Why product-led growth is really customer led

February 13, 2022 (2y ago)

Ask anyone to name some of the biggest and most loved SaaS tools. Chances are you’d hear names like Slack, Dropbox, and Zoom.

All three of these practice what’s called Product-led growth (PLG). An approach that LinkedIn, Stripe, Intercom, and Mailchimp also adopt.

PLG is gaining steam and it seems to really work. But is Product-led growth, as the name implies, actually about the product?

Here’s what’s in this article:

  • How did we get to Product-led Growth?
  • What is Product-led Growth?
  • The success of Product-led Growth
  • Why PLG is less about product and more about customers
  • Discerning what your customers actually want
  • Mapping customer insights with Jobs to be Done
  • Sharing key insights with your team
  • What happens when you leverage customer insights

How did we get to Product-led Growth?

Blake Barlett, Partner at OpenView, divides software into three eras.

First was the CIO era. In the 80s and 90s, CIOs in large companies were the main people purchasing software. The question software had to answer was, “will this be compatible in x enterprise environment?” And so the go-to-market strategy for software companies revolved around sales teams, huge sales contracts, and (by today’s standards) exceptionally long sales cycles.

Then in the 2000s, we entered the Executive era. Instead of buying software for 6 figures, people started renting it for much less. Non-technical executives became the primary buyer and their main question was, “will this help us meet company goals?” Marketing executives and inbound tactics drove go-to-market.

Now, according to Barlett, we’re entering the End User Era where individuals drive decisions and the product leads go-to-market. The end-user, not the CIO or other c-level executives, hold decision-making power and their main question is, “does this add value to my day-to-day life?” And so product decisions, product marketing, and product distribution all focus on the person who uses the product.

What is Product Led Growth and where does it come in?

Product Led Growth (PLG) is the movement surrounding the End User Era. It’s how smart companies (like Slack and Dropbox) are leveraging the realities of modern SaaS to their advantage.

Open View describes PLG as “a go-to-market strategy that relies on product usage as the primary driver of acquisition, conversion, and expansion.” The product defines how you get, keep, and find more customers.

Top performers in today’s SaaS world, such as Shopify, Atlassian, Zoom, and Twilio, all rely on this go-to-market strategy. And for good reason. Compared to other players in the SaaS market, PLG companies have over 2x enterprise value, over 1.5x revenue, and over 9% higher revenue growth.

Product-led growth is simply good business In Inspired: How to Create Tech Products Customers Love, Marty Cagan describes a high-profile project he worked on at HP in the mid-1980s.

After a year of intense stress and labor, his team finally released a new and fancy product. It met HP’s strict quality standards, reviewers loved it, and it was technically impressive. Cagan says there was just one problem: “No one bought it...it wasn’t something people wanted or needed.” The product, of course, failed.

Cagan vowed he would never again work without evidence the end-user wanted the product he was building.

He’s had 30 years of experience since then, and he’s learned that every truly great product is driven by someone who combined technology and design “...to solve real customer problems in a way that met the needs of the business.” The best products—the kind that customers love, use, and tell friends about— deliver value to both the business and the customer.

Starting with a real need and delivering value to meet that need are two tenets of PLG. And really, neither of those are new.

Back in 2003, Samsung conducted research to identify ways to improve their TV line. And they learned something interesting. TV watchers were less concerned about showcasing flashy features (e.g. big speakers) and more concerned about how the TV fit into their home as a piece of furniture. So Samsung designed a new TV that was graceful and sleek. They catered to the end user, not commercial manufacturers or distributors. By doing so, they sold a million units in six months and are still the leader in the TV industry today.

Other smart companies have been building their product around the end-user for years, and that’s because it’s good business to do so. Kristen LaFrance explains, “At heart, Product-Led Growth is incredibly intuitive. It’s understanding that no amount of flashy marketing or hard selling can replace the value a customer receives from a product built to fit their needs. Make something that consistently provides value and you can rely on your customers to come back again and again.”

Make something that provides value to the customer, and do it well. That’s not new rocket science. That’s good business.

