Product-Led Growth: what it is and how to apply it

The folks at Educa Edtech –a group of online education institutions- asked me to give an online seminar, (better known as a webinar) about Product-Led Growth.

The idea was to explain what it is and how to apply it to a project.

So, while I prepare the class, I thought it would be a good idea to write an article about the subject, because I find it a very interesting business model and I had never talked about it on the blog.

And now is a good time to fix that.

What is Product-Led Growth?

First things first.

And if we're going to talk about Product-Led Growth, the first thing is to explain what it is. What exactly we're talking about.

Because if you have experience creating digital products, you probably have a rough idea. But if you work in another digital area, such as marketing or analytics, you may not know it that well. Let alone if your area of expertise is non-digital businesses…

So, what is Product-Led Growth?

Well, it's a business model.

It isn't a Marketing strategy.

Nor a growth strategy.

Nor a sales strategy.

It's all of that together. And more.

It's about making the entire project or business revolve around the product. So that the product itself:

• Attracts users or customers.
• Activates them.
• Retains them.
• And turns them into promoters.

The success of the business comes from the product itself, not from marketing campaigns or sales.

Obviously, for it to work, you need a product that isn't merely very good, but exceptional.

One that is the absolute focus of the whole organization.

One that every member of the project feels proud of.

And that isn't easy. But it's worth it.

Let's say every part of the organization:

• Marketing.
• Communications.
• UX (and CRO).
• IT.
• Customer service.

Looks exclusively after the product and focuses on its user experience above everything else, because they trust that, with this methodology and approach, success will follow and it will be hard not to succeed.

The beginnings

But let's start at the beginning.

Although it isn't exclusive to digital businesses, we generally use this term to refer to them.

After all, the concept was coined by Blake Bartlett in 2016 after observing how several SaaS companies (specifically Datadog and Expensify) were growing at a good pace without relying on major investment in marketing or sales. Their products spoke for them and achieved those growth goals.

But of course, although the term was coined from the analysis of those two companies, the reality is that many bigger and better-known companies use it.

Examples of Product-Led Growth companies

There are many. Many, many. You definitely know some of them; others are more niche.

But what they all have in common is such a good product that you're surprised it even has a freemium version. Examples I use every day:

• Spotify
• Canva
• Gmail
• YouTube
• Slack
• Dropbox
• HubSpot
• X-Mind
• Notion
• Telegram
• Zoom
• …

If you don't know any of them, take a look. They may surprise you.

But let's talk a little more about some of them and their approach. In other words, what they did and how it worked out.

#1. Dropbox: referral strategy

The company that popularized storing files in the cloud.

If you used it from the beginning like I did, the first time you saw it you probably thought it was magic: upload a file on your PC and have it appear instantly on your laptop…

What they did: they introduced the "Invite a friend" feature, which offered users extra storage space for every referred friend who signed up.

How it worked: users very actively invited other people to join in exchange for a tangible reward (more storage space), generating viral growth.

#2. Spotify: freemium strategy

Another classic.

And another product that made you wonder whether what you were seeing was possible. And legal (when it appeared, torrents and The Pirate Bay were at their peak).

Far more music than you could listen to in a lifetime on any internet-connected device. With acceptable quality and hardly any advertising (back then).

Where do I sign?

What they did: they offered a brutal freemium model that let users access music for free with ads. Later they offered premium subscriptions without ads and with extra features such as maximum-quality music.

How it worked: the free version attracted millions of users. The transition to the premium subscription happened organically, increasing advertising and adding features or the family plan for account sharing. It took them a while, but they're now in the black.

If you want more information about how it came about and the disruption it caused, take a look at the series “The Playlist”.

#3. Slack: focus on user experience

If you don't know it, I'll tell you it's one of the most common internal communication tools in any project, especially digital ones. It has everything you need (chat, groups, file sharing, polls…)

What they did: they designed an intuitive, simple and complete business messaging platform.

