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How product-led growth is a sustainable growth strategy
Product-led growth is a popular strategy for sustainable growth in the startup world. Find out what it is and how to implement it to accelerate growth.
Last updated16 Sep 2022
Reading time8 min
People tend to think it’s only about the product—but it’s about much more. It’s a go-to-market strategy that aims to bring customer acquisition costs as close to zero as possible. The product should sell itself and lead to highly satisfied customers.
What is product-led growth?
Product-led growth is a model that places the product at the center of customer acquisition, conversions, and sales. The goal for product-led brands is to make a product so good that users automatically spread the word. This leads to a flywheel motion of new people coming to use your product organically.
When you boil it down to the basics, product-led growth requires four key things:
Going after the right market
Building great products
Finding the right channels
Establishing the right pricing model
When these elements line up, brands can enjoy huge growth and low customer acquisition costs.
What makes product-led growth sustainable?
If you look at the unit economics of any product, the customer acquisition cost is often one of the highest. This is because brands often default to using large, outbound sales teams that use enterprise software to find customers and cold call them. It can take a long time to reap back these costs.
Brands that want to grow fast but have payback periods of more than 12 months tend to burn cash to fuel this growth, which compounds over time. A business may eventually become profitable, but it usually takes time and a lot of cash to get there.
The product-led growth model flips this script. Sales teams are smaller and only communicate with pre-qualified inbound leads. Customer acquisition costs are much lower and payback periods are short as well. You can generate and reinvest revenue to accelerate growth in a profitable way.
The building blocks of a sustainable product-led strategy
Product-led growth is a sustainable growth model when implemented in the right way. It’s not the same as sales-led models that require huge sales teams and tons of outbound calls. Instead, it relies on generating a large number of inbound leads which are pre-qualified. It's only then that the sales team has any communication with them.
There are some key steps to building a successful product-led growth strategy:
1. Targeting a large market
Product-led brands need to go after a very large market. If you’re targeting a niche industry, the common lead growth techniques will be less effective. Product-led growth casts a wide net before qualifying leads based on firmographic data and product usage.
2. Identifying a problem
While product-led growth requires targeting a large market, you still need to identify a common problem. This will help you build a great product that solves this problem.
Like the market size, this problem should be broad and be something that a large number of people come up against. If your value proposition is very niche—let’s say you’re targeting B2B agriculture brands—then the word-of-mouth element of product-led growth isn’t going to materialize. People in B2B agriculture will only recommend your product to other brands in the same industry.
At Hotjar, we’re going after marketing and product teams in all industries and have created a product that solves a problem these teams have.
3. Ensuring quick time to value
Product-led growth hinges on your product providing value within minutes. Customers need to be able to onboard themselves. Your product needs to be intuitive and easy to use with no complicated configurations.
The first few minutes of the customer journey should have zero friction. This makes it easier to implement low-cost customer acquisition channels, like Google and Facebook Ads, that run on a cost-per-click (CPC) model to attract customers. When a customer clicks on an ad and converts, it’s important that their problem gets solved immediately or there is at least some value right away.
4. Creating accessible pricing
Product-led brands run the risk of pricing themselves out of the market if they don’t implement accessible pricing options. Pricing needs to be transparent from the get-go. Traditional sales-led models encourage leads to request a demo, and then speak to a salesperson and get custom pricing. It’s a long process that lends itself to large enterprise companies that have unique needs.
This process is too long for a product-led growth approach. The sales cycle needs to be short, so pricing needs to be transparent and accessible. Users should be able to self-serve, put a credit card in, and buy your product right away.
Marketing vs. sales: the true value of a product-led growth approach
To unlock the true power of product-led growth, you need to attract a wide funnel of prospects, then qualify them based on product usage and firmographic data. These prospects may include enterprise-level companies, hobbyists, entrepreneurs, and small businesses.
