What Is Product-led Growth? The Complete Beginner’s Guide

by Bruno Medici | October 06, 2022 | Reading time: 8 minutes

What Is a Product-Led Growth Strategy?

Product-led growth is an approach or way of thinking to grow your business that focuses on building products that solve problems that matter to customers, rather than just trying to sell them something. It's about creating a product that your customers need, want, and love so much that they'll tell everyone about it and come back for more.

Instead of focusing solely on revenue, a product-led growth strategy focuses on powerful innovation to provide more value in your product or service than you're charging for it. In other words, a product-led growth strategy makes sure your product is in-demand, relevant, and solving a real problem for your target audience, as your team is constantly improving the product to meet the customers’ actual, not hypothetical needs.

The Benefits of Product-Led Development: How Does It Benefit Me?

At its core, the benefits of product-driven growth for company owners, managers, and employees revolve around producing die-hard customers who want to always buy from and market for you.

Here are the more specific benefits across various departments:

For Employees

• To gain a high-margin paycheck. When you're focused on delivering value as an employee, you're focused on helping your customers solve their problems. This can then reflect on your reputation and performance scores, which you can leverage for promotion.
• To guarantee job security and make you layoff-proof. Your company will be more likely to avoid considering you for layoffs because you advance the company’s marketing and sales bottom line better with your ideas.

For Managers

• To help you make better management decisions about how to grow your company. That’s because you're not spending time worrying about irrelevant variables. Instead, you focus on making sure your product solves a problem that customers want to be solved and that they're willing to pay for it.

For Employers/Entrepreneurs

• To help employers get a competitive advantage in the market, expand into new areas and increase sales in existing markets. That’s because PLG helps business owners identify pain points better, solve them faster, increase revenue, boost employee happiness and improve operational efficiency.

In this article, you will learn:

1. A step by step guide on how to initiate product-led growth

2. The industries where product-led growth’s use cases are most useful

3. A comparison between a product-led, sales-led, market-led, and community-led growth

4. The powerful metrics to measure PLG growth success

5. The PROs and CONs of product-led growth

6. Indispensable tips and best practices to optimize your product-led growth strategy

STEP BY STEP: What Are the First Steps to a Product-Led Development Strategy?

Product-led growth is already an established strategy to stay relevant in a disruptive global market. But you’re probably asking, “What are the first steps to becoming product-led? How do I become a product-led organization? And what are the best product-led growth companies today?”

Let’s tackle all these relevant questions below. But first, here are the first core steps you need to incorporate into your product-driven growth strategy, regardless of how you customize your workflow according to your unique business structure:

Step 1: Focus 100% on the product

Product-driven growth is all about creating something that people will want to buy over and over again. You need to create something that solves a problem or fills a need, and then make it easy for people to use and purchase from you. This way, when they find themselves needing another product or service, they'll come back for more of yours.

In order for you to create products and services that meet those needs in a unique way, you need to identify your target audience and find out what they want from your business first.

This step includes:

• how to create the most competent pricing model for your product
• how to create funnels to attract leads and how to match the volume of user engagement with your target revenue

Step 2: Make the process easier for your customers

When you focus on making things easier for your customers through features like auto-delivery or recurring orders, you'll be able to keep them coming back for more products from you. In this step, it is always important to keep improving upon your product or service offerings so they stay relevant in today's market.

This step includes:

• How to avoid customers downgrading their subscriptions because they’re not using your other features
• How to create value metrics that are scalable and customers can easily enjoy

Step 3: Execute with precision and fail fast

Executing a product-driven growth strategy in your workplace is one of the most important things you can do to grow your business. It's also one of the hardest because it requires you to go against every instinct you have as an entrepreneur.

We've all been there: You're sitting in your office, thinking about how great it would be if only you could get more customers. You spend hours trying to come up with ways to attract more people and get them to buy your product or service—but then you realize that no matter what ideas you come up with, they're not going to work.

