Slides from New Media Manitoba Lean Analytics workshop, June 2015

Lean Analytics

New Media Manitoba June, 2015

@acroll

I can’t tell you how to succeed(If I could, I’d be starting your company instead of standing here.)

I can tell you how to avoid failure(At least, some forms of it.)

Percent of businesses that fail

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

71%69%66%63%60%55%50%44%36%25%

http://www.statisticbrain.com/startup-failure-by-industry/


Still operating after 4 yearsFinance Insurance and Real Estate

Education and HealthAgriculture

ServicesWholesale

MiningManufacturing

ConstructionRetail

Transportation Communication and UtilitiesInformation 37%

45%

47%

47%

49%

51%

54%

55%

56%

56%

58%



Why firms die


Neglect,fraud,

disaster1%

Lack of industryexperience

13%Lack of managerialexperience

34%

Incompetence52%

Emotional Pricing Living too high for the business Nonpayment of taxes No knowledge of pricing Lack of planning No knowledge of financing No experience in record-keeping

Poor credit granting practices

Expansion too rapid Inadequate borrowing

practices

Carry inadequate inventory No knowledge of suppliers Wasted advertising budget


Part one:Introduction to Lean Analytics

Don’t sell what you can make. Make what you can sell.

Kevin Costner is a lousy entrepreneur.

The core of Lean is iteration.

Waterfall approachYou know the problem and the solution.

Known set of requirements

Known ways to satisfy them

Spec Build Test Launch

Agile methodologies

Know the problem, find the solution

Known set of requirements

Unclear how to satisfy them

Build Test LaunchViable?Problemstatement

Adjust

Sprints

Unknown set of requirements

Lean approach

First, know that you don’t know.

Possible problem space

Product/market

hypothesisTrial startup

Product/market

hypothesisTrial startup

Product/market hypothesis

Trial startup

Product/market hypothesis

Trial startup

You are herePIV

OT

Unfortunately, we’re all liars.

Everyone’s idea is the best right?

People love this part!

(but that’s not always a good thing)

This is where things fall apart.

No data, no learning.

Most startups don’t know what they’ll be when they grow up.

Hotmailwas a database company

Flickrwas going to be an MMO

Twitter was a podcasting company

Autodesk made desktop automation

Paypalfirst built for Palmpilots

Freshbookswas invoicing for a web design firm

Wikipedia was to be written by experts only

Mitelwas a lawnmower company

Gottfried von Leibniz was a geek just like you.

First calculator(stepped reckoner)

One of the first to recognize the importance of

binary.

“I thought again about my early plan

of a new language or writing-system of

reason, which could serve as a

communication tool for all different

nations..”

The best of all possible worlds is the one in which the fewest

starting conditions produce the greatest variety of outcomes.

Analytics can help.

Analytics is the measurement of movement towards your business

goals.

In a startup, the purpose of analytics is to iterate to product/market fit

before the money runs out.

Why now?

First: High rate of change of digital technologies & channels.

Arbitron and radio data

Times a song in “heavy rotation” is played daily

0

15

30

2007 2012

266

Some fundamentals.

Analytics, performance, aggregation, and the right metrics

We’re bad at data.

I have two kids. At least one of them is a girl.

What are the chances the other is a boy?

BB BG

GB GG

2 of 3 (66%) are boys.

GB GG BG

Fundamental:What makes a good metric?

A good metric is:

Understandable

If you’re busy explaining the data, you won’t be busy acting on it.

Comparative

Comparison is context.

A ratio or rate

The only way to measure change and roll up the tension between two metrics (MPH)

Behaviorchanging

What will you do differently based on the results you collect?

The simplest rule

badmetric.

If a metric won’t change how you behave, it’s a

h"p://www.flickr.com/photos/circasassy/7858155676/

http://www.flickr.com/photos/circasassy/7858155676/

Metrics help you know yourself.

Acquisition

Hybrid

Loyalty

70%of retailers

20%of retailers

10%of retailers

You are just like

Customers that buy >1x in 90d

Once

2-2.5per year

>2.5per year

Your customers will buy from you

Then you are in this mode

1-15%

15-30%

>30%

Low acquisition cost, high checkout

Increasing return rates, market share

Loyalty, selection, inventory size

Focus on

(Thanks to Kevin Hillstrom for this.)

Qualitative

Unstructured, anecdotal, revealing, hard to aggregate, often too positive & reassuring.

Warm and fuzzy.

Quantitative

Numbers and stats. Hard facts, less insight, easier to analyze; often sour and disappointing.

Cold and hard.

Exploratory

Speculative. Tries to find unexpected or interesting insights. Source of unfair advantages.

Cool.

Reporting

Predictable. Keeps you abreast of the normal, day-to-day operations. Can be managed by exception.

Necessary.

Rumsfeld on Analytics

(Or rather, Avinash Kaushik channeling Rumsfeld)

Things we

know

don’tknow

we know Are facts which may be wrong and should be checked against data.

we don’tknow

Are questions we can answer by reporting, which we should baseline & automate.

we knowAre intuition which we should quantify and teach to improve effectiveness, efficiency.

we don’tknow

Are exploration which is where unfair advantage and interesting epiphanies live.

MayAprMarFeb

Slicing and dicing data

Jan

0

5,000

Activ

e use

rs

Cohort: Comparison of similar groups along a timeline. (this is the April cohort)

A/B test: Changing one thing (i.e. color) and measuring the result (i.e. revenue.)

Multivariateanalysis Changing several things at once to see which correlates with a result.

☀☁☀☁

Segment: Cross-sectional

comparison of all people divided by

some attribute (age, gender, etc.)

☀

☁

Which of these two companies is doing better?

January February March April May

Rev/customer $5.00 $4.50 $4.33 $4.25 $4.50Is this company growing or stagnating?

Cohort 1 2 3 4 5

January $5 $3 $2 $1 $0.5

February $6 $4 $2 $1

March $7 $6 $5

April $8 $7

May $9

How about this one?

Cohort 1 2 3 4 5

January $5 $3 $2 $1 $0.5

February $6 $4 $2 $1

March $7 $6 $5

April $8 $7

May $9

Averages $7 $5 $3 $1 $0.5

Look at the same data in cohorts

Lagging

Historical. Shows you how you’re doing; reports the news. Example: sales.

Explaining the past.

Leading

Forward-looking. Number today that predicts tomorrow; reports the news. Example: pipeline.

Predicting the future.

Fundamental:Correlation

1

10

100

1000

10000

Ice cream consumption DrowningsJan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec

Correlated

Two variables that are related (but may be dependent on something else.)

Ice cream & drowning.

Causal

An independent variable that directly impacts a dependent one.

Summertime & drowning.

A leading, causal metric is a superpower.

h"p://www.flickr.com/photos/bloke_with_camera/401812833/sizes/o/in/photostream/

http://www.flickr.com/photos/bloke_with_camera/401812833/sizes/o/in/photostream/

Is social action a leading indicator of donation?

http

://bl

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/nine

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-soc

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-are

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http://blog.justgiving.com/nine-reasons-why-social-and-mobile-are-the-future-of-fundraising/

Is mobile use?ht

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blog

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s-w

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-and

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/

http://blog.justgiving.com/nine-reasons-why-social-and-mobile-are-the-future-of-fundraising/

Soundcloud

Cory Levinson, Soundcloud

A Facebook user reaching 7 friends within 10 days of signing up (Chamath Palihapitiya)

If someone comes back to Zynga a day after signing up for a game, they’ll probably become an engaged, paying user (Nabeel Hyatt)

A Dropbox user who puts at least one file in one folder on one device (ChenLi Wang)

Twitter user following a certain number of people, and a certain percentage of those people following the user back (Josh Elman)

A LinkedIn user getting to X connections in Y days (Elliot Schmukler)

Some examples

(From the 2012 Growth Hacking conference. http://growthhackersconference.com/)

http://growthhackersconference.com/

AirBnB and Craigslist

http://www.flickr.com/photos/bootbearwdc/1243690099/

Think subversively.


