product-led growth is the future
1. What is Product-Led Growth?
I am going to be very clear: the future is product-led (as an evolution of “sales-and-marketing-led”) But what does it actually mean to be “product-led”?
Here’s my take: “Product-Led” growth is a go-to-market strategy that relies on product usage as the primary driver of acquisition, conversion, and expansion.
To be honest, I have been thinking for a long time now that product-led growth flips all the elements of sales-and-marketing-led around. For example, those models create a need for the product by focusing on the promise of what the product can deliver, something like “business leader is seduced by how a product can increase their ROI, business leader schedules a demo with a sales guy, business leader signs a deal, onboarding ensues” …. Rings a bell?
Product-Led growth models always start with the product. Give it to the end users. When any user sees how much the product has helped them, they will share it with their friends and their teams. Have the end users and not the decision makers fall in love with the product.
And that’s how the product spreads – faster and more efficiently at every phase of the customer journey.
Product-led growth has low acquisition costs
Try to remember the first time you heard about Slack, Dropbox or Calendly. How did you start using them? I am almost certain that it wasn’t because of an ad or a whitepaper and that you had never heard of them before starting using their product.
Maybe someone you knew used Dropbox or Calendly. They sent you a file or an invite. You opened it. Suddenly, you are a user. How much did it cost for a product-led growth company to acquire you specifically? That’s right — exactly zero dollars.
Now here’s the rub: your product has to be really, really great. And the corollary: bye bye to the stupidity of “oh I am going to dump an MVP and measure ourselves to adoption” – if you truly don’t have a product that you are sure your customers will love, don’t release it.
Product-led growth is all about better user experience
When your product is everything you got, your focus is 100% on making it the best it can be – and user feedback is at the center of everything you do and you are truly doing everything you can to create the best experience for your user.
Product-led Growth increases retention …
…. And in turn, reduces churn. Think about it: customer success teams need to know who are the users who aren’t finding value in the product and what features they might be missing on. Because product-led models focus on how users are interacting with the product, CS teams have the data on user engagement on a real-time basis – this gives them a very good perspective in helping reducing churn.
2. Product-Led Growth Metrics
Even-though a lot of product managers focus a lot on conversion rates, I believe this is part of the vanity metrics that can be discarded very fast in the light of the following few.
Activation rate: A measurement of how far along a user or account is in their journey toward “first value” or the “aha” moment where they realize how great your product is.
Start with a list of actions a user would need to take to get set up and get value out of your product. It’ll vary based on your product. You should try to stick to 5-10. This is your Activation checklist. Activation rate is just the percent of those checklist steps that are completed. You can measure it by user, by account, or for your product as a whole.
Churn Rate: the percentage of your customers who stop using your product during a given time period.
Please note that usually “churn” is measured at cancellation – I think this is wrong because most of the time user churn starts way earlier than when your user cancels – it starts when they stop finding value in your product and stop using it.
In fact, churn really measures how happy users are with the product in the long term. The emphasis placed on churn and retention rates is just one more way in which product-led growth puts the product front and center. You have to work to win over your customers every term or they’ll go to the competitors. That means focusing on new features, bettering the features you already have, or increasing engagement with the product. Since customers aren’t signing long-term deals, their choice to stick around shows your product is delivering them long-term value.
DAU, WAU, MAU (daily, weekly, monthly active users): the number of users that are active in the product for any given time period
Please note that the “AU” metrics have been largely discredited when taken “as is” because they result in having product managers obsess on them and transform them largely into vanity metrics that don’t measure a lot if your user base is small – less than a few millions – which is very predominant in the B2B world. Prefer ratios like DAU/MAU expressed as a percentage of total users for example. That said, understanding how many users are using the product actively for any given set of time is key to understanding if you’ve been successful in your mission to keep the focus in the right place and nail the user experience.
Let me know what you think!
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My name's phil mora and I blog about the things I love: fitness, hacking work, tech and anything holistic.
Head of Digital Product
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