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If there’s a single constant to the software industry, it’s that it keeps evolving. We’re now on the cusp of its newest shift.
For most of its history, the industry was organized around an on-premises delivery model. Business customers would buy software licenses for a specific number of applications that their employees would access from their individual machines, or via a centralized server.
There were a couple of problems with that approach:
- Applications didn’t get upgraded until the company responsible for the software came in and made changes to the client’s centralized server stack.
- There was little incentive for software developers to make the best possible product. Once an app was embedded inside an organization, the sale was done and employees had to use the product, even if they hated it. Any problems would need to wait for fixes in the next update. Whenever that was.
A welcome alternative arrived in 1999 with Software as a Service (SaaS) when Salesforce launched its customer relationship management solution. SaaS allowed for easier buying and deployment. Customers no longer needed to wait for a vendor to arrive and fiddle with a server to roll out the right number of licenses. Businesses could instead pay for their apps on a monthly basis as part of a service subscription.
While SaaS marked an important evolution, product purchases were still subject to the edicts of a handful of executives deciding for the rest of the organization. The people inside the company who used the product every day didn’t get to vote or offer feedback — even if they hated using a product. The C-suite made the final decision.
We’re now in the midst of another software evolution, one that puts users front and center in the product conversation where they’re going to have a determining say in what they use in business. It’s a concept known as product-led growth or PLG.
The messaging behind PLG often gets muddled with marketing speak. For me, as an engineer and a software builder, it’s simple: PLG represents the purest form of building technology. It’s about developing products so that they’re useful to the people working with them.
Philosophically, the approach rests on the recognition that the constellation of buying power has shifted. We had already been heading in this direction, but the transition accelerated during the pandemic. Nowadays, you’ll find senior executives openly acknowledging they don’t retain the buying power they once had. I’m speaking from first-hand experience.
As CEO of a software company, I never had any plans to buy Slack for our employees. Then it spread rapidly across our organization as one department after the next adopted its “freemium” offering. It didn’t take long before we hit our usage and functional limitations. And because we needed the enhanced features that helped with things such as privacy or compliance, I had no choice but to buy the full product.
Toward a new product management framework
The PLG era will demand changes in the way we think about product management frameworks. While software makers will still need to build for administrators and address enterprise values — specifically when it comes to the B2B world — they’ll need to put the user at the center of everything they do.
That’s a fine-sounding phrase that’s received short shrift when it comes to putting it into practice. When I worked at Blackberry, I remember how we had a customer advisory board that was sometimes referred to as The Angry Men. They had a big influence over what the product management teams focused on. Sometimes, their feedback helped, but more often it focused the business on the short-term objective of how to make the most money. I don’t know how many companies can survive using such a narrow framework. Customers will always tell you what they want, but it’s up to you to deliver what they actually need.
Steve Jobs was famous for building for the end user, which is arguably one of the reasons so many smartphone manufacturers went obsolete. The iPhone was never built for enterprise use. Blackberry was. Yet the iPhone eventually overwhelmed them because the consumer had the purchasing power and ultimately chose what they wanted to use. People wanted to play Angry Birds in their free moments, and Blackberry didn’t build a solution that allowed them to do that. And so, the end user won.
We’re now living in a world where products get instant feedback from actual users leaving reviews on the likes of the Google Chrome store, G2 Crowd, or in random posts on LinkedIn. So instead of relying on selected feedback from a handful of customers possessing outsized influence, companies now must listen to hundreds of thousands of users publicly talking about their experiences with their products. That’s a huge change.
In my role as a venture capitalist, I’ve had countless calls with CEOs, many of whom run top-down sales organizations, telling me they understand this shift and want to turn their organizations into PLG companies. Great. But I tell them they need to delight users almost instantly.
It’s hard to engineer a PLG gene into your corporate DNA. But look at what happens when you do it right. For the longest time, Facebook had no revenue. It didn’t matter because hundreds of millions of users loved the product. They owned their audience and so when Facebook finally turned on ads, it became one of the most valuable companies — essentially overnight.
This is a roundabout way of saying that design must be a core element of the PLG process. In this new world we find ourselves in, the bar has been set higher. It’s Results as a Service — the total democratization of business software, where every user has to get value. We’re moving on from the SaaS and on-prem eras and products need to be of sufficiently high quality to garner support from the broader community of end users.
Otherwise, don’t bother.
Michael Litt is cofounder and CEO of the video platform for business Vidyard and is a general partner at VC firm Garage Capital.
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Author: Michael Litt, Vidyard