Product-Led Growth vs Sales-Led Growth
There are a few prerequisites before you start thinking about the go-to-market (GTM) strategy for your product. Your GTM strategy should be created by a cross-functional team that includes members from marketing, sales, product, and engineering and in startups these roles might be the same person.
You need to identify your target market, understand your competition, and determine your unique selling proposition (USP). Once you have a clear understanding of your these things, you can begin to develop a strategy for reaching your target market.
What GTM strategy to pick?
You can choose from sales-led growth (SLG), product-led growth (PLG), marketing-led growth and founder-led growth. One of the key factors in which GTM strategy you should choose is your products complexity, do you need a person to explain how it works? Another one is how fast the user will get to the value (time to value)? Usually companies use multiple GTM strategies, but in this article we will focus on the differences.
Top down - Sales-led
In the SLG you will target a decision maker, CEO, CxO, Head of x, etc. It is called a top-down strategy. This will usually results in bigger contracts, lower churn risk because you will have a personal relationship with the customer and you will be able to explain around shortcomings of the product. On the down side you might end up with just a few very valuable customers and it usually requires a lot more effort to close a deal.
Pros of SLG
- Higher ACV (Annual Contract Value)
- Easier to do additional sales
- Lower churn risk (if targeting enterprises)
Cons of SLG
- Poor revenue distribution
- Higher CAC (Customer Acquisition Cost)
- Long sales cycles
Bottom up - Product-led
In PLG you will target the end user. This is called a bottom-up strategy. Targeting the one who actually will use the product means that they will do the buying decision (not always) and also use the product. Bottom up sales will usually lead to lower cost of customer acquisition, quicker sales cycles and wider revenue diversity. PLG usually requires a significant investment in advance since there is no person to ease in a new customer to a product that does not work as expected.
Pros of PLG
- Wider top of funnel
- Lower CAC (cost of acquisition)
- Middle management want the product - Better adoption
- Revenue diversity - Loosing one customer does not matter
- Scale globally faster
- Faster sales cycle
Cons of PLG
- Need higher amount of sales
- Significant investment
- Non paying customers (if going for freemium)
- CS for non paying, trying to sell to non paying that are already happy
- Hire a SLG expert or spend resources experimenting
Choosing customer acquisition strategy and GTM strategy
What is the most effective way to let your prospect experience your products value?
- Freemium + top down = Will repell each other
- Freemium + bottom up = Works
- Free trial + top down = Mixed results
- Free trial + bottom up = Tend to be successfull
Time to value
How fast can your product deliver value? Normally 40-60% of customers will never come back, you should give them value before they leave. Can your customer experience value without hand holding? If not you should choose a sales-led GTM model.