What is Product-led Growth?

on Activate, Customer Success, Data Warehouse, Product • June 9th, 2021 • Write for Hevo

We’ve officially entered the end-user-centric era, where value-driven growth is anticipated. And new acquisitions come in the form of freemium users, word-of-mouth referrals, and virality. With new startups emerging out of creative product solutions with unique use cases, we now have an opportunity to choose from multiple case-precise offerings which deliver value before asking the user to pay for it.

In simpler terms, product-led growth is a business methodology where every effort is focused on enhancing product experience — from engineering to sales and marketing.

As we deeply examine a successful, go-to-market, product-led strategy for a SaaS application with an enterprise-wide user championing capability, it becomes evident; the end-user product experience is the tenet of applauded triumphalism. The basic definition of product-led growth underlines an urgency to identify key pressure points experienced by users while performing their day-to-day tasks.

But how can an incumbent deliver to such hopes? Answers vary in a larger spectrum in startups’ product-led journey. This article will define these ‘pressure points’ to better understand product-led growth. And will ask how data-literate roles could challenge the legacy departmental roles, top-down.

But first, let’s discuss, in detail, the five-step framework for growth that your startup must focus on, the AARRR framework— acquisition, activation, retention, referral, and revenue — and use it to infer today’s product-led growth scenario worldwide.

Table of contents

AARRR Framework, The Backbone of Product-led Growth

The AARRR framework is an important concept to carry for one to master the art of growth hacking — discovering bottlenecks well advanced in your product-led journey and excavating that Aha moment within the user journey; it’s what everyone’s on the lookout for. This framework is widely accepted as the most effective way to evaluate your customer funnel’s potency. It helps you identify leaks and potential loopholes.

Let’s discuss the elements in an AARRR framework, aka “the pirate metrics,” in a nutshell.

1. Acquisition

An acquisition is typically the first step of the customer lifecycle. Simply put, it is your very first triumph, in the form of a visit by a potential customer to your website, or any other acquisition medium, to evaluate your business offering/s. It’s a measurable effort that is put to target the right audience via ads or copy.

2. Activation

Congratulations, you’ve scored an Aha moment. Activation is the most crucial pirate metric for product-led growth. If your product has entered the activation phase within a customer lifecycle journey, the user has achieved your product’s promised value. But the analytic success function might vary from use-cases to use-cases.

3. Retention

Holding on to an existing user/customer is a tricky business. Efforts are now needed to keep users locked on to your product because your entire product success depends on the number of people regularly returning to use your product. For a product-led SaaS growth, retention success could mean constantly evaluating how to lower freemium usage and increase subscription-based customer usage. In short, avoid having a leaky bucket.

4. Referral

Here, achieving an Apple-like cult following might be the goal. Basically, at heart, turn your existing customer base into an advocate, or source, of the product’s success. Here, the virality in your product needs greater attention. The product’s virality will define the product’s growth in terms of new acquisitions and enterprise-wide adoptions.

5. Revenue

The ultimate success metric is your monetary yield. Revenue, reveal, from its old Latin origin and later from the late Middle English’s, the financial returns of your efforts. Most of the startups successful in optimizing the first four AARR metrics will see revenue flowing in nicely.

Stock Experience, The Driver of Product-led Growth

The global software as a service (SaaS) market is expected to grow from $225.6 billion in 2020 to $272.49 billion in 2021 at a compound annual growth rate (CAGR) of 20.8% — ReportLinker's report estimates.

1. User Experience

Yesterday’s most exceptional product experiences are no longer exciting—they’re expected. A significant shift in both consumer demand and market supply is observed. And it’s bigger than what we expected. A consumerized UX in B2B SaaS product has taken over a dull and boring corporate interface. Today’s tech-savvy users demand beautiful, intuitive, powerful, and affordable software. Today’s buyers don’t want to interact with a sales rep; they rather self-educate and buy through an app or a website. 

2. Freemium

The next most important growth factor in a product-led growth journey is freemium usage, i.e., allowing customers to try before buying. The goal is to remove any friction from getting end-users to sign up and test the product before they buy. OpenSpace’s 2019 study reveals more and more emerging startups, almost 41% offer freemium products. The newfound legacy has opened the floodgates, and it sure resembles a downstream path for user acquisition today.