To fix this, you need to test your products first with trial customers before launching them widely so you can gather feedback on what works and what doesn't. This way, you can iterate quickly based on what they tell you, limiting your losses. When you fail fast by launching to testers, you learn more mistakes but your downsides are limited or capped.

This step includes:

• How to execute and target the right audience
• How to escalate scalable tactics to generate different kinds of leads (such as marketing-qualified (MQLs) and sales-qualified leads (SQLs)

For further elaboration, read this article from The Manifest.

Here are a few short, but very important, questions before continuing with the guide.

Who Created the Term Product-Led Growth?

Wes Bush, Founder, and CEO of ProductLed and bestselling author of Product-Led Growth, coined the term. Wes Bush holds a Bachelor’s Degree in Global Business and Digital Arts from the University of Waterloo and spends his time helping companies increase their revenue through strong products.

Wes believes that every company has a product-led or product-driven strategy at its core—whether they realize it or not. He defines product-led growth as the practice of creating high-quality products to acquire, activate, and retain customers.

What Does Product-Led Development Mean in Marketing?

A product-led marketing strategy means that you're focused on offering genuine value through your offering. Product-led businesses prioritize customer acquisition and retention through their distinctive value proposition and superior product experience. This is opposed to traditional marketing- or sales-driven models.

This is important because modern marketers need to be able to demonstrate how their company is different from their competitors. If you're not making an effort to differentiate yourself from your competitors through products, it's unlikely that customers will choose you over them.

What Is PLG’s Opposite?

The answer is sales-led growth, which mainly relies on your sales and customer success team to serve the customers. This sales-led strategy could result in high overhead expenses and prevent end users from serving themselves. In other words, if you or your inspectors are looking for a way to expand your business and leverage your current and potential user base, then product-led growth is the way to go.

EXAMPLES: What Are the Industries Where Product-led Growth Is Most Useful?

These are the major industries where the use of PLG models and software can have dramatic results:

• Technology
• Finance
• Software as a Service (SaaS)
• Agriculture
• Cleaning Services
• Construction
• Emergency Services
• Facility Management
• Food & Hospitality
• Health Services
• Horticultural
• Manufacturing
• Pharmacy & Chemistry
• Professional Services
• Project Management
• Real Estate
• Manufacturing
• Transport & Logistic

What Are Product-led Growth Examples?

Dropbox is a perfect example of what PLG is able to contribute to a company’s success. The company's SaaS product-led growth model is simple: offering free storage space for users in exchange for their attention. Dropbox has a highly valuable feature (free storage) that creates a strong incentive for users to try it out and also creates a high degree of stickiness with the product. By providing value to customers, Dropbox has been able to grow rapidly without spending on traditional advertising campaigns or other marketing activities.

For more SaaS product-led growth models and examples, read this article from Digital Uncovered.

What Is A Product-led Growth Flywheel?

The Product-led Growth Flywheel is a foundational framework for how to scale your business using the power of products. It starts with identifying a core product that can be used to drive growth, then uses that product to attract new customers and ultimately create more revenue.

This gives you the ability to expand by increasing the number of people who use your product, which in turn increases revenue. The process repeats itself, creating an upward spiral that leads to exponential growth in your business.

For a detailed breakdown of the entire PLG model flywheel, visit Product-led’s official website.

COMPARISON: What Is Product-Led Development vs Sales-led Growth, Market-led Growth, and Community-led Growth?

What Is Sales-led Growth?

While Product-led Growth means the company focuses on creating a great product and then finding customers for it, Sales-led Growth is when the company focuses on selling its product and finding new ways to sell it to more people. This can involve hiring more salespeople or advertising on TV or radio. It’s about bringing in as many new customers as possible.

What Is Market-led Growth?

While a PLG model creates something so good that people will buy it without any marketing or sales force, Market-led Growth happens when companies don’t improve the product and just try to reach as many customers in their chosen market. This means they will focus on how they can provide that service or product better than anyone else in their industry.

