Episode 159: Fueling Product-Led Growth with Leah Tharin, Interim Chief Product and Growth Office GotPhoto
In this episode of the Product Thinking podcast, host Melissa Perri is joined by Leah Tharin, Interim Chief Product and Growth Officer GotPhoto. Join them as they explore the different types of growth strategies and when to use them, as well as the importance of aligning sales and product teams. Leah also talks about the power of data-driven strategies in bridging sales and product teams and how aligning with customer success fuels product-led growth.
You’ll hear them talk about:
[03:47] - Deciding between product-led growth (PLG) and sales-led growth (SLG) is essential for companies at any stage. For startups, leveraging PLG by offering a freemium version can be key to gaining traction in a crowded market. However, the ease of launching new products today means more competition, making it harder to stand out. Mature companies must assess their market position — opting for PLG in commoditized markets to attract a broad customer base without the need for direct sales interaction. Contrarily, in a market where personalized value and differentiation are vital, a sales-led strategy might still be necessary. While adapting to PLG can be challenging for traditionally sales-driven organizations, it's often crucial to remain competitive.
[22:54] - To foster a product-led growth strategy while motivating sales teams effectively, focus on aligning sales incentives with customer expansion and success. Rather than rewarding salespeople solely on initial deals, offer bonuses for growing accounts and contributing to customer success activities. This will benefit the sales team by focusing their efforts on warm leads and reducing time spent on cold outreach. Moreover, it will ensure that sales strategies are aligned with delivering real value to customers. By combining insights from both sales demographics and customer behavior analytics, organizations can identify and engage with genuinely interested prospects, leading to more meaningful conversations and, ultimately, more successful expansions.
[32:28] - Embracing a PLG strategy involves more than just offering free trials or premium versions; it's about leveraging detailed product usage data to drive sales and improve product development. A successful approach involves bridging the gap between sales and product teams, ensuring they work collaboratively to use insights from customer engagement to refine product offerings and enhance the sales process. Sales teams can use this data to better qualify leads and personalize their strategies while product teams can use feedback to build better solutions. This symbiosis requires executive leadership, especially from Chief Revenue Officers (CROs) and Chief Product Officers (CPOs), to foster a culture of data-driven decision-making and collaboration.
[45:13] - Facing the wild tech landscape of 2024, with challenges like massive layoffs and tighter financial conditions, companies seek ways to navigate these rough waters. Leah highlights a crucial survival strategy: adopting a vertical organization. This approach could be the life jacket businesses need during the storm. By focusing on specific customer segments, companies can improve their value proposition and charge more per customer, counteracting the pressures of commoditization and increased competition. Embracing verticalization allows for more efficient use of resources and opens up new roads for growth by targeting underserved or unique market niches.
Leah Tharin Human Reviewed Transcript
Melissa - 00:00:01: Creating great products isn't just about product managers and their day-to-day interactions with developers. It's about how an organization supports products as a whole. The systems, the processes, and cultures in place that help companies deliver value to their customers. With the help of some boundary-pushing guests and inspiration from your most pressing product questions, we'll dive into this system from every angle and help you think like a great product leader. This is the Product Thinking Podcast. Here's your host, Melissa Perri.
Hello, and welcome to another episode of the Product Thinking Podcast. Today, we're talking all about growth, and we're joined by Leah Tharin, who's become a big voice in the B2B and product-led growth world. Leah and I met last year at a conference in Budapest, and I really loved her presentation on product-led growth and how she broke it down so logically and really gave some good insights into how we can tell if we're going to be successful with product-led growth and how to actually do it right. I think you're really going to enjoy this conversation about how product and revenue can come together to drive growth for companies.
But before we start talking to Leah, let's go to our Dear Melissa segment, where I am answering all of your burning product questions. This week's question is all about discovery and founders. Dear Melissa, I was a one-time co-founder. We made the classic mistake of building something that nobody wanted because we rushed to MVP without doing customer discovery. Then I discovered Steve Blank's customer development framework, thanks to one of your podcasts, and then David Bland's book, Testing Business Ideas. It could have saved me one year. How do you think founders and PMs can overcome the resistance of customer discovery and be more willing to search for evidence from customer discovery and validation?
I got this question and I was really excited because I got another question about five days apart that was from another perspective, from a PM trying to get a co-founder to do customer discovery. So I'm going to answer part of your question with their question as well. They wrote into me, they said they were working with these co-founders in this company, trying to get them to embrace discovery. And they wrote, I have tried multiple times to involve them in the discovery process as well as in feedback sessions, to make them part of the product world and hear their voices. But still, they were seeing it as a time consuming and blocking them to go fast. Any suggestions on how to better engage them and convey the value of product discovery not being seen as a waste of time? So I thought that was really interesting. I got one write-in from a founder, one write-in from a PM saying they were trying to teach a founder how to do customer discovery or involve them. There's two things here. One, I think as founders, we have to assume when we start a company that we don't know everything about it. Sometimes that's hard for founders because you have to be confident to be a founder, right? Like you have to have a lot of confidence in your idea because you're putting it all out there on the line. So we're not telling you to actually not admit that you don't know anything about what you're doing. Customer discovery is really about addressing your unknowns. As a founder, you need to get comfortable with you might not know everything, and that's okay. There are probably questions out there that we're going to have to answer about our customers and the solutions that they want. And you should be really willing to be proved wrong. That's a good thing. That's what you have to embrace. You have to be comfortable and you have to start thinking about customer discovery as a way to reduce risk. And as a founder, you're usually comfortable with risk, right? Again, you would not be putting it all on the line out there. You weren't comfortable with risk. But you have to look at discovery as a way to reduce that risk and to place your right bets. It's not a waste of time. What it is really doing is addressing the biggest questions. On the flip side of this, I've seen a lot of PMs get sucked into discovery. That is wasteful. And it's not conducted right. Does that mean that all discovery is wasteful? Absolutely not. But we want to make sure that we're drawing out here what we know already to be a fact and what we don't know. And then as PMs or as founders or as anybody, we're going out there and we're trying to discover what we don't know, right? We want to learn answers to those questions.
