Fit?
You can only answer the six questions stated above if you reached PMF. The idea is that you’re solving a valid problem in the market and that your product may have the capabilities needed to do so.
PMF should be your primary focus as an early-stage startup. Let’s be logical: is it really worth investing your (limited) time in building a growth engine on your product, from acquisition to monetization, if you don’t have the validation that you are solving a valid problem?
I’ve seen companies building referral programs, self-service options, and sophisticated in-product onboarding while 99% of the users they acquire don’t ever come back. I need to use the “do things that don’t scale first” principle here (thanks, Paul Graham).
Great… and then, what?
If you have PMF and you know what success means, it’s time to look for opportunities in your model: is product-led right for you?
Usually, that means identifying constraints in your acquisition, retention, and monetization engines. Evaluate the ROI: by addressing those friction points, can I take my product to the next level?
Prioritizing “should I build new capabilities, marketing automation, or sales outbound” versus “should I invest in Growth” is a hard one. There’s no right or wrong, but I have seen two possible paths:
- Some companies decide to address that with structure. For example, Slack formed a Growth team years ago, dedicated to addressing key inefficiencies in their model.
- Other companies may rely on company/product strategy to inform prioritization in their portfolio. The caveat is that “growth work” is naturally different, so you need to understand whether you have the skills on your team to drive that.
Personally, I’m a big fan of specialization, leaning towards the first option, for the reasons stated above. Product-led isn’t a replacement for Marketing nor Sales-led growth at all, and it requires a different skill set.
I think I got it – but can you summarize?
Definitely. Being overly simplistic, you should invest in Product-Led Growth once you have:
- Achieved Product-Market Fit;
- Understood the problem you are solving, and how you can measure success;
- Identified key constraints (from acquisition to monetization) that, once addressed, could unlock compounding/long-term gains.
Learn from my mistake
When I had my own startup, I heard from a really smart guy reviewing my pitch deck: “a doctor can’t perform a surgery on themselves, so I need to give you a wake-up call”. So obvious, eh? But here’s what he meant:
- As the founder of an early-stage startup, you may be feeling the pressure (whether from investors, or your own narratives) to acquire more users.
- You might tell yourself (and others) that growing that number unlocks new investments and narratives. Therefore, it should be your focus. Google Ads, Facebook Ads, Referral Programs, etc – all of a sudden – are where you spend most of your time.
- However, deep down, you may know (from experience) that that’s not the case.
I had completely put aside my years in Growth and Product Management at the expense of short-term gains. I needed someone else to slap me in the face (figuratively, okay?) to realize we didn’t have PMF! That should have been our full-time priority at that moment.
Let me be that “someone else” for you today. Do you have PMF?
If not, go chase that now. Please. And then let’s talk here on GrowthMentor!