Why product-led growth?
The popularisation of AARRR funnel by Dave Mcclure led to many companies adopting it and looking at growth in the context of funnels. Marketing would be responsible for acquisition, Product for activation and retention. Sales for revenue.
This doesn't work well for several reasons:
- Silos optimize against each other: Marketing in going after more leads can lead to declining quality, decreasing retention down the line.
- Not considering product-channel and channel-model fit:
- "Build a great product first, and see what marketing channels and tactics work." A product has to be built to fit the channel.
- Your revenue model can remove the viability of certain channels. Low ARPU / CAC businesses can't rely sustainably on paid marketing.
This is coupled with the fact that startups are cheaper to build but more expensive to grow. More competition increases CAC.
How can product bring growth?
In product-led growth, all product teams, marketing think about how growth can be built into the product. Some popular growth hack stories are actually great examples of building growth into the product:
- Dropbox's refer-a-friend for extra space
- Hotmail signature
- Faire — suppliers recommend their retailers to buy from them on Faire to enjoy special benefits.