So if you're a product manager working with founders, I would really sit down with the founder and talk through their experience. They may be seeing this as a waste of time because they may have proved it somewhere that they know the answer to this because they were out talking to customers or they did a bunch of work on it or before you got there, there was a bunch of data on it. Talk to them. Try to figure out what they know and pull it out of their brains. You might go off and gut check that by yourself, but you don't need to involve them again unless you find out that that might not be true, right? Then go grab them, involve them, show them that it's not true, show them the experience. Then on the things that you're not aware of, ask them their questions, figure out what they don't know, align and make sure that those are both things that you don't know, and then go out and do that discovery. You don't need them to be hand-holding you the whole time, right? Like you can involve them in discovery and have these types of high-level conversations about strategy, customers, known-knowns, unknowns, and not be like, hey, come to all these user research sessions with me, right? Record them. Put them into like little sound bites so that they can hear it. Take out the most relevant parts of the customer discovery process and show them that in a packaged way that actually leads to action as well. You don't want to just dump a whole pile of discovery on a founder's desk and be like, hey, I did a bunch of research. Don't you care? It's like put it into something that they can do something with, something that has action, something that's like, hey, I went out, I talked to 25 people, and we came back and found out that we shouldn't be building this.
Here's all my facts and data. Here's what people were saying. Do you feel like that's right? Tell me why, like what am I missing here? Look at these things. Should we change direction? Depending on how well you did that user research, if you did it really well, it should be a cut and dry case. If you didn't do that user research well or you weren't asking the right questions in the founders' minds, maybe then you're going to get into a debate with them. So that's why it's important to align on what the questions are that you're asking up front. Make sure that you're really understanding what problems you're going to go out there and discover and then go do it. So this is going to help you get into those fights where founders are not going to listen to you if you align on those things and you ask the right questions. So that's going to help PMs really working with founders. Now, founders yourselves or PMs, how do you get comfortable with these things? You got to just be comfortable with being wrong. And that's all right. Discovery is a chance for us to go out and to learn. And the best way that we can learn is to remain curious. And that is a critical component of being a great product manager is to be always curious, to always want to be learning about your customers. So really embrace that and focus on it. That's how you can get comfortable with doing discovery work.
Thank you for your questions on Dear Melissa. I love our little two-four this week. If you have questions for me, please go to dearmelissa.com and I will answer them on an upcoming episode. I do prioritize any voicemails that I get too, so I love to hear your lovely voices. Drop me a line. Now let's go talk to Leah. Did you know I have a course for product managers that you could take? It's called Product Institute. Over the past seven years, I've been working with individuals, teams, and companies to upscale their product chops through my fully online school. We have an ever-growing list of courses to help you work through your current product dilemma. Visit productinstitute.com and learn to think like a great product manager. Use code THINKING to save $200 at checkout on our premier course, Product Management Foundations. Welcome, Leah. It's great to have you on the podcast.
Leah - 00:07:35: Thank you so much for having me, Melissa.
Melissa - 00:07:37: You have been writing and teaching a lot about product-led growth over the past couple years. Can you tell us a little bit about how you realized product-led growth was valuable and what was the thing that really sparked that moment?
Leah - 00:07:51: In regards to my career, I was incredibly lucky in the sense that I was part of two hyper growth companies. And one of them was with what you would normally understand with product-like growth, which was about freemiums, offering your core product as a free version with a reverse trial, which means you can book a trial. And if you don't like it, you can revert into the freemium again and so forth. And the hyper growth part of this is very interesting because you go through a lot of different stages of a company from very small to very big. You start to see the introduction of growth teams as well. And then at some point, you need to start to optimize your acquisition funnel because you're dealing with dozens and dozens of millions of users every month. And it's very hard not to get in touch with growth in that moment. Growth is the function of how do we activate users for as little dollar value as possible. And then at some point, if you do it self-served, then it is a product-led growth function in that sense. And I was extremely lucky to be part of this twice. And the last time I was at Smallpdf, this was about two or three years ago. I've been there since the company was very small, almost only 2 million in revenue to 30 million within two years, like an insane growth and success story. And I've been at the forefront of it. And I've seen it in the first... Yeah, it was very, very fascinating too.
Melissa - 00:09:09: When we talk about different types of growth, we've got product-led growth. What are the other types of growth a company could basically be choosing between?
Leah - 00:09:17: I think the major two ones that we start to differentiate is sales-led growth and product-led growth. And usually the way that we refer to this is like, who is doing the acquisition? You may have heard the phrase of a product that sells itself. I have a problem with this because it doesn't really tell you exactly the full story. Because no product sells itself just by itself, especially if you start to have higher values of your individual customers. That's just not how it works. But I think conceptually, you can differentiate between the product or a salesperson talking to you and trying to convince you that you're doing it. In reality... We have a lot of hybrid models, which means you try to decide how many of the people that we have in our inbound, so like in the channels that we have reaching out to us passively, should we handle with salespeople? Or how many of those should we handle through the product itself? And this hybrid approach, sometimes you call it product-led sales, or you are still a PLG company with salespeople. It really depends on how you're doing it. But a good number to keep in mind in this regard is that every PLG company beyond 5 million in revenue probably has salespeople. So product-led growth does not mean that the product has solved the problem of sales. This is not what it means. It's not very realistic. I specifically consult in B2B, which changes the story also a little bit. So there's a differentiation between doing this in B2C, so like with normal customers, versus where you do it with B2B clients, because the functionality is, in some ways, the same and in some ways completely different.
Melissa - 00:10:50: When you're a company and you're trying to figure out, should we be doing product-led growth? You also mentioned you have this decision to make where you say, do we get sales involved here? Do we let the product sell yourself? Can you give us an example of when that decision gets made and how it should be made? How do you know when to put people to salespeople or when you can have the product actually try to sell itself?
