Startup Metrics for Pirates & Luchadores
Startup Metrics for Pirates@DaveMcClure 500 Startups http://500.co http://500hats.com http://slideshare.net/dmc500hatsAARRR!http://500.cohttp://500hats.comhttp://500hats.comhttp://slideshare.net/dmc500hatsDave McClureFounding Partner & Troublemaker, 500 Startups00s & 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? $275M under management 140+ people / 30+ investing partners / 20 Countries 3000+ Founders / 250+ Mentors 1700+ Portfolio Cos / 50+ Countries Twilio (NYSE: TWLO) Credit Karma GrabTaxi Wildfire (acq GOOG, $350M) MakerBot (acq SSYS, $400M) Viki (acq Rakuten, $200M) Simple (acq BBVA, $117M) Ipsy Udemy Intercom The RealReal BarkBox Tradesy TalkDesk500 Startups Global Seed Fund & Startup Accelerator[ This Talk ]Topics Basic Concepts of Startup Metrics 4 Pirates 3 Steps to AARRR: Product, Market, Revenue Constructing MVP: Just ONE Feature? Design (UX) & Distribution (MKTG) Winning = Users, Revenue, Profit?DO Marketing! (Its Not Evil) Marketing is Both Qualitative + Quantitative Qualitative: Create Emotion, Drive Action Quantitative: Measure Results of Action Design (UX) & Distribution (MKTG) Matter Volume (#), Cost ($), Conversion (%)[Startup Metrics 4 Pirates]Just Gimme the GOOD Metrics. Users, Pages, Clicks, Emails, $$$...?Q: Which of these is best? How do you know? 1,000,000 one-time, unregistered unique visitors 500,000 visitors who view 2+ pages / stay 10+ sec 200,000 visitors who clicked on a link or button 20,000 registered users w/ email address 2,000 passionate fans who refer 5+ users / mo. 1,000 monthly subscribers @ $5/mothe good stuff.Lean Startup -> Startup Metrics Talk to Customers; Discover Problems Progress Features (Less = More) Fast, Frequent Iteration (+ Feedback Loop) Focus on Product/Market Fit Measure Conversion (compare 2+ alternatives) Track Metrics that are Simple & ActionableDiscover Customers (Steve Blank, SteveBlank.com)LEARN BUILDMEASUREIDEASCODEDATAIterate.(Eric Ries, TheLeanStartup.com)AARRR!: Startup Metrics ModelWebsite.comRevenue $$$Biz DevAds, Lead Gen, Subscriptions, ECommerceACQUISITIONSEOSEMApps & WidgetsAffiliatesEmailPR Biz DevCampaigns, ContestsDirect, Tel, TVSocial NetworksBlogsDomainsRetentionEmails & AlertsSystem Events & Time-based FeaturesBlogs, RSS, News FeedsStartup 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 behaviorAARRR!(note: If youre in a hurry, Google Startup Metrics & watch 5m video)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?One Step at a Time.1. Make a Good Product: Activation & Retention 2. Market the Product: Acquisition & Referral 3. Make Money: Revenue & ProfitabilityTopics 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?[ Constructing MVP ]What is Minimum Viable Product ?MVP = F(Customer, Problem, Time or $$$) Focus on CUSTOMER Qualitative Discovery, Quantitative Validation Get to know habits, problems, desires (FUN MATTERS) what causes pain? what causes pleasure? Ship the simplest, fastest solution that solves the problem; better or cheaper or faster than the available competition. Define 1-5 TESTABLE Conversion Metrics of Value Attention/Usage (session time, clicks) Customer Profle Data (email, connect, profile) - Revenue (direct or indirect) - Retention (visits over time, cohort behavior) - Referral (users evangelize to other users)Optimize 4 Happiness (both User + Business) Define States of User + Business Value Prioritize (Estimate) Relative Value of Each State Move Users: Lower Value -> Higher Value Optimize for User Happiness + Business $$$ Achieve High Cust Value + Low ACQ$ @ ScaleStartup ChallengesStartups 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)Role: Founder / CEOQ: 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 ImproveExample 