Product-Led Growth 🚀: The Key to Dominating in a Crowded SaaS Market

Target market, customer segment & PLG pillars for your startup

Feb 17, 2023

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In this essay, I'll share my journey and the lessons learned while driving sustainable startup growth and during my time at Freshworks, specifically with product-led growth (PLG). You'll learn how to choose the right market and target your ideal customer segment, as well as the three essential pillars of PLG that will help you achieve breakthrough success and win big in a crowded market.

You'll learn about the following:

Choosing the market to serve
Identifying target customer segments
Self-Serve Sales Model and PLG
Three pillars of PLG
Three critical questions before taking the PLG leap

Whether you've been a seasoned SaaS founder or are just starting, this essay will provide inspiration and practical tips to help you succeed in a crowded market.

So buckle up, and let's dive in!

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Choosing the right market to serve 🎯

Christoph Janz, Partner at Point Nine Capital, says, "Finding a good market is more important than finding a good idea."

Diving into a blue ocean market with few or no competitors may be an inclination for startup founders. However, sometimes it makes more sense to choose a red ocean market - an existing market crowded with vendors. Freshworks, Atlassian, Hubspot, and Monday.com all did this to cross the $500m ARR and multi-billion-dollar valuation milestones.

In a red ocean market, there's a clear need for a solution, and customers are ready to pay for it, so you don't need to spend time and money educating the market about the solution.

The competition is brutal 💥, but choosing the right market to serve can make all the difference.

In Freshworks' case, for example, even though we were a latecomer in the crowded CRM space, we still managed to make it big by doing a few things right:

We found a market that had real needs.
We focused on growing that customer base. We also made sure to focus on high customer lifetime value.
We made our business hard to beat by offering an all-in-one solution that combined multiple tools into a single platform, making it easy for SMBs to manage customer interactions.

Entering a crowded market might seem daunting, but it's an excellent opportunity for success, as proven by Atlassian, Freshworks, Monday.com, and many other top PLG successful startups. Get ready to be inspired!

So, how did these companies win in their crowded markets? They focused on the fundamental building blocks of Product-Led Growth: acquiring users, converting them to paid customers, and retaining them.

To sum it up, when choosing the right market to serve as a PLG-based startup:

Identify a market with a genuine need
Go after a growing market
Look for a market with high customer lifetime value (CLV)
Create a defensible moat around your business

In the following sections, we'll dive deeper into these pillars, but remember, first, figure out the market you're serving.

Identifying your target customer segments 👥

Building a SaaS company can be an exciting and overwhelming journey. However, one way to stand out in a crowded market and build a thriving business is to understand your potential customers truly.

That's why identifying your target customer segments is crucial, as pointed out by Christoph Janz in his article "Five ways to build a $100 million SaaS business" from Point Nine Capital.

Identifying and targeting these customer segments is crucial to achieving the $100 million goal. By understanding the needs and preferences of each segment, companies can tailor their product offerings and marketing strategies to reach and engage them effectively.

To build a $100M SaaS business, you must first determine the market to serve, then identify the most suitable customer segment to target. Each segment can contribute to success in different ways.

For example:

1,000 elephants (enterprise customers paying you $100k+ per year each)
10,000 deers (medium-sized companies paying you $10k+ per year each)
100,000 rabbits (small businesses paying you $1k+ per year each)
1,000,000 mice (consumers or "prosumers" paying you $100+ per year each)
10,000,000 flies (active consumers who you monetize at $10+ per year each by selling ads)

As a SaaS founder, take the time to understand your target market and tailor your efforts to meet their needs —it could be the key to achieving your goals.

Hone in on your ideal user: The First Step Towards Product-Led Growth (PLG) 🪜

Think back to the last time you took the plunge and invested in a new software tool. Was it an impulse decision driven by the promise of increased productivity or efficiency? Or did you agonize over the decision, carefully weighing the pros and cons before leaping? Let us know in our poll below - we can't wait to hear your story!

Whatever the case, you didn't need formal training or approval from your IT department to use it.

That's the power of product-led growth (PLG), a business strategy that puts end-users at the centre of product development and distribution.

Let's take a closer look at some successful PLG success stories:

Slack: Overgrew in popularity through word-of-mouth marketing. It started with one team, then another, and before they knew it, the whole company was using it.
Dropbox: Leveraged a referral program that incentivized users to invite others. By combining a simple and user-friendly product design with a strong referral program, Dropbox quickly spread through the market.
Atlassian: The journey began with a simple, affordable solution for bug tracking. By zeroing in on the pain points of developers, Atlassian created a product that was highly functional, easy to use, and resonated with its core audience. Over time, this approach led to a suite of products that served different use cases across the organization, from project management to collaboration.
Freshworks: In Freshworks' case, the primary persona was frontline support/IT agents and sales reps who needed a product that was intuitive, easy to set up, and affordable.
Grammarly: Offered a free version that seamlessly integrates with popular web browsers and productivity tools, making it easy for users to discover and start using the product, leading to more upgrades.