Leah - 00:11:11: I think the underlying question is usually, do we need product-led growth or do we not need it? And there's a couple of different scenarios where you talk about this. If you are a new company, a very, very young company, what that usually means is whether you should have a freemium version for your product. Very, very commonly, the answer is yes for a lot of SaaS tech products. So most of the people that are listening are probably doing something like that. The problem that we have nowadays is that the creation of products or companies per se has become incredibly simple compared to 10, 20 years ago when we entered the industry. And the effect of this is that in order to lay the road to this market where the customers are technically enabling a self-serve function, making it possible that you can try something without someone calling, may have become cheaper. But there are so many people who are now laying the same road to the same kind of city, which has not grown substantially, that we are now competing with much, much more people. And that means that it's just not that simple anymore. You cannot go from door to door and just say like, hey, look, here's my product. Here's my product. It's free to try and then sort of works out. So a lot of companies have really good freemiums. They have a lot of good stuff there, but nobody's coming. And this is weird because when you're very early as a company, very often what you have to do is you have to go out and actually talk to people and do a sales-led approach, even if you're a PLG company.
Almost everyone that I know that has ever founded a startup remembers their first customer. And the reason for this is that you actually went out and you had to sell it by yourself. It doesn't. Does that now mean that they are a sales-led company? No, it doesn't mean that at all. So for the younger companies, this is very, very common. Now, if you're a mature company, there are two ways. Either you are already a PLG company, like take Slack or a B2C company like Spotify or whatever, and you try to figure out. So you're very early, right? So like, let's say you have figured out like, okay, this is what we want to do. We want to stream music and so forth. And then you try to figure out, okay, should we now fully bet on product-led growth? Or should we? Or should we focus more on the upmarket segment, which means we have less customers that are individually worth more? And depending on how you answer this, in which market that you want to go, the answer is almost a given for you. Simply for the reason that it is not worth it to do anything else in either market other than the thing that it is made for. And the answer is very clear. If you have a lot of customers with very little value, you almost have to do product-led growth. Because if you have 10 companies who offer the same. Two of them are sales-led and eight of them are product-led. That means that you can test the eight without having to talk to the other two. And therefore, you're going to win on every corner.
First of all, you're going to get all the customers. You don't have salespeople to pay and so forth. In commoditized markets where we have offers for the same kind of problem, in principle, product-led growth really has its moment. And the reason for this is that there's just not enough time to test everything. Customers nowadays, they want to test two to three solutions and then they take something because it's easy to onboard. Nobody wants to talk to Gary, the sales guy. That's just what it is. To answer your question in this regard, you have to do it if you're getting commoditized. So if the market is turning into a red ocean, is what we call it, like if you have a lot of competition. But it gets really interesting if you're a sales-led company. So you have a lot of salespeople and you have usually a feature factory, something that you also have been talking about quite a lot. And now you see competition creeping up and they offer freemiums for the same product that you have. And this is very, very difficult to go from a sales-led company because of the company structures to this PLG approach. Should you do it? Yes. Can you do it? Maybe. But it is difficult because it requires much, much more. For anything where you deal with a lot of competition, PLG is very, very often the right approach if it is possible.
Melissa - 00:15:14: What about companies where they need data for you to realize the value or something? Like, how do you recommend that to them? What should they be concentrating on? I can think of stuff where it's like... You plug in your APIs or your data streams, it populates. Now you can actually pull your reports or do what you need to do to analyze it or it does it for you. I've seen a lot of those companies, they're still SaaS, but they like struggle with. Do we need to be sales-led? How do we get people in here and try? And they do deal with exactly what you're talking about. Like nobody can try it. So nobody really wants to go talk to the salesperson. They can't even see what it kind of looks like, except for a couple of screenshots on the website. They're going to turn and go to somebody else or use a different solution on it. What do you recommend for them?
Leah - 00:15:57: If you take away the customer's perspective to be like, is this PLG or is it SLG or whatever? The answer is almost always it's either one of the three things that you can do to show value without having to pay for it. What I mean with that is fundamentally PLG is about showing value and not talking about it. And what that means in turn is that we only demand payment after we have some kind of intent from you that you know what you're buying and that you really want it. So now what you described is something that is quite interesting. Are there products that require heavy integration before you can see any value? Let's just start with a very progressive example. You can either have a freemium. A freemium would be like a free version of something. Now, this does not work if you have an integration where you have to plug in your data. Then you can have a trial. In a trial, this also only works if the integration is not that complicated. Think of an analytics tool or something, you know, like where you also need help from the vendor to kind of set it up. A trial also does not seem to work. But then there's a new player now on the field, which we call interactive demos. 10 to 15 years ago, I remember when we were going to marketing agencies, we said that, hey, can you make a version of our product that is animated in Flash? Leah was a Flash developer back then. And I'm not kidding you. I actually knew how to code Flash. It's kind of embarrassing, but...
Melissa - 00:17:16: I mean, everybody did it. It's not embarrassing. It was a thing. It was some rage.
Leah - 00:17:19: If you know that I just attached the word coding to ActionScript, then anyone who's an engineer is probably laughing. Anyways, Flash does not exist anymore. Interactive demos do. And the way that we look at interactive demos is that it is a representation of your product that allows you to get at least some kind of glimpse of what you're getting in the product without using the product. I'll give you a very good example. We start to mention Zendesk quite a lot. Now, Zendesk is a very interesting case. So Zendesk is a support tool that also allows you to do in-app purchases or like sales support where salespeople are starting to grab a conversation and say like, hey, can I help you with whatever you want to buy with our website and so forth. So Zendesk is a full kind of support platform that you can plug into your website. Now, I remember 10 to 15 years ago again, or whenever, the way to test out Zendesk was that you had to take a code snippet and you had to put it into your website. Then you had to call the web designer or the webmaster, as Lea was called. She was pushing it to the web server and then you were able to test it. Even if you were not buying it, that's a lot of steps. There's a lot of friction to kind of get something working. But it was possible. But nowadays, if you go to the Zendesk website, what they allow you to is to look at an interactive demo from four different perspectives. So one of them is, from the support agent, how does this feel and look like for the support agent? How does this look like for the admin? This gives you a very good perspective of like, is this tool for 10, 50 agents? Can you handle 10,000 agents? Because this is also a thing, like if you're, imagine you are a call center leader for the Deutsche Telekom. You have 10,000 call center agents that you kind of need to manage with this. This gives you a lot of insights that are probably not written on a feature page that are so easy to digest. And then the fourth perspective is from the salesperson. So what happens? You go to the demo and then it asks you, who are you? And then it asks you, And then it shows you the respective tour. Now, the interesting thing is this is nothing new per se, right? Like we always had videos or some other stuff and so forth. But the cool thing is now that these interactive demos, they come with full tracking. This is important.