PLG puts a heavy emphasis on product as the means for acquisition, retention, and expansion. But this can lead founders down a dangerous path. After all, it’s not exactly the product that’s the star here, it’s the way the product delivers value to your customer. ‍ In Escaping the Build Trap, Melissa Perri outlines how many companies focus too much on product. They start by looking at the customer but then turn inward to gaze at their feature-filled navels. Startups have a tendency to move away from customer outcomes and toward company outputs. After all, outputs are easy to see and hold; they’re features shipped, bugs resolved, and other tangible metrics. Outcomes have less defined metrics; they’re pains solved and solutions created for customers.

Whenever product outputs become king, teams start gaming the system and the company loses sight of the customer.

Value, Perri explains, is generated when a customer’s pain or need is solved in a meaningful way: “One one side, customers and users have problems, wants, and needs. On the other side are businesses that create products or services to resolve those problems and fulfill those wants and needs. The customer realizes value only when these problems and resolved and these wants and needs are fulfilled. Then, and only then, do they provide value back to the business…”

Value doesn’t come from a feature-filled product. It comes from understanding your customers’ problems, wants, and needs and exactly how to meet them.

What does this mean for you? The key to Product-led growth isn’t really your product; it’s your customers. Here’s how you lean into that reality. ‍

How you can discover and act on what customers really want Customer problems, wants, and needs aren’t lying around on the pavement like discarded pennies. To find these insights, you have to research your customers.

ProfitWell looked at over 3,000 SaaS companies and found the ones investing in customer research grow 2-3x times faster. Forrester found moving up just one point on their customer experience index translates to an extra $244 million in incremental revenue. And Hubspot discovered, “Firms that regularly research their client markets (at least quarterly) grow more than ten times faster than firms that don't conduct research.”

If Product-led growth is fuel for today’s top SaaS companies, customer research is the match that ignites it.

So what is customer research? Customer research is a discovery or learning technique that helps you answer questions about your customers and make better decisions about your product.

And contrary to how some startups view it, research isn’t asking customers to build your product for you. When you talk with customers, you’re not asking them to hand you a roadmap. You’re looking to learn more about their reality, so you can make better decisions. You’re still innovating the solution—you’re just doing it more effectively with customer research.

While there’s plenty of nuance to research, the gist is you want to identify insights, map those to the customer journey, and share them with the team so they can deliver value to the customer through your product.

How do you identify insights? Leveraging the power of Jobs To Be Done One of the most powerful ways to find actionable customer insights is with Jobs to be Done (JTBD), a framework created by Tony Ulwick at Strategyn and then popularized by Clayton Christensen at Harvard Business School.

The basis of the framework is this: Customers don’t buy products. They hire them to do a job. A job is a specific type of progress your customer wants to make. That progress could be functional, social, emotional or a hybrid. For example, when market consultant Stephen Wunker, worked with a credit card company to identify jobs customers wanted to hire out, he discovered customers hire the card to:

Resolve travel mishaps (functional) Display status to peers (social) Escape workday pressures (emotional) ‍ These showcase the four characteristics that define a useful job:

Jobs are product-agnostic. They exist regardless of whether or not your product or solution does. Someone may use a CRM tool to add more contacts to a database, but the reason they hire the CRM has nothing to do with the database (a product feature)—it has everything to do with closing sales (a product-agnostic outcome). Jobs don’t change over time. Customers in the credit card scenario above wanted to escape workday pressures and display status—outcomes people have wanted for centuries. A job exists whether it’s 1980 or 2020. Jobs are anchored in context. Jobs don’t live in vacuums. Every job is surrounded by pressures, expectations, pain points, lifestyle choices, and options that define the customer’s world. Understanding this context is part of the power of JTBD. Jobs aren’t complicated. The method of uncovering a job can be complex, and people are certainly complicated. But the job you find will be neither of these things. It will be straightforward and obvious. And while this may feel very theoretical, the JTBD framework has huge implications for your product. Because once you understand the job your product does and how customers come to need that job, you can identify very specific ways to boost acquisition and revenue (more on that later).