What Is Community-led Growth?

Community-led growth is the process of converting a product's consumers into its greatest promoters, who then tell their peers about their experiences using such a product.

This strategy helps promote and endorse the product among their peers, and fosters involvement through online collaboration and feedback to exchange material, success stories, and conversations.

TOOLS: What Are the Product-led Growth Metrics?

How can you tell if your product is a success? And how do you measure product-led growth? You can't just ask your customers. Customers are only one part of the equation, you have to look at the whole picture. To measure success, there are a number of metrics that can help you choose the right product-led model and understand how well your product is doing, and whether or not it's actually helping your company grow.

Here are the top product-led growth metrics for measuring success:

1. Product Qualified Leads (PQLs). This metric tracks the number of people who have tried the free trial of your product or service, but weren't ready for purchase yet. If this number is high, it means that you're engaging with your customers in the right way.

2. Time to Value. This measures how long it takes for customers to go from "interested" to "purchased." A short time-to-value means that your products are easy to use and solve real problems for customers—and that they're sticking around longer than they would otherwise.

3. Average Revenue per User (ARPU). This metric tracks how much revenue each user generates each month after purchase. The higher this number is, the better: it means that people are using their subscription services more often than expected, which makes them happy and encourages them to recommend them further.

4. Feature Adoption Rate. This metric tells you how many of the given features customers are using over time. If you have a feature like "subscribe to our newsletter" and only 5% of users are clicking on that button every week, that's not very good. You want more people clicking on more buttons.

5. Customer Lifetime Value. CLV is a measurement of how much money each customer is worth to your company over their entire relationship with you—from when they first use your product until forever after. This audit can be calculated by multiplying the total number of customers by their average spending over time (if applicable) by their average length of stay in relation to their lifetime value.

6. Retention Rate. This metric tells you how many users stick around after using your product for X amount of time (e.g., 30 days). It also helps you determine whether or not users are happy with your product, or if they're leaving because they aren't getting enough value from using it.

7. Net Revenue Churn. This metric shows you how much money is lost due to customers leaving over time (e.g., monthly). You can use this information to find ways to retain those customers who are churning out quickly so that they don't.

8. Expansion Revenue. This is the revenue that is generated from existing customers who have already purchased your product. This is derived from the excess revenue generated from customer's initial purchase.

For a detailed explanation of these metrics, read this comprehensive guide from User Pilot.

PROs and CONS of Product-led Growth

The PLG strategy has been around for decades, and it's gaining in popularity as more companies wake up to the fact that traditional methods are no longer working as well as they used to. However, while PLG’s benefits outweigh the costs, it also has its own share of drawbacks.

Here are the PROs and CONs that managers, employees, and business owners must not dismiss about initiating Product-led Growth strategies in their workplace:

PROs of Product-led Growth

• It's fast and scalable. Product-led businesses can scale much faster than their competitors because they don't rely on hired human labor to create customers (or at least not as much). This means that they can spend less time onboarding new employees and more time serving their customers.
• It's self-sustaining. Product-led businesses tend to have higher retention rates than those that rely on customer service or salespeople—which means fewer costs associated with training new employees and keeping them engaged in the long term.
• It's profitable. Because product-led businesses focus on making products that customers want, they tend to be well-funded by investors who know how much money there is to be made from producing good products instead of overcharging for bad ones.

CONs of Product-led Growth

• It's hard to do. As a company grows, there's more and more of a need for coordination between teams and departments. This is something that can be difficult for small companies, especially when they're just starting out. When you're bootstrapping your business and hiring employees who don't share the same vision as you, it can be hard to get everyone on board with what needs to happen next.
• It can lead you astray from your mission or vision. If you're not careful about how your company develops its product line, it could end up taking away from what made you successful in the first place—and this could have serious repercussions in terms of public perception and customer satisfaction levels (if not actual losses).
• You may lose sight of what makes your brand unique or special among its competitors (or potential competitors). While all companies should strive for innovation and growth through innovation, this may backfire. If improvement becomes the primary focus instead of customers’ loyalty to what makes your product unique, your customers might be disappointed.

