Kyle Poyar on product-driven revenue, PLG misconceptions, and efficient SaaS growth
EC: SaaS is currently enduring a cut-at-all-costs whiplash. And yet, companies will need to go back to growth. May the new year bring with it a race to efficiently drive growth?
KP: I won’t pretend to know where the bottom of the market is, what will happen with interest rates, or what the macroeconomic landscape will look like next year. But I do know that in cases of uncertainty, it’s important to preserve optionality and focus on what you can control.
That’s where efficient growth comes into play.
If a SaaS company has an efficient growth motion, they control their own destiny.
Efficient companies get to decide on their own timeline whether to grow moderately with minimal burn or to raise outside capital in order to double down (or to take a different path entirely).
Our industry has a tendency to lionize the folks who’ve reached $100 million in ARR in the shortest period of time (we’ve all seen the chart mapping Wiz against Deel, Ramp, UiPath, Slack, etc.).
But the ‘T2D3’ path (‘triple, triple, double, double, double’ annual revenue growth — reaching $100 million in 5 years) has been the exception, not the rule.
I observed back in 2017 that the average SaaS startup had only a 0.1% chance of reaching $100 million in 5 years. For many successful public companies, it took far longer, yet those founders still managed to build large and enduring businesses.
As inspiration, just look at Miro, which was founded 11 years ago in 2011 and went seven years before raising a Series A in 2018. Today, Miro is valued at $17.5B.
These are the stories I get excited about – and I’ve written about similar examples including Hotjar (bootstrapped to $50 million ARR) and Supermetrics (grew to €50 million ARR with minimal outside capital).
Let’s celebrate efficient growth in 2022.
EC: How do you define ‘product-driven revenue,’ what’s its value — and is it here to stay?
KP: ‘Product-driven revenue’ (PDR), also called ‘product-influenced revenue,’ refers to revenue from customers where meaningful activity was observed and recorded in the product — before any sales interaction.
It should be one of the most important KPIs for companies with a PLG strategy.
It treats the product as a key growth driver. Without a metric like PDR, it’s hard to gauge whether your PLG efforts are an experimental bet vs. core to how you generate revenue. This is a PLG metric you can bring to your CFO and Board.
Moves away from the fights between self-serve “vs” sales. Self-serve revenue tends to be a small part of the PLG picture. Why should that be the main KPI for your PLG teams? In reality, a customer ‘churning’ off a self-serve plan and onto an enterprise plan is a good thing! Tracking PDR helps encourage collaboration between PLG and sales efforts towards a shared view of success – generating incremental revenue.
It’s great for further analysis to understand your business. You’ll want to unpack patterns in downstream behavior (gross retention, NDR, NPS, etc.) for product-driven and non product-driven revenue — and then design interventions accordingly. Having a metric like PDR helps you better understand your business and your customers.
Perhaps most importantly… it’s intuitive! Some PLG KPIs are inherently complicated (see: activation, PQLs) and hard to tie back to company-level goals. PDR is different — it’s intuitive and meaningful. (Although measuring it isn’t always as straightforward!)
This all begs the question: If folks fully buy into PLG, and can point to meaningful product-driven revenue, when will PLG teams start owning a quota?
For more on this topic, folks should check out my interview with PLG leader Ben Williams).
EC: OpenView’s 11 Principles of PLG are helpful as the term PLG has taken a bit if a life of its own. Which principles didn’t make the cut — and what’s your take on PLG as a differentiator?
KP: PLG is certainly having a moment and nearly every SaaS company should be defining whether there’s a role for PLG in their business.
As the term PLG has taken off, there are several misconceptions about what PLG means and how to apply PLG principles. Some examples I hear…
‘PLG is driven solely by product’ (not true)
‘PLG is just another go-to-market strategy like ABM, outbound sales, or inbound marketing’ (not true)
‘There’s a one-size-fits-all approach to PLG’ (not true)
Earlier this year our team at OpenView set out to study the characteristics of the best PLG companies: What’s behind their success?
That work defined 11 principles of PLG. Standout PLG companies each adopted at least 9 of these 11 principles while traditional SaaS companies had only adopted 3 or fewer.
Plenty of principles didn’t exactly make the cut. That’s because it wasn’t clear these were broadly applicable across PLG companies. Some examples:
Self-service purchasing – while that’s common in many PLG companies, it’s not the reality for companies who adopt PLG to serve an enterprise customer base.
Inherent virality – this is a nice bonus and you find viral loops in many great PLG companies (ex: Zoom, Calendly, Slack, Figma). Again, it wasn’t universally applicable.
High product engagement – not every product is meant to be used daily or even weekly.
Keep in mind that folks should view these principles relative to the customer’s alternative. If all your competitors are adopting PLG, how can you continue to differentiate by going even deeper down the path of PLG?
Thanks for reading Product State! Subscribe for free to receive new posts and support my work.