Product-Led Growth

Product-Led Growth

Author

Wes Bush

Year
2019
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Review

Product-Led Growth is a go-to-market strategy that relies on using your product as the main vehicle to acquire, activate and retain customers. It’s an alternative to using a sales team.

It requires an easy to use product that can quickly deliver value to new users. There’s a number of advantages to the product-led model, and there aren’t many shortcuts to pulling it off, you need to build a great product to make it work.

This book is an effective introduction to the decision frameworks, concepts and considerations of going product-led. It’s full of practical tips to get started. A must read for product managers.

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Key Takeaways

The 20% that gave me 80% of the value.

  • Definition: 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.
    • Product-led: Gives the buyer the “keys” to their product - instead of helping them through a long, drawn-out sales cycle. The focus is on helping the buyer improve their life.
    • Product Led = if no need for human intervention on each sale.
  • Product-led companies benefit from shorter sales cycles, lower Customer Acquisition Costs (CAC) and a higher Revenue Per Employee (RPE).
  • Product-Led Growth is of Rising Importance…
    • Startups are getting more expensive to grow → Customer acquisition costs are rising
    • Buyers now prefer to self-educate.
    • Product experiences have become an essential part of the buying process.
  • Risks of going product-led: Cannibalisation of traditional demo/sales requests, free users can overwhelm your support team or economics
  • A go-to-market (GTM) strategy is an action plan that specifies how a company will reach target customers and achieve a competitive advantage.
  • Product-led organisations create seamless customer experiences - the product becomes the vehicle for each department to achieve their goals. They all have to make the product better.
  • Not just about ‘try before you buy’ - the entire approach as an organisation needs to shift.
  • Product-Led Growth allows you to scale faster.
    • It widens the top-of-funnel - A free trial or freemium model opens up your funnel to people earlier in the customer journey. Evaluating your product. Focusing on onboarding and not sales.
    • A significantly lower CAC.
  • Free software also builds a moat: Faster sales cycles, Higher revenue-per-employee (RPE), Better user experience

Selecting the Right GTM Model:

  • Choice between Sales-Led or Product-Led. Product-Led can be implemented through free trial, freemium or a hybrid.
  • Use MOAT Framework to choose between the approaches.
    • ‣
    1) Market Strategy: Is your go-to-market strategy dominant, disruptive, or differentiated?
    ‣
    2) Ocean Conditions: Are you in a red-ocean or blue-ocean business?
    ‣
    3) Audience: Do you have a top-down or bottom-up marketing strategy?
    ‣
    4) Time-to-value: How fast can you showcase value?
  • First choose between Sales-Led or Product-Led. If Product-Led you need to choose between Free Trial or Freemium.
  • Your results might change at different stages in the business lifecycle

Building the Foundation

  • UCD FRAMEWORK. Successful product-led businesses are built on a customer-first approach…
    1. Understand your value
    2. Communicate the perceived value of your product
    3. Deliver on what you promise
    4. Works for new businesses, product-led arms, transitioning from sales or relaunching an underperforming product-led model
  • Understand Your Value
    • Ask yourself: What outcome do people expect when they buy your product? Sell the outcome. Not the features. Live-chat-support software becomes → a new and better way to acquire customers
    • Look for universal pain points. Pain provides a motive for change.
    • The three reasons that people buy a product
      1. Functional Outcome: the core tasks that customers want to get done.
      2. Emotional Outcome: how customers want to feel or avoid feeling as a result of executing the core functional outcome.
      3. Social Outcome: how customers want to be perceived by others by using your product
    • If you don’t know why people buy your product. Find out.
    • 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 with your customer acquisition model
      • Slack → messages sent
      • What makes a good value metric?
        • It’s easy for the customer to understand
        • It’s aligned to the value the customer gets from the product
        • It grows and scales with customers usage or value creation
      • Finding your value metric helps you monitor if users are achieving outcomes with your product.
    • How to find your value metrics
      • ‣
      Subjective analysis
      ‣
      Data-Driven Approach
  • Communicate Your Value (Pricing)
    • Value-based pricing is best for SaaS. How to work it out…
      1. Pricing Economic Value Analysis. Best if you’re just starting out, don’t have a lot of data, or don’t have buy-in to talk to your customers about pricing.
        2. ‣
        How to
      2. Pricing with Market and Customer Research.Best if your have lots of customers - more accurate
        3. ‣
        How to (Van Westendorp Price Sensitivity Meter)
    • Don’t overcomplicate your pricing page.
    • Don’t create a free plan without incentive to upgrade.
    • Don’t make it a no-brainer for the majority of your customers to downgrade.
    • Name each pricing tier after each of the persona’s
  • Deliver on Your Value
  • You want perceived value (marketing and sales promises) to align with experienced value (what’s delivered by the product).Most companies overpromise and under-deliver.
  • People like to ‘try before they buy’. Deliver well and you’ll build trust and sell your product. Fail to deliver, and there will be a nasty value gap.
    • Three reasons for value gaps:
      1. Your product has serious ability debt.
      2. You don’t understand why your customers buy.
      3. You overpromise what the solution is capable of.
    • Remove your value gaps before going product-led.
  • Ability debt is what happens every time your user fails to accomplish a key outcome in your product.
‣
How to launch a free-trial in 24 hours

Ignite Your Growth Engine

  • ‘Triple A’ sprint: Focus on identifying problems, building solutions, and measuring impact.
    • Analyse → Ask → Act
    • Analyse your inputs and outputs - each month
    • Macro outputs you need to track:
      • Number of signups
      • Number of upgrades
      • Average Revenue Per User (ARPU)
      • Customer Churn
      • ARR
      • MRR
  • 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 the UCD framework and 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 a powerful onboarding strategy.

