Reality Check for PLG
Did we overpromise and underdeliver?
PLG is the Next Big Thing?!
PLG, PLG, PLG. If you haven’t come across soooo many posts about Product-Lead Growth, I don’t know where you have been. It feels like a huge bubble second only to Generative AI.
Wait. Did I say “bubble”?! To be fair, there is huge potential in PLG; there are great examples of highly successful companies; and elements of PLG can probably be utilized for nearly every product. But then there is also a lot of hype, stating that no Non-PLG business will survive. And there are quite some “influencers” out there where, given their job profiles, you wonder where they collected all that wisdom and why they didn’t apply it…
As for most things, I believe that a bit of healthy skepticism is appropriate. I will give examples below but let’s first clarify what we are talking about.
What Exactly is PLG?
I prefer Wes Bush’s definition which essentially states that you are using the product itself as the tool for the complete customer lifecycle:
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. — Wes Bush
There are variants of it, for more details see e.g. the dedicated page in our B2B Product Playbook where we argue that most companies will still need, e.g., Demand Generation to create sufficient awareness for their product offering. Still, let’s assume that you utilize your product
to acquire new users, e.g. by intense word-of-mouth from happy customers;
to activate new users, e.g. by giving them free trials or freemium versions of your product;
to monetize your users by turning them into paying customers;
and to retain these customers by providing enough value for repeat usage.
Sounds great, right? Until there are limits.
When Usage of PLG is Limited
I have experienced several situations where PLG couldn't be implemented, at least not to the full extent:
☝ When your company is operating in a blue ocean, where customers need to be educated about the problem and a demand needs to be generated.
Let’s go back in history for 15 years and assume Bitcoin doesn’t exist yet. Not only that, apart from a few technology enthusiasts, few people will even understand the benefits and usage scenarios of cryptocurrencies. Instead, the market needs to be educated first before users can self-adopt.
In that situation, the PLG flywheel will not start turning. There won’t be any word-of-mouth, and customers need to be educated about the problem being addressed — rather than applying some solution in a self-service manner.
☝ When your company is operating in a complex domain that requires extensive consulting to train users.
Note that I explicitly refer to the domain being complex — not the product itself. It’s your job as a Product Manager to provide easy-to-use products. But when the domain itself is hard to understand?
Currently, I see that in ESG. There are so many different frameworks, so many requirements, so many disclosures. And these even change constantly. Some companies have been early adopters - but the majority of the market will require extensive consulting to even understand what they have to report, how data shall be collected, or how their ESG strategy should be defined to reduce their environmental footprint.
☝ When your company provides a product for which free trials are not viable.
For example, when you are building a dedicated marketplace — say for real estate, rental cars, or furniture - then the seller wants to receive the money and the buyer wants to have the goods. There is no way you can offer a free trial.
☝ Finally, when buying decisions are usually top-down, with many stakeholders involved, to ensure uniformity or regulatory compliance.
This is particularly relevant in (a) regulated domains and (b) Enterprise B2B. Even when you were able to acquire and activate some users by way of your PLG motion, that does not mean that you are even close to monetizing. Instead, you might be far away from the buyer, i.e. the person or group owning the budget and in charge of any buying decision. Even worse, this group might even have some completely different needs than the original user — so they might ignore whatever they experienced during the trial.
Let’s dig a bit deeper into the latter aspect by taking a look at Slack, being a poster child of PLG.
A Quick Review of Slack’s Performance
To start with, Slack is obviously doing very well. They are steadily growing, based on the chart above we can estimate a 33% YoY growth in daily active users. Pretty impressive.
Slack was even way ahead of Microsoft Teams back in 2019:
Note that this was Pre-COVID. Of course, we all know that COVID forced many companies to implement remote work, so for sure this will have a big boost on Slack. So, let’s look at more recent data:
Oops?! What happened? Sure, Slack grew — but Microsoft Teams completely outpaced them. Why did that happen?
