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Why does a startup need product-led growth?

Why does a startup need product-led growth?

Written by Team

What does a product-led model look like?

 

Product-led growth is the future of go-to-market strategies. It implies growth directly connected to the value of the product.

Synonyms for product-led growth include terms such as: 

  • freemium, 
  • free trial, 
  • SaaS 2.0, 
  • try-before-you-buy.

 

Product-led growth wouldn’t be massively used if there weren’t success stories that have inspired others. Companies such as Slack, Dropbox or Calendly are the ones to thank for the popularity of product-led growth strategy. All these products share a few common characteristics. 

They are:

  • easy to use, 
  • easy to share and 
  • they deliver value very quickly.

 

In its core, product-led growth is a consumer growth model which relies on a product itself. 

It relies on a product to do all the work. The product has to drive customer acquisition, conversion and expansion. 

 

The main pillars of project-led growth model are:

  1. It is designed for end users – it listens to them and fulfills their needs. It is not uncommon for product-led businesses to personalize the product if needed.
  2. It delivers value quickly –  it minimizes the time between sign up and solving a problem. They realized that the key is to keep the product and experience simple. 
  3. Investing in products with the go-to-market intent. 

 

Overall, the product is always put first with product-led growth. 

 

However, building a product that will perfectly suit end users is not that simple. It is important that everyone in a company focuses on a product and how to build the best one. Product has to be simple and focused, serving the user’s needs and not having any unnecessary features.

 

Although design is important, it is not enough; the product also has to align with customer’s pain as well. This means that when creating a product it is important to think as a consumer, not a businessperson. Every action made by a marketing team has to focus on satisfying the customer and then the profit would follow.

 

The most efficient product-led growth strategy is a flywheel which has been adopted by many companies. It considers four user segments which are important for the stages that happen in the user journey. These stages are:

  • Evaluator – those just browsing, usually in a demo stage.
  • Beginner – those who understand the value of the product and are using the real data.
  • Regular – those who are logging in regularly on the website and using the product to complete core.
  • Champion – the biggest fans, looking forward to the next moves, they participate in the future of the product.

These stages correlate with key actions that users are taking in order to move to the next stage. The key actions are: 

  1. activate (seeing the product’s value), 
  2. adopt (forming habits, making users acquainted with the product), 
  3. adore (enjoying the product and looking forward to using it) and 
  4. advocate (inviting other users, leaving reviews). 

 

Once evaluators experience the product they are becoming activated and move to a beginner stage in which they form certain habits of using the product they adopt. Regulars are comfortable with using the product, they do it regularly and they look forward to doing it, they adore it. Finally, champions are those who take an active part in a product future by advocating for the product.

 

Company and all teams should focus on a product and on how to optimize the user experience so as to move from one stage to the next one. When the rate of users completing each stage increases, it will make the flywheel spin faster. This is when positive feedback happens and if more users become advocates, they will drive more acquisitions and that leads to the exponential growth. 

 

To sum it up, all of these actions make product-led growth able to deliver value as fast as possible. It also makes it easier to convert, retain and make prospects become paying customers. 

 

Adopting product-led growth strategy

 

Product-led strategy has recently been used more and more and is especially suitable for businesses and startups that need to scale fast.

 

A startup refers to a new business being in the earliest stage of its development. Startups are characterized by the potential to grow exponentially and by innovation. Startups bring something new in terms of technology, product or service. At the same time, they are a sort of a business experiment testing the market.

 

Building a SaaS startup has become very easy and there are thousands of SaaS startups on the market. But not all startups are success stories. Even though most startups possess two main characteristics, innovation and growth, and although at the core they have a huge potential for success, not all startups manage to succeed and survive on the market. As a matter of fact, 90% of startups fail.

 

In order to avoid this they adopt methodologies such as product-led growth and they decide to focus on their customers. If a startup wants to become successful and manage to scale, it has to fulfill some of the following.

