PLG is more than just offering a free product tier. In this workshop, Hila Qu, former Head of Growth at GitHub and PLG expert, delved into advanced PLG strategies, key tactics for conversion, activation, and retention, and building a successful growth organization.
Event Recap & Takeaways
1. PLG v. SLG
PLG is a strategy that harnesses product engagement to drive customer acquisition, activation, and retention. In contrast to traditional sales, which involves pushing demos, configuration, and training, PLG operates as a pull motion, allowing users to try the product and may turn to the knowledge base community for help.
Notable PLG Examples: Atlassian, Slack, Airtable, Datadog, GitHub
2. Benefits and Considerations of PLG
PLG suits collaborative, developer, SMB/prosumer, and disruptive products. You can evaluate PLG’s fit by assessing your product complexity and target audience.
Leading companies often blend PLG and sales-led approaches for optimal growth. However, early-stage companies face trade-offs. While PLG has lower sales/marketing costs, a user-centric focus, early data/experimentation capabilities, and a broader user base, there are costs, like choosing between end-user attraction and direct customer sales. Revenue growth might be slower, and organizational setup differs compared to a sales-first approach.
3. PLG Essential Components
PLG is more than introducing a free version. It combines a vehicle, like freemium or free trials, with transparent pricing, self-service purchase funnels, easy onboarding, robust data collection, and solving end users’ pain points. Planning for upgrade paths may also be a key consideration.
4. Maximizing a PLG Funnel
Once your essential PLG components (above) are in place, focus on one of the 4 key areas: acquisition, activation, conversion, or retention/expansion.
Conduct a high-level diagnosis of the main bottleneck in your funnel to get a sense of where to start. If unsure, activation and conversion are great starting points because they offer a host of low-hanging fruits to address.
Acquisition is also a great starting place for products that have a viral network effect component, collaboration software, and/or if you need to grow the top of your funnel.
5. Acquisition and Activation Strategies
Avoid limiting acquisition to linear channels, like SEM or SEO; you want to make sure you’re also adding in elements that will help conversion rate optimization, viral loops, and growth loops. Canva’s free templates are a great growth loop example, creating a cycle where free, user-generated content fosters growth, leading to paid or integration-based pathways. Additionally, these growth loops can compound, reinforcing each other.
The "aha" moment in activation is crucial for user retention, willingness to pay, and ARR growth. In the B2B realm, team "aha" moments play an important role in creating a collaborative value experience. You also may want to consider balancing product onboarding and automated marketing with timely human support (“human in the loop”) to high-value customers.
6. Conversion and Retention Strategies
Conversion includes two paths: self-service and product-qualified leads (PQLs). Self-service is straightforward, setting up a self-service checkout flow that streamlines the process for customers. PQLs require an understanding of user behavior and identifying optimal conversion points. Leveraging triggered PQLs, like trip limits, allows customers to use the product deeply before converting and also offers advantages.
User retention, the driving force behind growth revenue retention, hinges on product utility, broadening customers’ use cases, and using churn cohort analysis to identify pivotal churn indicators.
7. Constructing Your Growth Engine
A growth engine encompasses metrics, teams, and infrastructure. Common North Star metrics include self-service ARR, # of Activated Teams (highlighted by Airtable), and # of PQLs.
For PLG infrastructure, you need a data warehouse, product analytics, experimentation, and lifecycle marketing components. Additional tools for onboarding, lead enrichment, and payment support may also be necessary.
8. Building Your Growth Team
The first growth team hire is typically a Head of Growth; for early-stage startups, it’s common for the CEO to start as the first Head of Growth. As the team expands, you may have growth PMs, engineers, designers, and analysts, often integrated under the product team.
Where should your growth team start? Identify the low-hanging fruit within the four common areas (acquisition, activation, conversion, retention/expansion) and foster cross-team collaboration with Marketing, Sales, Customer Success, and Data Analytics for effective experimentation.
Q: In the early days, what are some strategies to establish personal connection/trust with consumers? Unlike in sales-led, it feels like there is no/less human interaction with consumers which might be helpful.
