Think big, build small: How to build your startup to scale
•Download as PPTX, PDF•
0 likes•243 views
How to grow your team intelligently when you have a small startup & how to measure to make sure that you're actually achieving success.
Recommended
Recommended
More Related Content
What's hot
What's hot (10)
Viewers also liked
Viewers also liked (20)
Similar to Think big, build small: How to build your startup to scale
Similar to Think big, build small: How to build your startup to scale (20)
Recently uploaded
Recently uploaded (15)
Think big, build small: How to build your startup to scale
- 1. Think Big, Build Small How to build your startup to scale @TrevorLongino Head of Product, Kontakt.io
- 4. Building Lean Starts With The First Hire
- 8. The Most Expensive Thing You Can Do is Launch Something No One Wants
- 9. The Second Most Expensive Thing You Can Do is Launch Something You Have to Sell
- 11. Something that a business or consumer will always want ● Earn a business more money ● Help a person fulfill a basic need Constant demand, but many competitors Evergreen Something that is in response to a specific need ● Employee retention programs after a reorg ● Clean water in Flint Targeted Something that people don’t care about even if it’s important ● Office safety planning ● Prophylactic tax planning for people Low demand & education needed to establish why the customer should care Irrelevant
- 13. 3 Simple Tests to Guarantee* Your Success
- 14. Facebook Ads Will Tell You Possible Market Demand
- 18. The “First 10” Test
- 19. The Bought Attention Test
- 21. Sample MAU
- 23. Growth Accounting: The Short Version Monthly Active User = MAU This Month = t New = New signups Retained = Still active from last (t) Resurrected = Not active in (t)n but active now
- 24. MAU(t) = New(t) + Retained (t) + Resurrected (t)
- 25. MAU(t)
- 26. MAU(t) = New(t) + Retained (t) + Resurrected (t)
- 27. MAU(t) - MAU(t - 1 month) = new(t) + resurrected(t) - churned(t)
- 28. Quick Ratio = (new + resurrected)/churned
Editor's Notes
- So I’m Trevor, head of product for Kontakt.io. I’ve got 15 years’ experience in digital marketing and I’ve worked to launch a dozen startups, including two here in Poland. I’m here to talk about the virtue of building small to make your big dreams come true. My background is in marketing and I will be talking about a number of tools that can help you learn what you need to know about your product to succeed with it, but I won’t be talking about CPM, PPC, Social retargeting, Mobile display ads, or any of that kind of thing. You’re here because you’ve got a dream. I hope it’s a big dream. It should be a big dream. Launching your own business is a hell of a lot of work, and if you’re doing it for a small dream, you’ll probably run out of steam long before the end of the road. So I’m going to talk about how to test that dream, how to make sure that the market side of it--the product fit, the market demand, and the economics are all working in a manner that means that your business can succeed to make your business achieve your big dreams. Start by building small, but plan for the days when you’re the next Uber or Facebook. So congratulations. You’re all signing up for the most stressful thing you’ll likely ever do. :)
- The dream. When you waka up at 3am in a blind panic because you realized that you’re just a single person who’s built a business that employs people who depend on you to succeed, and whose users depend on you for whatever you provide, it helps to think of the dream. :)
- Every Startup wants to be big, but big dreams require small starts. How can get the most out of your humble beginnings to become a fabled unicorn (or decacorn? Is that even a word?).
- I’ll tell you a secret about building up your team: I know who you should hire first in your company, no matter what it is you do. There’s one simple trick to hire someone who works hard, doesn’t ask for much, never complains, who always do what you tell him or her to do, and who will do more to secure the success of your business than anyone else in the company ever will.
- The Internet--and more precisely--the cloud of SaaS companies like Facebook, Google, and Squarespace or Weebly are your most valuable first hires. They aren’t employees, you may argue, but they *are* the first step to a successful businss launch. If you start by finding people to fill roles before you’ve found out if your business is even a good idea, you’re probably going to fail. I’m not being negative: 50% of companies fail in a year. 90% of companies fail or are bought in 50 years. The odds are against you, but it doesn’t mean dream big. It just means you need to start small so you minimize your risks and maximize your learning.
- Let’s talk Product / Market fit!
