NPLG 1.25.24: Should You Use PLG as a Seed Startup? (Sendspark)
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Startup of The Week: Sendspark
Video prospecting gets nearly 3x the replies as text-only prospecting, but at a huge cost: your time.
If you have a large sales team who can record personalized videos for each prospect – great! You’ll see amazing results with 1-to-1 video messages.
But, as a startup, you need to be more efficient with your time and resources.
Sendspark gives you the best of both worlds with personalized videos at scale. It’s like Loom and Outreach had a baby. You can take one Loom-like video, and use dynamic variables (i.e. your viewer’s name or company) to personalize it for every contact on your list.
Sales teams and growth hackers at 10,000+ fast-growing startups like Deel, Warmly, and Textla are using Sendspark to scale personalized sales outreach, customer onboarding, and marketing automation. Sendspark has raised ~$3M in funding from top VCs including 500 Global, Everywhere Ventures, Plain Sight, Active Capital, and Brickyard.
For this edition of NPLG, Sendspark Co-founder & CEO Bethany Stachenfeld shares her thoughts on using product-led growth in the early stages:
Should You Use PLG as a Seed Startup?
As founders, we’re often told that product-led growth (PLG) is the best growth strategy.
(I mean, we are here on the “Notorious PLG” newsletter…).
It’s scalable, it’s inexpensive, and it plays to founder strengths (usually building amazing products, not sales).
When applied correctly, PLG is a superpower that can outmaneuver incumbents and thrust you at the top of your market at a fraction of the cost of traditional sales & marketing.
But, like a siren calling out from the rocky shores, PLG poses serious risks to early stage startups.
What I Mean by PLG
There are a few different definitions for product-led growth. I just want to clarify that I’m lumping together any way that “the product” does the selling for you, instead of you selling as a founder, or hiring a salesperson / sales team.
This includes, but it not limited to:
Free Product or Trial
When you let the user “experience” the product for themselves, instead of sitting through a demo of it. For example, Slack, Atlassian, and Github are known for generous free plans that get the user hooked on their product before they’re expected to pay.
You also see companies like SEMrush and Opus that have time-based free trials for you to explore the product. And some companies, like Hubspot and Sendspark, use a combination of “free forever” tiers and time-based free trials for paid plans.
External Virality
Companies like Calendly, Intercom, Dropbox, Webflow, and Hotmail are known for successfully converting their end users into customers by publicly branding their products as “Made with (company name).” This works well if you have a horizontal product (that can be used by anyone), or your customer can use your product to collaborate with other people who also meet the requirements for your ideal customer persona.
Referrals
Referrals are similar to virality, but the key difference is that your customers are actively promoting you (and getting paid for it), and not just passively attracting you customers by using the product. Gusto, PayPal, and Acorns are the first to come to mind as companies that heavily leverage referrals to grow.
This can be especially effective if your customer knows other people who would benefit from using your product, but aren’t necessarily using your product with the other people in a way they would naturally see your brand for themselves.
Internal Virality
Internal virality works well when you have user based pricing, and are looking for a way to expand across the organization. Figma, Miro, Trello, and other internal tools often do this quite well: they build collaboration into the product, so as they use the product, they naturally invite other (paid!) users and expand the account.
The Lure of PLG
Product-led growth offers many benefits compared to traditional sales and marketing. This is why we built it into our strategy from the beginning at Sendspark.
1. It’s super scalable. Once you’ve built the growth mechanisms into your product, you should be able to see more growth just by having users use your product. Even without sales & marketing spend, you should see continuous growth. You’re building a flywheel!
2. It feels democratic. Instead of selling into the top, you’re winning the hearts of users, and having them convince the decision makers to purchase.
3. It leads to a better product. You’re optimizing for what the true user needs, not just what the decision maker wants
4. It feels familiar. A lot of the products that startup founders leverage product-led growth, so we’re used to it and like it.
5. It means you don’t have to do sales (at least as much). Which, let’s face it, is tempting.
That being said, I can’t help feeling like we would have grown a lot faster if we waited longer to implement product-led growth…
Risks of PLG for Early Startups
The most important things for founders to do is talk to customers and build something people want.