Why is Nigerian spam so badly written?

Aunshul Rege of Rutgers University, USA in 2009

Experienced scammers expect a “strike rate” of 1 or 2 replies per 1,000 messages emailed; they expect to land 2 or 3 “Mugu” (fools) each week. One scammer boasted “When you get a reply it’s 70% sure you’ll get the money” “By sending an email that repels all but the most gullible,” says [Microsoft Researcher Corman] Herley, “the scammer gets the most promising marks to self-select, and tilts the true to false positive ratio in his favor.”

1000 emails

1-2 responses

1 fool and their money, parted.

Bad language (0.1% conversion)

Gullible (70% conversion)

1000 emails

100 responses

1 fool and their money, parted.

Good language (10% conversion)

Not-gullible (.07% conversion)

This would be horribly inefficient since

humans are involved.

Turns out the word “Nigeria” is the best way to identify promising prospects.

Nigerian spammers really understand their target market.

They see past vanity metrics.

Fundamental:

KISS

“It can scarcely be denied that the supreme goal of all theory is

to make the irreducible basic elements as simple and as few as possible without

having to surrender the adequate representation of a single datum of

experience.”

http://media.photobucket.com/image/einstein/derekabril/einstein_010.png

http://media.photobucket.com/image/einstein/derekabril/einstein_010.png

“As simple as possible,but no simpler.”

*(FYI, this is irony.)

The Lean Analytics framework.

Eric’s three engines of growth

Virality

Make people invite friends.

How many they tell, how fast they

tell them.

Price

Spend money to get customers.

Customers are worth more than

they cost.

Stickiness

Keep people coming back.

Approach

Get customers faster than you

lose them.

Math that matters

Dave’s Pirate MetricsAARRR

AcquisitionHow do your users become aware of you?

SEO, SEM, widgets, email, PR, campaigns, blogs ...

ActivationDo drive-by visitors subscribe, use, etc?

Features, design, tone, compensation, affirmation ...

RetentionDoes a one-time user become engaged?

Notifications, alerts, reminders, emails, updates...

RevenueDo you make money from user activity?

Transactions, clicks, subscriptions, DLC, analytics...

ReferralDo users promote your product?

Email, widgets, campaigns, likes, RTs, affiliates...

Stage

EMPATHY I’ve found a real, poorly-met need that a reachable market faces.

STICKINESS I’ve figured out how to solve the problem in a way they will keep using and pay for.

VIRALITY I’ve found ways to get them to tell their friends, either intrinsically or through incentives.

REVENUE The users and features fuel growth organically and artificially.

SCALE I’ve found a sustainable, scalable business with the right margins in a healthy ecosystem.

GateTh

e fiv

e st

ages

Do you have a business model?

http://ww

w.flickr.com/photos/tinfoilraccoon/197640807/

A lemonade stand’s business model is simple. Yours should be too.

http://www.flickr.com/photos/tinfoilraccoon/197640807/

A hobby.Photo by Rakka on Flickr. https://w

ww

.flickr.com/photos/rakka/6889638004

Market Sizing

Top-down and bottoms-up

Top-downStart with the whole planet, then narrow it down.

Population of Canada

Percent mobile phones by country

IOS penetration

Put this all togetherMetric/Assumption Value

Population of Canada 34.88M

Mobile phone percentage 80%

Mobile phones in Canada 27,904M

IOS percentage 15.5%

IOS phones in Canada 4.32M

IOS devices per account 3.1*

IOS accounts we can sell to in Canada (this is our Total Addressable Market) 1.39M

* I made this up. Don’t believe everything you read.

How much is the TAM worth?Metric/Assumption Value

TAM 1.39M

Percent we will claim 5%

Number of users 69,500

User lifetime 40 months

Revenue per month $5 per month

CLV $200

Expected total revenues $13.9M

* I made this up. Don’t believe everything you read.

Bottoms-upStart with one buyer, then add it up

Bottoms-upMetric/Assumption Value

Impressions (acquisition) 9,266,667Percent that install 10%Installs (activation) 926,667

Percent still using after 30 days 25%Become regular users (retention) 231,667

Percent that buy 30%Buy premium version (revenue) 69,500Percent that churn each month 2.5%

Customer lifespan 40Revenue per month 5

Customer lifetime value 200TAM value $13,900,000

Reality check

Bottoms-up (TAM) Value

Impressions (acquisition) 9.3 M impressions

Top-down (TAM) Value

IOS accounts we can sell to in Canada (this is our Total Addressable Market) 1.39 M users in Canada

You Shall Not Pass.

Six business model archetypes.

E-commerce SaaS MediaMobileapp

User-gencontent

2-sidedmarket

The business you’re in

Can you move enough customers through this cycle to make more money than you spend?

Make them refer others

Retain them

Get revenue from them

Acquire customers

Activate them

http://www.slideshare.net/dmc500hats/startup-metrics-for-pirates-long-version

http://www.slideshare.net/dmc500hats/startup-metrics-for-pirates-long-version

(Which means eye charts like these.)

Customer Acquisition Cost

paid direct search wom inherent virality

VISITOR

Freemium/trial offer

Enrollment

User

Disengaged User

Cancel

Freemium churn

Engaged User

Free user disengagement

Reactivate

Cancel

Trial abandonment rate

Invite Others

Paying Customer

Reactivationrate

Paid conversion

FORMER USERS

User Lifetime Value

Reactivate

FORMER CUSTOMERS

Customer Lifetime Value

Viral coefficientViral rate

Resolution

Support data

Account Cancelled Billing Info Exp.

Paid Churn Rate

Tiering

Capacity Limit

Upselling rate Upselling

Disengaged DissatisfiedTrial Over

Model + Stage = One Metric That Matters.

One Metric That Matters.

The business you’re in

E-Com SaaS Mobile 2-Sided Media UCG

Empathy

Stickiness

Virality

Revenue

ScaleThe

stag

e yo

u’re

at

Really? Just one?

Yes, one.

In a startup, focus is hard to achieve.

Having only one metric addresses this problem.

www.theeastsiderla.com

http://www.theeastsiderla.com/2011/02/silver-lake-sidewalk-pile-up/

Moz cuts down on metricsSaaS-based SEO toolkit in the scale stage. Focused on net adds.

Was a marketing campaign successful? Were customer complaints lowered? Was a product upgrade valuable?

Net adds up:

Can we acquire more valuable customers? What product features can increase engagement? Can we improve customer support?

Net adds flat:

Are the new customers not the right segment? Did a marketing campaign fail? Did a product upgrade fail somehow? Is customer support falling apart?

