Product-Led Growth for Developer Tools Companies
Product-led growth is a relatively new term. It’s a strategy that puts the product at the center of all organizational initiatives. Companies focus on creating value for the end user in the hope that they become customers and champions of the product and drive growth for the business.
Developers, in particular, are a unique group of end users. They tend to be discerning buyers with significant purchasing power. This makes developer tools companies very well-suited to this strategy.
At Draft.dev, we get looped into a lot of product-led clients that want to target developers more effectively. In this piece, I’ll talk about why product-led growth is the way to go in the future as well as tips for experienced and aspiring PLG companies to scale powerfully.
A Quick Primer On Product-Led Growth
Product-led companies are able to grow without massive investment into their marketing and sales functions. Instead, they invest the bulk of their capital into engineering and design and let the product drive user acquisition, monetization, and retention.
Companies like Zoom, Typeform, and Calendly built a huge base of active users through word-of-mouth and other organic channels, and eventually converted many of them into paying customers. They did this through a laser focus on benefits and user experience delivered before asking for payment.
Calendly, for instance, owes its exponential growth to the fact that it makes meeting scheduling across organizations almost absurdly easy and has very few barriers to entry. What’s more, the product sells itself; every time someone sends a meeting invite via the app, more people get looped into it.
Product-led growth is often associated with viral products released on a freemium or trial basis to entice users. Having said that, it’s much more than a go-to-market tactic. It’s an organizational strategy that affects everything from how you build your product to the way you structure your teams and processes.
Benefits of Product-Led Growth
In the sales- and marketing-led eras, user value was almost seen as the antithesis of company profit. The more value you packed in at a certain price point, the more it cost you as the company and the smaller your bottom line.
Product-led growth completely upends that logic. It removes all barriers to value creation for the user and aims to prove utility as quickly as possible.
While the initial investment into product development is much higher than that for non-PLG companies, the marginal cost to scale to new users is negligible.
Take Slack, the archetypal PLG enterprise. As it stated in its S-1 filing, “From the outset, our go-to-market strategy has centered around offering an exceptional product and level of service to organizations on Slack. We offer a self-service approach, for both free and paid subscriptions to Slack, which capitalizes on strong word-of-mouth adoption and customer love for our brand.”
Today, 65 of the Fortune 100 use Slack and are vocal advocates of its benefits. Through this, Slack has garnered nearly 170,000 paying customers and was valued at an eye-watering $23 billion during its IPO in 2019.
GitHub built on the popularity of open-source git to introduce pull requests, forking, and other must-haves in 2013. In 2020, it went on to make all of its core features free for all, including unlimited collaborators and unlimited private repositories. Advanced features like SAML support and code owners still require a paid plan but even those were priced down. The result? Two years later in 2022, GitHub more than doubled its developer community from 40 million to 83 million. In 2018, it was valued at $7.5 billion with a declared revenue of $200-300 million.
While PLG companies may grow relatively slowly early on, they scale much more quickly than their counterparts once they enter into eight-figure annual revenue territory. If this feels like a gamble, consider this. According to OpenView, there are over 40 large public companies today with a product-centric model, and in their 2018 analysis of SaaS IPOs, they noted that not only do PLG businesses outperform non-PLG ones on all key valuation drivers, they also trade at 48% greater revenue multiples.
A big reason for these valuations is that PLG enterprises are also very capital-efficient with high revenue per employee and low customer acquisition cost (CAC). When the product does most of the selling, you can make huge savings on your traditional growth drivers, including customer service, sales, and marketing.
What’s more, a PLG approach, by design, creates a more user-friendly product that customers are much happier with. This translates to improved customer lifetime value (CLV) and net promoter scores (NPS).
How to a Become Product-Led Company
In truth, every company is pursuing some form of product-led growth these days. It’s almost table stakes in that getting an emphatic buy-in from the end user is key to scaling the company. However, the degree to which the strategy is implemented across the organization differs widely.
Whether you’re an early-stage startup that wants to grow on a product-centric model or an established company that wants to transition to it, there are changes you could make to your organization to facilitate this.
Principles of Product-Led Growth
1. Empathize With the End User
Even if the end user isn’t the buyer, they’re your primary audience. For your product to succeed, it has to put their needs first and solve their problem conveniently and sustainably.
This only comes with an intimate understanding of their pain points and detailed feedback. Katie Miller, Director, Developer Marketing at Slack, advises upfront testing to get these insights, “Before general availability, get tools in the hands of folks to see whether or not the tools are actually as easy and impactful as you imagine them to be.”
A lot of companies will do this by designing their early versions as clickable mockups with tools like InVision. This lets you create a low-fi prototype of your application that your users can feel out and comment on.
Once you’ve released an early version, you can also mix in rich feedback from tools like Hotjar, which let you visually track the user journey. You can see where users are clicking, where they’re getting stuck, and how you can improve their experience in your next iterations.
Sometimes, you might want to include features in your beta that are too expensive or time-consuming to build out. As CTO at The Graide Network, a workaround I often used was creating a “stubbed out” feature. Let’s say you want to include an “Export” feature in your app, but you’re not really sure if your users will want it. What you can do is build a button that says “Export”, but instead of exporting the file, they’ll see a message that says something like “Our team has been notified and we’ll export and email you the file within 12 hours.”
Your team can then manually send them the file they need. If over a period of time you see that lots of users are interested in that feature, you can build it out for real.
2. Structure the Company to Reflect Product Focus
You can’t drive product-centricity through departmental silos. You have to align the whole organization to meet this goal.
