Key principles of product-led growth: Applied at Pactflow

In case you haven’t noticed, the Software as a Service (SaaS) world has well and truly entered the era of the end user. The end user is now one persona more important than any other in the software buying process. Companies such as Atlassian, Zoom and Dropbox are early pioneers of product-led growth (PLG)—the go-to-market motion which practices a ‘bottom up’ approach, focussing on winning the hearts and minds of the end-users first and foremost.

In 2021, DiUS, Startupbootcamp Australia and The Talent Institute were honoured to host global PLG thought leader, Kyle Poyar (a Partner, OpenView) for a discussion about the methodology. As co-host of the event and in my role as the Product Marketing Manager for Pactflow, I’ve summarised the four key principles from Kyle’s presentation. Alongside this, I’ve provided examples of how we have adopted aspects of the PLG framework and found success at Pactflow—a SaaS platform that takes the worry out of software deployments for developers and testers.

Product led growth is really how we think of how you adapt to this end user era, and it’s an end user focused growth model that relies on the product itself as the way that you drive customer acquisition, conversion and expansion – Kyle Poyar 

An introduction to PLG

End users, now more than ever, are taking it upon themselves to choose the tools they want to work with to make their jobs more efficient and simpler. PLG doesn’t discriminate and can serve you no matter the customer segment. Whether there are three or three thousand potential end users working for an organisation in your target segment(s), by appealing to them, you get a foothold and can expand the adoption of your product over time, in an authentic way.

The four key principles of product-led growth

When Kyle spoke with us, he presented four steps to adopt a PLG motion:

1. Appeal to end users

Sounds simple, right? Build a product that your audience won’t be able to do life without. It all starts with considering the end user pain points. According to Christy Roach – Head of Portfolio and Engagement Product Marketing at Airtable, whoever can understand the pains of the end user the best, will always come out on top.

If your business can win the hearts of the end users, get them addicted to your product using viral loops, they will become the advocates internally, effectively doing your job to get the decision maker over the line. By tirelessly working to understand the pain points of your target end user, you are in the best position to develop a value proposition that appeals to them and make it irresistible not to give it a try.

Stealing from the try before you buy philosophy, making access to your product as seamless as possible—like a B2C experience—allows them to experience the value proposition and see the value for themselves. Remove blockers and friction points, such as having to talk to sales or get a demo, and empower the user to sign up and get going.

I want to highlight that when referring to the product, I’m not only referring to the SaaS application but the ecosystem—content and community—surrounding it. For example, as Pactflow is a tool for developers, we’re continually creating new documentation, videos, tutorials, workshops and also host a Slack workspace, to give users all the tools they need to get started themselves. Being self-service is our primary goal.

Aspects of your product’s ecosystem can serve a purpose that is not only to support a user to get started but also function as an awareness and acquisition asset too. Take the example of Zapier, an app to app integration tool, who implements ‘product based SEO’. Zapier knows that their target audience doesn’t search for ‘app to app integration tool’, they search ‘how can I create a HubSpot content from Typeform’. Work smarter by being aware of the specific workflows a user has and tailor your messaging around this.

At Pactflow, the practice of contract testing has grown exponentially, in line with the popularity of microservices architecture design in software. Pact—the Open Source framework, created by a group of developers in Melbourne Australia in 2013—is the go-to solution to test integrations in a complex microservices environment. Pactflow was built around Pact, as a team/enterprise-ready solution. For us, Pact is an option for our audience to ‘try before they buy’, with a natural pathway for those users who realise they need enterprise features, such as security, user management or hosting, to explore Pactflow.

2. Price comes after value

Get the user to sign up, get them hooked on your product—to see the aha moment or as Yazan Sehwail, Co-Founder of Userpilot refers to it – get them to ‘the promised land’! and only after value has been delivered, you can charge them.

All part of the pricing and packaging strategy, it is very common to see PLG companies provide a free trial and a little less common, a freemium model.

A freemium model is generally forever free and has usage limits based on the functionality of the product built in. These might be limits for the number of users or access to specific features. OpenView research has found that this model generally has a lower conversion rate to paying customers, however this option drives top of the funnel adoption well. A company who choses this option will likely be focussing on a land grab strategy—bringing customers onboard and locking them in with long-term stickiness and high switching costs.

Another way to think of this model is how we use a freemium model at Pactflow. When a user feels it is right to jump over to the commercial solution from Pact, or during their research of contract testing, they see that the features of Pactflow are more suitable for them, they can sign up to our Free Starter Plan, giving the account owner and their teammates the ability to complete a proof of concept. And, when the promised land has been reached, i.e. when Pactflow is vital for the team’s way of working, an upgrade is prompted.

On the contrary, a free trial model, being time capped to test out a product or experience, creates a sense of urgency to see the value of the product before the trial is over. Generally, a user would get access to the advanced plan or set of features and then after the trial period ends, these are taken away unless the user pays. Appcues is a tool we use at Pactflow to help guide our users to the aha moment in the application and Appcues uses a free trial model as part of their PLG strategy.