Net adds down:

Metrics are like squeeze toys.

http://www.flickr.com/photos/connortarter/4791605202/

http://www.flickr.com/photos/connortarter/4791605202/

Empathy

Stickiness

Virality

Revenue

Scale

E-commerce SaaS MediaMobile

appUser-gencontent

2-sidedmarket

Interviews; qualitative results; quantitative scoring; surveys

Loyalty, conversion

CAC, shares, reactivation

Transaction, CLV

Affiliates, white-label

Engagement, churn

Inherent virality, CAC

Upselling, CAC, CLV

API, magic #, mktplace

Content, spam

Invites, sharing

Ads, donations

Analytics, user data

Inventory, listings

SEM, sharing

Transactions, commission

Other verticals

(Money from transactions)

Downloads, churn, virality

WoM, app ratings, CAC

CLV, ARPDAU

Spinoffs, publishers

(Money from active users)

Traffic, visits, returns

Content virality, SEM

CPE, affiliate %, eyeballs

Syndication, licenses

(Money from ad clicks)

Better: bit.ly/BigLeanTable

Drawing some lines in the sand.

A company loses a quarter of its customers every year.

Is this good or bad?

Not knowing what normal is makes you do stupid things.

Baseline: 5-7% growth a week

“A good growth rate during YC is 5-7% a week,” he says. “If you can hit 10% a week you're doing exceptionally well. If you can only manage 1%, it's a sign you haven't yet figured out what you're doing.” At revenue stage, measure growth in revenue. Before that, measure growth in active users.

Paul Graham, Y Combinator

• Are there enough people who really care enough to sustain a 5% growth rate?

• Don’t strive for a 5% growth at the expense of really understanding your customers and building a meaningful solution

• Once you’re a pre-revenue startup at or near product/market fit, you should have 5% growth of active users each week

• Once you’re generating revenues, they should grow at 5% a week

It’s oxygenYou need customers to keep learning It’s a substitute for solvency

Photo by Paul Miller on Flickr. https://w

ww

.flickr.com/photos/94674772@

N03/8788576498

Baseline: 10% visitor engagement/day

Fred Wilson’s social ratios

30% of users/month use web or mobile app

10% of users/day use web or mobile app

1% of users/day use it concurrently

Baseline: 2-5% monthly churn• The best SaaS get 1.5% - 3% a month. They have multiple Ph.D’s

on the job.• Get below a 5% monthly churn rate before you know you’ve got a

business that’s ready to grow (Mark MacLeod) and around 2% before you really step on the gas (David Skok)

• Last-ditch appeals and reactivation can have a big impact. Facebook’s “don’t leave” reduces attrition by 7%.

Baseline: Calculating customer lifetime

25%monthly churn

100/25=4The average

customer lasts 4 months

5%monthly churn

100/5=20The average


2%monthly churn

100/2=50The average


Baseline: CAC under 1/3 of CLV• CLV is wrong. CAC Is probably wrong, too.• Time kills all plans: It’ll take a long time to find

out whether your churn and revenue projections are right

• Cashflow: You’re basically “loaning” the customer money between acquisition and CLV.

• It keeps you honest: Limiting yourself to a CAC of only a third of your CLV will forces you to verify costs sooner.

Lifetime of 20 mo.$30/mo. per

customer$600 CLV

$200 CACNow segment those users!

1/3 spend

Who is worth more?

Today

A Lifetime:$200

Roberto Medri, Etsy

B Lifetime:$200

Visits

The Lean Analytics cycle

Draw a new linePivot orgive up

Try again

Success!

Did we move the needle?

Measure the results

Make changes in production

Design a test

Hypothesis

With data:find a

commonality

Without data: make a good

guess

Find a potential improvement

Draw a linePick a KPI

The minimum needed to test the core idea

Survey owner adds recipient to groupSurvey owner asks question

Recipient reads survey questionRecipient responds to questionRecipient sees survey results

(Later, if needed…)Recipient visits site; no password!Recipient does password recovery

One-time link sent to emailRecipient creates password

Recipient can edit profile, etc.

Survey owner adds recipient to group

Survey owner asks question

Recipient gets invite

Recipient reads survey question

Recipient responds to question

Recipient installs mobile app

Recipient creates account, profile

Recipient sees survey results

Recipient can edit profile, etc.

10-2

5% R

ESPO

NSE R

ATE

70-9

0% R

ESPO

NSE R

ATE

Do AirBnB hosts get more business if their property is professionally photographed?

Gut instinct (hypothesis)Professional photography helps AirBnB’s business

Candidate solution (MVP)20 field photographers posing as employees

Measure the resultsCompare photographed listings to a control group

Make a decision Launch photography as a new feature for all hosts

5,000 shoots per month by February 2012

Hang on a second.

Gut instinct (hypothesis)Professional photography helps AirBnB’s business

SRSLY?


Try again

Success!


Measure the results


Design a test

Hypothesis

With data:find a

commonality

Without data: make a good

guess

Find a potential improvement

Draw a linePick a KPI

“Gee, those houses that do well look really

nice.”

Maybe it’s the camera.

“Computer: What do all the

highly rented houses have in

common?”

Camera model.

With data:find a commonality

Without data: make a good guess

Circle of Moms: Not enough engagement• Too few people were

actually using the product

• Less than 20% of any circles had any activity after their initial creation

• A few million monthly uniques from 10M registered users, but no sustained traction

• They found moms were far more engaged • Their messages to one another were on average 50% longer • They were 115% more likely to attach a picture to a post they wrote • They were 110% more likely to engage in a threaded (i.e. deep)

conversation • Circle owners’ friends were 50% more likely to engage with the circle • They were 75% more likely to click on Facebook notifications • They were 180% more likely to click on Facebook news feed items • They were 60% more likely to accept invitations to the app

• Pivoted to the new market, including a name change • By late 2009, 4.5M users and strong engagement • Sold to Sugar, inc. in early 2012

Landing page design A/B testing

Cohort analysis General analytics

URL shortening

Funnel analytics

Influencer Marketing

Publisher analytics

SaaS analytics

Gaming analytics

User interaction Customer satisfaction KPI dashboardsUser segmentation

User analytics Spying on users

Part two:Why big companies

need to change

(http://csinvesting.org/2012/01/06/fortune-500-extinction/)

F500 Life Expectancy

Growth by entering a new business 95

% failCorporate

Strategy Board

99% failClay

Christensen

75 years

15 years

1950 2010...

mikemace.com

The slow death of a market leader.

Revenue over timeThis is what most managers track. Note that sales keep rising (making you feel safe) until you run off the edge of the cliff.

“Let’s cut prices to accelerate our growth.”

“Time to enter the mainstream. Cut prices.”

“We may miss the quarter. Let’s do a price promotion.”

“That wasn’t supposed to happen. We’ll have to lay some people off.

Gross margin percentDeclining profit per unit (gross margin) is actually your best signal of trouble.

The adoption curve Here’s where you actually are, but you don’t know it because you can’t draw the curve until after the market saturates.

Early adopters

Late adopters

In other words, if your job is change you have your work cut out for you.

Lesson one: Companies die because they fail to

move to new business models.

Clay Christensen, The Innovator’s Dilemma

Cost

per

MB

$1000

$100

$10

$1

Time

14”

Mainfra

me

8”

Minicom

puter

5.25”

Deskto

p

3.5”

Noteboo

k

Technologies outstrip what the market needs, driven by feedback from the “best” current customer.


$1000

$100

$10

$1

Time

8” 5.25”

High end

customerLow end

customer

The new market has different criteria for success, which are uninteresting to incumbents.


$1000

$100

$10

$1

Time

Storagecapacity

Portability

Sometimes this has unintended consequences


$1000

$100

$10

$1

Time

Smaller disc size means less vibration impact, leading to greater density, increasing storage capacity

Why now?

First: High rate of change of digital technologies & channels.

Arbitron and radio data

Times a song in “heavy rotation” is played daily

2007 2012

266

This alone explains the collapse of modern print media.

Circulation, annually Clicks, instantaneously

Letters to the editor, weekly Hashtags, always

Why now?

