Why Product-Led Growth Is of Rising Importance

Editor’s Note: This article covers one chapter from the book, “Product-Led Growth: How to Build a Product That Sells Itself,” written by Wes Bush, founder of Product-Led Institute.

First off, what the heck is product-led growth? Initially coined by OpenView, product-led growth is a go-to-market strategy that relies on using your product as the main vehicle to acquire, activate, and retain customers.

If you’ve used Slack or Dropbox, you’ve witnessed this firsthand—you didn’t read a lengthy whitepaper on the benefits of strong internal communication or cloud-based file sharing. You wanted to see the product in action!

On the surface, product-led growth may look like a simple model for your buyer to try before they buy.

However, if we look deeper, product-led growth is a completely new way of growing a SaaS business.

As Allan Wille, co-founder and CEO of Klipfolio, puts it:

“Product-led growth means that every team in your business influences the product. Your marketing team will ask, “How can our product generate a demand flywheel.” Your sales team will ask, “How can we use the product to qualify our prospects for us?”  Your customer success team asks, “How can we create a product that helps customers become successful beyond our dreams?” By having every team focused on the product, you create a culture that is built around enduring customer value.”

By leading with the product throughout an organization, product-led companies often benefit from shorter sales cycles, lower customer acquisition costs (CAC), and higher revenue per employee (RPE).

Product-led growth isn’t just about disrupting “how” SaaS companies sell — it’s how you survive.

Right now, a tsunami is coming to wipe out thousands of SaaS companies.  

In this article, I’ll walk you through the three tidal waves coming ashore and show you how to avoid their potentially disastrous consequences.

The Three Tidal Waves Coming for Your SaaS Business

Tidal Wave 1: Startups Are More Expensive to Grow

In one sense, this is counterintuitive. It has never been cheaper to build a SaaS company. (HackerNoon even goes so far as to claim that you can now build a SaaS product with $0.)

However, because of this low barrier to entry, there’s no shortage of competition. As a result, argues Andrew Chen, it’s becoming more expensive to acquire customers. Just take a look at these three channels:

  • Facebook: 171% increase in cost per thousand impressions, or CPM (2017)
  • Twitter: 20% increase in CPM (Q4 2017)
  • LinkedIn: 44% increase in CPM (Q2 2017)

There are other channels, of course, but these numbers hint that, well, marketing isn’t getting any cheaper. According to ProfitWell, CACs have increased by over 55% in the last five years. During that same period, customer willingness to pay for features has dropped by 30%.

So, on one hand, we have rising costs; on the other, we have a lower willingness to pay. You don’t have to be a financial whiz to understand that this means your expenses go up while your profitability goes down.

If you have high churn in your business, this tidal wave may be lethal. Wouldn’t you agree?

Tidal Wave 2: Buyers Now Prefer to Self-Educate

This isn’t limited to the business-to-consumer (B2C) space. Three out of every four business-to-business (B2B) buyers would rather self-educate than learn about a product from a sales representative, according to Forrester.

Let me ask you two questions:

  1. Would you like to see and use a software product before buying it?
  2. Or would you prefer to go through a lengthy sales process to see if it’s a good fit?

If you’re like most people, you’ll opt for trying out the product on your own. This doesn’t apply just to small- and mid-size businesses — enterprise buyers are also embracing self-education. 

Trying out a product through a free trial or freemium model is less hassle and can help you quickly decide if that product is right for you. 

Tidal Wave 3: Product Experiences Have Become an Essential Part of the Buying Process

If you’ve used Netflix, you’ve witnessed this first-hand—you didn’t need to reach out to a sales rep or book a demo before you were able to watch and eventually buy the service. The entire onboarding and upgrade experience was handled by the product.

No need for human intervention. Now, that’s not to say that product-led companies don’t need sales reps. But your product needs to do the heavy lifting when it comes to getting new users up to speed.

These tidal waves aren’t stopping anytime soon. They’re here to stay. Consumers (like us) demand it. Your SaaS business might be able to weather one of these tidal waves, but do you really want to take a chance on surviving all three?

To put your SaaS business in the best position to win, you need to innovate on the way you sell.

Putting It All Together

History tells us that “how” you sell is just as important as “what” you sell. Just like Blockbuster couldn’t compete with Netflix by selling the same digital content, you need to decide “when” not “if” you’ll need to innovate on the way you sell.

You don’t have to be a genius to come to this conclusion. In our day-to-day lives, we expect to try products before we buy them. Whether you’re contemplating perfume, a new shirt, or even a pair of sunglasses—you want to try it before you buy.

Trying a product is and always will be an essential part of the buying process. When it comes to software, consumers demand the same experience. Companies that embrace product-led growth align their business model with an undeniable consumer trend that is not going anywhere.

As the SaaS industry evolves, I believe there will be two types of companies:

  1. Sales-led companies represent the old way. It’s complex, unnecessary, expensive, and all about telling consumers how the product will benefit them. These companies want to take you from Point A to Point B in their sales cycle
  2. Product-led companies flip the traditional sales model on its head. Instead of helping buyers go through a long, drawn-out sales cycle, they give the buyer the “keys” to their product. The company, in turn, focuses on helping the buyer improve their life. Upgrading to a paid plan becomes a no-brainer.

Today, a strong brand and social proof are no longer enough to build trust with the modern buyer. You need to let people try before they buy. Product-led growth is how you turn that approach into an executable business strategy.

To sell to the modern buyer, you need to decide: Are you going to be product-led? Or will you be disrupted?

If you’d like to learn more about how to build a product-led business, make sure to check out the book, “Product-Led Growth.”