Hey Growth folks 👋 Welcome to this new edition of The Growth Mind!
Today, we deep dive into:
🌐 The 3 Growth Models: Product, Marketing, and Sales-Led
🏆 The rise of PLG, and why it’s the present & future winning model
🛠️ How each model impact your Growth strategy and missions as a Growth manager
Reading time = 10 minutes
Traditionally, B2B companies have leveraged a Sales-led approach where direct sales drive business growth.
But over the past few years, other models emerged: Marketing-led growth, with companies like Hubspot, or Product-led growth, which is the new cool kid. We’ve entered in an era where people prefer to try before they buy.
This shift has strong implications on how SaaS companies grow, and the roles of Growth people.
Let’s dive into it 🚀
1) The different Growth Models: Product, Marketing, and Sales-Led
At the highest level, we can summarize the 3 growth models like this:
💻 Product-Led Growth
Product-led growth is a model that positions the product as the main driver of acquisition, retention, and revenue. The idea is to create a product that is inherently valuable and easy to try, which encourages adoption and spreads largely through word-of-mouth or viral sharing.
While putting the product as the main growth driver was pretty common for many years for B2C products like mobile apps, it’s a rather new approach in B2B.
The main characteristics of the Product-led Growth model include offering self-serve products that enable people to try before they buy through freemium or free trial business models, and building collaboration features to improve engagement and virality. The focus is on the end user first, rather than the decision maker.
Strengths:
Low friction and short time to value: It’s easy to try a PLG product and quickly understand its value. So the number of users you can acquire and activate is way larger than with any other model.
Scalability: As the product is acting as the main growth driver, you can scale rapidly without proportional increases in sales or marketing costs.
Data-driven: Low friction and scalability means volume, which means data. And the more data you have, the easier it is to experiment and improve your growth engine.
Weaknesses:
It’s not adapted to every product. Physical products, highly regulated industries, or high-ticket products needing large investments for example are not PLG compatible.
At some point, expansion to enterprise sales is often necessary: PLG does not replace a sales team, that can do a wonderful job when it comes to enterprise plan expansion. But being Product-led Sales (adding a Sales layer on top of your PLG model, for expansion) can tackle this challenge.
The product needs to be very good: or you’ll likely face high churn rates. This statement is true for every model but is even more present in PLG as people try before buying. So a bad product can lead to no buying at all.
📢 Marketing-Led Growth
The marketing-led Growth model involves digital marketing strategies to generate demand and guide potential customers through a marketing funnel. The focus is on brand building, education about the product's value, and engaging customers through content marketing, SEO, and CRM campaigns.
Marketing-led growth is characterized by an educational approach that incorporates content over the entire user journey, utilizes digital marketing channels such as SEO, paid ads, and social media, and places the marketing team as the main owner of major Growth KPIs.
Strengths:
Brand authority: By producing marketing content, you create brand awareness and authority in your market and make sure to be top of mind when your potential customers have a need your product solves.
Customer education: Marketing content helps educate, all over the buying journey, your customers about problems, solutions, and how your product can solve their challenges.
Adaptability: Marketing trends change fast, but you can adapt your content, formats, and assets fast too, making sure you always surfing on the latest trends.
Weaknesses:
High marketing investments: Producing marketing content and using digital marketing strategies like SEA or Social Ads is costly. You need to invest in ads but also produce high-quality content.
Continuous content production: To stay top of mind, you need to always be present. While it’s true some content can live on its own for months or years, if you stop being active, people forget you fast.
Needs agility to adapt to new trends: I mentioned adaptability as a strength, but that’s also a challenge. You need to always be aware of the latest trends and agile enough to adapt quickly to new channels (eg. TikTok recently for Social Media) and formats (eg. vertical videos, UGC).
📞 Sales-Led Growth
In a sales-led model, the primary driver of growth is the sales team. This model is common in B2B companies with high-value products or services where personalized selling is crucial. Sales teams focus on building relationships, understanding customer needs, and closing deals through direct interaction.
Sales-led growth primarily focuses on a "buy before you try" approach, with sales demos to showcase product value. This implies a top-down adoption strategy where leaders are convinced first, followed by end users, which is the opposite of Product-led.
Strengths:
High contracts value: With high-ticket products, you need significantly fewer customers to reach millions of revenue than with Product/marketing-led products. For example, if your average contract value (ACV) is 1,000€, you “only” need 1,000 customers to reach 1M€ of ARR. If you’re taking a PLG model, with an ACV of 100€, you’ll need 10x more customers to reach the same ARR.
Predictable revenue: When you know how much deal each sales rep can sign per month, it’s quite easy to predict your revenue month over month. Each sales rep you hire brings additional revenue (even if it’s not perfectly linear and revenue per sales rep tends to decrease when you grow a sales team).
Direct relationships: People like talking with humans, especially in certain markets. Sales teams build relationships with buyers, that can influence their choices and create trust.
Weaknesses:
Long sales cycles: The higher your product price is, the longer the sales cycle generally is, and the more stakeholders are implicated in the buying process. That could result in sales cycles taking months, or even >1 year. It implies a lot of challenges in cash management.
Only adapted to high-ticket products: A sales-led model is costly, as you need to hire sales rep. If your product has a low ACV, it might be complicated to have a positive ROI on a sales rep salary, because the number of deals to close might be too high.
Hard to scale: Sales reps can’t handle millions of deals. At some point, you need to hire new people to scale, meaning more costs. Improving sales processes, with automation and AI, helps a lot. But it has limits and does not entirely replace human work (at least yet).
Each model has its strengths and weaknesses and one model might fit a product better than another. So when choosing a model, you should make sure it’s aligned with your market, ICP and product.
