Product-Led Growth · Wes Bush · 2019
Product-Led Growth requires an easy to use product that can quickly deliver value to new users. This is a great practical guide to making it happen.
Key Highlights
Product-Led Growth is a go-to-market (GTM) strategy that relies on using your product as the main vehicle to acquire, activate, and retain customers. You give the buyer the keys - instead of entering drawn-out sales cycle.
Product-led companies benefit from shorter sales cycles, lower customer acquisition costs (CAC) and a higher revenue per employee (RPE).
The product becomes the vehicle for each department to achieve their goals. They all have to make the product better.
Product-Led Growth allows you to scale faster (it widens the top-of-funnel) and shortens the sales cycle.
The MOAT Framework helps determine whether to adopt a Sales-Led or Product-Led approach. These elements guide your go-to-market strategy and help determine whether a free trial, freemium, or hybrid model suits your business:
- Market Strategy: Choose between dominant, differentiated, or disruptive strategies based on your market position and target audience.
- Ocean Conditions: Identify if you are in a red-ocean (existing competition) or blue-ocean (uncontested market) environment to tailor your growth strategy.
- Audience: Decide on a top-down (targeting decision-makers) or bottom-up (organic growth among users) marketing strategy.
- Time-to-Value: Ensure your product can quickly demonstrate its value to new users without requiring assistance.
Successful product-led businesses are built on a customer-first approach. You need to understand your value, communicate your value and deliver on what you promise.
If you don’t know why people buy your product. Find out.
- What outcome do people expect when they buy your product? Sell the outcome. Not the features.
- Look for universal pain points. Pain provides a motive for change.
- The three reasons that people buy a product
- Functional Outcome: the core tasks that customers want to get done.
- Emotional Outcome: how customers want to feel or avoid feeling as a result of executing the core functional outcome.
- Social Outcome: how customers want to be perceived by others by using your product
Instrument your product and monitor if customers are constantly achieving those outcomes → using Value Metrics
Value metrics are how you measure value exchange in your product - align your revenue model and customer acquisition model to them. What makes a good value metric?
- They are easy for the customer to understand
- They are aligned to the value the customer gets from the product
- They grow and scales with customers usage or value creation
- They help you monitor if users are achieving outcomes
Value-based pricing is best for SaaS. How to work it out…
- Pricing Economic Value Analysis: Find out how much value you’re providing your customers and leave your customer 10x more value than you take.
- Pricing with Market and Customer Research: Best if your have lots of customers - more accurate. Use the Van Westendorp Price Sensitivity Meter)
You want perceived value (marketing and sales promises) to align with experienced value. Most companies overpromise and under-deliver. Remove your value gaps before going product-led. Three reasons for value gaps:
- Your product has serious ability debt.
- You don’t understand why your customers buy.
- You overpromise what the solution is capable of.
Use a triple A sprint to Ignite growth: Focus on identifying problems, building solutions, and measuring impact. Analyse → Ask → Act.
The Three levers you can pull for growth:
- Multiplier 1: Churn;
- Multiplier 2: Average revenue per user (ARPU);
- Multiplier 3: Number of customers.
Unless you’re just starting out, reducing churn and increasing ARPU will almost always have the biggest impact. Once you nail your churn and ARPU, you can start multiplying your business with each additional customer.
- Churn > ARPU > # Customers
To help identify the right inputs to focus on remember why companies fail:
- You don’t understand your value
- You aren’t communicating your value well enough
- You aren’t delivering on your value fast enough.
Ideas are easy. Execution is everything. Choose one or two ideas to implement this month/sprint. Start with those that are easy to implement and could be high impact. Get wins on the board to build trust with leadership.
The Bowling Alley Framework is an effective onboarding strategy involving three key steps: developing a straight line, creating a product bumper, and building a conversational bumper.
- A straight line onboarding experience minimizes pain and friction by mapping out the shortest route from Point A to Point B. This involves labeling each checkpoint as green (necessary), yellow (advanced features), or red (removable), and progressively removing red steps and delaying yellow steps.