So what we do usually specifically in B2B is we ask for email addresses. So you cannot even look at the interactive demo without at least providing an email address. That does not mean that you're going to get badgered by salespeople and so forth. But it gives us as a company a very important insight. Let's say you take your work email. And you're looking at this interactive demo. And I say like, hey, this is very interesting. My coworker, Melissa, would also be interested in this. So we make it easy in the interactive demo that I can invite you in by just typing in your email. And then you can also select again, like which role did you have. This gives the company that has the interactive demo a really interesting insight. Two people from this particular company have looked at this. And this is now connected hopefully with HubSpot, which is a tool that is being used by sales quite often. We're starting to use this information. At some point, if either you or me are starting to call them or someone from the company, that we can utilize this kind of data. So this is kind of like one version of what you can do. And it is very rare to me, and I talk to heavy, heavy integration companies, it's very rare that we cannot at least give some kind of interactive demo in some way of your product. Not every product is being handled through an interface, but we have some very interesting cases where I can just tell you, like one of the hardest cases that you could make for PLG is an API product. So an API product would be, this is what we did at Jua.
When I was the head of product at Jua, we offered weather predictions that were beating everyone around the world from any location in the world. And we serve this to you by an API. So you can say, hey, I would like to know what is the weather in the next two weeks above my head right now. You would connect to the API. You pull the data. And then you wait for kind of two weeks to see whether the prediction is coming true. This is very integration heavy. There is no interactive demo that you can give of this because the value is in the prediction of the forecast. Our problem was, well, we also cannot expose our entire API just for everyone to use this. Because then you can actually just, you can make a product out of it at the same time. What we started to do is, and this is a very interesting thing because this is how growth also works. We started to kind of analyze, okay, how does our entire sales process look like? You go from, you have to kind of convince the customer for the testimonials, the expert opinions. Here are some graphs. Like here are some performance tests that we did. Here's an external website that was answered. Like we tried to convince the customers that what we say is actually true. And at some point we were developing a concept where we were thinking like, hey, maybe we can make a demo API that you can self-serve yourself an API key. As long as we know from it, right? Like we will also getting some warning if you use it too much. Where you have very distinct locations that are always used for testing, but that are not good enough to get a full kind of product experience. Even in a business like this, essentially what we did is we just tried to analyze the customer's process and try to understand what is important to them to understand whether what we offer is good enough. So in some way, this is also product-led. Could you pay the entire process by yourself with a credit card? No, these products cost at least 250,000. Bigger your company is, the more that you have to pay. That's one of these examples. I just want to give one more example that is really spot on to what you just asked. And that was in fraud prevention when we have transactions, specifically financial institutes, because this is usually a very good example that people said, like, it's not possible to do PLG in a highly regulated area.
What happens is, for instance, you're a payment provider and you want to know if Melissa pays, whether it's the real Melissa or someone that pretends to be Melissa, someone that is trying to launder money or something. So these fraud prevention services, they offer you to check the transactions and then give you some feedback. Now, again, the value there is also coming from, do I detect Melissa if she's fraudulent or can I actually capture something before it actually happens? And for years, companies said that this is not possible without a heavy integration. And I was advising such a company. And then about two years ago, we had this bombshell announcement from Seon.io, which is a PLG company through and through, to my knowledge, without any sales department, that allowed you to set up a completely custom environment that was guiding you through the entire integration yourself. And it's highly, highly complex integration. But they knew that the people who are interested. The people who are interested in this are extremely professional developers and financial institutes that have the knowledge. But they still do not want to talk to the salesperson. This was extremely interesting because the cost to serve was expensive, right? Like it's not just like you just pay like a couple of cents and so forth. I would not count PLG to be somewhere where it shouldn't be sometimes, right? Like it can really go into places where you don't think it should be. And I think in the future, we have some kind of customer-centric ways of trying products for sure.
Melissa - 00:24:30: It's funny how much of this is like driven by people not wanting to talk to salespeople. And I get that completely because I hate talking to salespeople. It drives me absolutely nuts. Every time the Google AdWords person calls me every month, I like freak out. I'm like, please do not talk to me. I'm not, I like everything is optimized. Somebody runs it. I'm not answering this phone. It's like ingrained in us almost. We're like, no, just give us the product. Let me try it out. And then I'll go talk to a salesperson. But I wonder like where some of that shift came from, right? Because like so many B2B products you couldn't buy back in the day without talking to a salesperson like we're talking to. And now everybody's like, like, let me just get my hands on it. Let's get into it.
Leah - 00:25:08: There's some really interesting data on this, actually, on why we do not want to do it. There's a couple of reasons. So the first one is a very obvious one. It's like social anxiety. Some people just do not want to talk to other people. I'm ironically someone like this, especially if it's about negotiation and so forth. So I do not appreciate the negotiation part. So why I have a pricing page on my blog, what I cost, is simply for the reason because I do not want to discuss it. So people see exactly what I cost. The other thing is, if we know... What another person's incentive is. And then we also have an inherent distrust on what they're telling us. So everything goes through a filter. And this typical stereotype of the car salesman who is getting a 10% cut of whatever they're selling you is leading to a very interesting situation because the higher the price they give you, the more money they make, of course. And we know this, we are aware of this. So this is very interesting. And I think one of the worst industries to show this and lawyers are incentivized by hourly prices. What happens if I send a document to another lawyer in another company to check before I actually consult with them because this is the usual process that I have, the lawyer is there. So first of all, their money is paid by the hour. The second thing is they are there to prevent risk. So that's their whole incentivization. But they're not there to find a really good compromise. Now, every lawyer that is listening says, yeah, of course we're doing it and so forth. But like experience just tells you otherwise. It's just natural. I think this goes so far that I say all these companies that I advise on how to scale and, you know, like finding processes that do not actually work. More often than not, it has to deal with wrong incentives. If you reward a salesperson to get a specific cut when a signature is coming in, then they're going to sell the customer more than they need. It's not the fault of the salesperson. That's the fault of the incentive that you put in place. If you do not in some way incentivize product teams or product managers on customer success, then by tendency, they're going to slip into the feature factory. This is normal. It's not the people's fault. It's just a problem of incentives. So this is how I always approach this. We always try to define the strategy, the ICPs and so forth, but then you really have to work with incentives. Culture is a result. You cannot say that, oh, we should not oversell our customers. Oh, we should not overwork and do long hours. But then at the end, you celebrate everyone who's bringing in the 250,000 contract or everybody who's worked on the weekend last week. There's a mismatch between what you say and what you do. And I think it has to deal with that.
