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Lean Analytics
                         Use data to build a
                        better business faster.




                                                  www.leananalyticsbook.com
                       @byosko | @acroll
                                                        @leananalytics
Sunday, 24 March, 13
Some housekeeping.




Sunday, 24 March, 13
Sunday, 24 March, 13
Sunday, 24 March, 13
Kevin Costner is a lousy entrepreneur.




       Don’t sell what you can make.
       Make what you can sell.

Sunday, 24 March, 13
Analytics is the measurement
       of movement towards your
       business goals.




                         http://www.flickr.com/photos/itsgreg/446061432/

Sunday, 24 March, 13
Small business example:
       Solare watches the
       numbers

       • Stage: Revenue
       • Model: Retailer
       • Solare is an Italian fine-dining restaurant under new management. The new team
           is trying to identify the key metrics and leading indicators




Sunday, 24 March, 13
Solare watches the numbers

       • A line in the sand: Gross Revenue to Labor Cost
            • Under 30% is good
            • Below 24% is great
            • Lower than 20% and you may be under-staffing, leading to dissatisfied
              customers
       • A leading indicator: Total covers is 5x reservations at 5PM
            • If you have 50 reservations at 5, you’ll have 250 covers that night.
            • This ratio varies by restaurant.




Sunday, 24 March, 13
In a startup, the purpose of
         analytics is to iterate to a
         product/market fit before
         the money runs out.


Sunday, 24 March, 13
Most startups don’t know what they’ll be
             when they grow up.


                                Freshbooks                          Mitel
                                was invoicing    Wikipedia         was a
                 Paypal
                                  for a web      was to be      lawnmower
               first built for                                     company
                                 design firm      written by
                Palmpilots                      experts only


                                  Flickr
                  Hotmail                         Twitter       Autodesk
                                was going to
                   was a                           was a       made desktop
                                be an MMO
                  database                      podcasting      automation
                  company                        company


Sunday, 24 March, 13
Five things you need to know

       •What makes a good metric

       •Understanding cohorts and segments

       •The business model flipbook

       •The Lean Analytics framework

       •Picking One Metric That Matters




Sunday, 24 March, 13
Clear, comparable ratios
                          Tied to your business model
       A good metric is   Actionable, not vain
                          Correlated or Causal
                          Leading or Lagging




Sunday, 24 March, 13
Comparable ratios: think about a car

       • Clear: You know 60MPH is twice as fast as 30MPH
       • In a country, speed limits and mileage are well
         understood
            • Kilometers are conveniently decimal; miles map to
              hours
       • Rates: Miles travelled is good; miles per hour is better;
         accelerating or decelerating changes your gas pedal
       • Business model: You can measure “MPH divided by
         speeding tickets” as a metric of “driving fast without
         losing my license”
Sunday, 24 March, 13
Vanity                                   Actionable
                                                                 Picks a
                                                                 direction.



      Makes you feel
      good, but doesn’t
      change how you’ll
      act.
       http://www.flickr.com/photos/lostseouls/807253220/   http://www.flickr.com/photos/aussiegall/6382775153/
Sunday, 24 March, 13
A metric from the early, foolish days of the Web.
                       Hits
                              Count people instead.
                              Marginally better than hits. Unless you’re displaying
           Page views
                              ad inventory, count people.
                              Is this one person visiting a hundred times, or are a
                  Visits
                              hundred people visiting once? Fail.
                              This tells you nothing about what they did, why they
       Unique visitors
                              stuck around, or if they left.
           Followers/         Count actions instead. Find out how many followers
          friends/likes       will do your bidding.
       Time on site, or       Poor version of engagement. Lots of time spent on
         pages/visit          support pages is actually a bad sign.
                              How many recipients will act on what’s in them?
      Emails collected

            Number of         Outside app stores, downloads alone don’t lead to
            downloads         lifetime value. Measure activations/active accounts.
Sunday, 24 March, 13
http://www.flickr.com/photos/circasassy/7858155676/


                                                     If it won’t change
                                                     how you behave,
                                                     it’s a


                                                                 bad
                                                                 metric.



         Sunday, 24 March, 13
2-sided market model:
       AirBnB and photography

       • Stage: Revenue
       • Model: 2-sided marketplace
       • Rental-by-owner marketplace that allows property owners to list and market
           their houses. Offers a variety of related services as well.




Sunday, 24 March, 13
AirBnB tests a hypothesis

       • The hypothesis: “Hosts with professional photography will get more business.
         And hosts will sign up for professional photography as a service.”


       • Built a concierge MVP


       • Found that professionally photographed listings got 2-3x more bookings than the
         market average.


       • In mid-to-late 2011, AirBnB had 20 photographers in the field taking pictures for
         hosts.




Sunday, 24 March, 13
NIGHTS BOOKED

 10 million


     8 million


       6 million


                                             20 photographers
          4 million




           2 million




                  2008   2009         2010           2011       2012

Sunday, 24 March, 13
Friday, November 9, 12
A few words on causality.




                       http://www.flickr.com/photos/roryfinneren/65729247
Sunday, 24 March, 13
50


      37.5


           25


      12.5


               0
                       1         2         3         4          5         6          7         8         9         10
                                                              Seat rentals
                           http://www.rvca.com/anp/wp-content/plugins/wp-o-matic/cache/57226_07+proof+1a+hb+beach+day.jpg
Sunday, 24 March, 13
http://www.imdb.com/media/rm3768753408/tt0073195
Sunday, 24 March, 13
http://www.flickr.com/photos/kapungo/2287237966
Sunday, 24 March, 13
10000


     1000


         100


            10


               1
                   Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec


                           Ice cream consumption    Drownings
Sunday, 24 March, 13
http://www.flickr.com/photos/25159787@N07/3766111564
Sunday, 24 March, 13
http://www.flickr.com/photos/wheressteve/3284532080
Sunday, 24 March, 13
http://www.flickr.com/photos/wtlphotos/1086968783
Sunday, 24 March, 13
10000


   1000


      100


         10


             1
                 Jan Feb Mar Apr May Jun       Jul   Aug Sept Oct Nov Dec
                       Ice cream consumption   Drownings    Temperature


Sunday, 24 March, 13
http://www.flickr.com/photos/stuttermonkey/57096884
Sunday, 24 March, 13
http://www.flickr.com/photos/germanuncut77/3785152581
Sunday, 24 March, 13
http://www.flickr.com/photos/fasteddie42/2421039207
Sunday, 24 March, 13
Correlated                 Causal
         Two variables that         An independent
         change in similar          factor that directly
         ways , perhaps             impacts a
         because they’re            dependent one.
         linked to something
         else.
                              Summer
                         al




                                           Ca
                        us




                                            us
                       Ca




                              Correlated    al   Drowning
            Ice cream
           consumption
Sunday, 24 March, 13
http://www.flickr.com/photos/bootbearwdc/1243690099/
Sunday, 24 March, 13
Causality is a superpower, because it lets you
       change the future.