Marketing reaches users through ads and low-cost customer acquisition tactics, then the sales team swoops in to identify high-value customers and sell them the right package for their needs. You can focus on the high-value customers who enter the funnel while still serving smaller users with self-service content.
Brands that implement a product-led growth model can make do with smaller sales teams since the job is a lot more targeted. This saves the high costs of hiring a full-stack sales team and allows brands to spread their budgets further across multiple acquisition methods.
In this model, marketing and sales play two very different but very important roles:
Marketing: brings people to the product through low-cost acquisition channels and self-service content
Sales: identifies and closes high-value customers on the right plans
Sustainability comes from implementing ongoing marketing campaigns that attract new customers, ensuring customers get value straight away, and encouraging word-of-mouth referrals.
Automated campaigns bring in thousands of leads every month compared to a sales-led model, where teams focus on LinkedIn, cold calling, and other outbound sales methods.
The latter requires teams to speak to each lead, demo the product, and identify qualified leads before creating a pipeline to send to account executives. There are a lot of people involved, and it’s an expensive process. To afford to run this model, you need to have high prices and long payback periods.
To be sustainable, you need smaller teams, which a product-led growth model allows since you don’t need as many people to attract and convert leads. Ultimately, the product does that itself.
A product-led growth journey looks more like this:
Lead finds out about your product through word-of-mouth or an ad
They subscribe and sign up for your product
They start using your product on a free trial or free plan
After deciding the product solves their problems, they upgrade to a paid plan without any human interaction
They recommend the product to other leads
Users are buying your product without speaking to a sales team at all. They discover the value of your product themselves through self-service content and free trials or plans. The customer acquisition costs are almost nonexistent. Instead of investing in activities that have a high cost for an immediate response, like going to events or organizing conferences, the marketing team invests in content, SEO, and brand marketing, which have compounding returns over time.
The future of product-led growth and what to look out for
The rising costs of customer acquisition strategies have forced a lot of brands to jump on the product-led bandwagon—but that's not to say this movement doesn’t have its flaws.
There are certain products that require a more sales-led approach, particularly for enterprise companies. But for products that have a broad value proposition and are competitive on pricing, a product-led model can be a sustainable way to achieve remarkable growth rates year on year.
Atlassian pretty much pioneered the product-led growth movement 20 years ago out of necessity. They were based out of Australia but wanted to sell globally, so they expanded their reach with a self-service model. Hotjar was the same—we came from Malta, a tiny island, with a plan to sell globally. Today, more than 350,000 people use Hotjar in 180+ countries.
Over the last decade, brands that have implemented a product-led approach have grown into sizable businesses—which shows it’s a great place to start.
The small and medium-sized business (SMB) market is relatively finite, but the number of websites that will need a tool like Hotjar is growing at a rate that’s faster than we’re growing. We’re definitely not hitting saturation, especially when we’re targeting a global user base.
But there are challenges, like identifying when you reach the point of diminishing returns. There are a lot of companies that have to go upmarket and start targeting enterprise-level users over time.
Some companies can successfully maintain two levels of users—smaller self-service businesses and larger enterprise brands. Shopify, Zendesk, and Slack are all good examples of brands that have managed to straddle two separate levels of users. But there are many companies that end up having to sacrifice the product-led growth model so they can focus solely on enterprise brands for their businesses to work.
My advice is to think a few years ahead to make sure you don’t get to the point where you have to sacrifice parts of your product or reinvent your business entirely.
Going from a product-led growth model back to a sales-led approach means creating a whole new identity, which involves massive team changes and a complete overhaul in strategy. It’s not for the faint-hearted. It’s really important to not just think about the success you’re having this year but to also consider what your business will look like in five years, six years, and ten years from now.
Product-led growth dramatically reduces the cost of a traditional sales team and expensive outreach activities, making it a far more sustainable solution to growth. The first step is to find a large target market, identify a problem they have, and ensure your product has a quick time to value.
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