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Startup Metrics for Pirates
AARRR
AARRR

!!

KAUST
Nov 2013

Dave McClure
@DaveMcClure
http://500.co
http://500hats.com
http://slideshare.net/dmc500hats
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
500 Startups
Global Seed Fund & Startup Accelerator
•

What is 500?
–
–
–
–
–

•

$80M under management
30+ people / 10 investing partners
Locations: SV, NYC, MEX, BRZ, IND, CHN, SE Asia
1000+ Founders / 200+ Mentors
25+ positive exits in ~3 years

500+ Portfolio Co’s / 40+ Countries
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

Wildfire (acq GOOG, $350M)
MakerBot (acq SSYS, $400M)
Viki (acq Rakuten, $200M)
Twilio
SendGrid
Credit Karma
VivaReal
Udemy
Zozi
The RealReal
Virool
Visually
Gengo
PicCollage
9GAG
500 Startups: Global Seed Fund
Over 150+ startups outside US, in 40+ countries
[ This Talk ]
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?
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)
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 (%)
Changes in Tech Startups
•

LESS Capital required to build product, get to market
– Dramatically reduced $$$ on servers, software, bandwidth
– Crowdfunding, KickStarter, Angel List, Funders Club, etc
– Cheap access to online platforms for 100M+ consumers, smallbiz, etc

•

MORE Customers via ONLINE platforms (100M+ users)
–
–
–
–
–
–

•

Search (Google)
Social (Facebook, Twitter)
Mobile (Apple, Android)
Local (Yelp, Groupon, FourSquare)
Media (YouTube, Pinterest, Instagram, Tumblr)
Comm (Email, IM/Chat, Voice, SMS, etc)

LOTS of little bets: Accelerators, Angels, Angel List, Small Exits
– Y Combinator, TechStars, 500 Startups
– Funding + Co-working + Mentoring -> Design, Data, Distribution
– “Fast, Cheap Fail”, network effects, quantitative + iterative investments
Lean Startup:
Simpler, Faster, Cheaper, Smarter
1. Startup Costs = Lower.
2. # Users, Bandwidth = Bigger.
3. Transaction $$$ = Better.
 Building Product => Cheaper, Faster, Better
 Getting Customers => Easier, More Measurable
Iterative Product & Marketing Decisions
based on Measured User Behavior
Industry Changes
•
•
•
•
•
•

Startup Efficiency, Reduced Capital Costs
Growing Market, Growing Platforms
VC Industry Upheavals (2000, 2008)
Super Angel -> Micro VC: Seed Funds (ex: First Round)
Incubators & Accelerators (ex: Y Combinator)
Big VC (ex: A16Z) & Platforms (ex: Angel List)

more info see: http://PreMoney.co
Before & After 2 Dot-Com Crashes
Daft Punk Startup: Simpler, Faster, Cheaper, Smarter
Before 2000
•Sun Servers
•Oracle DB
•Exodus Hosting
•12-24mo dev cycle
•6-18mo sales cycle
•<100M people online
•$1-2M seed round
•$3-5M Series A
•Sand Hill Road crawl
•Big, Fat, Dinosaur Startup

After 2008
•AWS, Google, PayPal, FB, TW
•Cloud + Open Source SW
•Lean Startup / Startup Wknd
•3-90d dev cycle
•SaaS / online sales
•>3B people online
•<$100K incub + <$1M seed
•$1-3M Series A
•Angel List global visibility
•Lean, Little, Cockroach Startup
Series A Crunch: Good or Bad?
Series A rqmts: $1M revenue, 1M active users,
10M downloads, 100% YoY growth
•Lots of Incubation / Seed startups will “fail”
•BUT: Fail Budget = $50-$500K, not $5M+
•Many “failed” startups = ramen-profitable, small acquisition,
or MBA alternative (<$100K)
•Series A/B VCs have lots to choose from
•Overall, founders / market getting smarter
•More focus on customers, problems, revenue
•Many die, some survive (1-5x), a few thrive (20x+).
Silicon Valley 2.0:
Lots of Little Bets
aka “MoneyBall for Startups”

•
•

VC Evolution: Physician, Scale Thyself (Aug 2012)
MoneyBall for Startups, 500 Startups Investment Thesis (Jul 2010)
500 Strategy: “Lots of Little Bets”*
1) Make lots of little
bets pre-traction,
early-stage startups

2) after 6-12 months, identify
top 20% performers and
double-down higher $$$

3) conservative model assumes
-5-10% large exits @20X ($50-100M+)
-10-20% small exits @5X ($5-50M)

15

*See Peter Sims book: “Little Bets”
[The Lean Startup]
[Startup Metrics 4 Pirates]
Just Gimme the GOOD Metrics.
Users, Pages, Clicks, Emails, $$$...?
Q: Which of these is best? How do you know?
• 1,000,000 one-time, unregistered unique visitors
the
good
stuff.

