Product-Led Growth and Partnerships are not mutually exclusive. In the Age of Connected Work they are very much 🤝 complementary.
I caught up on this with Kyle Poyar, Operating Partner at OpenView VC and the author of Growth Unhinged - #1 newsletter on PLG. Kyle is among pioneers who brought Product-Led Growth to SaaS in 2016 and he has been leading the PLG movement since.
We deep dived on how PLG is evolving in the Age of Connected Work.
Continue reading for the key insights and check out the our conversation for more details.
0:00 - Intro
2:00 - How is PLG evolving?
7:30 - Why and how to build for openness and interconnectivity?
11:00 - Meeting users where they are
14:30 - The trend of indirect monetization in software
18:30 - Timing partnerships in a SaaS company's lifecycle
26:00 - Product-Led Growth vs Sales-Led Growth
32:00 - Navigating partnerships with marketplaces - Supermetrics Case Study
37:00 - Best practices in SaaS community building
PLG in The Age of Connected Work
Product-led growth has been a popular term in recent years and many companies are looking for ways to incorporate it into their business. But what comes next?
Today the average company uses dozens, if not hundreds, of independent software tools:
Sales tech stack, like Salesforce CRM
Marketing tech stack like HubSpot
Cloud infrastructure from AWS, GCP, or Azure
The next generation of companies will be built on these value propositions, distributing products where users already spend time. You're extending on the workflow where they already live. You're able to get value more quickly because you're able to build off of places where data already resides and folks are already actively working. You can potentially play the role of connecting systems and create a lot of stickiness in the user workflow as part of that.
Distributing products where users already spend time creates stickiness and removes friction from the user experience.
Example: using Shopify ecosystem to grow
Shopify's open ecosystem strategy offers a great example of the benefits of such distribution.
If you're an e-commerce company that made core investments on Shopify - that will become a core foundation for how you can grow your business.
Shopify has an open ecosystem strategy. In fact, more of their revenue comes from merchant solutions rather than selling their core software in the first place.
Shopify has an extremely open attitude towards technology vendors because they know that that actually builds a whole ecosystem of stickiness and solves a lot of problems for customers, that Shopify is just not going to have the bandwidth to build themselves.
But from an ecosystem partner standpoint, it means that if they can get connected into that Shopify ecosystem and distribute through the Shopify app store, customers can essentially take all of the upfront setup work that they've done in Shopify and starting to sell products that way. They can essentially translate all of that hard work into immediate value on incremental products that they buy. If they now want to buy an email marketing tool, and if they want to buy SMS related software technology, if they want to buy technology on job shifting, shipping and referrals, all of that can extend upon the data, the setup, all of the existing systems in Shopify.
Sidebar case studies
How Shopify is growing via ecosystem and now paying $400m annually to partners
How Shopify grew with superior API and focusing on partners
Grammarly Case Study
If you're selling to a knowledge worker, they tend to spend a lot of their time in the browser and in particular at Google Chrome. If you can distribute through the Chrome extension and Chrome ecosystem marketplace, then you're able to provide something that works really wherever your users are working. They're not having to consciously decide whether to log in or to the product or not. The product just happens to work wherever they need it.
And that's the power of Grammarly, which is at its core a Chrome extension. Obviously, they have a lot of extensions in that they work wherever people write. But with Grammarly, the idea is let's help people write much better in a seamless way ,instead of just having a spellcheck or autocorrect. Let's actually help people write in a way that's compelling.
People are writing in a lot of different places - in Microsoft Word. Google Docs. You might be writing emails in Gmail or you might be writing inside of other software applications like Asana.
Grammarly, by living within Chrome, within your browser, helps you improve your writing anywhere that you need that help. And they're going to do that without you having to remember to log in to Grammarly.
If you had to seek out Grammarly any time you needed help with writing something, you'd probably not go through that extra pain unless it was something really important. But because Grammarly is natively embedded where you already are, it's something that gets you value really quickly. It gets sticky repeatable usage and habit formation from the user and doesn't require a lot of friction for the user experience.
PLG thrives on minimizing friction in the user experience, best achieved by integrating products where users already spend time, as exemplified by Grammarly's Chrome extension that integrates seamlessly in all of user workflows.
Different companies need to approach this in different ways. Distributing through Chrome and Chrome Marketplace is a popular approach, but it's not the only one. Atlassian has a massive App Store, AWS has a large marketplace, and even mobile app stores are increasingly popular for B2B products.
Indirect Monetization: Big Trend for big vendors
The big trend across the industry is to embed other software in your product and then start to monetize indirectly, given you have sufficient scale of user adoption.
Building out a product engineering org to extend the functionality of your product is a massive undertaking. Instead, a more efficient way is to have an open ecosystem approach and partner with other ISVs and developers, who can distribute their apps to your app store. This way, you're able to provide more solutions to customers in a faster way without having to spend as much money building out your R&D team in-house.
I work at a VC firm, we invest in earlier stage companies, often Series A, Series B. These are not the companies that have the market power and the customer base where they're building out their own marketplaces. They're more on the side that is distributing through other marketplaces.