- Product bumpers assist users within the application through welcome messages, product tours, progress bars, checklists, onboarding tooltips, and empty states.
- Conversational bumpers educate users and encourage them to return and upgrade their accounts through user onboarding emails, push notifications, explainer videos, and direct mail.
- Both types of bumpers guide users towards the desired outcomes in the product.
Increase Your Average Revenue Per User (ARPU)
- High ARPU allows use of more expensive acquisition channels and maximises LTV.
- Formula: ARPU = Total MRR / Total Users.
- Focus on finding customers that are a good fit.
- Avoid taking on low-revenue customers just to hit user metrics.
- Use Value Metrics to balance customer acquisition costs and high ARPU.
- Improve pricing tiers by removing unnecessary options.
- Raise prices to better reflect demand elasticity.
- Utilize upselling and cross-selling strategies.
- Focus on the right customers and grow with them.
- Solving churn is an effective way to increase ARPU.
Improve Your Churn
- Address churn early to avoid stagnation.
- Measure churn holistically:
- Customer Churn: Number of customers lost.
- Revenue Churn: Revenue lost.
- Activity Churn: Users at risk of churning due to inactivity.
- Create engagement scores for users to identify those at risk of churning.
- Develop churn-prevention campaigns: Offer trial extensions, nurture funnels, customer calls, discounts, or nurturing emails based on the reason for leaving.
- Welcome new customers and reduce friction to ensure they see value. Send value-showcasing emails.
- Recover delinquent churn by addressing billing issues.
- Invest in customer success and adjust pricing models using value metrics.
Subscribe Button Quick Links
Do Netflix switch things off to increase reliability? Chaos engineering principles · Article
5 questions that could make your company more effective · Image
Empowered Teams are Given Problems to Solve · Video
3 issues you’ll hit when scaling discovery · Article
Designing for forgiveness - how to create error-tolerant interfaces · Article
Roman’s Product Strategy Model · Templates
A Proposed Common Framework of Belief-Consistent Information Processing for a Set of Biases Aileen Oeberst, Roland Imhoff · 2023
A number of different biases have been identified and empirically demonstrated. Unfortunately, however, these biases have often been examined in separate lines of research, thereby precluding the recognition of shared principles. Here we argue that several—so far mostly unrelated—biases (e.g., bias blind spot, hostile media bias, egocentric/ethnocentric bias, outcome bias) can be traced back to the combination of a fundamental prior belief and humans’ tendency toward belief-consistent information processing. What varies between different biases is essentially the specific belief that guides information processing. More importantly, we propose that different biases even share the same underlying belief…
The taxonomy of biases just got a lot more organised. The fundamental beliefs resonate with me because they all seem to be evolutionarily beneficial. I’m interested to see if future research will verify or disprove.
/w=3840,quality=90,fit=scale-down)
Book Highlights
By purposefully designing our software-based products to be more human and forgiving, we can automatically make them more inclusive. Alan Cooper · The Inmates Are Running the Asylum
You need to measure user engagement long before the users become customers, and measure customer activity long before they vanish, to stay ahead of the game. Alistair Croll, Benjamin Yoskovitz · Lean Analytics
Crush illustrates all four OKR superpowers: focus, alignment, tracking, and stretching. John Doerr · Measure What Matters
Because stories let you focus on building small things, it’s easy to lose sight of the big picture. The result is often a “Franken-product” Jeff Patton · User Story Mapping
Conway’s law tells us that we need to understand what software architecture is needed before we organize our teams, otherwise the communication paths and incentives in the organization will end up dictating the software architecture. As Michael Nygard says: “Team assignments are the first draft of the architecture.” Matthew Skelton, Manuel Pais and Ruth Malan · Team Topologies
/w=3840,quality=90,fit=scale-down)
Quotes & Tweets
Figure out what comes easy to you then go hard at it Anu
Am I thinking fast or slow? Am I too stressed to think clearly? Is this a reversible decision? What would you think about this if it were someone else’s decision? What would I think about this a year from now? What would I advise a friend to do in this situation? What’s the quality of the evidence? What are the opposing arguments? Daniel Kahneman