Melissa - 00:27:42: So when you are working with companies who want to become more product-led growth, how do you recommend incentivizing sales people so that we don't fall into that? Because I think that compensation is pretty well known where a lot of their salary comes off of what they close. What makes it so that we're all working in the best interest of the customer and the product?
Leah - 00:28:02: So this is a very fascinating question, and I think usually for companies that are mature. I'm talking for most B2B companies, let's say they have at least 5 million in revenue, you know, like they have some kind of maturities. They usually need to run both functions at the same time. So they have some kind of self-serve revenue and then they have a sales pipeline. Let's just go with two hypothetical scenarios. So you need to kind of understand what we try to achieve with PLG. What we try to achieve with PLG is in the freemium, we try to kind of onboard the customer or the user onto the product, which means we show you some value. We usually call this also the aha moment. And we try to measure this. So far, so good. In the trial phase, specifically in lower markets, we try to onboard you onto the payment process. Now, let me elaborate on this. So this means usually you have to provide a credit card information or some kind of information of yourself. You're still in a free version, but if you do not cancel it or you need to make at some point, you need to make a decision whether you want to buy it. If you buy it, we try to get the money from you. That is true, but as little as possible. And that's very, very interesting. So at the first payment purchase point, we are using the information that you provided from before close you. The real value of PLG comes further down the line. So it's very, very common that we actually try to focus on expansion. Now, what does that mean? And why is this so important? Imagine you are a product manager in 2024. It's very likely that you have some kind of authority over a product budget that you can use for your team. So for instance, let's say we need a new product management organization tool because everybody hates Jira. Jira is an absolute tire fire. So we want to use Dragonboat or whatever, right? So we want to use some kind of new tool.
If you allow this tool to be used only by one team. Which is very common for like if you have a freemium or something else, then that team can close the deal by themselves because the value of it, the initial value is below this amount that the product manager can decide for themselves. Now, why is this now important? If you work for a really big company, let's say I'm at Microsoft and I manage one of these product teams there. The moment I buy something from them, they are now in the system as a vendor. If for some reason in the future, another team or the same team or me as a person get promoted or whatever, and I bring this tool now to more teams, the vendor is already in. Some of the due diligence does not need to be made. And even if it costs north of $25,000, you know, the entire process is going to be different. And this is what we talk about, right? So like we try to get into companies and we try to grab enterprise value before it comes enterprise value. We're still fine if just the product team itself is using the product. But this step-by-step performance where you try to escalate people from one level to the next is kind of what you want to do. Now, why is this important if you talk about sales? Because the way that I just described it, even if you give sales the benefit of the doubt and you say like, you know, like you're acting in the interest of the customer, trying to get the maximum value when you close the contract. Very, very often when you have a classical sales intensivization, so you say like you get like 20 to 30% of the contract value as a bonus.
What happens is they close the contract and then they're gone. And then you get some other guy, some from customer success, who is really great themselves as well, but like you're out of the picture. So what you want to do in an organization that is PLG and also has salespeople is you say to the salesperson, hey, you know what? Instead of giving you a bonus of 30% on closing, we give you an increased bonus if the customer that you are going to bring on into the company is going to expand in the next year. And then they're going to say, are you crazy? Are you crazy? How should I know whether a customer is going to expand in the future? And then I'm going to say, I'm very glad that you're asking. Because one of the things that we do in PLG is we analyze behavior. And this is where the magic happens. So sales is really good in thermographics, understanding who a customer is, how big is a company, how much budget do they have, who is the buyer, who is the user, how many admins do they have, what is the compliance necessary, and so forth. PLG is really good in analyzing the behavior. If you combine these two. You suddenly have a motion that allows you to do PQAs, which is a product qualified account. And then not only do you know with whom you are speaking, but also whether they're ready to buy. And that means if one of these accounts. Is using the product in a specific way. So for instance, if they are visiting specific pages that only an interested buyer would look at, or if they start to invite a specific amount of users that we know correlates with buying interest, then a salesperson can actually actively call them and use this data and suddenly have someone on the call that is interested rather than, hey, Melissa, I would like to talk with you about something that is not on top of your mind. And that's just embarrassing, right? Because. Someone that is being activated like this. Expands afterwards much more likely than someone that is being talked into a product that actually does not have a real need. That's the big difference. What we do is we try to incentivize sales on expansion revenue. And we also sometimes pay them for more customer success functions, you know, like calling up your client from time to time and really care much, much more in that sense. And that generates much more interest. It surprises people when salespeople do not push for, or Melissa, you really need like 500 licenses just in case, you never know, right? So that's the principle.
Melissa - 00:33:42: Are you eager to dive into the world of angel investing? I was too, but I wasn't sure how to get started. I knew I could evaluate the early stage companies from a product standpoint, but I didn't know much about the financial side. This is why I joined Hustle Fund's Angel Squad. They don't just bring you opportunities to invest in early stage companies, they provide an entire education on how professional investors think about which companies to fund. Product leaders make fantastic angel investors. And if you're interested in joining me at Angel Squad, you can learn more at hustlefund.vc/mp. Find the link in our show notes. With this too, it sounds like it's also beneficial for the salespeople because they're not wasting their time on cold leads, which is, I think none of us love getting cold emails. But I also know salespeople used to have to work really hard through the cold leads and you never knew who you were talking to. So this feels like a way better use of their time.
Leah - 00:34:32: I started to enter the industry specifically in enterprise selling businesses. And I know a lot of people make jokes about this. For instance, there's a company called Gong, and the name Gong comes from the sales gong. Everyone who has been a little bit longer in the industry knows there's a macho culture in sales, you know, like where salespeople are just like, they ring the gong, they amp themselves up in the morning and so forth. But there's actually a quite interesting story behind this in that. I remember when we were selling mobile contracts for enterprise businesses or SMBs, and I remember that I was sitting next to the salespeople. And. From about 100 calls, 95 just hung up the phone. Half of the rest were just cursing at them. And that one person per day that they got through, not always closed either. That is an extremely demoralizing, tough job. You know, some people always get like the bad rap, like, ah, you know, like just trying to trick the people and so forth, you know, like living your high life. And I think a lot of these kind of rituals came up because it is an incredibly demanding and tough job. And one of the reasons why companies still are using this kind of compensation model from the 80s, where we do pay a lot of money, because frankly, if you do not pay a lot of money, it doesn't work. Then you understand that there's a reason behind it. And it's not just because they are, I don't know, it's not because every salesperson is a macho person. It is a tough job. And if the only thing that you can go by is an address, then you're going to get rejected a lot. I also prefer to only be called by people with stuff that I'm interested in. So for instance, if someone from Miro would call me up, I would gladly chat with them. I would start to ask them like, hey, I've been using the product and so forth. What's going on with you guys? But yeah, this is what it is with salespeople. It's just, yeah, it's an incredibly difficult job. And as you said. You have a much higher closing rate. And people who love your products, they buy much more likely. What a surprise.
Melissa - 00:36:27: One of the key things I'm getting out of here too is this combination of connecting sales back into product and understanding that, you know, how do we diagnose which, you know, almost like a go-to-market strategy, right? Like what's our ICP? Who's our person? Who are we going after? But then connecting it back to the usage and value, trying to demonstrate that value earlier and then get them into this like web where we can keep showing them value and get them to close. I see companies really suck at connecting sales back to product. This is one thing that really blows my mind when I work on boards or when I work with executives. How much some CROs don't understand that by them taking a lot of that information and bringing it back to product, product can build better systems and things like demos that we were talking about or freemium versions out for sales to be able to close leads better. And product on the same side, not going to talk to sales thinking like, oh, they're just there to put stuff on our roadmap and bug us and not understand that whole wealth of knowledge there. If you're an executive at a company, you're a CRO or a CPO, how should you be working together? What have you seen be extremely effective to make sure? What kind of data would you want as a CPO from the CRO that helps? What should you be asking for and what should you be asking of your CRO? And then on the same side, if a CRO is listening, what should they be? What should they be doing with product?
Leah - 00:37:51: That's a very good question. Let's say you do PLG in the way that Leah preaches it. What I'm talking about, if you do PLG, it's not just to have a freemium and you have a trial, but you also start to measure the intermediate steps in those that lead you to monetization. So usually we talk about setup, aha moment, eureka moment, and habit moment, you know, like measurable signals that we can pull from the product to see whether someone is using it successfully before they pay. Yada, yada, yada. Let's say you can analyze this and you can understand this. So the first consumer of this data is usually product. The first consumer in the company to optimize these signals to bring people to monetization is usually called a growth team. So what they do is they optimize the entire onboarding flow. They own usually something from like free to trial, trial to pro and so forth. The CRO or sales in that sense has a very interesting position because they can use this the same data not to optimize any flow because they're obviously not working in the product, but to close better.
Now, this creates an interesting problem because as I said in the example before, you can use this data to kind of figure out whether someone is ready to buy. Now, this qualifies your pipeline. Let's say you have a pipeline of a thousand leads. And if you don't do anything, you just do cold calling. Let's say you close 5% of them, whatever. Let's say with product led sales, you're closing 10% of them. So product led sales would be doing it. You analyze the data. You're doing the data driven. You try to understand usage based tracking. The problem is the moment you start to become successful, what the CRO might think. And I had this a couple of times as well, is that, oh, this works really well, so why do we not hire now more salespeople? And there's a very inherent danger that makes product-led sales very fragile. And that is... If you do not have more leads, then you have capacity with sales. Then you're killing the entire approach again. Because what's going to happen is if you have too many salespeople servicing the funnels or like the leads that you have, then they will start to grab leads that are not activated yet, rendering the entire exercise useless. Why does this happen now? Because very commonly, a VP of sales or a CRO is incentivized from the C level. Or the board, or whatever structure you have in place, by the amount of revenue that they push. The same principle that applies to the operative salespeople on the ground now also applies to the CRO. You have to be really careful. That you're not incentivizing and putting in a structure. That kind of incentivize sales to gain the system. Because if there is one company function that I know that is very, very clever about their goals and really knowing what they have in their yearly commitments, you know, like in how the bonus is being paid out, it's sales. These are professionals who are dealing with this every day. They're really good at this. They're also really good at using HubSpot, and they suck when it comes to data. The second part of this answer is, so now what can CROs do? So let's say you do protect the pipeline and you understand all of this. I'm firmly convinced with a lot of people that the time of data-driven sales, so like behavior-driven sales, is coming. We call this really product-led sales. There's a couple of companies out there that are doing this. Pocus being one of them, Endgame one of them. Correlated, they just closed their doors like one or two days before our recording here. It is going to be very difficult to say like when it's happening, but we're pretty sure that it is going to happen. Because the unit economics really are in favor of this.
So the amount of money that you spend on a good data architecture, analyze these customer signals, and then putting it into a report that helps sales to not only have to use it, but also to close better because then they will use it, is really key. And usually one of the problems that I see is that a lot of companies are trying to say that, oh, you have to use more data. Oh, we should be more this. We should be more that. Instead of what you should do is you should set goals that make people ask, how am I supposed to do that? And then. You give them the tools. Just like I said, you know, like, so we give you more money on expansion than they're going to ask. So like, so how should I, how should I know whether an account expands? And then you say, okay, so here's a product team that can help you also to understand usage data much better. And they can build you dashboards and customer oriented dashboards to really understand what a customer has been doing. And if that helps the salesperson to close better, they will use it every day. That's how you catch the bee with the honey in the sense. And that's what a good CRO does. So they know really how to drive this and that it is not just a paper tiger and that it becomes effective. That's how you do it. But it is hard work.
Melissa - 00:42:36: Yeah, it does not sound easy by any means, but it does sound valuable. The one thing you mentioned too, is you started talking about growth teams. And I think there's a heavy debate in product about, you know, where does a growth team live? Is it with the CRO? Is it with product? And how are they different than other product managers? Like, shouldn't all product managers, well, some be focused on growth and some might be more focused on churn, but shouldn't everybody be growth minded on the product team? So where do you see, like, when do you need a growth team and how is it different than just your regular product managers?
Leah - 00:43:07: This is also a fantastic question. And I think I talked about this just yesterday in a video where I tried to explain for like five minutes, where do you put growth? Essentially, you have a couple of choices. You can put it on their marketing, you can put it on their sales, you can put it on their product, or you can put it on the same level with product. These four methods I see, all of them have an advantage or a disadvantage. But let's say we go with the most common ones to not drag this on for too long. But usually you see growth combined with product or it's under product. And as you said, a lot of product managers are asking, what is the point of this? Like, what are they doing? If you think about a company's skeleton or concept of a company, we usually think about marketing doing acquisition. Product doing some kind of retention, so the value of the product, and sales being responsible for monetization. And if you do not have sales, then the CEO decides it or whatever. Whoever has the best mood at that day. The interesting thing about growth is that it fills two very, very important functions in the company. If I go and just say that we're just now looking at marketing and product, and I go as a product leader and I say, hey, how much money will we make if we start to bring collaboration into our product? Because this is a feature that we do not have yet. Let's say we are Canva and it's just like a single user thing, but we want to have collaboration on it.
Then you as a CEO are going to expect the business case around this. And in this business case, there should be numbers on what you think this is going to do for the business going forward. Now, product person struggles very hard with this because usually product people have absolutely no idea how company financials work. But let's assume you do. Then what they do is they usually try to create a business that is going to be a business that is going to be a business that is going to create a business case, very, very focused on retention again, or like what the product does. But what you should do is you should go to marketing and then ask them, so what does this now mean for marketing? Can you actually form new keywords? Does this mean we create new costs on the content side? Can we create new leads because of this? The inverse also happens. If you go to marketing and you ask them how much money this is, then they do not talk to product. Every function does not know what the other one does because marketing stops caring when someone comes to the website and product does not care. They care about anything that does not happen or that does happen outside of the product. My first touchpoint in growth was to create business cases outside of a product function that go over all functions of the business. And nobody's doing this. Product doesn't care. Sales definitely does not care what happens in the product as long as they can sell better. And selling is not the ultimate goal. Retaining is the ultimate goal. And marketing also doesn't care. So what growth usually does is they try to find the best opportunity, whether it is in acquisition without doing the entirety of marketing's job, whether it is in retention or whether it is in monetization.
This is why we talk about usually activation, where we say that growth is responsible for activation. Now, what does activation mean? Depending on where the problems are in your product, whether your pricing is too high, whether your onboarding funnel sucks, or whether your messaging is just bringing in the wrong people, growth will try to optimize where the biggest problem is. But a product team will not fix a marketing problem because they are a product team. So a firefighter will always fight fires. They're not going to fix your plumbing. And that's kind of like what we try to address with growth teams. We really try to break down these silos that we have imposed on ourselves. You also were talking about this in your book, right? Like we used to have these matrix organizations that are just like you have on one floor, you have marketing, and then on the next floor, you have product managers, and then the engineers are somewhere locked behind the toilet or something. It's just a concept from the past that just does not work that well anymore. We try to kind of address this with growth. I'm a big fan of putting it on the same level with product. And in some ways, it is a little bit of a horizontal function. And a healthy way to introduce it into your company is to bring one team in at the bottom, not ahead of growth, just one team at the bottom. Then make them successful, help them to also help the other teams to succeed, to be much more outcome-driven. And then you can talk about an entire growth function. We can also talk about what the actual difference is between a product and a growth team. But I'm going to pause here. But this is how my definition is for what a growth team is.
Melissa - 00:47:24: I heard somebody mention the other day, I was talking to a CEO and they hired a new CRO and that person brought in a life cycle manager, they called it. And I was wondering if you ever heard that term. But their job was to basically like follow the person through the entire life cycle and make sure all the touch points were there.
Leah - 00:47:40: We used to have those as well at Smallpdf. This usually comes up when you have some kind of, not necessarily friction with marketing, but they also try to solve kind of the same problem. I'm not aware of the function being that much different than growth, but usually they are not structured like a product team. So what we talk about when we talk about growth product management usually means that you are a growth PM with engineers, maybe very, very often a designer also in the team for the designs, for the onboarding flows and so forth. But you have an entire team. I'm not aware of lifecycle managers having engineers and product teams, but essentially they're trying to do the same thing.
Melissa - 00:48:15: That makes sense. One thing I want to touch on too at the end is you wrote this article about the upcoming 2024 bloodbath in SaaS becoming vertical, maybe your life jacket, which sounds very doom and gloom. But I'm really curious, what do you see on the 2024 horizon for product-led growth? We've got a lot going on in the tech industry right now. There's massive layoffs happening. Lots of smaller companies are shutting down. What are you observing out there? Why verticalization?
Leah - 00:48:44: I think this is important to understand that there are two movements right now that are amplifying what I am going to talk about in a second. So the first one is we had this problem two to three years ago where money was just like not that cheap anymore. I mean, if you did not see that or like if you did not experience this one, then I don't know, like, but everybody felt this one. But a lot of layoffs because of this and so forth. Interest rates are now at a point where we're just not going to go back to this bubble in the next five to 10 years, probably. Right. So like valuations are much more realistic right now. So now what does that mean? That means raising money is not that easy anymore. It also means that if money is not that easy to raise anymore, it's also not that easy to raise for your customers. That means that they also cannot spend that much money on your products. The entire metric about how much you can go into debt to grow exponentially afterwards is not going to be that extreme anymore. In essence, you just make less money for the money that you spend right now. That's just what it is. So everybody's talking about we should become more efficient. So what does that mean? When we look at company performance numbers, we have certain amounts of CAG paybacks. So like how much time does it require before we get the cost back when we acquire someone? And through the entire industry, these numbers have worsened. We see this really on a very, very broad scale right now. And SaaS is not the revolution anymore that it used to be. Right. Like, I mean, everybody's SaaS business right now as well. That's the first thing that was changed.