            Correlation lets you              Causality lets you
            predict the future                change the future


        “I will have 420                    “If I can make more
        engaged users and                   first-time visitors stay
        75 paying customers                 on for 17 minutes I
        next month.”                        will increase sales in
                                            90 days.”

                                                      Optimize the
        Find correlation           Test causality
                                                      causal factor
Sunday, 24 March, 13
Leading        Lagging
         Number today that       Historical metric that
         shows metric            shows how you’re
         tomorrow—makes          doing—reports the
         the news.               news.




Sunday, 24 March, 13
What mode of e-commerce are you?

     How many of
    your customers     Then you are in   Your customers      You are just
                                                                                   Focus on
     buy a second        this mode       will buy from you       like
   time in 90 days?

                                                                                   Low CAC,
         1-15%         Acquisition           Once              70%                   high
                                                             of retailers          checkout




       15-30%             Hybrid             2-2.5             20%                 Increasing
                                             per year        of retailers            returns



                                                                                    Loyalty,
          >30%           Loyalty              >2.5             10%                 inventory
                                             per year        of retailers          expansion
                                                                 (Thanks to Kevin Hilstrom for this.)
Sunday, 24 March, 13
• A Facebook user reaching 7 friends within 10 days of
         signing up (Chamath Palihapitiya)
       • If someone comes back to Zynga a day after signing up
         for a game, they’ll probably become an engaged, paying
         user (Nabeel Hyatt)
       • A Dropbox user who puts at least one file in one folder
         on one device (ChenLi Wang)
       • Twitter user following a certain number of people, and a
         certain percentage of those people following the user
         back (Josh Elman)
       • A LinkedIn user getting to X connections in Y days (Elliot
         Schmukler)

             (These are also great segments to analyze.)
                                           (from the 2012 Growth Hacking conference)
Sunday, 24 March, 13
So how do you
                                                   test things?
                                                   Segmentation.
http://www.flickr.com/photos/zlakfoto/5294803278/
Sunday, 24 March, 13
Segments, cohorts, A/B, and multivariates



                                                      Cohort:
                                                      Comparison of
                                                      similar groups
                                                      along a timeline.


        Segment:            A/B test:            ☀   Multivariate
    Cross-sectional ☀       Changing one             analysis
  comparison of all         thing (i.e. color)
                                                 ☁   Changing several
  people divided by         and measuring        ☀   things at once to
     some attribute
                     ☁      the result (i.e.         see which correlates
                                                 ☁
 (age, gender, etc.)        revenue.)                with a result.

Sunday, 24 March, 13
Why use cohorts? Here’s an example.

   Is this
                                      January   February   March   April   May
 company
growing or
                       Rev/customer    $5.00     $4.50     $4.33   $4.25   $4.50
stagnating?



                          Cohort        1          2         3      4       5

                         January        $5        $3        $2      $1     $0.5

 How about               February                 $6        $4      $2      $1
   now?
                          March                             $7      $6      $5

                           April                                    $8      $7

                           May                                              $9

Sunday, 24 March, 13
Why use cohorts? Here’s an example.


                        Cohort    1    2    3    4     5

                       January    $5   $3   $2   $1   $0.5

 Look at the           February   $6   $4   $2   $1     
 same data
  in cohorts            March     $7   $6   $5          

                         April    $8   $7               

                         May      $9                    

                       Averages   $7   $5   $3   $1   $0.5




Sunday, 24 March, 13
What business are you in?




Sunday, 24 March, 13
Business model flipbook
       Revenue model: How you take money from someone
       Product type: What you give them in return       Together, these
       Delivery model: How you get it to them             make up a
       Acquisition channel: How they learn about you    business model
       Selling tactic: How you convince them to buy




Sunday, 24 March, 13
Paid advertising         Banner on Informationweek.com
                                                 Search Engine Mgmt.      High pagerank for ELC in kid’s toys
        Acquisition                              Social media outreach    Active on Twitter i.e. Kissmetrics

         channel
                       How the visitor,                                   Inviting team member to Asana
                                                 Inherent virality
                       customer, or user finds
                       out about the startup.    Artificial virality       Rewarding Dropbox user for others’ signups
                                                 Affiliate marketing       Sharing a % of sales with a referring blogger
                                                 Public relations         Speaker submission to SXSW
                                                 App/ecosystem mkt.       Placement in the Android market

                                                 Simple purchase          Buying a PC on Dell.com
                       What the startup does     Discounts & incentives   Black Friday discount, loss leader, free ship
        Selling
        tactic




                       to convince the visitor   Free trial               Time-limited trial such as fitbit Premium
                       or user to become a       Freemium                 Free tier, relying on upgrades, like Evernote
                       paying customer.
                                                 Pay for privacy          Free account content is public, like Slideshare
                                                 Free-to-play             Monetize in-app purchases, like Airmech
                                                 One-time transaction     Single purchase from Fab
                       How the startup           Recurring subscription   Monthly charge from Freshbooks
        Revenue
         model




                       extracts money from its   Consumption charges      Compute cycles from Rackspace
                       visitors, users, or
                                                 Advertising clicks       PPC revenue on CNET.com
                       customers.
                                                 Re-sale of user data     Twitter’s firehose license
                                                 Donation                 Wikipedia’s annual campaign

                                                 Software                 Oracle’s accounting suite
                       What the startup does     Platform                 Amazon’s EC2 cloud
                       in return. May be a
        Product




                                                 Merchandising            Thinkgeek’s retail store
          type




                       product or service; may
                       be hardware or            User-generated content   Facebook’s status update
                       software; may be a        Marketplace              AirBnB’s list of house rentals
                       mixture.                  Media/content            CNN’s news page
                                                 Service                  A hairstylist
        Delivery




                                                 Hosted service           Salesforce.com’s CRM
         model




                       How the product gets      Digital delivery         Valve purchase of desktop game
                       to the customer.          Physical delivery        Knife shipped from Sur La Table
Sunday, 24 March, 13
Business                    Flipbook
                                                                  Dropbox example
                aspect                      page(s)

                       Acquisition   Inherent virality.    Sharing files with others.
                         channel     Artificial virality.   Free storage when others sign up.


