As investors focus more on profitability, product-led startups may do well – TechCrunch

New report shows that product-led firms are more than 100% more likely to grow product-led firms than their sales-led peers

Companies must SaaS Contacting as many users as possible hoping to convert them from free to paid?

A new survey-based report finds that best-in-class companies don’t. According to OpenView’s third annual Product Standards Report, which the venture capital firm provided in a blog post, “premium PLG companies only reach 14% of subscriptions on average.”

PLG stands for product-led growth, exemplified by companies like Cal Friendly and Netlify, which OpenView defines as “a growth model where product use leads to customer acquisition, retention, and expansion.” The venture capital firm sees premium PLG companies as those that “continuously grow 30% or more at scale, have over $30 million in revenue and are household names.”

The OpenView report found that there appears to be a strong relationship between the use of the PLG model and raw growth.

“Respondents in product-led companies, particularly those with a freemium model, are likely to grow twice as fast (100%+ year-over-year revenue growth) than sales-led models.” The latter refers to the opposite of PLG, that is, models in which new customers are brought in by sales teams.

PLG’s growth driver could explain why the sales model is increasingly prevalent among SaaS companies. This fact is reflected in the OpenView survey sample but also more broadly. In response to a question about the Cloud 100 Index by Bessemer Venture Partners, Partner Mary Donofrio He told TechCrunch that “over the past few years, the percentage of product-led companies in the Cloud 100 has increased, both on a cumulative evaluation and on a count basis.”

This increase in PLG adoption occurred at a time when markets were rewarding growth. But as mentioned, general market data collected by Battery Ventures shows that in the current downturn, investors have turned their weight on growth versus profitability. Is PLG unsuitable for these new times? Probably not, it turns out.

To understand how PLG might operate in changing market conditions, we spoke to the OpenView report authors, Vice President of Growth Sam Richard and Partner Kyle Boyer. We also collected feedback from Donofrio and former TechCrunch Editor Josh Konstein, is now a partner in the SignalFire project. The consensus is that now is the time for the kind of lean growth that PLG can achieve.

Growth or profit?

“Investors have forgotten all about the rule of 40,” which states that growth rate plus profitability in terms of percentage should equal 40, OpenView noted last November. How quickly things change! We were reporting on the company’s annual Financial and Operational Benchmarks report, which showed that at the time, software companies were rewarding for higher growth of 30% or more, with profitability plummeting.