To compete at the top of the industry and build a truly great software company, you need to apply a product-led strategy.
Having an amazing idea for a startup is only the beginning of your journey as a tech entrepreneur. Building a viable software-as-a-service (SaaS) product is the next step. To succeed, attract investment, and scale the company, you need to grow. Growth hacking has become a buzzword for tech startups, but it’s more than that. It’s a survival strategy, and it helps you thrive.
Putting the product center-stage allows it to drive your organization’s growth. We’d go as far as saying that product-led growth is the secret ingredient to SaaS success. Sales-driven growth used to be the key to success, but the landscape has changed for tech entrepreneurs. To compete at the top of the industry and build a truly great software company, you need to apply a product-led strategy.
What is product-led customer acquisition?
Product-led growth is a strategy of going to market that uses your product as the main marketing tool. Rather than relying on pure sales or digital marketing, you put all of the attention, focus, and effort into the product you have built.
The term itself was coined by OpenView. Chances are you have already purchased software that was marketed purely based on the product itself. DropBox was one of the earliest examples. Collaboration app Slack is one of the more recent successes of product-led growth strategies.
Neither required much explanation. Instead, customers subscribed to the free version of the product and saw how it worked. The product “sold itself.” (Hint: no SaaS product ever truly sells itself, unless a team of people lays the groundwork.)
In a nutshell, product-led marketing lets the customer try before they buy. This may sound simple, but if it’s done right, it can revolutionize your SaaS marketing. This strategy is not a one-size-fits-all approach. Instead, there are plenty of options to tailor this method to your product and its specific requirements.
One thing all product-led marketing strategies have in common is a complete, company-wide focus on the product and how the product can create demand. No matter whether you’re consulting with your salespeople, the marketing team, or your developers, everyone is asking how they can create a product that will stand out.
Benefits of product-led marketing
Once you put your product at the heart of everything your organization does, you can start to see the benefits of this going-to-market strategy. Some of the potential benefits include:
- Lower customer acquisition costs
- Shorter sales cycles
- Higher revenue per team member
All of those benefits work towards ensuring the future of your business. However, the biggest benefit of product-led marketing is survival. Done right, this strategy helps you ensure your company thrives when others struggle to get by.
The early-stage SaaS market is highly competitive. Building and launching a product can be done without incurring huge costs, which is why there are thousands, if not millions, of SaaS startups. With that said, growing a startup is generally more expensive than growing a more established company.
The market is highly competitive, and experts predict that over the next few years thousands of early-stage startups will disappear as quickly as they appeared. Product-led marketing can cushion you against those threats.
Product-led marketing models
Software buyer behavior is changing. Just a few years ago, potential customers were happy to invest $100 or more into a package containing a few discs of largely unknown content. That’s no longer happening. First, most software products are offered on a subscription basis. Second, buyers like to self-educate.
Whether it’s a lack of trust in information from salespeople or a quest for more independent buying decisions, potential customers like to be in the driving seat. It’s a big shift in behavior for both B2C and B2B customers, but it doesn’t mean that you won’t need a salesforce.
Introducing product-led marketing to your business generally means choosing one of three different approaches:
- Demo version
- Free trial
Making this choice is critical. Picking the wrong approach could bankrupt your company as you’re giving away business. On the other hand, the wrong approach might also drive customers away or prevent them from trying your product in the first place.
So, how do you solve this conundrum? The answer lies in your product. By putting the product at the heart of your decision-making, you’re giving yourself the best chance of selecting the most powerful approach.
Naturally, you can look at what competitors are doing. However, their product is different from yours, meaning what works for them may not work at all for you.
Before diving more deeply into these strategies, let’s clarify the differences between the three approaches.
Offering a demo version is a tried and tested approach, but it simply doesn’t work very well in this competitive market. Why? Because it’s hard to build a demo that allows customers to get first-hand experience of the product and feel for themselves what it’s like to use your software.
Arguably, if you’re planning on making an impression on today’s customers, freemium or free trial are your best options.
A free trial gives customers access to the software for a limited time. You can choose whether to offer access to the full version and all its features or to give access to a selection of features first. It’s really a balance between showing all the software can do without overwhelming potential customers.
Choosing the freemium model is often the best option if you plan to take a big chunk out of a big market. Critics of the freemium model see it as an unlimited free trial, but that’s simply wrong. Using the freemium version of a product means having access to limited features free of charge for an unlimited period of time.
