Product Strategy in Product-led Growth (PLG) companies

A discussion on Product-led growth and how to develop effective strategy to drive superior outcomes

Note: I was on Melissa Perri’ s podcast to talk about different aspects of product-led growth and strategy. We covered product strategy and a host of other interesting things in the space. Here is an edited transcript of the most interesting pieces. This content will be expanded on in a forthcoming book on product-led product management by me and Ezinne. Sign up to be part of the journey — we’ll be developing parts of the book in public: on Substack, Twitter and Medium.

What does it mean to be more product-led as a product leader?

It means increasing customer focus across the board (multiple disciplines and departments, but especially product management) so that you can materially improve the customer experiences with every stage of consideration or use of your product. It’s making sure that everybody’s investment or most of the investment goes towards delighting the people who actually use the product every day. And it’s not just about when they use it. It means being sensitive to customers in terms of the buying journey — the conversion of ‘solution curiosity’ to intensely using the product to solve a felt pain in their workflow. It means being generous in terms of the pricing so that people find it psychologically easy to adopt a product.

It means helping infuse the entire company with this idea that it’s more efficient for everyone — Engineering, Sales, Marketing, Product, Customer Success, Support; literally every department — to really execute on a really great product that sells itself and pulls itself forward (virality). And if you can do that then your ability to make profit actually increases, enterprise margins increase because you can deliver the same results with less application of marketing and sales. Or you can deliver superior results with the same expense on marketing and Sales. This is frankly the most efficient way to build software in 2022 because you can deliver more relative results than your peers and competitors.

What’s the difference between ‘product-led’ and ‘customer-centric’?

They’re very close, but I guess the easiest way to make a distinction is that ‘product-led’ is in many ways a bigger set, a bigger circle; than ‘customer-centric’. You HAVE to be customer centric to be product-led. But it’s not sufficient.

One thing to be wary of in regard to some proponents of ‘customer-centric’ is often they have this misconception that you should do most things customers say/want. But that’s not true in at least 2 ways: First, customers generally don’t care about other customers who are not like them, in their clamor for your scarce resources. So part of being product-led is balancing between different kinds of customers who you serve. Second, customers don’t care about the goals of your company and the job of product-led companies is to balance the customer goals with the company’s goals.

The proper ‘use’ of customers is to use them to understand the right problems to solve at scale. And what sequence to solve them in. One of the values I love in high functioning product teams (especially those who employ expert customer research) is the ability to discern what the most compelling customer pain is by listening beyond what they say in interviews i.e. uncovering the unspoken needs (customer discovery). Customers are also often ignorant of a company’s constraints, ambitions, and strategy. This means they don’t know how hard problems are to solve and how long you need to properly solve them.

The act of product-led product management is to marry those things, and to manage the tensions implied while also making sure the customer is really centered or even pampered, in that transaction.

What is a Product-led strategy and how do you create it?

Well first of all it’s firmly the responsibility of the chief product officer or chief product lead. A chief product officer has to articulate the overall strategy. However if the company is big enough, each sub product lead has to define a strategy that connects seamlessly to the overall strategy and is resilient to organizational changes. As product leaders, people inside the company literally look to you to say what will we do — what we will invest in. And I think a good definition of product strategy boils down to codifying what the company will do (goals) and what it will not do (non-goals).

A huge part of the job of defining strategy is just communicating/describing it to the company/team in an effective way. I’ve been in roles where I expected to spend an entire year communicating what the strategy is and painting a picture of its layers. For example, the overall strategy, and then the app strategy that supports that, the platform strategy, the data strategy, the partner strategy and more. Once you have it, communicating it effectively is an entire discrete job, in addition to hiring great people to the organization, and activating them by driving the right product operations.

Getting back to strategy, the most effective leverage a CPO can deliver for the company is clarifying its product goals, its investment strategy and why that will result in success. And to get there, it takes really understanding the company’s goals and its vision and mission, and the direction that it should or wants to go commercially. It’s really understanding the CEOs direction, the board’s concerns. And then, challenging some of the impractical or wrong headed parts of that, getting alignment and then charting a course in the product that helps achieve that as fast as possible.

How do you get started? What did you look at when you’re trying to figure out which way to go?

I think there are three main ingredients. Think of your strategy as some kind of soup or cake (a mixtures or layers metaphor, whichever you prefer). And the three main ingredients in question form are: a) What do your target customers want? b) What is the market saying? and c) What are the ambitions of your company?

