Product Assisted Growth
Freemium & Network Effects. A chat with Clair Byrd from Wing VC
Editors Note: This time I don't have much pre-amble to add. I've had my strong opinions on product led and I have not been shy about sharing them but when I talked to Clair she schooled me on so much of this & really added a new prespective.
Like most of the smartest marketers & people - she is not writing twitter threads & trying to grow an 'audience'. She's focused on building/adding value. So with help from Sebastian, we wrote this essay based on the conversion I had with her a few weeks ago.
One interesting story from my chat with Clair was about the Airbnb account at Twilio. There was a developer at Twilio who started using Twilio all by themselves and no one really gave it a second thought on the Twilio team. But over time the usage of this lone developer grew exponentially & expanded which ran the bells for Twilio resulting in more 'account management' around the Airbnb to grow the account into one of the biggest at Twilio.
Prefer the audio? Listen in your Spotify or favourite podcast app here:
The hidden truth of Product-Led Growth in B2B
PLG is a hot button topic. There are all types of takes on what Bottoms Up (BU) & Product Led Growth (PLG) is. It seems to be such a loaded concept that if you ask ten different people what PLG means, they will probably come up with ten definitions and some matching keywords in between.
Likewise, others believe that the future of marketing is product-led. As if product-led tactics were incompatible with sales-led movements.
Others see BU/PLG as another source at the top of your funnel. An additional channel through which you acquire customers that did not pay anything for your product.
We do not claim to be the experts or authorities of PLG. But, through our research and an insightful conversation with Clair Byrd from Wing, we found some interesting insights.
PLG in B2B can be the same as freemium but not always because PLG can even be done through paid products.
Freemium is a tactical choice to enable many users to try the product quickly. Usually, it is how strategists kicks-off their product launch due to the quick feedback loops and acquisition metrics. However, there are instances in which paid products tap into the benefits of PLG to drive revenue via network effects.
Product-led growth a corporate decision deployed by companies that hope to become viral due to habit-forming movements.
In other words, PLG is simply another acronym created by modern marketers to repackage something as old as humankind. It is word-of-mouth (WOM) through experience, only, in this case, it is related to a digital product.
The kicker is that not all products have natural network effects. Single ‘player’ products (where one person can get value out of the product without inviting others) are harder to drive organic network effects for vs something like messaging or collaboration tools (notion) where you need org or team wide adoption to get value out of it.
Network effects work when you get a lot out of downloading that particular product. Remember when you first started using Slack and how you never wanted to send an email again? Yes, we all do.
We believe WOM & network effects are essentially a more fundamental level than “PLG” When we think of WOM being part of PLG, we place the product at the center of the debate instead of the user. And, non-intuitively, the whole point of PLG is to be product-centric by understanding what users want, what they do not want (and even what they don't know they want). In a categorical sense, at least, it appears that WOM is parent to PLG strategies because it focuses on people rather than products.
Put another way; we think PLG only works when it is directly related to the user. One might argue its WOM/ Network Effects/ Bottoms up rather then “PLG”.
Going back to the main discussion, at 42, and as marketers, we believe part of the job in a PLG strategic organization structure is to make sure users understand the features, benefits, JTBD, and love using the product.
PLG, as we have finally come to understand, is not in opposition to sales-led growth nor a freemium repackaging. It is an organizational decision that focuses on creating a product people want & share to use due to its benefits because it solves a particular problem and is experientially rich. In a way, one could even argue that network effects happen when the tools are “consumerized”.
To understand this consumerization, we must understand the profound changes that the consumer app space has had in culture and our interaction with products. Remember how tedious it was to book a hotel, now we have AirBnB. Or how difficult it was to catch a cab on a busy day, and now we have Uber. The average consumer culturally jumped from having to read the instructions or figure out the processes to adopting intuitive and extremely easy to use apps. Bottoms up Growth is the way these particular cultural shifts escalated to the enterprise level. This consumerization is the driving enabling force that pushes SaaS in the B2B space to make sure their tools are as accessible to be as easy to use as Airbnb and Uber.
Today, everyone wants to do everything right from their phone if possible, and hopefully without any hand holding. Think of Adobe, Microsoft 365, or Atlassian, some traditional monsters of PLG. You do not need to watch tutorials to learn how to buy Powerpoint, or figure out how to buy Trello. It is an easy process, a few clicks away, that allows users to upgrade their experience.
To create a bottoms up strategy that works, the organization's C-suite must focus on measuring the K-factor - a metric that reveals your app's virality and then upsell to the appropriate stakeholder. In many cases, the stakeholder might not even use the product but has the power to purchase it to improve workflows.
Better workflows = profit.
