Typical PLG failure points in Sales-led companies
Typical PLG failure points in Sales-led companies
Post traumatic organization syndrome
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I ran in the last two years eight cohorts (with about 300 students) on Product-led Growth (PLG) and talked in that time as well to about 60-70 different B2B SaaS companies (Majority Series A - B) more in-depth when it comes to product-led growth and their company financials. Most (~70%) are venture capital or PE-funded gigs.
About 70% of all those companies I’d qualify as Sales-led companies (including my former students).
I had relationships with about ten companies that I’d qualify as paid advisory/consulting, and I saw deep into the organization. During that time, I also led two completely different product and growth functions from 30 to almost 200 people as the highest-ranking product person interim to bring PLG in.
The work with these people made me shift my original perspective - which was predominantly formed at Smallpdf as an operator, a downmarket PLG B2B business - because:
I consumed (and helped define) the existing theory around product-led growth as much as it is available today. When I tried to operationalize it with my clients, it sometimes worked… and sometimes blew up in my face. The clash with reality made me shift some of my views.
The market shifting:
Change in capital availability for startup ventures, layoffs, and forcing companies to optimize for profitability rather than raw growth
AI and a crazy commoditization in verticalization, aka a specialization need for most startups, changed the game dramatically.
Let’s talk about them and how they changed the game that we are all in.
When I talk about B2B Product-led Growth (PLG) going forward in this article, I’m talking about a good growth motion that is implementable in reality while also being more capital-efficient than what these companies have otherwise.
When I talk about Product-led Sales (PLS), I’m specifically talking about the intersection of PLG and Sales-led, where we try to cross-functionally combine the two for maximum effect.
Anything else is theory wishy-washy that was not tested in reality. Ain’t nobody got time for that.
Let’s dig in
If you want a more general introduction to product-led growth, you can read my free guide:
B2B PLG is not just about Freemiums
This is my biggest gripe with some people talking about Product-led Growth. PLG is not just about freemiums, but people keep insisting it is. That’s our fault. We gave you that impression. Unfortunately, this leads to a weird problem: thinking that it’s something you can “do” and then “forget” about it.
This stems from thinking about whether we should have something to distribute our product, like a shopping list.
“Should we have a freemium?”
“Should we have a trial?”
“Should we have an interactive demo?”
“Should we hire Gary, the sales guy?”
The problem is that you cannot responsibly answer these questions without having looked deep into how a product is received and distributed into the market right now and where it should be. The question should never be “Do I need A / B or C.” instead, try:
What is the most cost-efficient way to distribute our product, considering our entire pipeline and the long-term revenue it creates at the end of it?
How much of this journey should be self-served, product-assisted, or sales-assisted?
The “original” idea of PLG was always on the extreme end of being self-assisted all the way through. The optimal truth for most sales-led companies is somewhere in the middle. The difficulty about that is not just where that optimum lies but also how to get there.
Slapping on a freemium without ever having worked with a proper trial and product usage data throughout the entire company is a recipe for disaster.
Founding a company with only PLG is a bad idea.
It sounds great: let’s start a plg company and deal with sales later as we become more successful.
The reality of this one is that some founders avoid sales because they don’t understand it and think PLG or sales-led growth (SLG) is simply a choice of how you deliver your product into a market, and that’s pretty much it.
Sales, especially in early-stage companies, fulfill an extremely important function that is often underdeveloped in PLG: the qualitative side of the customer. Talking to people, shaking hands, understanding their context—this is a sales-led thing early on, and there is no way around it.
While product teams and commonly designers / UX researchers talk to their users, their purpose is usually not strategic enough to find good opportunities.
Out of the companies I’ve worked with, the ones with the healthiest balance sheets started exactly this way: heavily sales-driven in the early days, using the product to assist and make the product easy to demo while observing how prospects react to it in real-time.
They naturally slid into a product-led sales model and never had to deal with the problem of a nice-looking product that is missing the market or the other way around which is typical for sales-led forever companies:
An ugly interface with all integrations under the sun (hi Salesforce)
B2B PLG at scale without Sales is a lie
I can die on that hill any day, and I have tons of data to back it up: Sales is not your enemy, and it has never been.
Inbound is neither better nor worse than outbound. The fact of the matter is that in this environment, you can only comfortably scale beyond a specific size if you have an ROIC (return on invested capital) that is better than the one from your competition, which you can roll into your price and R&D.
Certain big-ticket clients simply want to talk to Gary from Sales. That’s just how it is and how they do business. Maybe they have looked into your self-serve option before, maybe they haven’t.
A clever lead routing (which leads to go sales and which not) here is worth gold to give our clients optionality.
However, sales must also be comfortable giving product people access to valuable prospects. Just giving them the leftovers to interview that don’t pay is not helping anyone:
Sales walling off their customers because they fear product people mess these leads up is leading to a product that is designed for lost leads, not ideal customer profiles.
Sales-led Companies don’t need to be convinced about PLG.
I almost never have to sell the concept of PLG. Sales-led company leaders are not from yesterday; almost all of them know that they have and want to do more in the direction of PLG, but they just don’t have the expertise and knowledge to implement it.
It’s also why I don’t fear running out of work in the next decade. Almost all of them have tried something, maybe a bad consultant; some failed a test with a trial. They’re aware of the potential uplift of a good pipeline that is driven by product-led sales, but they also know, often from experience, how easy it is to get lost.
And you can bet that the CEO knows that it’s their head if they can’t get it right. PLG in a vacuum is always easy; existing customers and keeping the ship running at the same time is the difficult thing.
