Notorious PLG 2.24.22: How to Catch a User (Activation)
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 2: Activation for Bottoms-up Companies
Last issue (link here in case you missed it), we discussed user acquisition and what you can expect as benchmarks from various channels and programs. But acquired doesn’t automatically mean they are a user or customer (many PLG user communities never identify as a “customer” throughout their lifecycle) and counting signups alone as a leading indicator is a recipe for failure. A better indicator of success is product activation.
Activation is defined as the minimum number of events or actions a new user has to complete to, effectively, reduce the chance of user churn to ~20% or less after 6 months, or have the highest likelihood of converting to some sort of premium usage (probably 2-8% of users). The definition varies based on what type of PLG company you are or what you are trying to prove with that metric — bottoms-up SaaS, like InVision or Figma, might look at propensity to convert to paid or inter-team collaboration, while a pay-go model, like Twilio or AWS, might look at app deployments as activation. Twilio specifically used two stages to define activation—deployment of a Twilio application in any form, and a secondary, longer-tail metric called “PA10,” which was defined as when an individual user deployed an app and then spent $10 or more on transactional volume.
Defining Activation
There is no absolute truth about what constitutes “active” across companies. Console usage is a common place to start for many companies, and some products, like Canva for example, have tons of daily console usage per user, while others (like Twilio) have very little.
Instead, think about how to identify what activation looks like for you:
Track who is going through the path, as well as what they are doing, where they are doing it, and when they are doing things that directly lead to activation
This could be any number of steps over any timeline, inside or outside of the console experience. A good way to identify these stages is to look at time bound, short-term retention:
Day 1 retention
Day 7 retention
Day 30 retention
MoM cohort-based churn
And then understand the patterns in the user behavior for those that didn’t churn out. This could be something like “hit the pricing page, signed up within 5 minutes, clicked into a sample project, invited a colleague to the app within first session” or something like “found the docs via search, ran sample code locally, downloaded the CLI 2 weeks later, signed up for the product, entered credit card details.” I call this “the happy path.”
That happy path is the journey to activation and represents the relevant actions taken to activate. Measure the number of users who complete the happy path.
Measuring activation
Pre-scale (<200 sign ups per day)
Good: 40-60% new users activate
Great: 60-80% new users activate
Post-scale (>200 sign ups per day)
Good: 20-30% new users activate
Great: 30-50% new users activate
We often get asked, “should we change our definition of active over time?” Yes, definitely. Over time, user activity and happy paths change as product and corporate strategy evolve. As Twilio was scaling the sales organization, PA10 was a good indicator of preventing churn, but was not the best indicator of propensity to scale or spend more money on the platform. This shift in priorities (going from a user activation strategy to a revenue discovery strategy) required a new definition of product active. Activation metrics should help you steer based on your corporate goals and what you are learning about your ideal user profile, and should be consistently improved through experimentation.
In the next issue, we will talk about onboarding and the happy path in more detail, plus some good ways to measure these important programs based on popular product-led business models. If you have thoughts or an experience to lend to this conversation, feel free to tweet at us: @zacharydewitt and @theclairbyrd.
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Recent PLG Financings (Private Companies):
Seed:
Bardeen, an application software designed to automate repetitive tasks and control web apps, has raised $3.5M. The round was funded by 468 Capital and FirstMark Capital.
Goldcast, an operator of virtual services intended for conducting business events, has raised $10M. The round was led by Unusual Ventures with participation from Hubspot Ventures, Afore Capital, Underscore VC and angels including Scott Belsky, Manik Gupta, Chandar Pattabhiram, Elissa Fink, Elias Torres, Sangram Vajre, Kris Rudeegraap, Guillaume Cabane, and Lenny Rachitsky.
Multis, a French company that helps Web3 companies manage their finances securely, has raised $7M. The round was led by Sequoia Capital, with participation from Long Journey Ventures, Sound Ventures, and MakerDAO.
Series A:
Arcion, a database replication platform designed to offer autonomous migration and cloud-neutral database replication, has raised $13M at a $65M valuation. The round was led by Bessemer Venture Partners, with participation from Databricks.
Kubecost, a cost monitoring platform designed to help companies manage their Kubernetes resources and costs, has raised $25M. The round was led by Coatue Management, with participation from seed investors First Round Capital and Afore Capital.
Shortwave, an email communication platform designed to make emails fast and collaborative, has raised $9M. The round was led by USV and LightSpeed with participation from Afore Capital, Flybridge Capital Partners, Immad Akhund, Peter Reinhardt, Ilya Volodarsky, Vikrum Nijjar, Rafael Corrales, Union Square Ventures, Vibhu Norby, James Tamplin and Oliver Cameron.
Series B:
Convictional, a startup aiming to connect products and inventory to retailers, has raised $40M. The round was led by YC Continuity, with participation from Lachy Groom and FundersClub.
Found, a provider of full stack financial services for self-employed workers, has raised $60M. Founders Fund led the round, and was joined by Sequoia Capital and Lightspeed Venture Partners.
Cohere, a natural language processing software designed to build machines that understand the world, and to make them safely accessible to all, has raised $125M. The round was led by Tiger Global, with participation from founding investor Radical Ventures and returning investors Index Ventures and Section 32.
PlayPlay, a video production platform designed to build simple and social videos for companies, has raised $55M. The round was led by Insight Partners, with participation from Balderton.
Temporal, an open-source microservices orchestration platform designed to build and operate resilient applications at scale, has raised $103M at a $1.5B valuation. The round led by Index Ventures, with participation from Amplify Partners, Sequoia Capital, Madrona Venture Group, and Addition.
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.