Product-led growth (PLG) firms, which educate and convert customers using product rather than sales and marketing (SLG), run at roughly 5% to 10% less profitability than sales-led movements, venture capitalist Tomasz Tunguz said in a blog post.
This information might only apply right now: For starters, the total profitability of public IT businesses is down from a year ago. The second reason is that PLG businesses have historically had a larger net income margin than their sales-led competitors. This turnaround may be short-lived, but it doesn’t make it any less intriguing.
Today, product innovation is a standard driver of growth, rather than the exception. In the wake of the success of companies like Atlassian, Zoom, and Snowflake, many private enterprises began following suit. Now that investors are paying attention to a company’s road to profitability rather than rewarding expansion at any costs, owners will want to know if this strategy is fundamentally less profitable.
The situation, as usual, is muddy. Some of the factors that currently make it difficult for PLG firms to produce a profit may soon become opportunities for growth. We contacted Kyle Poyar from OpenView Partners to get his take on the current situation.
OpenView, a venture capital firm located in Boston, is a recognised proponent of product-led growth, and as such, it has invested in a number of different companies. The flip side of this is that it has a strong interest in proving that PLG works and is eager to learn more about the factors that contribute to that success.
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