How it worked: ease of use and the ability to improve team communication and collaboration led to (too?) widespread adoption. Companies adopted Slack because it improved productivity. And, in my opinion, partly for the cool factor too.

#4. Zoom: focus on ease of use

You know: 2020, the pandemic, everyone confined at home… But the wheels had to keep turning, so meetings still had to happen. And Zoom positioned itself as the leading tool. Why?

What they did: they offered a quality videoconferencing solution that was easy to use at a basic level and also had advanced features.

How it worked: the need for remote communication and being in the right place at the right time led people and companies to adopt Zoom ahead of other solutions such as those from Google or Microsoft.

Fun fact: it's curious how a tool that championed the unstoppable advantages of remote work now forces its employees back to the office to develop it better. These things happen.

We could talk much more about these cases and others, but each one could fill an entire article.

I hope these examples help you get a good idea of the approach behind this business model.

Becoming a Product-Led Growth company

Sure, looking at these successful examples, it's hard to understand why every company doesn't choose a similar approach.

Or why yours doesn't start doing it tomorrow.

And the answer is that it isn't easy. Because we're not used to it.

To begin with, two types of changes are needed.

Organizational changes.

This approach implies a democratization of the product: here it isn't one decision-maker deciding which path to take; the opinions of other project members count in the overall decision.

We move from organizations based on departmental silos focused exclusively on doing their own job well to organizations whose departments share one focus: product success.

And that means marketing has to understand –at least partially- what it can expect from IT, while IT, in turn, has to understand how and why users use their products, so that the technological solution proposed for new required features is coherent.

As I said, in most organizations with more traditional approaches, it isn't easy for the usual decision-makers to want to give up some of their power to the rest. Or for the team to be ready for its opinion to carry significant weight.

It requires a special group of people.

Changes to the product

And if the organization is the first major change, the second huge change is the product itself.

Here, being good isn't enough. Or very good. This is about being exceptionally good. Something new or vastly better than what existed before.

Better in design, in usability, in engagement … in everything.

And that, obviously, isn't easy to create either.

The change in the product means moving away from a Go-To Market strategy based on these questions:

• Who is my ideal buyer?
• Where do they hear about and learn about my product?
• Why do they buy my product?
• How do they buy it?

To a slightly different one:

• Knowing who uses my product.
• Acquisition is based on word of mouth and virality rather than traditional channels.
• Customers use my product because they trust it, it gives them more value than its competitors and they get a better user experience.
• Customers will subscribe to my product after trying it, instead of before.

If you want a better idea of what I'm talking about, as I mentioned earlier, the series “The Playlist” shows very well what PLG companies are like and the products they have to create, based on the launch and development of Spotify.

The customer funnel in Product-Led Growth

But if the company and the product change, the traditional digital-business funnel necessarily has to change too.

Depending on who you ask, it changes a little or a lot. Or so much that it is no longer a customer funnel but a flywheel, as some authors argue.

In my view, the most relevant change is that one more step is added at the end of the funnel.

It doesn't end when you build customer loyalty and turn customers into repeat users. Not a chance. There is still another stage: the one reached only by users who are so happy with your product that they always recommend it. They become ambassadors for your product.

They are your marketing force and the ones who bring you new users.

In other words, getting users to reach this stage is the objective of your product, because it is the basis of this model.

In other digital businesses such as a multi-brand ecommerce, this isn't taken into account as much; we'll focus more on the previous step, recurrence.

Product-Led Growth techniques in a Go-To Market strategy

I was talking about the necessary change in the Go-To Market strategy.

Well, under this new approach we find that every PLG organization always looks after and relies on certain general principles:

• An onboarding process very carefully designed. So that users can start using the product easily and don't get lost in the endless possibilities the tool may offer.
• Complete user independence when trying the product. No need to contact anyone: they discover it, sign up, try it and, if they like it, stay.
• The previous point implies an extremely good user experience in every sense: ease of use, a good web/app interface, good copy in the product and its communications (registration emails, onboarding…), good customer service (if necessary).
• The aforementioned model with a free trial and freemium. We'll talk more about that now.
• The possibility of going viral. It doesn't focus on a specific niche, but on a broad audience. And every organization seeking PLG has to be prepared for it: different use cases, server sizing, customer-service capacity, response scripts…
• Finally, the objective of all of them will always be to lead their market. Whether it's a newly created market -Netflix, Spotify- or a (r)evolution of an existing one –Gmail-. That's the bar to clear. And it's no small thing. But once you make it, you enter the Olympus of mass-market products and it's hard to be knocked out.

