Modern GTM Playbook: How to Start with PLG, and Scale with SLG.
How will startups build and sell their SaaS products in the not-so-distant future?
SaaS companies are figuring out how to balance the transition from a purely Sales-Led Growth (SLG) to a Hybrid growth model [PLG + SLG] and many are at a critical juncture for companies aiming to scale effectively.
This article explores the strategic shifts necessary for this transition, offering insights that go beyond the basic understanding of PLG and SLG. We thought that the best representation of the challenges therein might be using the Crossing the Chasm framework by Geoffrey Moore.
Market Research - Identifying Key Challenges
In developing the Modern GTM Playbook, we embarked on an extensive research initiative, blending insights from over 100 industry interviews. Since then we correlated with a few authoritative sources in the SaaS domain. Here’s what we found:
75% emphasized the need for Self-Service and User Onboarding: A significant majority of our interviewees emphasized the importance of self-service and efficient onboarding. This is echoed by Gartner's report on B2B buying behaviors, which notes a growing preference for rep-free (self-service) options among B2B software buyers (Gartner, "B2B Buying Behaviors”).
80% investing/planning to invest in Data-Driven Sales and Marketing: Slightly mature to more mature SaaS companies, pointed to the necessity of leveraging product usage data in sales and marketing. IDC's findings support this, showing that data-driven companies can achieve up to a 25% improvement in operational efficiency (IDC, "Selling more with Data," 2023).
65% experiencing Scaling PLG Challenges: Many highlighted scaling issues with PLG, especially for larger deals. McKinsey’s analysis of growth strategies confirms this, indicating the need for a more nuanced approach beyond PLG for enterprise sales (McKinsey, "Beyond the PLG Hype," 2023).
70% think the future of GTM is Hybrid Growth Models: The Majority advocated for a hybrid PLG and SLG model. Research by OpenView Partners highlights that SaaS companies with hybrid models report better customer metrics, including lifetime value and retention rates (OpenView Partners, "The Hybrid SaaS Model," 2023).
These discussions and corroborating research shaped our understanding of the current challenges and opportunities in SaaS growth, informing the strategic recommendations that form our playbook.
We have identified six distinct phases for a SaaS company as they go through this journey.
1. PLG Readiness Chasm
Embarking on the journey of PLG requires a fundamental shift in mindset. PLG Readiness Chasm represents the gap between deciding that your product should be product-led to launching it. Crossing this chasm necessitates aligning the entire organization towards a customer-centric, product-first mindset. It involves restructuring processes, metrics, and culture to focus on delivering exceptional user experiences and value through the product.
Readiness is the effort it takes to be PLG-ready. This includes creating a self-serve option for users to sign-up, try, and buy your product, developing robust analytics to track product usage and customer behavior, and implementing in-app checkouts for seamless transactions.
Example: Companies like Slack and Dropbox have excelled in this phase by building intuitive self-serve options that allow users to explore and adopt the product at their own pace.
Challenge: The main challenge in this phase is ensuring that the product is intuitive and user-friendly while also being robust and feature-rich.
Solution: Investing in user experience (UX) design and customer feedback loops can help overcome this challenge.
2. PLG Wins
Once the groundwork is laid, companies enter the PLG Wins phase. This is when the PLG model starts to work and begins to feel good. The efforts put into the readiness phase start to pay off, increasing signups, activations, and conversions.
Example: Atlassian’s products, like Jira and Confluence, have seen massive adoption due to their PLG model, leading to significant signups and conversions.
Challenge: The challenge here is maintaining the momentum and ensuring that the increased signups lead to active, long-term users.
Solution: This can be addressed by focusing on user onboarding, adding a tad bit of friction with white glove customer success, and continuous product improvement.
3. PLG Trap
However, there’s a potential pitfall known as the PLG Trap (refer Oliver Jay’s post). This phase is characterized by an over-reliance on the PLG model, leading to limited expansion. While the PLG model can bring in a steady stream of small contracts (typically $10-30K per annum), it may not facilitate much expansion beyond this.
Example: Many SaaS companies fall into this trap where they see a lot of initial success with small to mid-sized businesses (SMBs) but struggle to break into larger enterprise markets.
Challenge: The key challenge is evolving the product and business model to cater to larger organizations without alienating the existing SMB customer base.
Solution: Developing a tiered product offering that caters to both SMBs and enterprise clients can help overcome this challenge.
4. Enterprise (SLG) Readiness Chasm
To overcome the PLG Trap, companies need to cross the Enterprise (SLG) Readiness Chasm (refer to Crossing the Enterprise Chasm). This phase involves the effort it takes to be enterprise-ready. It requires building for enterprise security, compliance, procurement, and preparing for Requests for Proposals (RFPs). It also involves creating battle cards to equip the sales team with the necessary information to win deals.
Example: Companies like Salesforce and Adobe have successfully crossed this chasm by investing heavily in enterprise features clearing typical RFP/procurement questionnaires around security, compliance, data governance, etc.
Challenge: The challenge in this phase is meeting the stringent requirements of enterprise clients, which often involve complex security, compliance, and procurement processes.
Solution: Investing in enterprise-grade features and sales enablement activities to help overcome these challenges.
5. Product-Led Sales
This phase is all about converting small deals into larger Annual Contract Value (ACV) deals, also known as “catching whales”. This involves skimming through usage data to identify potential enterprise clients (the right Ideal Customer Profile, or ICP), and crafting effective sales pitches. (Refer OV: Your guide to Product-Led Sales)
Example: Companies like Zoom, Loom, and Shopify have excelled in this phase, leveraging their product usage data to identify potential enterprise clients and convert them into larger deals.
Challenge: The challenge here is identifying the right ICPs and effectively communicating the value proposition to them. Aligning the organization to the new role of Sales & Marketing, Sales compensations, and account ownership woes might run deep unless resolved with org-wide buy-ins.
Solution: Leveraging product usage data, investing in sales training, and continuously refining the sales pitch based on feedback can help overcome these challenges.
6. Hybrid Growth
This final phase prioritizes personalized interactions with existing/potential customers primarily for large and multi-year sales deals. Sales reps use a combination of usage signals and customer relationships to actively engage, guide, and close deals.
Example: Zoom, a video conferencing company, is now successfully selling to enterprise customers, significantly increasing the average contract value (>$100K ACV).
Challenge: Maintaining the product’s usability and appeal to smaller customers while catering to enterprise needs.
Solution: Zoom continues to invest in two distinct GTM motions, but brings them together, ensuring that the product is distributed easily for small customers and Upsell/cross-sell motions to large enterprises effectively.
—
In conclusion, transitioning from a PLG to an SLG model is not a straightforward process. It involves navigating through various phases, each with its own set of challenges and solutions. However, with the right strategies and learnings from companies that have successfully made this transition, it is achievable.
Go #HybridGTM!
Please tell us which phase you want to learn more about by commenting below. For example: “PLG Readiness Chasm”
This topic is very helpful. I like the format and your examples. We should collaborate on a follow up that illustrates the reverse: adding PLG to existing Sales Led motions.