What can we learn from these PLG success stories? The key takeaway is clear: You must start by understanding your ideal user to achieve product-led growth. Next, understand your customers' pain points, tailor your product to meet their needs, and use an inbound sales approach to empower them to discover and adopt your product. As a result, you are creating a growth cycle for your startup.

Next, we'll double-click on the inbound sales motion and explore the tactics used by successful PLG companies to drive user adoption and growth.

The Self-Serve Sales Model: Key to PLG's Inbound Success 🔑

PLG is about inbound motion, which means attracting, engaging, and converting potential customers using a self-serve sales approach. The idea is to let customers discover, try, and buy a product on their terms without needing a salesperson or a complicated buying process.

So, to achieve PLG, you need to focus on driving inbound user adoption. Freshworks believes in this approach and has developed some tactics to make it happen.

Here's an illustration of the PLG inbound motion in action.

To achieve high-velocity growth with PLG, you must go beyond the low-touch inbound sales model and focus on self-serve products. For PLG to be successful, it's crucial to drive customer engagement and product adoption by focusing on the three key pillars of PLG motion. These pillars can help drive product adoption, conversion, and retention.

Let's explore them in more detail.

🏛️ The 3 pillars of PLG motion

As product-led growth has become more widespread, the approach to achieving it has evolved.

To simplify this approach, we can break it down into three core pillars that form the foundation of product-led growth. As we discussed earlier, a self-serve sales model and free trials are essential aspects of the inbound motion, but to truly succeed with PLG, it's essential to build on this foundation and focus on these three key pillars.

Here are the three pillars:

Remove entry barriers through single-player mode and integrations
Personalize your user's experience
Think in loops, not funnels.

Remove entry barriers 🚧 through single-player mode 🕹️ and integrations

"Make it easy for users to bring their data from other apps with 1-click migrations, invest in the product: make it easy to discover, simple to use, deliver quick value, and offer contextual help."

The first pillar of PLG is making it easy for users to get started with your product. This means removing any entry barriers that could slow them down or discourage them from trying it out. One way to do this is by offering a “single-player” mode that lets users try the product on their own before involving others. Another way is to integrate your product with other apps that users already use, so they can quickly bring their data over with one click. By investing in your product and making it easy to discover, simple to use, and quick to deliver value, you can ensure that users will stick around and become long-term customers.

Personalize your user's experience 💅

"Get to know your users better with a simple onboarding quiz based on user data (team size, integrations, etc.) and identify the most relevant path for them."

The second pillar of PLG is creating a personalized experience for each user. This means getting to know your users and understanding their unique needs and preferences. To do this, consider using a simple onboarding quiz that asks questions based on user data, such as team size and integrations. This can help you identify the most appropriate path for each user and guide them toward the most valuable features. By personalizing the user experience, you can increase engagement and reduce churn.

Think in loops, not funnels 🤔

“Funnels are linear and focus on moving users from one step to the next. Instead, think about creating loops that encourage compounding growth and repeatable user habits.”

The third pillar of PLG is all about thinking in loops instead of funnels. This means focusing on creating a seamless and engaging user experience that encourages users to come back and use your product again and again. To do this, consider creating a feedback loop that enables users to provide feedback and suggests new features. You can also use analytics to track user behavior and identify areas where you can improve the user experience. By focusing on loops, you can create a virtuous user engagement cycle that will drive growth and long-term success.

By following these three pillars, businesses can create a self-serve sales model that empowers users to discover, try, and buy their products on their terms. This leads to increased user adoption and customer satisfaction and drives product-led growth.

🎉 Unlocking Success with PLG: 3 Critical Questions to Ask Before Taking the Leap

So, you've read about the potential benefits of a PLG strategy, but how do you know if it's the right decision for your startup? The answer is it's not always clear-cut. Determining if PLG is right for you will require careful consideration of your product, your target audience, and your goals (maybe some A/B tests and experiments)

Does your paid plan have a gross margin of 80-90%? If not, PLG may not work for you, especially if your product is not fully self-service, requires extensive customer support, or is costly in terms of tech infrastructure.
Does your free plan attract the right audience? If your free users differ significantly from your paying users, your free-to-paying conversion will be low, and you may be developing your product for the wrong audience.
Is your product inherently viral? If not, freemium may not be the best approach for you.

While the freemium model of Dropbox and Notion may not work for every SaaS company, understanding the potential benefits and drawbacks of a PLG strategy is essential for targeting the right market and customer segment to drive growth.

💰Bonus Section: Maximizing Product Adoption- The Role of Loops in Your PLG Strategy

Learn how to create a product loop that drives adoption and promotes product-led growth with this bonus section.

Here is an illustration of the growing product adoption once users have signed up for free trials.

Get our 🔗PLG loop template on Notion for free! Subscribe to our newsletter and reply with 'PLG Notion Template' to receive it. Take your product growth to the next level with this powerful tool. Don't miss out; subscribe now!

8 Key takeaways

Market choice > good idea for SaaS
Target customers for success
Product-led growth puts end-users first
PLG success requires easy trial, purchase, and use
Winning in a crowded market requires a tailored solution
Early PLG strategy is crucial for scaling
Effective PLG converts users and generates referrals
A failed PLG strategy wastes costs and hinders serving critical users