Startup Metrics for Pirates (FounderX, May 2016)

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  • Startup Metrics for Pirates

    @DaveMcClure 500 Startups http://500.co

    http://500hats.com http://slideshare.net/dmc500hats

    AARRR!

    http://500.cohttp://500hats.comhttp://500hats.comhttp://slideshare.net/dmc500hats

  • Dave McClureFounding Partner & Troublemaker, 500 Startups

    00s & 10s: VC: Founders Fund, Facebook fbFund, 500 Startups Angel: Mashery, Mint.com, SlideShare, Twilio Marketing: PayPal, Simply Hired, Mint.com, OReilly

    80s & 90s: Entrepreneur: Aslan Computing (acqd by Servinet/Panurgy) Developer: Windows / SQL DB consultant (Intel, MSFT) Engineer: Johns Hopkins88, BS Eng / Applied Math

  • What is 500? $250M under management 120+ people / 30+ investing partners / 20 Countries 3000+ Founders / 250+ Mentors

    1500+ Portfolio Cos / 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

  • [ 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 = Users, Revenue, Profit?

  • 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

  • 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

  • DO Marketing! (Its 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 (%)

  • [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 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.

  • 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

  • Discover Customers (Steve Blank, SteveBlank.com)

  • LEARN BUILD

    MEASURE

    IDEAS

    CODEDATA

    Iterate.(Eric Ries, TheLeanStartup.com)

  • AARRR!: Startup Metrics Model

    Website.comRevenu

    e $$$

    Biz DevAds, Lead Gen, Subscriptions, ECommerce

    ACQ

    UIS

    ITIO

    N

    SEOSEM

    Apps & Widgets

    Affiliates

    Email

    PR Biz DevCampaigns,

    Contests

    Direct, Tel, TV

    Social Networks

    Blogs

    Domains

    Retention

    Emails & Alerts

    System Events & Time-based Features

    Blogs, RSS, News Feeds

  • 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 youre 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

    (if you dont use the metric to make a decision, its not actionable)

    Hypothesize Customer Lifecycle Target ~3-5 Conversion Events Test, Measure, Iterate to Improve

  • 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; 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)

  • 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 = dont 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 / 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

  • 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 youre 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 MeaningWhy Should Users CARE About Your Product?

    Kathy Sierra: Creating Passionate Users

  • Discover MeaningKeywords, Images, Call-to-Action

    Top 10 - 100 words Your Brand / Products Customer Needs / Benefits Competitors 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

  • How To Tell if Design/UX is Good?

    AUX = F(Customer, Design/UX, Metrics)

    If Users Use Your Product Then Its 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 its clear your MVP is: Functional = useful for >1 customers Awesome (enough, see above) Differentiated = better than other stuff availabile

  • [ 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 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

  • Distribution PlatformsCustomer 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

  • 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

  • [ 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 more Profit Margin

    understand ACQ$ vs REV$, optimize 4 short-term higher volume usually a priority costs may change as volume increases

  • 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 (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

  • 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 Doesnt 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 (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, Ill 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

  • Q&A?

    Questions?

    Answers: $1 Correct Answers: $10 Stupid Look on my face: FREE!