This presentation was given by Saurav Sharma, Senior Product Manager at Amazon, at the Product-Led Festival Reloaded.
It's time to talk about bridging the gap between product-led growth (PLG) and sales-led growth (SLG) SaaS models for companies.
Currently, I'm a Senior Product Manager at Amazon, but I have over eight years of experience in product across Amazon, SurveyMonkey, EAB, and eBay.
I also got my MBA from Booth School of Business in Chicago, Illinois.
With that, let's jump into the agenda. We're going to be looking at:
- The current scenario with PLG and SLG
- How do you decide which one to use?
- Bridging the gap between PLG and SLG
- Strategies and challenges that come with moving from PLG to SLG
The battle between product-led vs. sales-led
From what I’ve experienced, there’s a constant battle between product-led and sales-led. For example, who's getting the right leads in? And who's driving more revenue? This is something that goes on in most companies.
In terms of the current state of things, what I'm seeing is that many successful startups and early-stage companies have adopted PLG, and it’s become increasingly popular over the years. This might be because it's easier to get started with PLG, especially if you have a product that’s easy to use.
But that’s not to say that SLG isn’t popular. Many traditional companies like Microsoft and Salesforce use SLG and have been highly successful as well.
Both PLG and SLG are valuable strategies for B2B SaaS companies, depending on the specific needs and goals of the product, and we're going to dive deeper into what those are later on.
But the burning question most companies continue to have is, “Which one should we adopt? Which one is optimal?”
Now I'm going to do a quick deep dive into what exactly a product-led growth model and a sales-led growth model are.
The product-led growth model
When it comes to PLG, it's essentially the product that’s driving everything. There are all of these functions which are aligned with the product, and the product’s driving all these different things.
In terms of customer acquisition, when customers come in, they do self-service channels like free trials. And then within the product, there are built-in levers to go from freemium to any kind of paid tiers. And that's how customers can realize value and then continue to use the product.
All of the functions are pretty much centered around product. That's what a product-led growth model gives us.
Just to give you some examples, companies like Zoom and Slack have successfully adopted this PLG model.
One thing to keep in mind is that the product has to be easy to use and understand. Otherwise, it’s highly unlikely that somebody’s going to buy it or use it directly.
Channels like free trials and freemium are a hallmark for any PLG products out there. Your customers want to try the product out on their own and see if they like it and what value it’s giving before they move forward with it.
And then within the product, there are upsell and cross-sell opportunities. Once you’ve tried out a freemium model, how do you go to paid tiers? So there will be some options that you see within the product.
In PLG, there are smaller sales teams and marketing teams because most of the work is driven by the product itself.
And overall, this is more of a slow and steady growth pattern when we start out. Obviously, it can scale as well, but generally, if it's a newer PLG motion for a product, it’s generally slower to start out with, and then eventually it can pick up.
Now, let's look at the SLG model.
The sales-led growth model
This is the typical model, and traditional companies like Microsoft and Salesforce have used this successfully. Some other companies like HubSpot and GitLab have also started off with SLG, and they might now be going towards more of a PLG model, but they’ve successfully adopted this as well.
One thing to keep in mind with this model is if your product is highly complex. If it’s highly technical and not easy to understand for a customer just by looking at it, then this kind of motion makes sense because you have your sales and customer success teams who can tell them how to use it, what complexities are involved, and how they can get started with it.
Contrasting with PLG, customer acquisition and retention are mainly driven by sales. That's how they drive the traditional sales funnel. Retention is also mainly driven by customer support and ongoing sales efforts because we have customer success managers and the sales team handling things when the time comes for renewals.
In terms of team structure, you have a larger team sales and marketing team here because that's how the primary go-to-market motion is. You need larger teams to drive this sales funnel, which will eventually lead to more sales.
In this case, we can have more rapid growth, but it’s potentially less sustainable as well. And the reason I say that is because the sales funnel and the amount of clients you're getting can be highly unpredictable at times. You can’t always predict how many you’ll have or how many you're going to convert. There can be fluctuations that happen quarter over quarter or year over year.
Another key difference between PLG and SLG is that PLG targets either your consumers or SMBs, whereas SLG targets mostly midsize or enterprise clients.
PLG or SLG: Which one should you use?
Now that we have a good understanding of PLG and SLG, how do you decide which one to use?
The two main factors to consider are target customer segment and product complexity. If you're mainly targeting prosumers and SMBs and the product complexity is low, then PLG is probably the right motion for you.
If your segment is midsize and enterprise clients with specific needs, and your product is complex, then an SLG motion might be the right fit for you.
However, the main thing to remember is that neither PLG nor SLG is optimal by itself. And many of the companies that started on one side are now looking to move to the other side of things. For example, companies like GitLab and HubSpot which started on the SLG side are now looking to come back and have a PLG motion in place.
So, the reason that neither of them are optimal by themselves is if you just do one or the other, you're missing out on a big part of the market. If you just do PLG, you may not be able to go towards the enterprise clients, and that's a big pie.
Similarly, if you're just doing SLG, you may not be able to go and look at individual customers who might be users of your product. You're missing out on that kind of opportunity. So that's why we need a strategy to optimize this.
Bridging the gap between PLG and SLG with the hybrid approach
The way that we optimize is by bridging the gap between PLG and SLG through the hybrid approach.
The hybrid approach is basically combining the best of both worlds with PLG and SLG. It’s a go-to-market, growth, or customer acquisition strategy that takes on the elements of both PLG and SLG.
