I often speak to organisations who find themselves at a crossroads. One of the most critical junctures is the decision to transition from a sales-led growth strategy to a product-led growth strategy. Sales-led growth focuses on acquiring customers through sales efforts above all else. In contrast, product-led growth leverages the product itself to drive customer acquisition, often using growth hacking along the way. Some well-funded (startups are organisations set up to prove product-market fit through validated learning) scale-ups go down the product-lad growth route from the outset. Knowing when to make this shift and IF to make it is crucial for the long-term success of a business. This article aims to provide insights into why and when to make this transition and how a product growth coach can be an invaluable asset during this shift
Understanding Sales-Led and Product-Led Growth
- Sales-Led Growth: Here, the primary driver of customer acquisition is the sales team. This strategy is common in B2B companies where the sales cycle is longer, and the focus is on building relationships with the customers.
- Product-Led Growth: In contrast, product-led growth relies on the product itself to attract, retain, and expand the customer base. This approach is more common in consumer-focused companies or those with a shorter sales cycle.
Why be product Led? Apple & Tesla?
Apple and Tesla are renowned for being quintessential examples of product-led organisations, where the emphasis is placed on product innovation and customer experience. Until recently, Tesla has primarily relied on the allure of its cutting-edge electric vehicles and the public persona of its CEO, Elon Musk, for promotion, rather than traditional marketing efforts. However, during a recent investor meeting, Tesla announced its plans to explore conventional marketing channels.
Apple, on the other hand, has masterfully built a loyal customer base, often referred to as ‘Apple fanboys and fangirls’. This is a testament to the powerful impact of investing in products and understanding customer evangelism – a strategy whereby customers become ardent advocates for a brand or product. The devotion of Apple’s customer base is rooted in the company’s commitment to design excellence, seamless user experience, and continuous innovation. These customers are so enamoured with Apple’s products and brand that they not only eagerly anticipate new product releases but also passionately promote them through word-of-mouth and social media – such is the power of great products and great service
For both Apple and Tesla, the focal point has been creating products that resonate deeply with consumers. This strategy has led to the organic growth of a community of brand evangelists who are profoundly connected to the products and are willing to champion them to others. This form of marketing is incredibly powerful as it is based on genuine customer satisfaction and trust, and often results in higher customer retention and acquisition rates – key reasons for being product led
Product Led → Sales Led Atlassian Software SaaS B2B
Atlassian’s IPO in 2015 was noteworthy because the company had shown strong financials, efficient growth, customer loyalty, and an intriguing cost structure. Atlassian’s IPO documents revealed that it was a rapidly growing software business. For example, in its fiscal year 2013, the company generated $149 million in revenue, which rose to $215 million in 2014, and by fiscal year 2015, it had a total of $320 million in revenue. This revenue growth was underpinned by a significant increase in its customer base, which grew at a compounded annual growth rate of 34% between fiscal years 2010 and 2015
Three key financial elements stood out in Atlassian’s IPO documents:
- Efficient Growth: Atlassian demonstrated a history of efficient growth, indicating that it was able to grow its business without excessively increasing its costs. Efficient growth is vital for a company’s long-term success as it ensures that the company is not just growing revenues but also managing its costs effectively.
- Customer Loyalty: Atlassian had established strong customer loyalty, which is crucial for sustaining revenue streams. Customer loyalty can lead to repeat business and can also create advocates for the brand, leading to new customer acquisitions.
- Intriguing Cost Structure: The company had an interesting cost structure (considerably lower cost of sales & marketing). That played a role in its growth. Having a well-thought-out cost structure can help in managing expenses in a way that supports sustainable growth.
Atlassian’s case is a good example of the advantages of a product-led growth strategy. By focusing on building a strong product that met customer needs, the company was able to attract a growing customer base. Jira had a free 30-day trial that was front and centre on the homepage and instrumental in growing loyal customers. This led to the below-industry average costs of sales and marketing. In 2023 for example, Salesforce allocated 43% of its total revenue to marketing and sales expenses, which is a slight decrease compared to 45% in both 2022 and 2021. But way above what you would expect from a product lead organisation. Atlassian product focus contributed to its revenue growth and made it an attractive investment during its IPO. The product-led growth strategy often focuses on letting the product itself be the primary driver of customer acquisition rather than heavy spending on sales and marketing efforts. This can lead to a more efficient and sustainable growth trajectory, as seen in Atlassian’s case. Clearly, since the IPO they have shifted to more of a sales-lead strategy interested in how their customers feel Companies that offer freemium models generally tend to be product led and have confidence in their customer/user experience. Always be wary of products that don’t allow trials. It generally means the products are over-engineered, with poor user experience resulting in costly and time-consuming setup and training, further increasing the overall cost of ownership!
