Product-led is currently the shiniest of companies’ growth strategies. And for a good reason (among others): it is shaking up the old dusty B2B world!
In a B2B product, the person buying it isn’t typically the one who uses it. And the truth is that the buyer’s happiness has been historically more impactful. There’s been a sales team to moderate the conversation with buyers, and the strategy has been mostly sales-led. The sales team would demo the happy path of the product, tell all the great things about its utility and efficacy, give all the checklists of data storage, security, and compliance, and sold! After that, and probably really only after the business is closed, end-users would deal with whatever cold interface was bought.
Does this make sense in the B2C world? What if the companies in our day-to-day life didn’t make it easy to experience the value of their product? Imagine requiring a demo before using Uber or paying upfront before using Google search. In B2C, we market to users directly, so products must be not just effective, but efficient, shiny, and, sure, easy to try. They are consumer-led or product-led.
Yet, the last decade has changed the B2B industry tremendously.
Let’s face it:
- Software stopped being as special as it used to be. It is easier and easier to start a company; competition skyrocketed! Customers have much more to choose from, and their time, patience, and risk tolerance didn’t increase at all.
- People have learned that things can be simpler and have to work. All those great B2C experiences spoiled us, and rightly so. At work, we are also consumers of our work tools.
- It’s increasingly common for end-users to have the decision-making power regarding what product to use. More and more, team leaders ask which product the team wants to work with and not the other way around.
What are the results of this? Pretty awesome from my point of view. B2B is finally correcting the industry, working on a new wave of fantastic experiences that solve the problems of its end-users. Our old boring tools were disrupted by what are now some of our favorite products. Hello Slack, Notion, Figma, Miro, Linear, Loom, Calendly, and much more!
It’s the consumerization of B2B or the product-led growth era.
According to OpenView, the organization that first defined the concept,
Product-led growth is a growth model where product usage drives customer acquisition, retention, and expansion.
Growth means the growth of the company, customers, and business. And yes, growth can happen not only through Acquisition but also through Retention and Expansion (revenue per customer expansion). If you have a great product, there’s no reason for product usage not to be at the center of those stages.
No, it’s not about getting rid of the Sales, Marketing, and Customer Success teams. It’s about unlocking them with a vehicle to optimize their job and breaking down silos to build a product full of user value that feeds the business more than otherwise. It’s a win-win all around.
The classic way to achieve growth is through customer acquisition. It’s the inflow of the system. The more, the merrier, as long as we have the capacity for it. Still, it’s traditionally represented as a funnel, symbolizing fewer prospects as they move through the different stages.
In a product-led world, product usage is weaved into the acquisition model instead of coming after, making the middle of the funnel especially consequential. We’re boiling this funnel down into the desired user journey: Awareness, Onboarding, Aha Moment!, and Upgrade.
Awareness
Generating Awareness of our products is the start of acquiring users. If they don’t know us, how can they choose us? We can make ourselves known through classic marketing channels. Yet…
In a product-led world:
- Marketing channels take users to product usage and not to a sales team directly. Trying the product first is a must nowadays.
- The product also works as a marketing channel. We can turn this funnel into a fly-wheel by converting users into advocates through referrals, collaboration features, high-value content, and shareable moments. What’s more product-led and effective than word of mouth?
Onboarding
After being aware, hopefully, people will want to come aboard our product. Onboarding is when new users learn how to use the product and find value in it.
In a product-led world:
- The product is free to onboard. No one wants to pay for trying something or any other kind of friction. There’re two primary modalities here: Freemium (forever free tier for commodities that help create Aha moments and promote growth, but paid usage gates for more advanced features); and Free Trial (product usage in all capacities, but time-bounded). We can use one or the other or easily stack both.
- Users are empowered immersively throughout the product. There’re multiple ways to achieve this: contextual walkthroughs, informative tooltips, non-scary empty states, etc. If we show exactly what our users want to do in the fastest, simplest way, they will find value in our product and stick around. These education methods can even be segmented through learning styles and dependent on the measured behavior. The sky is the limit!
Aha Moment!
The onboarding experience should be designed to take users to an Aha Moment! That’s the sound of a user finding value in our product.
In a product-led world:
- The faster users find value in the product, the faster they become activated users. We count them as activated when they have completed a pre-determined set of critical steps in our product. What those steps are it’s up to us, and what makes sense to our product. Either way, we need to optimize that time to value.
- Activated users are a great pool of leads. We want them to be hooked on our product. The more they interact, the more we know about their wants and needs. And, one day, they’ll feel the timing is right for them to upgrade.