                           Selling                         Limited-capacity accounts are free;
                                     Freemium.
                            tactic                         subscribe when you need more.


                         Revenue     Recurring             $99/year, monthly fees, enterprise
                           model     subscription.         tiers.


                          Product                          Storage-as-a-service with APIs,
                                     Platform.
                             type                          collaboration, synchronization tools.


                          Delivery   Hosted service.       Cloud storage, web interface.
                           model     Digital delivery.     Desktop client software.



Sunday, 24 March, 13
The Lean Analytics Framework.




Sunday, 24 March, 13
Eric Ries’
       Three engines


                        Stickiness           Virality             Price


      Approach         Keep people        Make people        Spend revenue
                       coming back.       invite friends.   getting customers.


      Math that        Get customers     How many they        Customers are
       matters         faster than you     tell, how fast    worth more than
                         lose them.       they tell them.    they cost to get.




Sunday, 24 March, 13
The five Stages of Lean Analytics

                                                        The business you’re in

                                              E-    2-sided          Mobile   User-gen
                                                              SaaS                       Media
                                           commerce market            app      content
                              Empathy
     The stage you’re at




                                                   One Metric
                             Stickiness

                                Virality

                              Revenue             That Matters.
                                 Scale
Sunday, 24 March, 13
Example: a restaurant

       • Empathy: Before opening, the owner first learns about the diners in its area,
         their desires, what foods aren’t available, and trends in eating.
       • Stickiness: Then he develops a menu and tests it out with consumers, making
         frequent adjustments until tables are full and patrons return regularly. He’s giving
         things away, testing things, asking diners what they think. Costs are high
         because of variance and uncertain inventory.
       • Virality: He starts loyalty programs to bring frequent diners back, or to
         encourage people to share with their friends. He engages on Yelp and
         Foursquare.
       • Revenue: With virality kicked off, he works on margins—fewer free meals,
         tighter controls on costs, more standardization.
       • Scale: Finally, knowing he can run a profitable business, he pours some of the
         revenues into marketing and promotion. He reaches out to food reviewers, travel
         magazines, and radio stations. He launches a second restaurant, or a franchise
         based on the initial one.

Sunday, 24 March, 13
Example: a software company

       • Empathy: The founder finds an unmet need, often because she has a background in a
         particular industry or has worked with existing solutions that are being disrupted.
       • Stickiness: She meets with an initial group of prospects, and signs contracts that look more
         like consulting agreements, which she uses to build an initial product. She’s careful not to
         commit to exclusivity, and tries to steer customers towards standardized solutions, charging
         heavily for custom features. She supports the customers directly from the engineering team
         until the product is stable and usable.
       • Virality: Product in hand, she asks for references from satisfied customers, and uses them as
         testimonials. She starts direct sales, and grows the customer base. She launches a user group,
         and starts to automate support. She releases an API, encouraging third-party development and
         scaling potential market size without direct development.
       • Revenue: She focuses on growing the pipeline, sales margins, and revenues while controlling
         costs. Tasks are automated, outsourced, or offshored. Feature enhancements are scored
         based on anticipated payoff and development cost. Recurring license and support revenue
         becomes an increasingly large component of overall revenues.
       • Scale: She signs deals with large distributors, and works with global consulting firms to have
         them deploy and integrate her tool. She attends trade shows to collect leads, carefully
         measuring cost of acquisition against close rate and lead value.



Sunday, 24 March, 13
Empathy stage:
       Localmind hacks Twitter

       • Stage: Empathy
       • Model: UGC/mobile
       • Real-time question and answer platform tied to locations.
       • Needed to find out if a core behavior—answering questions about a place—
           happened enough to make the business real




Sunday, 24 March, 13
Localmind hacks Twitter

       • Before writing a line of code, Localmind was concerned that people would never
         answer questions.
            • This was their biggest risk: if questions went unanswered users would have a
              terrible experience and stop using Localmind.
       • Ran an experiment on Twitter
            • Tracked geolocated tweets in Times Square
            • Sent @ messages to people who had just tweeted, asking questions about
              the area: how busy is it; is the subway running on time; is something open;
              etc.
       • The response rate to their tweeted questions was very high.
            • Good enough proxy to de-risk the solution, and convince the team and
              investors that it was worth building Localmind.




Sunday, 24 March, 13
Stickiness stage:
       WP Engine discovers the
       2% cancellation rate

       • Stage: Stickiness
       • Model: SaaS
       • Wordpress hosting company founded in July 2010, it raised $1.2M in November
           2011




Sunday, 24 March, 13
WP-Engine discovers the 2%
       cancellation rate

       • All companies have cancellations, but founder Jason Cohen was alarmed that he
         was losing a quarter of customers every year.


       • Jason called customers himself. “Not everyone wanted to speak with me, but
         enough people were willing to talk, even after they had left, that I learned a lot
         about why they were leaving.”


       • Asked around. Turns out 2% is best case for most hosting companies.


       • Without this, the company would have been getting diminishing returns over-
         optimizing churn; instead, they could focus on maximizing revenues or lowering
         acquisition costs.




