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Slides from Montreal's Startup Weekend NEXT on lean analytics, market sizing, and how to build startups into great companies
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Startup Weekend NEXT
Pre-accelerator session 3
AgendaWhy build something people want?What’s product/market fit?What’s an MVP and why you careCurated MVPPirate metricsThe One Metric that Matters
Why build something people want?
Everything else is a hobby or a nonprofit.
Don’t sell what you can make. Make what you can sell.
Kevin Costner is a lousy entrepreneur.
The core of Lean is iteration.
Most startups don’t know what they’ll be when they grow up.
Hotmailwas a database company
Flickrwas going to be an MMO
Twitterwas a podcasting company
Autodeskmade desktop automation
Paypalfirst built for Palmpilots
Freshbookswas invoicing for a web design firm
Wikipediawas to be written by experts only
Mitelwas a lawnmower company
“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
The mythical product/market fit
And other startup unicorns.
Product(new “what”)
Market(new “who”)
Method(new “how”)3 kinds of
innovation
Product(new “what”)
Market(new “who”)
Method(new “how”)
Purestartup
Distributioninnovation
Marketdiversification
Channelexpansion
Another view
Inventive
Adjacent
Disruptive
Core
What’s an MVP?
The least you need to do to quantify an assumption.
Minimum
Viable
qidiq streamlines invitesSurvey owner adds recipient to group
Survey owner asks questionRecipient 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
Delightful?If that’s required for viability
Curated MVP
Localmind, Airbnb, roof racks and steering wheels.
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
Localmind hacks TwitterNeeded to find out if a core assumption—strangers answering questions—was valid.Ran Twitter experiment instead of writing codeAsked senders of geolocated Tweets from Times Square random questions; counted response rateConclusion: high enough to proceed
LikeBright’s mechanical turkUsed Mechanical Turk, Google Voice to speak w/100 single women; paid $2. The interviews lasted typically around 10-15 minutes.Simple interview script with open-ended questions, since he was digging into the problem validation stage of his startup.Founder Nick Soman: “I was amazed at the feedback I got. We were able to speak with one hundred single women that met our criteria in four hours on one evening.”
Went back to TechStars and got accepted.LikeBright’s website is now live with a 50% female user base, and recently raised a round of funding.“Since that first foray into interviewing customers, I’ve probably spoken with over a thousand people through Mechanical Turk,”
Pirate metrics
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...
The One Metric that Matters
Focus matters most of all
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.
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.
Thesimplestrule
badmetric.
If a metric won’t change how you behave, it’s a
h"p://www.flickr.com/photos/circasassy/7858155676/
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.)
MultivariateanalysisChanging 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.)
☀
☁
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
February
March
April
May
$5 $3 $2 $1 $0.5
$6 $4 $2 $1
$7 $6 $5
$8 $7
$9
How about this one?
Cohort 1 2 3 4 5
January
February
March
April
May
Averages
$5 $3 $2 $1 $0.5
$6 $4 $2 $1
$7 $6 $5
$8 $7
$9
$7 $5 $3 $1 $0.5
Look at the same data in cohorts
The Lean Analytics framework.
Six business models
E-commerce SaaS MediaMobileapp
User-generated
content2-sidedmarket
Your company
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
(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 MetricThat Matters.
The business you’re in
E-Com SaaS Mobile 2-Sided Media UCGEmpathy
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 metricaddresses this problem.
Metrics are like squeeze toys.
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
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
Mobile phone percentage
Mobile phones in Canada
IOS percentage
IOS phones in Canada
IOS devices per account
IOS accounts we can sell to in Canada(this is our Total Addressable Market)
34.88M
80%
27,904M
15.5%
4.32M
3.1*
1.39M
* I made this up. Don’t believe everything you read.
How much is the TAM worth?Metric/Assumption Value
TAM
Percent we will claim
Number of users
User lifetime
Revenue per month
CLV
Expected total revenues
1.39M
5%
69,500
40 months
$5 per month
$200
$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)Percent that installInstalls (activation)
Percent still using after 30 daysBecome regular users (retention)
Percent that buyBuy premium version (revenue)Percent that churn each month
Customer lifespanRevenue per month
Customer lifetime valueTAM value
9,266,66710%
926,66725%
231,66730%
69,5002.5%
405
200$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.
More realisticMetric/Assumption Value
Impressions (acquisition)Percent that installInstalls (activation)
Percent still using after 30 daysBecome regular users (retention)
Percent that buyBuy premium version (revenue)Percent that churn each month
Customer lifespanRevenue per month
Customer lifetime valueTAM value
1,300,00010%
130,00025%
32,50030%9,7502.5%
405
200$1,950,000
Some more resources
Thanks!@acroll