One way to organize how customers come to need a job is a customer journey map.

A customer journey map organizes JTBD insights around the customer Mapping the customer journey means identifying not only the customer’s context, but important factors within that context. Such as struggling moments, driving forces, potential solutions, motivations, and the desired outcome.

Key distinction: this isn’t about fitting customers into your outcomes; it’s about fitting your product into theirs.

And as Georgiana Laudi proves, investing in an accurate customer journey map has huge ROI potential for your product. Laudi first spied this kind of map at Airbnb’s HQ in San Francisco. She recognized it’s potential and within weeks created her own version for a growing SaaS startup where she lead marketing.

Laudi explains the map “...became the basis for nearly every marketing, growth, and customer success decision we made from that point on.” The following year, the startup grew revenue by nearly 900%.

What insights you need to find in order to map a customer journey Imagine it’s 2011 and you’re trying to build a new video messaging company called Zoom. You don’t have any customers of your own to interview, so you pinpoint a few people who use WebEx (a competitor) regularly.

Here’s the type of JTBD information you’re listening for when you conduct those interviews:

Struggling moments What this is: Current or previous events and situations that caused your interviewee to change their status quo or seek a new solution. Example: “Our company opened up a new office in New York and our Austin team works closely with them. All 20 of us need to meet every week over video to talk through what’s working and what isn’t.”

Driving forces What this is: The emotions your interviewee wants to feel or wants to avoid feeling by changing their situation. Example: “It’s really frustrating to set up a big meeting and then not be able to hear the other person because the video is crap. It feels like I wasted an hour of my work day—sometimes more.”

Existing solutions What this is: How your interviewee is currently solving the problems you identified. Example: “I use WebEx 2-3 times a week to talk with coworkers.”

Alternative solutions What this is: The alternative solutions your interviewee considered, before they settled on the current solution. What did their status quo look like beforehand? Example: “Before I started doing video calls, I would direct dial someone or cc the whole team on an email. But the email chain always got long and complicated, and talking with just one person on the phone left everyone else out of the loop.”

Motivations What this is: What your interviewee is trying to accomplish by hiring a new solution. Example: “I need to be able to collaborate with the rest of my team so we can get our work done on time with less miscommunication.”

Desired outcomes What this is: How your interviewee believes their life will be better by solving the problem with a new solution. Example: “I want an easy way to connect with my nationwide team, whether I’m in the office or around town, so we can move faster and stay ahead of competitors.”

Note that you can’t make these insights up. You have to pull them from existing or prospective customers. Once you do, you’re ready to arm your team with the information they need to drive product-led growth.

Democratizing insights and equipping teams for product-led growth FullStory surveyed product teams at over 100 SaaS companies to understand some of the biggest challenges implementing Product-led growth. One of their key insights was “Customer success requires cross-functional collaboration but aligning across organizational efforts is a challenge.”

Unfortunately, too many companies exacerbate this challenge by putting qualitative data and customer insights on the shelf. This kills collaboration and alignment. To be truly useful, your customer journey map and the insights that accompany it need to be accessible to all team members.

Laudi notes, “There is no room for confusion or fuzziness. Every single person in the company has to have a crystal clear understanding of the success milestones in their customer’s relationship with them.”

There are many ways to do this. Some companies appoint specific personnel to ensure clarity. Klayvio, for example, has “sages” for particular products or areas of products. A sage’s job is to gather all of the customer feedback and represent the voice of the customer in regular meetings with the Product Manager.

Smaller teams may have regular meetings to discuss the most recent interviews and insights. Or post the journey in a public space in the office. Or both!

Whatever the team size and distribution method, the goal is the same: arm teams with the customer insights they need to deliver value and big results.

Because when you do, extraordinary things start happening.

Real examples of customer insights fueling Product-led growth Product-led businesses see more revenue, more growth, and more retention. And the key to their success in all these areas is rich customer understanding. But how do startups turn that key? And what does implementing customer understanding look like?