One word of warning about freemium models of product-led growth – these will only work if your product is attractive to a large total addressable market. If you are looking to launch a niche product, free trials are likely to work better. Freemium could lead to all relevant potential buyers using your product free of charge.
Selecting the right model and matching it to your growth strategy allows you to start growth hacking your business and taking it past the precarious early stages.
Matching model and growth strategy
It’s impossible to start growth hacking without having a growth strategy. Like with your product-led growth model, you are likely to choose between three different approaches to growth:
Put simply, you can quickly acquire both well-served and underserved customers by doing something better than your customers and charging less for your service. That’s a dominant market strategy in one sentence.
Differentiation is also based on doing something better than others but charging more. You will win underserved customers to grow your business, and it’s a great strategy to growth hack a top-end market. But your growth will happen more slowly.
The third option is a disruptive market strategy. This could work well for your SaaS product if you are offering a lesser product compared to competitors but also reflecting that by charging a lower price. You will win overserved customers who simply don’t need all the features your competitors are offering.
How do you choose a strategy? Take a look at your market. Before launching your brand-new software, spend the time to truly understand at what stage your market is. Consider its overall size and the number of overserved and underserved customers. Then think about where you would like to position yourself in that market.
For some SaaS products, one single approach will work best. Others will do better with a hybrid strategy. Choose your market strategy but remember that your first choice may not be the perfect, final answer.
Keep an open mind and remain flexible to changes in internal market conditions and external factors.
Red ocean or blue ocean: consider your competitors and your environment
Speaking of competitors – how much do you need to take them into account? Many entrepreneurs set out to offer ground-breaking solutions that open up an entirely new market for them. However, if your product is an iteration of existing software, you will be competing against others for your market share.
One metaphor that is regularly used to describe a company’s different environments is red oceans and blue oceans. Operating in a blue ocean means accessing an untapped market and creating demand for your product that didn’t previously exist. The opportunities include high profits and fast growth, whilst competition isn’t really a concern.
Red ocean companies are the opposite. They are crowded markets, where companies try to outdo their rivals and take market share away from those competitors. The more crowded the market becomes, the lower the prospect of growth and profit drops. Cut-throat business practices turn the ocean red.
In many cases, some of your market segments may be blue while others are red. Understanding the difference is important because those segments require a different strategy.
Breaking into a blue ocean market
You wouldn’t be wrong to think a blue ocean market sounds like a more comfortable place to be. For many companies, it is. But it is not without its challenges.
Creating demand for a new product requires time and explanation. Taking a purely product-led approach rarely works unless your SaaS product is truly self-explanatory. Most brand-new types of software require some explanation and an opportunity to try the product before paying for it.
Allowing customers to see the benefits of the product helps overcome hesitation and create the initial demand. To achieve this, you will need your sales team and a proactive approach to marketing and selling your product. Their efforts are necessary to overcome concerns and initial objections to a new product or a new way of solving a specific problem.
Once your software has gathered momentum and sales are starting to come in, it’s time to consider shifting from a sales-led to a product-led strategy. This shift doesn’t have to happen from one day to the next. In many cases, your SaaS product will go through a hybrid phase of marketing.
With all that said there are a few exceptions to the rule of using sales-led marketing in a blue ocean environment. If your software is really simple and customers can grasp the value of it intuitively, you may be able to lead with a product-led approach.
Breaking into a red ocean market
Competition in a red ocean market can be fierce. If you’re trying to launch a SaaS product into this type of market, you need to be prepared for competitors defending their market share and meeting your efforts with equally strong defensive moves.
As uncomfortable as that may sound, there is one big benefit to entering this scenario: your potential customers are already sold on the product in principle. They understand how it works and what they could gain by using it. They may even be using a competitor’s product at the moment.
In this situation, a product-led approach is ideal. Allowing your product to speak for itself can be more persuasive than any sales professional or marketing material. If a product-led approach is an option for you, it can help you widen your funnel and decrease your customer acquisition costs.
Most importantly, product-led strategies have the power to drive growth globally in less time than a sales-led approach would take. This is especially important if you are trying to launch a new product into a mature market.
Take live chat or chatbot software, for example. Less than a decade ago, these products required a substantial amount of explanation to help customers understand their benefits. Today, countless businesses rely on them as their first line of customer support, and clients are happy to use them, at least initially.
Launching a new and improved (perhaps more intelligent?) chatbot software doesn’t require much explanation. Free trials and freemium versions can take the lion’s share of going to market, as long as enough people know about your launch.
