Startup Metrics for Pirates (KAUST, Nov 2013)

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slides from my talk @ KAUST in Saudi Arabia (Nov 2013). Note: these slides are old, ugly, out-of-date, and probably will get you jailed or killed... so please don't pay attention to them.

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  • I know, too many bullets…
  • Startup Metrics for Pirates (KAUST, Nov 2013)

    1. Startup Metrics for Pirates AARRR AARRR !! KAUST Nov 2013 Dave McClure @DaveMcClure http://500.co http://500hats.com http://slideshare.net/dmc500hats
    2. Dave McClure Founding Partner & Troublemaker, 500 Startups 00’s & 10’s: • VC: Founders Fund, Facebook fbFund, 500 Startups • Angel: Mashery, Mint.com, SlideShare, Twilio • Marketing: PayPal, Simply Hired, Mint.com, O’Reilly 80’s & 90’s: • Entrepreneur: Aslan Computing (acq’d by Servinet/Panurgy) • Developer: Windows / SQL DB consultant (Intel, MSFT) • Engineer: Johns Hopkins‘88, BS Eng / Applied Math
    3. 500 Startups Global Seed Fund & Startup Accelerator • What is 500? – – – – – • $80M under management 30+ people / 10 investing partners Locations: SV, NYC, MEX, BRZ, IND, CHN, SE Asia 1000+ Founders / 200+ Mentors 25+ positive exits in ~3 years 500+ Portfolio Co’s / 40+ Countries – – – – – – – – – – – – – – – Wildfire (acq GOOG, $350M) MakerBot (acq SSYS, $400M) Viki (acq Rakuten, $200M) Twilio SendGrid Credit Karma VivaReal Udemy Zozi The RealReal Virool Visually Gengo PicCollage 9GAG
    4. 500 Startups: Global Seed Fund Over 150+ startups outside US, in 40+ countries
    5. [ This Talk ]
    6. 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?
    7. Key Concepts • • • • • MVP = F(Customer, Problem, Time or $$$) PMF = F(Customer, Solution, Alternatives) AUX = F(Customer, Design/UX, Metrics) ACQ = F(Customer, Campaign, Vol, Cost, Conv) WIN! = F(Customer, Usage, Dist, Revenue)
    8. DO Marketing! (It’s Not Evil) • • • • • Marketing is Both Qualitative + Quantitative Qualitative: Create Emotion, Drive Action Quantitative: Measure Results of Action Design (UX) & Distribution (MKTG) Matter Volume (#), Cost ($), Conversion (%)
    9. Changes in Tech Startups • LESS Capital required to build product, get to market – Dramatically reduced $$$ on servers, software, bandwidth – Crowdfunding, KickStarter, Angel List, Funders Club, etc – Cheap access to online platforms for 100M+ consumers, smallbiz, etc • MORE Customers via ONLINE platforms (100M+ users) – – – – – – • Search (Google) Social (Facebook, Twitter) Mobile (Apple, Android) Local (Yelp, Groupon, FourSquare) Media (YouTube, Pinterest, Instagram, Tumblr) Comm (Email, IM/Chat, Voice, SMS, etc) LOTS of little bets: Accelerators, Angels, Angel List, Small Exits – Y Combinator, TechStars, 500 Startups – Funding + Co-working + Mentoring -> Design, Data, Distribution – “Fast, Cheap Fail”, network effects, quantitative + iterative investments
    10. Lean Startup: Simpler, Faster, Cheaper, Smarter 1. Startup Costs = Lower. 2. # Users, Bandwidth = Bigger. 3. Transaction $$$ = Better.  Building Product => Cheaper, Faster, Better  Getting Customers => Easier, More Measurable Iterative Product & Marketing Decisions based on Measured User Behavior
    11. Industry Changes • • • • • • Startup Efficiency, Reduced Capital Costs Growing Market, Growing Platforms VC Industry Upheavals (2000, 2008) Super Angel -> Micro VC: Seed Funds (ex: First Round) Incubators & Accelerators (ex: Y Combinator) Big VC (ex: A16Z) & Platforms (ex: Angel List) more info see: http://PreMoney.co
    12. Before & After 2 Dot-Com Crashes Daft Punk Startup: Simpler, Faster, Cheaper, Smarter Before 2000 •Sun Servers •Oracle DB •Exodus Hosting •12-24mo dev cycle •6-18mo sales cycle •<100M people online •$1-2M seed round •$3-5M Series A •Sand Hill Road crawl •Big, Fat, Dinosaur Startup After 2008 •AWS, Google, PayPal, FB, TW •Cloud + Open Source SW •Lean Startup / Startup Wknd •3-90d dev cycle •SaaS / online sales •>3B people online •<$100K incub + <$1M seed •$1-3M Series A •Angel List global visibility •Lean, Little, Cockroach Startup
    13. Series A Crunch: Good or Bad? Series A rqmts: $1M revenue, 1M active users, 10M downloads, 100% YoY growth •Lots of Incubation / Seed startups will “fail” •BUT: Fail Budget = $50-$500K, not $5M+ •Many “failed” startups = ramen-profitable, small acquisition, or MBA alternative (<$100K) •Series A/B VCs have lots to choose from •Overall, founders / market getting smarter •More focus on customers, problems, revenue •Many die, some survive (1-5x), a few thrive (20x+).
