The Two Major Customer Acquisition Models

At the highest level, there are two ways companies acquire new customers:

1. Channel-led growth
2. Product-led growth

We call these "acquisition models." They're systems that are built to drive acquisition for your startup.

We'll define both. Then we'll explain how each relates to your company.

Channel-led growth (CLG)

A company with a channel-led growth model is one that mainly uses marketing and/or sales channels to acquire customers.

A channel is simply a method by which you reach target customers.

For example, many ecommerce brands focus heavily on advertising on social platforms like Facebook and Instagram to acquire new customers. They're using a channel-led growth model. (Facebook and Instagram paid ads are the channels.)

B2B companies that use large sales teams to find and close new customers also leverage a channel-led model. In this case, direct sales is the channel.

Later in this module, we'll cover each channel in depth and help you choose the right one for your startup.

Product-led growth (PLG)

The other major way to acquire customers is through product-led growth.

Product-led growth primarily leverages the product itself to acquire, convert, and retain customers.

PLG typically applies to software. If your product is a physical one, it will be very difficult to have a product-led model.

Slack is a famous example of a company using a product-led growth strategy. Slack's existing users get value when their peers are also on the platform. So users invite their friends and co-workers and pull them into the product. Once these new users sign up, many of them end up loving the product, and they then invite their own networks to sign up. This beautiful cycle continues over and over again.

Another company that executes a product-led growth strategy is TikTok. Users of the platform can share videos they love with friends, regardless of whether they have a TikTok account. At the end of each video, TikTok displays other recommended videos but only allows users to watch them on the app. This design encourages people to share videos, which in turn gets new people to download the app—no "channel marketing" required.

This leads us to an important concept that we covered earlier in the Growth Fundamentals module: acquisition loops. The compounding, self-fueling cycle (or "loop") highlighted in the two examples above is a key feature of true product-led growth. It's difficult to crack, but the rewards are great if you can.

So which model is better?

Startups are quick to ask whether one model historically performs better than the other, and which one they should ultimately pursue. The answer isn't black and white.

• Not all products are designed for PLG: There are fundamental traits that must be present in a product for your startup to have the potential for a PLG model. For example, highly complex enterprise products are unlikely to succeed with a PLG approach. Sales and customer success teams are necessary to demonstrate the value of the product and help customers with implementation, onboarding, and training. The product alone isn't able to drive the full process.
• CLG and PLG aren't mutually exclusive: Even companies that are a fit for PLG still need a way to get early users to try their product. Early-stage companies can leverage marketing channels to build momentum that will kick-start PLG. But even later-stage companies will layer on marketing channels to accelerate and scale their product. Alternatively, CLG companies can apply PLG tactics to augment their core acquisition channels. An example of this would be launching an incentivized referral program. It won't be the main growth driver for the company, but it will allow them to squeeze more out of their core channels.
• Acquisition loops aren't limited to just PLG: Channel-led strategies can also produce acquisition loops. While not every marketing channel has the potential to generate a loop effect, there are a few that can. We'll explore them in the Scalable Channels section.
• PLG requires exceptional market-product fit: For a company to rely primarily on PLG, they need strong market-product fit. There's no way around it. But early-stage companies need customers in order to measure and optimize market-product fit. It's a chicken-and-egg situation: Startups need to use marketing channels to build an initial stream of customers before concluding whether they have market-product fit. CLG allows startups to acquire customers and validate that they're ready for PLG.
• CLG is quick to launch: This is both a blessing and a curse. CLG tends to generate results faster than PLG. But it also lends itself to more competition and provides much less defensibility against those competitors.
• PLG is more defensible in the long term: If a company can succeed with a PLG approach, it will reap some critical rewards such as high defensibility and significantly lower customer acquisition costs.

As you can see, there's no definitive right answer.

Most product-led companies will still need to use marketing channels to reach their target customers. For early-stage companies in particular, a channel-led approach is generally necessary to at least kick-start growth. As such, our focus throughout the program will be on executing channel-led growth tactics.

But we'll also help you identify whether a PLG approach could be a fit for your product.

Let's get into specific channels to help you determine which is right for your startup.