As investors focus more on profitability, product-focused startups may be doing pretty well.

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Should SaaS companies reach out to as many of your users as possible in hopes of turning them from free to paid?

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Best-in-class companies don’t, says a new report based on a survey. According to OpenView’s third annual product benchmarking report, which the venture firm unveiled at Blog Post“Great PLG companies cover only 14% of registrations on average.”

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PLG stands for product-driven growth, exemplified by companies such as Calendly and Netlify, while OpenView defines as “a growth model in which the use of a product contributes to the acquisition, retention and expansion of customers.” The venture capital firm sees outstanding PLG companies as those that “permanently grow at 30% or higher in scale, have revenues of more than $30 million, and are publicly known.”

There appears to be a strong correlation between PLG model use and raw growth, according to the OpenView report.

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“Respondents in product-focused companies, especially those using the freemium model, are more than 2x more likely to grow fast (100%+ year-over-year revenue growth) than sales-focused models.” The latter refers to the opposite of PLG, i.e. models in which new customers are attracted by sales teams.

That PLG is driving growth may explain why the sales model is becoming more common among SaaS companies. This fact is reflected in the OpenView survey sample, but also in a broader sense. Question about Bessemer Venture Partners Cloud 100 indexpartner Mary D’Onofrio told TechCrunch that “Over the past few years, the share of product-focused companies has increased in the Cloud 100 on both a cumulative valuation and a count basis.”

This growth in PLG adoption occurred at a time when markets rewarded growth. But how do we informed, public market data compiled by Battery Ventures shows that in the current downturn, investors have shifted their balance of growth and profitability. PLG not right for these new times? Most likely not, it turns out.

To understand how PLG can perform in changing market conditions, we spoke with the authors of the OpenView report, VP of Development Sam Richard and partner Kyle Poyar. We also collected records from D’Onofrio and former editor of TechCrunch Josh Constine, now a SignalFire Venture Partner. Everyone agrees that now is the right time for the lean growth that PLG can achieve.

Growth or profit?

“Investors have completely forgotten about the 40 rule,” which says growth plus percentage returns should equal 40, OpenView observed last November. How quickly things change! We were making report in the firm’s annual report on financial and operating performance, which showed that at the time, software companies were rewarded for revenue growth of 30% or more, with profitability receding into the background.




Credit: techcrunch.com /

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