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Practical Go-to-Market guidance specifically for B2B software and service companies between $5MM-$50MM in revenue.
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#18: Product Led Growth. Are we ready for it?
Hello PROs!
Welcome to our podcast. Tune in as we dissect product-led growth (PLG) strategies that are shaping success stories for businesses in the $5 to $50 million revenue bracket. We're not just skimming the surface; prepare for a deep dive into the practical application of PLG in the complex and agile labyrinth of enterprise environments.
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Mark Roberge's PLG article
Welcome to the GTM Pro Podcast, your essential audio resource for mastering go-to-market discussions in the boardroom. Here we share insights for revenue leaders at B2B software and services companies, especially those with less than $50 million in revenue. Why? Because the challenges faced by companies of this size are unique. They are too big to be small and too small to be big. This dynamic pushes revenue leaders into executive leadership without a lot of help or support. We are here to provide that support. Your journey to boardroom excellence starts now. Now, okay, here we are on a beautiful spring day in the Southeast, this day happens to be Good Friday and the day we're recording this, so happy Easter to everyone. But we are going to talk about product-led growth, and specifically again as it relates to companies in the lower middle market, and to describe these, because this is a topic that there is so much out there on the interwebs about product-led growth. But when companies in the lower middle market, let's describe that they're between $5 and $50 million in revenue. That is technically the definition of the lower middle market, but most often, in terms of the companies with whom we work, they call it $10 to $30 million or so on their way to becoming $50 million companies and quote unquote graduating to the next tier of private equity providers. They have bootstrapped or maybe previously had some form of venture capital backing, but are now you know, they've been at it for five, seven, 10, sometimes 20 years. They have a really good business, they're at getting close to or above profitability, but they're looking for that next piece of growth and seeing diminishing returns. And that is where we commonly see what the motions that have gotten them there have largely been on the basis of the founding team founder or founders and their knowledge of the market. Then they're able to replicate a sales process and that typically has been more sales-led. But now they're appropriately thinking more broadly about how do we accelerate our growth and what are ways to do that.
Speaker 2:And it is not uncommon to hear well, we need to add a product-led motion to this. We need some form of that. And sometimes that's to the extent it's almost a throwaway comment from the board that says, well, here are the economics, and so this is what we need to have, because it is a concept that was birthed out of the startup era, which is a new way to go to market. That doesn't necessarily mean that we can take those same principles and apply them to an organization that has been in business for 20 years and has customers and already has pricing and packaging underway.
Speaker 2:So this conversation is designed to say what do we really need, what do we say by that, what do we mean when we say that, and what does it really take to have in place in order for us to have some success with this? And so we've actually got a couple of current situations where they're either looking at adding this motion or they've had it in some form over time and now we're looking at how that should, if it should, and, if so, how it will impact the rest of the organization. So we'll kind of talk through some of those things as we dive in, andy, before I kind of structure this out a little bit on some of the pieces that we found that help founders and CEOs walk through this. Anything to add to that?
Speaker 1:throwaway comment is probably the thing I'd like to twinge on, which is it's a business goal driven thing a lot of times, certainly when it comes from a higher level like that, like an investor, where we see the desire to have greater efficiency in customer acquisition typically, and the temptation and the line that is drawn is, if I do something that is considered product-led, I can lower my cost of acquisition, and that, on a very superficial level could be true, where if you do offer a free trial, if you do offer some kind of way to get someone in the door very, you know, cheaply, ie like just come on, you can try for free, it's a free trial, it's a pilot, it's whatever you want to call.
Speaker 1:It can try for free, it's a free trial, it's a pilot, it's whatever you want to call it. But what's forgotten is to your point about somebody who's been in business for 20 years they have probably a pretty ingrained onboarding process, especially if it's you know, it's one of these kinds of software products that you know is built on a slightly older stack, if you will. A little bit of it might look like hack-enabled service as opposed to pure SaaS. It's a different animal and therefore, getting someone to be able to get to a moment of value by purely using your product is is potentially very challenging and it's a. It's a. It's a much bigger gap than you know. Certainly somebody sitting on the board would like to you know, believe, probably I can get somebody on board cheaply, but do you get them happy and becoming a productive customer cheaply? It's a much different animal.