For example, if you want to move downmarket, you start with the sales side of the product-led overlay. If you’ve adopted SLG and you want to move downmarket, you start a PLG motion.
And then if you want to move upmarket, you go into product-led with sales overlay, and that might be the right way to go because you don't want your sales teams to be wasting too much time with qualifying and getting through the whole sales funnel when that work can be done by product.
Product’s doing the work of qualifying, and then sales are doing the work of closing, so that's how we can bridge that gap. Otherwise, in PLG, product is doing everything from qualifying to closing. And in sales, they’re doing the end-to-end, building the pipeline, and then selling the product.
But if you want to be more efficient, you need to find a middle ground. So that's what this hybrid approach gives us.
You get combined benefits from both PLG and SLG motions. PLG gives you lower customer acquisition costs and a wider scale to start with. With SLG, you can target niche enterprise clients with specific needs, which gives you higher TCVs that aren’t possible in your PLG motion.
It's also cost-effective because you’re reducing your sales and support headcounts with a PLG motion. And then with product-led sales, you're able to more accurately identify which customers to target. You can then tell your sales teams which ones to go after so they don't have to spend too much time trying to figure that out.
So that's why it's highly cost-effective, and why this hybrid motion is the way to drive maximum growth for your product.
This approach also unlocks a huge TAM, which stands for total addressable market. This is because now you can also target midsize and enterprise clients which are in the upstream. You’re playing with both downstream and upstream, so you're unlocking huge TAM, in that respect.
You can also build your product to its full potential. One of the things that the product-led growth model gives us is that your product needs to be very clear; it needs to have excellent documentation, and also have support built in.
And then what SLG’ll give you is one of those specific cases which help you drive upmarket and find the best clients because they interact with them, they know and understand their needs, and they can bring those insights into your product development or roadmap. And that’ll help you build a better product for both your PLG customers as well as your SLG customers, which are your enterprises.
Key strategies for bridging the gap
In terms of some of the strategies for bridging the gap, we need to focus on developing a strong product. Irrespective of whether it's PLG or SLG, having a product that solves customer needs and provides value is always going to win in the market. It doesn't matter if it’s PLG, SLG, or the hybrid approach.
Then, especially with the hybrid motion, we need to align sales and product teams. The product teams are the ones developing the product, but they need to have the sales insights into what’s most valuable for clients and what needs to be in the roadmap.
Similarly, the sales team needs to be involved throughout the product development lifecycle to make sure that they understand what's going on and they can use their unique insights into the product in their sales pitches.
You can also look at the traditional enterprise sales process and how it links to product-led sales.
With traditional enterprise sales, you have your sales teams, your marketing team, and then you get the sales leads, and the product usage is the last part.
With product-led sales, the customer needs come first and then you qualify them and determine which are the most attractive accounts for sales to go after. We maybe give them some kind of upsells within the product. For example, say they’re interested in moving to a higher tier, a different tier, or a paid tier.
And then finally, sales contacts them and figures out how to close that deal. So this is what product-led sales gives us.
In terms of some other strategies, data is key. We should be going after key insights. We should look at data to answer questions like, where's the user adoption? What are the customer acquisition costs? How much revenue are we making?
We should also look at what the most profitable channels are for us to acquire customers. For some businesses, just going with SEO or SEM may not be the right approach. Maybe going after specific social media channels might be right for them to acquire customers. That's why it's important to use data-informed decisions and not go with some kind of gut feeling in this case,
Focus on customer success. Just because we’re combining both motions doesn't mean we forget about customer success. We need to look at how we can make the customer successful when we try to bridge this gap between PLG and SLG.
And then you should be experimenting and iterating. Experimenting in terms of product features, pricing models, and sales strategies is how companies can continue to innovate and be successful in whatever market they play in. So that's the key when we try to bridge this gap.
Top challenges in moving from PLG to SLG
It's not always easy when you're moving from PLG to SLG. There are always going to be challenges that pop up.
For example, sales team ramp-up. If PLG had a very small sales teams and suddenly you want to go to SLG and drive this whole enterprise motion and move upmarket, you need to quickly ramp up your sales team and then set up all these processes and organize everything. It's a huge thing. You can’t just flip a switch and the next day you're up and running.
Customer acquisition costs are another challenge. With PLG, we have low customer acquisition costs. With SLG, these costs will start to increase. So how do you find the right balance? That's going to be crucial to keep your customer acquisition costs at a manageable level.
The third one is sales and marketing alignment, In the industry, more than a billion dollars is invested across different companies to drive sales and marketing alignment. If you don't have this alignment, it's going to be challenging.
So it's important to make sure that sales and marketing efforts are integrated with the product development, so that all the teams are moving in the same direction. If you don't come up with the right strategies to have that sales and marketing alignment, then it could be challenging to move from PLG to SLG.
Revenue forecasting is another one. With PLG, we're forecasting revenue based on some of the usage and adoption metrics, whereas SLG relies more on traditional sales forecasting techniques like how many leads there are and the likelihood of them converting.
So which of these metrics should we adopt now that we have a combined version? That needs to be figured out as well to make sure that there's no differences in how we're approaching forecasting.
And then last but not least is the cultural shift. PLG and SLG are like two different worlds. If you don't understand the different approaches and priorities of both motions, it's going to be highly difficult to bridge that gap. So it requires a kind of cultural shift.
So these are some of the challenges that occur. We can be cognizant and try to address them upfront before we adopt this hybrid motion or move from PLG to SLG.
