Unpacking PLG
Industry

Unpacking PLG

The term "Product Led Growth" (PLG) gets thrown around a lot in 2020/2021.

The term "Product Led Growth" (PLG) gets thrown around a lot in 2020/2021.

But what is it, exactly?

The term was coined - or at least amplified - by Openview VC. This is how Openview describes PLG:

Companies with a PLG strategy ... are able to grow faster and more efficiently by leveraging their products to create a pipeline of active users who are then converted into paying customers.

So, PLG is essentially when their product acquires new users. I also think this is a rather vague definition...

A great example of PLG is Calendly — if I share you my Calendly, there is a chance that you'll then go on to create your own Calendly. And the loop would continue, with those newly acquired users acquiring even more new users.

If we agree that Calendly is a quintessential PLG company, I think it's worth narrowing the definition of PLG — otherwise, almost any company is a PLG company. Is Clearbit — an awesome lead enrichment service — a PLG company because sales operations people bring Clearbit to their new employer?

I would argue that Clearbit is not. And in fact, I'd argue that many successful B2B startups are not actually PLG. Does this matter? In the grand scheme of things, not really, but I think its worth properly defining PLG otherwise it's hard for people to learn how to apply PLG to their business.

If someone wants to learn about PLG, what can they apply from the aforementioned Clearbit example? ... Build a really good product?

growth vs. Growth

Much like there is "growth" and "Growth" within a startup, where the former is simply a company growing by doing lead generation or whatever else and the latter is a methodical approach to experimentation and moving metrics, I think the same needs to apply to PLG.

If a product has Product-Market-Fit it inherently has some form of product led growth. I may tweet "what is the best analytics product?" and someone may say "My gosh Heap is amazing!" ... but is that real Product-Led Growth?

I would take this declaration even further — Slack is often considered a premier PLG company. I don't believe it is!

Slack is a quintessential bottoms up company. If someone in an organisation uses Slack, it'll fuel "wall to wall" expansion within that organisation where you sell a bunch of seats.

But then the growth will stop (obviously not literally stop since employees will continually be hired and Slack will introduce new features to further grow that contract value) or at least mostly tap out from a viral point of view.

Capital P-L-G

A product like Calendly has a true viral loop. As defined by Andrew Chen:

The steps a user goes through between entering the site to inviting the next set of new users

The key here is that the viral loop doesn't ever stop ... it is a loop!

The magic of Calendly is that one user may drive one new user per month for the duration that that user is an active user. It will just keep going and going and going.

And each of those new users they drive each month will also go on to drive new users, and so it continues! A true viral loop — much more akin to Zynga Farmville than a Slack style "Wall to Wall" approach.

Unlike a game like Farmville — where almost everyone should use the product — a PLG company doesn't have a TAM quite that large. This is where the complexity of the PLG viral loop comes from — you need to go viral but appreciate that your viral loop may start really really slow. Most users that interact with your viral PLG product will not bite (unlike a Farmville where it can go crazy) but the few that do ... will enter the loop and continue.

It's why - for example - Calendly "only" has 10M users (I use the word only here very very loosely) — not everyone that interacts with a Calendly will want to use Calendly. But their viral loop works amazingly well because the percentage is high enough that the loop continues. If you have a $9/month product but millions of users that you can acquire for free, that is an incredibly enviable position.

You can take it a step or three further by looking at a company like Docusign. They have an amazing viral loop, but also has clear bottoms up opportunities (all sales people wanting to collaborate and share documents to sign) and a clear opportunity for insane revenue growth (there are all manner of enterprise features you would want to bolt on to a document signature tool such as Salesforce integrations and compliance checks.)

What does this result in? a rather fast growing $55B public company. They're able to acquire organisations for free, grow the deal across the entire organisation, upsell onto an annual contract, and acquire net new organisations from that sale.

This viral loop nuance is critical and to be clear, incredibly rare!

But there are many examples of companies becoming PLG through innovation.

Dropbox wasn't inherently a PLG company when it simply synced files between your devices, but they obviously created an exceptional referral system **and share file experience that has driven them to a bonkers 700M registered users.

Similarly Zapier wasn't an inherently PLG company when it was simply elaborate workflows, but they were able to introduce all sorts of genius PLG functionality:

  • Zapier's much lauded SEO (the more integrations Zapier has the more use cases which results in landing pages which drives new users)
  • Zapier has recently introduced a "Share Zap" experience where I can share you my custom workflow.

Lowercase p-l-g

To be clear, I am not denigrating 99% of B2B companies that are amazing products and growing wonderfully via word of mouth or even just solid Growth execution.

Building an awesome product that people openly discuss and recommend is rarefied and hallowed ground for founders — you've made it!

But I think it is doing a niche product design movement, the PLG movement, something of a disservice to lump these companies in with truly viral B2B products.

A proper PLG company has....

  • [ ]  Freemium to get organisations in the door

... and

  • [ ]  Virality to grow beyond that organisation

... and optionally a

  • [ ]  Bottoms Up motion to drive seats

Author

Peter Clark

i have spent the last 15 years making growth tools and running growth teams. i like dogs, pastries, golf and design.

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