Speaker 2:It reminds me of the adage that your free trial isn't free, it's thinking through that. Okay, so let's talk about that very thing, because I think that's exactly the point. We talk about free trial or our product-led motion, we go look left, look right and we pull up examples that we have and say let's go do this and we do some work with Stage 2 Capital. I'm an LP there and I really like the way Mark tore this down as companies are thinking about Mark Roberge sorry, one of the co-founders of Stage 2 Capital Really like the way he tore down let's go down to basics. As we think about product-led growth as a motion Now, granted, this is for companies that are starting out, because that's where Stage 2 Capital invests, so that's a consideration. Because that's where stage two capital invests, so that's consideration. But as we think about the characteristics that make or inherently required to be there to have success with product led Andy, I think to your point it's a great way to say, okay, can we do this? And if not, then we'll get to this, maybe not even today but in a subsequent conversation is, when we talk about product led, it doesn't necessarily literally mean getting into the product, but how do we pull attributes of getting to a moment of value from the product and put them front and center to the buyer, and there are a variety of ways to do that, but a few of the considerations include that there's a low time and effort to retainable value, and so an example here that we run into all the time is the proverbial free trial. Oh, we'll offer a 14-day free trial Great.
Speaker 2:What does the user have to do in order to get to the moment of value? Well, they have to come in and they have to set up their account. Then they to I'm just using a specific example here, but, but you can apply this to many different industries they have to connect all of their platforms so they can pull in all their data. They need to, uh, create some uh, you know metrics that they want to see. Then they have a dashboard that they need to create. Then they need to share that dashboard with some of their stakeholders and get that feedback, and then, with that feedback, they then reach the moment of value.
Speaker 2:Oh, and, by the way, our free trial is 14. Wow, that is a lot of work that the user has to go through to get to that moment of value. Do you think they're going to do it in 14 days? More importantly, knowing that, do you think they're even going to bother to get started? So that's a classic example of how much effort does it take to get me there and it may, just given where you are and what you're trying to accomplish. The business problem you seek to solve is that it's actually very difficult, if not impossible, to have this as a solution.
Speaker 1:One thing this is kind of a side note, but I was just having a conversation with someone and you just reminded me of it with all the data, so they're in the data space, like contact data sort of thing, and talking about it and it's a big considered purchase. And while we were talking about it I said, well, the money's one thing, but it sounds like there's a lot of work here and it just kind of came to me was if there's a bunch of work required by a customer to get to a moment of value using your product, that is part of your product. You need to think about that as part of your product, whether you can facilitate that or whether you still have to leave it all up to them. You know you give them good instructions but they've got to do it.
Speaker 2:It's part of your product, it's the product with a capital P, as we like to say. So there's a few here that are related to the low time and effort to value, primary value created for the end user versus the company, and then, very closely related to that is what they call single player mode, which is this idea that I, the individual user, can come in and, with very low effort, get to value that not only is immediate but retained and ideally builds over time as I use the tool as an individual. Right Now. Here's another consideration. That may be entirely possible, but if I'm selling into an industry whose data privacy or legal or tech considerations prevent an individual user from procuring software, even if it's free, because of terms of service or privacy policy or whatever, you have just precluded yourself from even making that an option, it could meet all of those triggers. But if you don't understand that about your user and you're trying to sell into larger enterprises with that approach no-transcript Perhaps, but you're seeing that less and less so that's an important component as well. Still do it, perhaps, but you're seeing that less and less so, that's an important component as well. So all of those around that single player mode and thinking about the holistic path in is really important then there is then, I think, these this is an important component as well which is pricing and packaging that monetizes the company versus the end user. So this in a true product led motion, it's this classic case of and we all lots of examples out there but we come in and we can use the product for free. It actually has sustained and retained value over time to us as a free user, and they literally are building this tool to be a free forever, like you can continue to use it. But as you start to interact with others, especially inside the organization, there comes a point at which now there's value to the company and now the company needs to pay for it, and so if your product is inherently not designed for that, it's going to be very hard to make that connection. If it requires a company decision first, then for the users to get value from it, then it's going to be very hard to introduce a product-led motion. And then, lastly, is in this case, the free approach, but low free user cost of acquisition or CAC, and gross margin. So the idea that you can acquire free users very effectively and that even in, let's say that you monetize the individual users that you can do so with a very high gross margin. So these are some core considerations.
Speaker 2:Again, this is geared to those companies that are starting from scratch and thinking about this motion. And then there's you know, the industries that we can think about. The classic case is if you're trying to have some ERP-like functionality that requires connecting all the systems together and you're talking about forecast accuracy and things like that, that is not likely a product-led, that that is not likely a product led, that there the ingredients for being product led are probably not there, because the decisions and the systems to which you need to connect are so critical that it's hard to get to a single player mode. So I think that's the as we think about rolling out that motion. That's really important is how do we get to that individual user value, what is the environment that they're in, and can we connect the dots between individual user value and organizational value?
