Startup Metrics 4 Pirates

GeeknRollaLondon – March 2011

#GKNR #LeanStartup

Dave McClure @DaveMcClurehttp://www.500startups.com http://500hats.typepad.com

http://slideshare.net/dmc500hats

AARRR!

Dave McClure

2001-2010:• Startup Investor: 500 Startups, Founders Fund• Tech Marketing: PayPal, Simply Hired, Mint.com• Advisor, Angel Investor: 100+ Startups• Conferences: Warm Gun, Lean Startup, SMASH• Stanford Lecturer: Facebook, Startup Metrics

80’s & 90’s:• Entrepreneur: Founder/CEO Aslan Computing (acq.)• Developer: Windows Apps / SQL DB Admin• User Groups: E-Commerce, Internet, Client-Server• Engineer: Johns Hopkins ‘88, BS Eng / Applied Math

GEEK, CODER,

ENTREPRENEUR

Blogger, Marketing, Angel/VC Investor

500 StartupsSeed Fund & Accelerator

(100+ investments @ ~$75K avg)

Wildfire Crave Tello AwayFind Indinero MyGengo

Revnetics Mogotix EcoMom Zencoder GazeHawk Crocodoc

SayHired Recurly AppBistro Foodspotting Gantto Medialets

Rapportive TransFS SiteJabber GinzaMetrics Estately FlowTown

OneForty Twilio Postling Plancast ElaCarte WePay

Zappli Format Baydin GroupSpaces Rapportive Apsalar

Bunndle Udemy Brainient ReadyForZero Graphicly StoryJumper

OtherInbox Viikii Zozi One True Fan FormativeLabs

NetworkedBlogs

[ This Talk ]

Topics

• Basic Concepts of “Startup Metrics 4 Pirates”• Thoughts on Sequencing AARRR• Thoughts on Constructing MVP• Iterate on Design (UX) & Distribution (MKTG)• Make Marketing [more] Analytical

Disclaimers

• I’m not really a “metrics” guy• This is mostly high-concept bullshit• Several Things Are WRONG (give me feedback)• … but I promise to be entertaining • (ps – sorry about the colors & swearing.)

Key Concepts (3LA)

• MVP = F(Customer, Problem, Time or $$$)• PMF = F(Customer, Solution, Alternatives)• AUX = F(Customer, Design/UX, Metrics)• ACQ = F(Customer, Campaign, Vol, Cost, Conv)• WIN = F(Customer, Usage, Dist, Revenue)

[ Interesting Shit ]

Read Geoffrey MillerSex + Evolution + Consumer Mktg = Awesome Sauce

Other Great Shit.Psychology + Comics

[The Lean Startup]

The Lean Startup• Talk to Customers; Discover Problems• Progress ≠ Features (Less = More)• Fast, Frequent Iteration (+ Feedback Loop)• Measure Conversion; Compare 2+ Options• Focus on Product/Market Fit (don’t “launch” b4)• Keep it Simple & Actionable

Discover Customers(Steve Blank, SteveBlank.com)

LEARN BUILD

MEASURE

IDEAS

CODEDATA

Iterate, Dammit.(Eric Ries, StartupLessonsLearned.com)

Product/Market Fit b4 “Launch”(Sean Ellis, Startup-Marketing.com)

Startup-Marketing.com

[Startup Metrics 4 Pirates]

Startup Challenges

Startups have problems in 3 key areas:

• Management: Set Priorities, Define Key Metrics

• Product: Build “Right” Features. Measure, Iterate.

• Marketing: Distribution, Distribution, Distribution. (Search, Social, Mobile)

Just Gimme the GOOD Metrics.Users, Pages, Clicks, Emails, $$$...?

Q: Which of these is best? How do you know?• 1,000,000 one-time, unregistered unique visitors• 500,000 visitors who view 2+ pages / stay 10+ sec• 200,000 visitors who clicked on a link or button• 20,000 registered users w/ email address• 2,000 passionate fans who refer 5+ users / mo.• 1,000 monthly subscribers @ $5/mo

the good stuff.

Startup Metrics for Pirates

• Acquisition: users come to site from various channels• Activation: users enjoy 1st visit: "happy” experience• Retention: users come back, visit site multiple times• Referral: users like product enough to refer others• Revenue: users conduct some monetization behavior

AARRR!

