Hashtag: #runninglean

ASH MAURYA

TO RULE THEM ALL

ONE METRIC

PracticeTrumpsTheory.comash@spark59.com

@ashmaurya

Lean Startup is deeply rooted in the Scientific Method.

IDEAS

PRODUCTDATA

MEASURE

BUILDLEARN

Experiment = 1 cycle

Reasonably smart people can rationalize anything but entrepreneurs are especially gifted at this.

But this can also be taken too far…

IDEAS

PRODUCTDATA

MEASURE

BUILDLEARN

Learning as the measure of progress

Science versus Entrepreneurship

Science versus Entrepreneurship

Driven by pursuit of raw knowledge

Science versus Entrepreneurship

Driven by pursuit of repeatable and scalable results

Driven by pursuit of raw knowledge

Empirical Learning ➤

Empirical Learning ➤ Business Model Results

Empirical Learning ➤ Business Model Results

Measure of Progress

In God we trust, all others bring data.

-W. Edwards Deming

Startups don’t starve, they drown.

-Shawn Carolan, Menlo Ventures

WTF?

The reality

01 The Universal Goal of Every Business

AG

END

A

02 The Goal Deconstructed

03 Seeing it in Action

The Goal:

Make happy customers

Happy customers get you paid and doing this repeatedly and efficiently is the goal of every business.

Unaware visitors Happy customers

Unaware visitors Happy customers

Direct models

Unaware visitors Happy users

Multi-sided models

Unaware visitors Happy users

Multi-sided models

Derivative asset

Unaware visitors Happy users

Multi-sided models

Happy customers

Derivative asset

Unaware visitors Happy users

Multi-sided models

Happy customers

Derivative asset

Advertisers

Unaware visitors Happy users

Not for Profit Models

Derivative asset

Unaware visitors Happy users

Not for Profit Models

Happy customers

Derivative asset

Donors

Unaware visitors Happy customers

Customer Throughput is the one metric to rule them all.

Definition:

Customer Throughput is the rate at which you are making new customers.

01 The Universal Goal of Every Business

AG

END

A

02 The Goal Deconstructed

03 Putting it to Practice

Making happy customers

Making customers happy

vs

Unaware visitors Happy customers

Epiphany:

Everyone is in the manufacturing business.

Unaware visitors Happy customers

The Customer Factory

ACQUISITION How do you first identify users?

ACQUISITION How do you first identify users?

ACTIVATION What is first value experience?

ACQUISITION How do you first identify users?

ACTIVATION What is first value experience?

RETENTION What drives repeat usage?

ACQUISITION How do you first identify users?

ACTIVATION What is first value experience?

RETENTION What drives repeat usage?

REVENUE What is pricing model?

ACQUISITION How do you first identify users?

ACTIVATION What is first value experience?

RETENTION What drives repeat usage?

REVENUE What is pricing model?

REFERRAL What is referral engine?

ACQUISITION

ACTIVATION

RETENTION

REVENUE

REFERRAL

Unaware visitor

Passionate Happy Customer

Pirate Metrics (AARRR)

ACQUISITION How do you first identify users?

ACTIVATION What is first value experience?

RETENTION What drives repeat usage?

REVENUE What is pricing model?

REFERRAL What is referral engine?

More Visual

ACQUISITION How do you first identify users?

ACTIVATION What is first value experience?

RETENTION What drives repeat usage?

REVENUE What is pricing model?

REFERRAL What is referral engine?

Happy Customer Loop

ACQUISITION How do you first identify users?

ACTIVATION What is first value experience?

RETENTION What drives repeat usage?

REVENUE What is pricing model?

REFERRAL What is referral engine?

Engines of Growth

ACQUISITION How do you first identify users?

ACTIVATION What is first value experience?

RETENTION What drives repeat usage?

REVENUE What is pricing model?

REFERRAL What is referral engine?

Systems Thinking

What is a system?

01 The Universal Goal of Every Business

AG

END

A

02 The Goal Deconstructed

03 Seeing it in Action

3

2

1 Repeatability

3 ATTRIBUTES OF A SYSTEM

Constraints

Throughput

A system’s throughput is predictable

StepA

StepB

StepC

StepD

StepERAW

MATERIALS

Production Example

OUTPUT 7 units/day

Establishing repeatability is pre-requisite step before pursuing growth.

“Invest in Lines, Not Dots.” -Mark Suster, Both Sides of the Table

Repeatability enables staged rollouts.

3 Stages of a Product

PROBLEM/SOLUTIONFIT

PRODUCT/MARKETFIT

SCALE

Stage 1 Stage 2 Stage 3

Hockey-stick curve

Hockey-stick curve

Product/Market Fit

Scale

Problem/Solution Fit

A business model can be validated at micro-scale.

Facebook won on strategy, not vision.

3

2

1 Repeatability

3 ATTRIBUTES OF A SYSTEM

Constraints

Throughput

Theory of Constraints:

Every business is a system of interconnected processes with a single constraint.

