Sales-led vs. product-led. It's an ongoing debate as to which approach is best.
Many companies are building a product-led business, and have many questions about what the first steps and main challenges are.
In this post, I discuss the hard decisions, behavioral changes, and first results when shifting from a sales-led to a product-led business.
This post is divided into five topics:
- Start with a Cultural Shift
- The Challenges we Faced
- How We Overcame Our Challenges
- The Results of Our Transition to Product-Led Growth
By the end of this article, you’ll learn how our product-led approach helped increase Octadesk’s NPS by 25 points – one of our main indicators of company satisfaction.
But first, let’s take a look at product-led growth (PLG)
PLG is the evolution of the customer acquisition process, where the product is the main driver of acquisition and retention. In this model, every effort is focused on allowing the user to experience the product as soon as possible.
A product-qualified lead (PQL) is radically different from marketing qualified leads (MQL) and sales qualified leads (SQL). PQLs use in-product behavior to find out exactly when a lead is ready to buy.
The user remains the main asset. However, with PQLs, acquisition costs are much lower and the model itself is much more scalable. Depending on the use of the product, it is possible to reach a zero CAC.
In addition, research shows that 98% of MQLs never actually result in product sales. This proves the need to invest in distribution, a product that allows ease of payment, and the delivery of value to the user as soon as possible.
PQLs demonstrated purchase intent based on interest, usage, and behavioral data in the product. Leads that are qualified for use within the product provide a more accurate method of tracking customer journeys from sign-up to sale to upsell.
It is a much more efficient model.
Start with a Cultural Shift
The initial question is how to align and implement the PLG approach in terms of your team.
It is no use putting PLG as a savior of the homeland if people do not understand it’s a new way of looking and acting on the product.
Changing culture is not an easy task, it requires constant and continuous effort, especially at the beginning of this transition. It requires a lot of support from company leaders on what really needs to be done. Communication needs to constantly align within the company.
The Challenges we Faced
Although the company was growing at around 15% a month in sales, one method was missing. Churn was high, around 7%. Our goal was to reduce that to 2%.
As we grew, scalability issues were starting to appear more clearly in the product. The system was going through a period of constant and continuous instability.
Initially, we faced the problem that many tasks were labeled as “urgent” so everyone felt like they were working without focus. The Marketing, Sales, Support, and Product teams felt unproductive. But at the same time, they felt they had a huge workload.
The Customer Success and Service teams felt they were not heard on the Product team. Many requests ended up in a backlog and were not implemented.
Our top product health indicator was in free fall. And it looked like we couldn't reverse it. If we continued at that rate, it was going to get worse. While NPS is just an indicator, we needed to identify the problems that caused the result and solve them. Or else we wouldn’t have the results we were hoping to achieve.
Don’t expect your new product-led growth strategy to be perfect. As you can see, there were (and are) no shortage of challenges standing in our way.
What you can do to pinpoint challenges — with the goal of overcoming them quickly — include:
- Track more than sales: Even if sales are up, it doesn’t mean your customer count and revenue are following suit. For example, we found that our churn rate remained high, thus calling for adjustments to our overall approach.
- Talk with your team: Your product-led growth strategy may be clear to you, but your team could share a different sentiment. The best product-led companies ensure that every team member is on the same page at all times.
- Monitor the appropriate metrics: As noted above, our change to a product-led company sent our NPS into a downward spiral. Had we not been tracking this, we may have assumed that everything was okay.
How We Overcame Our Challenges
Extreme situations require extreme actions.
It is up to leaders to act, prioritize, communicate properly, and then execute. Therefore, we made changes in the structure of the company.
Here’s what we did:
Created a minimum viable method: This was the first action to make that allowed the Product team to feel more organized. We changed some delivery dates and used a basic methodology to organize the information. We share a kanban board between the teams, distributing responsibilities and defining the area of action of each squad.
Communication between teams: We worked on this intensely and communicated to the entire company our strategy, which key metrics to track, and how the Product team was responsible to guide the company's growth from then on.
Learned from every mistake: We’re constantly revisiting what is not working. It’s important to understand and talk with your customers; learn about the problems they face and fix the machine of delivery (not the package). This is very important to scale up.
What’s important is to focus on putting your energy into what really matters and delivering the most value to customers.
