PRODUCTHEAD: Product-led growth

like spinning products #

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tl;dr

Moving to a product-led growth model takes time and will encounter resistance

A product-led model does not replace the sales-led or marketing-led approach completely

Growth loops operate on a similar principle to compound interest

Software companies with a frictionless product approach displace custom-built apps

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every PRODUCTHEAD edition is online for you to refer back to

hello

This week we’re looking at product-led growth.

There are different ways to grow your product, and in turn your company. To start with, it’s a good idea to consider what it is that you’re trying to grow, and why. The answers to these questions may seem obvious, but you may find that different people around your organisation will have different priorities.

Everyone’s interested in growing different things #

As a product manager, you might be trying to grow your product’s monthly active users (MAU) and the lifetime value (LTV) of those users. However, your CEO might be focused on growing value to investors or shareholders for exit or IPO (initial public offering). Your CFO might be more concerned with the “bottom line” (“bottom line” = money in – fixed & variable costs – taxes), while your VP Sales might be all about the “top line” (revenue in from customer sales and similar).

The tactics for moving each of these different metrics can differ wildly. Short-term sales tactics for increasing revenue, such as giving customers additional stuff for free to sweeten a deal, can damage longer-term value of those customers (because you can no longer upsell all the stuff already given away for free).

Similarly, a short-term tactic of cutting internal investment to reduce costs and improve the bottom line can cause lasting damage to an organisation’s ability to function effectively.

Product teams are one step removed #

Most product teams are only usually able to directly influence metrics that are one step removed from revenue, especially customers can’t or don’t self-serve and buy the product “off-the-shelf”.

And in principle, product teams can reduce operating costs by increasing product efficiencies and removing operational bottlenecks. In practice however that saving is marginal and often reinvested to fuel new development, so there is no significant effect on the bottom line.

Growth loops #

For product teams to truly drive meaningful growth, we can use self-perpetuating growth loops — often called “flywheels” — to generate the kind of user value that in turn causes increases in both the top and bottom lines.

As a simple example:

1. A user takes a survey online, finds it easy to use and then takes up the offer presented at the end to create their own survey for free.

2. They sign up online and start using the free version, and create more surveys.

3. They might later decide to convert to a paying user, and create many more surveys.

4. Other users take those surveys and see the offer. Some take up the offer, bringing us back to 1), but with more users.

When the growth loop works, its effect multiplies. More and more users are attracted to the product, of which a certain proportion convert to paying users.

The beauty of this type of growth loop is that the additional cost to acquire each user is almost zero. No sales person has been involved, so there’s no salary or commission to pay, nor any laborious consultancy or customer service to get the user up and running.

What product teams can control

The thing that convinces users to try the product is their own experience of the product. And that puts things back into our direct control. We and our product teams can directly control how our product creates value for users (through user-centric design), and we can control how we encourage users to use the product, and thus get to experience the value for themselves first-hand.

In very simple terms, this is how product-led growth works. To build on this primer, I’ve pulled together some in-depth articles from excellent authors discussing product-led growth, why it’s of value, and how it fits in with other approaches for generating growth.

Speak to you soon,

Jock

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what to think about this week

A case study: The journey to becoming a product-led company

Moving from services-led to product-led involves the redefinition of business strategy, organizational structure, relevant infrastructure and policies, as well as shift in mindset for how the new business and teams will operate throughout the product life cycles.

Selling the exact same thing to everyone

[Kirsten Mann / Mind The Product]

Also: Interview with Kirsten Mann on The Product Experience

Leah’s product-led growth guide 3.0

In its purest form, product-led growth is one of many distribution models you can use to reach your users.

This transparent model places the product – what your customer values – at the front and center of your sales and marketing efforts. It depends on the product itself to do the selling by way of its features, performance, and use cases.

Display as much value as humanly possible to your users without human interaction

[Leah Tharin / Leah’s ProducTea]

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Growth loops are the new funnels

One of the common answers to “How does your product grow?” is a picture of a funnel. The funnel AARRR framework was originally created by Dave McClure. It was a great starting point. It helped me and millions of others level up their game. But the framework is now > 11 years old and since then we’ve learned a lot about how the fastest software products grow.

How does one cohort of users lead to another cohort of users?

[Brian Balfour, Kevin Kwok, Casey Winters, Andrew Chen / Reforge]

Product models, service models, and investor valuations

Software product companies are fundamentally different from software services/outsourcing/custom development companies. Said more strongly, I see them as incompatible organizations pursuing opposing business goals and profit models. And very few companies can balance the two.

Investors value SaaS revenue 8x more than services revenue

[Rich Mironov / Mironov Consulting]

recent posts

What games taught me about customer onboarding

Video games aren’t necessarily everyone’s cup of tea, but some of the most successful games and products share a common attribute: they help the user become more skilled throughout their journey.

Onboarding is really a continual process

[I Manage Products]

Should I take a product manager job in a sales-led company?

Hi Jock,

I’m currently applying for loads of product manager jobs. I’ve received an offer from a sales-led company where the Product team reports in to Sales. Should I take the job?

Demonstrate good practice AND deliver good product

[I Manage Products]

Control your narrative

Years ago, someone once told me that “perception is reality” when it comes to reputation at work. Of all the lessons I’ve learned in my career, this has been by far one of the hardest.

How to regain control

[I Manage Products]

PRODUCTHEAD is a newsletter for product people of all varieties, and is lovingly crafted from a swathe of oak shavings.