Top-level executives or ordinary team members: who are you selling to?
No matter what you’re selling, one rule applies to all marketing strategies: you need to know your audience and sell to them. It sounds almost too simple to be true, but, still, countless startups waste time, effort, and funds on selling to the wrong people.
Take the B2B marketing space, for example. Traditionally, top-level executives held the purse strings and signed off on major expenditures. Of course, you could approach more junior employees and introduce your product to them. But the final decision was made by their superiors. As a result, the sales process tended to take longer and was more involved.
If your SaaS product is aimed at a B2B market especially, you need to understand whether you are selling from the top down or using a bottom-up strategy. Traditionally, your approach would have been from the top down, selling to executives who chose the tools junior team members were using.
As SaaS products have become much cheaper to purchase, the sales process has changed beyond recognition. Wes Bush cites the collaboration app Slack as a prime example of a bottom-up selling process. The app started with individuals in a company using it and inviting a colleague. Eventually, the entire would be using a free version of the tool.
As more people needed access to more of Slack’s features, the product reached a critical point where managers would invest in full versions. Apart from being easy to use, Slack provided instant value to users. Having tried restricted versions, teams could quickly see how the tool was making it easier for them to do their jobs. Slack’s value skyrocketed from 0 to $4 billion within three years.
Selecting the right strategy for you
Whether you succeed by selling top-down or bottom-up depends on your product and your audience. Whilst there are rules of thumb, there are just as many exceptions.
Generally speaking, top-down selling strategies work best with a sales-led approach. If your product is complex and requires a relatively high investment, you need to approach decision-makers through your sales team. Without previously established relationships, this method can be time-consuming.
As an early-stage company, it can be tough to cover that time between launch and revenue generation. Covering that gap needs to be part of your cash flow planning.
Bottom-up selling strategies work best with a product-led approach. The marketing effort will be directed toward spreading enough information to get a relatively small number of people to test and recommend the product.
This approach requires a simple, self-explanatory product that delivers value almost instantly. Startups launching a simple consumer product requiring a comparatively low investment do well with this approach.
Sales cycles are generally short, and revenue generation happens fast, although often at a lower level than top-down sales.
The approaches may seem fairly distinct, but, in reality, most products require a combination of approaches at different times. Putting the product at the core of decision-making helps as does a thorough understanding of your buyer personas.
Aligning value and time
In the previous section, we’ve mentioned the importance of value a few times. To successfully generate product-led growth, your SaaS product not only needs to deliver great value. It also needs to deliver value fast.
What does it mean in practice to create great value fast? Your customers need to be able to use your product without assistance. Plus, they need to be able to see how it is making their life better almost instantly.
If one of those components is problematic, users who have signed up may never return after their initial experience. Having support easily available – via chatbot, for example – can mitigate some of these problems. But it’s hard to overcome or undo a bad first impression.
How much time and effort users find acceptable when it comes to your software depends on their motivation. Anyone with a high level of motivation will be happy to invest more time. Those with lower motivation will want to see results more quickly.
Apart from motivation, ease of use will also determine whether users think your software is delivering the right amount of value within an acceptable amount of time. Generally speaking, the easier the software is to use without reading a manual or needing support, the more likely it is to be successful.
A word about onboarding
Ease of use also applies to the onboarding process. How hard is it for users to sign up or register for your product?
Evaluate your onboarding process honestly and be ready to try different things to simplify and streamline it. Consider the amount of information you require from your customers. Both B2B and B2C customers are growing ever more wary of sharing personal details or financial information.
As a startup, you may want to know more about your customers to help develop more accurate customer personas. But it’s important to weigh those benefits against the potential to scare customers away simply by asking too much. Once customers have signed up for your product and have become regular users, you’re starting to build trust. From that basis, it’s much easier to ask for additional information.
How to create a product-led strategy
Let’s assume that you have decided to take the product-led route for your next product launch. Whether you are transitioning from a sales-led to a product-led approach or are launching your first-ever product, there are three components to a successful product-led approach. Wes Bush lays them out clearly.
All three components revolve around value. They include understanding your value proposition, communicating it to your customers, and delivering on their expectations. Think of them as the three pillars of success for a product-led go-to-market strategy. If one of the pillars is weak, the entire structure is in danger of crumbling and falling down. For that reason, each of the three components deserves the same attention.
What is your value?
Understanding the value of your product means being able to answer the question of why customers are buying your software.
It’s a common mistake of SaaS startups to focus too much on the product’s features. Developers get excited about features. But most B2B and B2C customers get excited about how your software will change their lives.