  • To master the Bowling Alley Framework, you need to do three things:
    • Develop your straight line.
    • Create a product bumper.
    • Build a conversational bumper
  • One of the best ways to remove pain and friction is to develop a straight-line onboarding experience. A straight line is the shortest distance to get from Point A to Point B.
  • Map out the path → label every checkpoint → develop your straight line.
    • As you complete each step, take a screenshot → from homepage until you’ve accomplished an outcome.
    • Once you’ve mapped out all the steps → label every step. Use the colours (green, yellow, or red)
      • Green is absolutely necessary.
      • Yellow is for advanced features that can be introduced later.
      • Red can be removed completely.
    • Removing red steps and delaying yellow steps moves you closer to building your straight line
    • There’s no bullshit left → users simply need to complete steps X, Y, and Z for you to deliver on your product’s value.
  • The Two Bumpers You Need:
    • Product bumpers → help users adopt the product within the application itself.
      • Examples: Welcome Messages, Product Tours, Progress Bars, Checklists, Onboarding Tooltips, Empty States
    • Conversational bumpers → help educate users, bring them back into the application, and eventually upgrade their account.
      • Examples: User Onboarding Emails, Push Notifications, Explainer Videos, Direct Mail
  • To guide users to a desired outcome in the product, you need both bumpers.

Increase Your Average Revenue Per User (ARPU)

  • High ARPU allows you to use more expensive acquisition channels and maximise your LTV
  • ARPU = Total MRR / Total Users
    • MRR = monthly recurring revenue
  • Not all customers are created equal - you need to find the ones that are a good fit
  • Make sure teams aren’t taking on small, distracting and expensive low-revenue customers just to hit user metrics
  • Use Value Metrics: There’s a tradeoff between customer acquisition (low prices) and high ARPU (high prices) - you need to find the balance
  • Improve your pricing tiers: remove unneeded tiers. The Paradox of choice: The more choices you have, the less likely your are to choose.
  • Raise your prices: most entrepreneurs undervalue the elasticity of demand - which results in them undercharging.
  • Upselling and cross-selling
  • Take on the right customers, then grow with them. Not all customers are created equal, learn whom to ignore.
  • One of the easiest ways to increase ARPU is to solve for churn

Improve Your Churn

  • If you don’t tackle churn early - you’ll be working incredibly hard to stand still
  • A holistic approach measures churn in 3 ways:
    • Customer Churn → number of customers lost in a given time period
    • Revenue Churn → amount of revenue lost in a time period
    • Activity Churn → number of users at risk of churning due to red-flag activity (e.g. not logging in for a couple of months)
  • Customer churn = (Churned Customers / Total Customers) x 100
  • Revenue Churn = (Churned MRR /Total MRR) * 100
  • Activity Churn: exact signals vary by product
    • You can create a weighted engagement score for each user. Summing all of their activity and paying more attention to high engagement activities.
      • Event name
      Event Weight
      Number of events
      Total Even Value (A*B)
      Event 1
      3
      124
      372
      Event 2
      7
      23
      161
      Event 3
      9
      11
      99
      Total Score
      632
    • Then normalise the scores - so they all fit between 0 and 100
    • Make the scores actionable →
      • Rank your users (exposes power users and those at risk of churn)
      • Allows you segment for marketing comms or outreach.
    • Create an engagement score for every user - track it over time.
    • Compare populations or cohorts. New users vs older users. Or free vs paid.
    • Correlate with other business metrics (sales, retention, growth, LTV,)
  • Start customers off on the right foot - welcome them and make sure they get the value from the product
  • Be ruthless about removing friction to make it easier to get to value
  • Send emails that showcase the value somebody has got from your product
  • Create churn-prevention campaigns: New customers are expensive, think about how can invest in keeping those you’ve already won
‣
Have a robust cancellation process - Ask a single question on cancelation to understand why their leaving and then kick-off different campaigns
  • Tackle delinquent churn → customers who churn after you’re unable to bill. Putting a system in place to recover customers (after cards expire) can be incredibly valuable.
  • Invest in customer success. Actively look for ways to help customers succeed
  • Fix your pricing → use value metrics in your pricing model.
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Deep Summary

Longer form notes, typically condensed, reworded and de-duplicated.