Second: It’s no longer about whether you can build it—it’s about whether

anyone will care.

The Attention Economy“What information consumes is rather obvious: it consumes the attention of its recipients.

Hence a wealth of information creates a poverty of attention, and a need to allocate that attention efficiently among the overabundance of information sources that might consume it.”

(Computers, Communications and the Public Interest, pages 40-41, Martin Greenberger, ed., The Johns Hopkins Press, 1971.)Herbert Simon

Lit motors tests the risky part

Lesson two: The difference between a rogue agent and a special operative is permission.

If big firms can’t innovate, it’s this guy’s fault.

Technology has radically changed the incremental cost of businesses.

http://www.flickr.com/photos/ebolasmallpox/3733059220/

Software is eating the world.

http://www.flickr.com/photos/ebolasmallpox/3733059220/

An economic order quantity of one.

Crafted Mass-produced Automated Digital

Quantity Few Many Some One

Cost High Low Medium Free

Lead time Small Large Medium None

Self-service Medium None Some Lots

Customization High None Some Lots

• Cloud computing • Social media • 3D printing • Per-customer

analysis • Mobile tracking • Etc...

This is why software is eating the

world.

Sustainable competitive advantage allows for inertia and power to build up along the lines of

an existing business model, which will soon die.

Instead, seek transient competitive advantage.

Rita Gunther McGrath, The End of Competitive Advantage

Scale is now a liability. Compete on cycle time.

CW&T make a pen

http://www.flickr.com/photos/art_es_anna/288880795/

http://www.flickr.com/photos/art_es_anna/288880795/

Optimizing the probable means discounting the possible.

This isn’t about a lack of resources.

http://www.flickr.com/photos/maladjusted/5207565912

Blockbuster had a lot going for it.

Plenty of inventory, of course. But that matters less than...

...market intelligence, customers, existing payment approval, and customer history.

The problem was framing:

Blockbuster thought it was in the video store management business. Netflix realized it was in the entertainment delivery business.

YOU ARE HERE

YOU ARE HERE

LOCALMAXIMUMOPTIMIZATION

OF CURRENT METRICS

YOU ARE HERE

GLOBALMAXIMUMINNOVATION

WITH NEWRULES

YOU ARE HERE

SHORT-TERM INVESTORSHATE GOING DOWNHILL

• $1B invested in Nook • $475M operating loss

in April 2013 • CEO gone

First mover advantage happens long before the market emerges.

Constraints slow things down

vs.

Capital cycles don’t fit the short, iterative nature of startup uncertainty

12 month budgeting cycle; annual plan. Future based on past.

Agile, scrum, lean iterations. Today’s model. No evidence about the future.

Project

Project

Project

ProjectProject

Project

Project

Project

Project

Project

Project

Project

(Requires budget insulation)

What’s the biggest problemin a hair salon?

The empty chair.

Knowing this, how might you change the client/customer relationship?

Can and must

What triggers cultural change?

“Using Cue, you can tell if someone has the ‘flu in 10 minutes.”

http://tiltthewindmill.com/when-can-becomes-must/

“Using Cue, you must tell if someone has the ‘flu in 10 minutes…

…or Johnny can’t come on the school trip.”

Part three: Three maxima of innovation

When you’re a startup your goal is to find a sustainable,

repeatable business model.

When you’re a big company your goal is to perpetuate one.

Intrapreneur: Someone working to produce

disruptive change in an organization that has already found a sustainable,

repeatable business model.

Business model vs. company stage

Company size/ageEarly stage Big/incumbent

B2B

Targ

et

mar

ket

B2C

Less

WoM

M

ore

form

al d

ecis

ions

Slower cycle timeMore legacy constraints

It is way too easy to mix these up.

Intrap

reneu

rs

In a startup, the purpose of analytics is to iterate to product/market fit

before the money runs out.

In a big company, analytics replaces opinion with fact.

Companies that use data-driven analytics instead of intuition have 5%-6% higher productivity and profits than competitors.

Brynjolfsson, Erik, Lorin Hitt, and Heekyung Kim. "Strength in Numbers: How Does Data-Driven Decisionmaking Affect Firm Performance?." Available at SSRN 1819486 (2011).

2011 MIT study of 179 large publicly traded firms

The fundamental shift from Big Data

Ask question

Defineschema

Collectdata

Answerquestion

Refine problem

Collect data

Ask question

Emergent schema

Explore data

Answerquestion

“Collect first; ask questions later.”

Three kinds of innovation

Sustain/core(optimizing for more of the same)

Innovate/adjacent(introduce nearby product,

market, or method)

Disrupt/transformative(Fundamentally changing

the business model)

Improve along current metrics...

...or alterthe rate of improvement

Switch to a new value model

Change the businessmodel entirely

Many models for enterprise innovation

Core Adjacent TransformativeDo the same thing better.

Nearby product, market, or method.

Start something entirely new.

Regionaloptimizations.

Innovation, go-to-market strategies.

Reinvent the business model.

• Get there faster • Smaller batches • Solution, then testing • Increased accountability

• Customer development • Test similar cases • Parallel deployment • Analytics & cycle time

• Fail fast • Skunkworks/R&D • Focus on the search • Ignore the current

model & margins

Another way to look at it

Core Adjacent TransformativeKnow the problem

(customers tell you it) Know the solution

(customers/regulations/norms dictate it.)

Know the problem (market analysis)

Don’t know the solution (non-obvious innovation

confers competitive advantage.)

Don’t know the problem (just an emerging need/

change) Don’t know the solution.

Waterfall:Execution matters

Agile/scrum:Iteration matters

Lean Startup: Discovery matters

Experiment with product, market, and method.

Product (new “what”)

Market (new “who”)

Method (new “how”)3 kinds of

innovation

Engine as a service

http://www.nasa.gov/images/content/365835main_airplane_noise_qtd2_3024x2016.jpgEngine as a service

http://www.nasa.gov/images/content/365835main_airplane_noise_qtd2_3024x2016.jpg

“Efficiency is tied to analytics. We’ll still look for new materials, or for the physics of devices, but the analytics ... is

what’s really untapped.”

Currentstate

Business optimization (five mores)

Product,market,method

innovation

Business model

innovation

You can convince executives of this

because some of it is familiar.

This terrifies them because it eats the current business.

A three-maxima model of enterprise innovation

Improvement Adjacency RemodelingDo the same,only better.

Explore what’snearby quickly

Try out newbusiness models

Lean approaches apply, but the metrics vary widely.

Sustain/core

Innovate/adjacent

Disrupt/transformative

Sustaining Adjacent DisruptiveNext year’s car Electric car,

same dealerOn-demand, app-based

car service

Sustaining innovation is about more of the same. (says Sergio Zyman)

More things

To more people

For more money

More often

More efficiently Supply chain optimization Per-transaction cost reduction

Loyal customer base that returns Demand prediction, notification

Maximum shopping cart Price skimming/tiering

Highly viral offering Low incremental order costs

Inventory increase Gifting, wish lists

Blizzard extends the lifespan of WOW

Earlyadopters

Rapid

growth

Marketsaturation

The infamous S-curve

(Product lifecycle, Bass diffusion curve, etc.)



Fixing this: sustaining growth with novelty

Product & market innovation (“New & improved!”)


WOW

BurningCrusade

Wrath ofthe Lich King

Mists ofPandariaCataclysm

Warlords of Draenor

Most of your innovation will be adjacent or sustaining.

Question marks!(low market share, high growth rate)

May be the next big thing. Consumes investment, but

will require money to increase market share.