• 500,000 visitors who view 2+ pages / stay 10+ sec
• 200,000 visitors who clicked on a link or button
• 20,000 registered users w/ email address
• 2,000 passionate fans who refer 5+ users / mo.
• 1,000 monthly subscribers @ $5/mo
The Lean Startup
•
•
•
•
•
•

Talk to Customers; Discover Problems
Progress ≠ Features (Less = More)
Fast, Frequent Iteration (+ Feedback Loop)
Measure Conversion; Compare 2+ Options
Focus on Product/Market Fit
Keep it Simple & Actionable
Discover Customers
(Steve Blank, SteveBlank.com)
Iterate.

(Eric Ries, StartupLessonsLearned.com)

IDEAS

LEARN

BUILD

DATA

CODE

MEASURE
AARRR!: Startup Metrics Model
SEM
SEM

Social
Social
Networks
Networks

SEO
SEO

Blogs
Blogs

Apps &&
Apps
Widgets
Widgets

PR
PR

Campaigns,
Campaigns,
Contests
Contests
Affiliates
Affiliates

Email
Email

Domains
Domains

ACQUISITION
ACQUISITION

Biz
Biz
Dev
Dev
Direct,
Direct,
Tel, TV
Tel, TV

Emails & Alerts
Emails & Alerts

Blogs, RSS,
Blogs, RSS,
News Feeds
News Feeds

R

n
ntio
et e
Biz Dev
Biz Dev

$$
$$$
nue $
enue
Reve
Rev

System Events &
System Events &
Time-based Features
Time-based Features

Ads, Lead Gen,
Ads, Lead Gen,
Subscriptions,
Subscriptions,
ECommerce
ECommerce

Website.com
Startup Metrics for Pirates
•
•
•
•
•

Acquisition: users come to site from various channels
Activation: users enjoy 1st visit: "happy” experience
Retention: users come back, visit site multiple times
Referral: users like product enough to refer others
Revenue: users conduct some monetization behavior
AARRR!!
AARRR

(note: If you’re in a hurry, Google
“Startup Metrics” & watch 5m video)
One Step at a Time.
1. Make a Good Product: Activation & Retention
2. Market the Product: Acquisition & Referral
3. Make Money: Revenue & Profitability
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)
[ Constructing MVP ]
Role: Founder / CEO
Q: Which Customers? Problems? Metrics?
A: Focus on Critical Few Actionable Metrics
(
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 $$$
Achieve High Cust Value + Low ACQ$ @ Scale
What is Minimum Viable Product ?
MVP = F(Customer, Problem, Time or $$$)
• Focus on CUSTOMER
– Qualitative Discovery, Quantitative Validation

• Get to know habits, problems, desires (FUN MATTERS)
– what causes pain? what causes pleasure?

• Ship the simplest, fastest solution that solves the problem.
• Define 1-5 TESTABLE Conversion Metrics of Value
–
–
-

Attention/Usage (session time, clicks)
Customer Profle Data (email, connect, profile)
Revenue (direct or indirect)
Retention (visits over time, cohort behavior)
Referral (users evangelize to other users)
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
[ Getting 2 PMF ]
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
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)
[ Testing 4 AUX ]
Discover Meaning
Why Should Users CARE About Your Product?

