Understanding Product Led Growth ⛽
👋🏼 Hey friends, this post is part of a series on Product Market Fit! I’m going to go over how to use Growth Marketing to build for PMF and common mistakes founders make along the way.
Previous Post: Building for Product Channel Fit 🚀
Q: How can you leverage product to drive growth for startups?
After spending about 5 years in the finance industry selling mortgage loans where every product is basically identical, one of the most beautiful things about the tech industry is product led growth.
More specifically, tech products aren’t fixed. They can evolve, become better, or we can even create something radically different.
Product led growth is also one of the most misunderstood concepts of the tech industry.
Founders build a beautiful product and then launch it on Hacker News, Product Hunt, and Twitter, watching their users skyrocket and proclaim to investors “we have completely organic, product led growth!”
This my friends, is marketing led growth.
The most damaging piece of the product led growth movement, is the rejection of sales & marketing, and the claim that growth being product led is a binary option. That you have to pick between driving growth through marketing/sales, or product.
The truth of the matter is that product, marketing, and sales, are all best friends driving growth together.
In this article I’m going to go over the core ways that products drive growth, and how they impact sales & marketing.
Creating New Core Value
The most basic way that products drive growth is through creating core value. Let’s say I am making an app for addiction, and my MVP is a quit timer that shows how long you have been sober for.
How much are people willing to pay for this, and what will my retention numbers look like?
People might pay $4/mo
Retention might be 80% month over month
LTV might be ~$15
With a $15 LTV I can now start driving Apple Search Ads and as long as I pay less than $15 per signup we are making money! The core value of my product was the timer that allows people to keep track of how long they have been sober.
But… There are lots of ways for me to increase the core value!
Let’s say I add in a journal to keep track of cravings, then a discord style community that provides a 24/7 chat room for addicts, and finally I top it off with on demand therapy sessions.
Now the core value of my app that people are willing to pay for skyrocketed from $4 per month to $40 per month, & my LTV just went 10x as well.
This is one of the most effective ways that products can drive growth. When you create amazing tech solutions that create value for people, the value of your product increases & that allows your marketing/sales channels to be more effective, more profitable, and it can even increase the total size of your market by expanding who finds value in your product.
The tricky part is being able to build amazing products, but this is why it’s critical to invest heavily in amazing PM’s and engineers, because they can continue to increase the core value of your product increasing the ROI & effectiveness of your marketing/sales.
The import part here is to understand that “product led growth” doesn’t mean the product can grow without sales and marketing. It means that strong products can increase the impact of sales and marketing.
Optimizing The AAER Levers
AAER stands for acquisition, activation, engagement, and retention. These are the four main levers that you can optimize when trying to grow a specific product.
Often this is where most growth PM’s and product led growth teams live, is optimizing an existing product for growth, without directly building for core value.
It can get classified as growth hacking, where you have a cross functional team that runs a continuous process of experimentation optimizing each part of the product. Making the onboarding experience better, decreasing time to the ah-ha moment, experimenting with different ways to increase engagement within the product.
Instead of creating core value, the AAER levers focus on making the product more effective.
It’s the difference between building a new “task to be done” vs improving the experience of a current task to be done.
As many growth people much smarter than me have pointed out, optimizing AAER can provide dramatic impacts on growth & is absolutely essential for a product to compete at scale.
Churn isn’t a huge issue when you are small, but when you’re the market leader it becomes life and death. A 10% improvement in acquisition or activations means an extra $10M of revenue when you’re doing $100M/year.
The same relationship applies though between product, marketing, and sales. When you improve activations & reduce churn, it makes your marketing and sales more effective. It doesn’t remove them from the equation.
Can’t products drive acquisition?
It doesn’t matter how great your product is, the “if you build it they will come” mentality simply does not work. Especially at scale.
All products must have users driven to them through channels.
Linkedin uses viral network effects
Yelp uses Google search
Calm uses Apple Search Ads
I chose these 3 examples for a very specific reason, all 3 of these companies built their products around the channels that drive their growth. Linkedin made beautiful profile pages that people would use as their digital resume, Yelp’s entire product is optimized to be indexed by Google, Calms entire monetization system revolved around bidding profitably on ASA.
For these billion dollar startups, product led growth doesn’t mean removing marketing and sales from the equation. It meant building a product that’s in harmony with the channels that drive users, & then optimizing for those channels.
Products don’t drive users. Channels drive users. Products built for channels, often find massive success.
The real secret to product led growth isn’t building an amazing product that’s so great you can just ignore marketing & sales, or creating some brilliant freemium/premium model. It’s figuring out what are the best channels for your kind of product, and then building your product around those channels.
Read my last post on building for Product Channel Fit to dive into this more. 🚀
TL;DR Create core value, optimize the product, and maximize acquisition by building features around your core channels of growth.