B-side software is no longer as high-end as before. We have been spoiled by the excellent B2C experience in the market. People have realized that B-side products can also be simple and effective, and the end user has the decision-making power about which product to use.
What is the result of doing this? Great from my perspective. B2B is finally correcting the industry, working to create a new wave of amazing experiences that solve end-user problems. Our old tools have been turned upside down by some of our favorite products now.
This is an era of consumerization or product-led growth in B2B.
Let's face it:
software isn't as special as it once was. Starting a company is getting easier; the competition is fierce! Customers have more choices, but their time, patience and risk tolerance have not increased at all.
People have realized that things can be simpler and must work. We’re spoiled for choice with all these great B2C experiences, and rightfully so. At work, we are also consumers of work tools.
It is increasingly common for end users to have decision-making power about which products to use. Team leaders are increasingly asking their teams which products they want to use, rather than the other way around.
1. What is product-led growth
According to OpenView, the organization that first defined the concept, product-led growth is a growth model in which product usage drives customer acquisition, retention, and expansion.
Growth means growth for your company, your customers, and your business. Yes, growth can be achieved not only through monetization, but also through retention and expansion (revenue per customer expansion). If you have a great product, there's no reason why product usage shouldn't be at the center of these stages.
No, this is not about getting rid of sales, marketing, and customer success teams. It’s about unlocking them with a tool to optimize their work and breaking down silos to build a product that’s packed with user value and delivers more to the business than would otherwise be possible. It's a win-win situation.
2. Product-led monetization
The classic way to achieve growth is to acquire customers. It is the inflow of the system. As long as we have the ability, the more the better. Still, it is traditionally represented as a funnel, symbolizing fewer potential customers moving through different stages.
In a product-led world, product usage is baked into the acquisition model rather than emerging later, making the middle of the funnel especially important. We boil this funnel down to the desired user journey: awareness, onboarding, aha moment! and upgrades.
1. Awareness
Generating awareness of our product is the beginning of user acquisition. How can they choose us if they don’t know us? We can make ourselves known through classic marketing channels. Yet…
In a product-led world:
Marketing funnels direct users to product usage, not directly to the sales team. Nowadays, trying the product first is a must.
This product also serves as a marketing channel. We can turn this funnel into a flywheel by turning users into advocates through recommendations, collaboration features, high-value content, and shared moments. What could be more product-driven and effective than word of mouth?
2. Getting Started
hopes that people will be willing to use our product after understanding it. Onboarding is when new users learn how to use the product and discover the value in it.
This product is free to use. No one wants to pay for trying something or any other type of friction. There are two main models here: freemium (free forever package that helps create aha moments and drive growth, but requires payment to get more advanced features); and free trial (all features of the product, but for a limited time limit). We can use one of them or stack both easily.
Users receive an immersive experience throughout the product. There are many ways to achieve this: contextual walkthroughs, informative tooltips, non-scary empty states, etc.
B-side software is no longer as high-end as before. We have been spoiled by the excellent B2C experience in the market. People have realized that B-side products can also be simple and effective, and the end user has the decision-making power about which product to use.
What is the result of doing this? Great from my perspective. B2B is finally correcting the industry, working to create a new wave of amazing experiences that solve end-user problems. Our old tools have been turned upside down by some of our favorite products now.
This is an era of consumerization or product-led growth in B2B.
Let's face it:
software isn't as special as it once was. Starting a company is getting easier; the competition is fierce! Customers have more choices, but their time, patience and risk tolerance have not increased at all.
People have realized that things can be simpler and must work. We’re spoiled for choice with all these great B2C experiences, and rightfully so. At work, we are also consumers of work tools.
It is increasingly common for end users to have decision-making power about which products to use. Team leaders are increasingly asking their teams which products they want to use, rather than the other way around.
1. What is product-led growth
According to OpenView, the organization that first defined the concept, product-led growth is a growth model in which product usage drives customer acquisition, retention, and expansion.
Growth means growth for your company, your customers, and your business. Yes, growth can be achieved not only through monetization, but also through retention and expansion (revenue per customer expansion). If you have a great product, there's no reason why product usage shouldn't be at the center of these stages.
No, this is not about getting rid of sales, marketing, and customer success teams. It’s about unlocking them with a tool to optimize their work and breaking down silos to build a product that’s packed with user value and delivers more to the business than would otherwise be possible. It's a win-win situation.
2. Product-led monetization
The classic way to achieve growth is to acquire customers. It is the inflow of the system. As long as we have the ability, the more the better. Still, it is traditionally represented as a funnel, symbolizing fewer potential customers moving through different stages.