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% $.05Activation Happy 1st Visit; Usage/Signup (clicks/time/pages, email/profile reg, feature usage)15% $.25Retention Users Come Back; Multiple Visits (1-3x visits/mo; email/feed open rate / CTR)5% $1Referral Users Refer Others (cust sat >=8; viral K factor > 1; )1% $5Revenue Users Pay / Generate $$$ (first txn, break-even, target profitability)2% $50[ Getting 2 PMF ]Role: Product / Eng / DesignQ: What Features to Build? Why? When are you Done? A: Easy-to-Find, Fun/Useful, Unique Features that Increase Conversion (stop iterating when increase decelerates) Wireframes = Conversion Steps Measure, A/B Test, Iterate FAST (daily/weekly) Optimize for Conversion Improvement 80% on existing feature optimization 20% on new feature developmentWhat is Product/Market Fit ?PMF = F(Customer, Solution, Alternatives*) Product / Market Fit occurs when: Customers like your stuff better than other options Not static, Not optimal just Local Max F(customers, solution, time) make sure youre moving in optimal direction 2 local max Q: what competitive solutions are available? that your customers know about? how are you diff/same? in ways that people care about? (will pay for)Topics Basic Concepts of Startup Metrics 4 Pirates 3 Steps to AARRR: Product, Market, Revenue Constructing MVP: Just ONE Feature? Design (UX) & Distribution (MKTG) Winning = Users, Revenue, Profit?[ Testing 4 AUX ]Discover MeaningWhy Should Users CARE About Your Product?Kathy Sierra: Creating Passionate UsersDiscover MeaningKeywords, Images, Call-to-ActionTop 10 - 100 words Your Brand / Products Customer Needs / Benefits Competitors Brand / Products Semantic Equivalents Misspellings Relevant images People Products Problems SolutionsCall-to-Action Words Images Context Button/Link Emotion Result Positive? Negative? Neutral (= Death) A/B test & IterateHow To Tell if Design/UX is Good?AUX = F(Customer, Design/UX, Metrics) If Users Use Your Product Then Its GOOD. Define Metrics, Measurability for Design / UX Focus on Psychology of User Relative to Competitive Alternatives (that your customers know about) Keep Testing 4 Awesomeness RAMP Mktg & $$$ 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 / SalesQ: What channels? Which users? Why? A: High Volume (#), Low Cost ($), High Conv (%) Design & Test Multiple Marketing Channels + Campaigns Seek out channels with positive unit economics, scalability Select & Focus on Best-Performing Channels & Themes Optimize for conversion to target CTAs, not just site/landing page Match/Drive channel cost to/below revenue potential Low-Hanging Fruit: Blogs SEO/SEM Landing Pages Automated EmailsDistribution PlatformsCustomer Reach: 100M-1B+ Search: Google, Baidu Social: Facebook, SnapChat, Twitter, LinkedIn, TenCent/QQ/WeChat Mobile: Apple (iOS), Android, Xiaomei Media: Video (YouTube, FB), Photos (Instagram, Pinterest), Blogs Comm: SMS, IM (WeChat, WhatsApp, FB), Skype, Phone/Voice, etc MAARRRketing PlanMarketing Plan = Target Customer Acquisition Channels 3 Important Factors = Volume (#), Cost ($), 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 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?[ What is WINNING? ]Choose #WINNING MetricsWIN = 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 increasesStartup 2.0: Lean Investor ModelMethod: 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-$1M (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 InvestmentInvestment #2: Seed(Market) Structure 2-10 person team $100K-$1M 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 HiresInvestment #3: Venture (Revenue) Structure 5-50 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 OptionsEntrepreneurs = Luchadores!Q&A? Questions? Answers: $1 Correct Answers: $10 Stupid Look on my face: FREE!