We found that there are still a lot of opportunities for PLG-type commercial products in the current market, but how to better find the commercialization model and opportunities of PLG is something that needs to be explored continuously. Today, this article hopes to give you some thoughts and inspiration through 10 PLG companies (businesses). I hope it will be helpful to you. Enjoy~
If we trace the origin of the PLG business model, we may have to start from Sydney, Australia. Many people believe that Atlassian, founded in 2002, is the first cloud computing company to pioneer the PLG business model. Its founders believe that a frictionless, product-centric distribution process is a way to accelerate the adoption of new technologies, especially among developers. They are so determined to make the PLG methodology successful that Atlassian did not hire any sales staff in the first ten years of its establishment, and later when a Wall Street bank threatened to move its business away without enterprise sales discounts, they did not give any discounts. (Note: They did not move their business away in the end).
While this software distribution method was revolutionary a decade ago, PLG is no longer a little-known phenomenon. Time and again, top CEOs attribute their size and success to bottom-up strategies, and many multi-billion dollar public and private businesses like Shopify, Twilio, and Canva were built on a foundation of PLG. In fact, the cumulative market capitalization of PLG companies has increased by more than 100x over the past seven years.
Similar to other public software companies, publicly traded PLG companies were not immune to a severe setback in the first 2.5 months of 2022, which had a huge impact on cumulative market capitalization. However, it is worth noting that despite the recent public market turmoil, many PLG leaders continue to trade at significant premiums to other high-growth software companies - as of mid-March 2022, PLG leaders like Snowflake, Datadog, and Bill still trade at current revenue multiples of more than 25x after the "SaaSacre", although the median revenue multiple of BVP Nasdaq emerging cloud companies has fallen to less than 10x.
While PLG has proven particularly effective in the developer economy, the strategy has gained momentum in many other categories, including collaboration tools and customer engagement software. PLG has become more popular in recent years, thanks to factors such as the rise of remote work power and infrastructure advances that allow for benefits to individual agents. We’ve been tracking this democratization of development trend for the past 13 years at BVP, ever since we noticed Twilio’s unique distribution dynamics in 2009 and invested in the company’s seed round.
We’ve doubled down on this phenomenon over the years in many of our developer platform investments. As a result, we explicitly included one “law” in the first edition of The 8 Laws of Developer Platforms: Democratizing development encourages non-developers and pays dividends by shortening the growth cycle of software adoption. Additionally, expanding the range of people who can extract value from a given platform creates new avenues for possible expansion, as non-technical teams and users are now considered.
At BVP, we’ve watched many portfolio companies grow from humble PLG roots to $100 million ARR and beyond within a few years. Inspired by the best-performing PLG companies in the cloud economy, we’ve distilled 10 key principles for building a lasting business using this powerful go-to-market strategy.
The best practice examples we cover in this article are all companies in which BVP has invested. We chose to highlight these companies because we are most familiar with the evolution of these organizations and how they incorporate each of the PLG principles, not because we believe they are the only embodiment of each principle; we certainly recognize that the list of PLG role models is long and growing every day.
Build your product into its own self-service distribution tool
Successful PLG companies understand that the best products should be able to sell themselves without additional intervention. These companies primarily build their products as a standalone distribution tool that drives customer adoption, retention, and expansion—all without human intervention. Let the product ferment and spread directly within their company.
The role model here is Netlify. The company's product platform, used by millions of developers around the world to create, deploy, and scale modern web projects, is designed to embody this spirit of self-service: Adoption: The Netlify team built levers into its product that enable new users to implement solutions independently, including allowing users to import existing projects from Git with one click and providing pre-made templates to easily get started.
Retention: Netlify provides quick start pop-up guides to help customers succeed, get started, and engage. These guides are embedded in the workflow within the platform.
Expand: Netlify encourages end users to expand functionality by installing ready-made plugins or to deepen usage by upgrading existing versions directly through the platform. They can do this completely independently without leaving the platform or communicating with sales.
Aha moment now available
Leading PLG companies know that it’s critical to delight users as quickly as possible. The best products create an aha moment about the product’s value without unnecessary friction. There’s no need for a lengthy onboarding process involving complex sign-up forms or promise-filled demos. Instead, PLG companies allow users to try the product right away and experience its benefits firsthand so that value conversion is almost instant.
Canva is a company that does this very well. Creators can start designing in seconds through Canva’s drag-and-drop platform. All it takes is an email address, a Google account, Facebook, or Apple account, regardless of the device being used. Similarly, Shopify allows users to create a store on its platform in just one click by providing an email address and a store name — no credit card information required.