In a product-led world, product usage is baked into the acquisition model rather than emerging later, making the middle of the funnel especially important. We boil this funnel down to the desired user journey: awareness, onboarding, aha moment! and upgrades.
1. Awareness
Generating awareness of our product is the beginning of user acquisition. How can they choose us if they don’t know us? We can make ourselves known through classic marketing channels. Yet…
In a product-led world:
Marketing funnels direct users to product usage, not directly to the sales team. Nowadays, trying the product first is a must.
This product also serves as a marketing channel. We can turn this funnel into a flywheel by turning users into advocates through recommendations, collaboration features, high-value content, and shared moments. What could be more product-driven and effective than word of mouth?
2. Getting Started
hopes that people will be willing to use our product after understanding it. Onboarding is when new users learn how to use the product and discover the value in it.
This product is free to use. No one wants to pay for trying something or any other type of friction. There are two main models here: freemium (free forever package that helps create aha moments and drive growth, but requires payment to get more advanced features); and free trial (all features of the product, but for a limited time limit). We can use one of them or stack both easily.
Users receive an immersive experience throughout the product. There are many ways to achieve this: contextual walkthroughs, informative tooltips, non-scary empty states, etc.If we show users exactly what they want to do in the fastest, easiest way, they will find value in our product and stick with it. These educational methods can even be segmented based on learning style and depend on the behavior being measured. The sky is the limit!
3. Aha moment!
The onboarding experience should be designed to give users an epiphany! This is the voice of users who find value in our products.
The faster a user discovers value in a product, the faster they become an active user. We consider them activated when they complete a predetermined set of key steps in our product. What those steps are is up to us and what makes sense for our product. Either way, we need to optimize time to value.
Active users are a huge pool of potential customers. We want them to be fascinated by our products. The more they interact, the better we understand their needs. And, one day, they'll decide it's time to upgrade.
4. Upgrading
Ultimately, the goal of acquisition channels is to get users to upgrade to a paid plan. After all, we need money to keep operating and growing.
users can upgrade themselves without the involvement of sales staff. This mechanism greatly reduces procurement costs. Additionally, when users convert on their own schedule, they feel empowered and retention and satisfaction rates are higher.
However, self-service may not be enough. To be successful and capture the market, we need a tiered sales team to amplify this step, at least for enterprise-level contracts. From product-qualified leads and their behavioral data, we will receive raises of hands from organizations that may convert into big buyers or simply need more help. With this pipeline as a foundation, sales teams will be able to drive with more precision than ever before, rather than starting from a cold place. This is often called product-led selling.
3. Product-led retention
Retaining customers and developing relationships with them is more important than acquiring new customers. As we all know, the cost of monetization is very high. And if there is no way to prevent more outflows than inflows, the system's inventory levels will not rise. So, actually, we need to start with product-led retention, not product-led monetization.
Retention often comes down to two drivers: activation and engagement. But there's another elephant in the room: deactivation.
1. Activating the
monetization funnel has already been mentioned; nevertheless, it is worth reconsidering using retention lenses for activation.
Only activated users will be retained. This is obvious if we think of active users as users who have experienced the value of the product. As mentioned in onboarding and aha moments, we need to guide users to that activation point quickly, getting started on the right foot and accelerating them into the engagement loop.
2. Order
Engagement refers to how often a user interacts with a product. This is the entire meaning of its existence. If users don't do this, the entire business collapses.
When we continue to provide value, users will continue to engage. We need to make sure the value is painkillers, not vitamins, and keep innovating. It’s a competitive world and excellent user experience is important. Make our interactions more enjoyable, allowing users to develop habits and flow states.
Engagement behavior predicts retention and churn. The more frequent and fulfilling the interactions, the greater the likelihood of retention, right? vice versa. With good tools, we can drill down to measure, understand what content is working for our most active users, and prevent less active users from churn.
The success of free customers is just as important as the customer success of paying customers. Free users are future paying users and may already be current advocates.
3. Deactivate
Unfortunately, we can't always prevent customer churn. This may not be a sexy feature, but proper deactivation is critical to your retention strategy.
There is a marketing funnel after payment went wrong. Credit card failures are common and we have to make sure we can easily reactivate these customers and remind them why they need our product.
Cancel process to ask for feedback. This is an excellent learning opportunity. Two multiple-choice questions are enough: "Why are you leaving?"; "What did you like about the product?" It taps into the nostalgia effect and it's easy to know what works or doesn't work. Depending on their answers, we can offer different plans.
4. Product-led expansion
Extensions can convey many things. I kept the term as broad as OpenView, but what it means here is revenue per customer expansion. It's about increasing the inventory value of our system over time.
