Writer: SODIQ TIJANI
As an entrepreneur and product expert, I have seen firsthand the impact that different business models can have on startups. Two of the most common models are product led and sales led, and both have their own advantages and disadvantages.
In this article, I will explore the differences between these two models and provide some guidance for startups trying to decide which one to use.
Product Led Business Model
Product led innovation is when the value of the product and the problem it solves for users is the main driver of adoption. In other words, the product itself is so compelling that it sells itself. This model is particularly effective when the product solves a clear and pressing need for the user. The goal is to create a product that users love and then make it easy for them to share it with others.
Some of the key features of a product led business model include:
1. Focus on the User: In a product led business model, the user is the primary focus. Everything revolves around creating a product that solves their problems and meets their needs.
2. Free or Low Cost: Many product led businesses offer a free or low-cost version of their product to entice users to try it out. Once they see the value in the product, they are more likely to upgrade to a paid version.
3. Self-Service: The product should be easy to use and require minimal setup or support. The idea is that users should be able to use the product without needing any assistance.
4. Viral Growth: A product led business model relies on users sharing the product with others. This can lead to exponential growth if the product is compelling enough.
Some examples of successful product led businesses include Dropbox, Slack, and Zoom. These companies have all created products that solve a clear need for users and have made it easy for them to share the product with others.
Sales Led Business Model
In a sales led business model, the ability of the sales team to deploy superior sales methods to drive adoption is the main driver of growth. This model is particularly effective when the product is complex or requires a significant investment from the user. The goal is to create a sense of urgency and persuade the user that the product is worth the investment.
Some of the key features of a sales led business model include:
1. Focus on the Customer: In a sales led business model, the focus is on the customer rather than the user. The sales team needs to understand the customer’s needs and pain points and be able to sell the product as a solution to those problems.
2. High Cost: Products sold through a sales led business model are often more expensive than those sold through a product led business model. This is because the cost of sales is higher.
3. High Touch: Sales led businesses require a high level of interaction with the customer. This means that the sales team needs to be knowledgeable about the product and able to answer any questions the customer may have.
4. Limited Growth: A sales led business model is limited by the size of the sales team. If the company wants to grow, it needs to hire more salespeople.
Some examples of successful sales led businesses include Salesforce, Oracle, and SAP. These companies have all created products that require a significant investment from the customer and rely on a sales team to sell the product.
Choosing the Right Business Model
When deciding which business model to use, startups need to consider a number of factors. These include the complexity of the product, the size of the potential market, and the resources available to the company.
If the product is simple and solves a clear need for the user, a product led business model is likely to be more effective. This is because the product will sell itself, and the company can focus on creating a great product rather than spending resources on a sales team. Additionally, a product led business model is more scalable since it relies on viral growth rather than a limited sales team.
On the other hand, if the product is complex and requires a significant investment from the customer, a sales led business model may be more effective.
This is because the sales team can help educate the customer about the product and persuade them to make the investment. However, this model is less scalable and requires a significant investment in a sales team.
Ultimately, the key to success is to understand the needs of the customer or user and create a product that meets those needs. If the product is compelling enough, users will share it with others, and the company can grow quickly. However, if the product is complex or requires a significant investment, a sales team may be necessary to educate the customer and persuade them to make the investment.
Another important consideration is the resources available to the company. A product led business model requires a significant investment in product development and user acquisition.
This can be the more suitable option for startups, because a founding team at core should have the expertise to develop the product in-house. On the other hand, a sales led business model requires a significant investment in a sales team, which can also be challenging for startups with limited resources especially in the early stages.
In my experience, the most successful companies are those that find a balance between the two models. They create a great product that solves a clear need for the user and also have a sales team that can help educate the customer and drive adoption. This allows the company to scale quickly while also ensuring that the customer is getting the support they need.
In conclusion, startups need to carefully consider which business model to use. A product led business model is more effective for simple products that solve a clear need for the user, while a sales led business model is more effective for complex products that require a significant investment from the customer.
However, the most successful companies find a balance between the two models, creating a great product that users love while also having a sales team that can help educate the customer and drive adoption.
Ultimately, the key to success is to understand the needs of the customer or user and create a product that meets those needs. Whether it’s a product led or sales led business model, the product needs to be compelling enough to drive adoption and growth. By finding the right balance between the two models and investing in the right resources, startups can achieve success and scale their business quickly.
About the writer:
Sodiq Tijani is a Nigerian technology enthusiast and entrepreneur with a passion for creating solutions that address challenges faced by underserved communities. He has extensive experience in product management, business development, and strategy, with a focus on fintech and the informal sector. Sodiq is the co-founder and CPO of Toju, a startup that is digitizing informal financial service practices to provide financial services for the underserved.