Restructured our team: We created a team whose sole focus was on product research and development. Today, this team is totally focused on understanding our target personas and creating a continuous routine of conversations with users. They are working on a cycle of hypotheses, experimentation, conversations with users, and continuous improvements.
On the Customer Success team, it was important to create scalable processes, with a predictable methodology to extract the real pain from the customer at the time of cancellation or engagement. This took a lot of the pressure off of them.
We also extinguished the Sales Developer Rep (SDR) team. We moved some people who were once SDRs to the Sales and Customer Success team. In place of the SDR function, we implemented a service bot. The experiment was a success and the bot delivered around 40% better-qualified leads to our sellers.
Today, we know to focus on the pains of users.
You won’t run into the exact same challenges to overcome during your move to a product-led company. And that’s okay. This is just an example of what we did to overcome our unique challenges. With a similar focus on what’s mentioned above, you can also make changes for the better.
The Results of Our Transition to Product-Led Growth
Within the first weeks of this new model, we made a major improvement on one of the main features of the product.
The goal was simple: to determine if these improvements would have an impact on our bottom line.
But we didn’t stop there.
We didn’t just hope for the best after making the change. We drafted a launch communication plan for our users involving the main areas of the company. The release was smooth and most users were able to extract value from the improvements made, based entirely on actual use-case pains.
As a result, we reduced support calls by 97% in terms of release concerns.
Based on the internal changes we made, our NPS began to point upwards. As we entered our third month of the Product team’s structure change, our NPS climbed more than 25 points.
For the first time since we began to change methods and processes, our main indicator began to move.
These results didn’t happen on their own. They happened because of the work we put in to identify challenges and implement a plan to make immediate and impactful changes.
By now, you have a better understanding of how we transitioned to a product-led company. Our current strategy is superior to our prior sales-led approach in various ways.
Not all sales-led companies are ready to change to a product-led organization. The best product-led businesses are those that took the right steps at the right time. If you’re ready to head down this path, here are seven key takeaways to guide you.
Product is an organic element
The way people interact, behave, and relate to each other directly affects the product delivered to the customer. There is no magic or shortcut, the product reflects the organizational structure of the company. If you want to change that, start by changing behaviors that don't contribute to a better product.
Face hard decisions
Solve problems that are masked. People need to create awareness that the company's growth curve will require a certain state of constant discomfort due to the tough decisions that will be made along the way. These are problems that the product itself has, as well as problems between teams that need to be solved. Encourage brutally honest and difficult conversations by directing them to resolve conflicts and answer questions.
Identify and build alliances
Identify how people behave when there is a complex problem ahead and act directly if necessary. Try to identify who already "bought in" with the new idea and bring them to your side. This will help you walk the path of changing behavior, attitude, and posture in the face of challenges so you can get out on the other side.
Solve Complex Problems
We cannot solve problems only for customers who have higher Monthly Recurring Revenues or for some customers who scream louder in support. The important point is to address the resolution of complex problems. Focus on how to solve problems for the next 10,000 customers and contribute to product scale.
Entry into the product must be easy-in and the product itself needs self-service features. In other words, the product needs to be extremely easy to use and with amazing UX. There is a radical reduction in the service layer. Customer Success now works more strategically as the product needs to make the user experience easier.
Small wins every day
Try to identify what daily earnings your teams will deliver to the product. This ranges from a new reward your product offers the user to a new way of support. Each victory is responsible for energizing the team. Do not expect a great achievement, at least not in the short term.
Don't call the Growth team a Growth team
There are a few reasons for that.
If the numbers are falling, other teams will blame the Growth team. On the other hand, if the numbers go up and other components help, only the Growth team takes the credit. Instead, name it around the goal – the team's mission. In our case, we called the Growth team the Onboarding Team.
Is Your Company Next?
It's important to understand that product-led growth is not simply about making a free or trial version of your product available to your customers. Product-led growth requires a whole new way of thinking about the customer journey in the company, turning the product into an amazing communication platform and making your customers fall in love with it.
We know there is still a long way to go before our product begins consistently generating Product Qualified Leads (PQLs). Creating a new free offer is still in our plans, but we understand the first step is to improve the trial version we are already offering.
If now’s the time to shift from sales-led to product-led, sign up for our free PLG fundamentals course. In less than an hour, you’ll get a clear idea of whether it’s time to give PLG a try. And if so, the steps you can take to make it a success.