With PLG, you put distance between yourself and the customer. They can use the product on their own, without talking to you. So they're only talking to you when they need help, and things are already going south.
You can also bring on a ton of users, which sounds like a good thing, but also means there's a ton of feedback to sift through.
And, you’re not even sure that the users reporting feedback are the “right” customers. They most likely got started on their own and aren’t paying yet. So how can you tell?
If you have a freemium model and product-led growth, but NOT a super clear definition of who the “right” customers are, there’s a risk of attracting free users who refer more free users who refer more free users.
That’s not growth - that’s just a mess!
What Worked For Us
Realizing that we were attracting a lot of the wrong users with our generous free plan and flexible self-service funnel, we put a “demo wall” for a new feature that we knew people would really want to use.
This went against everything we believed in.
It added a ton of friction for our customers, and was time consuming & inefficient for us. To make sure that users never had to wait more than a couple of days for a demo, we had to slow down our sales emails, and pull everyone we could into demos (both co-founders, our head of customer success, and our head of support).
But, in 2 months, we were able to meet with well over 200 people. We learned A TON about what users were really looking for, and willing to pay for.
And because we had the relationship open, when things went wrong or users canceled, we didn’t have to look at data or Fullstory recordings to guess why – we could just ask them and know what to fix.
Once we felt like we had a strong grip of what people needed to have a successful experience, we unlocked the feature and made our experience self-service again.
And only now are we revisiting things to add more virality and growth loops into the product.
My Advice
Even if you love the idea of product-led growth, start with founder-led sales.
Product-led growth is a great way to scale, but NOT a great way to find product-market fit.
Only when you’re truly confident in who your customer is, what their problem is, and how you help them, THEN start building out your product-led growth flywheel.
The Caveat
If you know you want to switch to PLG as soon as you find product-market fit, you should be careful to build out your sales process in a way that will easily evolve into PLG (and not leave you dependent on human-assisted sales).
Here are some things have have worked for us at Sendspark:
Make sure your product is super simple & intuitive. Keep in mind the eventual goal is to have self-service onboarding.
Build out self-service onboarding emails & help articles. Keep updating these as you work with users, so you’re addressing all the questions you think future users could ask.
Use personalized videos to help you sell & onboard customers async. (Shameless plug: use Sendspark so you can both record personalized videos 1:1 for customers when needed, and create data-enriched videos for your Help Center and email automation).
You can evolve into fully self-service slowly by making the tried and true features self-service first, while keeping others gated. As your product (and onboarding) evolves, you can change these gates overtime. And you might always have some – even unicorn PLG companies usually have an enterprise sales team that is selling some premium gated features!
Good luck and happy building!
I would love feedback. Please hit me up on twitter @zacharydewitt or email me at zach@wing.vc. If you were forwarded this email and are interested in getting a weekly update on the best PLG companies, please join our growing community by subscribing.
PLG Benchmarking (Startups):
I will continue to update these metrics and add new metrics. I would love your feedback on what else I should track (zach@wing.vc).
Organic Traffic (as % of all website traffic):
Great: 70%
Good: 50%
Conversion rate (website → free user):
Great: 10%
Good: 5%
Activation rate (free user → activated user):
Great: 50%
Good: 30%
Paid conversion rate (free user → paid user):
Great: 10%
Good: 5%
Enterprise conversion rate (free user → enterprise plan):
Great: 4%
Good: 2%
3-month user retention (% of all users still using product after 3 months):
Great: 30%
Good: 15%
Conversion from waitlist to free user:
<1 month on waitlist: ~50%
>3 months on waitlist: 20%
For more detail on acqusition rates by channel (Organic, SEM, Social etc), please refer to this prior NPLG.
PLG Financial Benchmarking (Public PLG Companies):
Financial data as of previous business day market close.
Best-in-Class PLG Benchmarking:
15 Highest PLG EV / NTM Multiples:
15 Biggest PLG Stock Gainers (1 month):
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.