Introduction

  • Two types of SaaS companies:
    • Sales-led: The old way. Complex, unnecessary, expensive, and all about telling consumers how the product will benefit them. They want to take you from Point A to Point B in their sales cycle.
    • Product-led: Gives the buyer the “keys” to their product - instead of helping them through a long, drawn-out sales cycle. The focus is on helping the buyer improve their life. Upgrading to a paid plan becomes a no-brainer.

Why is Product-Led Growth of Rising Importance?

  • Product-Led Growth is of Rising Importance
  • Definition: 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.
    • Product-Led Growth means that every team in your business if focused on improving the product - it’s the vehicle for creating enduring customer value.
  • Product-led companies benefit from shorter sales cycles, lower Customer Acquisition Costs (CAC) and a higher Revenue Per Employee (RPE).
  • Three headwinds
    • Startups are getting more expensive to grow → Customer acquisition costs are rising
    • Buyers now prefer to self-educate.
    • Product experiences have become an essential part of the buying process.
  • Product Led if No need for human intervention on each sale.
  • A go-to-market (GTM) strategy is an action plan that specifies how a company will reach target customers and achieve a competitive advantage.
  • Before choosing a GTM strategy, you need to understand your market conditions, competitive positioning, ideal customer, and product offering.
  • If the customer has to talk to you to buy your product, you’re using a sales-led strategy.
    • relying on sales to make every sale prevents you from helping your users self-educate
    • you are adding friction to the buying process
    • your CACs remain high —great sales teams aren’t cheap
  • Pros of a sales-led GTM strategy
    • Ability to close high Lifetime Value (LTV) customers. Although that can often lead to poor revenue diversity
    • Perfect for hyper-niche solutions (small TAMs (Total Addressable Market)) - high quality customer relationships are more important for growth.
    • Perfect for new categories. When you have to change the way people approach problems.
  • Cons of a sales-led GTM strategy
    • High customer acquisition costs (CAC)
    • The customer acquisition model is leaky. 98% of marketing-qualified leads (MQLs) never result in closed business. Downloading a white paper doesn’t mean you want to buy
    • The organisational structure hinders great product development. Leading with sales and following with product. You’re forced to move upmarket and get on the elephant-hunting treadmill.
  • More SaaS companies are opting to be product-led. Increasingly consumers expect to use software and extract value from it before buying. Grammarly, Slack, and Dropbox.
  • Product-led organisations create seamless customer experiences - the product becomes the vehicle for each department
    • Marketing: “How can we use our product as the #1 lead magnet?”
    • Sales: “How can we use the product to qualify our prospects for us? That way, we have conversations with people that already understand our value.
    • Customer success: “How can we create a product that helps customers become successful without our help?”
    • Engineering: “How can we create a product with a quick time-to-value?”
  • Not just about ‘try before you buy’ - the entire approach as an organisation needs to shift.
  • Pros of Product-Led Growth
    • Scale faster in two powerful ways
      • Wider top-of-funnel.
        • A free trial or freemium model opens up your funnel to people earlier in the customer journey. Evaluating your product. Focusing on onboarding and not sales.
      • A significantly lower CAC
        • Free software also builds a moat
          • Faster sales cycles
          • High revenue-per-employee (RPE)
          • Better user experience

Free Trial, Freemium, or Demo? Selecting the right GTM Model

  • Product_Led:
    • Free Trial: a partial or complete product to prospects free of charge for a limited time
    • Freemium: access to part of a software product to prospects free of charge, without a time limit
  • Sales-Led:
    • Demo: arrange an appointment with the sales team for a Demo.
  • How to choose between Free Trial, Freemium or Demo Model? The MOAT Framework
    1. Market Strategy: Is your go-to-market strategy dominant, disruptive, or differentiated?
    2. Ocean Conditions: Are you in a red- or blue-ocean business?
    3. Audience: Do you have a top-down or bottom-up marketing strategy?
    4. Time-to-value: How fast can you showcase value?

1. Market Strategy - Is your GTM strategy dominant, disruptive, or differentiated?

‣
Dominant growth strategy
‣
Differentiated Growth Strategy
‣
Disruptive SaaS Growth Strategy
  • Make a decision on your growth strategy
    • Do you want to offer the best solution for the lowest price? (Dominant strategy)
    • Do you want to offer the best-customised solution for the highest price to underserved customers? (Differentiated strategy)
    • Do you want to offer the simplest product for the lowest price to over-served customers? (Disruptive strategy)
    • Are you planning to use a hybrid strategy?

2. Ocean Conditions - Are you in a Red or Blue Ocean?

  • Red-ocean companies..
    • Compete in existing markets
    • Beat the competition
    • Exploit existing demand
    • Endgame: Competition intensifies, profits and growth reduces - products become commodities. Bloody competition turns the ocean red.
  • Blue-ocean companies..
    • create uncontested market spaces
    • make the competition irrelevant
    • create and capture new demand
    • Endgame: Can have highly profitable growth. Imitators arise - but they have enough time to stay ahead of them.
  • Within a market - different segments can be red whilst others are blue ocean.
  • The Ocean Type influences the growth strategy
    • Blue: Creating demand, product likely to have a steep learning curve. You need to educate the market on why your new way is better. You can’t become big by selling products that nobody understands.
      • If you have a complex product → go Sales-led to educate your audience and create demand. Maybe do product-led later down the line.
      • If you have a really simple product - with quick time to value → you can still use Product-Led
    • Red: Your prospects already know how your product can help them. Use a product-led model - to widen your funnel, decrease your CAC and enable quick expansion
      • you can catch non-customers who tried things out.
  • Questions to ask
    • Am I creating or capturing existing demand?
    • Does the product have a quick time-to-value?
    • Will a marketing, sales, or product-led GTM suit my business the best?