But to me, the rationale as a [large] vendor is obvious. You have a massive install base of customers. They have very diverse needs that might be different across industries or personas. Your product has become core to how they operate. They want to extend how they're using it to get even more business value from the product. That could mean an infinitely long roadmap and you could go build a product engineering org that's massive and a huge percentage of your revenue to build all of those things.
But a much more efficient way would be to have a more open ecosystem approach, partner with other ISVs and developers where you might have your own first party apps and then your partners could distribute apps to the app store.
That way you're allowing faster innovation. You're allowing the market to see what customers really value and what they want. You can benefit essentially from third party R&D on your platform…
And then there's still a really powerful monetization opportunity through charging as a percentage of revenue or through other avenues because you're getting a rake on any of these purchases happening through your platform.
Then what can be powerful, is your vendors might even start bringing new customers. Your customers are going to be sticky. It's going to be very hard for them to leave and go to another platform because not only are they using your software, they're using a host of apps around your software, which means that it's going to be extremely difficult for them to replicate that experience elsewhere or might take a lot of time for them to do it.
Keep in mind:
The open ecosystem approach has many benefits, but requires a dedicated investment to be done well.
Companies need to build a developer-friendly API-first business with partners, which is different from building a direct-to-customer business.
Balancing Direct and Partner-Led growth in early stage
Understanding when to test partnerships depends on the company and its strategy. Some businesses, for example e-commerce, focus on partnerships with platforms like Shopify from the start, while others may wait until later stages to explore partnerships for incremental growth.
Early-stage software companies often struggle to balance direct customer engagement with channel or agency partner initiatives. Focusing on one moton first, whether it's a direct model or a partner-related model, can help avoid diluting efforts and resources.
The right time to test partnerships varies across companies.
Early-stage companies should focus on finding the best traction method before exploring additional channels.
Be careful to dilute your efforts by trying to build up both direct and partner-based approaches simultaneously.
Leveraging Cloud Marketplaces to turbocharge Enterprise Sales
The explosion of hyperscalers like AWS, GCP, and Azure presents opportunities for companies to streamline their enterprise sales processes and turbocharge their sales cycles. Cloud marketplaces offer companies an efficient way to reach enterprise customers by allowing them to sell as part of a broader agreement that is already signed off and approved.
The purchase that you're trying to get the customer to make might be a six-figure purchase, but it's a fraction of the customer spend on AWS as a whole. If you could instead sell as part of that same AWS broader agreement that's already signed off, already approved. Maybe as part of that already committed spend that the customer has made, you can turbo charge that sales cycle by potentially two or three months and really get in, prove value and then grow with that customer. I think it's a really interesting opportunity for companies that sell into that developer and IT persona to try to basically ride off of the coattails of the big cloud vendors and use that as a way to get into enterprise customers in a way that's much more efficient than trying to sell each of these customers one by one.
At the same time, listing on these marketplaces does not guarantee instant discovery. Companies may need to bring their own clients in the beginning and actively promote their products themselves.
Discovery is a fascinating thing on marketplaces. There are some marketplaces that are really great at driving discovery of the apps on their marketplace. I would say the cloud giants are probably not so great at that.
To boost discovery, startups should aim to position their product in a way that fills strategic gaps for large vendors. This makes their products more valuable and incentivizes vendors to bring them into deals, co-market, and feature them in events and content.
Cloud marketplaces can help startups bypass lengthy enterprise buying processes.
Discovery on these platforms may not be easy, but being strategic and filling gaps can help with visibility.
Working with large vendors in a strategic manner can drive co-marketing opportunities and more.
Sidebar case studies
Why 32% of CXOs expect to spend more in cloud marketplaces in 2023
Cloud marketplaces of AWS, Microsoft Azure and Google Cloud grow 86% YoY
Case Study: How Supermetrics early bet on Google Workspace Marketplace Paid Off
Supermetrics started as a data connector built off Google Sheets, catering to marketers by connecting data across various systems. They addressed the pain points faced by marketers who had to manually aggregate data from different sources, such as ad data from Facebook, Google Analytics data from websites, and email data from HubSpot.
Over time Supermetrics emerged as a neutral vendor, playing the role of a connector between different parties. This also made Google's ecosystem more valuable, driving more users to Google Sheets and other Google products. By being in the right place at the right time and taking an early bet on Google's workspace marketplace, Supermetrics became a first market leader, enjoying the halo effect that came with it.
That's a good example of being in the right place at the right time. I think they also were one of the first vendors that launched as part of Google's workspace marketplace. And so they've benefited from taking a bet on a marketplace that wasn't yet proven, that didn't have a lot of customers, but where they could be early. And then, because they were early, get that halo from being a first market leader.
Supermetrics began by addressing marketers' need to bring data from different systems into one place, like Google Sheets.
They became strategic for Google by connecting data between systems that Google wouldn't build close integrations with.
Supermetrics was one of the first vendors to launch on Google's workspace marketplace, benefiting from being an early adopter.
🎯 Partnership strategy sessions - grab your free spot
To help you succeed in the unique challenges in your partnership journey, I'm offering a limited number of FREE 20-minute 1:1 partnership strategy sessions. During our call, we can explore:
Crafting the right partnership strategy across channels
Excelling in partner marketing
Accelerating partnerships with optimized processes and tools
👋 Reserve one of these exclusive time slots here.