As I’ve been learning about Software as a service business and different growth strategies related to it, I have been pleasantly suprised about the quality of content online.
At least compared to ecommerce and especially lead generation the depth of available free content is quite different. In ecommerce and lead generation there is sort of a tendency to hide the best practices that have been found, in Saas it feels people are sharing the playbooks they have used more openly.
Wont give recommendations here as don’t feel like I am in a spot yet with my knowledge regarding Saas that I would be able to really evaluate what is good and what is not. Due to this the evaluation of the quality of the content is more of an intuition still and I would go on to say, that even though there is a lot of higher quality content in Saas community, based on my intuition as said, there is still the same problems with the information as there is in all the other fields.
One thing that I very rarely see discussed in Saas or actually any other space is information asymmetries and how do they affect the weapon of choice in growth. I think this is also the key problem in getting to know a field, since it is impossible to know what is relevant information and what is not before I am actually good at the thing I am reading about… There is obviously some shortcuts, trusting someone who has a great track record etc, but all of these also have their problems. But let’s leave this discussion for other date and move back to how I think about the effect of information asymmetries in growth.
Product led growth seems to be the latest trend in Saas. VC:s are looking for companies that are growing product led and the biggest success stories from the past couple of years have been product led and everyone seems to just be hyped about it in general. And this time I have to say it is not without a reason.
In a lot of spaces inbound marketing missed the point completely and the discussion and hype went way too far. In Product led growth, it has maybe gone too far, as all the new things go, but not too much compared to lot of other things.
The basic idea of product led growth (at least the way I define it) is that the customer base grows without customer acquisition. Through the product features and recommendations. Obviously I can speed up the pace with different methods and I should but that is beside the point.
But product led growth does not fit to every company and to all markets. I would even go on to say, that even for the companies that product led growth is the optimal strategy in the long run, the way to product led growth usually should go through sales led or marketing led growth. (I like to differentiate between sales led and marketing led, lets not dive too deep to them for now.)
And one of the reasons why people are not succeeding with product led growth, is due to the fact that they have not really taken into account information asymmetries in the market and how do they affect the viability of their growth strategy.
In short by information asymmetry I mean the fact that information is not distributed evenly across the market and usually on top of that there is a big difference in the knowledge of the startup internally and the potential customers overall.
And if we jump straight to one of the many possible conclusions, I think I can make a reasonable argument for the fact that product led growth is most efficient in markets where the information asymmetry between early adopters and the startup is small or almost non existent.
Or maybe the via negativa of it is stronger, product led growth doesn’t work if the information asymmetry between the startup and the market is too big and is not shrinking quickly enough.
The more important thing obviously is the value the product provides, but I would argue the information asymmetry is a good metric for the timing.
The information asymmetry also puts the idea of value creation to a new light and maybe helps us understand why always great products do not actually succeed. In Saas sometimes the idea is coined that in order to be successful product needs to create 10x value compared to the price. I think this is a good proxy, not due to the fact that I would actually need to provide that much value if there would not be any opacity in the value generated. But due to the fact that due to the information asymmetry between the customer and the vendor there is some uncertainty in the value provided.
I would also argue that companies growing sales led instead of product led can get along with less value generation compared to the price, since the sales rep can increase the perceived likelihood of value got. This could be a topic for another post, but when I think about it, if I really think that someone understands my business well and still argues that there is no reason I should not get value out of it, I think the the risk at least seemingly decrease.
From here I could also draw a conclusion that one reason why product led growth is valued more than sales led growth is also due to the fact that most likely company that is growing product led has better product (market fit) than a company that is growing sales led. Or at least there is synergy from product led growth to sales led growth, but not necessarily other way around. Obviously there is multiple other factors also and I wouldn’t even say that this would be one of the important factors, maybe wise versa.
To give credit where credit is due, I would say everything I wrote above are just an extension of Nassim Talebs ideas from Incerto. Wouldn’t say I have as high conviction for these ideas and their relevance compared to the original ideas in Incerto, but I still think asymmetries in information and risk and other factors are something that are usually very poorly understood.