Product led vs sales led organisations
Product led vs sales led organisations
Differences, approaches, and making better decisions
There are two common ways that companies organise themselves to react well to changing markets; by being ‘product-led’ or being ‘sales-led’. The approaches are fundamentally different but both have a lot of pros and cons to boot. While one type of organisation can utilise tactics from the other, it’s important to know which approach you’re taking so you can invest in the right things. I can name a few companies who don’t seem to be so sure, so I wanted to describe some of the differences.
What is a product-led organisation?
Product-led organisations focus on the development and improvement of products by addressing pain that a type of person, or a kind of user, feels. They target many different users by addressing a market need, rather than a few users with certain specific problems. These ‘types of users’ are then put at the centre of the business’ prioritisation process so that the organisation can address their pain points by continuously developing and iterating on existing products and ideas for their user base.
Product-led organisations tend to create products that are self-service, that allow immediate interaction and exploration, and generate ‘organic engagement’ by solving problems well enough that users come to them. These types of organisations rely heavily on getting feedback from as many users as fast and as often as possible.
Marketing and sales efforts in product-led organisations centre around highlighting the product's capabilities and value proposition to a large audience. Sales processes can be made streamline and simple because features and functionality are set and developments are predictable. These organisations tend to sell a lot for a comparatively small return. Typically with high volumes of sales but lower margins. Although that depends on the type of product and market you are looking at. But I won’t go into that here.
What is a sales-led organisation?
In contrast, a sales-led organisation focuses on sales efforts to drive towards its goals by spending time to understand individual clients and solve their specific problems. In these organisations sales teams more actively engage potential clients, build relationships, and generate revenue through tactics, negotiation, and meeting quotas.
These organisations prioritise where the money is coming from and then tailor their solutions to the needs of the client and provide personalised support throughout a customer’s journey. They often use complex pricing strategies and negotiation tactics so sales people can close deals by addressing specific customer requests (or objections) and customising what they offer to make their customer happy.
Marketing and sales teams work especially close in these organisations to create collateral and presentations to support customised messaging and narratives. These organisations tend to sell a lot less but for comparatively higher prices. Typically they have much lower volumes of sales but much higher margins when compared to a product-led organisation.
Product-led vs sales-led organisations
Both approaches offer a lot of pros and cons and both can be very successful.
Some pros of being sales-led include:
Being able to form personalised and much deeper customer relationships that lead to more loyalty and trust from customers
Being able to work with flexible pricing that empowers sales teams to do whatever they need to close deals
Having targeted sales efforts that allow sales people to be very strategic in their approach and take a lot of responsibility for their own success
Direct revenue generation. Deals are either closed and won or not. Once closed sales-led organisations have a much easier time nurturing a continued engagement because the sales is often literally personal.
If a deal closes there is little upfront risk since contracts are signed and income can be guaranteed
Some cons of being sales-led include:
The ‘acquisition cost’ of a given customer is typically a lot higher because their acquisition depends on sales people, and people are expensive
In the long term with a growing customer base, changing customer needs are harder to account for given the focus on sales and specific requests being addressed rather than general product development
Success is dependent on the performance of individual sales teams or people
In practice you often hear that sales-led organisations “sell first and ask questions later” which can easily lead to overwork or under delivering.
Some pros of being product-led include:
The ‘acquisition cost’ of a given customer is a lot lower than sales-led because acquisition depends on the quality and relevance of the product to the customer (on product-market fit) so once you have it the likelihood of a customer being acquired organically is more predictable
Sales and marketing are able to address a much wider audience to drive acquisition through awareness and watch for potential customers taking notice
Growth being more likely to sustain through the targeting of entire markets as opposed to singular large customers.
Improvements of the product being made to solve customer centric, not customer specific, problems and so incrementally improve for the many with each iteration, rather than a lot better for one
Some cons of being product-led include:
That success is dependent on finding real product-market fit. Meaning success depends on identifying a common problem and solving it in the right way. This is typically not a quick, or easy, thing to do and can lead to a lot of uncertainty in the early stages of development
Adoption per customer is typically a lot slower as marginal improvements are slower and competition is typically more common as opposed to empowering sales people to act quickly and take decisions themselves
Monetisation of solutions in product-led organisations is harder because it depends on a market’s perception of value and on selling the same thing to numerous people, rather than being able to charge highly and specifically to individual clients
Applying either approach
If you think about organisations you have heard of long enough you’ll find that both ways of being led can be very successful. Sometimes they can even compliment each other; for example in the early stages a product focused company can benefit greatly from taking a sales-led approach to find potential customers and test for product-market fit. But it’s important to know which approach you’re taking and to act accordingly.
A product-led organisation for example would focus its sales people on understanding the market in which they are addressing, looking for good-fit customers, and feeding back customer problems to the product development teams to improve their product. The input of a single customer isn’t going to be as important in later stages, but when you can enable sales people to reach tens, or hundreds, of potential customers you start to find patterns and common problems to address.
A sales-led organisation on the other hand would focus on targeting bigger and more influential clients, looking for specific problems they can address that are going to make the most money, and feeding this information to the product development team so they can act quickly and build what this particular client needs.
Both approaches have merit in different markets, circumstances, and opinions. Which one an organisation goes for should really depend on their goals. Are they looking to have a large impact for very specific, very important clients? (Consultancy firms, manufacturing businesses, etc) Or are they trying to affect a whole market? Do they want to build a long lasting, personal, sustainable relationship with clients? Or would they prefer to aim for more shallow relationships with a lot of people and strive for their product or brand to build good will and attract advocates?
There’s a lot more to say than I have written here and I’m not sure I’ve done either approach as much justice as I could but if this isn’t enough to make the differences clear hopefully it’s enough to start a discussion about the differences and the benefits. Let me know if I’ve missed something obvious.
Well done Rhys.....