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Product-led Growth for SaaS Companies

January 24, 2020
14 Mins
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Product-led Growth for SaaS Companies

Host
Dr. Ajay Sethi
Venture Partner, Accel
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Host
Dr. Ajay Sethi
Venture Partner, Accel
Guests
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Product-led Growth for SaaS Companies
 Mins Read
14 Mins
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Host
Dr. Ajay Sethi
Venture Partner, Accel
Guests
No items found.

Summary

Engagement Graph

Research over the last two decades has shown that there are only four value creation mechanisms: (1) Scale, (2) Habit (referred to as Stickiness or Lock-in elsewhere), (3) Brand, and (4) Network Effects. Starting with Warren Buffet, Berkshire Hathaway and Morningstar, these are referred to as “moats”.

As per our research, these four value creation mechanisms can be naturally created for activities that fall under different “zones” in the Engagement Graph:

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Engagement Graph

The graph shows that the activities with high frequency & low importance are most amenable to create value via “Scale” moats; activities with medium frequency & medium importance are amenable to create value via “Habit” moats; activities with low frequency & high importance are amenable to create value via “Brand” moats; and activities with high frequency & high importance are able to leverage “Network effects” to create value.

We, therefore, refer to these as “active moats” and contrast them with the “passive moats” that are built and sustained by inefficient and time-consuming supply-side relationships, counter-productive lock-in techniques or via expensive marketing and branding activities.

How can SaaS companies leverage this insight to identify product-led approach to build scalable companies? For this, let’s start by observing that 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”.

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.

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.

Based on this, we can classify problems that are fairly frequent (with weekly or higher frequency) as “frequent problems” and problems that are important but not as frequent as “important problems”:

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Engagement Graph with Frequent & Important problems

Engagement Graph shows various business activities. Email marketing, ERP, marketing automation, billing & accounting are some of the high frequency & low importance activities. CRM, collections and business travel are examples of medium frequency & medium importance activities. Getting loans and signing contracts are examples of low frequency & high importance activities.

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Engagement Graph for business activities

Example: Marketing Automation

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 useful a few 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.

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Marketing automation: Engagement Graph

However, there are at least two different personas involved in choosing and using marketing automation tools. We refer to the persona involved in selecting and buying the product as “Buyer persona” while the persona involved in using the product as “Product persona”.

For Product persona, usage activity has medium/high frequency and low/medium importance. Why low/medium importance? This is because the impact of a particular campaign not doing well does not have large negative repercussions. Buyer persona, however, has much lower frequency of choice — once the product is selected, it is difficult to switch to another product. Therefore, there is large repercussion of making an incorrect decision. As a result, the frequency of activity (choice) is low and importance of activity (choice) is high.

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Engagement Graph: Product persona and Buyer persona

What are the implications of this?

  • First, in order to scale, it is best to sell directly to Product Persona in a low-friction manner. This can be achieved by building a self-serve version of the product that enables the Product Persona to explore the product quickly. It is also important to ensure that the Buyer Persona is not involved in this process. Product Persona users, once they are happy with the product, can subsequently be used as internal champions for the product (and help convince Buyer Persona).
  • Second, in order to sell the product directly to Buyer Persona, the companies need to build trust with the persona (give the importance of choice). This can be done in multiple ways — but the most natural way is to develop a strong “Brand” that evokes confidence and trust amongst the target Buyer Persona.

Product Persona

Given that the “product persona” falls in the high frequency and low/medium importance zone, one would expect that the product would create value via “habit moat”. This is indeed the case for most SaaS products — this is the reason why usage growth (resulting in revenue expansion) and usage decline (resulting in revenue and/or customer churn) are amongst the most important metrics for SaaS companies. Also, since the normal usage characteristics falls in the Habit zone, it is important to ensure that the product is optimized for medium to high frequency of usage.

Scale Boosters

But, can SaaS companies build and leverage moats other than the natural moats? If yes, what is a product-led way to build moats? The answer: it is possible for SaaS companies to grow faster by building “Scale Boosters” — that is, by building features (or standalone products) corresponding to high frequency & low importance activities. This can be depicted as follows

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Scale Booster for Product persona

How can SaaS companies build Scale Boosters? By identifying category-specific activities with the right frequency & importance characteristics (which is high frequency of usage & low importance for product-led Scale moats).

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As an example, consider Hubspot’s Website Grader. Website Grader allows marketers to measures the marketing effectiveness of a website and provides them with a score from inbound marketing perspective. This is a useful starting point because it helps marketers understand how their site compares against their competition. This is useful because it helps marketers to not only get basic advice on their website can be improved but, more importantly, helps them appreciate that Hubspot has an expertise in the marketing domain.

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BrowserStack’s Scale Booster is Screenshots product which allows testers (who is the Product Persona for BrowserStack) to check how their website will look on other browsers and devices just by entering the URL of the website. By doing so, BrowserStack is able to not only help testers test their websites but also makes them aware that BrowserStack has a infrastructure and capabilities to help them test across 2000+ browsers and devices.

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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 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.

Brand Boosters

Is there a product-led approach to build emotional connect and, thereby, to strengthen the brand? Yes — by building features (or standalone products) corresponding to low frequency & high importance activities. We refer to such features as “Brand Boosters”.

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Brand Booster for Product persona

In order to build a 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 Boosters:

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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.

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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.

Buyer Persona

Unlike Product Persona, Buyer Persona for marketing automation category falls in the Brand Zone (low frequency and high importance zone). This implies that it is important for SaaS companies to build trust with customers in order to acquire paying customers.

This observation is supported by extensive user research. The latest branding research conducted by CEB (now Gartner), Google, and Motista (covering more than 3,000 B2B customers) revealed that B2B brands drive much higher emotional connection with their customers.

Motista has found that B2C brands (such as Apple, L’Oreal, Amazon, etc.) have emotional connections with 10% to 40% of consumers. However, majority of large B2B brands (such as Cisco, Oracle, Accenture, etc.) had more than 50% emotional connect with their customers. The study explains this counter-intuitive finding as follows: “While the data is surprising on the surface, on closer examination, high emotional connections make a lot of sense. When a consumer makes a bad choice (e.g., buying a tablet that they never use), the stakes are low –perhaps going through the inconvenience of returning the product or needing to justify the purchase to a partner. Business purchases, on the other hand, can involve huge amounts of risk: responsibility for a multimillion-dollar CRM system that goes bad can lead to poor business performance and even the loss of a job. As a result, business buyers won’t proceed (in favor of a supplier) unless there is sufficient emotional connection to overcome key risks.”

This is the reason why it has been important for SaaS companies to engage and nurture potential customers over an extended period.

Content-led engagement — especially with content that matches customer’s progress through the buyer journey — is extremely useful for this purpose. Companies also need to devise their marketing and sales interventions to match the buyer journey so that they can gradually build relationship with customers and slowly gain their trust. It is important that potential customers trust a company before they graduate to become paying customers.

In addition to building trust via content and sales & marketing activities, what can SaaS companies do?

One option is to sell directly to the Product Persona — this is the reason for the success of self-serve and bottom-up sales processes, as demonstrated by Atlassian, Dropbox, Stripe, Twilio, etc.

But, if a SaaS company must sell to the Buyer Persona, are there faster and more scalable ways to build trust and acquire customers? In other words: are there product-led ways that can accelerate the process of building trust and brand? If yes, it will likely be more efficient and more scalable because it will enable companies to “productize” its learnings into a replicable model.

The Engagement Graph of the Growth Spiral model illustrates how companies can build “Scale Boosters” and “Brand Boosters” for Buyer Persona. Product-led boosters can then be combined with marketing and brand activities to help SaaS companies to scale faster and to engage with potential buyers more often — which helps the companies to build trust with potential customers in a more scalable way.

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Scale Booster & Habit Booster for Buyer persona

This, in turn, helps SaaS companies to build a strong brand as well because brand is nothing but a summation of users’ emotions across all touch-points. Companies are able to build a strong brand by ensuring that all interactions (both pre-conversion and post-conversion) not only address user’s functional needs but also their non-functional wants.

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Emotions-aware design is a good product-led way to build emotional connect with customers.

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.

Scale Boosters

Let’s look at some “Scale Boosters” for Buyer Persona. We, once again, consider how Hubspot leveraged product-led Scale Booster. Hubspot realized that at the start of a business, there is a demand to create good email signature (along with business cards — as well as domain name, email & business app suite, etc.).

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Moreover, Hubspot team realized that email signature has all the things that are part of a lead form: name, title, phone number, email address, etc. With this insight, Hubspot build email signature generator that quickly became HubSpot’s 5th-most visited page. Email signature has been the highest organic lead source generator for Hubspot over the last few years. The email generator itself generates almost 50,000 leads per month (which is approximately 25% of total leads generated every month).

This is the power of a Scale Booster — it can create inbound pull and help company to scale rapidly at no extra cost.

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BrowserStack’s Screenshots product is another example of wonderful Scale Booster. It is especially useful for marketers, who often face the task of verifying that the newly devised landing pages (esp. before the start of a marketing campaign) will have the desired look and layout across different browsers and devices. This Scale Booster has helped BrowserStack acquire tens of thousands of customers over the last few years!

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But Scale Booster need not be a (light-weight) product — it can be a tool that addresses one specific use-case. CleverTap’s LTV Calculator is a good example of such a tool — it helps potential buyers to understand the lifetime value (LTV) of their customers. It also helps them to realize that CleverTap understands what it takes to increase the LTV and, thereby, build positive outlook towards CleverTap.

Habit Boosters

Let’s now consider how companies can build “Habit Boosters” targeted towards the Buyer Persona:

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Habit Booster for Buyer persona

Continuing with our running example, HubSpot CRM is a wonderful Habit Booster. It is offered as a “Free Forever” product that helps generate demand for their sales and marketing solutions. HubSpot makes it easy to get started with the CRM product, funneling users through surveys and product tours seamlessly.

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Freshworks, too, follows this strategy and offers the “Sprout” version of the FreshSales product with “Free Forever” pricing.

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Incidentally, from Habit Booster perspective, “Free Forever” is a better pricing strategy that “freemium” and “free trial” pricing options. While freemium plans requires customers to understand the thresholds and “free trial” plan only defers the payment, “Free Forever” relieves customers from the reading the fine-print in the pricing criteria too closely.

BrowserStack’s flagship product is Automate — which allows testers to automate cross-browser testing so that the tests are run after every git-commits or during nightly builds. As can be imagined, all large and progressive companies use the Automate product and, as a result, a major portion of BrowserStack’s revenue comes from the Automate product suite. Setting up Automate tests, however, requires more effort and, therefore, higher conviction and commitment from customers.

In addition to Automate, BrowserStack also supports Live product line, which allows testers to do manual and interactive cross-browser testing of their websites.

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Since it takes lower effort and lesser commitment to use Live, it is no surprise that a majority of eventual-Automate customers familiarize themselves with BrowserStack product suites by exploring the Live product. As a result, Live product not only provides a significant revenue stream but also acts as Scale Booster and Habit Booster for BrowserStack’s flagship product.

Last, but certainly not the least, we will like to highlight the versatile role played by “Content”. Well-crafted content can be used as a Scale Booster (as done by Drift, Intercom, etc.), Habit Booster (as done by Hubspot, Chargebee, etc.) and Brand Booster (as done by Salesforce, Trello, etc.).

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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.

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Summary

Product-led engagement boosters can be built 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 Boosters, medium frequency and medium importance activities for Habit Boosters, and high importance and low/medium frequency activities for Brand Boosters. SaaS entrepreneurs can use the framework to build these boosters in a structured way for both Product Personas and Buyer Personas to create more value and to build sustainable competitive advantage in a systematic manner.

Product-led boosters become stronger with higher product usage and increasing user-base. By continually moving the product into higher orbits, engagement boosters convert customer journey loop into a spiral: a Growth Spiral that helps companies to create increasingly more value and build stronger defensibility in an efficient and sustainable way!

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Boosters for efficient and sustainable journey across uncharted territories
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