Enterprise (Sales Driven) vs Product Led Growth Companies
It is not strictly true to say that there are only two kinds of growth strategies for SaaS companies. However, let's scope the size of this topic to micro SaaS companies (companies doing barely 6 figures ARR or less) and assume for the sake of argument you're choosing between buying a SaaS that does PLG vs enterprise.
For these tiny companies, you can or cannot sign up yourself. If you can sign up yourself, let's call that a product led growth (PLG) strategy. If you have to book a call, then let's call that enterprise or a sales driven strategy. Which is better to buy? What's it like operating the different types?
Overall, it can sometimes feel passive. For narrow products that do one thing, you also don't have to spend a ton of time on engineering. This is as close to "passive income" as we'll ever get.
Some days, everything hums along, you get some number of signups per week, and some % of those convert. Some % also churn, and an even smaller number upgrade. You want your upgrades to be greater than your churn (expansion revenue). You keep trying to push users through the funnel by reaching out 1:1, automated emails, push notifications, tutorials inside the app, etc. Anything and everything to get an additional % of free users to convert to paid users.
Handling support from a bunch of $9.99 customers can feel like death by a thousand cuts.
Some months, you get 20% MoM growth, others you just don't grow at all. Hard to say exactly why initially, even harder to replicate once you find the answer. Also difficult to be consistent.
Building up a pipeline of content, putting that into a blog and sending that out via a newsletter (times 4) was hard, expensive, and takes a lot of time. Further repurposing that content across 4 different social channels is also a massive pain (there may be a productized service offering in here, I'm looking into it).
If a founder really has PLG dialed in, you're going to pay up for it. They know how hard this is to get working.
Deal sizes tend to be much larger.
Example 1: We bought WorkClout when it was doing around $80k ARR. It's now double that. The reason it doubled was because 1 customer that we'd been in contact with for over a year closed a large contract with us. "Overnight", the company doubled in revenue, and perhaps tripled in value.
Example 2: A household name just signed up for WorkClout and payed an annual contract. An astoundingly massive company. They don't pay that much yet, but in 12 months, who knows where the relationship could take it.
Example 3: A team at one of the biggest companies in the world reached out and did a demo with WorkClout to solve a very specific problem they have. Who knows if they'll go with us or someone else, but these kinds of opportunities just don't materialize (IMO) with PLG companies until they're already quite large.
Enterprise sales take a long time. It can feel like you're pushing a rock uphill. Meetings with big companies can (and often do) go nowhere. You might need to wait a full year to get on their budget before they can buy from you. In that time, many startups die (this happened to me once).
Engineering efforts are typically on a totally different planet than single purpose apps. You will get feature requests until the end of time, and some customers may not pay until you have them (but beware the feature fallacy). This is expensive to run, and hard to manage cashflows because it's super lumpy. You might get a $50k check and then nothing for 3 months.
Which is better?
It's not about which is objectively better. Both can make you the same amount of money, though as we've seen, enterprise contracts can be much much higher value.
The real answer is that I love having both. My bias here comes from a company dying because we only went after enterprise and did zero PLG efforts. I love having some small fish come through the door for one company. It takes the pressure off the enterprise company to make immediate sales or make short term decisions. Some people combine both strategies into one company. That's totally fine. I also understand how naive drawing a line between these two is. Certainly at some scale, all PLG companies have enterprise employees signing up and run some kind of sales process after they've signed up.
Operations for the PLG companies (i.e. content -> distribution -> eyeballs -> conversions) can be exhausting and just as much work as the engineering efforts on the enterprise products.
In short, you're not getting a free lunch no matter which you choose. You can either chose to invest in engineering + sales or content + distribution. Yes, of course doing both would be great, but let's pretend you're trying to run profitably, in which case you really don't have the cash to chose both.
If you want an "answer", go find a PLG company. Running an enterprise process is "advanced". We couldn't do it without Danny. He has done it before and can do it with his eyes closed. Finding a single-purpose PLG application is difficult. If you could easily find and acquire these companies for a reasonable multiple, we'd all be on a beach in Monaco. It's very hard to find these opportunities, and when you do, it's very hard to find them at reasonable multiples. But alas, that's the work!
Expansion revenue: Revenue generated in excess of a customer's initial purchase. Expansion MRR measures the additional monthly recurring revenue that is generated by existing customers. You want this to be higher than your churn rate.