StepA

StepB

StepC

StepD

StepE

10 units/day 15 units/day 7 units/day 9 units/day 10 units/day

MARKET DEMAND 12 units/day

Production Example

StepA

StepB

StepC

StepD

StepE

10 units/day 15 units/day 7 units/day 9 units/day 10 units/day

MARKET DEMAND 12 units/day

Production Example

1. What is the maximum system output per day?

StepA

StepB

StepC

StepD

StepE

10 units/day 15 units/day 7 units/day 9 units/day 10 units/day

MARKET DEMAND 12 units/day

Production Example

1. What is the maximum system output per day? 2. Where is the constraint?

StepA

StepB

StepC

StepD

StepE

10 units/day 15 units/day 7 units/day 9 units/day 10 units/day

MARKET DEMAND 12 units/day

Production Example

Throughput is 7 units/day

Indicates interest through teaser page

Ongoing engagement with sessions and tool

Interview and then start trialOrganic Channels

Blog, twitter, workshops

Customer Throughput

Ask for referrals to like-minded companies

Monthly SaaS paymentafter first 30 days

20 customers/mo(desired)

1 trial/week(5%)

20 interviews/week(66.67%)

30 leads/week(45.6%)

65 visitors/week 2 customers/mo(50%)

20 customers/mo(desired)

1 trial/week(5%)

20 interviews/week(66.67%)

30 leads/week(45.6%)

65 visitors/week 2 customers/mo(50%)

20 customers/mo(desired)

1 trial/week(5%)

20 interviews/week(66.67%)

30 leads/week(45.6%)

65 visitors/week 2 customers/mo(50%)

Prioritizes focus

3

2

1 Repeatability

3 ATTRIBUTES OF A SYSTEM

Constraints

Throughput

The goal of a system is to increase throughput.

ACQUISITION How do you first identify users?

ACTIVATION What is first value experience?

RETENTION What drives repeat usage?

REVENUE What is pricing model?

REFERRAL What is referral engine?

The only macro that matters

Local versus system optima.

StepA

StepB

StepC

StepD

StepE

10 units/day 15 units/day 7 units/day 9 units/day 10 units/day

MARKET DEMAND 12 units/day

Production Example

Throughput is 7 units/day

StepA

StepB

StepC

StepD

StepE

10 units/day 15 units/day 12 units/day 9 units/day 10 units/day

MARKET DEMAND 12 units/day

Production Example

StepA

StepB

StepC

StepD

StepE

10 units/day 15 units/day 12 units/day 9 units/day 10 units/day

MARKET DEMAND 12 units/day

Production Example

1. What is the maximum system output per day? 2. Where is the constraint?

StepA

StepB

StepC

StepD

StepE

10 units/day 15 units/day 12 units/day 9 units/day 10 units/day

MARKET DEMAND 12 units/day

Production Example

New throughput is 9 units/day

20 customers/mo(desired)

1 trial/week(5%)

20 interviews/week(66.67%)

30 leads/week(45.6%)

65 visitors/week 2 customers/mo(50%)

Prioritizes focus

20 customers/mo(desired)

1 trial/week(5%)

20 interviews/week(66.67%)

30 leads/week(45.6%)

65 visitors/week 2 customers/mo(50%)

Strategy 1:

Incentivize salespeople

20 customers/mo(desired)

1 trial/week(5%)4 trials/week(20%)

20 interviews/week(66.67%)

30 leads/week(45.6%)

65 visitors/week 2 customers/mo(50%)

Strategy 1:

Incentivize salespeople

20 customers/mo(desired)

1 trial/week(5%)4 trials/week(20%)

20 interviews/week(66.67%)

30 leads/week(45.6%)

65 visitors/week 2 customers/mo(50%)

Strategy 1:

Incentivize salespeople

20 customers/mo(desired)

1 trial/week(5%)

20 interviews/week(66.67%)

30 leads/week(45.6%)

65 visitors/week 2 customers/mo(50%)

Strategy 2:

Qualify leads

20 customers/mo(desired)1 trial/week

(5%)2 trials/week(25%)

20 interviews/week(66.67%)8 interviews/week(80%)

30 leads/week(45.6%)10 leads/week(15%)

65 visitors/week 2 customers/mo(50%)4 customers/mo(50%)

Strategy 2:

Qualify leads

20 customers/mo(desired)1 trial/week

(5%)2 trials/week(25%)

20 interviews/week(66.67%)8 interviews/week(80%)

30 leads/week(45.6%)10 leads/week(15%)

65 visitors/week 2 customers/mo(50%)4 customers/mo(50%)

Strategy 2:

Qualify leads

20 customers/mo(desired)1 trial/week

(5%)2 trials/week(25%)

20 interviews/week(66.67%)8 interviews/week(80%)

30 leads/week(45.6%)10 leads/week(15%)

65 visitors/week 2 customers/mo(50%)4 customers/mo(50%)

Strategy 2:

Qualify leads

Key Takeaways

01 Establish a customer throughput goal.

02 Identify limiting constraint(s).

03 Formulate possible strategies.

Created by Spark59 // online version available at leanstack.com

STRATEGY REPORT Title: Created:

Background

Analysis & Proposal

Current Condition

Goal

Follow-on Strategies (if any)

Implementation Plan

04 Break each strategy into small, fast, additive, experiments.

Created by Spark59 // online version available at leanstack.com

EXPERIMENT REPORT Title: Owner: Duration:

Background

Details

Falsifiable Hypotheses

Next Action

Validated Learning

Results

05 Measure effect on throughput and double-down on the strategies that work.

05 Measure effect on throughput and double-down on the strategies that work.

THANKS!

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Ash Maurya | Author, Running Lean | Founder, