How to choose between a Product-Led and a Sales-Led Go-To-Market motion...and why you’ll end up doing both anyway!
Product-led growth is a hot topic and it seems as if every successful company is following that strategy. Being product-led can be very effective and we’ve seen some fantastic success stories. But its merits need to be considered objectively because there are also a large number of companies that fail to meet their ambitions because they adopted a model that wasn’t right for them.
There are many different solutions to developing a successful growth strategy and each company should take the time to consider what is right for them: product led vs sales led; direct sales vs indirect; developer led or OEM and so on. What matters is that founders navigate the decision to choose their strategy based on the unique aspects of their product and market.
There are a few topics to cover to provide a basic framework for GTM model decision-making:
First some definitions
There’s some scope creep about what it means to be PLG in the market today which is unhelpful.
I think the simplest way to think about whether you are a product-led or sales-led company comes down to when, and how, the customer experiences your product for the first time.
In a product-led organisation your customer will be able to experience the product self-serve; they can use it, play with it, evaluate it… potentially adopt and pay for it without needing to speak to a member of your sales team.
They may choose to ask for support, but ultimately they are able to experience and use the product WITHOUT having to go through sales. They experience the product before they experience a sales rep.
By contrast, in a sales-led organisation the customer has to speak to a sales rep BEFORE they are able to access or use the product. This might seem like a minor difference but you run, grow, and measure your org very differently depending upon the path you choose to go down.
Product-Led GTM Motion: Customers experience the product before they speak to a member of your team.
Sales-Led GTM Motion: Customers speak to sales before they experience the product.
OpenView are probably one of the biggest and best thought leaders around PLG in the market and, in a recent article, they introduced the notion of product-led sales, whereby companies allow their customers to experience the product before speaking to Sales. Then based on their behaviour, becoming “product qualified,” whereby a user's activities in the app suggest they’re interesting to the sales team and based on behaviour they get routed to an inside sales team.
To my mind, this is just what a PLG motion is and always has been. You can be a PLG business and have inside sales to convert high value customers or to increase adoption. They don’t have to be mutually exclusive.
The important part is the product experience -is it self-serve prior to purchase? If so, then as far as I’m concerned that’s product-led growth.
What does the data tell us?
Despite assumptions that there are many more product-led companies than sales-led companies, the opposite is in fact true, with over 70% of the market being sales-assisted only.
The reason this is important is because it screams to me: “It’s okay to be a sales-led company!” There is a lot of confirmation bias that EVERYONE is going product-led and that is the only way to grow a big SaaS business with great unit economics.
The reality is that PLG can indeed be a great way to build a big SaaS business with great unit economics but, at the moment, it’s a lot less common than people might think.
Product-led companies are far more visible and it's their job to make sure that a lot of people know about them. That’s how it works; they are building demand across a very large market, whereas a sales-led company may be targeting a market of 100 companies and doing extremely well.
So, because we know about those PLG companies, we assume they dominate the market, when in fact they’re the minority.
It doesn’t mean either is right or wrong but what it tells me is that founders should evaluate whether sales-led or product-led is right for you objectively, not just because you think that’s everyone else is doing, or that this is how you will get the big valuation, or because you think that’s what VCs want. As founders, our single biggest challenge is to build a growth engine for our SaaS product that will scale to massive heights with great underlying economic viability and inherent profitability. How you do this should be based upon your unique circumstances.
Either approach can be a good path to successful fundraising
It's hard to get credible data on how quickly those 30,000 companies are growing but what is readily available are the amounts of funding they have generated, so we looked at the average size of those 30k companies at Seed through Series E, pulling data from Crunchbase.
We bucketed the 30k companies into what funding stage they were in now, then averaged the raise across companies in each group.
So what does the data show us?
Why might this be? Perhaps the PLG companies are dramatically more efficient and need to raise less money at the later stages? Or perhaps the PLG companies have morphed into SLG companies? What is clear to me is that both approaches generate good levels of funding, but if you’re raising a D or an E round with ONLY a sales-assisted motion, you’re probably getting real repeatability around some pretty big contracts which could be exciting.
There are a growing number of PLG companies reaching the later stages of funding, indicating growing success.
When we look at the data in aggregate, showing the amount of funding going into SLG vs PLG by stage we can clearly see the evidence of more SLG companies than PLG.
There is better representation for PLG companies at seed stage, indicating recent popularity of the model, but that drops very quickly and by Series B to D there is a dramatically more money going into SLG companies, almost 4X.
We can infer lots of different conclusions for this but the important thing to recognise is that PLG is not the only route for an early stage company. People assume it’s only PLG companies growing fast and raising at big multiples, and that it's the only way to grow a business these days. But that’s not the whole story..
It’s just that the 21% of companies at Series D who are product-led are really, really noisy. It’s their job to be!
Evaluating what’s right for your business: PLG or SLG?
Now we know what it means to be product-led and sales-led, and have a better understanding of what the market looks like, we can take a step back and make the decision about what’s right for our own company based on first principles.
The decision is a complex one, with a lot of different things to consider. For clarity, this isn’t a decision making tree; they don’t cascade and they’re in no order of importance. Each of these things are key considerations.
I feel like this is the one that’s most overlooked of the three and causes the most issues.
I would ask yourself these simple questions, which you can validate through discovery:
If the answers are all positive then you have a much higher likelihood of being able to go down the product-led route.
It allows you the cheat-code the step around educating the market and building awareness of your problem. This will still be needed to some extent, but it’s important.
To give you the Paddle example: Paddle offers payments for software companies.
We do so through a business model nobody had heard of when we started and in a way that’s fundamentally different to how modern SaaS folks were thinking about building their businesses.
No software company was looking for Paddle when we started. This meant we needed to educate our buyers and we decided the best way to do that was through a direct, outbound sales team to find the companies who we believed to have a need for our product, and then educating them or challenging them around this need.
Linked to market sophistication is the complexity of your proposition and the time to value.
If your product is so complex that it will be difficult for a company to sign-up to a trial, start using the product and seeing value within 7 days, 30 days, or similar,it will reduce your likelihood of a successful PLG motion. That seems self evident, but something people often ignore.
Another major consideration is the unit economics related to the different models.
Start with this simple question: can we run a sales-led organisation cost-effectively?
Lots of factors go into this, many pros and cons. The big con of a sales-led motion is that it’s expensive! You need to hire a set of BDRs / AEs, Managers for each team in order to close a contract and, for every one of those people and touches during the sales process, there’s a cost.
As a general rule, it’s unlikely you can run a sales-led motion with an initial average contract value (ACV) that is less than $10k.
This will look different based on your ability to expand the contract - so your initial sales price may be low (ASP - average selling price), but the contract value at the end of year 1 (ACV - average contract value) could be far higher. LTV is a major consideration, not just in terms of retention but in terms of ongoing account expansion over time and of course the cost of acquisition and margins.
Most of the time you don’t see it for folks selling contracts below $10k. I have seen it as low as $5k, but it requires a high degree of automation, particularly at the top of the funnel and a high velocity inside sales motion. At Paddle we call it the “SMB Express!”
Payback period of under 12 months is deemed good and what folks are looking for. 6 months is deemed best-in class.
As an aside: One pro tip I’ve heard from folks is, even if you can’t scale a sales-led motion profitably, consider having one rep doing end-to-end sales for you. This is a great way to get direct qualitative feedback from clients even if not sustainable. Although the need for this may be replaced by a strong Product Marketing team.
The last consideration is your business viability.
Once you’ve determined what the ACV of a typical customer is going to be, you should look to build an understanding of how many accounts there are in the market for your product.
Multiply the no. of accounts by your ACV to understand your TAM.
In short, the number of accounts and the ACV has a direct bearing on whether you should go product-led or sales-led.
If the number of serviceable accounts is low then you will need a higher ACV to build a decent business and therefore a direct approach via Sales will probably be more suitable. In this case we need to be highly targeted with our $$$ spent. If I care about selling to 100 companies in the world, 3 decision makers at each, then it doesn't make sense for me to run ads at entire verticals, or even the entire companies. It's more cost efficient (and effective) to go direct to a narrow set of decision makers.
A small TAM - at least initially - is not necessarily a bad thing. Don’t freak out and pivot the business immediately, rather feel good knowing what your TAM really is.
Work out based on funnel performance how long you can spend exhausting this to build traction and create some critical mass and then work on a strategy as to how you’re going to expand your TAM and enhance your product to expand ACV, or introduce new products to enable cross-sell.
Or perhaps begin working internally to be able to sell to a new ICP (ideal customer profile).
Large TAM, with customers actively feeling the pain you solve and looking for a solution, with a product with a fast time to value and a low average selling price - PLG every day.
Small TAM, customers with pain, with a complex solution, slower time to value and a high ACV - sales led.
Case Studies on PLG vs SLG.
Hull was a French-based company, recently acquired by MessageBird.
They’re a real-time customer data platform, which companies use to ingest data from various 3rd party sources such as HubSpot, Salesforce and 1st party sources such as your website, blog, etc. They aggregate the data and clean-it up and decide what data gets synced where.
You do this to get end-to-end visibility into how accounts/contacts are interacting with your business, sales reps, content.
When doing this they differentiate even further with tools to help with identity resolution and de-duplication. Which are big challenges.
