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Research over the last two decades has shown that there are only four value creation and...
Research over the last two decades has shown that there are only four value creation and growth mechanisms: (1) Scale, (2) Habit (referred to as Stickiness or Lock-in elsewhere), (3) Brand, and (4) Network Effects.
Based on our experience with hundreds of category-creating and category-dominating companies across consumer, business, health, finance, etc. categories, we have found that there are four value creation and growth drivers:
These four help drive faster growth for companies. So, the question becomes: how can startups build products that can drive scale, create habit, build brand, and unlock network effects?
There are product-led ways to activate and amplify each of these four value creation drivers. By definition, network effects are product led. Likewise, habit depends on repeated product usage and, therefore, is product led. It turns out that the other two: scale and brand can also be unlocked by adding products with distinct characteristics to the product mix.
Product-led Growth, therefore, corresponds to the following three distinct types of growth:
We refer to the product-led growth drivers that help build Scale, Habit and Brand as “Value Boosters”. Why Value Boosters? Products with the right characteristics, once built, provide ongoing benefits to the company. Not only the value of these products increases as number of users/customers increase, but the products themselves can be improved as well. The additive nature of these product-led layers together help build the full Value Stack.
Value Boosters are product-led growth drivers for scale, habit, and brand.
Here’s the key insight: product-led value drivers can be unlocked by adding products with the following distinct characteristics to the product mix:
It is interesting to note that each of these Value Layers occupy different “zones” in the Engagement Graph. In order to see this, let’s first define the Engagement Graph itself.
Engagement Graph depends on two parameters that underlie the value creation and growth drivers. We then use the Engagement Graph to outline how startups can build Value Layers and achieve Product-led Growth in a systematic manner.
All activities done by people — whether in personal or work context — can be viewed from the perspective of the “Frequency of activity” and “Importance of activity”. Let’s start by defining the scale for “frequency of activity”. Tasks that correspond to daily (or a few times a week) use-cases are considered to have “high” frequency of activity; weekly (or a few times a month) use-cases have “medium” frequency of activity; all other use-cases have “low” frequency of activity. The scale for “importance of activity” can be defined likewise. Tasks that have large implication and, therefore, require consultation with other stakeholders (such as family members or corporate committees) can be classified to have “high” importance of activity; tasks that trigger users to diligently evaluate pros/cons amongst alternatives as “medium” importance; utility-like tasks that can be performed without much thought are “low” importance tasks.
Value Layers and Network Effects, therefore, fall under different “zones” in the Engagement Graph:
How can SaaS and consumer companies leverage this insight to identify product-led approach to build scalable companies?
In order to see how this helps to drive product-led growth, let’s consider a specific example of the marketing automation activity.
From the product usage perspective, we can see that the activity is fairly frequent: the product will be used once or more times per week for market outreach campaigns. Also, the importance is medium because this activity has direct and measurable impact on the performance of the company.
How can marketing automation companies build Scale Value Layer? This can be done by identifying category-specific activities building with high frequency and low importance. To unlock Scale Value Boosters, companies can build products for such activities. This can be depicted as follows:
As an example, consider Hubspot’s Website Grader.
Website Grader was built in the early days of Hubspot. It allowed marketers to measures the marketing effectiveness of a website and provides them with a score from inbound marketing perspective. Within 18 months of its launch, 1 million websites had been graded using this free tool; 2 million mark was hit a mere 7 months after that. [link]
Why did this work so well for Hubspot? This is because website grader has the right characteristics: high frequency of usage with low — medium importance. It helps marketers to understand how their website compares against their competitors. It is low to medium importance because it provides only basic advice on how the website can be improved. More importantly, it allows Hubspot to attract millions of potential customers and helps them to understand and appreciate that Hubspot has the expertise in the marketing domain.
Freshworks’ Freshping is another example: it is a “Free Forever” tool for monitoring uptime and performance of websites, APIs and web services.
Freshping constantly monitors up to 50 URLs from various locations around the globe and promptly informs customers about downtime. This high frequency and easy-to-get started tool is a perfect example of Scale Value Booster. It provides small and large businesses (as well as independent professionals) with real-time performance monitoring tool at zero cost. Though Freshworks doesn’t generate any revenue from this tool, it earns something more important: awareness and trust amongst the potential customers.
Continuing with our marketing automation example, the next question would be: is there a product-led approach to build Brand Value Boosters that can help establish emotional connect with potential and current customers and, thereby, to strengthen the brand? Yes — by building products corresponding to low frequency & high importance activities. We refer to such products as Brand Value Boosters.
In order to build the brand, one needs to understand the goals and aspirations of the customers. For this, we need to go beyond customer’s functional “needs” and appreciate their non-functional “goals”.
As a running example, we consider how Hubspot build Brand Value Boosters:
Given the fast-paced nature of the marketing world, it is always useful to learn new skills. Hubspot recognized this aspiration of their customers and started offering free online marketing courses. These have become highly popular with more than 150,000 people completing the certification. Moreover the courses have consistently high ratings (across G2 Crowd, Indeed, etc.).
In addition, Hubspot supports online community and provides online content at GrowthHub.org (previously called Inbound.org and Growth.org). The content helps build trust with customers because they understand and appreciate that the company wants to help them.
Likewise, Freshworks Academy is a digital learning platform that helps people to get inspired, develop their professional skills, and to join the growing community of customer experience professionals.
Emotions-aware design is a good product-led way to build emotional connect with customers. Emotions-aware design, therefore, is a special type of Brand Value Booster.
Mailchimp is a classic case-study of building a strong brand with the help of emotions-aware design. By using humor to enrich the website instructions and messages, Mailchimp converted mundane task of sending emails into an experience that people look forward to (and sometimes even miss!).
By understanding that the “wants” and “goals” of their customers and incorporating it in their UX and tone/tonality of the product, Mailchimp created a brand with strong emotional connect with their customers.
Last, but certainly not the least, we will like to highlight the versatile role played by “content”. When content is treated as a product (i.e., to deliver value on its own; as opposed to as a means to acquire leads or to push prospective customers down the funnel), it has the ability to unlock Scale, Habit, or Brand Value Boosters.
Now, the content itself can be crafted with different characteristics: easy-to-digest content can be consumed daily (high frequency and low importance); long-form content that analyzes or synthesizes information can be consumed on a weekly basis (medium frequency and medium importance); inspirational or non-functional content (such as one that helps with career advancement) that provides value because of its depth and relevance (but, at the same time, can be consumed infrequently). Examples of Content-led Value Boosters:
Let’s consider the example of Chargebee. Chargebee identified that RevOps (Revenue Operations) is an emerging trend — given the growth of subscription economy, more and more companies need to build and augment their RevOps teams. In some sense, RevOps can be considered akin to DevOps — it exists at the intersection of marketing, sales, customer success, and finance departments. Efficient RevOps spans tools, processes, and operations.
Given the importance of generating and collecting revenues, Chargebee focuses on helping its practitioners to learn about RevOps so that they can make faster career progression.
Product-led Growth has three layers: product-led scale, product-led habit, and product-led brand. We refer to the product-led approach to achieve these three layers as Value Stack.
Value Layers can be unlocked by identifying relevant category-specific activities (undertaken by target users) with the desired frequency and importance characteristics: high frequency and low importance activities for Scale Value Boosters, medium frequency and medium importance activities for Habit Value Boosters, and high importance and low/medium frequency activities for Brand Value Boosters.
Entrepreneurs can use the Engagement Graph framework to build these Value Layers to drive faster growth, to create more value and to build sustainable competitive advantages in a structured and systematic manner.