This document provides an overview of startup metrics and key concepts for product development based on a presentation by Dave McClure. It discusses the AARRR pirate metrics model of Acquisition, Activation, Retention, Referral, and Revenue. It emphasizes the importance of focusing on customer problems and testing minimal viable products through iterative design and measurement of activation and conversion metrics. The goal is to optimize the product for user happiness and business objectives by achieving high customer value and low acquisition costs at scale.

1. Startup Metrics 4 Pirates
Tel Aviv, Israel
Nov 2012 - #AARRR
Dave McClure @DaveMcClure
http://500.co
http://500hats.typepad.com
http://slideshare.net/dmc500hats

2. WARNING:

3. WARNING!!!
this deck is guaranteed to offend,
provide tragically incorrect advice,
and perhaps get you arrested.
Deal with it.

4. Dave McClure
Developer, Entrepreneur, Marketer, Investor, GEEK!
00’s & 10’s:
• Investor: Founders Fund, Facebook fbFund, 500 Startups
• Companies: Mint.com, SlideShare, Twilio, WildFire, SendGrid
• Marketing: PayPal, Simply Hired, Mint.com, O’Reilly Media
• Speaker: Lean Startup, Web 2.0, Stanford/Facebook
80’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 Startups
Seed Fund & Accelerator
(~400 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. Platforms 2.0
Search, Social, Mobile

10. What’s a Platform?
Users .
.
Money
Features
Growth Profit
Profitable
Growth
Awesome
Successful Platforms
have 3 Things:
1) Features
2) Users
3) Money

11. Distribution Platforms
Customer 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

12. 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 (%)

13. [ Interesting Shit. ]

14. Read Geoffrey Miller
Sex + Evolution + Consumer Mktg = Awesome Sauce

15. More Great Shit.
Psychology + Comics

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
• 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
the
good
stuff.

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 (don’t “launch” b4)
• Keep it Simple & Actionable

19. Discover Customers
(Steve Blank, SteveBlank.com)

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

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

22. AARRR!: Startup Metrics Model
Website.com
Biz DevAds, Lead Gen,
Subscriptions,
ECommerce
Homepage /
Landing Page
Product
Features
ACQUISITION
SEO
SEM
Apps &
Widgets
Affiliates
Email
PR Biz
Dev
Campaigns,
Contests
Direct, Tel,
TV
Social
Networks
Blogs
Domains
Emails & Alerts
System Events &
Time-based Features
Blogs, RSS,
News Feeds
Emails &
widgets
Affiliates,
Contests
Viral
Loops

23. 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)

24. One Step at a Time.
1. Make a Good Product: Activation & Retention
2. Market the Product: Acquisition & Referral
3. Make Money: Revenue & Profitability
“You probably can’t save your Ass and your Face
at the same time… so choose carefully.” – DMC

25. 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)

26. 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)

27. [ Constructing MVP ]

28. Role: Founder / CEO
Q: 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

29. 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 $$$
• Achieve High Cust Value + Low ACQ$ @ Scale
$$$

30. 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)

31. 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

32. 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.

33. [ Getting 2 PMF ]

34. 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

35. 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

36. Better or Different.
Funny!
Shocking !!!
Accepted
Not Funny.

37. [ Testing 4 AUX ]

38. Discover Meaning
Why Should Users CARE About Your Product?
Kathy Sierra:
“Creating
Passionate
Users”

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

40. How 2 Tell if Design/UX is Good?
AUX = F(Customer, Design/UX, Metrics)
• Don’t "LAUNCH" Until Your Product Doesn't 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
– what's the crappiest thing u can release & still be awesome?

41. [ Metrics 4 ACQ ]

42. 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

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

44. MAARRRketing Plan
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
ACQ = F(Customer, Campaign, Vol, Cost, Conv)

45. [ What is WINNING? ]

46. Choose #WINNING Metrics
WIN = 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

47. [ The Lean Investor ]

48. 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: $0-250K (“Product Viability”)
• Seed: $100K-$2M (“Expand Distribution”)
• Venture: $1M-$5M (“Maximize Revenue”)

49. 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

50. Investment #2: Seed
(“Market”)• Structure
– 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

51. 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

52. NOTE:
Don’t Pitch Me, Bro.
Seriously: Don’t. F**king. Pitch Me.
(and don’t email me either, cuz i won’t read it)

53. 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)
• KISSmetrics.com Hiten Shah / Neil Patel (website)
• How To Pitch a VC Dave McClure (slides, NSFW)
• Understanding Comics Scott McCloud (book)