The State of Product-led Growth: Insights into how businesses are running PLG in 2023
Last winter, we ran the State of PLG survey to gather insights and opinions on how companies are running their PLG motion and subsequently released the State of Product-Led Growth 2023 report based on the survey results.
We sat down with our partners in this endeavor Anita Brearton - co-founder and CEO of CabinetM, Kamil Rextin - founder and GM of 42 agency, Francis Brero - co-founder and CPO of MadKudu, Mike Rizzo - founder and CEO of MarketingOps community, Eric Keating - the VP of Marketing at Appcues, for a webinar hosted by Dave Rigotti - co-founder of Inflection.io.
Our expert panel discussed the stats and the ground reality of running a successful PLG motion in this webinar.
Why is PLG investment increasing?
We asked B2B SaaS companies about their investments in product-led growth this year and the majority of respondents reported that they would be increasing their investment in PLG compared to previous years.
This increase can be attributed to several factors. Eric Keating thinks it’s because of greater exposure to the concept of PLG and its benefits, including improved efficiency, higher profit margins, happier customers, and better retention rates. The success stories of product-led companies like Slack and Dropbox, have made PLG more appealing to businesses across different sectors.
Some companies that traditionally relied on sales-led strategies are now incorporating product-led elements into their approach because they recognized the potential revenue and growth opportunities. Adding product-driven initiatives is perceived as a profitable activity even if it constituted a smaller portion of their overall revenue.
Another reason for the increasing investment in PLG is the rising expectations of users. Consumers have become accustomed to seamless and personalized experiences in software, whether it's in B2B or B2C products. Businesses now recognize the need to provide frictionless, easy-to-use, and value-driven products to meet these expectations.
However, Francis Brero has concerns about a potential decline in PLG investment for the current year because of the observed shift in some companies' strategies towards outbound methods driven by panic and pressure from boards and CFOs. These companies are reverting to traditional approaches, such as in-person meetings and sales-driven tactics, which could impact the bottom-up PLG approach in the later part of this year with deal desks becoming larger, indicating a more centralized decision-making process involving CFOs.
Despite the challenges, PLG go-to-market strategy is instrumental in building strong customer relationships and trust. PLG allows users to engage with the product directly, leading to a better understanding of its value.
While PLG is favored by users, challenges arise from competing forces within organizations, such as the reluctance to target lower-end markets, revenue cannibalization concerns, and sales team dynamics. PLG is a long-term strategy that requires buy-in from leadership, a focus on sustainable growth, and a willingness to invest for future success.
Growth teams: required or optional?
Half of the State of PLG survey participants already have a dedicated growth team, while over 10% were considering adding one this year. The functions of a growth team typically include marketing, product, sales, and success, covering various aspects of driving growth.
Anita Brearton expressed her view that while having a dedicated growth team is desirable, it may be out of reach for many companies in the current economic environment where teams in reality are shrinking. She suggested shifting the focus from a dedicated team to identifying the responsibilities and functions needed to support PLG.
User activation, experience, and retention are usually the critical areas that often lack clear ownership, leading to gaps in addressing these aspects effectively. Companies without the budget for a dedicated growth team can still focus on addressing these areas to achieve user activation and retention goals, potentially forming a virtual growth team that collaborates across functions.
Everyone on the panel agreed that collaboration is crucial, even if a dedicated growth team is in place. Even companies with growth teams can experience silos if they don't operate cross-functionally emphasizing the need for teams to work together toward common goals with specific KPIs for driving activation and retention.
But, on the other side of the coin, there are PLG businesses (even public companies) where everyone shares the growth goal but no one has clear ownership of aspects like onboarding. The disadvantage of lacking ownership and collaboration means instead of leveraging product levers and growth strategies, Marketing might rely solely on paid advertising to drive sign-ups.
Mike Rizzo believes that the nature of a growth role is unique because of the technical nitty-gritty, focus on understanding product usage and finding levers to drive growth. Growth teams and individuals working in growth roles can think beyond traditional methods and consider product growth levers to attract and engage users. And, having defined success metrics for the growth role guides their activities.
With or without a dedicated growth team, the need of the hour is collaboration, cross-functional alignment, and a user-centric approach to drive growth. Identifying and addressing specific responsibilities and functions that support product-led growth, ensure that all teams contribute to the common goal of driving activation, retention, and overall growth.
Views on NRR
The survey results indicate that 80% of companies consider Net Revenue Retention (NRR) as a focus for their organization, while less than half of the responders have it as a focus for their job role.
Dave Rigotti recalled his experience in building a marketing measurements startup, Bizible (exited to Marketo) highlighting the importance of achieving 100% NRR for building a substantial business. Bizible never reached 100% NRR despite achieving decent growth for a SaaS company because of the focus on capturing larger deals upfront.
Building a big business without achieving 100% NRR is almost impossible. The fact that most public Product-Led Growth (PLG) companies often have NRR rates of 120% or higher indicates significant growth from existing customers alone. This is why PLG companies now recognize the importance of prioritizing expansion revenue from existing customers rather than solely focusing on capturing new deals.
