Product-led Growth: How to Build a Self-Selling Product

Product-led growth is fast becoming a dominant business growth strategy in the technology area. Traditionally, companies mainly sell their products to target customers through sales representatives, media exposure and content marketing. In contrast, product-led growth centres on making a product that can acquire, activate and retain customers itself. This approach was adopted by many SaaS(Software as a Service) companies who achieved exponential growth. One of the iconic product-led organisations is Slack. Leveraging its freemium subscription and intuitive collaboration features, Slack attracted over 12 million daily active users within six years and became the leading business communication software. (Statista, 2019) Recent investigators had examined the success drivers of product-led growth. They suggested that the past decade has seen rapid advances in technology, including the popularity of cloud computing, the internet and smart devices, which gradually altered the consumer buying process from offline conversation to online interaction. Product-led companies, particularly in the SaaS sector, emphasise developing a product that resolves a real customer pain to spread fast through word-of-mouth marketing. Such virality needs continuous experimentation and a multidisciplinary team to ensure a seamless product adoption experience for users to try, purchase, frequently use and share.

Defining Product Led Growth The term "Product Led Growth" was first introduced in 2016 by Blake Bartlett, partner of OpenView Ventures, which can be defined as a strategic approach of incorporating marketing and sales functions into a product to acquire end-users instead of conventional marketing and sales activities. (Bartlett, 2016) Bartlett's definition highlights the key characteristic of product-led businesses to scale with little dependency on sales and marketing force. This notion is supported by Sauser's theory (2021) that companies with a product-led mindset grow exponentially over time because the cost of acquiring new customers through this strategy is fixed on the product itself. In contrast, a traditional sales-led approach results in linear growth based on the size of the sales team. (Figure 1)

Figure 1: Linear Growth vs Exponential Growth

Using the product as the main growth driver also means that the product is no longer a part of the customer experience journey but the centre of experience that serves acquisition, consideration, purchase decision, retention, and advocacy. (Olson, 2020) This notion was closely related to the software industry, particularly SaaS(Software as a Service) businesses. As Wes Bush, author of Product-Led Growth, pointed out, product-led growth disrupted the SaaS industry for the following reasons: 1) the low cost of starting a SaaS company create a highly competitive market with rising customer acquisition costs and decreasing willingness to pay. 2) Consumer behaviour shifts toward the 'try before buying' process. 3) Consumers are accustomed to an end-to-end product experience without human intervention. (2021) Such market trends were proven by the success of many product-led SaaS companies like Slack, Zoom and Dropbox. These companies tend to raise awareness through intuitive share or referral features, shorten consideration by offering instant sign-up with social media accounts, free trial or freemium plan and increase user engagement and advocacy via customised experience.

From Sales Led Growth to Product Led Growth From a historical perspective, the rise of product-led companies can be associated with the technology push, including the popularisation of the internet, cloud computing, smart device and app stores, decentralising software distribution from economic buyers to end-users.

Back in the 80s and 90s, traditional on-premises software was primarily developed for automation in corporations. But the implementation requires a large amount of investment and resources between $100k and $1 million incurred from building computing servers, software licensing, hiring IT specialists for maintenance and operations within an organisation.

Given the high initial cost and technology-related installation process, the growth of software vendors relies heavily on sales representatives to make connections with economic buyers like CIOs (Chief Information Officers) or IT directors in corporations. This sales-driven business model was then defined as "sales-led growth". (Bartlett, 2021)

However, in the early 2000s, the maturity of cloud computing allowed software providers to develop, maintain and optimise products from their servers remotely and distributed to numerous end-users in real-time via the internet, regardless of time and geography limitations. This advanced technology enables a new business model - SaaS. Users pay a monthly subscription fee to use a ready-made, cloud-based software online without any installation or maintenance efforts. (Hufford, 2020) Since 2010, SaaS applications coupled with the widespread of smartphones, tablets and laptops make the software more approachable and appealing to end-users regarding availability, affordability, usability and efficiency. A trend of IT consumerisation emerged, which described the growing tendency of employees to use personal mobile devices and online services, including cloud storage, email services and social networking sites, in the workplace. (Peterson, 2014) Increasingly, the market demand and decision-maker in the organisations shifted from economic buyers with a goal of ROI(Return on Investment) to actual users who focus on getting their jobs done. With information widely accessible, this group of end-users today prefer to be self-educated. They proactively search for solutions online, check ratings and reviews and expect to try the product before making a purchase decision. Traditional sales-led growth approach revolving around cold calling, demo and marketing campaigns appear to deviate from customer needs gradually. The product experience encompassing acquisition, activation, retention, and referral could make a SaaS company scale fast and achieve "product-led growth".

Product Led Growth's Implications for Product 1. Building a Customer-Centric Product As a product can be seen as a service provided to fulfil the needs or solve customers' pains in the marketing landscape, the ability to identify and solve real customer problems and create a customer-centric product experience through every touchpoint is the key to driving sales.