Focus on creating value rather than extracting it
The best PLG companies have a strong belief in the value of their products. This enables them to democratize access by offering their products for free before charging. The "try before you buy" approach is undoubtedly very attractive to customers; they can experience the value firsthand without any risk and eventually become loyal, active users.
PLG companies use many different strategies to provide value without a paywall, such as:
"Open Core" approach (e.g., Coiled)
Freemium model (e.g., Wix)
Limited time free trial (e.g., DocuSign)
Focus products on end users
Successful PLG companies need to focus on the end-user experience because they are the "top of the funnel" and the ultimate product users who can better drive the company and team progress and make decisions on tool use. The most effective PLG companies respect the principle of "user-centricity" by building communities around end users and prioritizing their experience in product development.
HashiCorp, a leader in infrastructure automation in multi-cloud environments, is a prime example of this best practice. Since its inception, HashiCorp has recognized that its end users are the power that ultimately opens the door to enterprise accounts. Winning the hearts and minds of developers is a top priority, and HashiCorp has achieved this goal through initiatives such as organizing developer conferences and establishing a developer relations department to focus on community engagement. These efforts have proven to be extremely successful, with HashiCorp's annual HashiConf attracting tens of thousands of attendees each year and HashiCorp's products having approximately 100 million downloads in fiscal 2021.
HashiCorp also shows deep respect for the opinions of the developer community. The team listens closely to product feedback from grassroots channels, including its open source community, and uses this to continuously improve the developer experience and the platform’s UI/UX. To stay accountable to its goal of winning the love of developers, the company tracks product metrics such as user engagement, which HashiCoro considers the company’s top metrics.
Establish a clear initial entry opportunity
Since PLG involves selling the product’s value proposition with little or no sales rep involvement, companies need to ensure that the use cases and solution narratives they initially target are simple and precise, making it easy for end users to grasp the problem the product solves. To achieve product-market fit, users need to be able to adopt the solution with minimal education, conversation, or support.
Imply is an excellent example of putting this guiding principle into practice. Founded by the creators of Apache Druid, Imply’s real-time database for analytical applications is built on Druid, a powerful open source database used by developers to build end-user analytical applications that are rich, interactive, and able to provide insights from both real-time streaming data and historical batch data.
While Imply’s real-time database can be applied to solve different needs, the team knew they needed a clear entry point to reduce friction and encourage adoption. Rather than focusing broadly on real-time analytics, the team’s messaging is focused on developers and architects. The team further differentiated between internal-facing applications (like the observability platform Salesforce built for internal engineers, product managers, and customer service representatives) and external-facing applications (like the customer-facing product usage analytics Atlassian built for users of its Confluence wiki service). This strategy of combining clear messaging with a strong product experience proved to be an effective way to activate new user groups and establish Imply's market leadership.
Generating virality through network effects
PLG companies don’t have sophisticated marketing campaigns or large sales teams, relying on word of mouth to drive awareness and adoption. However, the best PLG companies recognize that end-user advocacy doesn’t just mean relying on word of mouth or recommendations. Instead, these companies purposefully build their products to solve real business and needs for end users, which is more conducive to the word-of-mouth network effect.
The PagerDuty project shows how to develop a product architecture that can amplify initial adoption. The IT incident management platform is naturally built to maximize network effects and attract adjacent business units to become the source of truth for alerts, notifications, and data collection across the entire organization. Just as consumers gain more value from social platforms as their number and time increase, PagerDuty end users benefit from a larger user base. The more teams that onboard PagerDuty, the more value the teams that are already onboarded get. After all, scheduling is powered by people on the platform, so everyone receives the right alert at the right moment.
Sparking this flywheel not only delivers more value to individual users, but also increases revenue and higher net dollar retention for the entire organization over time. At the time of the IPO, PagerDuty's net dollar retention rate was 139%, and for historical cohorts, net dollar retention has been consistently above 130%. This even exceeds the "best" benchmark in Bessemer's good, better, best framework for enterprise net dollar retention.
Adopt a transparent pricing model
PLG companies strive to provide solutions that can be acquired without human intervention, and pricing is no exception. Pricing models should be clear and straightforward to reduce friction in the buying process. End users should be able to understand and predict how their total spend will relate to their budget without having to do additional research or talk to sales.
Typically, PLG companies will tie their pricing to a unit of value. Usage-based pricing models have always been popular in SaaS and developer-facing technologies, but this form of pricing is particularly well suited to a PLG strategy—not only because of its complexity, but also because it allows individual end users to enter at a low-cost entry point and then scale up.
Prefect, a company that provides workflow management systems for data teams, uses a simple, success-based pricing model that reduces the complexity and friction of end users purchasing its solutions. Pricing is based on the number of successful task runs per month, and users are not charged for retries or failures.