Stars!(high growth rate, high market share)

What everyone wants. As market invariably stops

growing, should become cash cows.

Dogs!(low market share, low growth rate)

Barely breaks even, may be a distraction from better

opportunities. Sell off or shut down.

Cash cows!(high market share,

low growth rate) Boring sources of cash, to be milked but not worth additional investment.

G

row

th ra

te

Market share

Pivot to increasemarketshare

throughvirality,

attention

Pivot toincrease growth

rate throughdisruption

Pivot toredefine problem/solution through

empathy

Milk withrevenue

optimization asgrowth slows

If you don’t like this, go launch a startup.

Software, experimentation, and iterative cycles of learning help you

get to the local maximum better and faster. That’s a good thing.

But it’s not the only thing.

Adjacent innovation is about changing one part of the model in a way that

alters the value network.

Amazon Web Services and the server value network

Server computing

• Density • Heat

• GHz • MIPS

Cloud computing

• Instances • Objects

• Spinup time • Scaleout

Capex, financing, TCO, ROI

Opex, demand, time to result

CIO, enterprise IT CTO, coder, app owner, line of business, startup

Valuecriteria

Money

Buyer

Adjacent product to the same market in the same way

Selling the same product to an adjacent market in the same way.

Of P&G’s 38 brands, only 19 were sold in Asia as of 2011 Market expansion is seldom selling the same thing to new people. In Asia, P&G needed to

Align pricing with novelty (prestige, mass-tige, over-the-counter) Change consumer expectations (moving from dilutes to concentrates) Adjust positioning and ingredients such as white fungus, ginseng, and the parasitic cordyceps

Selling the same product to the same market in a new way.

The biggest innovation in logistics of the 20th century.

http://www.flickr.com/photos/photohome_uk/1494590209

Changing the method of C2C classifieds

A blend of who, what, how Classified C2C sales (same “what”) Strictly for Japanese women (targeted “how”) New how (phone is capture, display, payment, transaction)

Did 100 interviews w/target users before launch

Key insight: Japanese women sell their entire wardrobe twice in their lives

5,000 and 10,000 sales in first month

10% commission fee Average price of items is pretty low, at around 2,000 to 3,000 yen (or $22 to $34)

Not an auction: seller decides price

Mobile-only model Phone is payment, storefront, and even a way for sellers to build their catalog

http://www.sffashtech.com/2012/10/10/a-free-market-fashion-app-exclusively-for-women-japan/

http://www.sffashtech.com/2012/10/10/a-free-market-fashion-app-exclusively-for-women-japan/

Selling the same product to the same market in a new way.

(At this point, observant Intrapreneurs should be asking, should P&G be in

the house cleaning business?

And that would be transformative.)

Transformative innovation is about taking a leap, changing more than one dimension simultaneously in search of

a new business model.

If sustaining, incremental innovation produces linear growth, then

disruptive, transformative innovation produces exponential growth.

Transformative isolation: Skunkworks

Transformative incubation: Metlife Infinity

Significant market 850K full-time law enforcement officers in the US; 700K state/local; 525K patrol officers 130M incident reports/y. 70M new incidents; 200K involve use of force Only 31% of local police agencies keep computer files on use-of-force incidents

Strong product benefits Exonerates the officer 96% of the time. 47% percent increase in charges and summons (2007)

Patrol officers spend 15-25% of their time writing incident reports, recorded evidence reduces this by 22%, meaning 50m more on patrol

Challenges New business model

Pricing unclear SaaS offering

Compliance and governance Unions, regulation, chain of evidence

Changing the current model (radio is everything)

Transformative incubation: Taser evidence.com

Part four: What works for large companies

(A bagful of tricks from agitators in companies of all sizes.)

The job of an intrapreneur is to identify an adjacent market, product,

or method that conforms to organizational filters.

It is not to improve the current product, market, or method.

Also: a pariah. Successful innovators share certain attributes.

Bad listener: Wilfully ignore feedback from your best customers.

Cannibal: If successful, destroying existing revenue streams.

Job killer: Automation & lower margins are your favorite tools.

Security risk: Advocate of transparency, open data, communities.

Narcissist: Worry constantly about how you’ll get attention.

Slum lord: Sell to those with less money, deviants, and weirdos.

Know what kind of innovation you’re after.

New

CurrentCurrent New

Market

Product

Penetrate:Increase revenues,

market share, product quality, brand differentiation.

Marketing.

Market development: Sell existing products

to new markets, segments, uses. Export & license.

Product development:

Invent new products for your market. R&D,

enhancements. Acquisition.

Startup:New products for new markets. New rules,

business units, organizational

structure. Innovation.

Based on H. Igor Ansoff’s matrix

Increase

d risk o

f politic

al fallo

ut (and grea

t succe

ss!)

Innovation portfolios at big companiesCore Adjacent Transformative

70% 20% 10%

Inve

stm

ent

70%20%10%Retu

rn

Use outliers and missed searches to hunt for good ideas & adjacencies

(Multi-billion-dollar hygiene product company)

1/8 men have an incontinence issue. 1/3 women do. When search results show a significant number of men searching, this suggests the adjacent (male) market is underserved.

Frame it like a studyProduct creation is almost accidental. Unlike a VC or startup, when the initiative fails the organization still learns.

http://www.flickr.com/photos/creative_tools/8544475139

http://www.flickr.com/photos/creative_tools/8544475139

When in doubt, collect dataFrom tackling the FTA rate to visualizing the criminal justice supply chain.

Use data to create a taste for data

Sitting on Billions of rows of transactional data David Boyle ran 1M online surveys Once the value was obvious to management, got license to dig.

4” e-ink display with name and specialty. Badge scans barcode and gets specs; checks inventory; enters data on a touch screen.

Smart Badge

Today: Workers see their own productivity.Coming soon: comparing yourself to 400,000 other employees.Ultimately: Learning what (and who) works well.

Data Exhaust

Tesco connects its workforce

Don’t just collect data, chase it.

Understand hidden constraints

That pencil story is a myth. Graphite is conductive and explosive. The Minimum Viable Product is Viable for a reason.

Know what has to be built in-house

SAP integration Employment law


Think subversively.


Everything’s an excuse to experiment

Find other ways to collect data; everything is an experiment.

Run it as a consulting business first.

(Just don’t get addicted to it. Your goal is to learn and overcome integration challenges and find the 20% of features that 80% of the market

will pay for.)

Convince your boss she asked for this


Try again

Success!


Measure the results


Design a test

Hypothesis

With data:find a

commonality

Without data: make a good guess

Find a potential

improvement

Draw a linein the sand

Pick a KPI

Focus on the desired behavior, not just the information.

http://www.psychologytoday.com/blog/yes/200808/changing-minds-and-changing-towels

26% increase in towel re-use with an appeal to social norms; 33% increase when tied to

the specific room.

Energy Conservation “Nudges” and Environmentalist Ideology: Evidence from a Randomized Residential Electricity

Field Experiment - Costa & Kahn 2011

The effectiveness of energy conservation “nudges” depends on an individual’s political ideology ... Conservatives who learn that their

consumption is less than their neighbors’ “boomerang” whereas liberals reduce their consumption.

http://www.psychologytoday.com/blog/yes/200808/changing-minds-and-changing-towels

Take baby steps.