Sunday, 24 March, 13
Virality stage:
       qidiq streamlines invites

       • Stage: Virality
       • Model: SaaS
       • Tool to poll small groups, built in the Year One Labs accelerator




Sunday, 24 March, 13
Initial design                                          Redesigned workflow
                        Survey owner adds recipient to group                           Survey owner adds recipient to group




                                                                70-90% RESPONSE RATE
                            Survey owner asks question                                     Survey owner asks question

                                Recipient gets invite                                    Recipient reads survey question
 10-25% RESPONSE RATE




                            Recipient installs mobile app                                 Recipient responds to question

                                                                                           Recipient sees survey results
                          Recipient creates account, profile

                         Recipient can edit profile, view past                                  (Later, if needed…)
                                   questions, etc.
                                                                                              Recipient visits website
                          Recipient reads survey question
                                                                                           Recipient has no password!
                           Recipient responds to question
                                                                                        Recipient does password recovery
                            Recipient sees survey results
                                                                                            One-time link sent to email

                                                                                           Recipient creates password

                                                                                        Recipient can edit profile, view past
                                                                                                  questions, etc.

Sunday, 24 March, 13
Revenue stage:
       Backupify’s customer
       lifecycle

       • Stage: Scale
       • Model: SaaS
       • Leading backup provider for cloud based data.
       • The company was founded in 2008 by Robert May and Vik Chadha
       • Has gone on to raise $19.5M in several rounds of financing.




Sunday, 24 March, 13
Shifting to Customer Acquisition
       Payback as a key metric

       • Initially focused on site visitors

       • Then focused on trials

       • Then switched to signups

       • Today, MRR

       • In early 2010, CAC was $243 and ARPU was only $39

            • Pivoted to target business users

            • CLV-to-CAC today is 5-6x

       • Now they track Customer Acquisition Payback

            • Target is less than 12 months



Sunday, 24 March, 13
What’s your OMTM?
                          E-            2-sided                           Mobile           User-gen
                                                           SaaS                                             Media
                       commerce         market                             app              content

        Empathy                         Interviews; qualitative results; quantitative scoring; surveys


                       Loyalty,       Inventory,       Engagement, Downloads,             Content,       Traffic, visits,
     Stickiness        conversion     listings         churn       churn, virality        spam           returns


                       CAC, shares,                    Inherent        WoM, app           Invites,       Content
           Virality    reactivation
                                    SEM, sharing
                                                       virality, CAC   ratings, CAC       sharing        virality, SEM


                        (Money from transactions)        (Money from active users)           (Money from ad clicks)

                       Transaction,   Transactions,    Upselling,      CLV,               Ads,           CPE, affiliate
        Revenue        CLV            commission       CAC, CLV        ARPDAU             donations      %, eyeballs


                       Affiliates,     Other            API, magic      Spinoffs,          Analytics,     Syndication,
              Scale    white-label    verticals        #, mktplace     publishers         user data      licenses


Sunday, 24 March, 13
B2B and intrapreneurs




Sunday, 24 March, 13
The B2B stereotype

       • Domain expert knows
         industry and the problem
         domain. Has a Rolodex;
         proxy for customers.




                                                                       http://www.techdigest.tv/2007/02/im_a_pc_im_a_ma.html
       • Disruption expert knows
         tech that will produce a
         change Sees beyond the
         current model.




                                    Domain   Disruption
                                    expert     expert     Operations
Sunday, 24 March, 13
Three typical approaches

                               Create a popular consumer          Dropbox
            Enterprise pivot   product then pivot to tackle the
                               enterprise


                               Take an existing consumer or       Yammer,
          Copy and rebuild     open source idea and make it       MapR
                               enterprise-ready


                               Convince the enterprise to         Taleo,
         Disrupt a problem     discard the old way because of     Google
                               overwhelming advantages.           Apps



Sunday, 24 March, 13
Lean Analytics lifecycle
       for an enterprise-focused startup

                        Stage               Do this                      Fear this
                                  Consulting to test ideas and         Lock-in, IP
                       Empathy    bootstrap the business               control, overfitting

                                  Standardization and integration;     Ability to
                   Stickiness     shift from custom to generic         integrate; support

                                  Word of mouth, references, case      Bad vibes;
                       Virality   studies                              exclusivity

                                  Growing direct sales, professional   Pipeline, revenue
                       Revenue    services, support                    recognition, comp

                                  Channels, analysts, ecosystems,      Crossing the
                        Scale     APIs, vertically targeted products   chasm; Gorillas



Sunday, 24 March, 13
The Zero Overhead principle

       A central theme to this new wave of
       innovation is the application of core product
       tenets from the consumer space to the
       enterprise.
       In particular, a universal lesson that I keep
       sharing with all entrepreneurs building for the
       enterprise is the Zero Overhead Principle: no
       feature may add training costs to the
       user.                                        DJ Patil

Sunday, 24 March, 13
Intrapreneur




Sunday, 24 March, 13
Skunk Works for intrapreneurs	

       • The Lockheed Martin Skunk Works




Sunday, 24 March, 13
Span of control and the railroads

       • Daniel C. McCallum




Sunday, 24 March, 13
The BCG matrix

       • How businesses think
         about products or                       Question marks! increase

                                                                          Pivot to 

                                                                                              Stars!
         companies                              (low market share, market
              (high growth rate,
                                                                           share

                                                 high growth rate)
 through
            high market share)
                                               May be the next big thing. virality,
   What everyone wants. As
       • Lean is about moving                  Consumes investment, but attention
      market invariably stops
                                                   will require money to               growing, should become
         up and to the right    Growth rate
     increase market share.
                     cash cows.

                                                                                                          Milk with

                                                         Pivot to
                    Pivot to

                                                                                                           revenue

                                                    redefine problem/
             increase growth

                                                                                                       optimization as

                                                     solution through
              rate through

                                                                                                        growth slows
                                                         empathy
                    disruption

                                                       Dogs!                               Cash cows!
                                                (low market share,                     (high market share,
                                                  low growth rate)
                      low growth rate)
                                                Barely breaks even, may                Boring sources of cash, to
                                               be a distraction from better             be milked but not worth
                                                opportunities. Sell off or               additional investment.
                                                       shut down.
                                  




                                                                         Market share
Sunday, 24 March, 13
Intrapreneur example:
       P&G changes the mop
       instead of the soap

       • Stage: Empathy
       • Model: Retail/consumer packaged goods
       • P&G is constantly looking for better soaps. But innovation was slowing.
           Frustrated, they hired a design team to help them.




