What Is Product-led Growth And Why Is It Important?

Product-led growth has been a hot topic in the product and growth space. However, there are oftentimes misconceptions. In this article, we’ll provide clarity on the questions: What is product-led growth and why is it important?

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What Is Product-led Growth? 💡

Product-led growth is a go-to-market strategy in which the product is the primary driver of customer acquisition and growth. This is in contrast to other go-to-market strategies such as sales-led or marketing-led growth, in which the product is secondary to other drivers such as personal outreach or brand awareness.

Go-to-market Strategy 🎯

A typical go-to-market strategy describes how a company will approach a market with its product or service. The strategy includes information about the target market, the company’s value proposition, the product or service, and the sales and marketing strategy.

A go-to-market strategy answers the following questions:

  • Who are our ideal customers?
  • What needs of our customers does the product or service address?
  • What is our company’s value proposition?
  • What are our sales and marketing strategies to acquire customers?
  • What are the key metrics to measure success?

The go-to-market strategy should be closely tied to the overall business strategy. It should also be reviewed and updated on a regular basis as the business and market evolve.

Growth Marketing Funnel 🚀

A typical growth marketing funnel comprises six stages that potential customers go through. It starts with building awareness around your product or service all the way until they become a loyal paying customer and tell their network about it.

  • Acquisition: How will you acquire new users?
  • Activation: How will you get users to try your product or service?
  • Retention: How will you keep users coming back?
  • Revenue: How will you make money?
  • Referral: How will you get users to become advocates who tell their friends and colleagues about your product or service?

Product-led vs Sales-led Growth ⚡️

Here are the main differences between product-led growth and enterprise sales-led growth:

  • Product-led growth: Companies use their product to acquire customers and drive growth. Oftentimes, the primary goal is to get as many people using the product as possible first, and then monetize them. One of the key principles is to let users experience the product and get value out of it by themselves
  • Enterprise sales-led growth: Companies focus on creating brand awareness and generating leads through marketing initiatives. Sales teams then take it from there, giving leads a product demo and trying to close the deal. Once they convert to paying customers, customer success teams focus on retaining and monetizing them
What Is Product-led Growth? Tactics Per Funnel Stage
Product-led Growth Tactics Per Funnel Stage

Product-led and sales-led growth are fundamentally different approaches to driving growth. Yet, they can be combined.

As an example, a company may be sales or marketing-led when it comes to customer acquisition (e.g. through content marketing and sales calls), but product-led when it comes to monetization (e.g. by letting customers try a new paid feature and offering the ability to buy it within the product).

Benefits of Product-led Growth ⭐️

Product-led growth is vital to companies because it allows them to scale more efficiently by relying on the product to drive growth, rather than on less efficient and costly channels such as sales or paid ads.

In sales-led companies, organizations need to spend time hiring and building up sales teams to perform manual tasks such as customer calls, demo presentations, and negotiations. This is not scalable, as the more customers a company aims to close, the more sales resources are needed.

In addition to the scalability point, another important aspect is that product-led growth helps companies build better products by relying on customer feedback to drive their product development.

Product-led companies aim to drive growth through their product, so it needs to solve real customer problems and offer a great experience to convince prospects to pay for it and stand out against the competition. Therefore, these kinds of companies emphasize continuous user research, UX design, and following good product development practices.

The Top 10 Product-led Growth Principles 💎

10 Principles Of Product-led Growth
10 Principles Of Product-led Growth

Here are the top 10 principles that distinguish a company that is truly product-led when it comes to driving growth:

  1. Product as the primary driver of growth – This can vary by funnel stage in combination with sales-led approaches
  2. End-user focus – By letting the end-user experience the product and become an advocate within their organization, there’s less need to try and convince the buyer
  3. Quick time to value – This is about letting users experience the value of the product as quickly as possible, e.g. through a freemium pricing model
  4. Self-serve capabilities – The product offers the ability to customers sign up and get started with the product without sales involvement
  5. Scalable distribution – Expanding to other markets, customer profiles, or closing more customers can be achieved with minimal product development instead of ramping of sales teams
  6. Straightforward pricing – Enabling prospects and customers to understand how the pricing model works
  7. Product drives expansion – The product offers the ability to customers to buy additional features or upgrade without sales involvement
  8. Product drives virality – Turning customers into advocates to drive referrals and word-of-mouth growth
  9. Data-informed – It’s crucial to have data analytics in place to understand what’s happening within the product to identify gaps and take measures
  10. Experimentation-driven – Companies follow a hypothesis-driven approach where they test assumptions and iterate through testing

Examples Of Product-led Growth Companies 💻

Here are five examples of companies that follow a product-led growth approach:

  • Figma: Figma is a design tool that offers a generous freemium plan tailored to end users. They close enterprise clients as their employees started using Figma individually and then championed to use it within their teams as well
  • Miro: A virtual whiteboarding solution that enables users to ideate and collaborate. Their acquisition strategy is based on letting people try the product for free with up to 3 boards. Once they got value out of it, they started inviting their co-workers to collaborate with them. Once the limit started to become unbearable, employees themselves made a case for buying the enterprise pro version
  • Slack: Slack is a communication platform for teams that offers a free version with limited features and a paid version with more comprehensive features. When Slack started out, its claim was to be the alternative to email by switching to chat
  • Dropbox: A file storage and sharing service that offers a free version with limited storage and a paid version with more storage. When they started out, they offered users 500 MB additional storage for free for every user that was referred to Dropbox. This turned out to be a highly successful user acquisition tactic
  • Pinterest: Pinterest follows a growth-loop approach. It starts with driving users to the product by finding content via search or from friends. Once they are in, they are presented with suggestions to increase engagement by pinning or sharing. Many of those users create their own content (user-generated content – UGC) which in turn indexed by search engines, driving other users onto the platform