The first is what do customers want? A step deeper — what is their pain? What are their problems? What are the main opportunity gaps? Taken together, these are your opportunities presented to you, assuming there is a large market for solving it. You have to identify the things that are preventing product-market fit — I’ve learned that these are likely the same things that are preventing your company from becoming the market leader. Doing this first part well entails really listening and some research. So some of the things that I will do when I get into a company is spend time with customer support, spend time with the smartest salespeople, and spend time with customer success. Who are the smartest product managers who know customers really well? I listen for that affinity and the empathy for the customer and then I’ll spend a lot more time with those people. You have to be careful because most times you’re getting vignettes, and you have to do some work to examine things from all angles, to make sure that you see the whole picture. This can take some time. As a result, you have to set expectations with the CEO and the board to give you some space to do that as much as possible.

The second part of setting strategy is listening to the market. Some sample questions are: what are 10/20 year trends that bracket the market you’re interested in? What is happening to buyer trends, usage trends, technology trends? Where is demand going? Where are you seeing growth?

The core of this kind of exercise is a)make sure you understand where the puck is going. b) Make sure your customers are not leading you astray with their current needs and pains in ways that make you miss important impending inflection points. The 1st and 3rd elements of strategy look inward. This aspect looks outwards in order to make sure you have a strong situational awareness of the conditions necessary for success. Often this outward look can override some of the more inward concerns because most times external forces are bigger than the ones the company can marshal and require you to lean into them not oppose them. It’s much easier to flow with a 20 year trend than not.

The third part of creating strategy is examining the ambitions and capabilities of the company: what does it want to do or accomplish in its market, in the world? But not only ambition, what is it good at? What is its DNA? If you peel that one layer deeper, some more questions come out: what kind of skills are in the company? Which teams of which skills are staffed up? Which skills are needed but not yet staffed and ready to execute? Often software companies come up with strategies they cannot execute on because the people who can get started immediately are not available which can lead to chaos and delays. You have to understand what you can actually do.

And this extends to culture. You can sometimes have the staff but not the culture to do something crucial in your strategy. For example at Microsoft, only a few parts of the organization understood how to build hardware. It was pointless for anyone else to undertake hardware projects because they not only required specialized skills but also specialized culture, which took some time to build up. A lot of the early failures of the entertainment division was as a result of these gaps. So strategy has to be cognizant of what the company can actually execute on, otherwise it’s ineffective or irrelevant.

So those are the three big ingredients I think of for constructing strategy. You can use them to pick investments to focus on, while ruling out investments that you don’t expect to yield much relative forward motion to goals. After this level of introspection and action, it’s just a matter of prioritizing which investment will have the most impact.

Finally part of the strategy is cleanup. An organization’s energy is often tied up in unproductive activity that no-one has had the courage to stop because of some employee who is locally optimizing, or some customer who wants support for a fringe feature. The best examples of these activities are well intentioned and ending them is painful. However it’s important to be fairly ruthless at pruning them or ending them. So, you can experience the many and magnificent dividends of focus.

How much time is practical for actually developing a product strategy — to sift through that process?

If you’re new to the job as a chief product lead or officer, you likely need 1–2 quarters to really absorb not just the strategic landscape and direction you need to steer in, but also the human dynamics of the team. You need to build alliances and in some cases, make critical hires in order to advance your strategic agenda.

What is the role of the team in setting product strategy?

Strategy is a team sport with a clear captain. The role of the team is to drive depth in what we know and to increase confidence in our recommendations. I recommend that the CPO or product lead divides up the team to look at the 3 ingredients and draw some conclusions from them. From those conclusions, a strategy draft is articulated. The team then takes pieces of the articulated investments and goes and figures out how we should make those investments and any open questions that remain.

Using the intelligence of the team to go deep, beyond the initial 50–60% confidence in a draft strategy is crucial to filling in blind spots, finding large open questions, getting buy-in and observing how people behave in a strategy foxhole. Every product manager will eventually be called on to think about strategy so shaking out who has those chops on your team is best done early and often.

Engaging the team appropriately helps you build something really really solid with great buy-in.

Okay, and when your team’s going deep, are they taking out certain data like what types of information are they bringing back to you?

Well first of all you have two teams. The one you’re a part of and the one you lead.

The one you’re part of (the executive team) can help with commercial perspective and sanity checking a draft — these are people who are generally looking at this from a commercial perspective, marketing perspective and high level engineering feasibility. Also there is always residual strategy and frankly you don’t spring your strategy on people fully formed — any new strategy is usually connected to whatever strategy previously existed in some way, or it has a high chance of being rejected. So hopefully you have a receptive executive team for a high level situational understanding of the company challenges.

The team you lead can help in double clicking on customers and making sure the understandings have quantifiable basis numeric, and not just intuition. They should spend time double clicking on competition, double clicking on capabilities and company DNA that can prevent corporate self delusion on what is possible.