Another important point to note is that many times, companies do not use a single model, especially when they grow. The boundaries between models can be thin.
For example, a company might combine strategies of a product-led and a marketing-led model, or sales-led and marketing-led. Even if a model is dominant, strategies and characteristics from different models can be mixed.
2) The rise of PLG, and why it’s the present & future winning model
Over the past few years, Product-Led Growth has become very popular.
Some well-known Tech & Growth influencers, like Kyle Poyar (Partner at OpenView) or Elena Verna (Growth Leader at Dropbox), have contributed to democratizing and explaining the concept, which is now adopted largely by new SaaS tech companies. But it’s still a new trend.
Worldwide evolution of “Product-Led Growth” keyword interest over the past 10 years:
Data shows that, before 2020, Product-led growth was practically not searched on Google. But in 2022, it became very popular.
But is it simply a trend, or a new model that will become the norm?
Well, PLG is already the winning model for most new SaaS companies. And data and expert opinions show that PLG is here to stay and grow over the next few years.
🧑💻 Try before you buy is becoming the norm
Let’s be honest: very few of us like to have to talk to a sales rep to try a product. Sales can be extremely helpful when it comes to signing large deals, but to try a product, create unnecessary friction.
75% of B2B buyers prefer a rep-free sales experience
Source: Gartner
B2B PLG companies are adopting the B2C codes, and that’s for the best.
Imagine if you needed to talk to a sales to try a mobile app? Sounds crazy no? I bet that, in a few years, we’ll think the same for B2B SaaS products (except for the few exceptions where PLG is not adapted).
We also don’t like to have to enter our credit card information just to try a product too.
It means PLG products have a strong advantage thanks to their low friction model, where everything happens through the product, without payment needed (at least during the trial period for free-trial models, or for basic features in freemium models).
Everyone can easily test the product and see if it fits their needs or not.
📈 Top performing PLG companies are rising
Between 2017 and 2021, the number of public PLG companies has quadrupled!
Some of the best SaaS companies, like Shopify, Atlassian, Slack, or Snowflake, are on the list.
PLG companies’ market cap has also strongly increased over the past few years (even if many companies’ valuations decreased since 2021).
PLG companies have a bright future, even if the market conditions have been difficult recently, with fundraising being particularly low compared to the last few years.
🚀 PLG is perfectly designed for scale
Generating 1 or 1,000 sign-ups for a product does not structurally impact the company. Operational costs (such as salaries, software, and technical maintenance) decrease as the number of users/clients increases.
Thus, PLG companies have a much higher propensity to scale compared to those adopting a more traditional, less scalable model.
Features like collaboration and pricing tiers including teams help create viral effects, as one user will benefit from more value if he invites other coworkers.
💸 Lower CAC and Payback period
As a model, PLG has many advantages that can help companies outpace the competition, especially when we talk about unit economics.
The low friction model helps to acquire significantly more users, at a lower CAC. A lot of work needs to be done on conversion and monetization to achieve great results, but once it’s fixed, your acquisition engine can be very powerful.
The payback period of PLG companies, compared to other companies, is always lower, no matter the ARR level:
3) How each model impact your Growth strategy and missions as a Growth manager
Working on Growth in a Product, Marketing, and Sales-Led company drastically impacts your job.
Each model has different channels, mechanisms, and interactions between teams. It’s key to properly understand the model that best suits your skills and wishes, so you can exploit your full potential.
💻 Product-Led Growth
Main Missions:
Optimize conversion over the whole funnel: Website, landing pages, and onboarding.
Implement analytics to identify product-qualified leads: leads that experienced the value of the product and might benefit from an upgrade to a paid plan.
Implement lifecycle CRM, with In-app messages, retargeting, or email sequences to educate users over their whole journey.
Feed top of the funnel: by creating growth loops, as well as using more traditional marketing channels.
Required Skills:
Strong analytical skills to interpret user data.
UX/UI design skills to improve landing pages and onboarding flow.
Customer psychology to understand how to deliver value over the user journey.
Digital channels mastery: SEO, SEA, or Ads to feed the top of the funnel.
📢 Marketing-Led Growth
Main Missions:
Generate Marketing-qualified leads through various channels: SEO, Ads, Influencers…
Create SEO-optimized content to increase brand awareness and consideration.
Manage the Social Media strategy, from creating content to engaging with your community.
Implement marketing automation workflows, guiding users through awareness to purchase.
Required Skills:
Strong skills in content creation: Copywriting, video editing, and design.
Expertise in main marketing tools and platforms (Google Analytics, Google Ads, Meta Business Manager…).
Mastery of marketing automation workflows.
Data-driven decision-making to evaluate campaign effectiveness and make the right decisions.
📞 Sales-Led Growth
Main Missions:
Build outbound campaigns through email or LinkedIn.
Improve sales process efficiency thanks to automation.
Create industry-specific content to generate demo requests.
Manage CRM implementation and running.
Required Skills:
Strong skills in CRM softwares (Hubspot, Salesforce, Pipedrive).
Understanding of the global sales process and how sales teams work.
Copywriting and customer psychology to craft impactful content and outbound campaigns.
NB: those missions and skills are generic and can vary a lot depending on the company stage. In an early-stage company, you’ll generally take care of everything related to growth and be a builder. But in later stages, you generally have more segmented missions and act more as an optimizer or innovator.
Clearly explained with much food for thought. I expected my new business to expand as B2C through Content Marketing. Having been advised to look at B2B it seems that Product Led Marketing is the way to go.
Noted in my book. This is pure gold 🪙. Keep up the good work 💯