Kathy Sierra:
“Creating

Passionate
Users”
Discover Meaning
Keywords, Images, Call-to-Action
Top 10 - 100 words
• Your Brand / Products
• Customer Needs / Benefits
• Competitor’s Brand / Products
• Semantic Equivalents
• Misspellings

Call-to-Action
• Words
• Images
• Context
• Button/Link
• Emotion

Relevant images
• People
• Products
• Problems
• Solutions

Result
• Positive?
• Negative?
• Neutral (= Death)
• A/B test & Iterate
How To Tell if Design/UX is Good?
AUX = F(Customer, Design/UX, Metrics)
• If Users Use Your Product Then It’s GOOD.
–
–
–
–

Define Metrics, Measurability for Design / UX
Focus on Psychology of User
Relative to Competitive Alternatives (that your customers know about)
Keep Testing 4 Awesomeness

• RAMP Mktg & $$$ AFTER it’s clear your MVP is:
– Functional = useful for >1 customers
– Differentiated = better than other stuff availabile
– Awesome (see above)
[ Metrics 4 ACQ ]
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
Platforms 2.0
Search, Social, Mobile,
Video, Messaging
Distribution Platforms
Customer Reach: 100M-1B+
•

Search: Google, Baidu, Yahoo/Bing, Yandex

•

Social: Facebook, Twitter, LinkedIn, TenCent/QQ, WeChat

•

Mobile: Apple (iOS), Android

•

Media: Video (YouTube), Photos (Instagram, Pinterest), Blogs

•

Comm: SMS, IM (WeChat, WhatsApp), Skype, Phone/Voice, etc
MAARRRketing Plan
ACQ = F(Customer, Campaign, Vol, Cost, Conv)
Marketing Plan = Target Customer Acquisition Channels
• 3 Important Factors = Volume (#), Cost ($), Conversion (%)
• Measure conversion to target customer actions
• Test audience segments, campaign themes, Call-To-Action (CTAs)
[Gradually] Match Channel Costs => Revenue Potential
• Increase Vol. & Conversion, Decrease Cost, Optimize for Revenue Potential
• Avg Txn Value (ATV), Ann Rev Per User (ARPU), Cust Lifetime Value (CLV)
• Design channels that (eventually) cost <20-50% of target ATV, ARPU, CLV
Consider Costs, Scarce Resource Tradeoffs
• Actual $ expenses
• Marketing time & resources
• Product/Engineering time & resources
• Cashflow timing of expense vs. revenue, profit
[ What is WINNING? ]
Choose #WINNING Metrics
WIN = F(Customer, Usage, Dist, Revenue)
• after MVP functional use, several options:
– better Usage – Activation & Retention (AUX)
– more Users -- Distribution / Acquisition
– more Money --- Monetization

• understand ACQ$ vs REV$, optimize 4 short-term
– higher volume usually a priority
– costs may change as volume increases
[ The Lean Investor ]
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”)
Investment #1: Incubate
• Structure

(“Product”)

– 1-3 founders
– $0-$100K investment
– Incubator environment: multiple peers, mentors/advisors

• Build Functional Prototype / “Minimum Viable Product” (MVP):
–
–
–
–

Concept->Alpha, ~3-6 months
Develop Minimal Critical Feature Set => Get to “It Works”
Instrument Basic Dashboard, Conversion Metrics
Test Cust. Adoption (10-1000 users) / Cust. Satisfaction (Scale: 1-10)

• Demonstrate Concept, Reduce Product Risk, Test Functional Use
• Develop Metrics & Filter for Follow-on Investment
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
Investment #3: Venture
• Structure

(“Revenue”)

– 5-25 person team
– $1M-$10M investment
– VC Investors

• Make Money, Get to Sustainability:
–
–
–
–
–

Beta->Production, 12-18 months
Customer Sat ≥ 8 => “It Rocks, I’ll Tell My Friends”
MktgPlan => Predictable Channels / Campaigns + Budget
Scalability & Infrastructure, Customer Service & Operations
Connect with Distribution Partners

• Prove/Expand Market, Operationalize Business
• Future Milestones: Profitable/Sustainable, Exit Options
Appendix
Links & Resources
Additional References:
• Influence: The Psychology of Persuasion Robert Cialdini (book)
• The Mating Mind Geoffrey Miller (book)
• Putting the Fun in Functional Amy Jo Kim (etech 2006 preso)
• Futuristic Play Andrew Chen (blog)
• Don’t Make Me Think Steve Krug (book)
• Designing for the Social Web Joshua Porter (book, website)
• Startup Lessons Learned Eric Ries (blog)
• Customer Development Methodology Steve Blank (presentation, blog)
• Startup-Marketing.com Sean Ellis (blog)
• Understanding Comics Scott McCloud (book)

