Transitioning a SaaS business from Product-led growth to sales-led growth

August 04, 2023

by a searcher from Roosevelt University in Boston, MA, USA

While I fundraise for my traditional search fund, I have been working my network and starting to have conversations with SaaS business owners. There have been some opportunities to take a business with a PLG strategy and develop a sales model or vice-versa. While this is something I've done before, I am curious if anyone has done this in a traditional search-acquired business.

For those not familiar:

PLG - Product-led Growth businesses typically have higher product and R&D costs but smaller sales teams as they use freemium, free trials, or reverse trials. They manage the data maniacally to attract, activate, monetize, expand, and refer new customers.

SLG - Sales-led Growth businesses typically have higher sales costs but more modest R&D/product costs as they use traditional outreach or inbound to grow the business.

Does anyone have post-acquisition experience moving a business from one growth model to another (or supplementing) under the traditional search model? How did it go and how did the board feel about it?

Reply by a searcher
from Columbia University in New York, NY, USA

I don’t have direct experience, but agree with John - both can coexist. Regardless of the growth techniques you use, the growth funnel is the same: awareness, acquisition, adoption, revenue, retention, referral.

Generally speaking, R&D investments scale better than people-oriented ones. Sales teams therefore lend themselves to high-value contracts. Either way, it’s worth analyzing the opportunity size in each segment, the current funnel metrics for each segment, and the cost/benefit of the possible improvements. E.g., if customers try the free trial but fail to convert, is it a pricing issue (maybe larger companies would benefit more and therefore pay more) or a product issue (maybe your current customers just aren’t understanding the product during onboarding).

Reply by a searcher
from Northwestern University in San Francisco, CA, USA

I've found it really depends on your target customer and where you are in your growth cycle. If you serve the SMB segment, PLG can be critical to growth as the CAC payback math for SLG can get tough given the deal size. As you move up-market, SLG becomes more attractive as most MM or Enterprise customers don't convert with PLG and the contracts are large enough to support the S&M investment. However, a lot of VC backed startups pursue a SLG motion at the onset when targeting SMBs to get traction, show growth, etc.; but they can do this given they have capital to burn to "cross the chasm". A lot of this comes down to your assumptions on LTV etc. Just be sure you know your value prop and who you want to serve!

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