In other words, a bottoms up strategy does not mean you cannot have a sales team that helps you cross the chasm to access mature markets and users (check out our previous article to see what we mean).
What are the hidden principles of PLG Strategy in B2B?
Check out these principles. It will help you implement a better PLG strategy.
Principle 1: PLG does not equal freemium.
PLG is a corporate strategy focused on products that have strong network effects, not necessarily free. We already covered this one above, but if you are still unsure what we mean, reflect on how many products you have paid for that are not necessarily free. (Easy examples are money-related products: Paypal, Deel, etc.). Check out this video from Y-Combinator to learn more about pricing models.
Principle 2: Remember that signing up for a product does not make you a prospect.
It does not make you a prospect because, at first, you might not even like the product. And, even if you love it, that does not necessarily mean you are automatically a warm lead. If you are already a user, that means you probably reached the end of your sales cycle. Buying the product, in this scenario, is trying it out and using it frequently. The focus should be to minimize churn, not to upsell or cross-sell.
It does not make you a prospect because you might not be the one that makes that decision. It could be dangerous for brands to be pushy and upsell or cross-sell users trying out the products. Trying out a product does not necessarily mean you need a premium version of it. And, even if you did, chances are you will look for a way to buy it on your own (what they call self-served). Doing so might scare your users away, thus increasing your churn.
Trying out the product does not mean you are ready for a sales pitch. It does not make sense to pick up the phone and call users trying out the product because it is essentially misaligned. If you are doing so, you are misunderstanding what the user is trying to do with the product. They are a consumer at that point (B2C), not a business (B2B) trying to figure out their tech stack. Even if they work at a B2B, or a SaaS, or whatever your ideal company/buyer persona is, chances are they are not ready for a sales pitch. Most likely, they are just trying it out as individual users.
Principle 3: Bottoms Up is essential and crucial for organizations because it creates network effects.
Bottoms up strategy lets people use the product and influence others to do the same. Think about how you discovered Figma or Slack; they are products that become popular quickly because people try them and tell others. That does not mean you should put on the sales hat and call; it means you should be mindful of the nodes emerging in organizations to upsell and cross-sell the appropriate stakeholder.
It creates network effects that can be monetized later. These are crucial to building a business case for the right stakeholder to purchase your product. Again, you are not selling to the individual trying your product; you are selling to the business and the person who decides the organization's tech stack.
Principle 4: The genuine prospect in this strategy is the CMO or the equivalent.
Using the product is not the same as buying it. Even though CMOs might not even use the product you are selling, they are ultimately the ones who decide and are going to purchase a premium version of the product. Your job is to create a business case showing your product's value to the organization via product-led nodes. They might be willing to pay for it because it allows their devs team to streamline their work. Remember, better workflows = profit.
Understand network effects to sell to organizations. Having a successful business case for them to purchase the product means knowing how many people already use it and why it simplifies or improves a particular process. If you are too busy or too pushy selling to the individual (B2C even if they are in a B2B company), the network effect will dissipate, and it will not work.
Principle 5: Bottoms up is about being extremely selective about prospects.
If you are moving upmarket, the person who uses the product is different from the one who buys it. We already touched upon this subject in the previous principle; however, it is essential to emphasize that being selective is crucial for PLG to work. This might mean that if the person who uses it is the same one who buys it, perhaps it should be self-served. In other words, they might not even be your buyer persona at all when moving upmarket.
Selling to early adopters is not the same as SMBs and Corporate. Early adopters focus on the product's benefits and will quickly jump to try a Freemium product. SMBs and Corporations, however, focus on trust and knowing the brand. Chances are, if you want to grow exponentially, you might need sales-led motions or ABM to penetrate those markets simply because using the product is not the same as buying it. And, when it comes to business, acquisition or retention metrics without revenue are not enough.
Principle 6: PLG is not a Go-To-Market (GTM) model; it is a corporate strategy.
PLG is a strategic move that impacts every single piece of the organization - not a GTM. Whether you decide to be a gated or a PLG org, it essentially changes how your GTM model will work, but it is not a GTM model by itself. You may have a PLG product with dedicated sales-led ABM motions - they do not exclude one another because users and buyers are generally different people. To mistake a PLG motion with a GTM strategy might be costly; beware.
Principle 7: PLG changes a bit if you have a transactional business.
If you have a variable bill every month, it makes sense to upsell and cross-sell. However, make sure that the sales process (call, email, etc.) goes beyond selling and use it as an opportunity to improve the experience. Better experience means better WOM and better growth.
If you call, remember it is not a sales call; it is a customer success call. It is your chance to learn about how to improve your product and the users' journey.
We hope you enjoyed it. Please remember to sign up for our newsletter and share this with whomever you think might find it helpful.
And, once again, Clair, if you are reading this. THANK YOU!