3) Audience: Do You Have a Top-Down or Bottom-Up Selling Strategy?

  • SaaS products used to be expensive and sold to execs (as they had sign-off). Products are cheaper now, front-line employees have more power to try and buy product.
  • Bottom-up: Slack is bottom-up. It spreads organically, from ‘User 0’ to teams. Product usage reaches a tipping point and a team lead will purchase Slack because it has become invaluable. Slack went from zero to a $4 billion valuation in 36 months. Demands quick adoption and simplicity. free-trial or freemium allows people to see value quickly, and upgrade. Use a product-led strategy
    • Benefits: low touch, lower CAC, faster sales cycles, predictability in sales figures, revenue diversity
    • Disadvantages: smaller contract size, significant investment, non-paying customers, hard to do (requires a great product)
  • Top-Down: IBM and Oracle are top-down. The sales team targets key decision-makers and executives and you target company wide adoption. Use a sales-led strategy
    • Benefits: lower churn, can sell additional services, large sale values
    • Disadvantages: Long sales cycle, High CAC, bad revenue distribution
  • Your selling strategy has to align with your GTM strategy
    • Freemium and top-down: Decision makers and executives might not understand or be users of your product.
    • Freemium or free trial and bottom up → Helps potential buyers use the product and experience meaningful value, making the case for purchase
    • Free trial and top-down: A grey area.
  • Questions to ask:
    • Are you currently targeting people who can easily use your product and experience its value? (fast)
    • What is your ACV for each customer?
    • Is it high enough to justify a low- or high-touch sales model?

4) Time to Value: How Fast You Showcase Value?

  • To create a successful product-led business, you need a quick time-to-value. New users need to be able to experience a key outcome in your product quickly and without any assistance. If users need handholding - most will never return after signing up
  • 4 types of users:
    • Mission Impossible Users: Low motivation - finds it really hard to use your product
    • Rookie Users. High motivation but finds it difficult to use your product. Usually happens when employees are forced to use existing software
    • Veteran Users. Low motivation - find it easy to use your product. Accomplish the target behaviour easily but could flee at any sign of friction.
    • Spoiled Users: Optimise for this! High motivation and finds it easy to use your product. You’ll help the greatest number of people in your TAM
  • If all you have is spoiled users, bravo. If not, you need to work on improving your time-to-value.
    • Want to strengthen user motivation? Hire a great copywriter.
    • Want to increase the number of people who complete account setup? Eliminate unnecessary onboarding steps
  • Questions to ask
    • How motivated are users when they sign up for your product?
    • Is your product easy for your target audience to use?
    • Can users experience the core value of your product without hand-holding?

Choose Your Product-Led Growth Model with the MOAT Framework.

  • First choose between Sales-Led or Product-Led.
  • If Product-Led you need to choose between Free Trial or Freemium
  • Your results might change at different stages in the business lifecycle
  • You could also elect to have a hybrid model. Three types:
    1. Launch a new product. If you want to de-risk your established business, launching a new product-led arm is a solid option. Experiment with a product-led model, to see if it will work without disrupting your ‘cash cow’ products.
    2. Go freemium, with a trial. Best If you have a product with lots of features. Make sure there is value in the freemium version - then provide compelling opportunities to trial upgrades.
    3. Go free trial, follow with freemium. If you don’t convert at the end of a 30-day free trial, you’re prompted to use their free tool. The freemium product acts like inexpensive advertising - keeping your solution top-of-mind

Part II Build Your Foundation

  • Product-led risks:
    • Cannibalisation of traditional demo/sales requests
    • Free users can overwhelm your support team
  • Product-Led Growth can save you from rising customer acquisition costs and decreasing willingness to pay for your product
  • UCD FRAMEWORK
    • Successful product-led businesses are built on a customer-first approach…
      1. Understand your value
      2. Communicate the perceived value of your product
      3. Deliver on what you promise
    • Works for new businesses, product-led arms, transitioning from sales or relaunching an underperforming product-led model

Understand Your Value

  • Ask yourself: What outcome do people expect when they buy your product?
    • Sell the outcome. Not the features.
    • Live-chat-support software becomes → a new and better way to acquire customers
  • Look for universal pain points. Pain provides a motive for change.
  • The three reasons that people buy a product
    1. Functional Outcome: the core tasks that customers want to get done.
    2. Emotional Outcome: how customers want to feel or avoid feeling as a result of executing the core functional outcome.
    3. Social Outcome: how customers want to be perceived by others by using your product
  • If you don’t know why people buy your product. Find out.
  • 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 with your customer acquisition model
      • Slack → messages sent
    • What makes a good value metric?
      • It’s easy for the customer to understand
      • It’s aligned to the value the customer gets from the product
      • It grows and scales with customers usage or value creation
    • Finding your value metric helps you monitor if users are achieving outcomes with your product.
  • How to find your value metrics
    • ‣
    Subjective analysis
    ‣
    Data-Driven Approach
  • Pricing suffers often suffers by not having a clear owner in businesses.
  • A common pricing mistake is to charge by the user. It’s rarely where the value is ascribed to your product.
    • ‣
    Occasionally per-user pricing does make sense..