Intersecting the customer journey to earn more traffic and revenue Asia Matos, an early-stage SaaS growth consultant, partnered with Motivo (a HIPAA-compliant platform that connects therapists to clinical supervisors) to alter their go-to-market approach and hone overall marketing strategy. Matos started with interviewing existing customers and discovered, “...a very clear behavioral pattern emerged in how customers found Motivo, how they found competitive alternatives, and what barriers to entry they were facing.”

Matos organized these patterns into a customer journey map. Then Matos and Motivo built targeted landing pages that intersected with the customer’s journey. This, paired with a few other marketing activities, yielded incredible results. In 4 months, Motivo tripled their MRR and doubled their monthly website traffic.

A similar playbook has worked well for other companies too.

Casper, the mattress startup with a $1B valuation, identified that customers are most likely to consider a new mattress between 1-3 AM. Through customer interviews, they learned that a unique set of triggers (like getting a dog) prompted potential buyers to think seriously about better sleep. Based on this customer journey, Casper produced content for their 2am restless sleepers and targeted keywords such as “how to go to sleep earlier.”

Google search results for Casper They then retargeted readers through ads to move them further along the buying decision. Knowing what their customer’s journey looked like enabled Casper to create a smart and effective marketing strategy that set them far above competitors in a crowded marketplace.

Increasing conversion rates with voice-of-customer data and insights Amy Hoy had a “just okay” landing page for her SaaS product Noko. But when there are hundreds of thousands of SaaS products out there, “just okay” doesn’t cut it. Noko’s conversion rate was bad and Hoy knew why.

The old page did exactly what most SaaS landing pages do: focus on the company. She explains, “Everything focused on the product, not the reader. Features, not pains. Solution only, with the barest hint of what the solution is for.” So Hoy flipped the script.

The new page starts off with a direct quote from a customer.

Landing page hero copy for Noko It goes on to describe the pain the customer experiences and the outcome they want to reach. The result of focusing on the customer and meeting them where they are? A 2.4x increase in conversion rate.

Asia Matos helped Exposure, a publishing platform for photographers, see similarly impressive results with their homepage. Through customer interviews, Matos identified how photographers found Exposure and what they valued when they did. Matos and Exposure refined the positioning, messaging, copy and more. And when they redesigned the homepage around the customer journey, Exposure’s visitor-to-free-trial conversion rate increased by 68% and translated into a 2% lift in MRR...in less than 30 days.

Reducing Time to Value in onboarding for higher user activation When it comes to onboarding, many companies focus on specific elements like tooltips, videos, and guided tours.

But these companies miss the forest for the trees. Users don’t care about tooltips. They care about outcomes—outcomes that deliver value. Samuel Hulick, an expert in user onboarding, explains, “...the really relevant question isn’t, ‘How do you show people your product?’ The really relevant question is, ‘How do you actually help them do what they want to do?’

For Hiten Shah, the only way to answer that question is to understand your customer and their journey. He says, “To get onboarding working properly, you need to really understand your customers—their needs, pain points and typical behaviors. You can then use that information to create an effective product experience.”

For Shah’s latest company, FYI, this means ensuring that when a new user sign up, they can connect to apps they already use within two minutes. And they can find the documents they’re looking for (FYI promises to help you locate files) in 3 clicks or less.

Because small boosts in onboarding success means huge improvements for activation, companies can see massive revenue gains here.

Appcues was sitting at a 13% completion rate for moving news users from sign up to the “aha moment,” the moment when everything clicks for new users and they realize the value in your product. Thirteen percent was an okay rate, but Appcues knew they could improve. And when they watched user onboarding sessions in Fullstory, they made a crucial discovery: most customers weren’t making it to a critical value page. With the help of a simple redirect, Appcues improved the value journey in onboarding, and completion rates jumped to 32%. Director of Marketing, Ty Magnin, explains, “That means 150% more new users signing up for Appcues are finding their Aha Moment. Which means the world for our activation rate.”

Want to get started with Product-led growth? Start with customer research Product-led growth works because it starts and ends with the customer. And that means in order to see big results from PLG, you can’t skip researching and interviewing your customers.