Startup weekend NEXT: modeling businesses and MVPs
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Slides from Montreal's Startup Weekend NEXT on lean analytics, market sizing, and how to build startups into great companies

Slides from Montreal's Startup Weekend NEXT on lean analytics, market sizing, and how to build startups into great companies

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Startup weekend NEXT: modeling businesses and MVPs Startup weekend NEXT: modeling businesses and MVPs Presentation Transcript

  • Startup Weekend NEXT Pre-accelerator session 3
  • Agenda Why build something people want? What’s product/market fit? What’s an MVP and why you care Curated MVP Pirate metrics The One Metric that Matters
  • Why build something people want? Everything else is a hobby or a nonprofit. View slide
  • Don’t sell what you can make. Make what you can sell. Kevin Costner is a lousy entrepreneur. View slide
  • The core of Lean is iteration.
  • Most startups don’t know what they’ll be when they grow up. Hotmail was a database company Flickr was going to be an MMO Twitter was a podcasting company Autodesk made desktop automation Paypal first built for Palmpilots Freshbooks was invoicing for a web design firm Wikipedia was to be written by experts only Mitel was a lawnmower company
  • “What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention, and a need to allocate that attention efficiently among the overabundance of information sources that might consume it.” (Computers, Communications and the Public Interest, pages 40-41, Martin Greenberger, ed., The Johns Hopkins Press, 1971.)Herbert Simon
  • The mythical product/market fit And other startup unicorns.
  • Product (new “what”) Market (new “who”) Method (new “how”) 3 kinds of innovation
  • Product (new “what”) Market (new “who”) Method (new “how”) Pure startup Distribution innovation Market diversification Channel expansion Another view Inventive Adjacent Disruptive Core
  • What’s an MVP? The least you need to do to quantify an assumption.
  • Minimum
  • Viable
  • qidiq streamlines invites Survey owner adds recipient to group Survey owner asks question Recipient reads survey question Recipient responds to question Recipient sees survey results (Later, if needed…) Recipient visits site; no password! Recipient does password recovery One-time link sent to email Recipient creates password Recipient can edit profile, etc. Survey owner adds recipient to group Survey owner asks question Recipient gets invite Recipient reads survey question Recipient responds to question Recipient installs mobile app Recipient creates account, profile Recipient sees survey results Recipient can edit profile, etc. 10-25%RESPONSERATE 70-90%RESPONSERATE
  • Delightful? If that’s required for viability
  • Curated MVP Localmind, Airbnb, roof racks and steering wheels.
  • Do AirBnB hosts get more business if their property is professionally photographed?
  • Gut instinct (hypothesis) Professional photography helps AirBnB’s business Candidate solution (MVP) 20 field photographers posing as employees Measure the results Compare photographed listings to a control group Make a decision Launch photography as a new feature for all hosts
  • 5,000 shoots per month by February 2012
  • Localmind hacks Twitter Needed to find out if a core assumption—strangers answering questions—was valid. Ran Twitter experiment instead of writing code Asked senders of geolocated Tweets from Times Square random questions; counted response rate Conclusion: high enough to proceed
  • LikeBright’s mechanical turk Used Mechanical Turk, Google Voice to speak w/ 100 single women; paid $2. The interviews lasted typically around 10-15 minutes. Simple interview script with open-ended questions, since he was digging into the problem validation stage of his startup. Founder Nick Soman: “I was amazed at the feedback I got. We were able to speak with one hundred single women that met our criteria in four hours on one evening.” Went back to TechStars and got accepted. LikeBright’s website is now live with a 50% female user base, and recently raised a round of funding. “Since that first foray into interviewing customers, I’ve probably spoken with over a thousand people through Mechanical Turk,”
  • Pirate metrics
  • Dave’s Pirate Metrics AARRR Acquisition How do your users become aware of you? SEO, SEM, widgets, email, PR, campaigns, blogs ... Activation Do drive-by visitors subscribe, use, etc? Features, design, tone, compensation, affirmation ... Retention Does a one-time user become engaged? Notifications, alerts, reminders, emails, updates... Revenue Do you make money from user activity? Transactions, clicks, subscriptions, DLC, analytics... Referral Do users promote your product? Email, widgets, campaigns, likes, RTs, affiliates...
  • The One Metric that Matters Focus matters most of all
  • Unfortunately, we’re all liars.
  • Everyone’s idea is the best right? People love this part! (but that’s not always a good thing) This is where things fall apart. No data, no learning.
  • Analytics can help.
  • Analytics is the measurement of movement towards your business goals.
  • In a startup, the purpose of analytics is to iterate to product/market fit before the money runs out.