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Startup Metrics for Pirates (KAUST, Nov 2013)

  • 1. Startup Metrics for Pirates AARRR AARRR !! KAUST Nov 2013 Dave McClure @DaveMcClure http://500.co http://500hats.com http://slideshare.net/dmc500hats
  • 2. Dave McClure Founding Partner & Troublemaker, 500 Startups 00’s & 10’s: • VC: Founders Fund, Facebook fbFund, 500 Startups • Angel: Mashery, Mint.com, SlideShare, Twilio • Marketing: PayPal, Simply Hired, Mint.com, O’Reilly 80’s & 90’s: • Entrepreneur: Aslan Computing (acq’d by Servinet/Panurgy) • Developer: Windows / SQL DB consultant (Intel, MSFT) • Engineer: Johns Hopkins‘88, BS Eng / Applied Math
  • 3. 500 Startups Global Seed Fund & Startup Accelerator • What is 500? – – – – – • $80M under management 30+ people / 10 investing partners Locations: SV, NYC, MEX, BRZ, IND, CHN, SE Asia 1000+ Founders / 200+ Mentors 25+ positive exits in ~3 years 500+ Portfolio Co’s / 40+ Countries – – – – – – – – – – – – – – – Wildfire (acq GOOG, $350M) MakerBot (acq SSYS, $400M) Viki (acq Rakuten, $200M) Twilio SendGrid Credit Karma VivaReal Udemy Zozi The RealReal Virool Visually Gengo PicCollage 9GAG
  • 4. 500 Startups: Global Seed Fund Over 150+ startups outside US, in 40+ countries
  • 6. Topics • • • • • Basic Concepts of “Startup Metrics 4 Pirates” 3 Steps to AARRR: Product, Market, Revenue Constructing MVP: Just ONE Feature? Design (UX) & Distribution (MKTG) Winning = Market, Revenue, Profit?
  • 7. Key Concepts • • • • • MVP = F(Customer, Problem, Time or $$$) PMF = F(Customer, Solution, Alternatives) AUX = F(Customer, Design/UX, Metrics) ACQ = F(Customer, Campaign, Vol, Cost, Conv) WIN! = F(Customer, Usage, Dist, Revenue)
  • 8. DO Marketing! (It’s Not Evil) • • • • • Marketing is Both Qualitative + Quantitative Qualitative: Create Emotion, Drive Action Quantitative: Measure Results of Action Design (UX) & Distribution (MKTG) Matter Volume (#), Cost ($), Conversion (%)
  • 9. Changes in Tech Startups • LESS Capital required to build product, get to market – Dramatically reduced $$$ on servers, software, bandwidth – Crowdfunding, KickStarter, Angel List, Funders Club, etc – Cheap access to online platforms for 100M+ consumers, smallbiz, etc • MORE Customers via ONLINE platforms (100M+ users) – – – – – – • Search (Google) Social (Facebook, Twitter) Mobile (Apple, Android) Local (Yelp, Groupon, FourSquare) Media (YouTube, Pinterest, Instagram, Tumblr) Comm (Email, IM/Chat, Voice, SMS, etc) LOTS of little bets: Accelerators, Angels, Angel List, Small Exits – Y Combinator, TechStars, 500 Startups – Funding + Co-working + Mentoring -> Design, Data, Distribution – “Fast, Cheap Fail”, network effects, quantitative + iterative investments
  • 10. Lean Startup: Simpler, Faster, Cheaper, Smarter 1. Startup Costs = Lower. 2. # Users, Bandwidth = Bigger. 3. Transaction $$$ = Better.  Building Product => Cheaper, Faster, Better  Getting Customers => Easier, More Measurable Iterative Product & Marketing Decisions based on Measured User Behavior
  • 11. Industry Changes • • • • • • Startup Efficiency, Reduced Capital Costs Growing Market, Growing Platforms VC Industry Upheavals (2000, 2008) Super Angel -> Micro VC: Seed Funds (ex: First Round) Incubators & Accelerators (ex: Y Combinator) Big VC (ex: A16Z) & Platforms (ex: Angel List) more info see: http://PreMoney.co
  • 12. Before & After 2 Dot-Com Crashes Daft Punk Startup: Simpler, Faster, Cheaper, Smarter Before 2000 •Sun Servers •Oracle DB •Exodus Hosting •12-24mo dev cycle •6-18mo sales cycle •<100M people online •$1-2M seed round •$3-5M Series A •Sand Hill Road crawl •Big, Fat, Dinosaur Startup After 2008 •AWS, Google, PayPal, FB, TW •Cloud + Open Source SW •Lean Startup / Startup Wknd •3-90d dev cycle •SaaS / online sales •>3B people online •<$100K incub + <$1M seed •$1-3M Series A •Angel List global visibility •Lean, Little, Cockroach Startup