Communicate Your Value

  • Communicating your value is at the crux of a Product-Led Growth strategy

How to Treat Your Pricing and Customer Acquisition Model Right

  • Don’t overcomplicate your pricing page.
    • Users should be able to understand the right plan within 5 seconds
    • Consider messaging visitors who’ve been on the page for more than 30 seconds
  • Don’t create a free plan without incentive to upgrade
    • Make it too good and you’ll acquire more users but struggle to make revenue
    • Don’t make it good enough - nobody will see value.
  • Don’t make it a no-brainer for the majority of your customers to downgrade
    • Balance short-term cannibalisation and dip with longer term prospects.
‣
The Four Common Pricing Strategies → Value-based is best for SaaS
  • Determining Price Option 1: Pricing Economic Value Analysis.
    • Best if you’re just starting out, don’t have a lot of data, or don’t have buy-in to talk to your customers about pricing.
      • ‣
      How to compute
  • Determining Price Option 2: Market and Customer Research.
    • Best if your have lots of customers - more accurate
      • ‣
      How to compute
  • What to put on your pricing page?
    • Value Metric
    • Winningness to pay for all packages
    • Valued features
    • Demographic information
  • Name each pricing tier after each of the persona’s - to signify the type of buyer who regularly purchases that plan
    • Allowing your audience to self-segment
    • Helps you prioritise features that are most valuable to that audience

Deliver on Your Value

  • You want perceived value (marketing and sales promises) to align with experienced value (what’s delivered by the product).
  • Most companies overpromise and under-deliver.
  • People like to ‘try before they buy’. Deliver well and you’ll build trust and sell your product. Fail to deliver, and there will be a nasty value gap. The bigger your value gap, the leakier your funnel.
    • Three reasons for value gaps:
      1. Your product has serious ability debt.
      2. You don’t understand why your customers buy.
      3. You overpromise what the solution is capable of.
    • Remove your value gaps before going product-led.
  • Ability debt is what happens every time your user fails to accomplish a key outcome in your product.
    • Does the first product experience lead to a specific, relevant, meaningful “quick win”?
    • Do tooltips and hotspots spur meaningful action in the product?
    • Do social and directional cues indicate high-value behaviours ?
    • Are key task completions indicated with a success state?
    • Are all unnecessary points of friction and distraction removed from critical workflows?
  • Understanding why people buy: If you don’t know where someone wants to go, you can’t help them get there. Until you know what your users are trying to accomplish in your product, you can’t lead them there.
    • What outcome does your product help people with? Is it lead generation? Is it getting more fit?
    • To reduce your value gap, set the right expectations
‣
How to launch a free-trial in 24 hours

The Most Common Mistakes that New Product-Led Businesses Make

  • Most launch and never update their product-led business model. Nobody takes ownership - appoint somebody to take ownership.
  • Fastest way to get going is to train your team
  • Engineer, UX, Product Manager, Customer Success rep, Digital marketer, CEO and CPO or CTO
  • Ask the entire company to send ideas about how to improve your product-led model .

Part 3: Ignite Your Growth Engine

Develop an Optimisation Process

  • ‘Triple A’ sprint: Focus on identifying problems, building solutions, and measuring impact.
    • 1 month sprint cycle
    • Analyse → Ask → Act
    • Gives your a way to build a sustainable growth business
  • No optimisation will deliver rocketship growth for a bad product.

Analyse:

  • In order to build a growth machine for your business, you need to analyse your inputs and outputs
  • Until you know the inputs (e.g. trade shows, advertising, email marketing) that drive desired outputs (e.g. ARR, customers, MRR), you won’t build a sustainable business
  • If you’re not sure - you need to start analysing your business.
  • Analyse your previous month’s results on the first workday of each new month (put aside time)
    • Start measuring your outputs. Outputs are a reliable indicator of if you’re getting things right, they don’t lie.
    • Macro outputs you need to track:
      • Number of signups
      • Number of upgrades
      • Average Revenue Per User (ARPU)
      • Customer Churn
      • ARR
      • MRR

Ask:

  • You need to know where you’re going before you optimise. What’s your North Star Metric? What are you trying to achieve?
  • Then you need to ask which levers can you pull to get there?
    • Jay Abraham’s multiplier perspective, there are three levers you can pull for growth:
      • Multiplier 1: Churn;
      • Multiplier 2: Average revenue per user (ARPU);
      • Multiplier 3: Number of customers.
    • Most execs focus almost exclusively on increasing the number of customers. This is a huge missed opportunity!
    • If our goal is to increase our revenue, why is everyone looking at the customer count
    • 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
      • Create a simple table to model the changes of different multipliers to help you understand where to focus.
        • Metric
        Scenario A
        Scenario B
        Difference
        Customer Count
        Current(e.g. 1000)
        x%
        ARPU
        Current (e.g. £100)
        x%
        Annual Churn Rate
        Current (e.g. 20%)
        x%
        ARR
        Current (e.g.£80,000)
        x%
  • Which Inputs Should We Invest In? To help identify the right inputs to focus on - remember the UCD framework and 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
  • Ask yourself: Which part of your business is underperforming?
    • Brainstorm potential inputs to run experiments.
    • Don’t overthink it - do some additional customer research if you need to
    • Buy your product once a month. You’ll quickly spot easy improvements. Too often, we set up our onboarding and assume it works without a hitch. (It doesn’t.) I’ve done countless user onboarding audits and found embarrassing bugs that were cratering conversion rates
    • Compile a list of items that could improve your product experience. Filter these ideas. How you do it doesn’t matter as much as having a defined process.
      • Have a consistent prioritisation system, compare the value of different projects, force priority decisions into the light and pressure test assumptions
      • CE prioritisation method, developed by Sean Ellis:
        • Impact. How big of an impact could this input have on an output I want to improve?
        • Confidence. How confident am I that this input will improve my output metrics?
        • Ease. How easy is it to implement?

Act:

  • Ideas are easy. Execution is everything.
  • Choose one or two ideas to implement this month/sprint.
  • Depending on the ease of each project, this could take you and your team a few hours or a few weeks.
  • If you’re new to these prints don’t take on too much, start small. Get some quick wins under your belt. Choosing an input that is easy to implement and has a moderate-to-high estimated impact.
    • Later, you can take bigger swings that require more resources and time
  • Your goal is to run experiments to iterate towards the vision or inform how we needed to evolve the vision.
  • Get wins on the board to build trust with leadership and other teams, such as product and engineering.
  • Prioritise growth experiments you can execute quickly to demonstrate results. Once you start to see a high-level of test failures or non-results, move on to tackle more complex growth opportunities (take big swings). Eventually, tell your CEO you want to test pricing.
  • Process beats tactics. Following the Analyse, Ask, Act framework puts you on track to grow your business consistently. Instil a culture of optimisation. If we can, we’ll pull the right levers and put our business in high gear.

The Bowling Alley Framework is a powerful onboarding strategy.

  • This system can help you nail your onboarding and turn users into customers.
  • When users get sidetracked or leave the product, it’s our duty to bump them back in the right direction.
  • To master the Bowling Alley Framework, you need to do three things:
    • Develop your straight line.
    • Create a product bumper.
    • Build a conversational bumper
  • This isn’t a salesy approach - it works so well because even a complete newbie can get a strike. As you remove pain and friction from your user’s experience of attaining their valued objective, your total addressable market grows.
  • One of the best ways to remove pain and friction is to develop a straight-line onboarding experience. A straight line is the shortest distance to get from Point A to Point B.
    • In a sales-led organisation the goal is to move people through the sales cycle.
    • In a product-led approach you want them to realise the value of the product by helping them achieve something. This is done by letting users try before they buy and doing everything we can to help them experience the value of our product. The problem, however, is that most users never make it to Point B.
  • Knowing your users’ intent → helps us catapult them to where they can experience value.
  • Once they experience value → the next logical step for them is to convert to paying customer.
  • How to develop your straight line and help users achieve their desired outcomes in a fraction of the time:
  • Map out the path → label every checkpoint → develop your straight line.
    • 30% of required user onboarding steps are rubbish.
    • Before developing your straight line, sign up for your product and complete all the steps it takes to accomplish a meaningful outcome.
    • As you complete each step, take a screenshot → from homepage until you’ve accomplished an outcome.
    • Once you’ve mapped out all the steps → label every step. Use the colours (green, yellow, or red)
      • Green is absolutely necessary.
      • Yellow is for advanced features that can be introduced later.
      • Red can be removed completely.
    • Removing red steps and delaying yellow steps moves you closer to building your straight line
    • There’s no bullshit left → users simply need to complete steps X, Y, and Z for you to deliver on your product’s value.
  • Even if we create the best-possible experience users are still going to get stuck and go off-track. We can plan for this - we can use bumpers to keep them on the straight line to their desired outcomes.
  • The Two Bumpers You Need:
    • Product bumpers → help users adopt the product within the application itself.
      • Examples: Welcome Messages, Product Tours, Progress Bars, Checklists, Onboarding Tooltips, Empty States
    • Conversational bumpers → help educate users, bring them back into the application, and eventually upgrade their account.
      • Examples: User Onboarding Emails, Push Notifications, Explainer Videos, Direct Mail
  • To guide users to a desired outcome in the product, you need both bumpers.