    14. Silicon Valley 2.0: Lots of Little Bets aka “MoneyBall for Startups” • • VC Evolution: Physician, Scale Thyself (Aug 2012) MoneyBall for Startups, 500 Startups Investment Thesis (Jul 2010)
    15. 500 Strategy: “Lots of Little Bets”* 1) Make lots of little bets pre-traction, early-stage startups 2) after 6-12 months, identify top 20% performers and double-down higher $$$ 3) conservative model assumes -5-10% large exits @20X ($50-100M+) -10-20% small exits @5X ($5-50M) 15 *See Peter Sims book: “Little Bets”
    16. [The Lean Startup] [Startup Metrics 4 Pirates]
    17. Just Gimme the GOOD Metrics. Users, Pages, Clicks, Emails, $$$...? Q: Which of these is best? How do you know? • 1,000,000 one-time, unregistered unique visitors the good stuff. • 500,000 visitors who view 2+ pages / stay 10+ sec • 200,000 visitors who clicked on a link or button • 20,000 registered users w/ email address • 2,000 passionate fans who refer 5+ users / mo. • 1,000 monthly subscribers @ $5/mo
    18. The Lean Startup • • • • • • Talk to Customers; Discover Problems Progress ≠ Features (Less = More) Fast, Frequent Iteration (+ Feedback Loop) Measure Conversion; Compare 2+ Options Focus on Product/Market Fit Keep it Simple & Actionable
    19. Discover Customers (Steve Blank, SteveBlank.com)
    20. Iterate. (Eric Ries, StartupLessonsLearned.com) IDEAS LEARN BUILD DATA CODE MEASURE
    21. AARRR!: Startup Metrics Model SEM SEM Social Social Networks Networks SEO SEO Blogs Blogs Apps && Apps Widgets Widgets PR PR Campaigns, Campaigns, Contests Contests Affiliates Affiliates Email Email Domains Domains ACQUISITION ACQUISITION Biz Biz Dev Dev Direct, Direct, Tel, TV Tel, TV Emails & Alerts Emails & Alerts Blogs, RSS, Blogs, RSS, News Feeds News Feeds R n ntio et e Biz Dev Biz Dev $$ $$$ nue $ enue Reve Rev System Events & System Events & Time-based Features Time-based Features Ads, Lead Gen, Ads, Lead Gen, Subscriptions, Subscriptions, ECommerce ECommerce Website.com
    22. Startup Metrics for Pirates • • • • • Acquisition: users come to site from various channels Activation: users enjoy 1st visit: "happy” experience Retention: users come back, visit site multiple times Referral: users like product enough to refer others Revenue: users conduct some monetization behavior AARRR!! AARRR (note: If you’re in a hurry, Google “Startup Metrics” & watch 5m video)
    23. One Step at a Time. 1. Make a Good Product: Activation & Retention 2. Market the Product: Acquisition & Referral 3. Make Money: Revenue & Profitability
    24. Startup Challenges Startups have problems in 3 key areas: • Management: Set Priorities, Define Key Metrics • Product: Build “Right” Features. Measure, Iterate. • Marketing: Distribution, Distribution, Distribution. (Search, Social, Mobile)
    25. [ Constructing MVP ]
    26. Role: Founder / CEO Q: Which Customers? Problems? Metrics? A: Focus on Critical Few Actionable Metrics (
    27. Optimize 4 Happiness (both User + Business) • • • • • $$$ Define States of User + Business Value Prioritize (Estimate) Relative Value of Each State Move Users: Lower Value -> Higher Value Optimize for User Happiness + Business $$$ Achieve High Cust Value + Low ACQ$ @ Scale
    28. What is Minimum Viable Product ? MVP = F(Customer, Problem, Time or $$$) • Focus on CUSTOMER – Qualitative Discovery, Quantitative Validation • Get to know habits, problems, desires (FUN MATTERS) – what causes pain? what causes pleasure? • Ship the simplest, fastest solution that solves the problem. • Define 1-5 TESTABLE Conversion Metrics of Value – – - Attention/Usage (session time, clicks) Customer Profle Data (email, connect, profile) Revenue (direct or indirect) Retention (visits over time, cohort behavior) Referral (users evangelize to other users)
    29. 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 $$$ (first txn, break-even, target profitability) 2% $50
    30. [ Getting 2 PMF ]
