Startup Metrics for Pirates

@DaveMcClure 500 Startups http://500.co

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

AARRR!

Dave McClureFounding Partner & Troublemaker, 500 Startups

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

80’s & 90’s: • Entrepreneur: Aslan Computing (acq’d by Servinet/Panurgy) • Developer: Windows / SQL DB consultant (Intel, MSFT) • Engineer: Johns Hopkins‘88, BS Eng / Applied Math

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

• 1500+ Portfolio Co’s / 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! (It’s Not Evil)

• Marketing is Both Qualitative + Quantitative • Qualitative: Create Emotion, Drive Action • Quantitative: Measure Results of Action • Design (UX) & Distribution (MKTG) Matter • Volume (#), Cost ($), Conversion (%)

[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.comRevenue $$$

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 you’re in a hurry, Google “Startup Metrics” & watch 5m video)

One Step at a Time.

1. Make a Good Product: Activation & Retention 2. Market the Product: Acquisition & Referral 3. Make Money: Revenue & Profitability

Startup Challenges

Startups have problems in 3 key areas:

• Management: Set Priorities, Define Key Metrics

• Product: Build “Right” Features. Measure, Iterate.

• Marketing: Distribution, Distribution, Distribution. (Search, Social, Mobile)

[ Constructing MVP ]

Role: Founder / CEO

Q: Which Customers? Problems? Metrics? A: Focus on Critical Few Actionable Metrics

(if you don’t use the metric to make a decision, it’s 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 = don’t abandon)

60% $.05

Activation “Happy” 1st Visit; Usage/Signup (clicks/time/pages, email/profile reg, feature usage)

15% $.25

Retention Users Come Back; Multiple Visits (1-3x visits/mo; email/feed open rate / CTR)

5% $1

Referral Users Refer Others (cust sat >=8; viral K factor > 1; )

1% $5

Revenue Users Pay / Generate $$$ (first txn, break-even, target profitability)

2% $50

[ Getting 2 PMF ]

Role: Product / Eng / 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 you’re moving in optimal direction 2 local max

• Q: what competitive solutions are available? – … that your customers know about? – how are you diff/same? – in ways that people care about? (will pay for)

[ Testing 4 AUX ]

Discover 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 • Competitor’s 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 It’s GOOD. – Define Metrics, Measurability for Design / UX – Focus on Psychology of User – Relative to Competitive Alternatives (that your customers know about) – Keep Testing 4 Awesomeness

• RAMP Mktg & $$$ AFTER it’s clear your MVP is: – Functional = useful for >1 customers – 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 <20-50% of target ATV, ARPU, CLV

Consider Costs, Scarce Resource Tradeoffs • Actual $ expenses • Marketing time & resources • Product/Engineering time & resources • Cashflow timing of expense vs. revenue, profit

ACQ = F(Customer, Campaign, Vol, Cost, Conv)

[ 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 “Doesn’t Suck” – Setup A/B Testing Framework, Optimize Conversion – Test Marketing Campaigns, Cust Acqstn Channels

• Prove Solution/Benefit, Assess Market Size • Test Channel Cost, Revenue Opportunity • Determine Org Structure, Key Hires

Investment #3: Venture (“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, I’ll Tell My Friends” – MktgPlan => Predictable Channels / Campaigns + Budget – Scalability & Infrastructure, Customer Service & Operations – Connect with Distribution Partners

• Prove/Expand Market, Operationalize Business • Future Milestones: Profitable/Sustainable, Exit Options

Q&A?

» Questions?

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