Speaker 1:I think it's super critical just to just to. It's like when you we have the classic list like what are the pros and cons of doing whatever? And you kind of write it all down, write it down and compare it to that list, like, are we even? Like, are we even in this ballpark? Because, again, what you're hearing and what you're hearing from people that don't do gtm for a living is, I think you should do product led and it sounds kind of easy like we'll do a free trial, can't say it enough, like we've heard this, we literally have heard this. But if you don't fit, if it doesn't even fit, then you really I mean immediately, it's kind of a disqualifier Like you can't just, you can't just cram it, cram it into your business and we can talk about. Once you do, once you do start product led growth. It introduces a whole bunch of other things because your, your company, kind of shifts that way.
Speaker 2:But yeah, that's a great segue to the next component, which is as we get started with product-led growth. I also like the way and we'll we'll link to this in the show notes and actually we're going to conclude this as one of the our favorite resources out there, because it's helpful uh, at least as a reference point, is that we we actually have sequential metrics as we think about this. So when we fir and this is really hard for an organization that has been predominantly sales led, right. So if you let's boil, let's go back to we're going to start our company from this perspective First metric is that we need to establish that we can get a flow of free users to the product, and we do so through experimentation. Like, we can find a flow of free users to the product and we do so through experimentation we can find a way to get you there and get you activated. That's the first step, right?
Speaker 1:Activated, meaning you set up an account. It's the physical, like I'm just here, not per se using it, but I'm here.
Speaker 2:Well, and I would say the usage, the activated would would be not only that you've set up an account, but you've gotten to some initial moment of value, right? That's the idea that you Okay, right.
Speaker 2:That's going to that first piece there that you can come in, you sign up, but it goes back to we go back to the original, which is ideally that moment of value happens. Within that. I set up up my account. Moment of value very, very quickly. Right, very quick.
Speaker 2:The next step then is can I prove retention the next week, the next month, the next quarter? Like, not only do you sign up, can I get you to do that, but do you actually use it? And then use it more and more and more? That's the next metric. Can I prove that Right Now? Once I've established that I can acquire and retain, then I come back to okay, great, I can acquire and I can retain and, better yet, not only retain but expand usage so that there's additional value that's realized as I continue to use it. There's additional value that's realized as I continue to use it. Now, can I acquire quality users at scale? Can I pour some fuel on this and have all of those metrics still stick? Or, if I start to pour fuel on it, the whole thing falls apart because, frankly, lower quality users they come in, they sign up, but they don't retain. So it's like can all three of these coexist Then?
Speaker 2:The fourth one, then, is now, can I migrate a user to a monetized user? Now, is it the individual, is it the company? There's other pieces of that, but can I do? And that's this sequential step. So, to your point, andy, it's not just turning on product-led growth, and that's the biggest challenge that we have seen with companies that already have a sales-led motion is that they're used to seeing okay, we're going to apply effort here. In one and in relatively short period of time, that effort will start to realize that it's turning into revenue, when this journey is a longer journey to, first of all, to prove it and to prove that it's scalable, and that is so often missed as we think about. Okay, what are the stages? If we're going to do this motion, what do we need to do to prove each of these four metrics?
Speaker 1:There's a lot less speculation here or even ambiguity. To me the problem all comes in with when those that don't realize the implications of saying the implications of saying, like my business goal is to reduce the CAC, for example. So I see these other businesses out in the world doing that through these means and I think we can do that. But you have to go through the formula and the recipe and recognize whether it is or is not a fit for you, whether you can actually achieve those things. You can go through those sequences and get somebody on board, get somebody on board on their own, getting to a moment of value Like, if that can't be done, there's no clear path.
Speaker 1:You've tried it three different ways and it doesn't happen. And then you go back and recognize that we actually don't check a lot of those boxes from Mark Roberge. Then you know that's where I think the problem occurs. Then you know that that's where I think the problem occurs, like there's a business goal we want to impact, um, but we're just never a good fit. So to me the formula is pretty cut and dry like this this is, this is quite established in fact um, but that there's a disconnect between those facts and what people want to achieve.
Speaker 2:Yes, indeed Well, to that point too, I think. Then we start thinking about what are the implications on the organization, and this is a difficult one as well. Right, because there is a level of commitment. I guess you can't kind of do a product-led motion right, there really isn't like, well, we'll experiment with it and see how it works. You really have to decide you're going to do it and commit to it or you really aren't.
