As an angel investor and startup advisor, I meet a lot of founders who are addicted to product-led growth.
“Virality, we’ve nailed it.”
“Our product has strong network effects.”
“We don’t need paid marketing.”
“Sales reps? We don’t really need them.”
I don’t blame them. The fastest growing software companies have something in common… They started with no Sales team.
Product-led growth unlocks early revenue growth through a fairly frictionless experience for the end-user: no sales call, no contract and in many cases no credit card required.
Dropbox is a great example where even a Dropbox Business plan is entirely self-serve.
But guess what? There’s a problem…
Product-led growth has its limitations:
- Self-serve SMBs churn at a much higher rate than Mid-market and Enterprise customers.
This is especially true if you’re selling to other startups or tech companies who typically try a number of free tools and ultimately choose based on price, feature set and relationships (ie: YC companies buy from YC companies. Startups want to use the latest products.)
2. Self-serve users have a low expansion rate.
While free trials are effective for driving new user sign-ups, keep in mind these users are less loyal, less engaged, and less likely to change plans or add premium features.
On average, only 15-20% of free users will convert to paying customers.
Product-led growth is a great way to drive top of funnel growth and acquire a high volume of free trials.
However, it’s typically less effective in converting free users to paying customers. In many cases, tiered pricing pages introduce channel conflict where it’s impossible to ask one segment to pay more for a product when others get it for free.
When self-serve channels have been exhausted, your $/customer will flatten.
You are not likely to get any additional revenue from these users from any product-led growth channel.
This is the moment when you need to add a formal Sales team.
In this moment, I highly encourage you to proceed with caution.
To ensure a successful pass from Product to Sales, you’ll need to implement a few new processes such as a lead qualification model and a more robust CRM like Pipedrive, ProsperWorks or another solution.
To ensure long-term alignment, start by identifying blind spots across your funnel and review leads on a weekly basis to ensure no lead gets left behind.
Questions? Comments? Find me on Twitter @briannekimmel
Additional resources
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