3. Undisputed Growth

Appended consumer loyalty and assorted consumer behavior fascinate the data industry today. Disruption in the legacy consumer market has made incumbents rethink and reposition their growth strategy after a long time. But, how do people use and buy software today? 

Just think of Zoom, Slack, and LinkedIn. These companies have recognized that we are in the end-user-centric era. Their product itself drives conversions through enterprise-wide collaborations, word-of-mouth referrals, and virality. Just see scores on their critical SaaS metric below.

Critical SaaS MetricZoom (2020)Slack (2021)LinkedIn (2020)
Growth (year-on-year)317% 43% 19%
Revenue generated $2.6 Billion $902.6 Million$8 Billion
Business Customers 470,000 156,000756,000 (total users)
*Includes data from the business of Apps 
*Data verified from Slack, Zoom Business Insider, Crunchbase

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Data Literacy, The Enabler of Product-led Growth 

Data literacy is an underlying component of digital dexterity — Gartner

We are amassing more data than ever and, the ability to analyze data is the most valuable asset for a data-driven business. Data literacy creates immense business value — here, data and analytics work as an enabler.

The ability to speak data is now a core part of digital business, and so, in a startup’s product-led journey, data literacy becomes a recurrent aspect in most day-to-day tasks.

With the available data, data professionals — from engineering to sales and marketing — can better analyze, solve customer needs, and improve their services. Let’s see what making data available to all key functions in an organization means.

1. Product

Data-driven designs have been prioritizing new features. A search for correlation on how data improves on the product’s outcomes helps distinguish its offerings on a usage basis. In short, a data-driven approach supports decision-makers in making value-driven decisions.

2. Growth

Growth teams lead new company initiatives, align companies around key metrics, and optimize product onboarding. Those with a growth team are 2.6x more likely to be running one or more experiments at a time, which drives continuous growth throughout the funnel, says OpenView.

3. Sales + Customer Success

In a product-led growth system, sales and customer success are directed at product-qualified leads only. Reaching out to the right users at the right time to flag users at the risk of churn is the name of the game.

Product-led Approach to Sales?

Seeing a shift in consumer behavior, we’ve observed a shift in how sales teams collaborate too. The sales teams today greatly resemble customer success teams — a data-literate role. These teams leverage data to identify product-qualified leads (PQL), making a product-led approach to sales more consultative, targeted, and contextual. Customer success teams are now monitoring case-precise usage and pairing users with freemium services to generate better customer retention results.

Life Cycle of Product Upgrades: Product-Led Growth.
The Life Cycle of Upgrades: Harvard Business Review

Conclusion

Why product-led growth? With product-led growth also comes an ability to embrace change and failure. It’s like watching an athlete train for a marathon. The end-user-centric era requires go-to-market tactics that point towards the end-user audience. Troubleshooting, problem-solving, and bringing new ideas that are product-facing and providing a holistic user experience is the dynamic nature of the beast. A product-led approach ensures your product is the lead generation engine and an entry point for more complex buyers. Think of your product as the single largest sales channel.

Data can help today’s companies identify key touchpoints in the customer journey — customer’s first interaction with your product, where they first learned about your product, and so forth. At the end of the day, it all comes back to doing what’s best for the users. Remember that product-led growth is a journey that requires a rock-solid analytics foundation, sustained resources, focus, and strong leadership. The more accessible and more frictionless it’s to understand the product capabilities, the quicker the Aha moments are achieved.

Robust analytics powered by a seamless flow of analysis-ready customer and product data has laid down the foundation stone for rapid product-led growth in the data industry today. But, integrating this complex data from a diverse set of customers & product analytics platforms is challenging, and this is where Hevo Activate becomes operational.

Hevo Activate helps you directly transfer data from data warehouses such as Snowflake or any other SaaS application to CRMs like HubSpot, Salesforce, and others, in a fully automated and secure manner without having to write the code repeatedly. Hevo Activate, with its robust architecture and strong integration with other data sources, allows you to extract data & make it analysis-ready in a jiff, helping you become customer-centric and data-driven like never before!

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