Product Bumper Best Practice

  • Welcome messages
    • greet new users and make them feel invited
    • use them as an opportunity to restate your value proposition and increase users’ motivation before they use the product
    • use them to set expectations for what users will experience with your product
  • Product Tours
    • Simple products might not need a tour - but for complex ones it’s a must
    • ask users what they’re trying to accomplish in the product
    • cover only important steps (green ones) that set users up for success with the product.
    • use a “focus mode” that strips away unnecessary elements, like the navigation bar, until the user completes the product tour.
    • limit to 3-5 steps.
  • Progress Bars
    • Start with a substantial percentage of the bar already filled. This helps users feel like they’re already underway instead of starting from scratch, and it increases the desire to complete the task.
  • Onboarding Checklists
    • Checklists break down big tasks into bite-sized ones.
    • Motivates new users to complete crucial set-up tasks
    • Turn complex, multi-step processes—such as scheduling a month of social media content—into simple, achievable tasks.
    • Onboarding checklists employ the Endowed Progress and Zeigarnik Effect.
  • Onboarding Tooltips
    • Help users learn how to use a product → guide them toward experiencing meaningful value in the product.
    • Show first-time users how to use the product
    • Offer helpful tips to new users
    • Think of this like coaching.
    • Show experienced users new areas of the product they might never have tried otherwise. This is great for increasing retention.
  • Empty States
    • Upon first login, most software applications are boring. There’s no data specific to you; it’s just the raw application.
    • Empty states should prompt users to take an action that will lead them closer to experiencing meaningful value in the product

Conversational Bumper Best Practice

Educate users. Set the right expectations. Meet users where they are and pull them back into your app. Increase motivation to use and buy your product.

  • User Onboarding Emails
    • Should do something your site can’t: go get your users where they are and pull them back into your app
    • Figure out which emails you need to send.
      • ‣
      The top 9 user onboarding emails:
    • The best user onboarding emails are an extension of your product. They have a magical ability to reach beyond your app or site to bring people back and move them toward customer happiness
  • Welcome Email
    • Triggered when someone signs up for an account.
      • They have a high open rate (60%).
      • Train your audience to open your emails
      • Set expectations for what’s coming next
      • Use plain text and no images, to get past spam filters
  • Usage-Tip Emails
    • Nudges to help direct users to take steps in the product that set them up for success
    • Be careful about what you encourage. Stay on the straight line.
    • Direct users to a specific product page
    • Link to specific help-centre articles or blog posts
    • The best usage tips are trigger-based and sent out once you do or don’t complete an onboarding task.
  • Sales-Touch Emails
    • Can be automated, but timing is important
    • The sweet spot for sending sales-touch emails is as soon as someone experiences meaningful value in your product
    • Craft sales-touch emails to help users get more value out of the platform.
  • Case-Study Emails
    • Case studies are great—as long as you tell the story right. Open with a hook. Lure the reader from one line to the next. Start in the middle of the action. Create compelling characters. Set the story around a central conflict.
    • Choose testimonials to showcase based on the objections you regularly receive when selling your product. These objections could be: The price is too high. We don’t have the budget. It’s not important right now.
    • Use case-study emails to combat objections that users might have before they enter the buying phase. Make sure that each case-study email answers “What’s in it for me?” for users. Case studies are a powerful way to combat objections.
  • Better-Life Emails
    • Better-life emails communicate the benefits of the product. Showcase how your product improves a user’s life.
    • The main CTA is often to upgrade an account, But you can also direct people to try specific features.
    • Don’t focus only on the functional outcome (remember the functional, social, and emotional outcomes)
  • Expiry-Warning Emails
    • Remind the user to upgrade before a free trial ends.
    • You need to address the needs of both - those that want to become paying customers, and those that don’t
    • Answer these questions:
      • Why should I upgrade?
      • How do I upgrade?
      • How much time do I have left?
      • What happens when the trial ends?
      • How do I cancel?
      • Where can I go if I need help?
    • Goals:
      • Set clear expectations
      • make it easy for users to upgrade
      • communicate how users can get help.
    • Provide enough advanced notice (Weekends, vacations, and travel)
    • Don’t assume the recipient wants to begin paying for the product
  • Customer-Welcome Emails
    • To reduce anxiety of new customers and build trust.
      • Reassure users that they made the right decision.
      • Remind users of what they can do with the platform.
      • Set expectations for what comes next (e.g. Will a customer success rep reach out?)
    • Send as soon as users upgrade.
  • Post-Trial Survey Emails
    • Most users won’t convert - some won’t have had time to check out the tool, others might need more time or more help.
    • Ask them - Will you share why you decided not to buy the product?
    • Then use their response to put them in the appropriate email campaign
      • Still evaluating → offer a trial extension
      • Not a fit → drop into nurture
      • Too complex → schedule a customer success call
      • Too expensive → provide a one-time discount
      • Went with another solution → nurturing emails to stay top-of-mind if the other service doesn’t work out
      • Just doing research → add to nurture
      • Missing feature or integration → See if it’s on the roadmap, let them know when it’s live
  • User-Onboarding emails
    • Need to be tailored to the user actions - don’t send them feature emails if they’ve already used that feature.
    • You need to create a smart-bumper system
    • Four main signals: Signup, quick win, desired outcome, customer.
    • You need to understand where the user is at in their journey - and send an email to push them along.

