Adam Gross: Why Startups Doing Paid Under $100M ARR are not PLG | E1145

Intro (0s)

• Product-led growth (PLG) is not for everyone and not a go-to-market motion.
• PLG is a business model where successful businesses have a specialized customer acquisition method that is not paid acquisition.
• If a company is doing PLG and using paid acquisition under $100 million in revenue, it may not be truly PLG-ready.
• Adam Gross, an experienced entrepreneur and investor, shares his insights on PLG and paid acquisition.
• PLG is not just about acquiring customers through product usage, but also about retaining and expanding those customers.
• Paid acquisition can be a useful tool for PLG companies, but it should not be the primary customer acquisition method.
• PLG companies should focus on building a product that users love and that solves a real problem, rather than relying solely on paid acquisition.
• PLG companies should also focus on creating a great user experience and providing excellent customer support.
• PLG is a long-term strategy that requires patience and persistence.

Biggest Takeaways: Salesforce, Dropbox, Heroku (59s)

• Salesforce's growth was the result of a growth mindset, effective marketing, messaging, and an industry transformation narrative.
• Dropbox's success was driven by innovative customer acquisition strategies, but its recent lack of growth highlights the challenges of sustaining growth in the current SaaS landscape.
• Traditional SAS customer acquisition differs from consumer apps, and AI is significantly impacting go-to-market strategies. Conversational generative AI may play a role in future customer acquisition.
• The shift to online sales and the availability of raw data have enhanced AI systems' learning and training capabilities.
• Growth is a scarce resource, and companies need to find new strategies to drive it. The number of channels required to reach revenue milestones can vary, and significant growth is possible with a single channel.
• Heroku's success demonstrates the effective combination of a powerful free product, a strong community, and large enterprise customers, proving that catering to both individual and enterprise needs with a high-quality product is possible.

What is Growth & What is It Not? (9m25s)

• Startups should set a transformative vision that provides value and empathy to customers, rather than just optimizing processes.
• Founders should consider the entire customer journey when planning their growth strategy, including how users transition from free to paid and potentially to enterprise customers.
• Startups need to decide early on whether to focus on acquiring fewer large customers or many smaller ones, as the strategies for these two systems are entirely different.
• Product-led growth (PLG) is not suitable for all startups, especially those with an annual recurring revenue (ARR) under $100 million.
• PLG is not a go-to-market motion but a holistic business model that involves the entire organization and should not be added on as an afterthought.

Different Stages of Product-Led Growth (14m58s)

• Product-led growth (PLG) businesses have a specialized customer acquisition method that is not paid acquisition.
• Founders should focus on one innovative customer acquisition channel until they reach at least $10 million in revenue before considering channel diversification.
• PLG has distinct motions and value propositions for individuals, teams, and enterprises.
• The biggest mistake founders make when moving from Stage One Creation to Stage Two Collaboration and Teams is not understanding that it requires a different approach and value proposition.
• Translating an individual value proposition to a collaborative value proposition is challenging.
• Effective product marketing is crucial.

Founder Mistakes in Collaboration & Team Building (20m57s)

• When designing a billboard or website advert, it's important to strike a balance between emphasizing the product's creation tools and collaboration features.
• The primary goal of a website is to establish initial customer relationships and drive free customer acquisition.
• Additional communication mechanisms can be used to engage customers and move them further along the customer journey.
• Heroku's website focused on attracting free developers, while Enterprise products were communicated separately.
• Product marketing for horizontal tools, which target a wide range of users, can be challenging due to the diversity of the audience.
• Effective product marketing for horizontal products requires a clear and compelling narrative that resonates with the target audience.
• The narrative should explain how the product can transform the industry and how it can benefit customers.

Industry Transformation Narrative (23m43s)

• Companies should have an industry transformation narrative.
• An industry transformation narrative is a way to navigate a company on two dimensions: emotive and strategic.
• Emotive means creating an experience with the product that users feel emotionally and passionately connected to.
• Strategic means having intentionality and caring about the user experience.
• PLG companies tend to be emotive because they have to be empathetic and care about the individual user.
• Being emotive is not enough, companies also need to be strategic.
• Strategic impact is another way of thinking about an industry transformation narrative.
• Strategic impact is about commanding business impact, budgets, and growth.

Common Strategic Impact Mistakes (26m7s)

• Startups often focus too much on their own perspective and not enough on understanding their customers' needs.
• Fast-growing companies can plateau when they prioritize internal values over serving the customer.
• To achieve the next level of growth, companies may need to critically examine and potentially change their core values and strategies.
• A growth mindset involves being so customer-focused that companies are willing to question and change their core values and strategies to better serve customers.
• Name changes can be a strategic tool to capture a new market position and invite customers to embrace the company's vision.
• Product naming should capture the essence of the product, be simple, easy to remember, and relevant to its purpose.
• The goal is to create a customer-centric name that resonates with customers and excites them about the product.

Balancing PLG & Sales Teams (33m26s)

• Product-led growth (PLG) and sales teams can coexist without conflict if there is clarity in how the business is run.
• The self-serve product and business should be distinct from the sales-led business in terms of motion, customer, product, value proposition, message, and even name.
• When these elements are not differentiated, teams can step on each other's toes, leading to acrimony.
• AI is not naturally disruptive like the shift from on-prem to cloud computing.
• Incumbent companies can adopt AI more easily than they could adopt cloud computing without overhauling their entire company structures.
• However, new user experience paradigms or engagement models may come from outside the incumbent companies, creating new value.

Sales Transition: From Tools to Services (37m43s)

• AI will enable the transition from selling tools to selling services.
• AI-powered services will create the product itself, leading to co-creation.
• Some support companies are moving from seat licensing to incident resolution, which is closer to business value.
• This trend could extend to other industries, such as paying a CRM company per lead.
• The first thing to get right in hiring is knowing what you are hiring for.
• The key question is whether you are hiring a poet (domain expertise) or a librarian (process expertise).
• This decision is crucial in every marketing hire.

Top 3 Tips For Startups CEOs (39m46s)

• Startups should hire leaders based on the specific needs of the organization, rather than seeking a one-size-fits-all approach.
• Alignment is crucial for startups, and planning methodologies should be used to ensure that everyone is on the same page and working towards shared priorities.
• Startups should operate on a common schedule with quarterly boundaries to create predictability and a sense of rhythm for the organization.
• Quarterly releases with blog posts and web pages help maintain a consistent pace and build emotional brands.
• Underestimating the importance of the team and making assumptions can lead to missed opportunities.
• Startups should think big and avoid over-indexing on how commoditized something would be, as this can result in missing out on valuable investments.

Quick-Fire Round (49m29s)

• Adam Gross shares his thoughts on various topics in quick succession.
• He discusses the uncertain macro environment and its impact on growth in the tech industry.
• He expresses his disagreement with Jason Lemkin's prediction that IPO markets will open in H2'24, believing they will not open until H1'25 at the earliest.
• Adam emphasizes the importance of thinking and operating holistically when it comes to growth, as it should pervade all aspects of an organization.
• He compares enterprise software cultures to consumer ones, highlighting that enterprise software cultures are more customer-centric, predictable, and controllable.
• Adam advises founders to be good at two things rather than the best at one thing, as it allows for more flexibility and adaptability in the early stages of growth.
• He shares his advice for someone leaving university today, encouraging them to be good at two things rather than the best at one.
• Adam expresses his desire to remain excited and enthusiastic about the world of technology in the next 10 years, just as he has been in the past 20 years.
• He thanks Harry Stebbings for the opportunity to have the conversation and looks forward to continuing the discussion and meeting up in London for a beer.