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Startup Metrics for Pirates (Sept 2012)


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slides from my Startup Metrics for Pirates talk @ GeeksOnaPlane Zagreb event (Croatia, Sept 2012) #GOAP #AARRR

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  • haha. So nice. Thanks
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  • Big fan Dave - love your thinking! I broke down and applied the AARRR theory on our startup, and found that new levels of Retention and Referral appeared! I also place it in a context with several other startup theories out there. Your theory made all other theories fall into a beautiful pattern! Feel free to have a look my newly born AARRRRRRR version on:
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  • Man, your presentations are f-u-k-i-n-g awesome!
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Startup Metrics for Pirates (Sept 2012)

  1. Startup Metrics 4 Pirates! AARRR!GeeksOnaPlane 2012 Zagreb, Croatia Sept 2012 - #GOAP #AARRR Dave McClure @DaveMcClure
  3. WARNING!!!this deck is guaranteed to offend,provide tragically incorrect advice, and perhaps get you arrested. Fucking Deal with it.
  4. Dave McClure Developer, Entrepreneur, Marketer, Investor, GEEK!00’s & 10’s:•  Investor: Founders Fund, Facebook fbFund, 500 Startups•  Companies:, SlideShare, Twilio, WildFire, SendGrid•  Marketing: PayPal, Simply Hired,, 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
  5. 500 StartupsSeed Fund & Accelerator (350+ companies, 20+ countries)
  6. [ This Talk ]
  7. 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?
  8. Key Concepts•  MVP = F(Customer, Problem, Time or $$$)•  PMF = F(Customer, Solution, Alternatives)•  AUX = F(Customer, Design/UX, Metrics)•  ACQ = F(Customer, Campaign, Vol, Cost, Conv)•  WIN! = F(Customer, Usage, Dist, Revenue)
  9. Geek Renaissance•  Tech Innovation•  Finance Innovation•  Design Innovation•  Social Innovation•  Global Innovation
  10. Platforms 2.0Search, Social, Mobile
  11. What’s a Platform?Successful  Pla,orms    have  3  Things:   Features    1)  Features    2)  Users    3)  Money       Growth     Profit     Awesome   Profitable                                                   Users                                                .   .             Growth   Money  
  12. Distribution PlatformsCustomer Reach: 100M+ •  Search: Google (SEO/SEM) •  Social: Facebook, Twitter, Zynga, LinkedIn •  Mobile: Apple (iPhone, iPad), Android •  Media: YouTube (Video), Blogs, Photos •  Comm: Email, Chat, SMS, Voice
  13. DO Marketing! (It’s Not Evil)•  Marketing is Both Qualitative + Quantitative•  Qualitative: Create Emotion, Drive Action•  Quantitative: Measure Results of Action•  Design (UX) & Distribution (MKTG) Matter•  Volume (#), Cost ($), Conversion (%)
  14. [ Interesting Shit. ]
  15. Read Geoffrey MillerSex + Evolution + Consumer Mktg = Awesome Sauce
  16. More Great Shit. Psychology + Comics
  17. [The Lean Startup][Startup Metrics 4 Pirates]
  18. Just Gimme the GOOD Metrics. Users, Pages, Clicks, Emails, $$$...? 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
  19. 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
  20. Discover Customers(Steve Blank,
  21. Iterate, Dammit.(Eric Ries, IDEAS LEARN BUILD DATA CODE MEASURE
  22. Product/Market Fit b4 “Launch” (Sean Ellis, Growth Transition to Growth Product/Market
  23. AARRR!: 5-Step Startup Metrics Model SEO Campaigns, SEM PR Contests Biz Social Networks Dev Blogs Affiliates Apps & Direct, Tel, Widgets Email TV Domains ACQUISITION   Viral   Loops   Emails  &  Alerts   Homepage / Emails & widgets Landing Page Product Affiliates,  Blogs,  RSS,   nNews  Feeds   ntio Features Contests   R e te Ads,  Lead  Gen,   Biz Dev System  Events  &   Subscriptions,   Time-­‐based  Features   ECommerce
  24. 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)
  25. 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
  26. 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)
  27. Key Concepts•  MVP = F(Customer, Problem, Time or $$$)•  PMF = F(Customer, Solution, Alternatives)•  AUX = F(Customer, Design/UX, Metrics)•  ACQ = F(Customer, Campaign, Vol, Cost, Conv)•  WIN! = F(Customer, Usage, Dist, Revenue)
  28. [ Constructing MVP ]
  29. Role: Founder / CEOQ: Which Customers? Problems? Metrics? Why?A: Focus on Critical Few Actionable Metrics (if you don’t use the metric to make a decision, it’s not actionable)•  Hypothesize Customer Lifecycle•  Target ~3-5 Conversion Events (tip: Less = More)•  Test, Measure, Iterate to Improve
  30. Optimize 4 Happiness (both User + Business) $$$•  Define States of User + Business Value•  Prioritize (Estimate) Relative Value of Each State•  Move Users: Lower Value -> Higher Value•  Optimize for User Happiness + Business $$$•  Achieve High Cust Value + Low ACQ$ @ Scale
  31. What is Minimum Viable Product?MVP = F(Customer, Problem, Time or $$$)•  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)
  32. 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)
  33. 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.