For pre-seed startups, it means looping in investors who’re willing to bide their time until the user base grows instead of looking for quick returns. For companies that are ready to hire, it means prioritizing product-focused roles over commercial ones. The latter is crucial for a PLG company.
I’ve talked to founders of startups where 60% of the headcount is made up of engineers and product designers and 20% is sales and marketing personnel, as well as startups where the reverse is true. While the former is clearly a product-led company, the latter isn’t.
You’ll also want to put some thought into how you structure your teams. Traditionally, your developers, product managers, marketers, and salespersons would all work in separate teams. And while that was great for the marketing era, you need more cross-functional alignment in the product-led era.
Jimmy Paul, Co-Founder at Crafty, believes teams are most successful when organized into user-focused pods, consisting of dedicated developers, product designers, and PMs. “This allows the full team to truly understand who they’re building for and have empathy for the users they’re building for.”
Structuring like this also helps you build the culture at an early stage and make individual contributors more accountable for the success of the product.
3. Provide Value Before You Charge for It
As a PLG company, product demos and other methods that showcase value aren’t enough to get you customers. People will want to use it for themselves to solve a problem before they buy into it. Transparency is key.
As Miller puts it, “Developers will expect to be shown what’s behind the curtain. If the product isn’t ready, if the value isn’t there, they won’t stick around, so do not position a tool as being more than what it is.”
The next step is figuring out how to capture revenue. You can choose to release your product on a freemium, free trial, or even an open-source basis. The way you monetize it depends on a few things, such as cost to sustain value and urgency to monetize, but most often on time to value (TTV).
How long is it going to take your users to fully realize the value of your product?
Datadog, for instance, is a monitoring platform for cloud-scale applications. It offers a 14-day trial which is enough for a developer team to experience the value it provides.
Zoom, on the other hand, is permanently offered on a freemium basis. It has a very generous free tier which caps meetings at 40 minutes and 100 attendees with paid enterprise plans above that. Such a frictionless entrypoint has helped it grow exponentially from three million daily users in 2013 to over 300 million at the end of 2021 with an annual profit of over $1 billion in 2021.
Once users see that a product is improving their day-to-day life, they’ll start signing up for paid versions of your product and championing it within their community.
For PLG companies, go-to-market planning starts at the product development stage. A simplified user journey comes from a clean, intuitive interface. Continuous integration flows come from compatibility with a sizable tech stack.
Ultimately, all your efforts should be directed towards improving user experience and value delivery. As Jay Rodge of Nvidia puts it, “Empathy is what I look toward when building a marketing plan. I try to think how this tool/product can help in developers’ workflow, hours spent on a certain task, or reducing the time for iteration.”
To understand how well users are connecting with your product, you’ll have to ditch some of the old metrics you’re used to for measuring growth. For instance, a PLG company’s growth rate is irrelevant during its early years when the goal is to onboard more users. Likewise, CAC and CAC Payback don’t tell you much for a PLG business for which the marginal cost of distributing software to a new user is practically nothing.
Instead, focus on metrics that align with your growth model:
- Time to Value (TTV): The amount of time it takes for a user to derive value from your product once they’ve signed up.
- Natural Rate of Growth (NRG): The percentage of your recurring revenue that comes from organic channels. [NRG = 100 x Annual Growth Rate x ARR from Products(%) x Organic Signups(%)]
- Product Qualified Leads (PQLs): Also called activated users, these are essentially people who’ve already experienced value from your product through a free trial or freemium account, but haven’t signed up for a paid version.
With PLG, referrals and word-of-mouth are your primary engines for user growth. This has made the traditional marketing funnel obsolete, since the funnel “produces” customers, but doesn’t take into account how the customer helps you grow.
This is where the flywheel comes in.
Hubspot introduced the concept in 2020. A flywheel prompts companies to consider the user journey as a whole and understand its role as a catalyst for new growth. The takeaway here is that improved user experience leads to increased advocacy which, in turn, drives new user acquisition.
Even the best products require a learning curve. Rich documentation and learning resources are key to initial user acquisition, and, in many cases, can be the difference between a product that sees rapid adoption and one with stagnating user journeys.
According to Adam DuVander, Founder at EveryDeveloper, the most common getting started mistakes for developer tools PLG companies are:
- No single tutorial to get started quickly
- A rambling tutorial that tries to do too much
- A focused hello world tutorial that is a dead end
This is mirrored in our experience at Draft.dev. Most of our clients typically require fewer top-of-the-funnel pieces and more of content that shows people how easy it is to use a product and be successful with it.
Tutorials like this one that we created for Codecov can explain exactly how a tool works and prove a valuable resource for the developer before and after they decide to try it out.
You can also create content that highlights interesting use cases for your product to spark developer creativity and prompt them to experiment with it.
[How to Build a CSS Tricks Website Clone with Strapi and Next.js] (https://strapi.io/blog/building-a-css-tricks-website-clone-with-strapi-next-js)
The best part about content is that it’s versatile and not just a marketing device. As DuVander points out, “Content can also help validate and expand a product team’s problem hunches. You [can] write a series of use cases [and see] which pieces have the most traction—in terms of search traffic, social discussion, or even interest within an existing community. It’s much easier to write content than to build features, so use it to help you identify the areas where monetization can happen.”
Product-led growth is a manifestation of a trend long coming: the rise of the end user. As customer experience and satisfaction become ever more central to businesses, more and more of them will pivot to a PLG model.
If your company needs help scaling the user base for a developer tool, consider our technical writing services. Our writers are all developers and subject-matter experts who have deep experience crafting content that speaks to your audience authoritatively and persuasively.
Schedule a discovery call today to see how we can help you connect with your users.
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