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Startup metrics for entrepreneurs

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Startup Metrics 4 Pirates Tel Aviv, Israel Nov 2012 - #AARRR Dave McClure @DaveMcClure http://500.co http://500hats.typepad.com http://slideshare.net/dmc500hats
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Page 1: Startup metrics for entrepreneurs

Startup Metrics 4 Pirates

Tel Aviv, IsraelNov 2012 - #AARRR

Dave McClure @DaveMcClurehttp://500.co

http://500hats.typepad.com

http://slideshare.net/dmc500hats

Page 2: Startup metrics for entrepreneurs

WARNING:

Page 3: Startup metrics for entrepreneurs

WARNING!!!this deck is guaranteed to offend,

provide tragically incorrect advice,

and perhaps get you arrested.

Deal with it.

Page 4: Startup metrics for entrepreneurs

Dave McClureDeveloper, Entrepreneur, Marketer, Investor, GEEK!

00’s & 10’s:• Investor: Founders Fund, Facebook fbFund, 500 Startups• Companies: Mint.com, SlideShare, Twilio, WildFire, SendGrid• Marketing: PayPal, Simply Hired, Mint.com, O’Reilly Media• Speaker: Lean Startup, Web 2.0, Stanford/Facebook

80’s & 90’s:• Entrepreneur: Founder/CEO Aslan Computing (acq’d)• Developer: Windows / SQL DB consultant (Intel, MSFT)• Engineer: Johns Hopkins‘88, BS Eng / Applied Math

Page 5: Startup metrics for entrepreneurs

500 StartupsSeed Fund & Accelerator

(~400 companies, 20+ countries)

Page 6: Startup metrics for entrepreneurs

[ This Talk ]

Page 7: Startup metrics for entrepreneurs

Topics

• Basic Concepts of “Startup Metrics 4 Pirates”

• 3 Steps to AARRR: Product, Market, Revenue

• Constructing MVP: Just ONE Feature?

• Design (UX) & Distribution (MKTG)

• Winning: Market, Revenue, Profit?

Page 8: Startup metrics for entrepreneurs

Key Concepts

• 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)

Page 9: Startup metrics for entrepreneurs

Platforms 2.0Search, Social, Mobile

Page 10: Startup metrics for entrepreneurs

What’s a Platform?

Users ..

Money

Features

Growth Profit

ProfitableGrowth

Awesome

Successful Platforms have 3 Things:1) Features2) Users3) Money

Page 11: Startup metrics for entrepreneurs

Distribution Platforms

Customer Reach: 100M+

• Search: Google (SEO/SEM)

• Social: Facebook, Twitter, Zynga, LinkedIn

• Mobile: Apple (iPhone, iPad), Android

• Media: YouTube (Video), Blogs, Photos

• Comm: Email, Chat, SMS, Voice

Page 12: Startup metrics for entrepreneurs

DO Marketing! (It’s Not Evil)

• Marketing is Both Qualitative + Quantitative

• Qualitative: Create Emotion, Drive Action

• Quantitative: Measure Results of Action

• Design (UX) & Distribution (MKTG) Matter

• Volume (#), Cost ($), Conversion (%)

Page 13: Startup metrics for entrepreneurs

[ Interesting Shit. ]

Page 14: Startup metrics for entrepreneurs

Read Geoffrey MillerSex + Evolution + Consumer Mktg = Awesome Sauce

Page 15: Startup metrics for entrepreneurs

More Great Shit.Psychology + Comics

Page 16: Startup metrics for entrepreneurs

[The Lean Startup]

[Startup Metrics 4 Pirates]

Page 17: Startup metrics for entrepreneurs

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.

Page 18: Startup metrics for entrepreneurs

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

Page 19: Startup metrics for entrepreneurs

Discover Customers(Steve Blank, SteveBlank.com)

Page 20: Startup metrics for entrepreneurs

LEARN BUILD

MEASURE

IDEAS

CODEDATA

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

Page 21: Startup metrics for entrepreneurs

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

Startup-Marketing.com

Growth

Transition to Growth

Product/Market Fit

Page 22: Startup metrics for entrepreneurs

AARRR!: Startup Metrics Model

Website.com

Biz DevAds, Lead Gen, Subscriptions, ECommerce

Homepage /

Landing Page

Product

Features

ACQUISITION

SEOSEM

Apps &

Widgets

Affiliates

Email

PR Biz

Dev

Campaigns,

Contests

Direct, Tel,

TV

Social

NetworksBlogs

Domains

Emails & Alerts

System Events & Time-based Features

Blogs, RSS, News Feeds

Emails &

widgets

Affiliates, Contests

Viral Loops

Page 23: Startup metrics for entrepreneurs

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)

Page 24: Startup metrics for entrepreneurs

One Step at a Time.

1. Make a Good Product: Activation & Retention

2. Market the Product: Acquisition & Referral

3. Make Money: Revenue & Profitability

“You probably can’t save your Ass and your Face

at the same time… so choose carefully.” – DMC

Page 25: Startup metrics for entrepreneurs

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)

Page 26: Startup metrics for entrepreneurs

Key Concepts

• 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)

Page 27: Startup metrics for entrepreneurs

[ Constructing MVP ]

Page 28: Startup metrics for entrepreneurs

Role: Founder / CEO

Q: 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

Page 29: Startup metrics for entrepreneurs

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

$$$

Page 30: Startup metrics for entrepreneurs

What is Minimum Viable Product?

