Three trends behind the buzz on product-led growth
If you’re working in software as a service, product marketing, or product strategy, you’ve probably heard of product-led growth (PLG), and you’ve probably got an opinion about whether it’s the future of growth or just a buzzy term for stuff people have been doing since the dark ages.
In this post, I identify three key trends that lie behind the rise of PLG. I argue that even if PLG is just a big fat buzzword, these trends are hugely important, and not just for software as a service and tech entrepreneurs, but for any company that’s building digital products and wants to stay competitive in the fast-changing landscapes of the digital economy.
What is PLG?
PLG is a go-to-market strategy for digital products. To anyone familiar with consumer apps like Canva, Spotify, and Dropbox, or the sexier end of enterprise products like Slack, Zoom, HubSpot, and DocuSign, the idea behind this strategy will seem obvious, old hat even.
The PLG idea is this: The secret to customer acquisition and exponential growth is to design products that solve real customer problems, to make it easy for people to use these products, and to make the value of the products immediately evident to users, so that when people first use them, they think: “Wow — this changes my life”.
You might say this is just … a good product. But there’s a lot involved in building and launching products of this caliber. There’s even more involved in building organizations that are capable of launching and growing products of this caliber and sustaining this growth over time. I’ll return to this point later.
At this point, I simply want to underscore that growth, on the PLG model, follows value. It’s a no-brainer, really: build a product that people love and they will spend more time using it, churn out less often, and recommend the product to their friends and peers more often. Furthermore, a good chunk of them should be happy to upgrade to a premium version of the product for extra features and functionality, so you’ll get revenue off the back of growth.
This, in a nutshell, is the go-to-market strategy of companies like Spotify, Canva, Dropbox, HubSpot, and Slack — and to most people, I think, it’s straightforward.
Three trends behind PLG
But there’s more to PLG than meets the eye, and we see this when we zoom out to take in the background conditions that make the PLG strategy possible.
There are three major trends at play in PLG, and they’re things that any company that is building and launching digital products should be across.
First, there’s the increasing primacy of end-users in digital design. In the past decade, end-user experience has become the hub around which the digital world turns. This trend hasn’t exactly been driven by product-led companies, though they’ve certainly helped accelerate it by putting great UX in everyone’s hands, raising consumer expectations. It reflects deeper cultural and commercial trends, starting with the acknowledgment of the value of good design and the increasing sophistication of consumer software generally.
The second trend behind the rise of PLG is insights-driven product development. Data is the lifeblood of the digital economy, and when you feed it into product development, you get continuous innovation. The best consumer software companies are experts at this — capturing data on user behavior, analyzing it, and using insights to design and deliver new features.
Take Spotify, for instance. The more you listen to Spotify, the better its AI can predict what you’d like to listen to, enabling Spotify’s algorithms to select new tracks to populate your Discover Weekly and other playlists. This is a great example of what product-led companies do — using data for continuous innovation, with the goal of driving user acquisition, retention, and growth.
The third trend behind the rise of PLG is growth hacking. If you haven’t heard of growth hacking, I recommend that you check out the book Hacking Growth by Sean Ellis and Moven Brown. It’s a great introduction to how the most innovative software companies today harness data-driven product improvement to drive customer acquisition and growth.
Growth hacking is crucial for PLG. The process works like this. In-house growth teams monitor and analyze data on user behavior and use insights to identify defects and blockages in customer throughput from one end of the acquisition-to-conversion pipeline to the other. These challenges become opportunities for growth. Working with the data, the growth teams develop experimental hacks to unblock and improve customer throughput, accelerating customer acquisition, or increasing user engagement, or encouraging people to recommend the product to their friends.
Growth hacks don’t need to be big and expensive. The best are ingeniously simple. Uber, for example, exponentially accelerated its user referral rate by changing the “refer a friend” feature on the app to “free rides”. Boom!
To pull this together, growth teams leverage user data to develop tactical plays to improve customer throughput. They launch incremental (or not-so incremental) improvements that drive acquisition, retention, referral rates, and so on. This is how today’s best-of-breed digital companies achieve PLG.
What’s the takeaway?
PLG is a buzzword but it’s not a fad. It has emerged through the coincidence of the three trends discussed in this post-growth hacking, insights-driven development, and outstanding UX — and this nexus of trends is not going away. It is becoming more focused, impactful, and pervasive by the day.
The upshot is, it’s not enough anymore to be customer-led or to invest in great UX. You need to build in-house innovation engines that will enable you to hack and improve your UX at internet speed and to constantly evolve your products to deliver value and meet changing user needs. These capabilities are table stakes for competition in the product-led marketplaces of the future.
PLG is like the tip of an iceberg, floating beneath the surface of the digital economy. Many leaders are saying: “Oh, look at that tiny iceberg. It’s not something we need to worry about.” But 1000 ships are going to be wrecked on that iceberg because there are big changes happening under the waves.