Sunday, 24 March, 13
P&G changes the mop
       instead of the soap

       • Heavy internal investment in R&D, but limited results
       • Brought in an outside agency (Continuum) to help
       • The team watched people as they mopped, recording and iterating their
         research approach


       • Watched someone pick up spilled coffee. Rather than mopping, the person
         swept up with a broom, then wiped with a cloth
       • Realized the mop, not the liquid, mattered
       • Studied the makeup of floor dirt; realized much of it is dust


       • Swiffer is a $500M innovation in a stalled industry




Sunday, 24 March, 13
The Lean Analytics lifecycle
       for an Intrapreneur
                  Stage                 Do this                        Fear this
                               Get buy-in                             Political fallout
             Beforehand
                               Find problems; don’t test demand.      Entitled, aggrieved
                Empathy        Skip the business case, do analytics   customers

                               Know your real minimum based on        Hidden “must haves”,
               Stickiness      expectations, regulations              feature creep

                               Build inherent virality in from the    Luddites who don’t
                   Virality    start; attention is the new currency   understand sharing

                               Consider the ecosystem, channels,      Channel conflict,
                Revenue        and established agreements             resistance, contracts

                               Hand the baton to others gracefully    Hating what happens
                       Scale                                          to your baby
Sunday, 24 March, 13
“The most important figures that
       one needs for management are
       unknown or unknowable, but
       successful management must
       nevertheless take account of
       them.”


                             Lloyd S. Nelson
Sunday, 24 March, 13
Choose only one metric.




Sunday, 24 March, 13
Yes, one metric.




Sunday, 24 March, 13
It will soon change.




Sunday, 24 March, 13
In a startup,
    focus is hard to achieve.




Sunday, 24 March, 13
Having only one metric
    addresses this problem.




Sunday, 24 March, 13
Metrics are like
                             squeeze toys.




                       http://www.flickr.com/photos/connortarter/4791605202/
Sunday, 24 March, 13
ARCHIMEDES
               HAD TAKEN
             BATHS BEFORE.




Sunday, 24 March, 13
Once, a leader convinced others in
    the absence of data.




Sunday, 24 March, 13
Now, a leader knows what
     questions to ask.




Sunday, 24 March, 13
Ben Yoskovitz
                       byosko@gmail.com
                       @byosko




                       Alistair Croll
                       acroll@gmail.com
                       @acroll




Sunday, 24 March, 13

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Startup metrics toronto March 19