- Running a business is hard. If you start off having to roll your business uphill by yourself, think how much harder it will be as you add more employees to the load you’re carrying. As you add more expectations, and harder sales cycles, and more difficult projects than your initial MVP. It’s crushing!
- When I say “sell”, I mean something that people don’t know they want, or that you have to teach them about. There are a million businesses out there that you could launch. Some of them have a clear demand always: businesses always want to earn more money or save on costs. People always want to answer the bottom needs on Maslow’s Hierarchy of Needs, and then once they have leisure they want that answered, too. Some business have a clear demand sometimes: people in Flint Michigan would really like clean water now. A business that’s losing employees is super interested in retention programs, and so on. Some things people need to be educated to want: a person doesn’t have a native desire for prophylactic tax planning, and businesses don’t generally need comprehensive office safety programs. Your business will be much easier to launch if it’s category I or category II than if it’s in category III.
- But how do you know what category your business falls into? You may have an idea that you think is category I because you’re super passionate about prophylactic tax accounting, but most people consider category III? Let me ask how many of you have $1,000 that you could spend on your business right now. Here’s a better question: how many of you have 2 years of your life that you’d like to throw away because no one likes your business idea. You can always earn more money; you can’t ever earn back that time. So if you don’t have $1,000 to spend on your business right now, go earn it. Because you need that money to save you from wasting your life instead. Here’s the big secret to building small while you dream big: launch now. Today. Tomorrow if you must. And launch it *before* you have an actual product. If no one is willing to sign up for a notification about your product or download a “tell me more” whitepaper, how the hell are you going to get them to give you actual money? It’s never going to happen. So how do you launch now without even having a product? Let’s launch a test.
- Note that I’m talking about product rather exclusively here, but that this same methodology is completely true for a new feature that you’re adding to an existing product. These tests take a little time and effort, but they will save you thousands and perhaps tens or hundreds of thousands of dollars in lost time and money.
- Now this bit here’s discussed in more depth by Mason Pelt over at The Starter’s Club. In this talk I’m going to go through a bunch of ideas that I’m attributing to other people because they came up with them and I’m not an asshole, but don’t worry about trying to chase them all down to write a URL that I read to you or anything. The last slide on this deck will have ilnks to all of the resources I’m pulling from. That said, rather than just tell you go look there while I update Twitter with a clever pun or something, let me talk a bit about how this works: Facebook has 3 billion users: that’s roughly half of the people on the planet. If you wanted a place where you could find out about people’s habits and preferences, you’d be hard pressed to find a better central database than this. Maybe Google, but they aren’t sharing. When you create an ad in Facebook, you can target it with extraordinary accuracy. Want to find all people between the ages of 18 - and 45 who are fans of automobiles and science fiction? It’s three clicks away. Want to target people who are part of the Catholic Church who are also fans of sex outside of marriage? Pretty simple.
- Now this bit here’s discussed in more depth by Mason Pelt over at The Starter’s Club. But let me talk a bit about how this works: Facebook has 3 billion users: that’s roughly half of the people on the planet. If you wanted a place where you could find out about people’s habits and preferences, you’d be hard pressed to find a better central database than this. Maybe Google, but they aren’t sharing. When you create an ad in Facebook, you can target it with extraordinary accuracy. Want to find all people between the ages of 18 - and 45 who are fans of automobiles and science fiction? It’s three clicks away. Want to target people who are part of the Catholic Church who are also fans of sex outside of marriage? Pretty simple.
- Just using these tools, you can quickly forecast what kind of demand may exist for the product you envision. If you’re looking to sell something to nerds who love cars, well you have 1.6 million people as your theoretical market--closer to 2 million if you think about the fact that some people don’t use Facebook. If, on the other hand, you were going to bring Grindr for Catholics to market? Probably gonna be a smaller audience, from what I can see. :) Now you can do simple math and see if your business can even succeed: assume that you can acquire 5% of the audience that exists for your product in the first year, and maybe network effects show up and you add an additional 3% of growth annually to your velocity. What price can you charge for your product or service? How much of that user base do you need to sustain a business? What lifetime value do you think you can achieve for each user? If your business doesn’t work out on paper when you evaluate it against possible demand in your markets, there’s approximately 0 chance it will work out in the real world. Notice by the way, we haven’t spend a single dollar yet and you’ve already possibly verified your new business idea or already called it into doubt. Think about your business, the model, and be ready to test this puppy out as soon as you’re sure that you have an idea that works out on paper at least. Now’s the time to put your money where your mouth is. Even if you’re a completely nontechnical founder, you can launch a website in a day, so let’s talk about that.