Increase Your Average Revenue Per User (ARPU)

  • High ARPU allows you to use more expensive acquisition channels and maximise your LTV
  • A repeat customer will spend 67% more than a new customer - sell to existing customers
  • Growing ARPU is a capital efficient way to grow - focusing on quality not quantity of customers
  • The challenge with ARPU is defining what a user is
  • ARPPU - is average revenue per paying user.
  • ARPU = Total MRR / Total Users
    • MRR: monthly recurring revenue
  • Once you know your ARPU you’ll better understand how to market your business, if direct sales make sense, who your most profitable customers are.
    • High ARPU → Enterprise sales
    • Mid ARPU → Inside sales, paid advertising
    • Low ARPU → SEO, content marketing, virality
  • Not all customers are created equal - you need to find the ones that are a good fit
  • Make sure teams aren’t taking on small, distracting and expensive low-revenue customers just to hit user metrics
  • How do you optimise for ARPU?
    • Use Value Metrics: There’s a tradeoff between customer acquisition (low prices) and high ARPU (high prices) - you need to find the balance
    • Improve your pricing tiers: remove unneeded tiers. The Paradox of choice: The more choices you have, the less likely your are to choose.
    • Raise your prices: most entrepreneurs undervalue the elasticity of demand - which results in them undercharging.
    • Treat your best users like the Queen: Create an ideal buyer journey, generate 80% of your revenue by focusing on 20% of your best leads
    • Upselling and cross-selling: upselling = additional features, add-ons and services. Cross-selling = completely different products or services.
  • Take on the right customers, then grow with them. Not all customers are created equal, learn whom to ignore.
  • One of the easiest ways to increase ARPU is to solve for churn

Improve Your Churn

  • If you don’t tackle churn early - you’ll be working incredibly hard to stand still
  • Everyone knows the risk of churn - few prioritise it. It’s easier to celebrate new customers than retain customers.
  • Increasing customer retention rate by 5% can increase profits by 25-95%.
  • Shift from acquisition-first mindset to retention-first mindset → to have a big impact on growth
  • Churn is the % of customers who cancel or don’t renew in a given time period
  • If customers can be bigger than others - not all churn is created equal
  • A holistic approach measures churn in 3 ways:
    • Customer Churn → number of customers lost in a given time period
    • Revenue Churn → amount of revenue lost in a time period
    • Activity Churn → number of users at risk of churning due to red-flag activity (e.g. not logging in for a couple of months)
  • Customer churn = (Churned Customers / Total Customers) x 100
  • Average Churn Rates
  • Focusing on industry standards can create confusion, chaos, and stress.
  • Focus on incremental improvements to your churn rate instead.
  • Revenue Churn = (Churned MRR /Total MRR) * 100
  • Activity Churn: exact signals vary by product
    • If a user isn’t using your product for a period of time that’s alarming
    • Certain activities could be alarming too: exporting data from the product
    • Activity churn signs are often the opposite of engagement signs. So list all of the ways your user can engage with your product - and then imagine the opposite scenarios
      • Not all activity is created equal - some activities signify more engagement and commitment than others.
    • You can create a weighted engagement score for each user. Summing all of their activity and paying more attention to high engagement activities.
      • Event name
      Event Weight
      Number of events
      Total Even Value (A*B)
      Event 1
      3
      124
      372
      Event 2
      7
      23
      161
      Event 3
      9
      11
      99
      Total Score
      632
    • Then normalise the scores - so they all fit between 0 and 100
    • Make the scores actionable →
      • Rank your users (exposes power users and those at risk of churn)
      • Allows you segment for marketing comms or outreach.
    • Create an engagement score for every user - track it over time.
      • User
      Engagement Score
      User 1
      188
      User 2
      12
      User 3
      45
      Total Engagement
      245
      Engagement / User
      82
    • Compare populations or cohorts. New users vs older users. Or free vs paid.
    • Correlate with other business metrics (sales, retention, growth, LTV,)
  • Measure churn metrics - if you can’t measure it you can’t manage it
  • Start customers off on the right foot - welcome them and make sure they get the value from the product
  • Conquer your ability debt - be ruthless about removing friction to make it easier to get to value
  • Send usage-review emails - showcase the value of your product. Mailchimp showcases emails sent.
    • Only show activity that will make your user feel accomplished. Would they feel proud of it? Hours in tool might not be smart.
  • Restate your value when invoicing.
  • Create churn-prevention campaigns: New customers are expensive, think about how can invest in keeping those you’ve already won
‣
Have a robust cancellation process - Ask a single question on cancelation to understand why their leaving and then kick-off different campaigns
  • Tackle delinquent churn → customers who churn after you’re unable to bill. Putting a system in place to recover customers (after cards expire) can be incredibly valuable.
  • Invest in customer success. Actively look for ways to help customers succeed
  • Fix your pricing → use value metrics in your pricing model.
  • The Product-Led way: Just start using the product. Ask for help if you get stuck. Based on your usage and profile, receive personalised recommendations.