In the last decade, product-led growth (PLG) has proven its merits as a go-to-market model. Companies like Slack, Dropbox and Airtable have used PLG strategies to achieve record growth and traditional sales-led companies are rushing to adopt the customer-centric aspects of the PLG model. But as PLG-native companies mature, they are actively adopting the elements of traditional sales-led models too. As the lines blur, a new hybrid go-to-market strategy is forming that brings together the best of both worlds to meet buyers on their terms. We call this accommodative strategy “customer-led growth”.

Product-led growth (PLG) is a business model that relies on the product as the primary means of acquiring customers. Great product experiences can create virality in any format, but unlike traditional direct sales models, which “push” products to customers via enterprise sales, PLG businesses use their product to “pull” users in via a low-friction, self-service model.

The origins of product-led growth as a business model have been well documented, but there are several macro drivers that are worth reiterating. First, software has never been cheaper to develop and distribute. This has invited the development of user-centric products as developers build for their own needs. Second, digital payments have become second-nature for almost all consumers, inviting self-service purchasing behavior into the enterprise. Lastly, successful consumer technology companies like Netflix and Spotify have proven that frictionless user adoption can be a winning revenue strategy in industries where scale begets success.

The broad adoption of PLG is closely tied to its track record of success. Only 6 publicly traded SaaS companies have taken less than 5 years since inception to reach $100m in ARR: Square, Dropbox, Slack, HortonWorks, Pivotal and Elastic. All except Square (a point-of-sale company) follow PLG models.

Source

Given the success of these companies, the next question is: What makes the PLG model so effective for growth?

So why isn’t every company a PLG company? While PLG has the spotlight, this model is not fit for every product nor every market. Finding the right growth model for your product is heavily dependent on product attributes and customer behavior, among other factors.

There are three main reasons why a software business might forgo a PLG model:

Products that fall into one or multiple of the above categories typically employ an enterprise or sales-led growth model (SLG). While this more traditional model might seem in decline, it has plenty of its own merits.

First, SLG models are built on deep customer discovery. Enterprise salespeople hold open dialogue with customers about their processes and needs, inviting deeper alignment. Second, sale-led deals often target entire departments or companies at once. While this often coincides with lengthy sales cycles, it also includes large contracts with high price tags that meaningfully affect the growth curve. Lastly, enterprise models are often enhanced by white-glove support services, compliance services and performance guarantees, all of which reduce the risk of adoption for the customer and add stickiness to the relationship.

We believe the most successful companies will adopt the best of both worlds. They will build multi-faceted models that meet all potential customers on their terms, by incorporating elements of both PLG and SLG into their go-to-market strategy. We call this accommodative strategy customer-led growth (CLG).

Consider some high-profile PLG-native examples who are adopting this CLG model. Twilio, which IPO’d in 2016 with 12 salespeople, now has over 800 salespeople. As a percentage of total employees, this figure has climbed from ~2% to 17%, and isn’t far from enterprise-first companies like Salesforce (22%). Another PLG company adopting CLG is Slack. In 2019, Slack’s massive user base was eclipsed in 2019 by Microsoft Teams--a product that launched 3 years later. In response, Slack grew its sales teams by 33%. This was 10% more than any other function (including customer support), suggesting a shift towards a more SLG model ahead of it’s ultimate sale to Salesforce.

The rationale for these changes is logical. Maturing PLG companies recognize two main challenges: (1) Self-service models depend on the natural “pull” of the market. As companies grow to large sizes (e.g. $50M+ in revenues), organic self-service growth is usually not large enough to sustain high growth expectations at massive scale. If horizontal growth cannot be achieved by product virality and low-touch efforts like marketing, organized inside sales teams are required to nudge product adoption and growth across enterprises. (2) Some customers simply do not buy in self-service formats. This might be due to an education gap, where customers require hand-holding and discovery to consider a purchase. But more likely, this is an intentional decision where companies restrict procurement to top-down decision makers in order to align with security, compliance or expense goals. To meet these challenges, PLG companies are following their customers and becoming CLG companies.

At the same time, enterprise-first or SLG companies are adopting lessons from their PLG-native competitors as they too become customer-led. SLG companies are taking advantage of the main merit of the PLG model--ease of adoption--to protect their market share. This shift has been exacerbated by macro changes introduced by the COVID-19 pandemic, which has decimated the opportunity for in-person selling.

The best example of sales-led companies becoming more customer-led is the broad implementation of bundled and freemium models. Freemium models allow SLG companies to grant free access to _limited versions _of their products in an attempt to boost customer acquisition and awareness ahead of an eventual upsell. The sheer number of SLG companies that have adopted a freemium model is staggering, but even more impressive is the diversity of the adopters. Last year, Appian Corporation, which routinely sells $100K+ enterprise deals for its low-code development platform, introduced an Appian free trial to combat PLG-native customers like Retool and Budibase. Nutanix, a pricey multi-cloud platform, launched the Nutanix Test Drive program to “build your clouds your way in a few clicks". Even Segment, which has always had a free tier and is more aptly described as a usage-based priced product, has created Segment for Startups, which offers certain qualified companies free Segment usage for up to two years!

To be clear, freemium models are not new (large SLG companies like Tableau and Domo have been utilizing this model to create product distribution and awareness for years), but the number of new adopters has proved that companies are laser focused on removing the barriers to product adoption.

The changing realities of the market have created a valuable forcing function for a new generation of go-to-market products. These products allow maturing PLG companies and adapting SLG companies to leverage the best of both models.

The CLG stack for native PLG companies

PLG-native companies need sales tools that incorporate their product-first mentality into all parts of the sales stack. The key questions for a PLG company are (1) “Who are our users?”, (2) “How can we keep more of them?” and (3) “How can we grow our user base most effectively?”

The CLG stack for native enterprise companies

Enterprise-first companies are hungry for products that can remove the friction associated with their direct SLG models. They want to drive customer-product alignment ahead of purchases. To meet these needs they need to answer key questions like: (1) “How can we create frictionless experiences?”, (2) “How can we improve our product-market fit ahead of the close?” and (3) “How can we shorten our sales cycles and boost conversions?”

Our Predictions for Customer-Led Growth

As product-led and sales-led companies mature and adapt user-centric CLG models, the differences between them will continue to disappear. The go-to-market model of the future will be a hybrid model that is focused on maximizing the chances of success for any unique user. Each customer will be met on their terms, not force fed a one-size-fits-all model. The trailblazing companies of tomorrow will start to implement all available strategies as early as possible to meet these evolving needs. They will measure, track and adapt continuously, and as their customers evolve, so will they. In this new world, the products that enable this hybrid CLG model will thrive.

This journey is still unfolding, but we are excited to back new platforms that push this vision forward. If you are building, buying, investing, or even just pondering in these areas, please reach out to me at vgattani(at)645ventures.com. I look forward to learning from you.

Huge thank you to all the founders, customers and operators that have lent their time and expertise to this post. Special (alphabetical) shout out to: Alex Bilmes, Butler Raines, Chris Hoyle, Dylan Flye, Earl Lee, Enzo Avigo, Ken Babcock, Mark Fershteyn, Matt Volm, Max Altschuler, Momo Ong, Naz Irani, Neil McLean, Randy Frank, Sam Senior, Tim Geisenheimer for their insights. An additional thank you to the 645 Team for their proofreads and suggestions.