 

  1. First of all, a product has to be perfect for the market and there has to be a need for it. So, it is important to focus on making a product that people want. Not doing this is the most probable reason why a startup fails. If the product is not suitable for the market, it is a sign that your new business is destined to fail.
  2. Afterwards, it is important not to overlook key aspects of business. None of the people working in a startup should focus on only one thing. It is common that roles and tasks overlap and everybody does everything. Working in a startup means working on the business, not in the business.
  3. If an idea is good and meets market needs, there will be a rapid growth. It is a fact that if a startup starts growing fast, it means the idea is very good and necessary for the market. But if the company doesn’t experience growth in the first couple of months, then it starts shrinking and it will soon run out of cash. This means that the company is doomed.
  4. Successful startups are characterized by versatility. Not only in a skill set of people working in a team, but also in their mindsets. People working in a startup should know how to change products, rebrand the business or just adjust to a new market.

 

If these conditions are not fulfilled, the startup will fail. As a matter of fact starting any new business is a big risk and according to Business Employment Dynamics report from the Bureau of Labor the failure rate of new businesses is:

  • 20% failure rate until the end of the 1st year
  • 30% failure rate until the end of the 2nd year
  • 50% failure rate until the end of the 5th year
  • 70% failure rate until the end of the 10th year

 

Why do SaaS startups need product-led growth? 

 

In his definition of product-led growth, Wes Bush says that “product-led businesses are valued more than 30% higher than the public-market SaaS Index Fund.”

 

The world of SaaS companies is very unpredictable, the growth can sometimes happen overnight or never. The best example for this is Zoom.

2020 was a fruitful year for Zoom. It became the home office’s conference room, and team building’s party place. People were using it for different reasons and it experienced a huge growth. 

 

As seen in the Statista report: ‘For the twelve months ended January 31, Zoom’s revenue amounted to $2.65 billion, up from just $623 million the previous year. The video conferencing company ended the year with a net profit of $671 million, up from just $22 million in fiscal 2020.’

 

This happened because the users experienced the benefits of Zoom really fast. Many SaaS companies would love to experience this kind of growth and to have their product adopted and commonly used, but to reach that point takes time and work. Most importantly, they have to focus on end users in order to remain relevant. 

 

The development of software usage and distribution has come a long way, from a sales-led growth through marketing-led growth to product-led growth. All companies that implemented the product-led growth model are 2.2 times more valuable and they outperform. Product-led growth is the perfect strategy to grow a business and here are some of the reasons why it is like that.

 

Using this strategy, you will help your customers understand your product better. We should observe product-led growth as a secret weapon. SaaS startups need a product-led growth in order to scale fast and stay in the market. But beside this, there are other benefits that startups gain when using product-led growth. 

 

These are:

 

  • The growth of prospects is higher with product-led strategy. When a product delivers value fast, retaining and acquiring customers can easily be expected. Product-led growth boosts virality. Furthermore, if people love the product, they share it amongst each other. It is mostly so because it enhances user experience.
  • Product-led growth is perfect for a new business because it requires minimum staff and thus it saves money.
  • Another way of saving money through product-led growth is that a marketing team is not necessary. Marketing is done through word -of- mouth strategy and people’s recommendations. 
  • Customer acquisition is also one of the benefits of product-led growth. Customers prefer to learn about the product at their own pace and they like to be provided with the information they can easily access and understand. Product-led growth enables them just that.
  • Product-led growth accelerates sales and attracts only hot leads that are easy to convert. So, while competitors are struggling to attract prospects, your product is doing everything for you. The product leads the initial customer experience. Customer success is just an outcome and everyone is a customer. Customers become dependent on your product. 

 

After looking at the benefits of product-led growth we can conclude that it is the perfect solution and go-to-market strategy for all new businesses and startups. Making a product that everybody would love and become dependent on is what is needed to become part of the future and stay relevant in the present. 

 

If you have a product and do not know how to make the growth happen – contact us. At Castro & Partners, we will optimize your growth funnels, test prices and models until we find new channels and untapped opportunities.

 

We will help your business to scale fast, acquire leads, convert the acquired leads to customers and expand, product-led strategy is the right choice. It will give you the competitive advantage and make you up-to-date.

Need help implementing a product-led growth strategy?

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