Netflix

Tesla

http://www.hdwallpapersinn.com/wp-content/uploads/2012/12/600-tesla.jpg

http://www.hdwallpapersinn.com/wp-content/uploads/2012/12/600-tesla.jpg

Twitter’s 140-character limit isn’t arbitrary. It’s

constrained by the size of SMS (160

characters) and username (20 characters.)http://i.i.cbsi.com/cnwk.1d/i/tim/2011/11/18/

sms_screen_twitter_activity_stream_270x405.png

http://i.i.cbsi.com/cnwk.1d/i/tim/2011/11/18/sms_screen_twitter_activity_stream_270x405.png

Figure out how to translate it back to a simple model that fits the company’s

existing value model.

If your company dies, this is why.

Software Platform Merchandising User-generated content Marketplace Media/content Service

Oracle’s accounting suite Amazon’s EC2 cloud Thinkgeek’s retail store Facebook’s status update AirBnB’s list of house rentals CNN’s news page A hairstylist

Prod

uct

type

What the startup does in return. May be a product or service; may be hardware or software; may be a mixture.

One-time transaction Recurring subscription Consumption charges Advertising clicks Re-sale of user data Donation

Single purchase from Fab Monthly charge from Freshbooks Compute cycles from Rackspace PPC revenue on CNET.com Twitter’s firehose license Wikipedia’s annual campaign

Reve

nue

mod

el How the startup extracts money from its visitors, users, or customers.

Paid advertising Search Engine Mgmt. Social media outreach Inherent virality Artificial virality Affiliate marketing Public relations App/ecosystem mkt.

Banner on Informationweek.com High pagerank for ELC in kid’s toys Active on Twitter i.e. Kissmetrics Inviting team member to Asana Rewarding Dropbox user for others’ signups Sharing a % of sales with a referring blogger Speaker submission to SXSW Placement in the Android market

Acqu

isitio

nch

anne

l

How the visitor, customer, or user finds out about the startup.

Hosted service Digital delivery Physical delivery

Salesforce.com’s CRM Valve purchase of desktop game Knife shipped from Sur La TableDe

liver

ym

odel

How the product gets to the customer.

Simple purchase Discounts & incentives Free trial Freemium Pay for privacy Free-to-play

Buying a PC on Dell.com Black Friday discount, loss leader, free ship Time-limited trial such as fitbit Premium Free tier, relying on upgrades, like EvernoteFree account content is public, like Slideshare Monetize in-app purchases, like Airmech

Sellin

gta

ctic What the startup does to

convince the visitor or user to become a paying customer.

Acquisitionchannel

Sellingtactic

Revenuemodel

Producttype

Deliverymodel

Business aspect

Flipbookpage(s)

Inherent virality. Artificial virality.

Sharing files with others. Free storage when others sign up.

Freemium. Limited-capacity accounts are free; subscribe when you need more.

Recurring subscription. $99/year, monthly fees, enterprise tiers.

Platform. Storage-as-a-service with APIs, collaboration, synchronization tools.

Hosted service. Digital delivery.

Cloud storage, web interface. Desktop client software.

Dropbox example

Use the right proxies for B2B productsStage Startup metrics Intrapreneur metrics

EmpathyCustomers interviewed (needs &

solutions), assumptions quantified, TAM, monetization possibility

Non-customers interviewed; assumptions quantified, constraints identified, TAM,

disruption potential

Stickiness Churn, engagement Support tickets, integration time, call center data, delays

Virality Viral coefficient, viral cycle time Net Promoter Score, referrals, case study willingness

Revenue Attention, engagement Billable activity; signed LOIs; pilot programs; after-development profitability

Scale Automation Contribution, training costs, licensing

Tomorrow’s company: Running parallel businesses

Innovation Sustaining/core Adjacent Transformative/disruptive

Core action Optimizing/improving Experimenting Searching/

inventing

Focus on Known metrics Risk removal Assumption validation

Which will live Within current business unit

Incubated, then integrated

As new/separate entities

Problem is Known Known Unknown

Solution is Known Unknown Unknown

How to build a message map

I need a carA.

I should buya carB.

It should bea hybridC.

I should buya Honda CivicD.

Everyone in the world

People who want to drive

Prospective car buyers

People looking for a hybrid

Honda Civic Hybrid owners

I need a carA.

I should buya carB.




“Isn’t it time you got out of the city?” campaign showing how cars make nature accessible & ridiculing

urban hipsters.

Ads showing how cars are needed any time (pregnancy, errands, urgent

business) and how a car is a “personal assistant.”

Urgency (“every time you drive a non-hybrid car you kill the planet a little”) and testimonials from buyers

who’ve saved money.

Honda branding ads and model-specific promotions.

Follow-up satisfaction campaign to encourage buyers to tell their friends

People who want to drive “I need a vehicle to get around, be productive, and enjoy my life.”

Prospective car buyers “I want to own a car because it’s convenient; it’s a personal relationship; I don’t trust others.”

People looking for a hybrid “I want to save money and fuel. I also care about the environment and want to be seen as ‘green’.”


I need a carA.

I should buya carB.








Those who don’t need cars • I’m too young to drive • I’m too old to drive • I can walk or take public

transit

Car users who won’t buy • It’s too expensive for me • I will use a shared car service • It’ll get stolen

Those who won’t buy hybrids • Hybrids are gutless • Batteries are toxic & explosive • In the end it costs more than

it saves

I will buy another brand • I buy domestic • I’ve always driven a VW • Toyotas are reliable • I want something prestigious

I need a carA.

I should buya carB.









transit



it saves


Sponsor a driving school

“Give the gift of driving” campaign for grandparents.

Financing, cashback

Sell to carshares; underscore their limitations

PR on dangers of commuting, pedestrian deaths

Theft warranty, tracking services, high-end locks

Independent tests, standard metrics (0-60 in X)

Lab research, studies

ROI calculator; replacement programs

Prove Honda hires US workers

“Time to leave Germany” ads

Spontaneous accel. stories

Premium brand (Acura)

I need a carA.

I should buya carB.




“Isn’t it time you got out of the city?” campaign showing how cars make nature accessible & ridiculing

urban hipsters.

Ads showing how cars are needed any time (pregnancy, errands, urgent

business) and how a car is a “personal assistant.”

Urgency (“every time you drive a non-hybrid car you kill the planet a little”) and testimonials from buyers

who’ve saved money.

Honda branding ads and model-specific promotions.

Follow-up satisfaction campaign to encourage buyers to tell their friends






transit



it saves


Sponsor a driving school

“Give the gift of driving” campaign for grandparents.

Financing, cashback

Sell to carshares; underscore their limitations

PR on dangers of commuting, pedestrian deaths

Theft warranty, tracking services, high-end locks

Independent tests, standard metrics (0-60 in X)

Lab research, studies

ROI calculator; replacement programs

Prove Honda hires US workers

“Time to leave Germany” ads

Spontaneous accel. stories

Premium brand (Acura)

I need a carA.

I should buya carB.




Hits A metric from the early, foolish days of the Web. Count people instead.

Page views Marginally better than hits. Unless you’re displaying ad inventory, count people.

Visits Is this one person visiting a hundred times, or are a hundred people visiting once? Fail.

Unique visitors This tells you nothing about what they did, why they stuck around, or if they left.

Followers/friends/likes

Count actions instead. Find out how many followers will do your bidding.

Time on site, or pages/visit

Poor version of engagement. Lots of time spent on support pages is actually a bad sign.

Emails collected How many recipients will act on what’s in them?

Number of downloads

Outside app stores, downloads alone don’t lead to lifetime value. Measure activations/active accounts.

Example: a restaurant

• Empathy: Before opening, the owner first learns about the diners in its area, their desires, what foods aren’t available, and trends in eating.

• Stickiness: Then he develops a menu and tests it out with consumers, making frequent adjustments until tables are full and patrons return regularly. He’s giving things away, testing things, asking diners what they think. Costs are high because of variance and uncertain inventory.

