The document outlines startup metrics and strategies, emphasizing the 'AARRR' framework: Acquisition, Activation, Retention, Referral, and Revenue. It introduces Lean Startup principles, focusing on minimizing costs and maximizing customer engagement through iterative feedback, MVP development, and effective marketing. Key challenges for startups include management, product features, and distribution strategies, all aimed at achieving optimal product-market fit and sustainable growth.

1. Startup Metrics for Pirates
@DaveMcClure
500 Startups
http://500.co
http://500hats.com
http://slideshare.net/dmc500hats
AARRR!

2. Dave McClure
Founding Partner & Troublemaker, 500 Startups
00’s & 10’s:
• VC: Founders Fund, Facebook fbFund, 500 Startups
• Angel: Mashery, Mint.com, SlideShare, Twilio
• Marketing: PayPal, Simply Hired, Mint.com, O’Reilly
80’s & 90’s:
• Entrepreneur: Aslan Computing (acq’d by Servinet/Panurgy)
• Developer: Windows / SQL DB consultant (Intel, MSFT)
• Engineer: Johns Hopkins‘88, BS Eng / Applied Math

3. • What is 500?
– $250M under management
– 120+ people / 30+ investing partners / 20 Countries
– 3000+ Founders / 250+ Mentors
• 1500+ Portfolio Co’s / 50+ Countries
– Credit Karma (~$3.5B)
– GrabTaxi ($1B+)
– Twilio ($1B+)
– Wildfire (acq GOOG, $350M)
– MakerBot (acq SSYS, $400M)
– Viki (acq Rakuten, $200M)
– Simple (acq BBVA, $117M)
– Ipsy
– Udemy
– Intercom
– The RealReal
– BarkBox
– Tradesy
– TalkDesk
500 Startups
Global Seed Fund & Startup Accelerator

4. [ This Talk ]

5. 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 = Users, Revenue, Profit?

6. Lean Startup:
Simpler, Faster, Cheaper, Smarter
1. Startup Costs = Lower.
2. # Users, Bandwidth = More.
3. Transaction $$$ = Better.
Building Product => Cheaper, Faster, Better
Getting Customers => Easier, More Measurable
Iterative Product & Marketing Decisions based on Measured User Behavior

7. Changes in Tech Startups
• LESS Capital required to build product, get to market
– Dramatically reduced $$$ on servers, software, bandwidth
– Crowdfunding, KickStarter, Angel List, Funders Club, etc
– Cheap access to online platforms for 100M+ consumers, smallbiz, etc
• MORE Customers via ONLINE platforms (100M+ users)
– Search (Google, Baidu)
– Social (Facebook, Twitter, SnapChat, LinkedIn, TenCent)
– Mobile (Apple, Android, Xiaomei)
– ECom (Amazon, Alibaba, eBay/PayPal)
– Media (YouTube, Pinterest, Instagram, SnapChat)
– Comm (Email, IM/Chat, Voice, SMS, etc)
• LOTS of little bets: Accelerators, Angels, Angel List, Small Exits
– Y Combinator, TechStars, 500 Startups
– Funding + Co-working + Mentoring -> Design, Data, Distribution
– “Fast, Cheap Fail”, network effects, quantitative + iterative investments

8. DO Marketing!
(It’s Not Evil)
• Marketing is Both Qualitative + Quantitative
• Qualitative: Create Emotion, Drive Action
• Quantitative: Measure Results of Action
• Design (UX) & Distribution (MKTG) Matter
• Volume (#), Cost ($), Conversion (%)

9. [Startup Metrics 4 Pirates]

10. 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.

11. Lean Startup -> Startup Metrics
• Talk to Customers; Discover Problems
• Progress ≠ Features (Less = More)
• Fast, Frequent Iteration (+ Feedback Loop)
• Focus on Product/Market Fit
• Measure Conversion (compare 2+ alternatives)
• Track Metrics that are Simple & Actionable

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

13. LEARN BUILD
MEASURE
IDEAS
CODE
DATA
Iterate.
(Eric Ries, TheLeanStartup.com)

14. AARRR!: Startup Metrics Model
Website.com
Revenue $$$
Biz DevAds, Lead Gen,
Subscriptions,
ECommerce
ACQUISITION
SEO
SEM
Apps &
Widgets
Affiliates
Email
PR Biz Dev
Campaigns,
Contests
Direct, Tel,
TV
Social
Networks
Blogs
Domains
Retention
Emails & Alerts
System Events &
Time-based
Features
Blogs, RSS,
News Feeds

15. 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)

16. One Step at a Time.
1. Make a Good Product: Activation & Retention
2. Market the Product: Acquisition & Referral
3. Make Money: Revenue & Profitability

17. 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)

18. [ Constructing MVP ]