MVP = F(Customer, Problem, Time or $$$)

• Focus on CUSTOMER

– 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)

Page 31: Startup metrics for entrepreneurs

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

Page 32: Startup metrics for entrepreneurs

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.

Page 33: Startup metrics for entrepreneurs

[ Getting 2 PMF ]

Page 34: Startup metrics for entrepreneurs

Role: Product / Eng / Design

Q: 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

Page 35: Startup metrics for entrepreneurs

What is Product/Market Fit?

PMF = F(Customer, Solution, Alternatives*)

• Product / Market Fit occurs when:

– Customers like your stuff better than other options

– 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

Page 36: Startup metrics for entrepreneurs

Better or Different.

Funny!

Shocking !!!Accepted

Not Funny.

Page 37: Startup metrics for entrepreneurs

[ Testing 4 AUX ]

Page 38: Startup metrics for entrepreneurs

Discover MeaningWhy Should Users CARE About Your Product?

Kathy Sierra:

“Creating

PassionateUsers”

Page 39: Startup metrics for entrepreneurs

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

Page 40: Startup metrics for entrepreneurs

How 2 Tell if Design/UX is Good?

AUX = F(Customer, Design/UX, Metrics)

• Don’t "LAUNCH" Until Your Product Doesn't Suck.

– In fact, Stop Thinking about it as a Launch – it’s Continuous

– Define Metrics, Measurability for Design / UX

– Focus on Psychology of User

– Relative to Competitive Alternatives (that your customers know about)

– Keep Testing 4 Awesomeness! (Q: does it Rock Yet? )

• RAMP Mktg & $$$ AFTER it’s clear your MVP is:

– Functional = useful for >1 customers

– Differentiated = better than other stuff availabile

– Awesome (see above)

• Minimum Viable Design = Minimum Viable Awesomeness

– what's the crappiest thing u can release & still be awesome?

Page 41: Startup metrics for entrepreneurs

[ Metrics 4 ACQ ]

Page 42: Startup metrics for entrepreneurs

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

Page 43: Startup metrics for entrepreneurs

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 ;)

Page 44: Startup metrics for entrepreneurs

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)

Page 45: Startup metrics for entrepreneurs

[ What is WINNING? ]

Page 46: Startup metrics for entrepreneurs

Choose #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

Page 47: Startup metrics for entrepreneurs

[ The Lean Investor ]

Page 48: Startup metrics for entrepreneurs

Startup 2.0:

“Lean Investor” ModelMethod: Invest in startups using incremental

investment, iterative development. Start with

lots of small experiments, filter out failure, and

expand investment upon success.

• Incubator: $0-250K (“Product Viability”)

• Seed: $100K-$2M (“Expand Distribution”)

• Venture: $1M-$5M (“Maximize Revenue”)

Page 49: Startup metrics for entrepreneurs

Investment #1: Incubate(“Product”)

• Structure

– 1-3 founders

– $25K-$250K investment

– Incubator environment: multiple peers, mentors/advisors

• Build Functional Prototype / “Minimum Viable Product” (MVP):

– Concept->Alpha, ~3-6 months

– Develop Minimal Critical Feature Set => Get to “It Works”

– Instrument Basic Dashboard, Conversion Metrics

– Test Cust. Adoption (10-1000 users) / Cust. Satisfaction (Scale: 1-10)

• Demonstrate Concept, Reduce Product Risk, Test Functional Use

• Develop Metrics & Filter for Follow-on Investment

Page 50: Startup metrics for entrepreneurs

Investment #2: Seed(“Market”)

• Structure

– 2-5 person team

– $100K-$2M investment

– Syndicate of Angel Investors / Small VC Funds

• Improve Product, Expand Market, Test Revenue:

– Alpha->Beta, ~6-12 months

– Customer Sat ≥ 6 => Get to “Doesn’t Suck”

– Setup A/B Testing Framework, Optimize Conversion

– Test Marketing Campaigns, Cust Acqstn Channels

• Prove Solution/Benefit, Assess Market Size

• Test Channel Cost, Revenue Opportunity

• Determine Org Structure, Key Hires

Page 51: Startup metrics for entrepreneurs

Investment #3: Venture(“Revenue”)

• Structure

– 5-10 person team

– $1M-$5M investment

– VC Investors

• Make Money, Get to Sustainability:

– Beta->Production, 12-18 months

– Customer Sat ≥ 8 => “It Rocks, I’ll Tell My Friends”

– MktgPlan => Predictable Channels / Campaigns + Budget

– Scalability & Infrastructure, Customer Service & Operations

– Connect with Distribution Partners

• Prove/Expand Market, Operationalize Business

• Future Milestones: Profitable/Sustainable, Exit Options

Page 52: Startup metrics for entrepreneurs

NOTE:

Don’t Pitch Me, Bro. Seriously: Don’t. F**king. Pitch Me.

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

Page 53: Startup metrics for entrepreneurs

Links & Resources

Additional 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)


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