Startup Metrics 4 Pirates (Wildfire Interactive, May 2012)

Startup Metrics For Pirates AARRR !Wildfire Interactive Redwood Shores May 2012 - #AARRRDave McClure @DaveMcClure http://500.co http://500hats.typepad.com http://slideshare.net/dmc500hats

Dave McClure Developer, 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/Facebook80’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

500 StartupsSeed Fund & Accelerator (300+ companies, 15+ countries)

[ This Talk ]

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?

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)

Geek Renaissance• Tech Innovation• Finance Innovation• Design Innovation• Social Innovation• Global Innovation

Platforms 2.0Search, Social, Mobile

What’s a Platform?Successful Platformshave 3 Things: Features1) Features2) Users3) Money Growth Profit Awesome . Profitable Users . Growth Money

Distribution PlatformsCustomer 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

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 (%)

[ Interesting Shit. ]

Read Geoffrey MillerSex + Evolution + Consumer Mktg = Awesome Sauce

More Great Shit. Psychology + Comics

[The Lean Startup][Startup Metrics 4 Pirates]

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+ secthegood • 200,000 visitors who clicked on a link or buttonstuff. • 20,000 registered users w/ email address • 2,000 passionate fans who refer 5+ users / mo. • 1,000 monthly subscribers @ $5/mo

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)

Iterate, Dammit.(Eric Ries, StartupLessonsLearned.com) IDEAS LEARN BUILD DATA CODE MEASURE

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

AARRR!: 5-Step Startup Metrics Model SEO Campaigns, SEM PR Contests Biz Social Networks Dev Blogs Affiliates Apps & Direct, Widgets Email Tel, TV ACQUISITION Domains Emails & AlertsBlogs, RSS, io nNews Feeds R e tent Ads, Lead Gen, Biz Dev System Events & Subscriptions, Rev Time-based Features ECommerce enu Website.com e$$$

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)

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

Startup ChallengesStartups 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)

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)

[ 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 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)

Example Conversion Metrics (note: *not* actuals… your mileage may vary) Stage Conversion Status Conv. Est. Value % (*not* cost)Acquisition Visitors -> Site/Widget/Landing Page 60% $.05 (2+ pages, 10+ sec, 1+ clicks = don’t abandon)Activation “Happy” 1st Visit; Usage/Signup 15% $.25 (clicks/time/pages, email/profile reg, feature usage)Retention Users Come Back; Multiple Visits 5% $1 (1-3x visits/mo; email/feed open rate / CTR) Referral Users Refer Others 1% $5 (cust sat >=8; viral K factor > 1; ) Revenue Users Pay / Generate $$$ 2% $50 (first txn, break-even, target profitability)

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.

[ 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 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

Better or Different. Funny! ShockingAccepted !!! Not Funny.

[ Testing 4 AUX ]

Discover Meaning Why Should Users CARE About Your Product?Kathy Sierra:“CreatingPassionateUsers”

Discover Meaning Keywords, Images, Call-to-ActionTop 10 - 100 words Call-to-Action • Your Brand / Products • Words • Customer Needs / Benefits • Images • Competitor’s Brand / Products • Context • Semantic Equivalents • Button/Link • Misspellings • EmotionRelevant images Result • People • Positive? • Products • Negative? • Problems • Neutral (= Death) • Solutions • A/B test & Iterate

How 2 Tell if Design/UX is Good?