- You can build a website with a service like SquareSpace, Wix, or Weebly right now and, if you don’t already have something ready, you should. Testing out your idea requires that you have some kind of website, even just a landing page with a signup form and a “coming soon” banner. Here’s what you want to do. Make 3 pages: a homepage which tells people the problem you solve. A product or service page where you talk about what you’ll charge, and a comparison page where you discuss why your solution is the best. Put contact forms on every page (because you don’t have an actual product yet, just an idea that works on paper) and try to get people to sign up for an alert in exchange for something simple: maybe it’s a chance to be in the product beta, maybe it’s a chance to buy the product at a lower price once it launches, or so on. Then--and this is the hard part--you have to go talk to people.
- Seth Godin talks about this, and it’s a brilliant idea for launching a new product or even a new feature for your product. Once you have an explainer page up about your new cool thing, tell 10 people whose opinion you trust about this. Don’t tell them it’s a secret or that they can’t share it. Indeed, the opposite is true: tell them if they like it, feel free to spread the word around. See if they share it. If no one shares your idea, you’ve missed something critical about it. It’s not sticky, or it’s explained poorly, or you didn’t find people who need it or something. Those first 10 will tell you, in their initial resaponse to your product or feature, if it’s going to grow on its own. The end result should be this: you don’t want a your product or feature to be a rock you have to roll uphill; you want it to be something that is rolling downhill and you have to run like hell to keep up with it.
- Here’s where your $1,000 finally comes into play. The clever ones in the audience here will notice that I’m on the fourth of three tests. That’s because this is an extention of the first test, but now we’re playing with money. Build your audiences on Facebook--or use Google AdWords, or LinkedIn, or Twitter; anywhere you can find that’s got a good target for you will do--and then spend your $1,000 on getting people to come to your new site and measure what they do with a tool like Google Analytics. Are they signing up for your contact form? Are they using social sharing to spread the word? Congrats; you’ve discovered product fit. People want your thing, but you don’t yet know if they’re willing to pay the price you need them to in order to survive.
- If your idea works on paper and you’ve gotten past the first ten test, you should be ready to think about how you grow your business. Generally there’s two options: Seed funding Bootstrapping In the case of bootstrapping you’re going to grow at a slower pace but you’ll also be in complete control of your finances. if you get seed funding, you can force growth faster like a greenhouse, but you give away some of your company. Discussing which is right for you is something that’s way outside the scope of this talk and my knowledge. Rather than dive into this, let’s talk about things I do understand: actually growing your business. Most software startups have a two simple measurements for success: Monthly Recurring Revenue and / or Monthly Active Users. Generally, you want to see that chart go up and to the right, like this.
- This is a successful business, right?
- This could be a successful business or it could be a pending disaster! You need to be real about your growth. MAU as presented in the previous slide is a vanity metric--it makes you feel good to see that chart go up and to the right, but there’s no value there. Nothing lies quite as beautifully as statistics, so if there’s one thing I can convince you of when you think about building small so your big dreams live, it’s this: be honest with yourself about your growth and know what to measure. I’m not going to tell you that Facebook Ads do X or Twitter Cards do Y; every business will find a different set of tools which succeed for them. What I will tell you is how to build a tool that lets you see if you’re building something sustainable while it’s still small instead of discovering problems after you’ve sunk more money and time into a project.
- Now before I go further with this, you should know that I can’t take any credit for the genius maths I’m about to show you. Social Capital developed this formula and it’s better than the one I used to use, so give ‘em all due credit.
- So with that formula in mind, let’s think about what we can extract that’s useful to know from this. MAU(t) = New(t) + Retained (t) + Resurrected (t) This is saying: for active users at a given time, they are composed of new users + any users retained from the month before + any users who were lost at some point in the past but who have been “resurrected” (that is, re-engaged) since then. Pretty simple, right? But already your chart is different and more informative.
- This is a successful business, right?