In either case, most companies already have some elements from a product-led motion that works well for them. In the end, no one cares what you call it. As long as you’re confident, it’s the best thing you can do right now it will get done.
Most companies know that because of the initially mentioned market movements, they have to do something, or they get outcompeted by anklebiters.
Classic sales org design is not ready for PLG/PLS.
Classical sales organizations are not ready for PLG without fundamental changes. They have completely different incentives than the product side of the business, and you’ll feel it. If you are not ready to change the way:
How your product teams evaluate opportunities (instead of dictating them)
How your sales teams are incentivized in their comp plans
How you balance sales vs. product vs engineering vs marketing requests
How you evaluate revenue (short-term vs. expansion revenue)
Then you are on an expressway of choking your PLG/PLS early on and become one of those companies that go to LinkedIn and claim that PLG is a fad.
For that reason, a good PLG motion can almost never be driven by sales or product alone. It needs to come from a CEO who understands the cross-functional challenges this brings and is willing to implement some painful changes.
Those are difficult conversations that mostly generate problems with sales and products because we change established ways in which they make money and evaluate opportunities.
Think about packaging and pricing. The amount that you charge for any of your packages is dependent on what’s in there. Is this sales or product’s responsibility to decide?
Product should know how the customers are using it and experiment around that. (Quantitative Data)
But Sales sees how the prospects react in calls to pricing and whether they pull the trigger (Qualitative Data)
So who is it? Neither. However, the CEO is not usually involved in that detail level. It needs to happen with a product-minded CRO or a CPO who knows how sales ticks and how to evaluate pipelines.
A PLG pipeline depends on long-term value expansion, and it is difficult to compare one-on-one to a classic sales pipeline, which is evaluated the moment a signature lands on a contract.
Whoever balances these two against each other needs to know about these intricacies and how they are communicated upward in the balance sheets. Designing an A/B experiment with pricing changes requires not only a good experimentation setup but also visibility into what it does to your sales pipeline at the same time.
Good luck finding one of those people; they are rare and precious.
Good PLG is NOT data-driven for Sales-led companies
Lots of people might not like to hear this. Good PLG is not purely data-driven.
Yes, I love it when I can measure with experiments my initiatives to see whether we should ship them or not, but before we even get to that point, we have a different problem:
The amount of effort it took to build, design and run this experiment means you’re not doing something else with these resources. Companies that suddenly discover quantitative data or have been running product-led for a long time tend to over-rely on quantitative data:
“We couldn’t find enough validation and ROI for this initiative, so we’re not doing it”
Sounds good, right?
The reality is that some stuff is so clearly broken in a product that it’s not necessary to find a validation for it. We have to accept the fact that sometimes the truth lies outside of quantifiable data and that this is fine. This is sometimes the case with engineering initiatives or abhorrent interfaces, which are not easy to use anymore. And they are plenty present in sales-led companies.
Especially when we talk about A/B Experimentation, we talk about incremental changes that can be tested, but for bigger throws like a complete redesign or reorg, I’m afraid conviction is the only thing you will get. And sometimes that’s ok.
This is a spin on the saying, “Nobody gets fired for buying IBM.” You will keep your job if you’re doing the safe thing. For that reason, it’s very uncomfortable for sales-led companies to do plg pivot at scale. Due to the big lift for anything, someone will get fired if it goes wrong. Then, they hope to be able to prove it with a simple ROI case. I’ve been doing this a long time and I have rough ideas but you really won’t know how it turns out until it does get traction.
But if you overfocus on things that can be proven beforehand with data you will miss opportunities that are inherently hard to prove. (Improving hard-to-maintain code, moonshots inside your product etc.)
With PLG, oftentimes, we have to introduce drastic changes to an org, or you leave a lot of money on the table, especially for sales-led gigs. Most of their changes are beyond simple optimizations and have to be made with inherent trust that it’ll work out without being able to measure it beforehand.
For that reason, good PLG in sales-led organizations is data-informed but not always data-driven.
That’s obviously not a free pass to not do any leg work when it comes to business cases. If you cannot imagine at least how something makes money, it doesn’t deserve your attention anyway.
The good news is that if it’s done right, it usually works, but it is commonly a bit slower than companies expect. (Multiple quarters instead of one)
It took me a lot of confidence to trust my gut there, and I’m doing this as a job 24/7.
Product-led Sales is also about CS.
Your customer success function in the company is a crucial part of any successful Product-led Sales motion. I learned this from small to bigger companies.
Customer success is a very interesting topic in a company where they are sometimes treated as glorified support people and retention salespeople without selling anything. Whenever I try to understand a company's sales pipeline and go-to-market strategy, I also include customer success in that conversation.
They know about customers' retention worries and usually have the best sense of what’s really wrong with their products when they use them for a longer time.
They are the key to long-term revenue, and PLG is all about that. They are an underused resource for product people. Understand your churn and long-term retention, and your roadmap writes itself. It’s sitting right there in customer success, ready to be used.
Yet, most sales and product teams completely ignore them as if they would be an afterthought. Big mistake. Schedule that one-on-one with your Head of CS right now.
Summary
PLG is many things, but no one exactly knows what. In the end, it doesn’t matter for most Sales-led companies. I’ve seen an overrepresentation in the market of Sales-led companies showing up in my cohorts, and my changing my material in this direction is a direct reflection of that.
Having said that my new PLG cohort is starting next week, grab one of the last seats:
New Product-led Growth cohort starting 1st of October 2024