10 Product-led Growth Principles | Bessemer

【 Article source 】 https://www.bvp.com/atlas/10-product-led-growth-principles
Product-led growth business models create a wealth of opportunity, but capturing its potential requires courage and contrarian thinking.

If we were to trace the origins of the product-led growth (PLG) business model, we would begin our journey in Sydney, Australia. Founded in 2002, Atlassian is considered by many to be the first cloud company to pioneer the PLG business model. Its founders believe that frictionless, product-led distribution processes are the way to accelerate the adoption of new technologies, especially among developers. They were so determined to make the PLG approach work that Atlassian didn't hire any salespeople in its first decade, when a major Wall Street bank threatened to move their business elsewhere without corporate sales discounts. The company famously said that they would welcome back at any time (spoiler: they never left).

While this method of software distribution was revolutionary a decade ago, PLG is no longer an under-the-radar phenomenon. Top CEOs attribute their scale and success to bottom-up strategies, and many multi-billion dollar public and private businesses like Shopify, Twilio, and Canva are built on PLG. In fact, the cumulative market capitalization of PLG companies has grown more than 100 times over the past seven years. Similar to other publicly traded software companies, public PLG companies have not been spared cloud stocks that took a hit in the first 2.5 months of 2022, which greatly affected the cumulative market capitalization. It's worth noting, however, that despite recent public market turmoil, the median revenue multiple for BVP Nasdaq Emerging Cloud's deal has fallen below 10x, many PLG leaders still trade at a significant premium compared to other high-growth software companies High - As of mid-March 2022, PLG leaders such as Snowflake, Datadog and Bill.com still trade at over 25x current revenue multiples after "SaaSacre".

PLG has proven particularly effective in the developer economy, and the strategy has gained momentum in many other categories, including collaboration tools and customer engagement software. PLGs have become more popular in recent years, thanks to the rise of remote workforces and advances in infrastructure that have made democratization in favor of individual agents. We at Bessemer have been tracking this democratization trend for 13 years, ever since we noticed Twilio's unique distribution dynamics and invested in the company's seed round in 2009.

We have doubled down on this phenomenon in many developer platform investments over the years. That's why we included a clear "law" in our first edition of the Eight Laws of Developer Platforms: democratizing development encourages non-developers and pays dividends in shortening growth cycles through software adoption. Additionally, expanding the scope of who can derive value from a given platform creates new avenues for possible expansion, as non-technical teams and users are now also in scope.

At Bessemer, we've seen many of our portfolio companies start out as humble PLGs and expand to $100 million ARR and beyond within a few years. Inspired by the top-performing PLG companies in the cloud economy, we've distilled 10 key principles to leverage this powerful go-to-market strategy to build a lasting business.

Each best practice example presented in this article is a company in Bessemer's portfolio. We chose to highlight these companies because we are most familiar with the evolution of these organizations and how they integrate these PLG principles, not because we believe they are the only embodiment of each; we certainly know the list of PLG role models is long, and Growing every day!

10 Product-Led Growth Principles

1. Building products as their own self-fulfillment tools Successful PLG companies understand that the best products sell on their own without additional intervention. These companies primarily build their products as their own stand-alone distribution tools that drive customer adoption, retention, and expansion—all without human intervention. The magic happens in the product itself!

The example here is Netlify. The company's product platform, used by millions of developers around the world to create, deploy, and scale modern web projects, is designed to embody this self-service spirit:

Adoption: The Netlify team has built frameworks into their product that enable new users to implement solutions on their own, including the ability to import existing projects from Git with a single click, and easy-to-use pre-made templates.

Retention: Netlify offers quick-start pop-up guides to help with customer success, onboarding, and engagement. These guidelines are embedded into the workflow within the platform.

Extensions: Netlify encourages end users to deepen their usage by installing off-the-shelf plugins to extend functionality or purchasing premium upgrades directly from the platform. They can do it all independently without ever leaving the platform or engaging with a representative.

2. Instant flashes of inspiration Leading PLG companies know that it is critical to satisfy their users as quickly as possible. The best products provide an epiphany about a product's value without friction. No need for a lengthy onboarding process, including complicated registration forms or presentations with promises. Instead, PLG allows users to try out the product immediately to experience its benefits first-hand, resulting in near-immediate value realization.

Canva is a great example of this principle. Creators can start designing in seconds from any device using Canva's drag-and-drop platform. It's an easy one-step sign-up process that requires only an email address or a Google, Facebook or Apple account. Likewise, Shopify allows users to create a store on its platform with one click by providing an email address and store name — no credit card information required.

