Discover more from Kyle Poyar’s Growth Unhinged
Inside Hotjar’s bootstrapped PLG strategy
Hotjar’s CEO on how they scaled to $50M+ ARR
Today folks are under pressure to do more with less. We’re seeing calls to extend runway, slow down hiring plans, and be prepared for capital to be harder to come by.
But startups ultimately win or lose based on growth. If you pull back on your growth bets, you could fall below the dreaded Mendoza line—and risk being overlooked by potential investors or strategics.
That’s why I’m fascinated by the stories of companies who’ve managed to grow extremely quickly and without burning large sums of money.
One company in particular stands out: Hotjar, the product experience insights software. Here are some quick stats:
Founded in 2014
Has reached $50 million+ ARR
Fully remote team spread across the Americas, Europe, Africa, and Asia
PLG from the beginning
Trusted by 1,000,000+ websites globally
I had a wide-ranging fireside chat with Hotjar CEO Mohannad Ali at SaaStock in Dublin, and it’s my pleasure to share that conversation here (lightly edited for clarity).
The TL;DR – How Hotjar bootstrapped to $50M+ with product-led growth
Product-led growth isn’t just about the product. It’s about finding the right match between your market, the product you’re building, your business model, and your customer acquisition process.
Your main marketing channel should be no or low cost, usually SEO or word of mouth. From there, expect to see a power law distribution as you layer on additional channels.
Even PLG companies need to clearly define their target customer. At Hotjar this meant shifting from marketing to product personas.
Fast time to value is possible even for complex products. Two-thirds of activations at Hotjar happen within the first 15 minutes!
Segment and personalize the user journey as you scale. A mid-size or large company won’t adopt your product exactly the same way as a small one. Your user might not be in a position to self-serve without help from another team.
Pricing & packaging gets overlooked—but it’s less risky than people think. Pricing changes are usually a two-way door rather than a one-way door. Mohannad recommends iterating on pricing every six to 12 months.
Layer on sales to expand ACVs. You need to define your target customer and make it easy for sales to know exactly who to speak with. Segment your sales teams into new business (initial conversion) and expansion (product-led sales).
Shift from demand capture to demand creation at the right time. It gets harder and harder to meaningfully inflect growth at scale—especially if you’re already no. 1 on Google. As you mature, you need to shift to growing your category.
KP: What does product-led growth mean for Hotjar?
The biggest misconception I see about product-led growth is people assume it's about product and that's a bit of a reduction. Of course, you cannot do PLG without a great product. It's really about finding the right match between the market you're going after, the product you're building, a business model that you have in place, and the customer acquisition channels. But you’re finding that mix with the purpose of bringing your customer acquisition cost as close to zero as possible.
The Hotjar mission from the beginning was about trying to democratize access to tools that help you create better user experiences for your customers so your users love the experiences that you provide for them. And that inherently is about trying to go after this massive market, which consequently informs every other thing: the products we build; the time to value; and the price points we have. That’s how we’ve thought about it from the beginning.
KP: Let’s unpack that. How do you bring your sales and marketing costs close to zero?
You had a very good slide with the marketing channel distribution for leading PLG companies. You could copy and paste it for us at Hotjar.
In almost every business, when you look at the success of marketing channels, it's a power law distribution. You have one primary channel where most customers are coming from, then you have a second main channel and then you have a long tail. For a successful PLG product, that first one needs to be almost free. And that means having organic reach through word of mouth, SEO, etc.—and that’s how our product is.
Today, we have a very high percentage of word of mouth subscriptions and, on a blended basis, this brings our CAC payback quite low. It gives us the opportunity to invest in some higher CAC paid channels. We’re still looking at profitability on a channel level and a program level.
KP: Hotjar has a high bar to activation—you’re asking users to install a snippet of code—but at the same time has a very successful self-service motion. What’s been key to your success?
If you look at the time of first value, 67% of users get to the point of value within 15 minutes. It’s really quick because over the years we’ve done a lot of work to make it a very, very frictionless process.
In order to create that flywheel, especially in that initial activation period of your product, your product needs to have two things:
Transparent pricing with easy entry points of freemium or free trial
A broad enough value proposition.
