Product-led growth and profitability: What’s going on?

Among public tech companies, “product-led growth (PLG) companies — those who educate and convert buyers with product rather than sales and marketing (SLG) — operate at about 5% to 10% less profitability than sales-led motions,” venture capitalist Tomasz Tunguz highlighted in a blog post.

This data point may be specific to the moment we are in: First, because public tech companies overall are less profitable than a mere year ago. Second, because not so long ago, PLG companies had higher net income margin than their sales-led peers. But just because this reversal might be temporary doesn’t mean it isn’t worth looking into.

Product-led growth these days is no longer the exception to the rule: Following the footsteps of Atlassian, Zoom and Snowflake, many private startups adopted this model. If it is inherently less profitable, founders will want to know — especially now that investors once again pay attention to a company’s path to profitability and no longer reward growth at all costs.

As usual, things aren’t clear-cut. There are some reasons why PLG companies would be less profitable now that could turn into reasons why they might be more profitable in the near future. To add perspective to what’s going on, we reached out to Kyle Poyar at OpenView Partners.

OpenView is a Boston-based VC firm known for advocating for product-led growth, so it definitely has several horses in the race. But this also means it’s invested in ensuring that PLG is a recipe for success and keen to look into what can make it happen. Here’s what Poyar had to say on the topic:

Product-led growth and profitability: What’s going on? by Anna Heim originally published on TechCrunch