3. Focus on creating value rather than extracting value The best PLG companies have unwavering confidence in the value of their products. This enables them to democratize access by giving away products for free before getting paid. There's no denying that the "try before you buy" approach is attractive to customers. They experience the value firsthand without any risk and eventually become loyal users.

PLG companies use many different strategies to deliver value without paywalls, such as:

"Open core" approach (e.g. Coiled)

Freemium model (e.g. Wix)

Free trial for a limited time (e.g. DocuSign)

4. End-User-Centric Product World A successful PLG requires a relentless focus on the end-user experience because these people are the "top of the funnel". These users will eventually become front-line advocates as their true spread drives further adoption and sales within and outside their organization. The most effective PLG companies respect "user-centricity" by building end-user-centric communities and prioritizing their experience in product development.

HashiCorp, a leader in infrastructure automation for multi-cloud environments, exemplifies this best practice. Since its inception, HashiCorp has recognized the power its end users hold in unlocking viral adoption and ultimately opening doors for business accounts. Winning the hearts of developers is a top priority, and HashiCorp does this through initiatives such as organizing developer conferences and building a developer relations department to focus on community engagement. These efforts have proved so successful that HashiCorp's annual HashiConf attracts tens of thousands of attendees each year, and HashiCorp's products have approximately 100 million downloads in fiscal 2021.

HashiCorp also has deep respect for the opinions of the developer community. The team listens closely to product feedback from grassroots channels, including the open source community, and continuously improves the developer experience and UI/UX of its platform accordingly. To stay accountable to its goal of winning developers' love, the company strives to monitor and track product metrics, such as user engagement, as leading indicators ahead of financial metrics.

5. Establish a Clear Initial Entry Wedge Because PLG involves sales rep intervention to sell a product's value proposition, companies need to ensure that their initial target use case and solution narrative are simple and accurate so that end users can easily grasp the problem the product solves. To achieve product-market fit, users need solutions that enable minimal education, dialogue, or support.

Imply is a prime example of how this guiding principle can be put into practice. Created by the creators of Apache Druid, Imply, a real-time database for analytical applications built on top of Druid, a powerful open-source database used by developers to build end-user-facing analytical applications with rich , interactive and provide insights from real-time streaming data and historical batch data.

While Imply's real-time database could be used to address different needs, the team understood they needed a clear entry wedge to reduce friction and encourage adoption. The team focuses their messaging on broad real-time analytics, but instead targets developers and architects who are building modern analytics applications. The team further differentiated between internal-facing applications (such as Salesforce.com building an observability platform for internal engineers, product managers, and customer service reps) and external-facing applications (such as Atlassian building customer-facing applications for users of the Confluence wiki service). product usage analysis). This strategy of delivering a clear message to the target audience and combining it with a strong product experience proved to be an effective way to activate a new user base and establish Imply's market leadership.

6. Go viral through network effects In the absence of a well-planned marketing campaign or large sales force, PLG businesses rely on user advocacy to drive awareness and adoption. However, the best PLG companies recognize that end-user advocacy doesn't just mean relying on word of mouth or referrals. Instead, these businesses purposefully built their products to take advantage of the network effects of adoption by their initial champions.

PagerDuty explains how to develop a product architecture that scales initial adoption. IT incident management platforms are naturally built to maximize network effects and engage adjacent business units, becoming the source of truth for alerts, notifications, and data collection across the organization. Just like how consumers gain more value from social platforms as their number of connections increases over time, PagerDuty's end users benefit from a larger user base. The more teams that go live on PagerDuty, the more value the teams already live on the system get. After all, scheduling is as useful as the people on the platform, so everyone gets the right alert at the right moment.

Launching this flywheel not only provides more value to individual users, but it also generates revenue and higher net dollar retention rates for the entire organization over time. At the time of the IPO, PagerDuty had a net dollar retention rate of 139%, and its historical net dollar retention rate has consistently exceeded 130% over the same period. This beats even our "best" benchmark in Bessemer's good, better, best corporate net dollar retention framework.

7. Adopt a transparent pricing model
   PLG Corporation strives to provide solutions that require no human intervention, and pricing is no exception. Pricing models should be clear to reduce friction in the buying process. End users should be able to understand and forecast their total spend against a budget without doing additional research or discussing with sales reps.

Typically, PLG companies tie their pricing to units of value. Usage-based pricing models are popular in SaaS and developer-oriented technologies, but this form of pricing is a particularly good complement to a PLG strategy—not only because of its complexity, but also because individual end users can Price goes into cost entry point and then scales up.

Prefect, which provides a workflow management system for data teams, is an example here. The company uses a simple, success-based pricing model to reduce the complexity and friction for end users to purchase its solutions. Pricing is based on successfully running tasks per month, and users are never charged for retries or failures.