Purchasing decisions are not all about the rational weighing of issues before deciding how best to tackle a situation. Whilst buyers will consider the potential functional outcome of their purchase, i.e., which problems the product will solve for them, they are taking other factors into account.
Many buying decisions have a strong emotional component. Prospective customers want to feel good about their purchases. They want to know that the product will make them feel good about having invested their time and cash in it.
Social factors are equally important. Prospective customers may consider how they are perceived by others when they use your product. Collaboration tools like Slack or Trello make you look organized and on top of your workload in front of your colleagues, for example. Being perceived as efficient may help secure a promotion.
Understanding your value is impossible without understanding your customers. One of my strongest recommendations to SaaS startups and early-stage companies is to spend time researching why their customers sign up for their service or buy their products. Without this foundation, the following steps become mostly guesswork.
How do you communicate your value?
With a clear idea of your value, you can start developing a communications strategy that helps convince prospects that they need to buy your product.
Communicating your value includes transparent pricing. Sales-led approaches usually hide product pricing, asking customers to enquire in order to get a quote. Product-led approaches allow the product to speak for itself, and one way of doing that is to display prices, for example on a pricing page. Your pricing page is more important than you may think. Very few customers sign up for a free trial without taking a look at your pricing page. Not only do they want to know whether they can afford your software beyond the free trial. But they also want to quickly assess which package or pricing plan is best for them.
The key here is a quick assessment. Both B2B and B2C customers are generally time-poor unless they are extremely interested in your product. Think about your pricing page as equally important to your homepage. Your pricing plans have a few seconds to make a good first impression and be understood, at least superficially.
Avoid giving away too much of your product free of charge. Naturally, you want to grow your user base. But to stay in business, you need paying subscribers. Freemium users may turn into excellent ambassadors for your product. But it’s worth encouraging and incentivizing them to switch to a paid-for plan.
Keeping your promises
Delivering on the value you promised customers is perhaps the most important of the three pillars.
It’s easy to promise too much and deliver too little. If that happens with your product, word will spread quickly, tarnishing your budding business’s reputation. It’s hard to recover from that.
When you’re communicating with prospects, those potential customers develop an idea of the value your product will deliver. Once they start using the software, they’ll experience that value. Ideally, your product delivers exactly what they were expecting – or more.
Free trials and freemium versions allow your customers to experience your product and validate their expectations with a minimal level of risk. If expectation and experience overlap, users develop trust in your product. The more their initial decision is validated, the more likely they are to upgrade and use paid features later.
On the other hand, if there is a discrepancy between your value promise and the experience your software delivers, you will notice that usage levels drop. It’s important to monitor any noticeable decline in usage and identify the reasons behind the gap between expectation and experience. Reacting quickly allows you to plug the gap and continue growing user numbers.
Prepare to iterate
Technology is evolving at an unprecedented pace, and SaaS products are no exception. Like the products, the process of bringing them to market keeps changing fast.
A sales-led approach for consumer software may have worked ten or 20 years ago, but it simply won’t cut it today. The same is true for relatively cheap B2B products. A product-led approach will help drive sales quicker and more economically for almost all these software products. But it’s not a static undertaking.
Analyzing which marketing channels drive your customer acquisition is a great starting point. You need to know whether Google Ads or trade show attendance drive sign-ups for your product. Perhaps sign-ups are not the most important output you want to measure? For most SaaS products, the number of upgrades from freemium to paid-for accounts can be a better indicator of success. The average revenue per user is another metric to consider.
With the analysis covered it’s time to ask yourself in which direction you want to take your business and how you can get there. Which channels do you need to invest more in? Or perhaps your existing channels are performing as well as they can and it’s time to add new channels to your mix.
Once you have all this information start adapting your approach. Remember iteration is a process. Some changes deliver immediate results, whilst others take time to go into effect. Plus, despite all the analysis and information gathering your changes may not deliver the results you need. If that happens, it’s time to iterate once more and try something else.
Get started today
Product-led growth can be a gamechanger for startups, especially in the fast-moving tech sphere. Limiting your customer acquisition costs whilst increasing the speed of acquisition can deliver outstanding growth and put your product not only on the market but ahead of its competitors. It’s one of the most powerful ways of growth-hacking for startups.
Successful product-led growth strategies are built on solid products and a clear understanding of the benefits those products deliver to customers. With both products and customer personas at the heart of every decision, a product-led approach can put your business on the map.