(note: If you’re in a hurry, Google “Startup Metrics” & watch 5m video)

AARRR!: 5-Step Startup Metrics Model

Website.com

Revenue $$$

Biz DevAds, Lead Gen,

Subscriptions, ECommerce

ACQUISITION

SEOSEM

Apps & Widgets

Affiliates

Email

PR Biz Dev

Campaigns, Contests

Direct, Tel, TV

Social Networks

Blogs

Domains

Retention

Emails & Alerts

System Events & Time-based Features

Blogs, RSS, News Feeds

One Step at a Time.

1. Make a Good Product: Activation & Retention2. Market the Product: Acquisition & Referral3. Make Money: Revenue & Profitability

“You probably can’t save your Ass and your Face at the same time… choose carefully.” – DMC

[ Constructing MVP ]

Role: Founder / CEOQ: Which Customers? Problems? Metrics? Why?A: Focus on Critical Few Actionable Metrics

(if you don’t use the metric to make a decision, it’s not actionable)

• Hypothesize Customer Lifecycle• Target ~3-5 Conversion Events (tip: Less = More)

• Test, Measure, Iterate to Improve

Optimize 4 Happiness (both User + Business)

• Define States of User + Business Value• Prioritize (Estimate) Relative Value of Each State• Move Users: Lower Value -> Higher Value• Optimize for User Happiness + Business $$$• Achieve High Cust Value + Low ACQ$ @ Scale

$$$

What is Minimum Viable Product?MVP = F(Customer, Problem, Time or $$$)

• Focus on the CUSTOMER FIRST– TTYFU: Qualitative Discovery, Quantitative Validation

• Get to know habits, problems, desires (FUN MATTERS)– what causes pain?  what causes pleasure?

• Define 1-5 TESTABLE Conversion Metrics of Value– Attention/Usage (session time, clicks)– Customer Data (email, connect, profile)- Revenue (direct or indirect)- Retention (visits over time, cohort behavior)- Referral (users evangelize to other users)

• Note: Paid Solutions drive FOCUS (& pay rent) 

KILL A FEATURE.Something Sucks. Find It. KILL It.

• STOP ADDING FEATURES.

• Find the ONE THING that users LOVE.• How to figure out? TAKE. SHIT. AWAY.• When they SCREAM, you’ve FOUND it.• Then Bring it Back… Only Better.

• Tip: KILL a Feature Every Week.

Example Conversion Metrics(note: *not* actuals… your mileage may vary)

Stage Conversion Status Conv. %

Est. Value(*not* cost)

Acquisition Visitors -> Site/Widget/Landing Page(2+ pages, 10+ sec, 1+ clicks = don’t abandon)

60% $.05

Activation “Happy” 1st Visit; Usage/Signup(clicks/time/pages, email/profile reg, feature usage)

15% $.25

Retention Users Come Back; Multiple Visits(1-3x visits/mo; email/feed open rate / CTR)

5% $1

Referral Users Refer Others(cust sat >=8; viral K factor > 1; )

1% $5

Revenue Users Pay / Generate $$$(first txn, break-even, target profitability)

2% $50

[ Getting 2 PMF ]

Role: Product / Eng / DesignQ: What Features to Build? Why? When are you “Done”?A: Easy-to-Find, Fun/Useful, Unique Features that

Increase Conversion (stop iterating when increase decelerates)

• Wireframes = Conversion Steps• Measure, A/B Test, Iterate FAST (daily/weekly)• Optimize for Conversion Improvement

– 80% on existing feature optimization– 20% on new feature development

What is Product/Market Fit?PMF = F(Customer, Solution, Alternatives*)

• Product / Market Fit occurs when:– Customers like your shit better than other shit– Not static, Not optimal – just Local Max 4 F(customers, solution, time)– make sure you’re moving in optimal direction 2 local max

• Q: what competitive solutions are available? – … that your customers know about?– how are you diff/same?  – in ways that people care about? (will pay for)

• KILL a FEATURE regularly (or rotate 1% tests)– Q: what is MOST $ cust pay 4 LEAST func MVP relative 2 BEST alt?

• NICHE 2 WIN: RE-define cust + DIFFerentiated features

Better or Different.

Funny!

Shocking !!!Accepted

Not Funny.