As PLG companies mature and stratify enterprise sales as a complement to their bottom-up drive, they will inevitably evolve their pricing plans to accommodate the nuances of enterprise purchasing. This includes the ability to allow businesses to discount practices and negotiate custom commitment terms. Even through this shift, the best PLG companies keep things simple by making plans transparent and easy to understand.

Take the experience of multi-channel notification platform express delivery as an example. Early on, the company used a classic usage-only model based on the number of messages, but the company has since improved its pricing plans after receiving feedback from larger customers who needed more flexibility. The team moved to a hybrid model, combining usage-based pricing with traditional SaaS "good-better-best" plans, while ensuring pricing remains understandable. Best advice from Troy Goode, CEO and founder of Courier: "Keep it simple - try to avoid unnecessary complexity. Your customers will thank you."

8. Simple packaging based on intuitive door design Reference Pricing Principle 7, successful PLG companies ensure that packaging is well-structured so users receive at a glance what they receive in each plan. Users can then decide for themselves to choose the bundle that best suits their needs.

For example, workflow automation leader Zapier has crafted various "bundles" of advanced features. Zapier’s product package is built with thoughtful doors that articulate a cohesive and intuitive narrative for each user archetype based on their unique needs along the customer journey. Zapier's packages are tiered according to easily controllable key units of value (number of "zaps" and update time). Additionally, with each higher tier, Zapier offers more features and benefits for teams that require more complex and extensive workplace automation.

9. Embedding Customer Success Leverage Self-service ethos is critical to every aspect of a strong PLG business—from product functionality to pricing and packaging to customer success, and this is no exception. Before building large customer success teams, savvy PLG leaders first embed self-service customer success levers in the product and user journey so that users have the right tools and feel empowered to help themselves when they need to troubleshoot.

A prime example of this principle is Auth0 and its strong documentation culture. Auth0 is a developer-centric adaptive authentication and authorization platform. The company's incredibly deep and comprehensive library of technical documentation has been a competitive advantage since its inception. For example, Auth0 provides detailed code samples that automatically integrate with user keys, so users can copy and paste code snippets directly into the app to get up and running quickly on their own without needing help getting started. In fact, Auth0's documentation has long been cited as a key reason why developers choose and stick with their platform.

Beyond documentation and content creation, we've seen other PLG companies such as Javascript testing framework Cypress successfully implement a robust self-service customer success process by creating a thriving digital community so users can connect with other passionate peers for support , contribute to discussion forums, and stay informed about the latest developments. These digital groups can be developed through various channels, including Tribe, Discord, Slack, and Github.

10. Infusing product-led philosophy throughout the organization Ultimately, high-performance PLG initiatives revolve around products, but require coherence across all aspects of the business. Everyone in an organization—including sales and marketing, design, finance, customer support, product, and engineering—should be philosophically "acquired" and work cross-functionally to build and deepen product usage and performance over time. involved projects.

Cloud communications giant Twilio exemplifies how consistency across the company can lead to unparalleled growth. Twilio's developer-first, product-centric philosophy permeates the company and guides the actions of different departments, including its sales team. For example, a sales rep is "a product evangelist, but with a quota". They work hand-in-hand with product teams to get close to end users and provide feedback to improve the developer experience, rather than trying to unnaturally influence the roadmap to attract buyers from large enterprises. The sales team will use clear heuristics to categorize leads that fit the product requirements, and the compensation structure is also aligned with the PLG strategy. Representatives take a long-term view of the customer's ultimate value and expand based on initial sales and any forecasts Tracking (e.g., estimates include expected pay-as-you-go revenue such as voice minutes Tverio.)

PLG is not just a GTM strategy
PLG leaders like Auth0, Canva, HashiCorp, Imply, Twilio and others have proven that the PLG approach is more than just a go-to-market strategy - in many ways it is a complete business strategy in which the product is the fundamental driver, piloting the entire Organizational decisions and actions.

While these iconic PLG companies may seem easy, developing the right bottom-up strategy is more difficult than it seems. After building a solid PLG foundation with these 10 core principles, we encourage founders to explore additional tactical resources on this topic to guide execution as they scale, including understanding how to navigate PLG commercialization friction points and how to layer enterprise sales Move to the bottom up.

We often see PLG companies repeatedly exceed the "Rule of 40" as they typically demonstrate accelerated growth and unmatched capital efficiency. Just as cloud business models revolutionized the software industry more than two decades ago, we believe the PLG approach is a powerful enabler that will help startups gain greater traction than ever before. As the cloud economy expands across verticals, segments, and geographies, we believe the PLG approach will drive new levels of product innovation and commercial success at a faster rate throughout the founder's build process.

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