  • 13. Series A Crunch: Good or Bad? Series A rqmts: $1M revenue, 1M active users, 10M downloads, 100% YoY growth •Lots of Incubation / Seed startups will “fail” •BUT: Fail Budget = $50-$500K, not $5M+ •Many “failed” startups = ramen-profitable, small acquisition, or MBA alternative (<$100K) •Series A/B VCs have lots to choose from •Overall, founders / market getting smarter •More focus on customers, problems, revenue •Many die, some survive (1-5x), a few thrive (20x+).
  • 14. Silicon Valley 2.0: Lots of Little Bets aka “MoneyBall for Startups” • • VC Evolution: Physician, Scale Thyself (Aug 2012) MoneyBall for Startups, 500 Startups Investment Thesis (Jul 2010)
  • 15. 500 Strategy: “Lots of Little Bets”* 1) Make lots of little bets pre-traction, early-stage startups 2) after 6-12 months, identify top 20% performers and double-down higher $$$ 3) conservative model assumes -5-10% large exits @20X ($50-100M+) -10-20% small exits @5X ($5-50M) 15 *See Peter Sims book: “Little Bets”
  • 16. [The Lean Startup] [Startup Metrics 4 Pirates]
  • 17. Just Gimme the GOOD Metrics. Users, Pages, Clicks, Emails, $$$...? Q: Which of these is best? How do you know? • 1,000,000 one-time, unregistered unique visitors the good stuff. • 500,000 visitors who view 2+ pages / stay 10+ sec • 200,000 visitors who clicked on a link or button • 20,000 registered users w/ email address • 2,000 passionate fans who refer 5+ users / mo. • 1,000 monthly subscribers @ $5/mo
  • 18. The Lean Startup • • • • • • Talk to Customers; Discover Problems Progress ≠ Features (Less = More) Fast, Frequent Iteration (+ Feedback Loop) Measure Conversion; Compare 2+ Options Focus on Product/Market Fit Keep it Simple & Actionable
  • 21. AARRR!: Startup Metrics Model SEM SEM Social Social Networks Networks SEO SEO Blogs Blogs Apps && Apps Widgets Widgets PR PR Campaigns, Campaigns, Contests Contests Affiliates Affiliates Email Email Domains Domains ACQUISITION ACQUISITION Biz Biz Dev Dev Direct, Direct, Tel, TV Tel, TV Emails & Alerts Emails & Alerts Blogs, RSS, Blogs, RSS, News Feeds News Feeds R n ntio et e Biz Dev Biz Dev $$ $$$ nue $ enue Reve Rev System Events & System Events & Time-based Features Time-based Features Ads, Lead Gen, Ads, Lead Gen, Subscriptions, Subscriptions, ECommerce ECommerce Website.com
  • 22. Startup Metrics for Pirates • • • • • Acquisition: users come to site from various channels Activation: users enjoy 1st visit: "happy” experience Retention: users come back, visit site multiple times Referral: users like product enough to refer others Revenue: users conduct some monetization behavior AARRR!! AARRR (note: If you’re in a hurry, Google “Startup Metrics” & watch 5m video)
  • 23. One Step at a Time. 1. Make a Good Product: Activation & Retention 2. Market the Product: Acquisition & Referral 3. Make Money: Revenue & Profitability
  • 24. Startup Challenges Startups have problems in 3 key areas: • Management: Set Priorities, Define Key Metrics • Product: Build “Right” Features. Measure, Iterate. • Marketing: Distribution, Distribution, Distribution. (Search, Social, Mobile)
  • 26. Role: Founder / CEO Q: Which Customers? Problems? Metrics? A: Focus on Critical Few Actionable Metrics (
  • 27. Optimize 4 Happiness (both User + Business) • • • • • $$$ Define States of User + Business Value Prioritize (Estimate) Relative Value of Each State Move Users: Lower Value -> Higher Value Optimize for User Happiness + Business $$$ Achieve High Cust Value + Low ACQ$ @ Scale