A: This is a great question. I think you’re absolutely right. The reason why sales motion is successful is you can potentially build trust, coordinate multiple stakeholders, and solve a lot of problems. For PLG, one of the most important things is to build a remarkable product. You need to really invest in the product itself.
If the user experience is so smooth, a lot of the details are the ways you can build trust. You can also leverage some of the automated technologies like email and chat so that when users need help, they have a way to proactively reach out and get people to help them. That's another way to establish trust as well.
Q: Do you have any feedback on PLG relative to market dynamics? When there’s downward pressure on budgets, does it cause a noticeable top-down buying shift?
A: I would argue when the market is experiencing downward pressure, it's likely that both PRG and SLG will be impacted. When funding is low and budgets are tight, you would expect companies will feel the pressure to cut back. The benefit of being a PLG in this case is that you're targeting individual users, so there's often a free trial or a free version available. This means that the barrier for people to try and continue using your product is lower compared to the SLG model. With an SLG model, you have to sell to the company, the CTO, the CFO, and if there's no budget, they might not even be interested in learning more or using your product.
So, I would say that PLG potentially has an advantage in these cases by continuously spreading and getting people to use your product.
Q: Should you qualify PQLs by focusing on product activity or if they fit your ICP? For example, a new sign-up has an e-mail domain we think is a great fit; we know they’re too big to convert on their own. Should sales be reaching out to them before they have any action in the product?
A: That’s an excellent question. When it comes to product activity and ICP, there are a few different combinations to consider. If a user has high usage, they're likely already your ICP, which means you have a good chance of converting them in the case you mentioned. However, if they're a new signup and haven't had any product usage yet, but they are an ICP, I would say you can still involve your team. Instead of trying to convert them right away, focus on getting them to the right usage level to help them succeed. Your customer success team can be helpful here, rather than the sales or account executive team.
However, the goal might be different when it comes to conversion. In that case, the goal might be activation usage. If a user has high usage but is too small or not your ICP, it might be best to let them self-serve, as it's not a fit for a sales team. But if it’s not your ICP because they're not in your target industry, despite being a decent company size, you may want to get your sales team or customer success team involved anyway. The goal here is to understand their use case and how you could potentially help them. By using ICP and usage as two dimensions to think about different treatments with different goals, you can come up with a great strategy.
Q: It would be great to hear an example of somebody who successfully switched from SLG to PLG. It feels like both the product would have to be heavily rewritten and the organization structure (and people) changed to make it work, which would be really hard for a medium/large company.
A: There are companies who have done this, but not a lot; I would say HubSpot comes to mind. They underwent a pretty painful process of building a new product, initially called Sidekick, which was a Chrome extension for sales teams, and through iteration and development, it became a foundational component for PLG. Other big companies have acquired new products and integrated them to experiment with PLG.
My experience at GitLab was unique, as we started as an open source project with an open source product, but the company was heavily invested in sales motion and the enterprise sales team from the beginning. They contributed a significant portion of the company's revenue. PLG worked in the background, and my role was to connect the dots, establish data tracking, and build the PRG funnel from the ground up. I faced challenges due to the difference in culture and infrastructure between SLG and PLG, but through analysis, we realized that PLG had been working from the beginning and 80% of those customers started as a free user.
If you are from SLG and want to add PLG, I recommend not switching entirely but adding PLG motion to some parts of the funnel, such as activation and conversion. It's also essential to think about what will make the sales team excited and drive alignment.
Q: When should you hire a growth leader? What are certain considerations you should consider (criteria, questions to ask, etc.)?
That’s a great question. My recommendation to founders is to first make sure that you have product market fit, and depending on the type of product, you may want to invest in PLG. I would also say it's important to think about assembling a growth squad internally before hiring a head of growth. As a founder, you may act as the head of growth for a while until you expand your team.
When you begin to expand, consider hiring a data analyst first, as having a foundation to drive growth is critical. Look for someone who has a skillset aligned with your core growth lever, whether it be referral, viral, or paid marketing. Ideally, the second hire would be to find a unicorn who can do both data and growth. But consider looking for someone internal who is familiar with the product and team rather than external.