Starting a business with a product-driven growth strategy may seem easy at first, but the struggle often begins after a few months or years:
The team is torn between an unattainable vision and a minimal set of features chosen for their feasibility rather than user expectations. Product launches take forever. User retention is disproportionate to acquisition costs. There is no roadmap or product strategy to provide long-term direction or significant growth. Metrics are scattered, making it harder to make decisions based on them. You know your business and product need to adapt if they are to survive, but you do not know where to start.
There are two types of barriers to product led growth: organisational factors and market factors. I am writing here about the latter here.
Lack of product-market fit
PLG is effective only if the product satisfies a significant market demand. Product-market compatibility is not a binary condition, but a continuum with varying degrees of fit. In other words, when it comes to product-market fit, there is no clear “yes” or “no” answer, but rather a degree of more or less ideal fit. How do you determine how much you need to scale? When do you recognize that you are ‘on target’?
Here’s a good place to start:
- Focus on high expectations customers (HXC): Who is your high-stakes customer? Why is your product or service important to them? What is their real benefit? Make sure you really understand the value of the product to your customers and provide (also: communicate) that value.
- Instead of the NSAT, ask: “How would you feel if you could no longer use the product” (Sean Ellis Test). If at least 40% of respondents answer “very disappointed,” this is a strong indicator that your product has reached product-market fit.
- When evaluating the viability of a PLG strategy, consider customer acquisition cost (CAC) and customer lifetime value (CLV).
Caution: not every product will be successful with PLG. Is your product complex and requires a more consultative sales approach? Is the target market niche or requires high-touch sales? Consider hybrid techniques that combine sales- and product-driven strategies.
Lack of customer focus
”Every customer is a design partner’ is the obvious part with PLG. Build your product around user lifetime value, i.e., temporary solutions to lifelong problems, not features. Remember that your moat is in understanding the core needs of the user and meeting them with design and engineering in a self-sustaining way.
The less obvious implication of PLG is that companies must put their customers’ needs and preferences above their own goals. Assess how your team makes product decisions: are they data-driven, intuitive, or HiPPO-driven? Make the necessary changes.
Insufficient or poorly calibrated data
PLG requires product analytics to determine which features are driving growth and which need improvement. To find out what is driving your development, create your core funnel and track it over time. Treat the core funnel like a product with a dedicated owner who sets goals and ensures teams are aligned to those goals.
In the early stages, you’ll be adding and deleting tools frequently, so make sure you calibrate the data accurately. Make the metrics visible to everyone in your organization: they are ultimately a tool to empower the team and influence commitment to the goals.
Suggested metrics: time to value, complete funnel focus (AARRR), User Reach, Aha Moment, DAU, WAU, MAU and ARPU.
No viral growth loops or ladders
User acquisition can be expensive. Therefore, it is i preferred to have a product that can effectively market itself by existing users recruiting new users. Ideally, you want a self-perpetuating cycle of user acquisition and retention.
To achieve this, maximize each naturally occurring loop and optimize the actions that have the most to do with customer retention and value stream.
Some tactics include: short transactional funnels, network effects, gamification, freemium options, social sharing, incentivized sharing, and referral programs.
“No product is an island. A product is more than the product. It is a cohesive, integrated set of experiences.”Don Norman
Product-led growth can be an effective strategy to drive business growth, but it requires careful planning and execution. Success is not a random act. Put the customer first, stay agile, focus on data, and remain adaptable and willing to experiment with hybrid strategies.