• Virality: He starts loyalty programs to bring frequent diners back, or to encourage people to share with their friends. He engages on Yelp and Foursquare.

• Revenue: With virality kicked off, he works on margins—fewer free meals, tighter controls on costs, more standardization.

• Scale: Finally, knowing he can run a profitable business, he pours some of the revenues into marketing and promotion. He reaches out to food reviewers, travel magazines, and radio stations. He launches a second restaurant, or a franchise based on the initial one.

Example: a software company

• Empathy: The founder finds an unmet need, often because she has a background in a particular industry or has worked with existing solutions that are being disrupted.

• Stickiness: She meets with an initial group of prospects, and signs contracts that look more like consulting agreements, which she uses to build an initial product. She’s careful not to commit to exclusivity, and tries to steer customers towards standardized solutions, charging heavily for custom features. She supports the customers directly from the engineering team until the product is stable and usable.

• Virality: Product in hand, she asks for references from satisfied customers, and uses them as testimonials. She starts direct sales, and grows the customer base. She launches a user group, and starts to automate support. She releases an API, encouraging third-party development and scaling potential market size without direct development.

• Revenue: She focuses on growing the pipeline, sales margins, and revenues while controlling costs. Tasks are automated, outsourced, or offshored. Feature enhancements are scored based on anticipated payoff and development cost. Recurring license and support revenue becomes an increasingly large component of overall revenues.

• Scale: She signs deals with large distributors, and works with global consulting firms to have them deploy and integrate her tool. She attends trade shows to collect leads, carefully measuring cost of acquisition against close rate and lead value.

EmpathyGet inside their head.

How to avoid leading the witness

Don’t tip your handAvoid biased wording, preconceptions, or a giveaway appearance. Word your surveys carefully to be neutral.

Make the question realGet them to purchase. Ask them to pay. Demand real introductions. Or ask them “how many of your friends would say X” to avoid self-effacement

Keep diggingAsk “why” several times. Leave lingering, uncomfortable pauses in the conversation and let them fill them.

Look for other cluesHave a colleague make notes of when they react, or of their body language.

Mobile app model: Localmind hacks Twitter

• Stage: Empathy • Model: UGC/mobile

• Real-time question and answer platform tied to locations. • Needed to find out if a core behavior—answering questions about a place—

happened enough to make the business real

Localmind hacks Twitter

• Before writing a line of code, Localmind was concerned that people would never answer questions.

• This was their biggest risk: if questions went unanswered users would have a terrible experience and stop using Localmind.

• Ran an experiment on Twitter • Tracked geolocated tweets in Times Square • Sent @ messages to people who had just tweeted, asking questions about the

area: how busy is it; is the subway running on time; is something open; etc. • The response rate to their tweeted questions was very high.

• Good enough proxy to de-risk the solution, and convince the team and investors that it was worth building Localmind.

Creating an answers-at-scale campaign

• Know why you’re doing a survey in the first place

Ask what existing brands come to

mind in an industry

Market alongside them? Address competitors?

Choose partners?

Ask how customers try to find a product

or service

Help you plan marketing

campaigns and choice of media

Ask what kind of money people

spend on a problem

Shape your pricing strategy

Test which tagline or unique value proposition

resonates best with customers

Choose the winning one, or just take that as advice



• Design the survey Demographic segmentation

questions

Quantifiable answers to your

research problem

Qualitative, open-ended feedback



• Design the survey

• Test it (you’ll always have mistakes)




• Send it out

Audience plea


Via your NW To a paid list As an ad campaign

Beware of respondent bias,

misrepresentation of the larger market

Beware of spamminess, low

open rates

Name the problem Give the solution or unique value

“Are you a single mom? Take this brief survey and help us

address a big challenge.”

“Can’t sleep? We’re trying to fix that, and

want your input.”)

“Our accounting software automatically finds tax breaks. Help us plan the product

roadmap.”





• Send it out

• Collect the results

• Analyze the data

Were you able to capture the attention of the market? Did they click on your ads and links? Which ones worked best? Are you on the right track? What decisions can you now make with the data you’ve collected? Will people try out your solution/product? How many of your respondents were willing to be contacted? How many agreed to join a forum or a beta? How many asked for access in their open-ended responses?

Bysegment!

When it’s time to move on

• Have you conducted enough quality customer interviews to feel confident that I’ve found a problem worth solving?

• Do you understand your customer well enough? • Do you believe your solution will meet the needs of customers?

StickinessThe dogs like the dogfood.

Hits1995Visits1997Visitors1999Conversions2002Engagement2010

Who did you add? Where from? Why?

What did they do? How did it benefit?

Who did you lose? Why did they leave?

Days since last visit

1200

1000

800

600

400

200

01 2 3 4 5 6 7 8 9

Days since last engagement

January February

Disengaged

(>10 days)

25000

20000

15000

10000

5000

0

Num

ber o

f use

rs


• Are people using the product as expected? • Define an active user. What percentage of your users/customers is active? Write this down. Could this be higher? What can you do to improve engagement? • Evaluate your feature roadmap against the 7 questions to ask before building more features. Does this change the priorities of feature development? • Evaluate the complaints you’re getting from users. How does this impact feature development going forward?

ViralityI told two friends.

------------------------------------------------------Get your free private email at http://www.hotmail.com ------------------------------------------------------

Viral coefficient

http://www.hotmail.com/

v ≠ 1, pt = δp0 (1 – vt+1) / (1 – v) + p0

http://robert.zubek.net/blog/2008/01/30/viral-coefficient-calculation/

Viral coefficient

http://robert.zubek.net/blog/2008/01/30/viral-coefficient-calculation/

Or simpler

Users Viralcoefficient

Churn &abandonment

x - > 1

How to calculate it

• First calculate the invitation rate, which is the number of invites sent divided by the number of users you have.

• Then calculate the acceptance rate, which is the number of signups or enrollments divided by the number of invites.

• Then multiply the two together. • Consider, for example

• Your 2,000 customers have sent out 5,000 invitations during their lifetime on your site.

• Your invitation rate is 2.5. • For every ten invitations received, one gets clicked.

• Your acceptance rate is 0.1. • Multiply the two, and you have your viral coefficient: 0.25. Every customer you

add will add an addition 25% of a customer.

Virality stage:Timehop’s content sharing

• Stage: Virality • Model: Mobile app

• Social network around the past • Focused on virality (but not necessarily the coefficient!)

The one metric that matters: content sharing

• Focused on percent of daily active users that share their content

• Aiming for 20-30% of DAU sharing

“All that matters now is virality. Everything else—be it press, publicity stunts or something else—is like pushing a rock up a mountain: it will never scale. But being viral will.”

- Jonathan Wegener, co-founder

3 kinds of virality

• Inherent virality is built into the product, and happens as a function of use. • Artificial virality is forced, and often built into a reward system. • Word of mouth virality is simply conversations generated by satisfied users.

Laid, paid, made, afraid

Who is your audience?

Drive-by visitors vs. serious evaluators; loyal users vs. one-time buyers; lurkers vs. contributors. Have one audience.

What do you want them to do?

Tell five friends; sign up for a year’s subscription; write a blog post on your behalf; invest some money. Just be clear.

Why should they do it?

Drive-by visitors versus serious evaluators; loyal returning users versus one-time buyers; lurkers versus contributors

Power or respect among their peers; appeal to reputation.

Money, or alternate currency rewards; an appeal to greed or compensation.

Sex, attractiveness; an appeal to desire.