NRR is considered a crucial metric by venture capitalists (VCs) too. Alongside the burn ratio, NRR has become an essential factor in fundraising, particularly in later-stage funding rounds. Achieving a high NRR is likely to generate excitement among potential investors, including PE firms, because it demonstrates substantial year-over-year growth without relying on acquiring new customers.
Communication with users is another factor that differentiates high NRR companies from the rest. We found out that high NRR companies communicate with at least 75% of their user database every month. This puts a great emphasis on customer marketing, not only for advocacy’s sake but also to help customers derive more value from the product, leading to increased satisfaction, expansion, and ultimately, improved NRR.
A strategic underselling with a greater potential for expansion aligns well with PLG strategy but is not sales-led largely because of how the compensation structures heavily emphasize on landing new customers rather than expansion. Sales, Marketing, and Product have to align with the organization's PLG strategy to avoid creating friction within the company and see NRR as a common goal.
Prospects or customers?
66% of the survey respondents viewed landing new customers as their biggest opportunity, while 33% focused on expanding existing customers. However, Kamil Rextin believes that this statistic might be reversed if the survey were conducted today due to changing market dynamics.
We relied on the net new pipeline for growth in a bullish market for a long time but there will be a shift in perspective to focus on overall growth rather than just acquiring new customers. This is evident from the sales cycles getting longer, making it harder to sell to new customers, and the increasing involvement of CFOs and multiple stakeholders in purchase decisions, leading to a natural opportunity for upselling to existing customers.
In the past, there was a significant emphasis on acquisition, with Account-Based Marketing (ABM) playing a major role. However, a shifting trend is expected toward considering customer expansion alongside acquisition.
PQLs: satisfaction guaranteed?
Francis Brero compares this dissatisfaction to that of Marketing Qualified Leads (MQLs) where it’s hard to align sales and marketing efforts. He believes that the introduction of product data and the involvement of the product team in the lead qualification process added complexity to the existing sales and marketing alignment dilemma.
PQLs are intended to serve as an alignment tool, indicating when a lead is ready for sales engagement. However, incorporating product usage data and determining the appropriate threshold for engagement becomes intricate. Sales teams may question the value of engaging with an individual contributor (IC) who exhibits high product activity but lacks decision-making authority.
Navigating the enterprise sales process successfully by using engagement as a stepping stone to connect with higher-level decision-makers requires some training and enablement on the Sales side. Outbound efforts become crucial in identifying engaged accounts and finding the right individuals within organizations to approach, even if they are not directly active users.
Product-Led Growth (PLG) is often portrayed as a magical solution for closing enterprise deals, which contributes to the disillusionment and dissatisfaction surrounding PQLs. PLG primarily drives brand exposure and engagement within an organization, providing a foothold to initiate conversations and demonstrate the product's transformative potential. However, it does not eliminate the need for sales and marketing alignment, outbound efforts, and a comprehensive understanding of the buying journey along with building PQL models.
Minimum viable onboarding
From the State of PLG 2023 survey, we found out that approximately 9% of companies do not have any onboarding communications and rely on the product to guide users. About half of the companies follow a one-size-fits-all approach, where all users, including admins, individual users, and buyers, receive the same onboarding experience. On the other hand, only 41% of companies opt for a highly personalized approach to onboarding.
Mike Rizzo and Eric Keating had the following insights to share about why personalized onboarding is harder than it seems.
- Internal alignment
The discrepancies between teams for example, while product teams consider factors like permission sets, features, and roles, marketing teams might struggle to translate this understanding into personalized onboarding experiences.
Lack of alignment and collaboration across functions, such as marketing, engineering, and data teams, and with the decision-makers in the company hinders the development of effective onboarding strategies.
- Limited access to data
Lack of collaboration also means access to data may be limited, preventing GTM teams from leveraging it for personalized onboarding. Despite the advancements in technology and data availability many companies still use a one-size-fits-all approach because of the challenges in gathering and utilizing user data effectively.
Onboarding should be an organizational priority and not that of one team. The difficulty in prioritizing onboarding improvements when sales and revenue-related initiatives often take precedence is also a prevalent reason for not putting forward a highly personalized and effective onboarding experience.
Onboarding usually gets deprioritized in pursuit of new customer acquisition and the potential impact of efficient onboarding on revenue generation and retention should not be overlooked.
Is running PLG harder than it should be?
PLG is often perceived as a magical solution that instantly attracts hordes of customers but the efficiency of any go-to-market engine lies in effective communication and alignment among stakeholders. The more functions and individuals involved, the more critical it becomes to ensure everyone is on the same page.
In the end, there are no shortcuts or magic solutions when it comes to achieving success through PLG. While it may be tempting to overlook the behind-the-scenes efforts that contribute to successful outcomes, PLG is not a one-size-fits-all solution but a tailored approach that requires patience, dedication, and a willingness to adapt.
PLG strategies require time, iteration, and deliberate thinking.
If you are interested in PLG as a go-to-market strategy, you should check out PLGTM - the only event for product-led GTM. PLGTM - East is bringing together the stalwarts of the PLG industry to NYC. Get your conference tickets here.