Clayton Christensen uses the term 'Jobs to Be Done' to refer to the tasks customers felt the urge to accomplish in a specific situation. It is implied that social and emotional aspects in the given circumstance could be more crucial than customer demographics, product functions and advanced technologies when discovering customers' real needs. And products that get the jobs done precisely would be 'hired', i.e. purchased, again and again. (Christensen et al., 2016)

This theory can be supplemented by Nir Eyal's Hook Model (2014), which explains a four-step loop that attributes to product engagement and stickiness: Trigger, Action, Reward and Investment. (Figure 2)

Figure 2: The Hook Model

Trigger consists of two types: external and internal. External triggers are advertisements, media and public relations, word-of-mouth marketing in the social dimension that raises customers' awareness of a product. Internal triggers focus on associating product usage with the relief of negative emotions. For example, use Google to relieve confusion, use Instagram for fear of missing out, use Netflix to avoid being bored and use Tinder to get rid of the loneliness. Action was enticed by the triggers but powered by the level of motivation and ability. Human beings have the tendency to avoid pain, fear and social isolation. Therefore, the more effective a product solves the negativities, the higher the possibility of encouraging action. On the other hand, ability describes how simple, convenient, affordable, time-saving, socially acceptable and customary a product can reach to maximise the capability of an individual to use. Variable reward appears as a method to reinforce consumers' repeated actions after receiving immediate gratification. From a psychological viewpoint, variability entices a sense of freshness and unpredictability. A successful habit-forming product like Facebook applied this concept by creating personalised and dynamic social feeds that encourage users to revisit new content. Investment tackles long-term retention. As the frequency of usage rises, open space in the product for users to invest time and effort into would, in turn, increase the value of the product in users' minds. Investments could range from user-generated content, favourite collections, followers/viewers to ratings and reviews, commonly seen on social platforms. These accumulated assets build users loyalty and responses to external triggers and form a circle of the hook model.

Eyal observes that frequently-used products or services are more inclined to guide users through the four-phase product adoption process and forms a habit of using in the daily routine of many individuals. The 'jobs-to-be-done' concept coupled with the hook model framework demonstrates that customer-centric product experience centred on the emotions incurred in a specific environment. Implementing product-led growth means a certain degree of openness to users within the product with a deep understanding of their desire and immediate satisfaction at each stage of the product adoption. 2. Iterating Products through Continuous Experiment Following the market needs discovery, another key driver of product-led sales is the ability to achieve 'Product/Market fit' by leveraging qualitative and quantitative data and constantly optimising the product.

The concept of 'Product/Market Fit' evaluates whether a company's product reaches its inflexion point of identifying and solving real market needs so that customers would use and refer the product to others. Since then, the number of customers starts growing as fast as the words spread. (Jorgenson, 2015) Data is integral in the process of seeking 'Product/Market fit'. The technology evolution enabled digitally native products to track and collect a wide range of consumer data from awareness, purchase to advocacy in a systematic way that can hardly be done in the non-digital industry. With the data-tracking approach, firms can analyse the gap between customer needs and their offering, design a series of experiments to validate which proposed solution works more effectively and continuously monitor success metrics. According to Carlos Espinal's 'Product/Market Fit Cycle' (2013), startups that successfully find product/market fit usually starts with an untested product idea for a small targeted segment. Then, they develop aligned positioning, minimal viable product, and go-to-market strategy and invest an amount of money for market testing. This is followed by setting the five key metrics based on the pirate metrics framework(AARRR): acquisition, activation, retention, referral and revenue. (McClure, 2007) Finally, they examine metrics below expectations and make relevant improvement plans for the next test cycle. (Figure 3)

Figure 3: Product/Market Fit Cycle

To sum up, creating a product experience that drives sales requires a deep understanding of target customers' emotions behind the obvious needs throughout the whole process. Furthermore, setting related key metrics at each stage of the user journey is vital for product enhancement. However, with that said, most of the recent studies focused on SaaS products in general. Therefore, they did not consider whether the different types of business model such as business-to-business(B2B), business-to-customer(B2C), and business-to-business-to-customer(B2B2C) could be an influential factor in implementing product-led growth. Product Led Growth's Implications for Organisations

The Synergy between Product & Marketing Team and More As Ros's research (2021) shows, traditional sales-led growth companies have a more linear work model. The sales and marketing team is the middleman between the product/development team and end-users. This situation is addressed as 'stakeholder barrier', which results in the product team passively take requests from the sales and marketing team to improve products. Conversely, product-led companies have an integrated, circular model that allows both teams to communicate with each other and interact with users directly and encourage a more consumer-centric product through experimentations. (Figure 4)

Figure 4: Sales-led work model vs Product-led work model

A myth of product-led growth is the dominance of the product team to create a service that can attract and retain customers itself in replace of sales and marketing roles in the organisation. However, from identifying market size and needs, formulating pricing and channel strategy to customer relationship management, the whole process would be pretty challenging to complete by the product team alone. Product-Led Growth Collective (2021) argues that, essentially, adopting a product-led growth strategy within an organisation means reshaping company culture into customer-oriented thinking and data-driven decision making. In a product-led organisation, it is central to form a cross-functional team with a shared understanding of key performance metrics following the pirate metrics model and make data-driven decisions to keep enhancing the product. Although the article did not specify the scope of a cross-functional team, it is indicated that product-driven growth could be more than just strengthen the cooperation between the marketing and development team.