Recent PLG Financings (Private Companies):
Seed:
Digitoo, an invoice automation software designed to automate and digitalize the accounting process, has raised $2.5M. The round was led by Reflex Capital.
Hatz.ai, a white-labeled AI platform designed for MSPs to build an AI-as-a-service business with AI applications and agents, vector storage, and custom LLMs, has raised $2.5M. The round was led by Vestigo Ventures.
Kerno, a work optimization software designed to help engineering and operations teams simplify troubleshooting in cloud applications, has raised $1.84M. The round was led by Elkstone Partners, with participation from MMC Ventures.
Kosmik, a visual knowledge management application designed for visual thinking, has raised $3.59M at a $11.25M valuation. The round was led by Creandum, with participation from Kima Ventures, Alven Capital Partners and Betaworks.
Newton Research, a developer of an AI-powered virtual assistant intended for decision-makers, has raised $5.1M. The round was funded by Bessemer Venture Partners, Greycroft and LiveRamp Ventures.
Upheal, an AI-assisted platform designed for mental health professionals with automated notes and analytics, has raised $3.25M at a $13.25M valuation. The round was funded by undisclosed investors.
Zep AI, an open source platform for productionizing LLM apps, has raised $1.8M. The round was funded by undisclosed investors.
Series A:
Flutterflow, an application development platform intended to build a native mobile application that runs on both iOS and Android, has raised $25.5M at a $195.5M valuation. The round was led by GV, with participation from Xoogler Ventures, Gradient Ventures and Y Combinator.
Lago, an open source metering and usage-based billing platform intended to offer cloud, scalable and modular architecture, has raised $19.2M at a $75.2M valuation. The round was funded by Firestreak Ventures and SignalFire.
ScaleOps, a workload optimization platform designed for streamlining a new Kubernetes experience for engineering teams, has raised $15M at a $43.47M valuation. The round was led by Glilot Capital Partners, NFX and Lightspeed Venture Partners.
Recraft, an AI image generator intended to provide a designing tool, has raised $12M. The round was led by Khosla Ventures, with participation from RTP Global, Abstract Ventures, Basis Set Ventures and AAL Management.
Series B:
Contents.com, a generative artificial intelligence SaaS platform intended to offer automated content creation tools to support any business with their daily content needs, has raised $18M. The round was led by Thomson Reuters Ventures, Alkemia Capital and Sinergia Venture Fund, with participation from Azimut Libera Impresa, Invictus Capital Partners and FNDX.
Harvey, a generative AI legal tech application designed to assist law practitioners, has raised $80M at a $715M valuation. The round was led by Kleiner Perkins and Elad Gil, with participation from OpenAI Startup Fund and Sequoia Capital.
Luma, a company that builds AI that crafts 3D models, has raised $43M. Andreessen Horowitz funded the round.
Nabla, a Boston-based startup helping medical professionals create clinical notes faster, has raised $24M. Cathay Innovation led the round, with participation from Zebox Ventures.
Perplexity AI, an SF-based developer of AI-powered search, has raised $73.6M at a $520M valuation. IVP led the round, and was joined by NEA, Databricks Ventures and Nividia.
Robin, an artificial intelligence-based legal software designed to automate legal processes, has raised $26M. The round was led by Temasek Holdings, with participation from QuantumLight Capital, Plural VC and AFG Partners.
ElevenLabs, a developer of artificial intelligence voice dubbing tools designed to automatically dub videos and podcasts into other languages, has raised $80M at a $1B valuation. The round was led by Andreessen Horowitz, with participation from BroadLight Capital, Credo Ventures, Sequoia Capital, Smash Capital and SV Angel.
Later Stage:
Airfocus, an end-to-end product management platform that leverages tools and AI for OKRs, roadmaps, and customer insights, has raised $7.5M. The round was led by Newion Investments, with participation from The Riverside Company, Picea Capital, Nauta Capital and XAnge.
Quora, a questions and answers website, has raised $75M at a $500M valuation to build out its chatbot. Andreessen Horowitz provided the funding.