  • 1. Lean Analytics Use data to build a better business faster. www.leananalyticsbook.com @byosko | @acroll @leananalytics Sunday, 24 March, 13
  • 5. Kevin Costner is a lousy entrepreneur. Don’t sell what you can make. Make what you can sell. Sunday, 24 March, 13
  • 6. Analytics is the measurement of movement towards your business goals. http://www.flickr.com/photos/itsgreg/446061432/ Sunday, 24 March, 13
  • 7. Small business example: Solare watches the numbers • Stage: Revenue • Model: Retailer • Solare is an Italian fine-dining restaurant under new management. The new team is trying to identify the key metrics and leading indicators Sunday, 24 March, 13
  • 8. Solare watches the numbers • A line in the sand: Gross Revenue to Labor Cost • Under 30% is good • Below 24% is great • Lower than 20% and you may be under-staffing, leading to dissatisfied customers • A leading indicator: Total covers is 5x reservations at 5PM • If you have 50 reservations at 5, you’ll have 250 covers that night. • This ratio varies by restaurant. Sunday, 24 March, 13
  • 9. In a startup, the purpose of analytics is to iterate to a product/market fit before the money runs out. Sunday, 24 March, 13
  • 10. Most startups don’t know what they’ll be when they grow up. Freshbooks Mitel was invoicing Wikipedia was a Paypal for a web was to be lawnmower first built for company design firm written by Palmpilots experts only Flickr Hotmail Twitter Autodesk was going to was a was a made desktop be an MMO database podcasting automation company company Sunday, 24 March, 13
  • 11. Five things you need to know •What makes a good metric •Understanding cohorts and segments •The business model flipbook •The Lean Analytics framework •Picking One Metric That Matters Sunday, 24 March, 13
  • 12. Clear, comparable ratios Tied to your business model A good metric is Actionable, not vain Correlated or Causal Leading or Lagging Sunday, 24 March, 13
  • 13. Comparable ratios: think about a car • Clear: You know 60MPH is twice as fast as 30MPH • In a country, speed limits and mileage are well understood • Kilometers are conveniently decimal; miles map to hours • Rates: Miles travelled is good; miles per hour is better; accelerating or decelerating changes your gas pedal • Business model: You can measure “MPH divided by speeding tickets” as a metric of “driving fast without losing my license” Sunday, 24 March, 13
  • 14. Vanity Actionable Picks a direction. Makes you feel good, but doesn’t change how you’ll act. http://www.flickr.com/photos/lostseouls/807253220/ http://www.flickr.com/photos/aussiegall/6382775153/ Sunday, 24 March, 13
  • 15. A metric from the early, foolish days of the Web. Hits Count people instead. Marginally better than hits. Unless you’re displaying Page views ad inventory, count people. Is this one person visiting a hundred times, or are a Visits hundred people visiting once? Fail. This tells you nothing about what they did, why they Unique visitors stuck around, or if they left. Followers/ Count actions instead. Find out how many followers friends/likes will do your bidding. Time on site, or Poor version of engagement. Lots of time spent on pages/visit support pages is actually a bad sign. How many recipients will act on what’s in them? Emails collected Number of Outside app stores, downloads alone don’t lead to downloads lifetime value. Measure activations/active accounts. Sunday, 24 March, 13
  • 16. http://www.flickr.com/photos/circasassy/7858155676/ If it won’t change how you behave, it’s a bad metric. Sunday, 24 March, 13
  • 17. 2-sided market model: AirBnB and photography • Stage: Revenue • Model: 2-sided marketplace • Rental-by-owner marketplace that allows property owners to list and market their houses. Offers a variety of related services as well. Sunday, 24 March, 13
  • 18. AirBnB tests a hypothesis • The hypothesis: “Hosts with professional photography will get more business. And hosts will sign up for professional photography as a service.” • Built a concierge MVP • Found that professionally photographed listings got 2-3x more bookings than the market average. • In mid-to-late 2011, AirBnB had 20 photographers in the field taking pictures for hosts. Sunday, 24 March, 13
  • 19. NIGHTS BOOKED 10 million 8 million 6 million 20 photographers 4 million 2 million 2008 2009 2010 2011 2012 Sunday, 24 March, 13 Friday, November 9, 12
  • 20. A few words on causality. http://www.flickr.com/photos/roryfinneren/65729247 Sunday, 24 March, 13
  • 21. 50 37.5 25 12.5 0 1 2 3 4 5 6 7 8 9 10 Seat rentals http://www.rvca.com/anp/wp-content/plugins/wp-o-matic/cache/57226_07+proof+1a+hb+beach+day.jpg Sunday, 24 March, 13
  • 24. 10000 1000 100 10 1 Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Ice cream consumption Drownings Sunday, 24 March, 13
  • 28. 10000 1000 100 10 1 Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Ice cream consumption Drownings Temperature Sunday, 24 March, 13
  • 32. Correlated Causal Two variables that An independent change in similar factor that directly ways , perhaps impacts a because they’re dependent one. linked to something else. Summer al Ca us us Ca Correlated al Drowning Ice cream consumption Sunday, 24 March, 13
  • 34. Causality is a superpower, because it lets you change the future. Correlation lets you Causality lets you predict the future change the future “I will have 420 “If I can make more engaged users and first-time visitors stay 75 paying customers on for 17 minutes I next month.” will increase sales in 90 days.” Optimize the Find correlation Test causality causal factor Sunday, 24 March, 13
  • 35. Leading Lagging Number today that Historical metric that shows metric shows how you’re tomorrow—makes doing—reports the the news. news. Sunday, 24 March, 13
  • 36. What mode of e-commerce are you? How many of your customers Then you are in Your customers You are just Focus on buy a second this mode will buy from you like time in 90 days? Low CAC, 1-15% Acquisition Once 70% high of retailers checkout 15-30% Hybrid 2-2.5 20% Increasing per year of retailers returns Loyalty, >30% Loyalty >2.5 10% inventory per year of retailers expansion (Thanks to Kevin Hilstrom for this.) Sunday, 24 March, 13
  • 37. • A Facebook user reaching 7 friends within 10 days of signing up (Chamath Palihapitiya) • If someone comes back to Zynga a day after signing up for a game, they’ll probably become an engaged, paying user (Nabeel Hyatt) • A Dropbox user who puts at least one file in one folder on one device (ChenLi Wang) • Twitter user following a certain number of people, and a certain percentage of those people following the user back (Josh Elman) • A LinkedIn user getting to X connections in Y days (Elliot Schmukler) (These are also great segments to analyze.) (from the 2012 Growth Hacking conference) Sunday, 24 March, 13
  • 38. So how do you test things? Segmentation. http://www.flickr.com/photos/zlakfoto/5294803278/ Sunday, 24 March, 13
  • 39. Segments, cohorts, A/B, and multivariates Cohort: Comparison of similar groups along a timeline. Segment: A/B test: ☀ Multivariate Cross-sectional ☀ Changing one analysis comparison of all thing (i.e. color) ☁ Changing several people divided by and measuring ☀ things at once to some attribute ☁ the result (i.e. see which correlates ☁ (age, gender, etc.) revenue.) with a result. Sunday, 24 March, 13
  • 40. Why use cohorts? Here’s an example. Is this   January February March April May company growing or Rev/customer $5.00 $4.50 $4.33 $4.25 $4.50 stagnating? Cohort 1 2 3 4 5 January $5 $3 $2 $1 $0.5 How about February $6 $4 $2 $1 now? March $7 $6 $5 April   $8 $7 May       $9 Sunday, 24 March, 13