[ Testing 4 AUX ]

Discover MeaningWhy Should Users Give a SHIT About You?

Kathy Sierra:“CreatingPassionateUsers”

Discover MeaningKeywords, Images, Call-to-Action

Top 10 - 100 words• Your Brand / Products• Customer Needs / Benefits• Competitor’s Brand / Products• Semantic Equivalents• Misspellings

Relevant images• People• Products• Problems• Solutions

Call-to-Action• Words• Images• Context• Button/Link• Emotion

Result• Positive?• Negative?• Neutral (= Death)• A/B test & Iterate

How 2 Tell if Design is Good?

[ Metrics 4 ACQ ]

Role: Marketing / Sales

Q: What channels? Which users? Why?A: High Volume (#), Low Cost ($), High Conv (%)

• Design & Test Multiple Marketing Channels + Campaigns• Select & Focus on Best-Performing Channels & Themes• Optimize for conversion to target CTAs, not just site/landing page• Match/Drive channel cost to/below revenue potential

• Low-Hanging Fruit: – Blogs– SEO/SEM– Landing Pages– Automated Emails

MAARRRketing Plan

Marketing Plan = Target Customer Acquisition Channels• 3 Important Factors = Volume (#), Cost ($), Conversion (%)• Measure conversion to target customer actions• Test audience segments, campaign themes, Call-To-Action (CTAs)

[Gradually] Match Channel Costs => Revenue Potential • Increase Vol. & Conversion, Decrease Cost, Optimize for Revenue Potential• Avg Txn Value (ATV), Ann Rev Per User (ARPU), Cust Lifetime Value (CLV)• Design channels that (eventually) cost <20-50% of target ATV, ARPU, CLV

Consider Costs, Scarce Resource Tradeoffs• Actual $ expenses• Marketing time & resources• Product/Engineering time & resources• Cashflow timing of expense vs. revenue, profit

ACQ = F(Customer, Campaign, Vol, Cost, Conv)

Example Marketing Channels

• PR• Contest• Biz Dev• Direct Marketing• Radio / TV / Print• Dedicated Sales• Telemarketing

• Email• SEO / SEM• Blogs / Bloggers• Viral / Referral• Affiliate / CPA• Widgets / Apps• LOLCats ;)

[ What is WINNING? ]

#TigerBlood4Startups

#WINNING

Choose Yer #WINNING Metrics

WIN = F(Customer, Usage, Dist, Revenue)

• after MVP functional use, several options:– better Usage – Activation & Retention (AUX)– more Users -- Distribution / Acquisition– mo' Money --- U Wants 2 Get Paid, Yo.

• understand ACQ$ vs REV$, optimize 4 short-term– High(er) volume usually a priority– costs may change as vol increases

[ The Lean Investor ]

Startup 2.0: “Lean Investor” Model

Method: Invest in startups using incremental investment, iterative development. Start with lots of small experiments, filter out failure, and expand investment upon success.

• Incubator: $0-100K (“Product Viability”)• Seed: $100-$1M (“Expand Distribution”)• Venture: $1M-$5M (“Maximize Revenue”)

[ Don’t Pitch Me, Bro. ]Seriously: Don’t. Fucking. Pitch Me.

(and don’t email me either, cuz i won’t read it)

Don’t Pitch Me, Bro.

• 1st: Read my stuff (blogs, decks, tweets).• 2nd: Get a referral from someone I trust.

– 500 Mentors or 500 Founders– Other Subject Matter Experts– *Not* Your Mom.

• 3rd: Be Concise. Don’t Suck.

Email

Links & ResourcesAdditional References:

• Influence: The Psychology of Persuasion Robert Cialdini (book)

• The Mating Mind Geoffrey Miller (book)

• Putting the Fun in Functional Amy Jo Kim (etech 2006 preso)

• Futuristic Play Andrew Chen (blog)

• Don’t Make Me Think Steve Krug (book)

• Designing for the Social Web Joshua Porter (book, website)

• Startup Lessons Learned Eric Ries (blog)

• Customer Development Methodology Steve Blank (presentation, blog)

• Startup-Marketing.com Sean Ellis (blog)

• KISSmetrics.com Hiten Shah / Neil Patel (website)

• How To Pitch a VC Dave McClure (slides, NSFW)

• Understanding Comics Scott McCloud (book)