  • 28. What is Minimum Viable Product ? MVP = F(Customer, Problem, Time or $$$) • Focus on CUSTOMER – Qualitative Discovery, Quantitative Validation • Get to know habits, problems, desires (FUN MATTERS) – what causes pain? what causes pleasure? • Ship the simplest, fastest solution that solves the problem. • Define 1-5 TESTABLE Conversion Metrics of Value – – - Attention/Usage (session time, clicks) Customer Profle Data (email, connect, profile) Revenue (direct or indirect) Retention (visits over time, cohort behavior) Referral (users evangelize to other users)
  • 29. Example Conversion Metrics (note: *not* actuals… your mileage may vary) Stage Conversion Status Conv. % Est. Value (*not* cost) Acquisition Visitors -> Site/Widget/Landing Page (2+ pages, 10+ sec, 1+ clicks = don’t abandon) 60% $.05 Activation “Happy” 1st Visit; Usage/Signup (clicks/time/pages, email/profile reg, feature usage) 15% $.25 Retention Users Come Back; Multiple Visits (1-3x visits/mo; email/feed open rate / CTR) 5% $1 Referral Users Refer Others (cust sat >=8; viral K factor > 1; ) 1% $5 Revenue Users Pay / Generate $$$ (first txn, break-even, target profitability) 2% $50
  • 30. [ Getting 2 PMF ]
  • 31. Role: Product / Eng / Design Q: What Features to Build? Why? When are you “Done”? A: Easy-to-Find, Fun/Useful, Unique Features that Increase Conversion (stop iterating when increase decelerates) • • • Wireframes = Conversion Steps Measure, A/B Test, Iterate FAST (daily/weekly) Optimize for Conversion Improvement – 80% on existing feature optimization – 20% on new feature development
  • 32. What is Product/Market Fit ? PMF = F(Customer, Solution, Alternatives*) • Product / Market Fit occurs when: – Customers like your stuff better than other options – Not static, Not optimal – just Local Max F(customers, solution, time) – make sure you’re moving in optimal direction 2 local max • Q: what competitive solutions are available? – … that your customers know about? – how are you diff/same? – in ways that people care about? (will pay for)
  • 33. [ Testing 4 AUX ]
  • 34. Discover Meaning Why Should Users CARE About Your Product? Kathy Sierra: “Creating Passionate Users”
  • 35. Discover Meaning Keywords, Images, Call-to-Action Top 10 - 100 words • Your Brand / Products • Customer Needs / Benefits • Competitor’s Brand / Products • Semantic Equivalents • Misspellings Call-to-Action • Words • Images • Context • Button/Link • Emotion Relevant images • People • Products • Problems • Solutions Result • Positive? • Negative? • Neutral (= Death) • A/B test & Iterate
  • 36. How To Tell if Design/UX is Good? AUX = F(Customer, Design/UX, Metrics) • If Users Use Your Product Then It’s GOOD. – – – – Define Metrics, Measurability for Design / UX Focus on Psychology of User Relative to Competitive Alternatives (that your customers know about) Keep Testing 4 Awesomeness • RAMP Mktg & $$$ AFTER it’s clear your MVP is: – Functional = useful for >1 customers – Differentiated = better than other stuff availabile – Awesome (see above)
  • 37. [ Metrics 4 ACQ ]
  • 38. Role: Marketing / Sales Q: What channels? Which users? Why? A: High Volume (#), Low Cost ($), High Conv (%) • • • • • Design & Test Multiple Marketing Channels + Campaigns Select & Focus on Best-Performing Channels & Themes Optimize for conversion to target CTAs, not just site/landing page Match/Drive channel cost to/below revenue potential Low-Hanging Fruit: – Blogs – SEO/SEM – Landing Pages – Automated Emails
  • 39. Platforms 2.0 Search, Social, Mobile, Video, Messaging
  • 40. Distribution Platforms Customer Reach: 100M-1B+ • Search: Google, Baidu, Yahoo/Bing, Yandex • Social: Facebook, Twitter, LinkedIn, TenCent/QQ, WeChat • Mobile: Apple (iOS), Android • Media: Video (YouTube), Photos (Instagram, Pinterest), Blogs • Comm: SMS, IM (WeChat, WhatsApp), Skype, Phone/Voice, etc