That's at a general level. But we can dig a little deeper and break these principles down into the following techniques, ordered according to the customer funnel:

1. Social proof: before registration, on the landing page, social proof works as a hook. You know: ratings on Google / Trustpilot / Markets, testimonials from real customers –including executives from well-known companies-, logos of those companies using the product… Proof that our product can be trusted.
2. Easy, frictionless registration: asking for an email is fine, but if you pair it with Google or Facebook login, even better. Between 30% and 50% don't want to provide their email. That said, some argue that a little friction in onboarding can be positive, as long as completing it produces a surprising result and delivers great value to the user. Each to their own.
3. Align with the user's goals: from onboarding onward, we must make it clear what we need to provide the user and how to achieve it easily. A bit like when Twitter X or Instagram made you follow several accounts from the first minute. Or how Pinterest asks for your interests. In my opinion, this is one of the main differences between this model and free software, where it's easy to feel lost at the start.
4. Immediate “Aha!” moment: if we carry out the previous point, the user will find value in the product quickly. They won't need to “fight” with it until they squeeze the value out of it. Think of any of the examples above.
5. Guide users through long setups: when our product requires users to complete a certain number of steps, ideally there should be a guide showing them the order to follow and their progress, while also addressing the next point. Creating a Facebook company page can be a good example of this.
6. Explain the “whys”: in other words, make it clear to users why some of our features matter and what they are for. With real examples. In a way, you're “educating” the user. Think of Trello and its example boards, where you can see how to organize anything from a wedding to developing a complex App using Kanban methodology.
7. User segmentation: when our product offers many different features, directing users from the start toward what they're looking for is a good option. Think of HubSpot with its CRM, its Marketing suite, its Sales suite… A user will probably come in to use only some of them, so why show everything at first? In fact, personalized onboarding can help us here.
8. Extensive resource library: so users can find what they need to know and apply it easily. HubSpot or Stripe are good examples.
9. Transparent plans: you need to make clear what the trial or free plan includes and how it differs from paid plans. As for those, avoid surprises: clearly show whether or not the price includes VAT and whether we're showing the monthly paid-plan price or the monthly equivalent of annual billing, which isn't the same thing.
10. Focus on virality: remember how Hotmail put a link in every email so the recipient could sign up? Exactly.
11. Offer complementary products or services: besides the main paid service, you can offer a series of upsells. For example, Prime Video has its paid plan that includes a flat rate for certain series and films, but you can also rent series or films on the platform.
12. Free solutions for occasional use: think of I Love PDF. I don't know if you've used the platform, but what it lets you do with PDFs is BRUTAL. Everything an occasional user might need is available for free. And if you need professional handling, you pay for the Premium plan, which currently starts at €4 a month.
13. Collect feedback and use it: you know, questionnaires, surveys, suggestion boxes, user tests, panels, talking to customer service and regularly reviewing its records and classifications in the CRM to understand users' main pain points. Often, the users themselves will show you the path to follow in your product roadmap.

This is a general list, but it's worth going a little deeper into the most critical aspects / techniques, which I consider to be the ones I'll tell you about now.

The free version with a freemium model

Having listed the main elements and strategies, I want to focus on one of the main techniques of this methodology: offering users a free version of the product.

This free version will always have some kind of limit. Remember that we're talking about business models, not free software. So we have three types of limitations:

1. Always-free version but limited in features. Spotify, Canva or HubSpot are good examples.
2. Always-free version but limited in capacity. Think of email-marketing tools such as Mailchimp or MailRelay. Or cloud storage such as Dropbox and similar services.
3. Full version but limited in time. Netflix and other streaming platforms offer users a one-month trial before they have to pay.

