How Software Companies Can Avoid the Trap of Product-Led Growth

by Ahleper Tech
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Enterprise tech companies usually grow by investing in a costly sales and marketing operation, suffering through long, expensive sales cycles. Eventually, if it works, their software is adopted “top down” throughout an enterprise. That approach is tried-and-true, but it’s not the one that Dropbox or Slack followed. Over the last decade, those companies and many others have pioneered a disruptive new business model that is taking over the $250 billion software-as-a-service market. It’s called Product-Led Growth (PLG).

The PLG playbook is elegant in its simplicity: First, build a compelling product that is indispensable to end-users. Then, encourage widespread internal usage with zero friction and increasingly add value for those individual end-users. Finally, leverage internal champions and their case studies to approach corporate buyers in IT to purchase the product for company-wide use. One of us, Oliver, executed this strategy successfully as a sales leader at both Dropbox and Asana.

When it comes to building initial traction, the merits of the PLG model are clear. A recent Bain study showed that PLG companies in the past few years had generally experienced higher revenue and market share growth compared to non-PLG companies.

However, there is a catch. Companies that follow the PLG playbook risk getting stuck in what we call the PLG trap. Although the PLG approach yields rapid initial adoption and growth, scaling a PLG company is a different story. A recent analysis showed that public companies that initially pursued a PLG model are actually 5–10% less profitable compared to their sales-led counterparts — implying that many PLG companies, despite initially benefiting from superior unit economics, actually lose efficiency as they scale.

For ambitious managers of software companies, the lesson is not to avoid taking a PLG approach. Instead, embrace PLG as an initial strategy, but commit to winning the enterprise over the long term. Plan ahead and you can avoid the PLG Trap.

Understanding the PLG Trap

Eventually, scaling an enterprise tech company will require classic enterprise sales. But adding enterprise sales as part of a multi-pronged approach to growth isn’t like flipping a switch. It takes years to craft and execute an enterprise product roadmap and go-to-market strategy. PLG companies that neglect this approach early on will, unfortunately, find themselves stuck once they’ve tapped the pool of initial bottoms-up users. Very few companies have demonstrated an ability to escape the PLG Trap once they become stuck.

The PLG Trap creates a common and natural dilemma for SaaS executives and boards, for several reasons:

  1. In building a great product that is appealing to end-users, companies optimize their product and support organizations for small teams.
  2. When expansion opportunities emerge, companies add the bare minimum feature set (such as additional security, reporting, and administrative features) to drive initial adoption from classic early adopter customers.
  3. Success with these early adopters inspires the company to quickly scale up an outbound enterprise sales and marketing team to execute this top-down, sales-led motion.
  4. The company then realizes they’re trapped in a chasm: the early adopters found the minimum feature set adequate, but the majority of the market does not. Meanwhile, the customer support team is not accustomed to servicing large enterprises and the marketing team has been targeting small end users, not senior IT executives. The PLG company is not truly “enterprise ready” on a product or organizational level. Sales stall.

A PLG company makes each decision logically along the way — but each decision may be a step deeper into the PLG Trap. Many companies find themselves trapped around the Series C stage — about 200-400 employees — but the principles apply to larger, public companies as well. For example, Dropbox has seen steadily declining year-over-year revenue growth from 25% in 2018 to only 8% in 2023 due to a failure to make this transition. Seamlessly transitioning from a PLG to an enterprise company, by avoiding the PLG Trap, requires deliberate planning from an early stage.

Avoiding the PLG trap

To become fully enterprise-ready, a PLG company must simultaneously provide bottom-up value and be prepared to eventually deliver value at enterprise-scale. Here are three activities a PLG company must do to seamlessly evolve from a PLG-only to a PLG + enterprise company that can avoid the trap:

Create communities of champions across multiple levels in the customer organization.

The most successful PLG companies take inspiration from successful open-sourced companies and nurture community-building as a long-term, must-win, competitive advantage. Building an advocacy program becomes a core competency from an early stage, even before investing in monetization. It’s important to note that PLG companies need to build multi-tiered community programs to appeal to multiple stakeholders, unlike sales-led companies that can primarily focus on developing executive champions. PLG companies must develop champions on the end-user, IT, and executive levels, with each level likely requiring a different approach to community building.

Build a go-to-market plan (GTM) that incorporates multiple sales motions.

Successful PLG companies may start with one GTM motion, but eventually they build multiple GTM motions to capture different types of customer opportunities. Unlike sales-led organizations, which are often segmented by customer size (i.e., SMB vs. Enterprise), PLG companies are often segmented by selling motions.

The most popular motions PLG companies build include:

  1. self-service: an e-commerce experience that generates demand and captures end-users to land in organizations
  2. high-velocity sales: a data-driven sales motion that uses modern customer relationship management (CRM) tools, automated workflows, and analytical segmentation to identify and convert organizations with higher willingness to pay,
  3. expansion sales: a capability focusing on transitioning organizations with strong product usage to adopt the product company-wide, and
  4. outbound sales: an outbound motion targeting senior executives at prospects that may not have as much organic product adoption.

Deliver product value across multiple levels, including at enterprise scale.

PLG companies often begin by providing value to end-users or small teams. The bottoms-up adoption fuels viral adoption of the product in organizations. As PLG companies scale, they must also deliver product value to centralized buying personas like IT and executives. To address IT, many PLG companies develop an enterprise version with greater administration and security capabilities. To appeal to executives, some PLG companies, like the database software company MongoDB, naturally deliver enterprise-scale value due to the nature of the product. Other PLG companies, especially those on the application layer, may need to build, acquire or package adjacent products that deliver value on an enterprise scale. HubSpot has done this very effectively, graduating from a lightweight and narrow blogging tool to a fulsome CRM useful for larger enterprises.

Case Study: MongoDB

The database software company, MongoDB is an example of a company that successfully avoided the PLG Trap, despite starting with a bottoms-up sales motion. (One of us, Jeff, is a partner at a venture capital firm that invested in MongoDB.) With over $1 billion in sales, the company has nearly 2,000 customers spending over $100,000 per year on its software. Yet the company’s origins are as an open-source tool that end users could download for free.

Released in 2009, the company’s initial product — an open source, document-based database tuned for the rise of Internet applications and the era of big data — attracted millions of downloads. As the company grew in popularity among large enterprise customers such as Goldman Sachs and Thermo, it built advanced security features and invested in dramatic scalability in order to earn its way into the enterprise. In parallel, MongoDB created an enterprise-ready sales force, marketing team, and customer success function.

Whereas in early 2015, the company had just over 100 customers with over $100,000 per year, by late 2023 that figure had grown 20x. At the same time as it re-engineered the organization to be enterprise-ready, with multiple sales motions, a flexible product configuration, and a large investment in fostering its end-user community. By building both an enterprise-ready organization and a community-driven organization, MongoDB has scaled smoothly beyond the PLG trap to become one of the largest software companies in the world. As of this writing, the product has been downloaded more than 265 million times.

By planning ahead, PLG companies can make the necessary strategic decisions to build a team and product platform that is truly enterprise-ready. The PLG model is seductively simple. Winning software companies need to be willing to embrace complexity — expanding beyond the typical managerial advice to “do one thing and do it well” and instead succeed in chewing gum and walking at the same time.

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