August 29, 2023

From product-led growth to product-led sales: Beyond the PLG hype

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Ever since software-as-a-service (SaaS) innovators, including Atlassian and Slack, pioneered the product-led growth (PLG) model, the strategy has often been viewed as the “holy grail” for achieving efficient growth and above-average returns. Many tech companies, from other SaaS natives to established enterprise software providers to consumer product brands, have embraced this model. By giving customers control from the get-go, with the product at the center of customer acquisition, retention, and expansion, the theory goes, companies can scale their businesses with lower sales costs, greater product virality, and higher net retention.
However, succeeding with PLG is far from a simple proposition. Our research suggests that only a few companies that use it actually achieve outsize performance, and they do so by increasingly developing a hybrid motion known as product-led sales (PLS). This innovative approach combines elements of PLG with the more traditional enterprise model of sales-led growth (SLG), in which a salesperson sells the software in a long sales cycle, typically to a senior executive. Our research further shows that the companies that implement PLS most effectively can enjoy sizeable boosts in both revenue growth and valuation ratios.
What it means to be a product-led company
As the moniker suggests, being a product-led company means giving the product itself a critical role in acquiring, growing, and retaining customers.
All B2B software companies can adopt some aspects of this model in their go-to-market (GTM) motion by investing in the following elements:
.Digital as a demand-generation engine. A well-designed, engaging website with the following attributes is the primary driver of digital demand: interactive, use-case-based product demos; personalized landing pages with value propositions specific to different personas and roles; and simplified trial or live demo sign-ups.
.Seamless access to the product and TTV. Allowing customers to experience the product before they purchase it is an essential ingredient for product-led companies. Try-before-you-buy tools such as trials and “freemium” offers make the research and evaluation stage of the buying process come alive.
.Innovative sales techniques enhanced with product and usage analytics. Try-before-you-buy tools coupled with product analytics can help sales teams implement innovative data-driven strategies to increase conversions by understanding user behavior, segmenting users, and delivering personalized, product-led experiences accordingly.
.Cross-functional growth teams with an experimental mindset. Helping to fuel this seamless customer experience are company growth teams focused on constantly making incremental improvements in key conversion points to improve metrics such as user engagement, adoption, free-to-paid conversion, and TTV. These autonomous and empowered teams of about seven to nine individuals typically include a mix of product managers (PMs), data scientists, demand-generation specialists, content creators, designers, and marketing strategists.
Only a select few have mastered the product-led model
The common perception among software executives and investors is that product-led companies outperform their sales-led peers in revenue growth, operating efficiency, and market valuations. And while this is true in some cases, our recent analysis of 107 publicly listed B2B SaaS providers shows that most companies adopting product-led motions are not enjoying any boost.
A new hybrid approach combines the best of both worlds: product-led sales
The software sector had, for many years, generally believed that a clear distinction existed between the PLG and SLG target markets. Many industry participants and observers were convinced that the pure PLG approach worked best with small and medium-size businesses (SMBs) or particularly tech-savvy buyers, while SLG was the only way to build a scalable business serving enterprise customers.
Our experience and research strongly refute the notion of such a sharp dividing line in the two models’ applicability. Product-led motions exist on a broad spectrum, enabling most, if not all, B2B software companies to embrace this approach to one degree or another. The lines between PLG and SLG are already starting to blur; pure-play PLG companies are hiring sales teams to cater to large enterprises, while more traditional, SLG-driven companies are investing in product-led experiences to help their sales teams prove the value of the product and appeal to a new class of SMB customers.

The original content of the note was published on Mckinsey.com. To read the full note visit here

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