Fear of missing out, risk, loss, etc.; an appeal to safety.

Made Paid Laid Afraid

Humans have four big motivators:


• Are you using one of the three types of virality (inherent, artificial, word of mouth) for your startup? Describe how. If virality is a weak aspect of your startup, write down 3-5 ideas for how you could build more virality into your product.

• What’s your viral coefficient? Even if it’s below 1 (which it likely is), do you feel like the virality that exists is good enough to help sustain growth and lower customer acquisition costs?

• What’s your viral cycle time? How could you speed it up?

RevenuePour some of the money back into acquisition.

What’s a fitbit customer worth?

• The user can record their steps with a device in their pocket • They can use it and sync data to the hosted application • They can visit the portal to see their statistics • They can manually enter sleep and food data • They can buy the premium Fitbit offering

• Each of these is a different tier of engagement, and Fitbit could segment users across these five segments when analyzing the effectiveness of a marketing campaign or the volume of support e-mails.


You’re making money You’re sustainable You’re tracking growth metrics

Revenue stage:Backupify’s customer lifecycle

• Stage: Revenue • Model: SaaS

• Leading backup provider for cloud based data. • The company was founded in 2008 by Robert May and Vik Chadha • Has gone on to raise $19.5M in several rounds of financing.

You need a business model

Start with a systems diagram What’s the core job to be done?

Start with the customer journey.

Consider the morning routine.

Wake up What happens here? Start

workday

What job are you doing?

Personal dimension

Social dimension

Functional aspects

Emotional aspects

Related jobs to be done

Functional aspects

Emotional aspects

Personal dimension

Social dimension

Main job to be done

http://innovatorstoolkit.com/content/technique-1-jobs-be-done


Changes create new JTBD answers

Photo by Andrew Dyer on Flickr - https://www.flickr.com/photos/andrewdyer/350938953

+ = ?

https://www.flickr.com/photos/andrewdyer/350938953

Understand culture

What will it take for a change to really stick?

WhitherEstonia?

How about now?

Some stats

• 215M digital signatures

• 18 minutes to start a company, entirely online

• 1/3 of voting happens via the Internet

Get rid of the pens:Digital signatures since 2000.

Only collect things once:Tax forms 95% completed already.

Conclusions

“The most important figures that one needs for management are unknown or unknowable, but successful management must nevertheless take account of them.”

Lloyd S. Nelson

Pic by Twodolla on Flickr. http://www.flickr.com/photos/twodolla/3168857844

http://www.flickr.com/photos/twodolla/3168857844

ARCHIMEDES HAD TAKEN

BATHS BEFORE.

Once, a leader convinced others in the absence of data.

Now, a leader knows what questions to ask.

Alistair Croll [email protected] @acroll

Ben Yoskovitz [email protected] @byosko

mailto:[email protected]

mailto:[email protected]

Day two business models

Hardcore interviews

Maybe they don’t love you like they said they do.

N

Your offering doesn’t make them want tobrag or their contact isn’t really a friend

N

Advocates can’t learn & conveyyour message easily

N

They don’t trust you entirelyN

Woohoo! Scalable, viral, explainable product!

YGet a meeting

Y

Grab the phoneY

They pitch itY

Call them now?Y

Intro to a friend?

Interview

B2B and the 80/20 rule

How to tell if you have a sustainable, repeatable B2B idea.

Target customer Reachable, referenceable.

Find 10 prospects*










* 10 is an aribtrary number. Just be sure there are enough out there to grow sustainably from their actions.

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Standardize 80% of the offering

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Your margins, differentiation, and scalable

growth come from this.

Without it, you’re either a consultant; or the market isn’t ready; or the tech isn’t possible yet.

And that’s OK because you know.

The whole point of digital is personal

Segment 1

User segment(who)

Segment 2

Segment 3

Goal(what)

Goal 1

Goal 2

Goal 3

Motivation(why)

Goal 1

Goal 2

Goal 3

http://www.thirdwunder.com/funnels-are-a-horrible-metaphor/Photo Credit: Patrick McGarvey

More like this.

The leaky bucket of subscriptions.

Photo by Jeffrey on Flickr - https://www.flickr.com/photos/jb912/7479464134

Bounces Non-creators

Non-payers

Churn

Signuprate

Engagementlevel

Conversionrate

Visitors

Subscribers

Engaged users

Payingcustomers

Leaky buckets are a bad metaphor

Bounces Non-creators

Non-payers

Churn

Improve stickiness; call-to-action optimization;A/B page testing; picking better traffic sources

Notifications; updates; reactivating users;segmenting those who are engaged.

Usage caps, natural upselling;premium features

Better support; credit card renewal; naturally sustained features

Let them ask for an out

Detecting SaaS churn early without hurting cashflow

The tradeoff

Charge a monthly fee Charge annual fee up front

Find out if they hate it sooner, when they cancel on first billing cycle.

No need to pay back CAC; cash you can use right away.

Takes months to recoup the money you spent acquiring them.

May be a zombie user who vanishes when the year is up.

They’re happy, you keep your money, goodwill for offering.

They’re unsatisfied, you made it right, they tell you why, you learn.

The solution—because the goal is to learn, not to trap customers.

Annual fee, with an out

1. Offer an annual, discounted fee.

2. After a couple of weeks, ask if they’d like a refund.

The mobile app !customer lifecycle!

Ratings Reviews

Search

Leaderboards

Purchases

Downloads

Installs

Play

Disengagement

Reactivation

Uninstallation

Disengagement

Account"creation

Virality

Downloads,"Gross revenue

ARPU

App sales

Activation

Churn, CLV

In-app"purchases

App

stor

e!

Incentivized

Legitimate

Fraudulent

Ratings!

Targeting matters.

It’s all about cabbages

Start with the customer journey.

Consider the morning routine.

Wake up What happens here? Start

workday

What job are you doing?

Personal dimension

Social dimension

Functional aspects

Emotional aspects

Related jobs to be done

Functional aspects

Emotional aspects

Personal dimension

Social dimension

Main job to be done



Changes create new JTBD answers

Photo by Andrew Dyer on Flickr - https://www.flickr.com/photos/andrewdyer/350938953

+ = ?

https://www.flickr.com/photos/andrewdyer/350938953

I lied. Everyone is a tech company.

http://www.flickr.com/photos/puuikibeach/4789015423 http://www.flickr.com/photos/elcapitanbsc/3936927326

Cost of experiments: down. Cost of attention: way up.

http://www.flickr.com/photos/puuikibeach/4789015423

http://www.flickr.com/photos/elcapitanbsc/3936927326

Let’s pick on restaurants for a while.

A line in the sand

Labor costs

Gross revenue

30%

24%

20%

Too costly?

Just right

Understaffed?

=

A leading indicator

http://www.flickr.com/photos/avlxyz/4889656453http://www.flickr.com/photos/mysticcountry/3567440970

50 reservationsat 5PM

250 coversthat night

(Varies by restaurant. McDonalds ≠ Fat Duck.)

http://www.flickr.com/photos/avlxyz/4889656453

http://www.flickr.com/photos/avlxyz/4889656453

http://www.flickr.com/photos/southbeachcars/6892880699

Restaurant MVP

http://www.flickr.com/photos/southbeachcars/6892880699

Is tip amount a leading indicator of long-term revenue?

Why does every table get the same menu?

Is purple ink better?http://tippingresearch.com/uploads/managing_tips.pdf

http://tippingresearch.com/uploads/managing_tips.pdf

Data & Analytics

Slides from New Media Manitoba Lean Analytics workshop, June 2015