  34. [ Getting 2 PMF ]
  35. 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
  36. 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
  37. Better or Different. Funny! Shocking !!!Accepted Not Funny.
  38. [ Testing 4 AUX ]
  39. Discover Meaning Why Should Users CARE About Your Product?Kathy Sierra:“CreatingPassionateUsers”
  40. 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
  41. How 2 Tell if Design/UX is Good?AUX = F(Customer, Design/UX, Metrics)•  Don’t "LAUNCH" Until Your Product Doesnt Suck. –  In fact, Stop Thinking about it as a Launch – it’s Continuous –  Define Metrics, Measurability for Design / UX –  Focus on Psychology of User –  Relative to Competitive Alternatives (that your customers know about) –  Keep Testing 4 Awesomeness! (Q: does it Rock Yet? )•  RAMP Mktg & $$$ AFTER it’s clear your MVP is: –  Functional = useful for >1 customers –  Differentiated = better than other stuff availabile –  Awesome (see above)•  Minimum Viable Design = Minimum Viable Awesomeness –  whats the crappiest thing u can release & still be awesome?
  42. [ Metrics 4 ACQ ]
  43. Role: Marketing / SalesQ: What channels? Which users? Why?A: High Volume (#), Low Cost ($), High Conv (%)•  Design & Test Multiple Marketing Channels + Campaigns•  Select & Focus on Best-Performing Channels & Themes•  Optimize for conversion to target CTAs, not just site/landing page•  Match/Drive channel cost to/below revenue potential•  Low-Hanging Fruit: –  Blogs –  SEO/SEM –  Landing Pages –  Automated Emails
  44. Example Marketing Channels•  PR •  Email•  Contest •  SEO / SEM•  Biz Dev •  Blogs / Bloggers•  Direct Marketing •  Viral / Referral•  Radio / TV / Print •  Affiliate / CPA•  Dedicated Sales •  Widgets / Apps•  Telemarketing •  LOLCats ;)
  45. MAARRRketing Plan ACQ = F(Customer, Campaign, Vol, Cost, Conv)Marketing Plan = Target Customer Acquisition Channels •  3 Important Factors = Volume (#), Cost ($), 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
  46. [ What is WINNING? ]
  47. 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
  48. [ The Lean Investor ]
  49. Startup 2.0: “Lean Investor” ModelMethod: Invest in startups using incremental investment, iterative development. Start with lots of small experiments, filter out failure, and expand investment upon success.•  Incubator: $0-250K (“Product Viability”)•  Seed: $100K-$2M (“Expand Distribution”)•  Venture: $1M-$5M (“Maximize Revenue”)
  50. Investment #1: Incubate (“Product”)•  Structure –  1-3 founders –  $25K-$250K investment –  Incubator environment: multiple peers, mentors/advisors•  Build Functional Prototype / “Minimum Viable Product” (MVP): –  Concept->Alpha, ~3-6 months –  Develop Minimal Critical Feature Set => Get to “It Works” –  Instrument Basic Dashboard, Conversion Metrics –  Test Cust. Adoption (10-1000 users) / Cust. Satisfaction (Scale: 1-10)•  Demonstrate Concept, Reduce Product Risk, Test Functional Use•  Develop Metrics & Filter for Follow-on Investment
  51. 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
  52. 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
  53. NOTE: Don’t Pitch Me, Bro.Seriously: Don’t. Fucking. Pitch Me. (and don’t email me either, cuz i won’t read it)
  54. 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)• Sean Ellis (blog)• Hiten Shah / Neil Patel (website)•  How To Pitch a VC Dave McClure (slides, NSFW)•  Understanding Comics Scott McCloud (book)
  55. Appendix
  56. Startup Metrics Activation
  57. Activation SEO Campaigns, SEM PR Contests Biz SocialNetworks Dev Blogs Affiliates Activation Criteria:Apps & Direct, Tel,Widgets Email TV •  10-30+ seconds Domains •  2-3+ page views •  3-5+ clicks •  1 key feature usage Homepage / Landing Page Product Features do LOTS of landing page & A/B tests – make lots of dumb guesses & iterate FAST
  58. 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
  59. Activation What do users do on their first visit?Key Metrics to Track ü Pages per visit ü Time on site ü Conversions
