Product-Led Growth: How to Build a Product That Sells Itself (ProductLed Library Book 1)

by Wes Bush

As the SaaS industry evolves, I believe there will be two types of companies: Sales-led companies represent the old way. It’s complex, unnecessary, expensive, and all about telling consumers how the product will benefit them. These companies want to take you from Point A to Point B in their sales cycle. Product-led companies flip the traditional sales model on its head. Instead of helping buyers go through a long, drawn-out sales cycle, they give the buyer the “keys” to their product. The company, in turn, focuses on helping the buyer improve their life. Upgrading to a paid plan becomes a no-brainer.

Product-Led Growth is a go-to-market strategy that relies on using your product as the main vehicle to acquire, activate, and retain customers.

By having every team focused on the product, you create a culture that is built around enduring customer value.

Trying out a product through a free-trial or freemium model9 is less hassle and can help you decide quickly on a product. Tidal Wave 3: Product experiences have become an essential part of the buying process.

A go-to-market (GTM) strategy10 is an action plan that specifies how a company will reach target customers and achieve a competitive advantage.

If you jump too quickly to a product-led model with a new category, you risk a high churn rate because you simply don’t understand what it takes for customers to succeed.

My biggest regret is that our first customer was $1M ACV. Ever since that first customer, our product, go-to-market, our support model have all been pulled in one direction — high-end enterprise. Our first $1M ACV customer forced us to get on the elephant hunting treadmill, and we’ve never been able to get off it. Our board, our employees, everyone expects us to only go after customers that were as large or larger than our first customer. And I’ve been watching this new competitor emerge that’s going after the same market as we are, except from the low end. They are tiny but growing rapidly. And it’s too hard for us to compete with them — we don’t have the people, technology stack, support model or frankly, the mindset. His words12 reinforced something I have long believed: Truly great SaaS companies are built to be product-led.

Jason Lemkin,15 the founder of SaaStr, argues that you need 50 million active users for freemium to work.

Differentiated growth requires you to do a specific job better than the competition and charge significantly more. This is not a one-size-fits-all model.

When we suggested changes to the engineering team, we were shut down. The Chief Technology Officer wanted to treat the free trial as a pseudo demo request. This scenario might sound unusual, but it’s widespread. If a company employs a top-down selling strategy, they have the systems and expertise in place to convert demo requests into customers. Teams have demo request goals, and a free trial cannibalizes demo requests. In this example, it didn’t take long until the company removed the free-trial option from the website. It was a shame. It could have worked, but everyone was so focused on hitting their short-term revenue targets for the quarter that the free trial just got in the way.

Want to strengthen user motivation? Hire a great copywriter. Want to increase the number of people who complete account setup? Eliminate unnecessary steps in your onboarding.

Often, it’s easy to think that we sell products based on the functional outcome they accomplish. Businesses need live-chat software, right? No. Businesses do not need live-chat software. But, businesses do need a new and better way to acquire customers. The difference is that we’re selling an outcome. Businesses will always need to acquire customers. If businesses aren’t able to acquire customers, they experience pain—pain that they didn’t hit their marketing goals; pain that they can’t meet payroll; pain that, well, sucks.

The three reasons that people buy a product 1. Functional Outcome: the core tasks that customers want to get done.

Social Outcome: how customers want to be perceived by others by using your product.

If you don’t know how to do customer research, just sign up at doubleyourtrials.com. It’s a free customer research course that has helped thousands identify the three main outcomes behind why people buy their product.

A value metric is the way you measure value exchange in your product.

According to Patrick Campbell,18 CEO of ProfitWell, there are two types of value metrics: functional and outcome based.

The Mistake that So Many Make: User-Based Pricing

As ProfitWell’s Patrick Campbell explains, “The reason per user pricing kills your growth and sets you up for long term failure is because it’s rarely where the value is ascribed to your product.”

“It’s counterintuitive,” Campbell notes,20 “but because pricing touches on every single part of your business, it’s often ignored. That’s because it’s at the intersection of marketing, sales, and product—so nobody in the organization owns it.”

When analyzing usage patterns, it’s easy to focus on measuring your product data without segmenting your users. By doing so, it’s easy to optimize for everyone while creating a worse experience for your best users.

if we look at the product data for your best customers, we could streamline the onboarding experience for your perfect-fit customers while simultaneously filtering out bad-fit customers. We might decrease our signup-to-activation metric but increase our free-to-paid conversion rate. To get meaningful insights out of your product data, look for patterns among your best and worst customers. For instance, ask yourself these questions when analyzing your data: What do my best customers do regularly in the product? What do my best customers not do in the product? What features did my best users try first during onboarding? What similarities among my best users—demographics, team structure, ability—led to success? For churned customers, ask: What were some of the main differences between their user journey and that of your best customer? Specifically, what activities were different? What outcomes did your churned users achieve and not achieve?