Speaker 2:And that's a challenge, because what a lot of organizations seek to do in launching something that is some form of a product-led motion, whether it's a free trial, or maybe it's a self-serve motion, that's a certain amount per month, or maybe it's a free forever, or whatever product-led component they want to add, is they want to do it with the existing team? Is they want to do it with the existing team that, by the way, whose day job is to support the sales-led motion? We need leads, we need demos, we have salespeople going through the process, we have customers to activate and onboard, we have annual contracts, we have all of those things, and we just went through these very different metrics that are necessary for product led in order to have that degree of success. And so there is almost. There really is a price of admission if you're going to do this, and in some cases it can be new people, new talents that we're not exactly sure where they fit in the organization or where they live or what have you, and so you know you think about the proverbial growth team. It's really more of a cross-functional team.
Speaker 2:We obviously, if we are going to have a product-led motion, we need to have some form of product and engineering who are closer to the tip of the spear, right. They really need to be seeing and looking at what users are doing in the platform almost in real time and and getting learnings from that and then disseminating those learnings across the team, while at the same time, we need to understand not just the users and in the platform, but from where did they come, because that is going to have an implication again on are these quality users and what happened? It's that that this, the, the, the line of demarcation between marketing and product is literally invisible.
Speaker 2:Yes, you need product and engineers thinking like marketers and marketers thinking like product and engineers and usage in the product, and you're orchestrating that. That's a. That is a not an insignificant change for an organization like that.
Speaker 1:I think that's the. That's well, it's. You know there's. There's actually a question with self-serve and product led, and you know what's a subset of which. It's an open question. That's not, I don't think, fully been completely answered yet.
Speaker 2:Well, it's the point of the roles is that we have to acknowledge and lay out, okay, what is required for us to have success, to run this program and identifying. Are there people on the team who can step into that role? But again, we have to be careful that we are not asking them to do this on the side of their desk, right here's your day job and we also want you to do this. That's the kind of the idea behind the price of admission is that if you're going to do this, you need to commit to this for a time so that they are committed to its success. Jason Lemkin recently referenced this in terms of a product-led motion.
Speaker 2:Who's your VP of free? You have a VP of product. You have a VP of growth. You have a VP of marketing, vp of sales. Who's your VP of free? If it's the acquisition vehicle for you, who owns it? It can't be somebody who's in the product as a whole. It can't be somebody who's responsible for marketing as a whole or acquisition users or whatever, but who's actually responsible for the whole experience getting you into your orbit, getting you to commit and activate, getting you to that moment of those four metrics acquire, retain, expand and monetize. Who's responsible for all that? And that is something that organizations of this size that doesn't necessarily sit natively inside your organization right now.
Speaker 1:We mentioned side of the desk and that's kind of what I was trying to get my head around earlier is can you actually do both, Like, let's say, sales-led and product-led? Can you actually effectively do both?
Speaker 2:As an individual or as a company.
Speaker 1:As a company, especially smaller companies, like, do you truly have to commit to say like this is kind of our model? Now, right, I think is a question you have to ask, because otherwise you kind of are doing it off the side of your desk. Yeah, that's it. Your business goals are going to kind of be stretched. They're going to kind of be, you know, in conflict potentially with one another.
Speaker 2:That is a fantastic point, which is, if we're not, if we back to your original point, if our primary goal was to introduce PLG, to reduce our CAC, as one of the vehicles to do that right, to accelerate growth and do so more efficiently, that presumes then that the product-led motion is acquiring the kinds of customers that we want to acquire and be able to monetize down the road. A lot of times, to your point, what happens is, when we introduce this product-led motion, we actually are successful in acquiring customers and their users and we can monetize those users, but they do not turn into the customers that we originally wanted. And now we basically have two customer bases, two motions, and we don't get the compound benefit of thinking through those two things together. So back it all up and think about what we're really trying to do is we're trying to engineer a business model design that is an incredibly efficient compounding machine. We are using the product-led motion to reduce the friction on entry and then ideally connecting it to corporate value. That allows us to very efficiently expand, almost having the product pulled through the organization. That is more business model design, using product-led elements as a component of the engine, not just adding it as its own thing. And so, related to that, then comes the. Now we're thinking through, as we add, this product-led motion again, because, well, it goes back to, hey, who is our ideal customer? Who is that target? Very, very specifically? And now we can begin to reverse engineer our product-led motion around the realities of that target. Can we actually do a single player mode?
Speaker 2:Today we sell to the. You know, we sell to the, uh, real estate management department. As an example, right, there's a team of people that are managing the real estate footprint for various businesses. Let's say it's a retail location or whatever, right, warehouses, they have a retail footprint and they've got people all over the place. We sell to the person who leads that organization. Could we atomize the tool so that we could add value to the people in the field or on the ground or whatever it is, so that they can get value from that but then connect it back to that? There's so much value delivered there that they can connect it back to that leader. So it's you really have to understand that target before you can take that approach, and your product led motions should be built on that basis, not let's run. It's almost like the product-led motion is. The is the goal. We're going to have a product-led motion. Fantastic, to what end?