  60. ActivationTools Crazy Egg (Visual Click Mapping) Google Website Optimizer (A/B & Multivariate Testing) (B2B Lead Generation Management) http://marketo.comResources Experimentation and Testing: A Primer Landing Page Design Toolbox: 100 Tips & Tools Landing Page Tutorials & Case Studies 101 Easy Easy to use Google Website Optimizer
  61. Startup Metrics Retention
  62. Retention SEO Campaigns,Automated emails: SEM PR Contests Biz Social Networks Dev•  lifecycle emails @ +3, +7, +30d Blogs Affiliates Apps & Direct, Tel,•  status / “best of” weekly/monthly Widgets Email TV•  “something happened” emails Domains BUT:•  make it easy to unsubscribe Emails  &  Alerts   Homepage / Landing Page Blogs,  RSS,   Product News  Feeds   FeaturesTip on emails:•  > 80% or more on SUBJECT LINE System  Events  &  •  < 20% or less on BODY TEXT Time-­‐based  Features
  63. Retention How do users come back? How often?Cohort Analysis:•  Distrib of Visits over Time•  Rate of Decay•  Effective Customer LifecycleRetention Methodsü  Automated Emails * Track open rate / CTR / Quantityü  RSS / News Feeds * Track % viewed / CTR / Quantityü  Widgets / Embeds * Track impressions / CTR / Quantity
  64. 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?)
  65. Retention How do users come back? How often?Key Metrics to Track ü  Source ü  Quantity ü  Conversions ü  Visitor Loyalty ü  Session Length
  66. RetentionTools Campaign Monitor / MailChimp (email newsletter software) / TriggerMail (site-centric email management) Litmus (email and website design testing - clients / browsers) litmusapp.comResources 30 free HTML email templates Best Practices in Writing Email Subject Lines Learning Viral: Viral Emails of
  67. Startup MetricsAcquisition
  68. Acquisition SEO Campaigns, SEM PR Contests Biz SocialNetworks Dev Blogs AffiliatesApps & Direct, Tel,Widgets Email TV Domains Marketing Channels: •  largest-volume (#) •  lowest-cost ($) •  best-performing (%)
  69. Acquisition Where are users coming from?Acquisition Methodsü SEO / SEMü Blogsü Emailü Social Media & Social Networksü Domains
  70. 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
  71. Acquisition Where are users coming from?Key Metrics to Track Example ü Quantity (#) ü Cost ($) ü Conversions (%)
  72. AcquisitionTools Google Analytics (web analytics) Google Keyword Tool (keyword research tool) SEO Book Tools (SEO related tools) tools.seobook.comResources SEO Book Blog The Social Media Manual: Read Before You Play Strategies to ruthlessly acquire users
  73. Startup Metrics Referral
  74. Referral SEO Campaigns, SEM PR Contests Biz Social Networks Dev Blogs Affiliates Apps & Direct, Tel, Widgets Email TV Viral   Domains Acquisition   Loops   Emails & widgets Emails  &  Alerts   Homepage / Landing Page Affiliates,   Product Contests  Blogs,  RSS,   nNews  Feeds   e ntio Features Ret Focus on driving referrals System  Events  &   Time-­‐based  Features   *after* users have a “happy” experience; avg score >= 8 out of 10
  75. Referral How do users refer others?Referral Methodsü Send to Friend: Email / IMü Social Mediaü Widgets / Embedsü Affiliates
  76. 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.
  77. ReferralTools Gigya (social media distribution & tracking tool) ShareThis / AddThis (sharing buttons) / GetMyContacts (PHP contacts importing & invitation software) getmycontacts.comResources Seven Ways to GO VIRAL What’s your viral loop? Understanding the engine of adoption Metrics: Where Users Come From
  78. Startup Metrics Revenue
  79. Revenue SEO Campaigns, SEM PR Contests Biz Social Networks Dev Blogs Affiliates Apps & Direct, Tel, Widgets Email TV Domains Acquisition   Viral   Loops   Emails  &  Alerts   Homepage / Emails & widgets Landing Page Product Affiliates,  Blogs,  RSS,   nNews  Feeds   ntio Features Contests   Rete Ads,  Lead  Gen,   Biz Dev System  Events  &   Subscriptions,   Time-­‐based  Features   ECommerce   This is the part *you* still have to figure out… (we don’t know jack about your business)
  80. 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)
  81. RevenueResources & Tools Revenue Metrics (Andrew Chen) How to Create a Profitable “Freemium” Startup (Andrew Chen) 2008 Affiliate Marketing Review (Scott Jangro)