  • 41. MAARRRketing Plan ACQ = F(Customer, Campaign, Vol, Cost, Conv) Marketing Plan = Target Customer Acquisition Channels • 3 Important Factors = Volume (#), Cost ($), Conversion (%) • Measure conversion to target customer actions • Test audience segments, campaign themes, Call-To-Action (CTAs) [Gradually] Match Channel Costs => Revenue Potential • Increase Vol. & Conversion, Decrease Cost, Optimize for Revenue Potential • Avg Txn Value (ATV), Ann Rev Per User (ARPU), Cust Lifetime Value (CLV) • Design channels that (eventually) cost <20-50% of target ATV, ARPU, CLV Consider Costs, Scarce Resource Tradeoffs • Actual $ expenses • Marketing time & resources • Product/Engineering time & resources • Cashflow timing of expense vs. revenue, profit
  • 42. [ What is WINNING? ]
  • 43. Choose #WINNING Metrics WIN = F(Customer, Usage, Dist, Revenue) • after MVP functional use, several options: – better Usage – Activation & Retention (AUX) – more Users -- Distribution / Acquisition – more Money --- Monetization • understand ACQ$ vs REV$, optimize 4 short-term – higher volume usually a priority – costs may change as volume increases
  • 44. [ The Lean Investor ]
  • 45. Startup 2.0: “Lean Investor” Model Method: Invest in startups using incremental investment, iterative development. Start with lots of small experiments, filter out failure, and expand investment upon success. • Incubator: $0-100K (“Product Viability”) • Seed: $100K-$2M (“Expand Distribution”) • Venture: $1M-$10M (“Maximize Revenue”)
  • 46. Investment #1: Incubate • Structure (“Product”) – 1-3 founders – $0-$100K investment – Incubator environment: multiple peers, mentors/advisors • Build Functional Prototype / “Minimum Viable Product” (MVP): – – – – Concept->Alpha, ~3-6 months Develop Minimal Critical Feature Set => Get to “It Works” Instrument Basic Dashboard, Conversion Metrics Test Cust. Adoption (10-1000 users) / Cust. Satisfaction (Scale: 1-10) • Demonstrate Concept, Reduce Product Risk, Test Functional Use • Develop Metrics & Filter for Follow-on Investment
  • 47. Investment #2: Seed • Structure (“Market”) – 2-5 person team – $100K-$2M investment – Syndicate of Angel Investors / Small VC Funds • Improve Product, Expand Market, Test Revenue: – – – – Alpha->Beta, ~6-12 months Customer Sat ≥ 6 => Get to “Doesn’t Suck” Setup A/B Testing Framework, Optimize Conversion Test Marketing Campaigns, Cust Acqstn Channels • Prove Solution/Benefit, Assess Market Size • Test Channel Cost, Revenue Opportunity • Determine Org Structure, Key Hires
  • 48. Investment #3: Venture • Structure (“Revenue”) – 5-25 person team – $1M-$10M investment – VC Investors • Make Money, Get to Sustainability: – – – – – Beta->Production, 12-18 months Customer Sat ≥ 8 => “It Rocks, I’ll Tell My Friends” MktgPlan => Predictable Channels / Campaigns + Budget Scalability & Infrastructure, Customer Service & Operations Connect with Distribution Partners • Prove/Expand Market, Operationalize Business • Future Milestones: Profitable/Sustainable, Exit Options
  • 50. Links & Resources Additional References: • Influence: The Psychology of Persuasion Robert Cialdini (book) • The Mating Mind Geoffrey Miller (book) • Putting the Fun in Functional Amy Jo Kim (etech 2006 preso) • Futuristic Play Andrew Chen (blog) • Don’t Make Me Think Steve Krug (book) • Designing for the Social Web Joshua Porter (book, website) • Startup Lessons Learned Eric Ries (blog) • Customer Development Methodology Steve Blank (presentation, blog) • Startup-Marketing.com Sean Ellis (blog) • Understanding Comics Scott McCloud (book)

Editor's Notes

  1. I know, too many bullets…