  • The simplest rule bad metric. If a metric won’t change how you behave, it’s a h"p://www.flickr.com/photos/circasassy/7858155676/
  • MayAprMarFeb Slicing and dicing data Jan 0 5,000 Activeusers Cohort: Comparison of similar groups along a timeline. (this is the April cohort) A/B test: Changing one thing (i.e. color) and measuring the result (i.e. revenue.) Multivariate analysis Changing several things at once to see which correlates with a result. ☀ ☁ ☀ ☁ Segment: Cross-sectional comparison of all people divided by some attribute (age, gender, etc.) ☀ ☁
  •   January February March April May Rev/customer $5.00 $4.50 $4.33 $4.25 $4.50 Is this company growing or stagnating? Cohort 1 2 3 4 5 January February March April May $5 $3 $2 $1 $0.5 $6 $4 $2 $1 $7 $6 $5   $8 $7       $9 How about this one?
  • Cohort 1 2 3 4 5 January February March April May Averages $5 $3 $2 $1 $0.5 $6 $4 $2 $1   $7 $6 $5     $8 $7       $9         $7 $5 $3 $1 $0.5 Look at the same data in cohorts
  • The Lean Analytics framework.
  • Six business models E-commerce SaaS Media Mobile app User- generated content 2-sided market Your company
  • Stage EMPATHY I’ve found a real, poorly-met need that a reachable market faces. STICKINESS I’ve figured out how to solve the problem in a way they will keep using and pay for. VIRALITY I’ve found ways to get them to tell their friends, either intrinsically or through incentives. REVENUE The users and features fuel growth organically and artificially. SCALE I’ve found a sustainable, scalable business with the right margins in a healthy ecosystem. Gate Thefivestages
  • (Which means eye charts like these.) Customer Acquisition Cost paid direct search wom inherent virality VISITOR Freemium/trial offer Enrollment User Disengaged User Cancel Freemium churn Engaged User Free user disengagement Reactivate Cancel Trial abandonment rate Invite Others Paying Customer Reactivation rate Paid conversion FORMER USERS User Lifetime Value Reactivate FORMER CUSTOMERS Customer Lifetime Value Viral coefficient Viral rate Resolution Support data Account Cancelled Billing Info Exp. Paid Churn Rate Tiering Capacity Limit Upselling rate Upselling Disengaged DissatisfiedTrial Over
  • Model + Stage = One Metric That Matters. One Metric That Matters. The business you’re in E-Com SaaS Mobile 2-Sided Media UCG Empathy Stickiness Virality Revenue Scale Thestageyou’reat
  • Really? Just one?
  • Yes, one.
  • In a startup, focus is hard to achieve.
  • Having only one metric addresses this problem.
  • Metrics are like squeeze toys. http://www.flickr.com/photos/connortarter/4791605202/
  • Empathy Stickiness Virality Revenue Scale E- commerce SaaS Media Mobile app User-gen content 2-sided market Interviews; qualitative results; quantitative scoring; surveys Loyalty, conversion CAC, shares, reactivation Transaction, CLV Affiliates, white-label Engagement, churn Inherent virality, CAC Upselling, CAC, CLV API, magic #, mktplace Content, spam Invites, sharing Ads, donations Analytics, user data Inventory, listings SEM, sharing Transactions, commission Other verticals (Money from transactions) Downloads, churn, virality WoM, app ratings, CAC CLV, ARPDAU Spinoffs, publishers (Money from active users) Traffic, visits, returns Content virality, SEM CPE, affiliate %, eyeballs Syndication, licenses (Money from ad clicks)
  • Better: bit.ly/BigLeanTable
  • Market Sizing Top-down and bottoms-up
  • Top-down Start with the whole planet, then narrow it down.
  • Population of Canada
  • Percent mobile phones by country
  • IOS penetration
  • Put this all together Metric/Assumption Value Population of Canada Mobile phone percentage Mobile phones in Canada IOS percentage IOS phones in Canada IOS devices per account IOS accounts we can sell to in Canada (this is our Total Addressable Market) 34.88M 80% 27,904M 15.5% 4.32M 3.1* 1.39M * I made this up. Don’t believe everything you read.
  • How much is the TAM worth? Metric/Assumption Value TAM Percent we will claim Number of users User lifetime Revenue per month CLV Expected total revenues 1.39M 5% 69,500 40 months $5 per month $200 $13.9M * I made this up. Don’t believe everything you read.
  • Bottoms-up Start with one buyer, then add it up
  • Bottoms-up Metric/Assumption Value Impressions (acquisition) Percent that install Installs (activation) Percent still using after 30 days Become regular users (retention) Percent that buy Buy premium version (revenue) Percent that churn each month Customer lifespan Revenue per month Customer lifetime value TAM value 9,266,667 10% 926,667 25% 231,667 30% 69,500 2.5% 40 5 200 $13,900,000
  • Reality check Bottoms-up (TAM) Value Impressions (acquisition) 9.3 M impressions Top-down (TAM) Value IOS accounts we can sell to in Canada (this is our Total Addressable Market) 1.39 M users in Canada You Shall Not Pass.
  • More realistic Metric/Assumption Value Impressions (acquisition) Percent that install Installs (activation) Percent still using after 30 days Become regular users (retention) Percent that buy Buy premium version (revenue) Percent that churn each month Customer lifespan Revenue per month Customer lifetime value TAM value 1,300,000 10% 130,000 25% 32,500 30% 9,750 2.5% 40 5 200 $1,950,000
  • Some more resources
  • Thanks! @acroll