Slack: A Product Led Growth Strategy Case
Before solving the case, let’s first understand the fundamentals of product-led growth, something that is not complete without mentioning a few best-of-breed products.
Grammarly, DropBox, Slack, Zoom are synonyms of product lead growth. They kept their model away from traditional sales-led growth through product innovation, customer experience and still managed to be best-in-class. This radical change removes the myth that without product manuals, traditional lead generation, sales demos, & POC setup, a product cannot grow. Away from these sales pitches, freemium or trial version makes the user hooked to product, onboard themselves that push them to upgrade the subscription.
Product led growth has several benefits -
High margin formula: Fewer employees for a product, quick decision making, and no hand-holding of the team improve operating cost,eventually resulting in increased margins per customer.
Lower CAC (customer acquisition cost): The lower the sales cycle better the CAC. Unlike sales-led-growth free trial or freemium model of product-led-growth help decide quickly on upgrading the product.
Customer retention: Once the customer is habituated to upgraded features, they only move when they get a better experience, price, option.
No unnecessary leads: Unlike sales-led growth, product-led growth has a lesser amount of unnecessary leads, hence a better conversion rate.
Innovation & technology: Best-of-breed is the way to outperform competitors. Hence, innovation is an important factor to drive product-led growth. In other words, technology is the backbone of innovation.
Outstanding UX: One of the strongest pillars of product-led growth is the user experience which is unlike traditional sales that usually promises more to a customer than actual product performance & experience.
Ally opportunity: Common survival strategy in product-led growth is through partnership/ally with other best-of-breed products in the same segment or even other. Zoom recently integrated Dropbox, Slack, and 24 products from different categories, this is all about setting up a complementary ecosystem to get more user adoption.
Transparency of price: The subscription model/packages are made based on features, a more transparent way, unlike sales-led growth. Generally, in sales-led growth, the sales team charge a good premium amount to increase the customer LTV to reduce the impact of a longer sales cycle.
Every coin has two sides, product-led growth too has some disadvantages.
Big players such as Microsoft, Google, Facebook etc eventually built/copied similar solutions quickly. A larger ecosystem of these big players sooner or later becomes a threat for the product-led-growth startups. A recent example is Team vs Slack. Microsoft launched Team in 2016 and took over many customers of Slack, and currently has almost twice as many daily active users as Slack. This is made possible due to huge working capital and its integrated bundle of products e.g Office 365 and Team being available as a part of it. No matter how much better experience Slack gives, it has preyed on a big fish ecosystem. Giving Team free with Outlook 365 as a part of their integrated bundle is an alluring option for enterprise CTOs and non-IT space big biz giants who have been using Microsoft applications for decades or more. It is like reaping the benefits of a single-vendor integrated bundle over standalone Slack integrated with its several partner ecosystem apps.
Let’s move the case. The brief background, in the beginning, might have given an idea for solving the differentiation strategy cases.
Case: Slack growth strategy under extensive competition with Zoom, Team, and new Google app.
Interviewer: you have been hired as PM for Slack and asked to retain customers who are using Slack Enterprise Grid. Also, how would you further strengthen Slack strong positioning amidst its competitor MS Team growing active customer base?
💡 Tips & Tactics: The case is a differentiation strategy hence simply defining some random strategies, new personas, use cases, and boiling them down to feature prioritization will not demonstrate your tactical skills.
Candidate: Okay, I will look around at least 2 strategic goals- a short and a long term.
💡Tips & Tactics: The candidate needs to have a little background of product lead growth and its pros and cons. The icing on the cake is if he/she is well informed about Slack and Team turf war. In this article, I have already given a little background to keep my solution fact-driven.
Candidate: There are 3 tactical approaches that I would consider-
1- Strong ally partner ecosystem: Ally with best of breed startups that are setting the benchmark and pushing themselves in the same and other categories. Slack has a strong presence in the startups’ ecosystem as a single collaboration app.
2- Set up specific niche category: Become niche for a segment or more that is untapped e.g Virtual stock exchange & traders collaboration workspace, or sales/marketing collaboration fully Slack-on-Slack. These are examples of some niche segments with unique use cases. The above segments due to their complex structure, dependency on several stakeholders at a time with multiple software are unique in nature.
For instance, traders on the floor switch constantly across several different applications predominantly among calls, chat, Bloomberg and interact with several traders & analysts to decide on asset prices. The home setup for traders is the adjustment where they work on 1 or 2 Bloomberg screens, and are not easily able to remain connected with many traders at any given time. Building a virtual trading floor that gives seamless collaboration almost like floor trading, all on Slack-on-Slack is a good opportunity. Imagine the stock exchange & floor trading turning virtual globally without a manual interaction with the same impact that comes via f2f talking while moving around trading screens and calls. The actualization comes through user research, opportunity sizing, competitor analysis, and data to validate and adjust these discovery hypotheses.
3- Integrated bundle offering: MS has a stronghold on users as compared to Slack. Team comes free with Outlook 365 that brings a delightful experience to customers. Extending its experience, Team allows users to edit & update other MS products e.g Doc, excel, PPT one-note within its container, so users don’t need to switch between applications. Moreover, the switching cost from Microsoft integrated bundle to slack is too high as compared to the switching cost from Slack to MS. To overcome this challenge, Slack can think of being a part of some integrated bundle category too. The recent acquisition of Slack by Salesforce further strengthen my assumptions.
Interviewer: Now how would you prioritize these three options between short and long term strategies? and why?
Candidate: I will pick with point 2 and point 3 since as I can see both convergences to a common goal in long term. Regarding point 1, Slack is already working in this area, and its strongest app integration partners with more than 1000 external along with org specific apps is a magnificent example.
Point 2 will be the short term strategy since the feasibility of catering to new segment eventually need User research, Problem discovery and validation and testing hypotheses. [Mid Effort][High Impact]
Whereas point 3 can be the long term strategy. Slack can remain the best-of-breed in workspace collaboration within an integrated solution and an important driver for the Flywheel of the org it is merged with (considering Slack as a standalone org away from its salesforce acquisition status). This overall strategy needs thorough due diligence, legal, financial, valuation and negotiation [High Effort][High Impact].
Interviewer: What benefits and growth comes for Slack for the above two prioritized strategy
Candidate: The short term strategy (point 2) is to keep the momentum of product-led growth and innovation to among best of class products.
I would like to discuss a few potential benefits coming from a long term strategy( point 3).
1st- Overcoming pricing discrimination is a well-known issue in product-lead-growth. E.g despite huge subscriber numbers 124 million by 2019, Spotify is still in the growth stage and still playing on discounts and unable to remove the unlimited song playlist from freemium subscription. I would illustrate this with a quantitative example.
For example, Meera and Maya are two customers willing to buy Slack and customer 360 as two separate products. Meera is willing to pay 32$ for Slack and 30$ for customer 360 whereas Maya is willing to pay $30 for Slack and $32 for customer 360. If Meera and Maya wants to buy both products separately, Salesforce can charge for each of these products 120$=(2X(30$+30$))
When salesforce sells both the product as a bundle strategy Salesforce can charge each one of them $62, so together $124.
2nd- Another aspect is to see the direct impact on the Slack North star metrics DAU. The incremental DAU comes via the existing customer base from the merger eg Salesforce existing customer base.
Interviewer: Sure…..
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Summary: I hope readers enjoyed this strategy case. It was more of a subjective solution, but one can add qualitative aspects as well to present the thought in a structured way. It shows both product strategist and growth mindset. There is no one-size-fits way to solve any strategy case. It is acceptable as long as the approach to solving the case is not random and unidirectional.
