What is the PLG trap, and why do companies fall for it? Canva Head of Sales and Success for EMEA, Jorge Bestard, and Head of Strategic Sales for EMEA, Daniela Nyarko, share Canva’s journey from PLG to Enterprise, strategies to navigate the PLG trap, and why it’s so attractive.
Identifying the PLG Trap
It’s fair to say that most organizations using the PLG playbook focus on B2C or end-user acquisition. If we go back a few years, when PLG was launched in the market, everyone went wild. Many success stories and businesses demonstrated how much they increased adoption rates through PLG. No wonder it was so attractive.
PLG is a powerful tool that allows organizations to offer value to customers without first purchasing the license. Usually, it has a freemium model attached to it, which creates loyalty and trust.
For companies that want to scale, PLG seems like the right choice because the product sells itself, and people adopt it quickly. Overall, the essence of a PLG motion is simplicity. The question is how to encourage widespread usage across a company, teams, locations, and functions.
- Build a compelling product that is indispensable to end users.
- Encourage widespread internal usage with zero friction.
- Find an internal champion or product advocate.
The Steps of the PLG Journey
Every step of the PLG journey makes logical sense, but, in a way, it’s a trap.
- You build a great product that end users love.
- You get traction in the market and raise a round to build a marketing and sales team.
- You build those teams, and suddenly, you see that hockey stick.
- You continue to rise, and you’re deeper into the trap.
You want to double down on your growth, so the next logical step is to build an Enterprise team, right? So, you double down on hiring expensive salespeople and a marketing team. Then you’re trapped because Enterprise requires things so far away from your product team’s grasp.
CIOs and Heads of Procurement require very different things than small teams, and they make decisions differently. Let’s look at the symptoms of the PLG trap.
Symptoms of the PLG Trap
- You’ve experienced the hockey stick effect, and then growth stagnates.
- You’re having difficulty going upmarket, but you’ve already told your shareholders that’s where you’re headed.
- There is a disconnect between what the product delivers and what IT and procurement teams tell you.
Those are the symptoms of the PLG trap. PLG companies experience huge growth with small and medium businesses but struggle to surpass the $5B valuation.
Think about companies in the market right now that started as PLG companies: Asana, Evernote, and Dropbox. All of them are having a hard time breaking through that $5B valuation. Your cost of acquisition increases as you go upmarket, so your growth shifts once you need a legal team and other teams for the Enterprise.
PLG companies are 10-15% less profitable than their sales-led counterparts. Plus, these teams face longer sales cycles and need things like SOC 2 compliance. Those aren’t things you can prepare and turn on immediately.
Companies Need to Make a Shift at the Right Time
Companies need to shift at the right time to break through the $5B valuation barrier. That means abandoning a product-led strategy and embracing more traditional methods. The product alone no longer sells itself.
You’ll likely need a:
- Pre-sales team
- Post-sales team
- A new roadmap, framework, and GTM strategy
If you don’t make changes at the right time, which isn’t easy and requires a collective effort as a business, you’ll likely stay stagnant. Once you’re stagnant, getting out of that place is extremely difficult.
Let’s Look at Examples: Dropbox and Slack
Both companies have one thing in common: They use their product to drive user adoption. In a short period, they had hundreds, thousands, and millions of users within the platform. As they scaled, they had challenges.
Dropbox started with a freemium product and quickly had millions of users. But then, as they tried to expand into Enterprise, they realized, “Hey, we have an offering that’s only focused on the product, but we’re missing things like advanced security controls, admin controls, and things companies need to operate effectively.”
Dropbox’s year-over-year growth has decreased from 25% to 8% in a short period.
At Slack, they have a very similar use case. The GTM strategy is easy to use and caters to small teams around productivity and collaboration. Then, 2020 happened, creating a huge demand for such tools.
The question was: were they ready? They had to build a comprehensive suite of Enterprise kits, allowing users to have multiple workspaces. Eventually, they brought on teams focused on Enterprise only.
Canva’s Journey
Canva is still growing quite a bit, but it started on the consumer side of things, targeting individual users and SMBs. As a tool, they became very popular with huge groundswell. Today, Canva has 185M active users monthly. It’s a great place to start fishing for Enterprise clients.
After almost ten years in the consumer space, they discovered that if they started dabbling in Enterprise, they would slowly fall into the PLG trap.
- They had stagnant growth in Enterprise because the Enterprise features weren’t ready.
- They pulled on the brakes and said, “Let’s focus on doubling down on teams and create almost a separate company that will build a pure Enterprise product over two years.”
So, that’s what they did. They had separate product, marketing, and sales teams for the Enterprise product they were building. They figured out what an Enterprise customer needed and focused on four pillars.
- Understanding marketing demands
- Taking big bets early on
- Listening and building upon customer feedback
- Continuously evolving the product
Strategies to Overcome the PLG Trap
A multi-pronged strategy will help you predict and avoid the PLG trap.
#1: Get the Company Mentally Ready
If it doesn’t feel like you have two separate companies, you’re doing it wrong. It has to feel like a separate sales and product team. Not only did Canva have a different product development team, but the customer interactions, specialized talent, and GTM strategies also differed.
#2: Early and Continuous Product Adaptation
An organization with 500, 1000, and 10,000 users has completely different product and service requirements. So, you have to focus on the user experience by moving away from PLG alone and examining the needs of smaller and larger teams.
You can use customer feedback to meet their requirements. Enterprise customers need single sign-on, data encryption, AI-driven security shields, and compliance with industry standards.
#3: Evolving Sales and Marketing Strategies
Part of the GTM team was used to selling to users and smaller teams, so they hired a set of Enterprise sellers who were used to selling to Enterprises. This is a two-pronged strategy.
As a company starts adding users, there are team sellers and Enterprise sellers who can sell to C-level executives. Your target markets in Enterprise are different from those in teams and even sales territories.
Next, they had an external audit to see if pricing was ready for Enterprise. What they learned and implemented from this was lower pricing for teams and higher pricing for Enterprise. From there, you have to align sales and marketing communications as much as possible.
The value for a user is different from that for the Head of IT, who will never use your product, but they need to know how it will influence your business. So, you need to adjust your messaging to the right audience.
Another aspect of evolving strategies was focusing on the post-sales side with a dedicated customer success team at Canva. This forward-looking team was focused on helping the customer understand the maximum value of the product early on.
Key Takeaways
In the end, it’s all a balancing act. PLG is a powerful tool, but you have to balance the strength of PLG with the demands of Enterprise customers. To overcome the PLG trap, you have to:
- Get the company mentally ready. You’ll have two different companies under one roof with different requirements. So, communicate as early as possible to address the challenges.
- Be able to respond to trends as early as possible.
- Speak to customers and teams and ensure the product matures with the customer base.
- Address your sales, marketing, and GTM strategies to refine the messaging and positioning to target the right audience.