Even then you need to reduce complexity. For example, when you sign up for Hotjar, it’s very easy to install the tracking script. If you have Google Tag manager, it’s one click. Same with Shopify, Webflow, and so on. We have a lot of documentation and courses that make it easy for customers to know how to do it.
What I think is interesting is that if you look at our customer base, you see that the bigger the company is, their conversion rate from sign up to activation starts dropping and the time to convert starts getting longer. The reason for this is that with an SMB, the buyer, the user, and the person making the change to the website are the same person. In a bigger company, the person creating the account might be someone in IT and not even the buyer. It takes longer for them or it could be practically impossible for them to install the script.
We segment our customers and create personalized journeys based on who they are and the size of the company. Instead of showing you “connect your Shopify store” we make it easier for you to share the snippet with the developer. That degree of personalization is important as you scale. As you try to maximize ROI in every segment, that personalization matters.
KP: What about instances when your user literally doesn’t have the ability to install the tracking script on their own?
We try to make it easier for them to get that other person who can onto the account. It’s not just within the app, but also through all the communication we do. The person isn’t automatically saying no to this, but it does take more energy for you to make the case for someone else to do that work for you.
When we were doing email campaigns, we used to say “you haven’t installed the code, install the code on your website.” The customer knows that they haven’t installed the code. Reminding them doesn’t help.
Then the email campaign became “this is what other customers are getting in terms of value” or “this is how customer X increased conversion by 3x.” With value-based messaging we saw a high double-digit increase in the effectiveness of these email campaigns. Always ask: what’s in it for me as a customer?
KP: How have you evolved your PLG strategy over time?
What has definitely evolved over the years is our understanding of our market and our understanding of who the best users are. This has been one of the really big things.
To give you an example, one of the things we've noticed is the rise of the product team or the product manager. When Hotjar was founded eight years ago, you had marketers driving many of these initiatives and product teams didn’t have as much power in the workplace. Now I like to think of engineers as the modern production line—any business is a software business today. We see this in the data as well, and we have to ask ourselves, “how do we speak to these customers?”
The second big thing is understanding how we move a little bit upmarket: how do we cater and sell to mid-market customers?
Third, we now have a much more sophisticated understanding of pricing, packaging, and monetization. When you’re starting out, it's very difficult to understand the willingness to pay, the value drivers, and how you can successfully convert and monetize users. But now we’ve developed a lot of sophistication in this area.
KP: Let’s unpack that starting with understanding your target market. What did that look like internally?
Two or three years ago, we embarked on a big exercise to redo our go-to-market strategy. That included (a) defining our market in a different way, (b) understanding how our product caters to that market, (c) the channels and (d) the business model. But we have to start from the market.
A common mistake for PLG companies is that people start with the product, then try to retrofit the solution that they have into a market. You need to start with the market first.
We had years of data at this point and decided to look at customers who have retained over 12 months, then slice and dice those customer cohorts in every possible way: firmographic data, product usage data, user role data. Whatever you can think of, we analyzed it.
As we did this analysis, certain patterns started emerging very quickly. While digital marketers continue to be a very big percentage of our sign-ups, we saw that designers and product managers were getting tremendously more value from Hotjar. They converted better, had higher lifetime values (LTVs), things like that. At the time, if you went on our website, our positioning was not in any way speaking to these users and it felt like a missed opportunity.
From there, we started doing a lot of external research on the market as well, looking at the market size for each segment, the compound growth rate, where these users work, the company size, and so on. The process ultimately included a mix of external data, internal data, and speaking with a lot of customers to come up with that market definition.
KP: Let’s go to pricing next. What did your pricing process look like?
The first advice I would give to anyone is that you need to be consistently working on your pricing.
The biggest mistake Hotjar has made is that we weren’t doing active pricing work for a very long time. Now our packaging is changing in a meaningful way every six to 12 months. At some point we did work with external partners to help us understand willingness to pay and so on. Now we do this work internally.