How often do you find that existing goals and strategy are really well fleshed out and then how much do you have to do to get that information out of executives?

That’s a very good question because I think you’ve got to employ different tactics.

Most of the time, I just assume there is no real strategy there. Or even if it is there it’s a little fuzzy or stale. Occasionally it’ll be really good, but I think I have only encountered that once in my professional life. So what I do with the executive team is build a case and sharpen the need for a clear strategy that is well articulated — which is definitely a process.

Sometimes I’ll do a draft strategy quickly and this is a good forcing function when presented because it fills a vacuum quickly and highlights how fuzzy the prior strategy is and makes that fuzziness a problem. Immediately you do a draft, it becomes this lightning rod of clarity and becomes something to discuss.

I often use this framework called VMSO, which stands for [vision, mission, strategies and objectives]. It’s a simple 1–2 page format — I believe that if you can’t articulate a company’s product strategy or company strategy in a couple of pages then you don’t know what the strategy really is. So I try to draft that and just say “look this is it, and it is currently at a 50% confidence level, let’s discuss”. Then I use that to drive conversation. And often you can then initiate a proper process — maybe you peel off a couple of execs to focus on it and do it accountably.

So a huge part of what’s required is to just fill the vacuum, have something that people can debate; that’s been pretty effective. But be humble! Don’t pretend that you’re coming up with it solo, unless it’s truly absent. Usually in a company strategy is never truly absent. Where you can, tap into what exists, make it better, share the responsibility and results because It’s not just yours, it has to be collective.

What’s your advice for somebody who wants to get started writing that draft, how should they go about it? What kind of conversations should they have?

The VMSO is a framework that I use to help clarify vision and strategy. There are many similar frameworks like OGSM and so on. So the process is to go through a lightweight strategy process. Start with the company and customer listening process I described at minimum. Use these inputs to do a draft.

Here are some practical shortcuts if you’re going to follow my advice:

1. The vision part of the VMSO can be hard, because it’s meant to be fundamental, brief and aspirational.. Ok to skip it initially. And spend quality time iterating over time.
2. Focus on sharpening the mission of the company or product. It’s usually easier to sharpen because it usually exists in some form.
3. Whatever you do, do a draft or create multiple options for discussion. That way stakeholders don’t feel locked in.
4. You should socialize it. Start with one on ones and then group meetings to discuss this explicitly.

At the end of a quarter you should have enough feedback to start a heavier weight strategy process. The bonus of this is you should have enough information to actually assemble the most useful team for this purpose.

So the main thing is “move forward”. Draft what’s needed. There are usually many vacuums in a company and opportunity usually looks like filling it, when you recognize it.

How do you do product strategy across b2b and b2c companies?

The truth is that the structural elements of company and product strategy across both categories are remarkably consistent. What usually differs are how to grow market share — capital, gtm and business model. And sometimes there are differences in how to build a great product for the category.

At the company strategy level there are 7 things to worry about as you think of competing effectively: ​​Intellectual property, Brand, Distribution/Market presence, Economies of scale, Economies of scope, Vertical/Horizontal Integration, Network effects, Access to capital, Regulation. Each of these break down into smaller concerns too.
For a product strategy the main element is a smaller focus on a subset of concerns — Economies of scale, Economies of scope, Vertical/Horizontal Integration, Network effects and Distribution/Market presence.

You can scale these across all kinds of businesses regardless of customer segment ie b2b or b2c.

The second thing to realize is that we are all converging on being B2C companies. Even B2B companies have to function like they’re B2C companies by the end of the decade, for software businesses. Workers are just consumers who happen to be at work and their buying and consumption sensibilities are increasingly influenced by and converging on their more b2c experiences. The level of refinement expected in b2c software will be useful differentiators in b2b software if companies want to grow faster.

How does Product-led relate to this consumer mindset for b2b companies?

Product-led growth is being able to have a fast growing product and healthy conversion (undecided/free → paid) without deploying oodles of marketing $ and oodles of sales $. So, what makes that possible? Well first of all your product has to be really good — well designed, well engineered and very functional. It has to have product-market fit. It has to have a good brand, good word of mouth. For example, my previous company Calendly had that in spades.

Your product has to be viral to some degree. Even if it’s not a communications or social product, you want to have very strong word of mouth and delight from those who use it so that each customer interaction is more likely to produce another one through the strength of recommendation.

There are many things that can produce virality — the product, how it’s marketed, how it’s shared with others on your team, fanatical customer support etc.

