Why Product-Led Growth is the most effective GTM strategy

Product-Led Growth (PLG) is a relatively new term, popularized by OpenView Venture Partners. When a software company chooses product-led growth as its go-to-market strategy it means that — the company relies on product usage and customer experience to acquire new users, retain its existing ones and expand its user base.

Product-led businesses are outpacing other SaaS companies in both growth and Rule of 40. Remember when Slack hit $100M in ARR in only 3.5 years, breaking all growth benchmarks by a powerful mix of virality, self-service and bottoms-up adoption?

Source: Aptrinsic.com

Growth becomes tied to the value of your start up’s product. A product that is easy-to-use, easy-to-share, and immediately valuable – so much so that it drives user acquisition at remarkable rates, slashes customer acquisition costs (CAC), and drives customer lifetime value (CLV). Users are the current revenue opportunity and a flywheel to grow your business. Their use of your product — or lack of — is information that you must use to steer business in the right direction.

Why building a measurement mindset into your company culture matters

In its early stages, a startup has incredible flexibility to build on its vision. The team is moving fast to fulfill the vision and the product is starting to show the glimmer of promise of what it can be. For a startup built around product led growth, watching users sign up and start to use your product is truly exciting...

However, at one point the vision meets reality and the team needs to understand what’s working and what’s not to better prioritize the scarce resources available. At eScoring, we were sure we knew what the “Aha” moment for our customers would be. We had a vision and made the assumptions about what users would do first based on our knowledge of how to run effective product marketing on Google.

We were wrong.

Luckily we built the product from the very beginning with a measurement mindset, so we quickly understood our mistake.

Measure early, measure often

Build a measurement mindset into your company culture and product right from the start. It’s much easier to do this in the early days and much harder to retrofit in at a later time. Establish a baseline for future reference.

What matrixes actually matter?

1. Acquisition. Starting from your website, the door to your product, track impressions, clicks, visitors, sign-up progression and users.
2. Activation. Once someone transitions from your website to your product, track their movement through the product to find their “Aha” moment (the moment they feel the value of the product) and the time it takes to get there. We use tools like Segment and MixPanel for event data and analytics as well as custom-built charts, graphs and alerts to keep the team informed realtime of the customer journey.
3. Revenue. After the user completes their introduction to your product, track their road to conversion or expansion into the additional offerings the product optionally provides.
4. Retention. Follow the user journey of existing activity to understand how long someone is retained in the product and what actions lead to greater retention.
5. Referral. Track the various ways people invite new users into the product. Track separate referral type so to understand which one drive a greater adoption.

How much data do you need?

1. Reach statistical significance. You want enough data to clearly define the result. Affirmation from three test users is a recipe to make poor decisions.
2. Discuss hypotheses. Set a goal for what you hope the change will achieve such as % increase in activation or revenue. It’s a guess at first, but once you start setting goals and experiencing results, these guesses become more realistic over time.
3. Test incrementally. Make it possible through your product to release small, iterative pieces and try the changes with a small set of customers at a time so as to not disrupt everyone during the process.
4. Watch the data for results. Build, release, watch your metrics and build again based on what the data is telling you. Spending a lot of time building something isn’t justification for forcing it into the product if it’s not helping you meet your goals. In the end you’ll only confuse and alienate your user base.
5. Keep trying. Trial and error is the name of the game. An error is not a failure but rather a sign that tells you which direction to go.

Why are metrics important for an early startup?

1. To know what to build proactively—when data strongly suggests a need that should be filled for your users. 
2. To know how to fix something reactively—when data shows an issue that should be addressed to relieve churn or other usage impacts. 
3. To tell your investors a story—proof your vision is working and why investment in your company is smart. 

The Bottom Line

The median public PLG company is worth 2x that of the broader SaaS index ($6.8B vs. $3.4B in 2020). PLG is the future. Remember that everything about your product is a learning experience and should continue to be no matter what stage you are in. 

Using clear metrics from the beginning of your startup journey will help you and your team have a greater connection to the purpose and mission of your product and create an amazing story you can share with greater confidence.

• Build out a better self-service checkout experience (big growth levers) via product and engineering. Public PLG businesses spend 44% more than their SaaS peers on R&D costs.
• Keep growth front and center. Committed Monthly Recurring Revenue is the key metric.
• Focus on CAC Payback. Low churn and the chance for revenue expansion from accounts. Emphasize on building a repeatable growth engine. 

?About eScoring:

Find profitable growth in eCommerce — With Predictive Analytics.

Digital Marketing Mix Modeling for Brands, Manufacturers & Retailers by connecting advertising, pricing, promotional, and digital shelf data. Based in Munich, Germany, eScoring provides a flexible and scalable eCommerce Analytics Platform.

To learn more, visit eScoring