Speaker 1:well, what it, what it all boils down to. I mean, I love the icp reference, right like let's reverse engineer that to see if that even fits. It's also the business model. And guess what? You can't take what you want and force it upon customers. Sure, yeah, you want it to be like a low cost, on-ramp for your product. I get that. Do they want that? Does it make sense, right? Does the model work? Does it fit them? And you know those are the. Those are the things that you know we worry about being overlooked. When we, when we decide we're going to do something like this, it's there's, you know, it's kind of the measure twice and cut once. Before we go out with a free trial, do we have our ducks in a row and really understand exactly what you just described? Are they, is there a place for this for our customers, and does it get us to the kinds of customers we want and long retaining customers?
Speaker 2:And one element in terms of the team structure that's also critically important, that that we actually like is a catalyst for the business, is the need for the analytical, or data analytical side of it. Because if you think about, if you think about again those metrics, getting new users to your especially ideal users of your ideal customer profile, to your product-led thing, and then retaining them being able to do that at scale efficiently and then monetizing. That is a system in and of itself, and so you and and changes in one part of the system will negatively or positively impact another. So you could actually, uh, theoretically degrade, uh a a metric at the front end. Ie, you're going to actually introduce a little friction at the front end so that you get higher quality, that such that the system actually produces a better outcome. But if you're only focused on that top metric number of new users as an example, then you haven't optimized for the system, and so it forces you to optimize for the system. That mindset needs to exist for the entire revenue engine today.
Speaker 2:Right, we can't seek to pursue local maximums. Well, marketing is killing it with leads. I don't know what the problem is down funnel. Well, we haven't driven more throughput, so we actually haven't done anything right and we need to think about the system. So that discipline actually one of the benefits of adding a product-led motion is it almost forces that discipline, because you have to have those cockpit controls in order to understand what's working, to make those tweaks, in order to because it's you're not talking to the if it's truly product-led, you are not having conversations with the customer. You can't ask them those questions. You can attempt through surveys or what have you, or interviews, but you're not. It's not like they're going through a sales process talking to a salesperson, talking to an onboarder, getting activated, having a CSM. You don't have that, that visibility, and so you need the data to help you gain that visibility. So that's definitely a positive out of that.
Speaker 1:It's almost just one minor detail is if your product allows for meandering. So I just thought of one thing there which is instrument, your product, so you can understand usage. But if that usage is ambiguous, that makes that inherently more difficult, right? If it's pretty straightforward, like if we can see these things through product analytics, we know it's pretty good, that's on average conducive to product-led growth. If it's ambiguous and it's like, well, it could be one version of 100 different flavors, then that makes that more challenging.
Speaker 2:Right flavors, then that makes that more challenging, right? Well, the stage two capital team is a big proponent of what they call leading indicators of retention, and that's one of those, which is can you actually validate that, when people do certain things or get to a certain point, that they're realizing business value and I think a lot of times we think of value as utilization or feature usage or what have you, and that's not necessarily true. People may be coming into your product and they're getting a lot of value out of it with very little usage. Now, that's not very healthy, but that may be actually the case, and so we can lean into that versus those that come in and kick the tires on everything and use a lot of different features but there's not the value that's felt, there's not the business outcome change that's felt. That that's that's not. Those are not leading indicators of retention, those are false positives, right? So that's critically important.
Speaker 2:So there, we're going to put these thoughts together into a short to provide some of this. We're also going to build a resource, because this product-led idea obviously isn't going away. We're going to see more and more companies that are doing this from a start standpoint. More and more companies are starting with a product-led notion, but I think the biggest challenge for companies that are already out there is how do I introduce this product First of all, should I, should I? Then how? And there's the advice that's out there, for a product led motion is so skewed probably appropriately, towards the formation stage of a company, like how do you think about it and then how do you scale up, which is then adding sales to a product-led motion.
Speaker 2:It's the inverse of what we need to do, and while the core elements of product-led success are the same, how you get started in what order with very limited resources is different, and so we want to be able to provide some structure to that, so that we don't have companies heading off to the wild wild west on the behest of a board member before they've really thought through all of the implications. Okay, with that, we wish you a wonderful Easter weekend and we will see you next week. Bye, thank you for tuning in to GTM Pro, where you become the pro. We're here to foster your growth as a revenue leader, offering the insights you need to thrive. For further guidance, visit gtmproco and continue your path to becoming board ready with us. Share this journey, subscribe, engage and elevate your go-to-market skills. Until next time, go be a pro.