Notorious PLG 2.15.22: How to Catch a User (Acquisition)
Weekly update email on the most important product-led growth ("PLG") companies and strategies
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How to Catch a User
For the next few weeks, I’ll be sharing “How to Catch a User,” a mini-series on product-led growth marketing fundamentals and benchmarks, brought to you by my incredible colleague and partner at Wing, Clair Byrd. Clair joins us from Twilio and InVision and has deep visibility into other notable PLG pioneers like Canva and Dropbox. These metrics are illustrative—they represent a blended view of performance for good and great product-led strategies—and should be considered guardrails for building true growth machines at bottoms-up companies.
How to Catch a User, Issue 1: Acquisition for Bottom’s Up Companies
Acquisition in the world of PLG is a hot button issue. There are voices who are adamant that paid performance marketing is the only predictable way to grow an install base. Others believe deep investment in brand and community is the only way to create long-term value with communities that matter and ultimately crack the enterprise. Ultimately, you need both.
Additionally, all of the best organizations I have either personally managed or been embedded in, realized a more fundamental truth: customer or user acquisition in PLG models looks a whole lot more like consumer marketing than traditional B2B marketing—you need more traffic to acquire a single user, fewer users will activate, conversions between lead stages is lower, and ever fewer will pay. Overall, and especially for newly launched companies, you can expect something like:
60%+ of all signups will never activate
Of the 40% that do activate, less than 8% will convert to a paid plan
Of the 40% that activate, less than 4% will be appropriate for any type of enterprise plan
This looks very different from a traditional B2B business, where, ideally, +50% of demos or other high-intent leads are converting to SQLs, and ~33% of those leads should be converting to opportunities. This is due to the outcomes these respective marketing programs are driving toward—PLG marketing is focused on end user value delivery and acquisition, retention, and conversion to some paid product, while B2B marketing is about business value delivery and acquisition, leverage, and sales pipeline development.
To create a sustainable, scalable growth machine, you need both organic and paid performance programs. Without an investment in organic channels and programs that position your product and educate people, your churn will spike and retention plummet. Without great paid, performance-based programs, it’s very possible that new user growth will stagnate and level off over time. With a great blended strategy, you can expect user acquisition rates that look like this:
Organic marketing channels
Good: 7%+ of traffic converts to lead/signup
Great: 11%+ of traffic converts to lead/signup
Good: K-factor = .4-.6
Great: K-factor = .6-.8
Good: 2% of traffic converts to lead/signup
Great: 4% of traffic converts to lead/signup
Paid marketing channels
Good: 2-3% of traffic converts to lead/signup
Great: 3-5% of traffic converts to lead/signup
<1% convert to lead/signup
1-2% of traffic converts to lead/signup
Good: 2-5% of traffic converts to lead/signup
Great: 5%+ of traffic converts to lead/signup
In the next issue, we’ll discuss what great looks like regarding onboarding, conversion to paid as a self-service model, and the hand off of leads to sales as MQLs and PQLs. If you have thoughts on what I’ve shared, feel free to tweet at me: @theclairbyrd
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Recent PLG Financings (Private Companies):
Amplication, an open-source development tool designed to develop quality Node.js applications, has raised $6.6M. The round was led by Norwest Venture Partners and Vertex Ventures Israel, joined by Entrée Capital, Velocity Ventures and angel investors that include the founders of Datorama, Epsagon and Bridgecrew.
neo.tax, a provider of tax credit services intended to assist early-stage startups with legal tax compliances, has raised $10M. The round was led by Infinity Ventures with participation from Google Ventures, Acrew Capital and Fin Venture Capital, in addition to participation from the existing backers, Uncork Capital, Floodgate, Liquid 2 Ventures and Lux Capital.
PopSQL, a developer of collaborative SQL query editing software designed to share queries and visualize data, has raised $14M. The round was led by Tiger Global, with participation from Gradient Ventures, Y Combinator, and FundersClub.
Promethium, a data governance and business intelligence analytics platform designed to empower enterprises and their employees to make data-driven decisions, has raised $26M at a $94.25M valuation. The round was led by Insight Partners, with participation from existing backers .406 Ventures and Zetta Venture Partners.
Census, a startup building a data layer between business operations and a company’s data warehouse, has raised $60M at a $630M valuation. Tiger Global led the round, with participation from Insight Partners, Sequoia and Andreessen Horowitz.
Endgame, a sales platform that enables software companies to turn customer observations into go-to-market strategies, has raised $30M. EQT Ventures led the round, with participation from Lachy Groom and existing investors Menlo Ventures, Upfront Ventures and Unusual Ventures.
Superconductive, a data quality analytics startup, has raised $40M. Tiger Global led the round, and was joined by Index Ventures, CRV and Root Ventures.
Airmeet, an online communication platform designed to empower organizations and communities to achieve effective collective progress, has raised $35M. New investors Prosus Ventures, Sistema Asia Fund, RingCentral Ventures, KDDI Open Innovation Fund, DG Daiwa Ventures and Nexxus Global participated alongside existing investors Sequoia Capital India and Accel India.
Novi, a digital marketplace designed to connect chemical suppliers with the manufacturers of beauty products, has raised $40M at a $305M valuation. The round was led by Tiger Global with follow-on investments from Defy.vc and Greylock.
Alchemy, a blockchain developer platform, has raised $200M at a $10.2B valuation. Silver Lake and insider Lightspeed Venture Partners co-led the round, and were joined by return investors Andreessen Horowitz, Coatue, DFJ, Pantera Capital and Addition.
Radar, a location data infrastructure platform designed to help product and growth teams build location-aware application experiences, has raised $55M at a $365M valuation. The round was led by Insight Partners, with participation from existing investors Accel, Two Sigma Ventures, and Heavybit.
Starburst, an analytics platform designed to unlock the value of data by making it fast and easy to access anywhere, has raised $250M at a $3.25B valuation. The round was led by Alkeon Capital, with participation from Altimeter and B Capital Group, as well as existing investors Andreessen Horowitz, Coatue Management, Index Ventures and Salesforce Ventures.
Branch, a deep linking technology designed to transform how brands and users interact across digital platforms, has raised $300M at a $4B valuation. The round was led by NEA.
Recent PLG Performance (Public Companies):
Financial data as of Friday market close.
15 Biggest Stock Gainers (1 month):
Best-in-Class PLG Benchmarking:
15 Highest EV / NTM Multiples:
Complete Notorious PLG Dataset (click to zoom):
Note: TTM = Trailing Twelve Months; NTM = Next Twelve Months. Rule of 40 = TTM Revenue Growth % + FCF Margin %. GM-Adjusted CAC Payback = Change in Quarterly Revenue / (Gross Margin % * Prior Quarter Sales & Marketing Expense) * 12. Recent IPOs will have temporary “N/A”s as Wall Street Research has to wait to initiate converge.