How to Treat Your Pricing and Customer Acquisition Model Right Don’t overcomplicate your pricing page

It may sound simple, but we send a triggered automatic message to visitors simply saying “Have any questions about our pricing?” when people have been on our pricing page for more than 30 seconds. It’s helped us convert 100s of visitors in real-time. Even if you have a simple pricing plan, you may still run into the trap of giving away too much for free.

As Craig Walker, Founder and CEO at DialPad notes, We made our free service almost too good, so we have a lot of very dedicated, very happy free users, and sometimes we have a hard time upselling them because they’re like, “Hey, why would I need anything else?” Our stiffest competition is coming from ourselves! On the other hand, it’s also way too easy to give away too little. By doing so, you make it extremely hard for new users to see value in your product—the powerful, fun features are hidden behind closed doors.

To avoid bombing with your new pricing model, break down your customer’s perceived value across the three core outcomes your product solves for: functional, emotional, and social.

Functional Outcome: The core tasks that customers want to get done

a functional outcome breaks down into factors such as incremental revenue, reduced cost, reduced risk, or time savings.

So a very good way to determine your price is to follow the 10x Rule. “We charge this much because our customers get at least 10x that much value.”

What would you consider to be an “acceptable” price (good value for the money) for [our product]? When would [our product] seem “expensive” (they’d have to think twice about buying it)?

Giving survey participants a range of responses will improve your completion rate. But your results may be off if you don’t know the reasonable price range for your product. Be careful when picking a price range, or just ask people to give you an exact number for each question. You’ll get fewer survey completions, but your results will be more accurate.

Once you know your PMC and PME, you’ve found your acceptable price range: the space between both points.

What we promise in our marketing and sales is the perceived value. What we deliver in our product is the experienced value. Ideally, the perceived value aligns with the experienced value.

There are three main reasons why value gaps are so prominent in the SaaS industry: Your product has serious ability debt; You don’t understand why your customers buy; You overpromise what the solution is capable of.

Ability debt is the price you pay every time your user fails to accomplish a key outcome in your product.

Does the first product experience lead to a specific, relevant, meaningful “quick win”? Do tooltips and hotspots spur meaningful action in the product, not just point at buttons? Do social and directional cues indicate high-value behaviors?

Canva, a simple visual editor, does a brilliant job at shortcutting the time it takes to achieve a particular outcome in their product. For instance, just type “how to make a poster” in Google and click on the Canva link. Once you click on the call to action, you’re directed to register for an account. Once you do, you’re immediately brought to the poster section of the product. In less than a minute, you’re able to select a poster from thousands of beautiful templates and edit the design you choose with ease.

Even if you’re clear on what your solution does, you can misinform users about how long it takes to do it—companies

In a product-led business, these are the macro outputs you need to track: Number of signups; Number of upgrades; Average Revenue Per User (ARPU); Customer Churn; ARR; MRR.

According to Jay Abraham’s multiplier perspective, there are three levers you can pull for growth: Multiplier 1: Churn; Multiplier 2: Average revenue per user (ARPU); Multiplier 3: Number of customers.

Unless you’re just starting out, reducing churn and increasing ARPU will almost always have the biggest impact. Once you nail your churn and ARPU, you can start multiplying your business with each additional customer.

Here’s the multiplier formula you can use: Churn > ARPU > # Customers

To help you find the right inputs, recall the UCD framework and why companies fail: You don’t understand your value. You aren’t communicating your value well enough. You aren’t delivering on your value fast enough.

ICE prioritization method, developed by Sean Ellis, to score each input on three elements: Impact. How big of an impact could this input have on an output I want to improve? Confidence. How confident am I that this input will improve my output metrics? Ease. How easy is it to implement? Here’s an example of what this could look like:

To guide users to a desired outcome in the product, you need both bumpers. Common product bumpers: Welcome Messages Product Tours Progress Bars Checklists Onboarding Tooltips Empty States Common conversational bumpers: User Onboarding Emails Push Notifications Explainer Videos Direct Mail

Key Takeaways: Checklists can motivate new users to complete crucial set-up tasks. Checklists can turn complex, multi-step processes—such as scheduling a month of social media content—into simple, achievable tasks. Onboarding checklists employ the Endowed Progress and Zeigarnik Effect.

Key Takeaways: Use onboarding tooltips to guide users toward experiencing meaningful value in the product. People do not use software because they have tons of spare time and love to click buttons.