Discover more from Notorious PLG
NPLG 9.23.23: Great Companies Are Built in the First Year
The best PLG founders, startups, strategies, metrics and community. Every week.
Current subscribers: 8,215, +67 since last week
Share the PLG love: please forward to colleagues and friends! 🙏
Great Companies Are Built in the First Year
Everything moves fast today. It’s no surprise that when starting companies, founders want to go fast. Come up with the idea, build, sell, scale, go, go, go. In working with many early-stage companies, the teams that go slow in the first year tend to have the best trajectories. The first year should be about customer research, ideation and hypothesis testing. There are some founders I meet who have interviewed 50+ customers before they start building a product. They know exactly who their user is, what the user’s problem is and what the best solution is.
Although it can be painful to go slow as other founders post on LinkedIn and Twitter about their overnight success, take the time to put in the foundational work that will set you up for success. Once you start building the product, it is hard to change course. If you point the product in the right direction from day 1, your odds of success will be much higher.
There is a great talk from some of the early YC founders on how to build product (YouTube link). Emmett Shear, a co-founder and former CEO of Twitch argues that most disagreements in startups arise because people like to come up with product ideas without talking to users first:
“You talk to your users first, and then you have ideas about your product. Almost everyone does it in the opposite order”
“If you find yourself thinking: ‘I’m going to go talk to my users to validate my product idea’, you’ve gone horribly off the rails…If you haven’t talked to users and you haven’t looked at data, you don’t get to have an opinion about the product.”
Lenny Rachitsky shared a chart recently in his Substack about how long it has taken some of the most successful companies to find PMF. Many of these companies don’t have a live product for 6 - 24 months and then it takes another 12 - 36 months to find PMF. When companies do the upfront work to talk to users, ideate and iterate the idea before breaking ground on the product, the chances of building a successful company increase.
Do the hard thing and take your time in the first year to understand the nuances of your customers before you start building.
I would love feedback. Please hit me up on twitter @zacharydewitt or email me at email@example.com. If you were forwarded this email and are interested in getting a weekly update on the best PLG companies, please join our growing community by subscribing.
PLG Benchmarking (Startups):
I will continue to update these metrics and add new metrics. I would love your feedback on what else I should track (firstname.lastname@example.org).
Organic Traffic (as % of all website traffic):
Conversion rate (website → free user):
Activation rate (free user → activated user):
Paid conversion rate (free user → paid user):
Enterprise conversion rate (free user → enterprise plan):
3-month user retention (% of all users still using product after 3 months):
Conversion from waitlist to free user:
<1 month on waitlist: ~50%
>3 months on waitlist: 20%
For more detail on acqusition rates by channel (Organic, SEM, Social etc), please refer to this prior NPLG.
PLG Financial Benchmarking (Public PLG Companies):
Financial data as of previous business day market close.
Best-in-Class PLG Benchmarking:
15 Highest PLG EV / NTM Multiples:
15 Biggest PLG Stock Gainers (1 month):
Complete Notorious PLG Dataset (click to zoom):
Note: TTM = Trailing Twelve Months; NTM = Next Twelve Months. Rule of 40 = TTM Revenue Growth % + FCF Margin %. GM-Adjusted CAC Payback = Change in Quarterly Revenue / (Gross Margin % * Prior Quarter Sales & Marketing Expense) * 12. Recent IPOs will have temporary “N/A”s as Wall Street Research has to wait to initiate converge.
Recent PLG Financings (Private Companies):
Databutton, a developer of low-code platform designed to execute high-impact projects by designing, navigating, and tracking experiments together, has raised $5.1M. The round was funded by Skyfall Ventures and Maki.vc.
Gable, a data collaboration platform intended to help developers build and manage data assets, has raised $7M. The round was led by Zetta Venture Partners, Crane Venture Partners and Essence Venture Capital.
Glass Health, a developer of a digital notebook designed to optimize the way physicians capture, organize, and apply their medical knowledge, has raised $5M. The round was led by Initialized Capital.
LastMile AI, a developer of an AI application development platform designed to empower software developers and product teams, has raised $10M. The round was led by Gradient Ventures, with participation from AME Cloud Ventures.
Essential AI, an AI company founded by former Google employees, has raised $40M by undisclosed investors.
Moment, a bond trading platform, has raised $17M. The funding was led by Andreessen Horowitz, with participation from Venrock, Contrary and Neo.
Druid, a conversational AI platform for enterprises that integrates with ChatGPT, has raised $30M. TQ Ventures led the round, with participation from Smedvig Capital, GapMinder, Hoxton Ventures and Karma Ventures.
Linear, a Covina, CA-based maker of developer tools, has raised $35M. Accel led the round, with participation from by Sequoia Capital and 01 Advisors.
SQream, a GPU-based big data analytics platform, has raised $45M. The round was led by World Trade Ventures, with Schusterman Investments, George Kaiser Foundation, Icon Continuity Fund, Blumberg Capital and Freddy & Helen Holdings also participating.
Databricks, a data analytics and AI software maker, has raised $500M at a $43B valuation. T. Rowe Price led the round, and was joined by Nvidia, Capital One Ventures, Andreessen Horowitz, Tiger Global Management, Franklin Templeton, Counterpoint Global, Baillie Gifford, ClearBridge Advisors, BMYG Financial Group, Ontario Teachers' Pension Plan and Fidelity Investments.