The second thing why we will not return to a performance from before, even if interest rates would go back to the old levels, is that AI and some other things that just make the development and the production of products, right? Like we're starting to become much, much more efficient is going to put even more pressure on the markets. This is what I talked about when I said commoditization is coming. If you have more products coming in to compete for the same kind of customer, then prices are coming down. If prices are coming down, then you have less chance of... Actually closing someone for the same price that you did before, which makes your entire calculation go back. Now you have all these sales led companies and also PLG companies, and they are wondering, what should we do? Now as a sales led company, and for most PLG companies as well, there's only one answer. And that means going up market. And going up market is a different word for we try to charge more per individual customer. Now, there's two ways on how you can do this. You can either enhance the value of your product, which is incredibly difficult because we're doing this anyways, or you start to verticalize. And this verticalization trend has been extremely strong. On one hand, I started to notice this as well. Like this is very anecdotal from my right now, but like in my inbound, I started to see companies come up with these really specialized solutions. So it was not about, hey, Lea, we have a fitness app. It was more like, hey, Lea, we have a fitness app for moms that have been pregnant in the last year in Spain in this particular area, right? And I'm like, oh, okay. So that's very vertical. But the thing is, if you niche yourself down, it means you're addressing less of the market, but this is the exact way.
This is how you charge more per individual customer. We have now a lot of good data to also substantiate these claims. An interesting survey that we did with Pocus and Keyplay very clearly showed that the go-to market leaders of these companies agree, right? So like the three most mentioned reasons or like worries that they had on top of their mind was to go up market, to find new sources of leads and to improve sales productivity. Now, sales. Sales productivity and going up market are the same word. That's exactly what this means, because you can either close more or you close the same, but for more value. That's the same that this happens. An interesting report by OpenView with Paddle went exactly into the same. So what they did is they analyzed and were looking into what defines an outlier in 2023. So which businesses are exceptionally doing well? And it's very clear that it is vertical SaaS. And this makes a lot of sense. Most companies that I talk to are very, very afraid of verticalization. What that means is you usually come in and then they say, oh, we have the best app for this and that, right? So like they have an ICP that is very broadly an ideal customer profile that is very broadly defined. And then I say, hey, why don't you try to execute for this particular one first, really execute on this well, become a verticalized solution just for this particular moment. And then they're always afraid because they have some revenue from these other guys. And then you have these really difficult conversations. It's very rare that I see a company close because they're too narrow, but it's very common that I see companies just go out of business because they do not know who their customer is and they're just being too broad. They have some firmographics, but they do not really know for whom they actually create the product. The answer is going on market. And the only way to do this seems to be still verticalization. And I do not see any reason why this would change in the near future.
Melissa - 00:53:44: I have been seeing a lot of platforms out there too that are struggling now with consolidation because if you're trying to be everything for everybody, somebody is going to turn to another product that already has that functionality, especially if it's not differentiated enough for you to make a case of why we should keep you. And to me too, I've been having so many conversations about verticalization out there. And I think you really addressed nicely how it helps the sales part. I think it helps product development too. When you're building everything for everybody, there's so many things that you possibly choose from, right? And you're not going to deliver things that are so much more valuable, right? That you're going to close a lot of sales or attract those people. And I think a lot of companies can learn from that playbook or from people who have done it, how nicely the product development side and the sales side goes together if you really lock down on that persona and that ICP. And it's funny because it feels like it comes back to fundamentals, right? Like when we talk about building products for people who are not going to be able to do it, it's like, oh, well, I'm going to do it. New customers. I feel like in product management and in all the trainings, it's just like really narrow down your persona, figure out what your persona is, be very blatant about who it is and who it's not. And we forget that when we start to scale.
Leah - 00:54:56: Yeah, we call this, you have to be uncomfortably narrow. If you're not uncomfortable by looking at your ICP, you're probably not narrow enough. That's a good way to think about it. I mean, I can take myself as an example, right? Like my clients are enterprise clients by any definition. So I'm a sales-led business in some way as well. And when I started advising, I was a growth advisor. Then I started to be a PLG advisor. And now I am a PLG for B2B scale-ups. So now I started to narrow down the revenue that they make because that's what a scale-up is. It's not startups anymore. I only do it for B2B. I'm not doing it for B2C anymore. And I also only do it for SaaS and tech products. This is quite narrow from where I started. And I am not competing with other growth advisors on LinkedIn. I'm starting to take money from McKinsey, Bain, and some other kind of consulting companies because I have a very, very specialized offer. And the way that I kind of drive this demand is also how companies should do verticalization. They take a very specific set of ICP. So my ICPs are C-levels in these kind of enterprise companies. Then I create value for them. A lot of the stuff that you and me were talking about right now was value for them, right? So like some of them would say like, oh, this is interesting, you know, like that's interesting. Maybe she also writes on this on the podcast and so forth. We give a lot of value for this kind of type of persona, which then it's... At some point, eventually starts to convert. So we're creating inbound with this really honest value generation without saying like, oh, you need to pay a little bit first. That is at the heart of verticalization because if your product is so good that it really vows you, then you should not hide it behind a salesperson. That's kind of the principle.
Melissa - 00:56:37: Well, this has been really enlightening. Thank you so much, Leah, for being on the podcast. If people want to find you and read more about your blogs and your articles, where can they go?
Leah - 00:56:46: They can just go to my website, which is my first name and my last name dot com, leahtharin.com, and there you will find everything. And otherwise, you can just hit me up on LinkedIn.
Melissa - 00:56:55: And we will put all of those links in our show notes at productthinkingpodcast.com. Thank you so much for listening to this episode of the Product Thinking Podcast. We will be back next Wednesday with another guest. Remember to submit your questions for me at dearmelissa.com. And we will see you next time.
Leah - 00:57:12: Thank you, dear Melissa.