As PLG companies mature and add enterprise sales as a supplement to bottom-up momentum, they will inevitably evolve their pricing plans to accommodate the nuances of enterprise purchasing. This includes allowing enterprise discount practices and negotiating custom commitment terms. Even during this transition, the best PLG companies are keeping their plans relatively simple by making them transparent and easy to understand.
Take the experience of Courier, a multi-channel notification platform. Initially, the company adopted a classic usage-only model based on the number of messages, but later evolved its pricing plans after receiving feedback from larger customers that they wanted more flexibility. The team moved to a hybrid model that combines usage-based pricing with traditional SaaS version pricing plans, while ensuring that pricing remains easy to understand. The best advice from Troy Goode, CEO and founder of Courier, is: "Keep it simple—and do everything you can to resist unnecessary complexity. Your customers will thank you."
Simple and clear packaging method based on intuitive threshold design
Successful PLG companies ensure that product packaging is well structured so that users know clearly what is included in each plan. Users can choose the package that best suits their needs at their discretion.
For example, workflow automation leader Zapier carefully designs various “packages” of advanced features. Zapier’s packages tell a coherent and intuitive story to different types of customers based on their unique needs in the customer journey through the thoughtful use of thresholds. Zapier’s packages are tiered based on key value units that are easy to set thresholds for – the number of “zaps” and renewal time. In addition, Zapier provides more features and benefits at each higher tier for teams that need more complex and extensive workplace automation.
Embedding Customer Success Levers
The idea of self-service is critical to all aspects of a strong PLG business—from product features to pricing and packaging to customer success, this is no exception. Before building a large customer success team, savvy PLG leaders first seek to embed self-service customer success levers into the product and user journey, so that users have the right tools and feel empowered to help themselves when troubleshooting is needed.
A great example of this principle is Auth0 and their strong documentation culture. Auth0 is an adaptable authentication and authorization platform for developers. Their extremely deep and comprehensive technical documentation library has been a competitive advantage since the company’s founding. For example, Auth0 provides detailed code samples that automatically integrate with user keys so users can copy and paste snippets directly into their applications to get up and running quickly without onboarding help. In fact, Auth0’s documentation is consistently ranked as a key reason why developers choose and stick with their platform.
In addition to documentation and content creation, we’ve seen other PLG companies, such as Javascript testing framework Cypress, successfully implement a strong self-service customer success process by creating digital communities that allow users to connect with other peers for support, participate in forum discussions, and learn about new developments. These digital groups can be developed through various channels including Tribe, Discord, Slack, and Github.
Instill a product-led philosophy throughout the organization
Ultimately, effective PLG actions revolve around product, but require alignment across all aspects of the business. Everyone in the organization—including sales, marketing, design, finance, customer support, product, and engineering—should “buy in” on the philosophy and work cross-functionally to build programs that deepen product usage and engagement over time.
Cloud communications giant Twilio exemplifies how alignment at every level of a company can lead to unparalleled growth. Twilio’s developer-first, product-centric philosophy permeates every aspect of the company and guides actions from different departments, including its sales team. For example, sales is viewed as “product evangelists, but with sales metrics.” They work closely with product teams, staying close to end users and providing feedback to improve the developer experience, rather than trying to unnaturally influence the roadmap to attract large enterprise buyers. The sales team uses clear heuristics to categorize its leads, and the compensation structure is aligned with the PLG strategy. Sales is rewarded with a long-term view of its ultimate value and is tracked based on initial sales and any forecasted expansion.
PLG is More Than Just a Go-to-Market Strategy
PLG leaders like Auth0, Canva, HashiCorp, Imply, Twilio, and others have proven that the PLG approach is more than just a go-to-market strategy—in many ways, it’s a complete business strategy, with the product as the fundamental driver, guiding decisions and actions within the organization.
While these iconic PLG companies make it look easy, getting a bottoms-up strategy right is actually much harder than it looks. After building a solid PLG foundation with these 10 core principles, we encourage founders to explore additional tactical resources on this topic to guide execution as they scale, including understanding how to lower the friction points of PLG monetization and how to grow enterprise sales in a bottoms-up move.
We often witness PLG companies repeatedly surpass the Rule of 40 because they typically demonstrate accelerated growth with unparalleled capital efficiency. Just as the cloud computing business model revolutionized the software industry more than two decades ago, we believe the PLG approach is a powerful catalyst that will help startups gain more traction, faster than ever before. As the cloud economy expands across verticals, market segments, and geographies, we are confident that the PLG approach will drive new levels of product innovation and commercial success at a faster pace in founders’ building journeys.