[ Metrics 4 ACQ ]

Role: Marketing / SalesQ: 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

Example Marketing Channels• PR • Email• Contest • SEO / SEM• Biz Dev • Blogs / Bloggers• Direct Marketing • Viral / Referral• Radio / TV / Print • Affiliate / CPA• Dedicated Sales • Widgets / Apps• Telemarketing • LOLCats ;)

MAARRRketing Plan ACQ = F(Customer, Campaign, Vol, Cost, Conv)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, CLVConsider Costs, Scarce Resource Tradeoffs • Actual $ expenses • Marketing time & resources • Product/Engineering time & resources • Cashflow timing of expense vs. revenue, profit

[ What is WINNING? ]

Choose #WINNING MetricsWIN = 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” ModelMethod: Invest in startups using incremental investment, iterative development. Start with lots of small experiments, filter out failure, and expand investment upon success.• Incubator: $0-100K (“Product Viability”)• Seed: $100-$1M (“Expand Distribution”)• Venture: $1M-$5M (“Maximize Revenue”)

Investment #1: Incubate (“Product”)• Structure – 1-3 founders – $25K-$100K 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

Investment #2: Seed• Structure (“Market”) – 2-5 person team – $100K-$1M 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

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

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)

Appendix

Startup Metrics Activation

Activation SEO Campaigns, SEM PR Contests Biz SocialNetworks Dev Blogs Affiliates Activation Criteria:Apps & Direct,Widgets Email Tel, TV • 10-30+ seconds Domains • 2-3+ page views • 3-5+ clicks • 1 key feature usage do LOTS of landing page & A/B tests – make lots of dumb guesses & iterate FAST Website.com

Activation What do users do on their first visit?Example Activation Goals • Click on something! • Account sign up / Emails • Referrals / Tell a friend • Widgets / Embeds • Low Bounce RateActivation Tips • Less is more • Focus on user experience / usability • Provide incentives & call to actions • Test and iterate continuously

Activation What do users do on their first visit?Key Metrics to Track  Pages per visit  Time on site  Conversions

ActivationTools Crazy Egg (Visual Click Mapping) http://crazyegg.com Google Website Optimizer (A/B & Multivariate Testing) http://google.com/websiteoptimizer Marketo.com (B2B Lead Generation Management) http://marketo.comResources Experimentation and Testing: A Primer kaushik.net/avinash/2006/05/experimentation-and-testing-a-primer.html Landing Page Design Toolbox: 100 Tips & Tools http://tinyurl.com/326co6 Landing Page Tutorials & Case Studies http://www.copyblogger.com/landing-pages/ 101 Easy Easy to use Google Website Optimizer http://conversion-rate-experts.com/articles/101-google-website-optimizer-tips/

Startup Metrics Retention

Retention SEO Campaigns,Automated emails: SEM PR Contests Biz Social Networks Dev• lifecycle emails @ +3, +7, +30d Blogs Affiliates Apps & Direct,• status / “best of” weekly/monthly Widgets Email Tel, TV• “something happened” emails Domains BUT:• make it easy to unsubscribe Emails & Alerts Blogs, RSS, News FeedsTip on emails:• > 80% or more on SUBJECT LINE System Events &• < 20% or less on BODY TEXT Time-based Features Website.com

Retention How do users come back? How often?Cohort Analysis:• Distrib of Visits over Time• Rate of Decay• Effective Customer LifecycleRetention Methods Automated Emails * Track open rate / CTR / Quantity RSS / News Feeds * Track % viewed / CTR / Quantity Widgets / Embeds * Track impressions / CTR / Quantity

Retention How do users come back? How often?Example Retention Goals • 1 - 3+ visits per month • 20% open rate / 2% CTR • High deliverability / Low spam rating • Long customer life cycle / Low decay • Identify fanatics and cheerleadersRetention Tips • Email is simple and it works • BUT make unsubscribe easy • 80% subject line / 20% body text • ACTUALLY 99% subject line / 1% body text • Fanatics = virality + affiliate channel (bloggers?)