  • 41. Why use cohorts? Here’s an example. Cohort 1 2 3 4 5 January $5 $3 $2 $1 $0.5 Look at the February $6 $4 $2 $1   same data in cohorts March $7 $6 $5     April $8 $7       May $9         Averages $7 $5 $3 $1 $0.5 Sunday, 24 March, 13
  • 42. What business are you in? Sunday, 24 March, 13
  • 43. Business model flipbook Revenue model: How you take money from someone Product type: What you give them in return Together, these Delivery model: How you get it to them make up a Acquisition channel: How they learn about you business model Selling tactic: How you convince them to buy Sunday, 24 March, 13
  • 44. Paid advertising Banner on Informationweek.com Search Engine Mgmt. High pagerank for ELC in kid’s toys Acquisition Social media outreach Active on Twitter i.e. Kissmetrics channel How the visitor, Inviting team member to Asana Inherent virality customer, or user finds out about the startup. Artificial virality Rewarding Dropbox user for others’ signups Affiliate marketing Sharing a % of sales with a referring blogger Public relations Speaker submission to SXSW App/ecosystem mkt. Placement in the Android market Simple purchase Buying a PC on Dell.com What the startup does Discounts & incentives Black Friday discount, loss leader, free ship Selling tactic to convince the visitor Free trial Time-limited trial such as fitbit Premium or user to become a Freemium Free tier, relying on upgrades, like Evernote paying customer. Pay for privacy Free account content is public, like Slideshare Free-to-play Monetize in-app purchases, like Airmech One-time transaction Single purchase from Fab How the startup Recurring subscription Monthly charge from Freshbooks Revenue model extracts money from its Consumption charges Compute cycles from Rackspace visitors, users, or Advertising clicks PPC revenue on CNET.com customers. Re-sale of user data Twitter’s firehose license Donation Wikipedia’s annual campaign Software Oracle’s accounting suite What the startup does Platform Amazon’s EC2 cloud in return. May be a Product Merchandising Thinkgeek’s retail store type product or service; may be hardware or User-generated content Facebook’s status update software; may be a Marketplace AirBnB’s list of house rentals mixture. Media/content CNN’s news page Service A hairstylist Delivery Hosted service Salesforce.com’s CRM model How the product gets Digital delivery Valve purchase of desktop game to the customer. Physical delivery Knife shipped from Sur La Table Sunday, 24 March, 13
  • 45. Business Flipbook Dropbox example aspect page(s) Acquisition Inherent virality. Sharing files with others. channel Artificial virality. Free storage when others sign up. Selling Limited-capacity accounts are free; Freemium. tactic subscribe when you need more. Revenue Recurring $99/year, monthly fees, enterprise model subscription. tiers. Product Storage-as-a-service with APIs, Platform. type collaboration, synchronization tools. Delivery Hosted service. Cloud storage, web interface. model Digital delivery. Desktop client software. Sunday, 24 March, 13
  • 46. The Lean Analytics Framework. Sunday, 24 March, 13
  • 47. Eric Ries’ Three engines Stickiness Virality Price Approach Keep people Make people Spend revenue coming back. invite friends. getting customers. Math that Get customers How many they Customers are matters faster than you tell, how fast worth more than lose them. they tell them. they cost to get. Sunday, 24 March, 13
  • 48. The five Stages of Lean Analytics The business you’re in E- 2-sided Mobile User-gen SaaS Media commerce market app content Empathy The stage you’re at One Metric Stickiness Virality Revenue That Matters. Scale Sunday, 24 March, 13
  • 49. Example: a restaurant • Empathy: Before opening, the owner first learns about the diners in its area, their desires, what foods aren’t available, and trends in eating. • Stickiness: Then he develops a menu and tests it out with consumers, making frequent adjustments until tables are full and patrons return regularly. He’s giving things away, testing things, asking diners what they think. Costs are high because of variance and uncertain inventory. • Virality: He starts loyalty programs to bring frequent diners back, or to encourage people to share with their friends. He engages on Yelp and Foursquare. • Revenue: With virality kicked off, he works on margins—fewer free meals, tighter controls on costs, more standardization. • Scale: Finally, knowing he can run a profitable business, he pours some of the revenues into marketing and promotion. He reaches out to food reviewers, travel magazines, and radio stations. He launches a second restaurant, or a franchise based on the initial one. Sunday, 24 March, 13
  • 50. Example: a software company • Empathy: The founder finds an unmet need, often because she has a background in a particular industry or has worked with existing solutions that are being disrupted. • Stickiness: She meets with an initial group of prospects, and signs contracts that look more like consulting agreements, which she uses to build an initial product. She’s careful not to commit to exclusivity, and tries to steer customers towards standardized solutions, charging heavily for custom features. She supports the customers directly from the engineering team until the product is stable and usable. • Virality: Product in hand, she asks for references from satisfied customers, and uses them as testimonials. She starts direct sales, and grows the customer base. She launches a user group, and starts to automate support. She releases an API, encouraging third-party development and scaling potential market size without direct development. • Revenue: She focuses on growing the pipeline, sales margins, and revenues while controlling costs. Tasks are automated, outsourced, or offshored. Feature enhancements are scored based on anticipated payoff and development cost. Recurring license and support revenue becomes an increasingly large component of overall revenues. • Scale: She signs deals with large distributors, and works with global consulting firms to have them deploy and integrate her tool. She attends trade shows to collect leads, carefully measuring cost of acquisition against close rate and lead value. Sunday, 24 March, 13
  • 51. Empathy stage: Localmind hacks Twitter • Stage: Empathy • Model: UGC/mobile • Real-time question and answer platform tied to locations. • Needed to find out if a core behavior—answering questions about a place— happened enough to make the business real Sunday, 24 March, 13
  • 52. Localmind hacks Twitter • Before writing a line of code, Localmind was concerned that people would never answer questions. • This was their biggest risk: if questions went unanswered users would have a terrible experience and stop using Localmind. • Ran an experiment on Twitter • Tracked geolocated tweets in Times Square • Sent @ messages to people who had just tweeted, asking questions about the area: how busy is it; is the subway running on time; is something open; etc. • The response rate to their tweeted questions was very high. • Good enough proxy to de-risk the solution, and convince the team and investors that it was worth building Localmind. Sunday, 24 March, 13
  • 53. Stickiness stage: WP Engine discovers the 2% cancellation rate • Stage: Stickiness • Model: SaaS • Wordpress hosting company founded in July 2010, it raised $1.2M in November 2011 Sunday, 24 March, 13
  • 54. WP-Engine discovers the 2% cancellation rate • All companies have cancellations, but founder Jason Cohen was alarmed that he was losing a quarter of customers every year. • Jason called customers himself. “Not everyone wanted to speak with me, but enough people were willing to talk, even after they had left, that I learned a lot about why they were leaving.” • Asked around. Turns out 2% is best case for most hosting companies. • Without this, the company would have been getting diminishing returns over- optimizing churn; instead, they could focus on maximizing revenues or lowering acquisition costs. Sunday, 24 March, 13