It's about the nebula of pricing and possible scenarios: from the actual price to packaging and add-ons, discounts and more. It can be so vague that the company spends less time on growth. To keep it simple, we'll boil it down to usage-based pricing and time-based pricing updates.
Product-led expansion
1. Usage-based
There are many pricing models, and usage-based is one of them. The choice of pricing model is critical because it is difficult to change it after the fact. If we are wrong about everything else, but the model is right, we tend to accept monetization.
The most popular pricing model is usage-based, meaning the price is based on how much the product is used, rather than per user or feature. It's the first of its kind in an infrastructure layer (such as AWS) and is charged per 1000 visits (per x
anyway). It allows for low-cost startup, minimizing friction to adoption, especially for startups, and then it scales up quickly for enterprises.
downgrade and upgrade are automatic. Then we wouldn't understand, "I'm paying so much, but I'm not using it that much." And we wouldn't have to resell the cool features of the upper tier. Instead, we just say: "Congratulations, you've reached 1,000 visits, you must be growing! We'll get you up to the 1,000 visit plan. Let us know if you have any questions."
2. Time-based
in Once we determine the right pricing model, we can adjust everything else with time-based updates. Remember, this is an expansion game, not a "get the most land from the start" game.
pricing is updated regularly - more like every 3 months rather than every 3 years. As with everything, we should experiment, measure, and see how it impacts revenue per customer. Sometimes it fails, but we learn lessons and pricing becomes less ambiguous.
If we keep improving the product, overall price increases are fair - about once a year. If you don’t build and your NPS is low, forget about it. Otherwise, this is a simple enough pricing change that should be widely accepted.
5. Summary of the full text
One thing is clear, we now live in a product-led world. Being product-led is not only the company's brightest growth strategy, but it's also necessary if we don't want to be disrupted anytime soon. This is exciting news for us: this is an experimental paradise!
So, where do we start? get? reserve? expansion? all? it depends. We can do it step by step, and it might make sense to do just some of it. But I suspect we're just getting started, and companies will push further into what it means to be product-led.
title picture comes from Unsplash, based on CC0 license.
Cancel process to ask for feedback. This is an excellent learning opportunity. Two multiple-choice questions are enough: "Why are you leaving?"; "What did you like about the product?" It taps into the nostalgia effect and it's easy to know what works or doesn't work. Depending on their answers, we can offer different plans.
4. Product-led expansion
Extensions can convey many things. I kept the term as broad as OpenView, but what it means here is revenue per customer expansion. It's about increasing the inventory value of our system over time.
It's about the nebula of pricing and possible scenarios: from the actual price to packaging and add-ons, discounts and more. It can be so vague that the company spends less time on growth. To keep it simple, we'll boil it down to usage-based pricing and time-based pricing updates.
Product-led expansion
1. Usage-based
There are many pricing models, and usage-based is one of them. The choice of pricing model is critical because it is difficult to change it after the fact. If we are wrong about everything else, but the model is right, we tend to accept monetization.
The most popular pricing model is usage-based, meaning the price is based on how much the product is used, rather than per user or feature. It's the first of its kind in an infrastructure layer (such as AWS) and is charged per 1000 visits (per x
anyway). It allows for low-cost startup, minimizing friction to adoption, especially for startups, and then it scales up quickly for enterprises.
downgrade and upgrade are automatic. Then we wouldn't understand, "I'm paying so much, but I'm not using it that much." And we wouldn't have to resell the cool features of the upper tier. Instead, we just say: "Congratulations, you've reached 1,000 visits, you must be growing! We'll get you up to the 1,000 visit plan. Let us know if you have any questions."
2. Time-based
in Once we determine the right pricing model, we can adjust everything else with time-based updates. Remember, this is an expansion game, not a "get the most land from the start" game.
pricing is updated regularly - more like every 3 months rather than every 3 years. As with everything, we should experiment, measure, and see how it impacts revenue per customer. Sometimes it fails, but we learn lessons and pricing becomes less ambiguous.
If we keep improving the product, overall price increases are fair - about once a year. If you don’t build and your NPS is low, forget about it. Otherwise, this is a simple enough pricing change that should be widely accepted.
5. Summary of the full text
One thing is clear, we now live in a product-led world. Being product-led is not only the company's brightest growth strategy, but it's also necessary if we don't want to be disrupted anytime soon. This is exciting news for us: this is an experimental paradise!
So, where do we start? get? reserve? expansion? all? it depends. We can do it step by step, and it might make sense to do just some of it. But I suspect we're just getting started, and companies will push further into what it means to be product-led.
title picture comes from Unsplash, based on CC0 license.
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