Retention How do users come back? How often?Key Metrics to Track  Source  Quantity  Conversions  Visitor Loyalty  Session Length

RetentionTools Campaign Monitor / MailChimp (email newsletter software) campaignmonitor.com / mailchimp.com TriggerMail (site-centric email management) triggermail.net Litmus (email and website design testing - clients / browsers) litmusapp.comResources 30 free HTML email templates campaignmonitor.com/resources/templates.aspx Best Practices in Writing Email Subject Lines mailchimp.com/resources/best-practices-in-writing-email-subject- lines.phtml Learning Viral: Viral Emails of Tagged.com okdork.com/2008/04/10/learning-viral-studying-taggedcom/

Startup MetricsAcquisition

Acquisition SEO Campaigns, SEM PR Contests Biz SocialNetworks Dev Blogs AffiliatesApps & Direct,Widgets Email Tel, TV Domains Marketing Channels: • largest-volume (#) • lowest-cost ($) • best-performing (%) Website.com

Acquisition Where are users coming from?Acquisition Methods SEO / SEM Blogs Email Social Media & Social Networks Domains

Acquisition Keyword VocabularyTop 10 - 100 words • Your Brand / Products • Customer Needs / Benefits • Competitor’s Brand / Products • Semantic Equivalents • MisspellingsThings to analyze • Sources • Volume • Cost • Conversion

Acquisition Where are users coming from?Key Metrics to Track Example  Quantity (#)  Cost ($)  Conversions (%)

AcquisitionTools Google Analytics (web analytics) google.com/analytics Google Keyword Tool (keyword research tool) adwords.google.com/select/KeywordToolExternal SEO Book Tools (SEO related tools) tools.seobook.comResources SEO Book Blog seobook.com/blog The Social Media Manual: Read Before You Play searchengineland.com/071120-144401.php Strategies to ruthlessly acquire users andrewchen.typepad.com/andrew_chens_blog/2007/04/10_obvious_stra. html

Startup Metrics Referral

Referral SEO Campaigns, SEM PR Contests Biz Social Networks Dev Blogs Affiliates Apps & Direct, Widgets Email Tel, TV Acquisition Domains Emails & AlertsBlogs, RSS, nNews Feeds ntio Rete Focus on driving referrals System Events & Time-based Features *after* users have a “happy” experience; avg score >= 8 out of 10 Website.com

Referral How do users refer others?Referral Methods Send to Friend: Email / IM Social Media Widgets / Embeds Affiliates

Referral Viral Growth Factor Viral Growth Factor = X * Y * Z X = % of users who invite other people Y = average # of people that they invited Z = % of users who accepted an invitationA viral growth factor > 1 means an exponential organic user acquisition.

ReferralTools Gigya (social media distribution & tracking tool) gigya.com ShareThis / AddThis (sharing buttons) sharethis.com / addthis.com GetMyContacts (PHP contacts importing & invitation software) getmycontacts.comResources Seven Ways to GO VIRAL lsvp.wordpress.com/2007/03/02/seven-ways-to-go-viral/ What’s your viral loop? Understanding the engine of adoption andrewchen.typepad.com/andrew_chens_blog/2007/07/whats-your- vira.html Metrics: Where Users Come From slideshare.net/guest2968b8/rockyou-snap-summit-32508

Startup Metrics Revenue

Revenue SEO Campaigns, SEM PR Contests Biz Social Networks Dev Blogs Affiliates Apps & Direct, Widgets Email Tel, TV Acquisition Domains Emails & AlertsBlogs, RSS, io nNews Feeds R ete n t Ads, Lead Gen, Biz Dev System Events & Subscriptions, Rev Time-based Features ECommerce enu This is the part *you* Website.com e$$$ still have to figure out… (we don’t know jack about your business)

Revenue How do you make money?Revenue Tips • Don’t Rely on AdSense (only) • Start Free => 2% “Freemium” • Subscription / Recurring transactions • Qualify your customers -> Lead generation (arbitrage) • Sell something! (physical or virtual)

RevenueResources & Tools Revenue Metrics (Andrew Chen) http://tinyurl.com/47r63a How to Create a Profitable “Freemium” Startup (Andrew Chen) http://tinyurl.com/8z9ygk 2008 Affiliate Marketing Review (Scott Jangro) http://tinyurl.com/86wak4

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Startup Metrics 4 Pirates (Wildfire Interactive, May 2012)

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