Why your product bled growth: The death of 'forever free'?
When money stops falling out of Patagonia vest pockets, you need to make your own.
Over the past year or so, I've read far more "contact sales" buttons on SaaS websites than "start for free". That's because the startup game is changing. Product-led growth’s supreme reign is on the decline.
PLG's gospel is simple: Skip expensive sales reps. Instead, your users sign up to a free trial or plan. Then they use your product and upgrade when they bump into the free plan’s limits. What's that, a "Contact sales" button? Are you also mailing users CD-ROMs?
The tag-along industry of books, online coaching, courses, seminars, conferences, coaches, influencers and agencies made sure everyone got the memo: Product-led is the future of tech.
It's obvious that frictionless self-serve onboarding to a free product attracts users, but how many of them paid? In the past years’ easy funding environment, startups stopped asking that question—until now.
Zero interest rate policies (ZIRP) created cheap and plentiful money, which poured billions into venture fund coffers.
Towering cash reserves transformed startups: With on-demand VC cash, revenue growth was secondary. PLG user acquisition seemed like it brought so much data, monetization opportunities would reveal themselves. As long as a graph was up and to the right, it would appease even inquisitive investors before they returned to tweeting about why web3 is the future.
Tighter monetary policy made this fizzle: In 2023, money is expensive. VCs, now aiming for returns again, raise their eyebrows again if you call yourself "pre-product". I even heard that some investors now experiment with deciphering an exotic artifact called a balance sheet.
Now that investors care about money again, so do startups. The subtle answer to the question of whether PLG was great at attracting paying customers is crystallizing: Sales is back.
Founders are rebelling against PLG and freemium in many categories.
That's because free trials and plans still cost the companies who pay for hosting, customer support and software vendors. In many categories, sales offers a better ROI for two core reasons:
1. Users who book calls have high intent
The threshold for booking a call/demo is bigger than a 3 click sign-up to a "forever free" plan. This filters out low-intent users.
2. Users with high intent give feedback that matters
Your least profitable users can be the most annoying:
Free users are unlikely to give you great feedback because they have no skin in the game and jump ship when they get frustrated. Paying users have incentives to help the team with feedback.
Plus, in a world where money matters, founders don't want to optimize for people who've been on the free plan for 19 months.
Does that mean product-led growth is dead in times of high interest rates? Should you and guard your product with a phalanx of schmoozers?
Not necessarily
PLG isn't dead, though
Rather than viewing product-led growth as supplanting other marketing strategies, this cycle puts PLG in its place.
There are two main aspects to the future of product-led growth:
Product-strategy fit
Like the pony-tailed "everyone should do psychedelics" friend, late 2010s tech folks blanket-recommended a solution that's great for some, but bad for others.
Product-led growth works well for some products, but not others. Bobby Pinero's "The Fallacy of Freemium in SaaS" highlights this: Onboarding to Equals requires connecting data sources, which might need other teams. Spreadsheets are also usually deep in someone's operations, meaning they're hard to replace. Self-serve onboarding doesn't make much sense there.
Compare that to PLG champion Canva: You start designing in minutes without anyone else. You know what you want to make and the stakes for a single Instagram post are low.
Whether you should be product-led depends on your product. Can self-serve users get to the a-ha moment? Do free users add value to each other (network effects) or do switching costs increase the more you use it? All of these questions matter.
That being said, PLG isn't always a growth strategy. It can be a marketing expense:
UGC/word of mouth
Even if PLG isn't profitable, it can be a good marketing expense. If anyone can try your product, they might share screenshots or videos with others.
That rarely happens if you hide your product behind sales calls. Product-led growth can be great for brand building, especially for small teams who are great at building product, but not at promoting them.
Ultimately, product-led growth is a tool in the belt of growth teams. The same way you don't hammer a nail with a buzzsaw, PLG is a good tool for some products, but not for others.
What’s the future of product-led?
Product-led isn’t dying, and neither is sales. Both can work in tandem. It’s easier to sell to a user who already knows the product. A self-serve sign-up can be followed by a sales motion (an approach called product-led sales). The reverse is also true: You could simplify your sales motion by having in-product onboarding instead of deploying one of your team members to onboard new customers.
But as the past year has shown, the PLG-only world predicted by advice-selling experts hasn’t come. SaaS plans can't be "free forever" because money isn't, either.