The second mistake is that people are scared to raise their prices or to start pushing monetization harder. My advice: do not undervalue your own product. Most of the companies I see leave money on the table because they feel that they need to be worth more in order to charge more. But if you understand the willingness to pay from your customers and understand the value you provide to them, that gives you big indicators into how much you should charge.
Whatever fears you have about making a pricing change, cut that fear by 90% and that’s the actual risk. Think about yourself as a consumer. How many times has your Netflix subscription increased in price without you noticing? The thing is that we’re used to paying more or maybe paying for different things.
Until 2019, we hadn’t done much pricing work. From 2019 until today, we’ve done a lot of pricing work. This year alone we’ve increased our annual contract value (ACV) by 30% due to pricing. But if you look at our net promoter score (NPS), it hasn’t changed.
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KP: What are the biggest challenges you’ve faced around product-led growth?
Now we’re at the $50 million+ ARR mark. For a company of our size, I see two difficult problems to solve.
The first is around how do you layer in sales and partners to expand ACVs? Hotjar’s ACV has traditionally been sub $2k per year. How do we sell $50k, $40k, $30k deals in a way that doesn’t break our PLG motion?
A traditional sales leader put in this situation would try to take away public pricing, remove free trials, and force users to contact sales. If we did this, we’d get a good year or maybe two good years, then the business would suffer. You always need to keep the growth flywheel alive because the idea is that you cast a very wide net and you have a sales organization working inbound while every other sales team is hunting in the wild. Our go-to-market strategy exercise was the first piece we needed to unlock to figure this out.
The second big challenge is around customer acquisition. If you look at the customer acquisition tactics we’ve talked about, it’s a wave that we’ve been building for a long time. But a lot of our tactics are based on demand capture rather than demand generation. Over time you start exhausting that demand, you rank on every good keyword, and you’re getting all of that SEO traffic. That’s all happening while the base of your revenue is much higher and you need more and more fuel to grow it.
We’re shifting our marketing strategy towards a demand generation point of view where we invest more around brand marketing, PR, and channels that enable us to reach a wider audience that might be problem unaware and solution unaware, but lives in our addressable market.
That’s a big shift. It’s difficult for your teams because what they’ve been doing successfully for such a long time all of a sudden stops being incremental and nobody knows why. You need to understand where demand exists and then either go after that demand or create that demand yourself.
KP: I’d love to go deeper on how you’re thinking about pairing sales with your successful self-service motion.
The first key thing is knowing who you should sell to—who should get a sales-assisted experience and who should get a self-serve experience. Otherwise you’re going to make a big investment into a sales organization that is just selling very small deals and has poor economics.
Then you need to make it very easy for the sales team to identify these customers (automatic qualification). There are multiple layers in terms of how we qualify. The first gate is based on firmographic data. When a customer comes in, we use tools like Clearbit to enrich the data so we automatically know how many people work at the company, their industry, etc. and we can assess whether it looks like a good potential customer.
We think about our sales team as two different organizations with two different targets. There’s a new business team where the customer is still in their onboarding phase and the rep’s job is to not only convert customers, but to convert them at the right price point and make sure they get the right value proposition in the process so that we can generate the right LTV.
Many sales people underestimate how much influence they have on retaining customers—retention starts on the first call.
And then we have an upsell team that works with customers who were sold either through sales or self-serve and are continuing to use our product successfully. For that motion specifically, product signals play a massive role. We want to know how people are inviting other users to the product, what’s the usage profile, and what are some features that are great indicators of customers who are suitable for an upsell play.
That’s essentially creating a product-led sales motion where it’s about being able to introduce the sales person at the right point in the user journey.
The product pricing fit is critical to making this work. If a customer should be spending $40k or $50k, why are they only spending $1k today? The answer to this is usually either:
You’re missing a value proposition that you’re not delivering for these sophisticated users or,
You’re not pricing your product the right way to unlock that value.
I like to think of pricing and packaging as a mathematical problem. You can almost engineer that upsell path into the product. If you unlock the right value drivers and you create the right upsell triggers, you will drive a lot of growth.
With one release we doubled our expansion revenue overnight. The baseline changed because we created the right gate at the right point in the customer journey.