This is all pretty poorly explained and complicated, which is the point of the story.
Hull tried to go to market through a product-led motion but companies didn’t know they had the issue Hull solved. Or at least they didn’t think about it in the way Hull did.
When thinking about the “market sophistication” box, people weren’t actively looking for this solution, even if they felt the pain. What’s more it was a complex product to adopt and there a relatively long time to value - ingest data, improve funnel visibility, make better decisions. Customers didn’t see value fast, and thus never converted or cancelled their subscription.
In my opinion, the product the Hull team built was best-in-class, however the company would have been more successful with a sales-led motion.
Be wary of wanting to build a product-led business, but running a business that isn’t suitable for it.
Paddle, a revenue infrastructure business for SaaS.
Paddle is a little similar to Hull in the problem we faced in the early days.
Paddle provides revenue infrastructure for software companies and solves “revenue infrastructure” in a very different way to how the market thinks about this problem.
Most companies think the only way to solve the problem is to cobble together Stripe + PayPal + Chargbee + Avalara.
They aren’t actively searching for a Paddle-like solution that offers an all-in-one solution to these problems, using a fundamentally different business model to the payment processors.
Now because companies didn’t know who Paddle was, and that their challenges could be solved through our unique model, we decided to go sales-led in the early days.
We went to market, contacting folks our team identified as having a need for our product.
Educating them on the inefficiencies in what they were doing and the benefits of our model.
We employed outbound sales as our exclusive channel for the first 5 years of the business, growing at 300% YoY.
A couple of things to note… At various times throughout that 5 year period, we experimented with free trials, or the ability to self-serve and now, ten years later, we increasingly have a product-led motion for smaller companies (our SMB Express team) and a far larger direct sales team for MM / Enterprise.
TestGorilla, a pre-employment testing business.
TestGorilla is a company that delivers screening tests for developers during the interview process. Someone applies for a job, the employer runs them through some tests before the interview, selecting from a huge library of tests (many user generated) across a very broad range of topics from simple entry level tests, to complex challenging tests.
TestGorilla has chosen to go down a product-led route and invested heavily into an MVP and market testing before a public launch and saw huge demand for their product through Google Adwords and SEM from day one.
The market knew they had a need for the product, the TAM was massive (all those hiring Marketers or Engineers for example) and they were a great fit for PLG. They’ve iterated a lot since the early days but time to value and conversion from free to paid is very effective.
This is a great demonstration of the criteria we’ve discussed in action.
The fact that a lot of their content is user-generated is even more valuable for them in adopting a product-led motion, which by default is global day one, and they are able to spread the net as far and as wide as possible.
Interestingly, they are now experimenting with an outbound sales motion for the first time, as they look to evolve their ICP to larger accounts and increase their ACV.
At scale even the most ardent PLG companies employ sales people
As recently as 2019, Stewart Butterfield was quoting his intention to continue to grow Slack without resorting to salespeople. He was famously anti-sales, which hurt to be honest - we are good people deep-down :-)
There’s a danger of going that way with all the PLG obsession out there. What matters most is not a relentless desire to avoid hiring sales people at all costs - even at the possible detriment of the business - but rather how are you going to best drive growth and, when considering incremental investment, where best to focus.
Fast forward a couple of years and below you can see a screenshot from a recent annual report from Slack.
Key pillar of growth for these guys is continued investment in:
The best companies adapt and adopt both
The point I’m trying to make it is that we need a laser focus and strong execution in the early stages of building our businesses focused on PLG or SLG (or indeed another growth strategy), that will be most effective based on market sophistication, business viability and inherent profitability and then to adapt as your circumstances change. As companies grow larger, and their own growth targets increase, it’s common to adopt both motions.
Think about when and how your customer interacts with your product to better determine if you’re product-led or sales-led and then design different experiences, and buying processes based on this.
Don’t let confirmation bias make up your mind on PLG, instead use objective criteria and the decision framework we shared.
Don’t get me wrong, the PLG hype is real, and it’s because product-led companies are awesome. Who wouldn’t want to grow a rocketship startup with extremely low CAC and no expensive sales people!
But, just because we hear about these businesses all the time, as opposed to the company selling synthetic data to governments or complex financial risk management to global banks, it doesn’t mean it’s the only way to build your business.
In fact, PLG companies are actually in the minority, especially at latter stages.
So choose what’s right for you based on the evaluation criteria and remember that the biggest and best companies end up doing both in the long-run anyway. So, it's likely you’ll do the same.
When it comes to evaluation criteria, assess your fit based on three key criteria.
1. Market Sophistication
The growth model you choose for your business should be unique to you and is an outcome of the problem you solve, the product you are building and the market you are solving, not the other way around.