- So with that formula in mind, let’s think about what we can extract that’s useful to know from this. MAU(t) = New(t) + Retained (t) + Resurrected (t) This is saying: for active users at a given time, they are composed of new users + any users retained from the month before + any users who were lost at some point in the past but who have been “resurrected” (that is, re-engaged) since then. Pretty simple, right? But already your chart is different and more informative. New user growth is already not as fast as it may look in the previous chart. Retention rate doesn’t seem great here, and resurrection is quite low as well. Let’s get a little better look at the churn.
- MAU(t) - MAU(t - 1 month) = new(t) + resurrected(t) - churned(t) This is now saying: MAU growth receives positive contributions from new and resurrected users and receives a negative contribution from losing users to churn. What’s that look like? There’s two last useful things to know here: what is the retention rate, and what is the Quick Ratio. You can see here on the chart that retention rate of this app is not great. To clarify, it’s only 42% month to month; the first thing to solve would be why people don’t use the app for longer. But the other key fact I mentioned is the Quick Ratio. What’s that? It’s the measurement of how hard it is to add and keep new users
- Quick Ratio = (new + resurrected)/churned Sadly, Google Sheets won’t draw the chart I want to draw, so let me import this from Excel instead. The quick ratio here is fluctuating between 1 and 1.5; this means that for every 3 customers that this app gains, they lose 2 or 3 users. That’s hard as hell to grow with. Let’s show some other examples, these from Mamood Hamin from the Social+Capital Partnership.
- Which do you think look like better product launches or company launches? Which companies have problems that need addressing more urgently? When you’re building your company, think about growth accounting instead of just MAU or MRR vanity metrics. Note that you can apply very similar thinking to actual capital income instead of just users.
- So why am I telling you all of these numbers about growth accounting and how to factor your company’s growth as part of building small? Because the key to building at all is a good foundation, knowing where you’re starting from. This was a quick survey of “Introduction to Building”. Growing, after you have a theory, you find there may be demand for it, you fit your product to the market, and you know where you’re gaining and where you’re losing users-- whew, that’s a bunch of steps --once you’ve done all of that, you need to see what requires fixing. Because there’s always something that needs fixing. Here are the key problems that you need to address for whatever your business may be. Network effects Maximize LTV Give users a reason to engage & stick Figure out how to get more users Let’s think about the ladder to success that we’ve talked about here. Well, it’s not a complete ladder. It doesn’t get you the whole way. It just helps you reach a little higher. It’s our stepladder of success.
- The stepladder to success: First worry about cash flow (MRR or burn rate) Second, worry about customer LTV Third, worry about MAU & Retention Fourth, worry about growth Fifth, worry about long term funding
- And here’s the thing; when I’m talking about building small, I mean it. The idea that you have? You can take all of the above steps that I’m talking about here and launch it in a month. Check and see if your business idea holds water before you go any further.
- Here’s my use case example from Kontakt.io. This is something we launched in two months (hardware takes time to put together). Market demand this is targeted; if you need a beacon, and you don’t want to worry about batteries, you get a USB beacon. We checked demand through Twitter search and Google Ads, because we have some money to play with and Facebook isn’t the 100% best bet for B2B targeting Launch before you’re ready We built a website in a day using Unbounce because that’s the tool that we already had The First 10 We started shopping it around to 15 top clients Bought Attention Retargeting ads and ads targeted to people who follow other beacon companies on social media brought us a few dozen signups for $1k USD So we knew we have Product Fit; people want this, but we don’t know if they want it at the price we sell it at. MRR By the time we had production for the “beta” product under weigh, we’d already received inquiries for more than 20,000 units We launched this a week ago, so I don’t have actual MRR numbers, but we’ve added more than 40k more orders worth of pipeline (noting that pipeline doesn’t equal actual sales) in that week. Product Fit occurs if we sell enough units in 90 days to add this to our general production run. What we didn’t do that we normally would in a product launch: No casing! No packaging; we ship these in bubble wrap envelopes Not in the store; demand is generated solely on word of mouth and sales inbound calls Small production run
- So here’s the wrap up, then. If you build small, and think lean, you can learn much more from your business than you can if you risk it on assumptions that feel right in your gut. If your business has anything like a positive cash flow, the #1 reason you will kill it is with costs. Growing too fast is toxic, which is why you should build small. If your dream is as big as the Caribbean sky, start with the simple steps and bulid up from there.