Today, every company aspires to be the next Slack or Netflix, seeking a silver bullet that will skyrocket sales and create loyal customers and brand ambassadors. That change doesn’t happen overnight, but a proven path exists that supports long-term, sustainable business growth: product-led growth.
Similar to “growth hacking” a decade ago, product-led growth is a popular but frequently misunderstood term. And adopting a product-led growth model requires a deep understanding of the strategy, not just within your product or sales organization, but across the entire company. It is a business transformation that turns the traditional growth model on its head.
Product-led growth means letting the product stand for itself
Product-led growth veers away from our past reliance on marketing and sales teams to drive growth. Instead, it focuses on the product itself as the key revenue driver. In the past, a customer might be entirely educated about the product by marketing materials or sales pitches. The internet has changed this, allowing people to research their options, read customer reviews, do a free trial, and determine for themselves if the product is worth the spend. More recently, we’ve entered the phase of “freemium” subscriptions, where customers can use the product at no cost but with limited use.
Of course, the prerequisite to implementing a product-led growth strategy is having a good product, one that people want to use, or better yet, find essential. The product needs to be easy to navigate and use right away because people won’t stick it out if it’s not working.
How do you know if your product is good enough?
It all comes down to data, but many companies fail to focus on metrics that provide insight into customer behavior, revealing what they love, what needs work, and where they are getting stuck. More often, they get hyper-fixated on vanity metrics like page views and click-through rates. While marketing and sales are still essential for growth, even the best campaigns cannot cover for an inadequate or unpromising product. Here’s what to look for:
- User activation. A good product should be easily accessible by non-technical customers. There shouldn’t be any hand-holding from a support team or complicated account set-up requirements. The people using your product should see its impact almost immediately.
- Product stickiness and user retention. Your product should be an essential part of your customers’ work or daily habits. Whether a new customer downloads your product to buy stock or to order their Friday night dinner, you want the product to solve their initial need so well that they keep coming back. For example, someone may first download a food delivery app when they’re in a pinch for quick takeout. But if they have a good first experience and you solved their problem, they’ll come back to you the next time they want to order dinner, until eventually you are their default food delivery app. Product-led organizations constantly ask how their product can produce more value and become something people can’t live without.
- Monetization. While activation, stickiness, and retention are all imperative, a good product also needs to be monetized easily. This could be through upgrading to a paid or higher-tier subscription, making initial or repeat purchases, or in-product advertising.
Team alignment is essential for success, and it starts at the top
To truly enable product-led growth, your company must implement an organization-wide product-led model. That requires a major culture shift, and it starts with the C-suite.
Product success must no longer be measured by outputs but instead by outcomes — a concept that may require some adjustment for C-level executives. Being output-oriented typically translates into a fruitless exercise of building new product features without understanding the impact or value those features have for the people who use them. Orienting on outcomes means focusing on specific metrics that help drive retention and business growth, such as on-time deliveries for a grocery delivery company.
Leaders need to create a top-down culture where the entire organization is focused on outcomes, meaning everyone, not just the product team, adopts a product-led approach. For example, a chief product officer I know was brought in to move a company from being marketing-led to being product-led. If their peers in marketing and sales were not aligned with that plan, it wouldn’t have worked. You need to have both top-down and cross-functional buy-in around an outcome-oriented product strategy to make product-led growth work.
Becoming product-led also means allocating more resources to research and development (R&D), which enables more frequent releases and product expansion. Atlassian, for example, was investing over 40% of its revenue into R&D for a period of time, which propelled year-over-year growth for its suite of products.
Convert freemium users to paid subscribers
The shift from free to paid is tough, but it is critical for growth. Companies traditionally focus on growing from a small handful of users to monetizing their product and then scaling their customer base. Instead, they should focus on moving customers up the ladder of engagement. This means getting the people using your product to understand and take advantage of more and more features, ultimately moving from the freemium model to paying customers to brand ambassadors. One of the most critical tactics is to continue to make customers curious about what else could be offered to them, and how to make their user experience easier.
Some companies refine their ladder of engagement by offering additional features and enhancing the product experience for paying customers. For example, some digital media companies offer exclusive content for paid subscribers that isn’t available to freemium users, while delivery businesses might offer faster delivery times or lower service fees for paying customers.
While adding value is a common approach for moving customers up this ladder, a different, frequently overlooked monetization and growth strategy is to remove pain points. Often, removing tension points that exist in the freemium model can be an even more compelling way to convince your customers to begin paying for the product.
Holding your organization accountable for product-led growth
Continual product improvement is essential for a sustainable product-led growth strategy, and vanity metrics won’t shield an organization’s failures. Success metrics for product-led growth are rooted in product science, testing hypotheses to determine which solutions are best for a company’s target market.
Business evolution is unavoidable. No singular business model will work forever, which is why it’s important to equip your organization for the next era. In a world that sees hundreds of new digital products entering the market every week, understanding your product’s strengths and weaknesses and, most importantly, what your customers are able to become by using your product, is critical. Product-led organizations are the future of business, and companies can’t solely rely on acquisition-based growth tactics to keep them above water for much longer. To win in the digital-first era, organizations need to adopt — and hold themselves accountable to — a product-led mindset.
Justin Bauer is SVP of Product at Amplitude.
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