This might be the year when we see more companies adopting sales tools that bridge the gap between traditional CRMs and product-led growth models to help sales teams more effectively convert leads with the help of usage data.
Why is this happening now? Well, companies are going hybrid, whether with their business model or their pricing. For instance, more companies are adopting usage-based pricing models, but they’re often mixing it with existing pricing models, such as subscription tiers.
Along the same lines, many companies have adopted product-led growth (PLG) without abandoning their traditional sales efforts. The two motions typically work in tandem, with self-serve adoption driving most usage and sales reps dedicated to closing larger enterprise deals.
However, sales reps don’t qualify accounts the way they used to. Why would they be cold-calling anyone or spending money on marketing when there might be much warmer leads in the existing user base? This has led companies to adopt a new approach known as product-led sales.
The rise of product-led sales, or why product-led growth requires a sales makeover
In product-led sales, the concept of “marketing-qualified leads” gives way to “product-qualified leads” (PQLs). This is a major shift because to truly provide sales teams the data they need to upsell or cross-sell existing users, companies must closely align and connect their product usage data with their sales tools and CRMs.
For example, a SaaS company with a freemium product will have a much more efficient sales team if it can know when to approach leads based on data such as their usage patterns.
According to product-led growth expert Elena Verna, the rise of product-led sales is leading to an interesting shift in how customer relationship management systems (CRMs) are being used.
As an example, Verna pointed to new tools that not only show usage data that sales reps can use but also assess precisely what usage data leads to a successful close. “Even further, [they] can help you adjust playbooks and outreaches based on the success and failure points that you have.”
It’s tempting to call these sales tools “PLG CRMs,” but, it turns out, they don’t quite fit that description. To understand why and what exactly they do, we talked to Endgame CEO Alex Bilmes, as well as two other startups in this space: Pace and Ripe.
The category with no name
The paradox of the PLG CRM category appears to be that most companies in the space aren’t fully comfortable with this term.
Venturing that it might be “an analyst term,” Pace CEO Justin Dignelli described it as “a nice catchall for a number of tools that are trying to fill the gap” between PLG and existing sales and marketing tools built for a sales-led motion. “I think it’s a good term, and I’m glad that the category exists.”
However, Dignelli said, calling them “PLG CRMs” may be “a little misleading for folks who may be looking for a new CRM or wondering how to make [their business] product led, which is not necessarily the intent [of these tools].”
“As far as I know, there is no PLG CRM that is replacing a traditional CRM,” Bilmes said. Talking about his company, Endgame, he explained that their tool integrates bidirectionally with CRMs such as Salesforce or HubSpot. “We connect to those systems, we pull data from them and we also push data back to those systems. But we don’t actually replace a CRM end to end.”
It is worth keeping in mind that most enterprise buyers wouldn’t be prepared to jump onto the PLG CRM bandwagon, and pitching such a solution might scare them. “I think the label is an immediate turnoff, because people have invested a lot of money [in] Salesforce,” Elin Lütz, CEO and co-founder of Ripe, told TechCrunch+.
It appears that companies in the category, which also includes Calixa, Correlated, HeadsUp, Pocus and Toplyne, often try to distance themselves from the “PLG CRM” branding. For instance, Toplyne’s co-founder called it “the most overhyped SaaS thesis of 2022.”
However, all of them have offerings that revolve around bridging the gap between traditional sales tools and PLG, a growing need as more companies adopt this approach.
Stockholm-based Ripe helps product-led B2B companies find the ripest leads in their customer base
But if a PLG CRM is a tough sell with its target audience, why is the term still around? Maybe because it is not only an analyst term: VCs use it, too.
A well-funded space
From an investor’s perspective, the prospect of one of these companies becoming the next Salesforce is appealing: After all, the company has a market cap of $173.18 billion. Hell, its ticker is $CRM.
For instance, Sapphire Ventures summed up the problem this category is tackling: “Given the rise in popularity of PLG, we believe there is a tremendous opportunity to develop new products that can connect the entire GTM organization with a complete 360-degree profile of a company’s current and prospective customers.”
It is fair to describe the space as well funded. For example, Endgame closed a $30 million Series B round in February 2022, less than a year after its previous $17 million round. As for the other startups we talked to, Pace raised $5 million last August, and Ripe has secured $2 million in pre-seed funding.
The rise of product-led growth is creating opportunities for startups
Meanwhile, Calixa announced a $12 million Series A round in November 2021; Correlated raised $8.3 million in seed funding in August 2021; HeadsUp got $8.5 million in seed funding last September; Pocus raised $23 million in seed and Series A funding in June; and Toplyne got $15 million in a Series A round led by Tiger Global and Sequoia Capital India.
Besides PLG, a big driver of all this funding is the rise of usage-based pricing, which Dignelli expects more customers to implement and demand tools so they can use it with existing CRM solutions. In a blog post, his company explained why this pricing model calls for a better connection between sales and product data.
With a traditional subscription or license-based pricing model, your customers’ consumption of your product changes over the course of weeks or months. In a usage-based model, their consumption can change much faster. This means your teams need a higher level of visibility into fluctuations and real-time alerting so they can get ahead of contraction or churn while taking advantage of opportunities for expansion or upsell.
Does usage-based pricing call for a new growth infrastructure stack?
The importance of data may explain Sapphire’s prediction for this space in 2022: Adjacent tech and analytics vendors like traditional CRMs, CDPs, reverse ETL players and product analytics tools will “formally enter the category through internal product innovation, partnerships or acquisitions.”
While that doesn’t seem to have happened yet, at least not on a big scale, we will be keeping an eye out for consolidation and new market entrants in the second half of the year, when, in our opinion, M&As are more likely to happen.
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