PLG: An acronym that will transform software

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If there’s one constant in the software industry, it’s that it continues to evolve. We are now on the cusp of its latest service.

For most of its history, the industry has been organized around an on-premises delivery model. Business customers would purchase software licenses for a specific number of applications that their employees would access from their individual machines or through a centralized server.

There were a few problems with that approach:

Applications were not upgraded until the company responsible for the software came in and made changes to the customer’s centralized server stack. There was little incentive for software developers to create the best possible product. Once an app was embedded in an organization, the sale was made and employees had to use the product, even if they hated it. Any issues should wait for fixes in the next update. Whenever that was.

A welcome alternative came in 1999 with Software as a Service (SaaS) when Salesforce launched its customer relationship management solution. SaaS made buying and deploying easier. Customers no longer had to wait for a supplier to arrive and play with a server to roll out the right number of licenses. Companies can instead pay for their apps monthly as part of a service plan.

While SaaS marked a significant evolution, product purchases were still subject to the edicts of a handful of executives who decided for the rest of the organization. The people within the company who used the product every day were not allowed to vote or provide feedback, even if they disliked using a product. The C-suite made the final decision.

We are now in the midst of another software evolution, one that puts users at the center of the product conversation, where they will have a decisive say in what they use in business. It is a concept known as product-driven growth or PLG.

Why PLG

The reporting behind PLG is often confused with marketing language. For me, as an engineer and software builder, it’s simple: PLG stands for the purest form of construction technology. It’s about developing products in such a way that they are useful to the people who work with them.

Philosophically, the approach rests on the recognition that the purchasing power constellation has shifted. We were already moving in this direction, but the transition accelerated during the pandemic. These days, you will find senior executives openly acknowledging that they are not retaining the purchasing power they once had. I speak from first hand experience.

As the CEO of a software company, I never had any plans to buy Slack for our employees. Then it quickly spread throughout our organization, with one department after another taking over the ‘freemium’ offering. It didn’t take long for us to reach our usage and functional limitations. And because we needed the enhanced features to help with things like privacy or compliance, I had no choice but to buy the full product.

Towards a new framework for product management

The era of PLG will require changes in the way we think about product management frameworks. While software makers still need to build for administrators and address business values, especially when it comes to the B2B world, they need to put the user at the center of everything they do.

That’s a nice-sounding phrase that has made short work of putting it into practice. When I worked at Blackberry, I remember how we had a customer advisory board that was sometimes called The Angry Men. They had a major impact on what the product management teams focused on. Sometimes their feedback helped, but more often it focused the company on the short-term goal of making the most money. I don’t know how many companies can survive with such a narrow framework. Customers will always tell you what they want, but it’s up to you to deliver what they really need.

Steve Jobs was known for building for the end user, which is perhaps one of the reasons why so many smartphone manufacturers are outdated. The iPhone was never built for business use. Blackberry wash. Still, the iPhone eventually overwhelmed them because consumers had the purchasing power and ultimately chose what they wanted to use. People wanted to play Angry Birds in their spare time, and Blackberry didn’t build a solution that would allow them to do that. And so the end user won.

We now live in a world where products get instant feedback from real users who leave reviews on things like the Google Chrome Store, G2 Crowd or in random posts on LinkedIn. So instead of relying on select feedback from a handful of over-influenced customers, companies should now listen to hundreds of thousands of users talk publicly about their experiences with their products. That’s a huge change.

In my role as a venture capitalist, I’ve had countless phone 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 businesses. Very well. But I tell them to surprise users almost immediately.

It is difficult to construct a PLG gene in your corporate DNA. But see what happens when you do it right. Facebook had no revenue for a long time. 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 its most valuable businesses — essentially overnight.

This is a cumbersome way of saying that design should be a core element of the PLG process. In this new world we find ourselves in, the bar has been raised. It’s Results as a Service — the total democratization of business software, where every user should be given value. Moving beyond the SaaS and on-prem eras, and products need to be of high enough quality to gain support from the wider end-user community.

Otherwise, don’t bother.

Michael Litt is co-founder and CEO of the corporate video platform Vidyard and is a general partner at VC firm Garage Capital.

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