In any of the three cases, after using it for a while, users will have been able to get a pretty good idea of what our product offers and whether they're willing to pay for it.

Customer and product research

And if they're willing to pay for it, it's because the product solves one or more user pain points, so researching them is one of the key techniques in these organizations.

We've mentioned using feedback, but we don't stop there: panelists, surveys, user tests…

Only companies that fully understand the user journey -what users are trying and expecting to achieve with your product- can get close to leading the market. And to do that, this business model uses several techniques from UX.

Analytics

A technique that complements the previous one: if research gave us qualitative information, here we get quantitative information.

Usage data, such as:

• Installations.
• Number of active users.
• Sessions.
• Preferred –or most-used- features.
• Bottlenecks.
• Errors.

Any digital product generates huge amounts of data. One that aims to go viral and lead a market generates even more.

A good analytics plan will help us extract information from all this data and turn it into insights.

What for? The usual thing: improve the product as much as possible.

Product-Led Growth metrics

Besides those in the previous point, which are basic for any recurring digital product, there are certain metrics specific to the PLG approach.

For example, these.

#1. Time to Value (TTV)

Which is defined as the time it takes a user to perceive value in a product. To understand what it can offer them. We could say it is the time from acquiring a user until they are activated.

Obviously, the shorter this time is, the better for the product, because the user is less likely to abandon it.

The main objective of a good onboarding process is precisely to reduce this TTV.

#2. Monthly Recurring Revenue (MRR)

In other words, the monthly recurring revenue.

This KPI is common in any recurring-revenue business, such as a membership. Financially, it's the metric that will determine the success of the business.

MRR lets us predict with some confidence –once there's some history- what my revenue will be next month.

Although that is very useful for other business models -because it lets you regulate, for example, advertising investment- it isn't as important here, due to the different type of acquisition and lower CAC. Still, knowing how much you'll bring in every month is great for controlling things like cash flow.

#3. Expansion MRR

A more specific version of the metric. It is the subset of revenue produced by recurring users, but not from subscription payments, rather from upsells, cross-sells, add-ons…

It tells us whether our proposals to improve paid plans are actually effective.

#4. Average Revenue Per User (ARPU)

It explains the average revenue each user brings you and is calculated by dividing MRR by the total number of users.

Although if you analyze it in isolation it can be considered a vanity metric, watching the trend and working to increase it can bring us good financial results.

Think about it: to improve revenue we basically have two levers:

• Acquire more users.
• Increase the average revenue from each one.

#5. Customer Lifetime Value (CLV)

It is an estimate of the revenue a user will generate for us on average throughout their entire relationship with our business.

It's useful for identifying the users with the highest CLV, studying them and analyzing them, so that we can, for example, make a greater effort to win them back if they ever want to unsubscribe.

Let's say they're our VIP customers.

#6. Churn

We're talking about the percentage of users who cancel our service.

It goes hand in hand with MRR –the higher the Churn, the lower the MRR (almost) always- and helps us predict how our business will perform over the coming months.

The idea is to try to reduce it little by little.

#7. Net Promoter Score (NPS)

Which tells us how many of our customers will recommend our product to the people around them. It is measured with the typical “rate our service from 1 to 10” surveys.

These are therefore users who are at the final stage of the funnel, which not everyone reaches (if only).

The idea behind PLG is to create such a good product that it puts as many users as possible in this stage.

It's highly relevant for all kinds of recurring services, because achieving a good NPS is always synonymous with greater user growth in the medium term.

My boss's boss at Vodafone, in other words the company's Marketing director, perhaps valued this metric more than any other when we gave him our monthly presentations.

The benefits of Product-Led Growth

And what's all this for?

Does it really work?

Why does it work?

Looking at the examples, I don't think you doubt that it works, but I want to explain what I consider the main benefits of the PLG model.