Some may argue that friction, ease of use or understanding of a product as an excuse to not have a free option (allowing customers to get started themselves), however as Kyle highlights, “the reality is like most companies do actually have some friction, and that’s not necessarily an excuse to gate the product. And I think that there’s things that you can still do and there are benefits to be had from exploring this opportunity, and from the discipline it takes to improve the user experience and improve the time to value of having a product that is self service, ready for customers.”

3. Focus on customer success before sales

With the PLG methodology, your product’s goal is to solve a pain point for a specific audience and enable them to experience the value before they have to pay. Naturally, a third focal area is helping the user get to see the value as easily as possible and this comes with support.

Support can include direct access to customer support team members or it can be collateral, documentation, guides, video content and more (as referenced above, the ecosystem of the core application or platform itself).

A PLG motion does not mean there is no longer a need for sales – sales still has a very critical role, but it’s a little further along in the journey. Once the customer has seen and experienced the value, with all supporting factors, it is then the role of sales to help the account (organisation) leverage the value. A great salesperson will not focus on showing the value of the product to the end user (i.e. demos are not often needed at this point) but rather be able to tell the story to the buyer/decision maker and handle things such as legal and security reviews, pricing etc.

There are no hard and fast rules—in some cases, you’ll see customers reach out for sales themselves. As you establish a PLG motion, you’ll come to know the right time to trigger the sales conversion. And this can’t be done without a product-qualified lead (PQL) process with sound product data to identify the events/triggers a user or account have taken to reach this status. This is a strategic way to drive sales activity through your most valuable customer profiles.

Here at Pactflow, across our customer lifecycle, we have mapped specific milestones for a user. For example, our activation milestones are when the user has logged into their account, completed set up, published and verified one contract and invited at least one other user. From here, virality takes over and a team lead or engineering manager might see the outcomes of the team’s proof of concept and scale up. For us, contacting the right customer at the right time is critical. As a lean team, we base these actions around our ideal customer profile.

4. Measure everything

I’m sure it’s very clear now—with PLG, the focus is on adoption before revenue. To find success, you will need a crystal clear view of your customers—from the user and company profile through to their product behaviour and consumption habits.

Example metrics a true PLG company will focus in on include:

  • Activation rate
  • Percentage of users that sign up and meet the aha moment (not just sign ups!)
  • Product qualified leads (those who reach a certain point and are ready to have the conversation with sales)

As well as having the ability to keep tabs on specific cohorts of users—your ideal customer profile—or identifying new ones as they emerge.

Being highly user data driven enables experimentation—testing different levers to improve these metrics.

At the heart of a traditional sales-led business’ tech stack is the CRM—a Salesforce or HubSpot. For PLG, the heart of analytics is in relation to the product. CDPs such as Mixpanel, Amplitude and Autopilot, serve this purpose.

Pactflow’s current PLG tech stack includes HubSpot, Mixpanel and Segment to bring our customer data together. Focussing in on metrics such as activation and improving them, time it takes and the ease to do so. Kyle conducted research that found that 20-40% of users will reach activation and this ratio is an extremely close correlation with conversion. So, those who activate are much more likely to convert to being paying customers.

Think: is our marketing spend giving us sign ups only or signed up users who activate? My advice is that this should be a key measure of marketing spend.

Applying product-led growth

PLG isn’t a new concept anymore, I’d say in the world of SaaS, it’s the go-to. Everyone seems to be doing it, wanting to do it or doing a bit of it!

During the event, an attendee asked the question of Kyle: “are there any SaaS businesses that PLG is not suitable for?” and his response was that not all SaaS businesses will benefit from a stern PLG motion. Such examples include:

  • Companies that only have a buyer/executive level value proposition
  • Products in a new category where substantial change management is required
  • Companies that require revenue growth quickly – takes time to attract the right user and convert them

At Pactflow, rather than employing a strict PLG model, we have a hybrid approach focussing on end users (i.e. developers and testers), using the PLG methodology, which we blend with a ‘white glove’ sales approach.

Our PLG solution spans the OSS Pact framework, as an entry level solution, while Pactflow’s free Starter Plan offers a taste of the commercial product for the end user. At the other end, Pactflow also attracts enterprise customers with more complex needs requiring a higher-touch engagement to adopt contract testing at scale.

This is our starting point—Pactflow has achieved this in only a few years (founded in 2019) and with a headcount of single digits. Now, as we join SmartBear, we will have the chance to grow and mature our offering and GTM approach.

Want to know more about PLG? I recommend Kyle’s blog and the podcast BUILD with Blake Bartlett (the guy who coined the term ‘product-led growth!)

About Pactflow: Pactflow is the leading contract testing collaboration tool used by thousands of developers and testers globally. Contract testing is growing as the new industry standard for testing microservices and complex API structures reducing reliance and costs associated with E2E tests all while increasing confidence to deploy. Pactflow was founded by DiUS in April 2019 and subsequently acquired by SmartBear in April 2022.

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