Finally you have to find a network effects engine with your product, if at all possible. Make it so that as more people use it, existing customers find more value in it while doing zero work.

What are some tips and tricks you can give for virality?

Product-led growth and virality tactics can strap on rocket boosts to any product or software business. The thing you have to be mindful of is culture — what has to change culturally for you to properly harness that?

Other than that, there are a few things to get right — psychologically safe pricing, people can get started without calling a sales person, perhaps a free tier or free trial to get people easily hooked. Easy payment and invoicing over the web. Almost every company, even enterprise ones, could benefit from some version of that. Ask yourself whether your go-to-market is circumscribed by what your customer will tolerate or what is in your company’s DNA (i.e. ‘we only know how to do enterprise sales’ vs ‘our customers would appreciate change in how we do this’). Also think about the market expansion implications of having a better product-led growth (PLG) motion.

In many ways even giant ‘enterprise’ companies are already deploying PLG tactics when they attack the mid market.

Where do you usually run into friction when you try to implement these ways of working inside an organization?

While product-led growth tactics are not exactly new, they are not well known either. Their essential efficiency when deployed properly are not a widespread truth. As a result, most of the friction and objections you encounter are going to be cultural (check out Todd Olsen’s book on the product-led organization).

The frictions that circumscribe moving to a more product-led organization cuts across almost every department:

First of all within the R&D team, there might not be a lot of customer centricity. Engineering led companies are a good example. Their technical prowess can fail if there is a lot of user layer innovation required to acquire customers. Google is a prime example — Search is a very technical platform investment and shapes the culture of the company. However the company has failed at so many user layer driven investments — chat, social, games and much more. By the way I’m not saying these are the only reasons for failure, but a significant component. It’s a real case of not taking your DNA into account as you think of product strategy, because obviously Google engineers can literally tackle ANY problem in the known pantheon of software.

But it’s the age of convenience — more and more value is unlocked by focusing on the entire customer experience. And that’s not exactly an engineering problem alone. You need other customer centric skill sets in the mix. If you’re engineering-led alone for certain problems, you’re already behind.

The commercial sides of the organization have to change as well — Marketing, Customer Success, Sales. Often the goals and metrics have to change — adapting or transitioning to the right goals takes some doing. In the case of a Sales team, some average selling prices (ASPs) may shrink initially, and be made up in scale. The compensation model for sales reps may need to be tweaked or changed. None of this is trivial, has an impact on the company’s bottom line and needs to be change-managed. And the nuances depend on the kind of business you have. Not every business can do a ‘freemium’ play or work without a large enterprise sales team. However the product-led playbook has something for everyone to benefit from and most of the resistance will be cultural.

I did a webinar under the auspices of the Traction Conference with the CEO of Vidyard, Michael Litt. It’s inspiring how he transformed his company from a very heavy enterprise sales company to a B2B2C company. They created a new product line to reignite growth, they focused on the mid market — this transformed their company. And he did this so thoughtfully and it WAS risky but beautifully executed.

PLG is trendy and can seem like hype, just like past hypes in our industry like “cloud”. The ‘cloudification’ of everything is actually quite entertaining for people who remember the era of ‘thin clients’ hype by Oracle. But I digress. Like anything, you have to peel the layers and figure how to apply it to your business — it’s definitely not one size fits all. I personally don’t think it’s hype. I think PLG is a collection of practices that are now best in class for building a fast growing software company. If that’s true, then those who don’t adopt some of the playbook will be playing catch up. It will be like being behind in an arms race. I think PLG practices rest on a few super trends that make those practices forward leaning into the coming future.

Is there hope for these older organizations where change isn’t coming from the top?

There is hope but I guess you have to acknowledge that it will be challenging. And honestly the change usually comes from the product team or product leadership. There is also a carrot and stick aspect to it.

The stick is if you don’t make the change, you may lose your business or have slower growth; which means a lot of missed opportunities either way. Look at the curious case of Zelle and say Cashapp or Venmo. The banks haven’t done a good PLG job on Zelle. It’s a clunky, constrained product. Probably still sees a lot of installed base usage but no one LOVES it. Their competitors are offering ways to buy bitcoin and participate in the retail investment revolution — 2–3 steps ahead. Who knows how it will end?

The carrot is that you product leaders have to use their interpersonal skills to get an organization to follow them on this journey. The entire C-suite, the CEO and the board likely need to be convinced at some point that this is the right way to prosecute product development and innovation. Every company will become, to an extent, a software company, in the future. As such, almost every company will need to transform in this fashion in some way or the other. It will take skillful, persuasive product and engineering leaders to lead that transformation. We all benefit when we center the end user customer in all our decisions — in a real way.