I don’t think it is because of superior functionality or user experience. I have worked with both tools, you need to get used to them, but then they offer highly similar functionality, specifically for mass markets when it boils down to some simple chat and collaboration tools. In fact, I even experienced quite some problems with quality and reliability with Microsoft Teams. For sure, Microsoft didn’t win here.
However, the distribution is entirely different. Microsoft Teams is part of Office 365. So when companies are already using Microsoft’s cloud offering, it’s a no-brainer to also utilize Teams. And since many of these companies had to change to cloud offerings to support remote work (COVID, remember), the impact of the pandemic was even more significant for Microsoft than it was for Slack.
What’s more, compliance aspects and top-down decision-making are in favor of Microsoft. I can hear the COO: “Hey, we already have an agreement with Microsoft, the legal work had been done already, and all our employees can get instant access via SSO — why worry about another provider?”
In the end, it is classic Enterprise Sales that cause the huge gap visible in the above chart. Among other things, a Sales-Led Growth (SLG) approach relies on building robust sales teams, establishing strong customer relationships, and driving revenue through personalized interactions. E.g., so-called objection handling is an important step in any such sales process.
But even in these markets, PLG is better at communicating value to users, i.e. when prospective customers can try and experience the true value for their needs — as opposed to some sales pitch when the customer doesn’t understand how much of the show is reality and how much is over-selling. When combining Sales-Led Growth and Product-Led Growth, both approaches form a powerful synergy that drives sustainable growth and maximizes customer lifetime value:
Combining PLG and SLG Will Drive Growth
When combining SLG with PLG, vendors can offer prospective B2B customers a seamless journey. By way of PLG tools, such as user-friendliness, self-guided trials, and triggered engagement, users can navigate the product and experience its benefits, they can build an understanding of its potential value for their organization — much better than they could do during some pre-canned sales demo. At this crucial stage, a well-integrated sales team can step in, offering personalized assistance, addressing specific pain points, and guiding prospects through the decision-making process. But not based on a standardized sales pitch but rather based on the signals that have been detected while users were trying the product. This combined approach significantly reduces the sales effort, allows for a much more focused conversation, and enhances the likelihood of conversion, resulting in accelerated growth and improved customer satisfaction.
One of the most compelling reasons to combine SLG and PLG in the Enterprise B2B space is the substantial reduction in Customer Acquisition Cost (CAC). As users are enabled to explore the product independently, the burden on the sales team to perform initial demos or extensive outreach diminishes. This self-qualification process filters out leads that may not be the best fit for the product, ultimately saving time and resources for both the sales and marketing teams. Additionally, the interplay between PLG and SLG generates a powerful word-of-mouth effect, as satisfied users share their positive experiences with their peers and industry networks, further enhancing brand credibility and organic lead generation.
But, even then, it’s a common misconception to achieve zero CAC. Unless you are the undisputed and well-known market leader, you still need to create awareness of your product and drive prospective customers to your site. Hence, Marketing remains an indispensable piece of the puzzle to drive awareness, generate interest, and nurture leads through targeted campaigns, content creation, and branding initiatives — with implications for the corresponding budgets.
Last but not least, following a land-and-expand approach, PLG becomes a potent tool for B2B enterprises to grow inside their existing customer base. In that situation, most barriers mentioned above have already been removed, the buying decision had been made, and a relationship with the buying center is in place. By ensuring a seamless and intuitive product experience, PLG methods can be utilized to recommend additional features, upgrades, or premium offerings — at the exact moment when they provide the biggest value for the user. This will lead to upsells and cross-sells and, thus, to an organic expansion within the installed customer base. If done well, NRR can skyrocket.
Summary
As said in the introduction, elements of PLG can for sure be implemented in nearly every product. We have cited some examples in our B2B Product Playbook.
However, depending on the domain and the nature of the product, it may not be appropriate to implement PLG to the full extent but, instead, blending with classic Sales-Led Growth strategies will provide better business outcomes.