19. Role: Founder / CEO
Q: Which Customers? Problems? Metrics?
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
• Test, Measure, Iterate to Improve

20. 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

21. What is Minimum Viable Product ?
MVP = F(Customer, Problem, Time or $$$)
• Focus on CUSTOMER
– Qualitative Discovery, Quantitative Validation
• Get to know habits, problems, desires (FUN MATTERS)
– what causes pain? what causes pleasure?
• Ship the simplest, fastest solution that solves the problem;
better or cheaper or faster than the available competition.
• Define 1-5 TESTABLE Conversion Metrics of Value
– Attention/Usage (session time, clicks)
– Customer Profle Data (email, connect, profile)
- Revenue (direct or indirect)
- Retention (visits over time, cohort behavior)
- Referral (users evangelize to other users)

22. 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

23. [ Getting 2 PMF ]

24. 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

25. What is Product/Market Fit ?
PMF = F(Customer, Solution, Alternatives*)
• Product / Market Fit occurs when:
– Customers like your stuff better than other options
– Not static, Not optimal – just Local Max F(customers, solution, time)
– make sure you’re moving in optimal direction 2 local max
• Q: what competitive solutions are available?
– … that your customers know about?
– how are you diff/same?
– in ways that people care about? (will pay for)

26. [ Testing 4 AUX ]

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

28. 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

29. How To Tell if Design/UX is Good?
AUX = F(Customer, Design/UX, Metrics)
• If Users Use Your Product Then It’s GOOD.
– Define Metrics, Measurability for Design / UX
– Focus on Psychology of User
– Relative to Competitive Alternatives (that your customers know about)
– Keep Testing 4 Awesomeness
• RAMP Mktg & $$$ AFTER it’s clear your MVP is:
– Functional = useful for >1 customers
– Awesome (enough, see above)
– Differentiated = better than other stuff availabile

30. [ Metrics 4 ACQ ]

31. Role: Marketing / Sales
Q: What channels? Which users? Why?
A: High Volume (#), Low Cost ($), High Conv (%)
• Design & Test Multiple Marketing Channels + Campaigns
• Seek out channels with positive unit economics, scalability
• 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

32. Distribution Platforms
Customer Reach: 100M-1B+
• Search: Google, Baidu
• Social: Facebook, SnapChat, Twitter, LinkedIn, TenCent/QQ/WeChat
• Mobile: Apple (iOS), Android, Xiaomei
• Media: Video (YouTube, FB), Photos (Instagram, Pinterest), Blogs
• Comm: SMS, IM (WeChat, WhatsApp, FB), Skype, Phone/Voice, etc

33. 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)

34. [ What is WINNING? ]

35. Choose #WINNING Metrics
WIN = F(Customer, Usage, Dist, Revenue)
• after MVP functional use, several options:
– better Usage – Activation & Retention (AUX)
– more Users -- Distribution / Acquisition
– more Money --- Monetization
– more Profit — Margin
• understand ACQ$ vs REV$, optimize 4 short-term
– higher volume usually a priority
– costs may change as volume increases

36. Startup 2.0:
“Lean Investor” Model
Method: Invest in startups using incremental
investment, iterative development. Start with
lots of small experiments, filter out failure, and
expand investment upon success.
• Incubator: $0-100K (“Product Viability”)
• Seed: $100K-$2M (“Expand Distribution”)
• Venture: $1M-$10M (“Maximize Revenue”)

37. Investment #1: Incubate
(“Product”)
• Structure
– 1-3 founders
– $0-$100K investment
– Incubator environment: multiple peers, mentors/advisors
• Build Functional Prototype / “Minimum Viable Product” (MVP):
– Concept->Alpha, ~3-6 months
– Develop Minimal Critical Feature Set => Get to “It Works”
– Instrument Basic Dashboard, Conversion Metrics
– Test Cust. Adoption (10-1000 users) / Cust. Satisfaction (Scale: 1-10)
• Demonstrate Concept, Reduce Product Risk, Test Functional Use
• Develop Metrics & Filter for Follow-on Investment

38. 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

39. Investment #3: Venture
(“Revenue”)
• Structure
– 5-25 person team
– $1M-$10M investment
– VC Investors
• Make Money, Get to Sustainability:
– Beta->Production, 12-18 months
– Customer Sat ≥ 8 => “It Rocks, I’ll Tell My Friends”
– MktgPlan => Predictable Channels / Campaigns + Budget
– Scalability & Infrastructure, Customer Service & Operations
– Connect with Distribution Partners
• Prove/Expand Market, Operationalize Business
• Future Milestones: Profitable/Sustainable, Exit Options

40. Q&A?
» Questions?
» Answers: $1
» Correct Answers: $10
» Stupid Look on my face: FREE!