Indispensable Tips and Best Practices to Optimize Your Product-led Growth Strategy

But… How hard can it be to create a product-led growth business? After all, it's likely that you're very familiar already with the ins and outs of your company’s workflows and processes.

That might be true, but the problem is that it's easy to get complacent. To avoid the costly mistakes in complacency and faulty execution of a PLG model, here are some Dos and Don'ts, industry-vetted tips, and best practices for your company to follow:

1. In trying to generate higher profit margins per customer, start with something simple first. Make sure it’s easy to implement, and measure and will have an immediate impact on your product. This will allow you to see real results and build momentum toward larger changes later on.
2. Use simple but powerful checklists with your PLG software. Using checklists can better prompt users to the activation point: the point at which they feel like they've gotten enough value out of your product that they want more. You can do this by making sure each step in the process is well thought out and written down somewhere (like a checklist).
   Then, when users reach the activation point, you can refer back to your checklist and see what they're supposed to do next. For best execution, find a simple but powerful app or checklist maker that can itemize everything you need to assess in your PLG strategy. Make sure the software or app is trusted and can be accessed anywhere, anytime, by anyone on the team.
3. Make sure you have the right people on board. This is especially important if you’re trying to hit Lower Customer Acquisition Costs (CAC) by having users upgrade the product themselves because they love the product so much. You need a team of people who understand what it takes to dramatically reduce your prospect’s sales cycle and time-to-value, and can work together seamlessly.
   That means hiring people who all have the same vision for your company's future and don't get bogged down in details or disagreements about how things should be done. It also means hiring people who are passionate about what they do so they'll be motivated to keep working hard even when times get tough.
4. Identify your customers’ problems from their perspective. First and foremost, start by identifying who your customers are and the problems they have. You can do this by talking with them directly, but also by looking at data and drawing conclusions based on what you see there. Use data to understand your customers better and go where your customers are, not where you think they are. This is the way to find out what people really want.
5. Only create solutions in your PLG software that matter to the customers. Once you understand what the customers need from you, make sure that whatever solution you come up with meets those needs and is very easy for them to use. Make sure your solutions work as smoothly as possible before launching into full production. This will save time and money down the line if it turns out your product has defects.
6. Don't underestimate the importance of good marketing. While this may seem obvious, many businesses don't realize how much influence having a strong brand is in crafting a great product-led growth strategy.
7. Ensure that everyone on your team has access to all assessment data. This way, they can make informed decisions based on real numbers rather than assumptions.
8. Create processes that help you develop new products faster while ensuring quality control throughout the process. If you're trying to grow your business, it's important to realize that your product is more than just a product. It's an opportunity to change the lives of your customers.
   When you think about it in those terms, it changes everything. Instead of thinking about how much money you can make from a product, you start thinking about how much impact you can have on people's lives.

In a nutshell…

To sum it up, Product-led Growth is a fantastic strategy to create products that change the lives of customers beyond their wildest expectations. It also helps companies have a clear understanding of their target audience and create a product that solves an existing problem in an innovative way with the lowest Customer Acquisition Costs (CAC).

In other words, a Product-Led Growth Strategy changes the focus from profit and loss to impact and value. It puts the power in your hands as an entrepreneur or manager to create things that actually make people happy and change their lives for the better. And when you're doing things that matter, creating products that truly change lives, you'll know it: People will tell others about them. They'll come back for more, over and over again, giving you and your company the most competitive advantages.

Learn the complete Product-led Growth concept and other training modules from its official website HERE.

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Bruno Medici

Bruno, who received his journalism degree in Madrid (UCM), is specialized in objective information after working for international news agencies. He is also dedicated to photography, literary writing and communication consulting among many interests. In addition, these include his passion for the “industrial world” and production philosophies, portrayed in his articles in Lumiform.