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SaaS: Misconceptions about Product-Led Growth and Sales
Do you need a sales team in a product-led organization?
One question that I get quite often, both internally at Hotjar, and externally from entrepreneurs and operators of other SaaS startups, is:
Why do you need a sales team in product-led organization?
I think one of the biggest misconceptions about Product-Led Growth (PLG) is that you shouldn’t need a sales team. In fact many people go as far as considering having a direct sales team almost antithetical to PLG. In this post I will try to explain why that is not an accurate understanding of PLG, why you need a sales team when selling a bottom-up product, and the key differences between PLG sales and traditional sales.
The case-study of Atlassian
Atlassian are often cited as the poster-child of product-led growth, and the best example of that bottom-up flywheel that is 100% based on inbound interest in your product. Here is how Atlassian themselves explain it in their F-1 filing:
Our high-velocity distribution model is designed to drive exceptional customer scale by making affordable products available via our convenient, low-friction online channel. We focus on product quality, automated distribution and customer service in lieu of a costly traditional sales infrastructure. We rely on word-of-mouth and low-touch demand generation to drive trial, adoption and expansion of our products within customers.
All of this is factually very true, and it is a model that — when executed well — creates very efficient distribution that doesn’t rely on traditional sales organizations. That being said, what most people don’t know about Atlassian, is that do rely a lot on sales through channel partners and resellers.
In the 2021 Annual Report (page 20), Atlassian mentioned that they currently derive approximately 40% of their revenue from channel partners’s sales efforts. This has grown a lot since 2015, where channel partners and resellers generated 25% of Atlassian’s total revenue.
In addition to relying on sales teams at channel partners and resellers to drive such a significant portion of their revenue, Atlassian today employs a significant internal direct sales organization to sell to their enterprise customers.
Layering sales on top of PLG is a common playbook in SaaS
Atlassian layering sales on top of their strong product-led flywheel is not the exception, but rather the rule in the market.
Monday.com is another great example, of how a very strong PLG organization was able to accelerate their growth significantly by layering a Sales and Partners organization. The following image is from their S-1 filing, and you can very clearly see the inflection point after they created their sales organization:
But Monday.com aren’t the only other example. Every product-led leader we have even seen grow to become a large company have layered top-down sales at some point in time:
Why do you need a Sales team in a PLG Go-To-Market Strategy?
Meeting the needs of more sophisticated buyers: As your company grows and your bottom-up motion starts attracting bigger companies, you will often find yourself facing buyers who have a need to work with a sales person. Their needs can range from operational needs such as procurement requirements, to more product-related needs such as understanding whether your product can cater to some of their more complex use-cases or not. Product Managers often think that the product should be so self-explanatory that there shouldn’t be a need for a human-assisted buying process, but the product alone will never be able to compete with an empathetic two-way discovery conversation between a sales person and a customer.
Better conversion rates and higher ACVs: Sales teams very often beat self-serve in terms of conversion rates and ACVs (for bigger customers) due to the simple fact that they are able to tailor exactly the explanation of the value of your product to the needs of each particular customer. They also help by explaining which plan is the right one for them and avoid a situation where the customer ends up getting little value from your product because they are on the wrong plan.
Consultative selling leads to better retention: while customer retention is commonly a Customer Success job, when your sales team does consultative selling, they prime the customer to get value from your product on day 1. Consultative selling makes the relationship between the sales person and the customer that of a doctor-patient relationship as Mark Roberge puts it in this book the Sales Acceleration Formula, and that builds great trust in your product and your team.
What is the difference between sales in a Product-led org vs. a Sales-led org?
Allocation of budget and investment: Product-Led companies typically spend significantly more on R&D than they do on Sales and Marketing. Sales-led companies often spend between 50%-100% on Sales and Marketing.
CAC/LTV: Product-led companies need to layer sales in a way that doesn’t break their existing CAC/LTV ratios, whereas Sales-led companies would structure their CAC quite differently due to their fundamentally different sales motion, that is largely made up of outbound sales as we’ll see in the next point. The relationship between your CAC and LTV is really about finding the right fit between your customer acquisition channels, and your model (how you charge and the ARPA) as Brian Balfour explains it in great detail in this article on his blog.
Inbound vs. Outbound: Speaking of customer acquisition channels, product-led companies who have built a strong bottom-up motion have the advantage of being able to cast a very wide net in the market, which means they are able to capture leads of all sizes. This gives their sales teams a ton of inbound demand that they can prioritize and ultimately work with a large volume of high quality leads. In the absence of this high volume of inbound demand, Sales-led companies spend a lot of their time and effort on outbound cold-calling and pipeline generation with sales development representatives (SDRs).
I’d love to hear from you, so if you have any thoughts you would like to share, please do so in the comments, or find me on Twitter.