Upgrade
Ultimately, the goal of the acquisition funnel is for users to Upgrade to a paid plan. After all, we need money to keep running and growing.
In a product-led world:
- Users can self-upgrade without the involvement of salespeople in the equation. This mechanism immensely lowers the acquisition cost. Also, when users convert on their own timeline, they’ll feel empowered, and retention and satisfaction will be higher.
- Yet, self-service is probably not enough. To succeed and own the market, we need a sales team layered to amplify this step, at least for enterprise-level contracts. From the pool of product-qualified leads and their behavior data, we’ll receive hand-raisers from organizations likely to convert into big buyers or just those needing more help. With this pipeline as a basis, the sales team will be able to push more precisely than ever instead of just starting from a cold place. This is often called Product-led Sales.
Retaining customers and growing a relationship with them is even more important than acquiring new ones. As we all know by now, acquisition is hugely costly. And, without a way to avoid more outflow than inflow, the stock level of the system will not rise. So, in fact, we need to start with product-led retention rather than product-led acquisition.
Retention is usually boiled down to two drivers: Activation and Engagement. But there’s also the elephant in the room: Deactivation.
Activation
The acquisition funnel already mentioned it; nevertheless, it’s worth revisiting activation with the retention lens.
In a product-led world:
- Only activated users get retained. This is obvious if we see activated users as those who have experienced the product’s value. As mentioned in the Onboarding and Aha Moments, we need to quickly guide users to that activation point, to start on the right foot and accelerate them into engagement loops.
Engagement
Engagement is about how often users interact with a product. It’s the whole point of its existence. If users don’t do it, the entire business falls apart.
In a product-led world:
- When we continuously provide value, users keep engaging. We need to ensure that value is a painkiller, not a vitamin, and keep innovating. It’s a wild competitive world out there, where an exceptional user experience also matters — a lot. Let’s make interactions so delightful that users reach a habit-forming and flow state.
- Engagement behaviors can predict retention and churn. The more frequent and fulfilling the interactions, the more likely the retention, right? The opposite is also true. With good instrumentation, we can measure deeply, learn what works for the most engaged users, and prevent the churn of the less engaged ones.
- Customer success cares as much for free as paying engagements. Free users are the paying users of the future and might be current advocates already.
Deactivation
Unfortunately, we won’t be able to prevent churn all the time. It might not be a sexy feature, but getting deactivation right is critical in retention tactics.
In a product-led world:
- There’s a marketing funnel after payments go wrong. Credit card failures are common, and we must ensure we can painlessly reactivate those customers and remind them why they need our product in the first place.
- The cancelation flow asks for feedback. It’s an excellent opportunity to learn. Two multiple-choice questions are enough: “Why are you leaving?”; “What did you like about the product?” It taps the nostalgia effect, and it’s handy to know what’s working or not. Based on their answers, we can offer a different plan.
Expansion can convey many things. I kept the term as broad as OpenView, but what it means here is revenue per customer expansion. It’s about increasing the value of the stock of our system over time.
It’s related to the pricing and a nebula of possible scenarios: from the actual price to packaging and add-ons, discounts, etc. It can be so nebulous that it becomes the place where companies spend less time on Growth. Out of simplicity, let’s boil it down to Usage-based pricing and Time-based pricing updates.
Usage-based
There are many pricing models, and usage-based is one of them. Pricing model selection is critical, as it’s hard to change afterward. If we get everything else wrong but get the model right, we tend to be ok with monetization.
In a product-led world:
- The trendiest pricing model is usage-based, meaning the price depends on how much the product gets used, not per user or features. It was pioneered in the infrastructure layer (e.g., AWS), and it’s about charging per 1k visits, per x whatever. It allows to start at a low cost, minimizing friction to adoption, especially for startups, and then it escalates quickly for corporations.
- Downgrades and upgrades are automated. Then we don’t get that “I’m paying for so much but not using much of it.” Neither do we have to have to re-sell that super cool feature that is on the upper tier. Instead, we just say: “Congratulations, you have reached 1k visits, you must be growing! We’re bumping you up to the 1k visits plan. Let us know if you have any questions.”
Time-based
After we get our pricing model right, we can tune everything else with time-based updates. And remember, this is an expansion game, not a “land the most from the beginning” game.
In a product-led world:
- The pricing is updated periodically — more like every 3 months than every 3 years. Like with everything, we should experiment, measure, and see how it affects the revenue per customer. Sometimes it will fail, but we’ll learn, and pricing will become less nebulous.
- If we keep making product improvements, overall price increases are fair — around once per year. If you’re not building and your NPS is low, then forget about it. Otherwise, it’s an easy enough pricing change that should be well accepted.