  • 55. Virality stage: qidiq streamlines invites • Stage: Virality • Model: SaaS • Tool to poll small groups, built in the Year One Labs accelerator Sunday, 24 March, 13
  • 56. Initial design Redesigned workflow Survey owner adds recipient to group Survey owner adds recipient to group 70-90% RESPONSE RATE Survey owner asks question Survey owner asks question Recipient gets invite Recipient reads survey question 10-25% RESPONSE RATE Recipient installs mobile app Recipient responds to question Recipient sees survey results Recipient creates account, profile Recipient can edit profile, view past (Later, if needed…) questions, etc. Recipient visits website Recipient reads survey question Recipient has no password! Recipient responds to question Recipient does password recovery Recipient sees survey results One-time link sent to email Recipient creates password Recipient can edit profile, view past questions, etc. Sunday, 24 March, 13
  • 57. Revenue stage: Backupify’s customer lifecycle • Stage: Scale • Model: SaaS • Leading backup provider for cloud based data. • The company was founded in 2008 by Robert May and Vik Chadha • Has gone on to raise $19.5M in several rounds of financing. Sunday, 24 March, 13
  • 58. Shifting to Customer Acquisition Payback as a key metric • Initially focused on site visitors • Then focused on trials • Then switched to signups • Today, MRR • In early 2010, CAC was $243 and ARPU was only $39 • Pivoted to target business users • CLV-to-CAC today is 5-6x • Now they track Customer Acquisition Payback • Target is less than 12 months Sunday, 24 March, 13
  • 59. What’s your OMTM? E- 2-sided Mobile User-gen SaaS Media commerce market app content Empathy Interviews; qualitative results; quantitative scoring; surveys Loyalty, Inventory, Engagement, Downloads, Content, Traffic, visits, Stickiness conversion listings churn churn, virality spam returns CAC, shares, Inherent WoM, app Invites, Content Virality reactivation SEM, sharing virality, CAC ratings, CAC sharing virality, SEM (Money from transactions) (Money from active users) (Money from ad clicks) Transaction, Transactions, Upselling, CLV, Ads, CPE, affiliate Revenue CLV commission CAC, CLV ARPDAU donations %, eyeballs Affiliates, Other API, magic Spinoffs, Analytics, Syndication, Scale white-label verticals #, mktplace publishers user data licenses Sunday, 24 March, 13
  • 61. The B2B stereotype • Domain expert knows industry and the problem domain. Has a Rolodex; proxy for customers. http://www.techdigest.tv/2007/02/im_a_pc_im_a_ma.html • Disruption expert knows tech that will produce a change Sees beyond the current model. Domain Disruption expert expert Operations Sunday, 24 March, 13
  • 62. Three typical approaches Create a popular consumer Dropbox Enterprise pivot product then pivot to tackle the enterprise Take an existing consumer or Yammer, Copy and rebuild open source idea and make it MapR enterprise-ready Convince the enterprise to Taleo, Disrupt a problem discard the old way because of Google overwhelming advantages. Apps Sunday, 24 March, 13
  • 63. Lean Analytics lifecycle for an enterprise-focused startup Stage Do this Fear this Consulting to test ideas and Lock-in, IP Empathy bootstrap the business control, overfitting Standardization and integration; Ability to Stickiness shift from custom to generic integrate; support Word of mouth, references, case Bad vibes; Virality studies exclusivity Growing direct sales, professional Pipeline, revenue Revenue services, support recognition, comp Channels, analysts, ecosystems, Crossing the Scale APIs, vertically targeted products chasm; Gorillas Sunday, 24 March, 13
  • 64. The Zero Overhead principle A central theme to this new wave of innovation is the application of core product tenets from the consumer space to the enterprise. In particular, a universal lesson that I keep sharing with all entrepreneurs building for the enterprise is the Zero Overhead Principle: no feature may add training costs to the user. DJ Patil Sunday, 24 March, 13
  • 66. Skunk Works for intrapreneurs • The Lockheed Martin Skunk Works Sunday, 24 March, 13
  • 67. Span of control and the railroads • Daniel C. McCallum Sunday, 24 March, 13
  • 68. The BCG matrix • How businesses think about products or Question marks! increase
 Pivot to 
 Stars! companies (low market share, market
 (high growth rate, share
 high growth rate) through
 high market share) May be the next big thing. virality,
 What everyone wants. As • Lean is about moving Consumes investment, but attention market invariably stops will require money to growing, should become up and to the right Growth rate increase market share. cash cows. Milk with
 Pivot to
 Pivot to
 revenue
 redefine problem/
 increase growth
 optimization as
 solution through
 rate through
 growth slows empathy disruption Dogs! Cash cows! (low market share, (high market share, low growth rate) low growth rate) Barely breaks even, may Boring sources of cash, to be a distraction from better be milked but not worth opportunities. Sell off or additional investment. shut down. Market share Sunday, 24 March, 13
  • 69. Intrapreneur example: P&G changes the mop instead of the soap • Stage: Empathy • Model: Retail/consumer packaged goods • P&G is constantly looking for better soaps. But innovation was slowing. Frustrated, they hired a design team to help them. Sunday, 24 March, 13
  • 70. P&G changes the mop instead of the soap • Heavy internal investment in R&D, but limited results • Brought in an outside agency (Continuum) to help • The team watched people as they mopped, recording and iterating their research approach • Watched someone pick up spilled coffee. Rather than mopping, the person swept up with a broom, then wiped with a cloth • Realized the mop, not the liquid, mattered • Studied the makeup of floor dirt; realized much of it is dust • Swiffer is a $500M innovation in a stalled industry Sunday, 24 March, 13
  • 71. The Lean Analytics lifecycle for an Intrapreneur Stage Do this Fear this Get buy-in Political fallout Beforehand Find problems; don’t test demand. Entitled, aggrieved Empathy Skip the business case, do analytics customers Know your real minimum based on Hidden “must haves”, Stickiness expectations, regulations feature creep Build inherent virality in from the Luddites who don’t Virality start; attention is the new currency understand sharing Consider the ecosystem, channels, Channel conflict, Revenue and established agreements resistance, contracts Hand the baton to others gracefully Hating what happens Scale to your baby Sunday, 24 March, 13
  • 72. “The most important figures that one needs for management are unknown or unknowable, but successful management must nevertheless take account of them.” Lloyd S. Nelson Sunday, 24 March, 13
  • 73. Choose only one metric. Sunday, 24 March, 13
  • 74. Yes, one metric. Sunday, 24 March, 13
  • 75. It will soon change. Sunday, 24 March, 13
  • 76. In a startup, focus is hard to achieve. Sunday, 24 March, 13
  • 77. Having only one metric addresses this problem. Sunday, 24 March, 13
  • 78. Metrics are like squeeze toys. http://www.flickr.com/photos/connortarter/4791605202/ Sunday, 24 March, 13
  • 79. ARCHIMEDES HAD TAKEN BATHS BEFORE. Sunday, 24 March, 13
  • 80. Once, a leader convinced others in the absence of data. Sunday, 24 March, 13
  • 81. Now, a leader knows what questions to ask. Sunday, 24 March, 13
  • 82. Ben Yoskovitz byosko@gmail.com @byosko Alistair Croll acroll@gmail.com @acroll Sunday, 24 March, 13