    31. Role: Product / Eng / Design Q: What Features to Build? Why? When are you “Done”? A: Easy-to-Find, Fun/Useful, Unique Features that Increase Conversion (stop iterating when increase decelerates) • • • Wireframes = Conversion Steps Measure, A/B Test, Iterate FAST (daily/weekly) Optimize for Conversion Improvement – 80% on existing feature optimization – 20% on new feature development
    32. What is Product/Market Fit ? PMF = F(Customer, Solution, Alternatives*) • Product / Market Fit occurs when: – Customers like your stuff better than other options – Not static, Not optimal – just Local Max F(customers, solution, time) – make sure you’re moving in optimal direction 2 local max • Q: what competitive solutions are available? – … that your customers know about? – how are you diff/same? – in ways that people care about? (will pay for)
    33. [ Testing 4 AUX ]
    34. Discover Meaning Why Should Users CARE About Your Product? Kathy Sierra: “Creating Passionate Users”
    35. Discover Meaning Keywords, Images, Call-to-Action Top 10 - 100 words • Your Brand / Products • Customer Needs / Benefits • Competitor’s Brand / Products • Semantic Equivalents • Misspellings Call-to-Action • Words • Images • Context • Button/Link • Emotion Relevant images • People • Products • Problems • Solutions Result • Positive? • Negative? • Neutral (= Death) • A/B test & Iterate
    36. How To Tell if Design/UX is Good? AUX = F(Customer, Design/UX, Metrics) • If Users Use Your Product Then It’s GOOD. – – – – Define Metrics, Measurability for Design / UX Focus on Psychology of User Relative to Competitive Alternatives (that your customers know about) Keep Testing 4 Awesomeness • RAMP Mktg & $$$ AFTER it’s clear your MVP is: – Functional = useful for >1 customers – Differentiated = better than other stuff availabile – Awesome (see above)
    37. [ Metrics 4 ACQ ]
    38. Role: Marketing / Sales Q: What channels? Which users? Why? A: High Volume (#), Low Cost ($), High Conv (%) • • • • • Design & Test Multiple Marketing Channels + Campaigns Select & Focus on Best-Performing Channels & Themes Optimize for conversion to target CTAs, not just site/landing page Match/Drive channel cost to/below revenue potential Low-Hanging Fruit: – Blogs – SEO/SEM – Landing Pages – Automated Emails
    39. Platforms 2.0 Search, Social, Mobile, Video, Messaging
    40. Distribution Platforms Customer Reach: 100M-1B+ • Search: Google, Baidu, Yahoo/Bing, Yandex • Social: Facebook, Twitter, LinkedIn, TenCent/QQ, WeChat • Mobile: Apple (iOS), Android • Media: Video (YouTube), Photos (Instagram, Pinterest), Blogs • Comm: SMS, IM (WeChat, WhatsApp), Skype, Phone/Voice, etc
    41. MAARRRketing Plan ACQ = F(Customer, Campaign, Vol, Cost, Conv) Marketing Plan = Target Customer Acquisition Channels • 3 Important Factors = Volume (#), Cost ($), 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, CLV Consider Costs, Scarce Resource Tradeoffs • Actual $ expenses • Marketing time & resources • Product/Engineering time & resources • Cashflow timing of expense vs. revenue, profit
    42. [ What is WINNING? ]
    43. Choose #WINNING Metrics WIN = F(Customer, Usage, Dist, Revenue) • after MVP functional use, several options: – better Usage – Activation & Retention (AUX) – more Users -- Distribution / Acquisition – more Money --- Monetization • understand ACQ$ vs REV$, optimize 4 short-term – higher volume usually a priority – costs may change as volume increases
    44. [ The Lean Investor ]
    45. 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: $100K-$2M (“Expand Distribution”) • Venture: $1M-$10M (“Maximize Revenue”)
    46. Investment #1: Incubate • Structure (“Product”) – 1-3 founders – $0-$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
    47. Investment #2: Seed • Structure (“Market”) – 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
    48. Investment #3: Venture • Structure (“Revenue”) – 5-25 person team – $1M-$10M 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
    49. Appendix
    50. 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) • Understanding Comics Scott McCloud (book)

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