A checklist for product led
Before making the leap from sales-led to product-led growth, it is essential to evaluate if both the product and the organisation are ready. Here is a checklist to guide this assessment:
- Product Maturity: Is the product developed enough and does it have unique features that can attract and retain customers without heavy sales efforts? have you build feedback loops into the product that allow customers to share their good experiences with your prospects
- Market Demand: Is there sufficient market demand for the product that can be tapped into through product-led strategies?
- Customer Feedback: Have customers indicated that the product is solving a significant pain point for them? Have you confirmed problem → solution fit and product → market fit?
- Internal Capabilities: Does the organisation have the necessary skills and resources to support a product-led growth strategy? For example, are you going to invest in improvements in support, addressing the top 5 recurring support issues every six months? Or invest behind what you are learning from measuring customer satisfaction measurement (I.e. NPS).
- Scalability: Can the product and the organisation scale without a proportional increase in costs? For a service business, product-ising the service offering is an essential first step.
- Competitive Landscape: Is the market saturated, or is there an opportunity for rapid growth through product differentiation?
- Organisational Alignment: Is the entire organisation, especially the sales team, aligned with the shift to product-led growth?
So what does it ‘feel’ like when you shift to product-led
When a company shifts from a sales-led to a product-led growth strategy, several changes occur in its operations, strategies, and interactions with customers, prospects, and employees. Let’s break down what this shift entails and how it impacts different stakeholders:
1. Focus of Growth Strategy:
- Sales-Led: The company primarily relies on the efforts of its sales team to acquire customers. This usually involves direct outreach, cold calling, sales presentations, and relationship building.
- Product-Led: The product becomes the main driver for growth. This means that the focus shifts to making the product so valuable and user-friendly that customers come to it organically. The company might offer a free trial or freemium model to allow users to experience the product before purchasing.
Implication: The company will invest more in product development, user experience, and customer feedback. Sales teams might still play a role, but they will focus more on facilitating product adoption rather than being the primary driver of new customer acquisition.
2. Customer Acquisition and Experience:
- Sales-Led: Customers are often acquired through persuasive sales pitches and might not have a clear understanding of the product until after the purchase.
- Product-Led: Customers are more likely to discover the product through recommendations, online searches, or trying it out themselves.
Implication for Customers: In a product-led model, customers are likely to have a better understanding and affinity towards the product because they tried it before making a purchase. This might lead to higher customer satisfaction.
3. Sales Cycle:
- Sales-Led: The sales cycle tends to be longer as it involves nurturing leads and building relationships.
- Product-Led: The sales cycle is usually shorter as customers are making the decision based on the value they perceive from the product itself.
Implication for Prospects: Prospects have more control over the buying process in a product-led model. They can decide at their own pace, based on the value they find in the product.
4. Role of Employees:
- Sales-Led: Salespeople are the stars in this model. They have targets to hit and are crucial to the company’s growth.
- Product-Led: The product team takes center stage. Engineers, designers, and product managers become vital for growth.
Implication for Employees: Sales teams might feel a shift in their role and importance. They may need to adapt to new ways of engaging with customers that are more focused on supporting product adoption. The product team will likely experience an increase in resources and responsibilities.
5. Marketing and Messaging:
- Sales-Led: Marketing in a sales-led model might be more focused on generating leads for the sales team, often through content marketing, events, and partnerships.
- Product-Led: Marketing shifts towards product education, showcasing its features, and encouraging trials or adoption.
Implication for Marketing Team: The marketing team will need to adapt their strategies to focus more on product messaging and education.
The Role of a Growth Coach
In any organisation, internal dynamics such as politics, egos, and insecurities can pose challenges. Research suggests that a well-aligned and supportive leadership team is not common in businesses of all sizes. This is where a product growth coach comes into play and strong product management leadership.
- Neutral Perspective: A growth coach provides an independent and unbiased perspective, free from internal politics.
- Alignment and Support: They work towards aligning the goals of various departments, with particular emphasis on how we make the product better for the customer, removing the friction from all of the processes across the customer journey which is critical for product-led growth.
- Operational Efficiency: By promoting alignment and resolving internal conflicts, a product growth coach can drive improvements in business operations.
Making the shift from sales-led to product-led growth or visa versa is a significant decision that requires careful consideration and planning. Investing more in the product, CX and support over sales and marketing is a strategic decision that will ultimately build a more valuable and sustainable asset. Such a shift in strategy does now work make sense for everyone and might require a new CEO in order for this to successfully happen. Early sales lead startup CEO often struggle to make such a transition. Understanding the readiness of the product and the organisation, coupled with the guidance of a product growth coach, can be instrumental in navigating this critical transition. The ultimate goal is to create a growth strategy that is sustainable and aligned with the market demand and organisational capabilities. If your business is at this crossroads, it might be time to consider bringing in a product growth coach to facilitate this transition and set your company on a path to sustainable success.