#1. Lower CAC

To begin with, the most obvious one, already mentioned: when you invest resources in creating good products, you can reduce investment in marketing, communications or sales and keep growing.

In other words, your Customer Acquisition Cost falls. It was HubSpot that in 2018 said:

“Today, referrals from other customers and word of mouth have become the biggest influences in the buying process.”

If you have a business model whose marketing and acquisition strategy is based on these two channels with no traffic-purchase cost, well…

#2. Simplifying the customer funnel for the company

But besides investment, the customer funnel is also simplified:

In a traditional online sales system you need one department for traffic acquisition, another for lead conversion, perhaps another customer-service team making calls to close sales, or very well configured remarketing…

If you've used the usual system, you know that if any part fails –or simply performs worse-, the conversion rate drops. And depending on where it fails, the sale is definitely lost.

However, when there is genuine product awareness, the idea is that, because we make it so easy, the user does everything themselves:

1. They're attracted to the product because they've heard about it.
2. They sign up (with or without a lead magnet).
3. They complete onboarding.
4. They look for tutorials if they have questions.
5. They buy the paid version if it's worth it.
6. And they promote the product within their circles if it's good.

For the company, this means fewer siloed departments, less bureaucracy and, normally, fewer staff.

#3. Simplification for the user too

Not only is the funnel simplified for the company, but as we've seen, this model aims for the user to handle their entire use of the product with the least intervention from the company.

This implies things we've been mentioning throughout the article:

• Sign-up has to be simple and immediate.
• Onboarding, useful.
• The trial, free.
• The UX, excellent and intuitive.

Everything filtered through ease and simplicity, so the learning curve is very gentle.

#4. Increases the chances of the product going viral

If we combine the previous advantage with great perceived value, the result can only be that users talk about how good the product is in all their circles: family, friends, classmates or coworkers…

This, together with the extremely low –not to say nonexistent- barrier to entry, encourages virality. It's hard to find a single mass-market product on the internet that hasn't used this approach.

And virality leads to investment, a company sale. Or a stock-market listing.

#5. We'll collect more feedback

Key to improving the product. So it will be natural for us to emphasize it and ask users for it in different ways:

• During onboarding.
• After the trial period.
• After contacting customer service.
• From the most intensive users.
• …

The idea is that:

1. If I collect good feedback, I can improve the product.
2. And if I improve the product, it will help me get more customers.
3. Who will give me new feedback and improvement proposals.
4. Which I'll use to create an even better version that gets them to use it more.
5. And so on in an endless cycle of iterative improvement.

#6. Higher NPS

If our product is good or very good, we'll progressively achieve:

1. Greater user satisfaction.
2. Which will lead to longer usage time.
3. And more promotion by the user (NPS).
4. Which will give us greater growth and the possibility of becoming mass-market, as we've discussed.

Final conclusions

If you've made it this far after this extremely long article, I've convinced you that Product-Led Growth is a model that, at the very least, is worth knowing.

And as I've tried to explain, it offers quite a few benefits. Looking at the examples of companies that have applied it, there's little room to doubt it.

But of course, you need to think very carefully before making the leap to this model, because you also have to measure the cost of change. Check whether our organization is ready for it, because it requires a lot of alignment.

And dedication from everyone involved.

And, probably, money.

It won't be an easy change, especially at first and if the results don't follow. Above all because it's a structural and mental paradigm shift that may not be right for your case.

But it's clear that it can be extremely successful.

Are you willing to try?

Authors and bibliography

To wrap up, and if you liked the topic, here are a couple of readings to go deeper into the model:

• “Product-Led Growth: How to Build a Product That Sells Itself”. An excellent comprehensive read to get started. Freemium book.
• Ramli John and his book “Product-Led Onboarding: How to turn new users into lifelong customers””.
• Andrew Chen: who has written extensively about growth and product strategy.
• Sean Ellis: who is credited with coining the term "Growth Hacking", which has close links to PLG.

They're very motivating, so be careful: they might just convince you to make the change.