What does it mean to be a product-led company?

Product-led growth
September 14, 2022
12 mins read
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Product-led companies follow a strategy wherein they acquire customers majorly through product and its excellent user experience. Although product-led growth (PLG), is a popular concept in SaaS, many businesses still believe it is simply a pricing model or a variation on the bottoms-up growth concept.

Which, by the way, is not entirely wrong, but there is more to it. Product-led companies use the product itself as the driving factor. It’s the soul of the company. The product is used as a distribution center, to build customer loyalty, and to gain a competitive advantage.

As a result, your product becomes the primary lead generator and marketing tool. This reduces the marketing budget and significantly reduces customer acquisition costs (CACs). The product-led method has been credited with the rapid growth of some of the world’s most successful companies, including Zoom, Spotify, Evernote, Dropbox, Calendly, Slack, and many others. According to OpenView’s 2020 report, product-led companies were trading at two times their pre-COVID revenue multiples, while other companies suffered.

Therefore, if you want to see your company grow exponentially, you need to understand how PLG works. In this article, we’ll talk about characteristics, theories, examples, and other critical aspects of a product-led company. So that you can implement it and leverage it more effectively in your own company.

What does it mean to be product-led and what doesn’t?

In a PLG model, a company gives users free access to its product in the hopes that the product will persuade them to become paying customers. Occasionally, they will provide the product with all of its features but only for a limited time. Other times, the features will be limited but the user will have lifetime access (freemium), and they will need to upgrade their plan to get full access. The model works equally well for B2B and B2C organizations because it allows the product to be monetized without the need for a large marketing and sales team.

Let’s talk about what isn’t product-led because the term ‘product-led’ can get ambiguous sometimes. Therefore, being product-led doesn’t mean:

  • That all decisions are made on the basis of products.
  • That the product takes precedence over customer service.
  • That the product can convert prospects into customers on its own.
  • The product team is thought to be more important than the other teams.

It is critical to recognize that only a few products will be able to sell on their own. As a result, in a product-led business, the product is the DNA, but it is still a component of the whole. There is no denying that product development is vital, but at the end of the day, businesses must also find other ways to sell the product for a profit.

Characteristics of a product-led company

1. Customer experience is paramount

Even the best products will struggle in the market if the customer experience is poor. The importance of customer experience in product-led growth cannot be overstated. Companies that use a product-led strategy, as a result, require real-time behavioral analytics more than others. The data allows the product team to determine whether customers are satisfied with the features and how engaged they are with the product. Customer experience is critical because product teams influence engagement loops that exist prior to product use. As a result, one of the goals is to provide a better experience for customers and help them in engaging through these loops.

2. Growth depends on the product

It goes without saying that in a product-led company, you build your product so that it does the marketing for you. You are not as reliant on the marketing and sales teams as you would be in a sales-led growth scenario. This simply means that you won’t have to spend a significant portion of your budget on paid marketing and advertising. You also don’t have to s  solely rely on your sales team to generate new leads. Therefore, the user becomes more aware of the product, monetization becomes easier because the customer feels compelled to use it.

3. Customers self-serve and adapt on their own

Product-led businesses make the onboarding process simple and self-contained. They ensure that the customer can discover and use the new features. This occurs when the product creates enough value that the customer engages and uses the features sufficiently to progress to the next step and monetize. The products and campaigns are designed in such a way that the barrier to adaptation is reduced. Moreover, independent adoption brings the user and technology even closer together. When it comes to improving the customer experience, this is great. Moreover, the independent adoption makes the interaction between users and technology very close. This is a revolution when it comes to making the customer experience better.

4. Nothing is better than free

The freemium-based pricing model is perhaps the most important reason for the product-led model’s success. People want to test the product first to see if it actually solves their problems. They don’t want to pay the monthly or annual fee in advance only to discover that the product was not designed for them. As a result, with the freemium-based pricing model, which is commonly used by most PLCs, users can first use the services and then decide whether or not to purchase them. It’s a win-win situation for both users and new businesses. Because, once a user has been onboarded and likes what the app has to offer, he can later upgrade to the premium services.

Examples of product-led companies

Now that we’ve understood PLG and its characteristics, let’s look at some classic examples of this model. It is important to note that the companies in the examples below played the long-term game to build leverage, which is mostly the case with product-led companies.

1. The Facebook and Amazon model

During the initial years, both companies were getting millions of users but they weren’t monetizing them. The business analyst communities were doubting their strategies and business model because both tech giants were not making much profit. However, what others didn’t see coming was that these companies were playing the long-term game. They were first providing the value and making users dependent on their services. In simple terms, they were following product-led growth.

Facebook spread by word of mouth, and millions of users went online to interact with one another. Amazon was becoming one of the largest e-commerce retailers (by having a very less profit margin). Both product-led businesses went on to become some of the most profitable in their respective industries. Facebook began monetizing its millions of highly active users by introducing advertising. While Amazon did so by pulling market share from millions of other retailers and transferring it to its platform.

2. The AOL model

In the early 1990, the average American wasn’t much aware of the Internet. However, internet service provider America Online (AOL) persuaded people to connect to the internet. How did they manage it? They gave it away for free.

AOL mailed floppy discs and, later, CDs directly to customers’ homes. It included AOL’s application as well as hundreds of hours of free internet service. The strategy resulted in paying customers after the trial period expired. People had no idea what the Internet was at the time. This method acquainted users with the Internet and AOL’s web portal. AOL later became a dominating player in the world of the Internet.

A product-led company believes in its product’s ability to find a market and attract new users. The most important indicator of a product-led company is how they launch and sell their product.

Product-led growth is the inverse of sales-led or marketing-led growth. It sends a strong signal that the product doesn’t require fancy marketing campaigns to promote it. Rather, the product itself is valuable enough to attract potential customers.

The product-led strategy attracts users by providing the product or some of its features for free. When the users are ready to take the next step, they can upgrade and become paying customers.

Mahima Arora
Associate Product Marketer at Zeda.io.
A marketing enthusiast, trying to influence society by means of media and drive sustainable good.
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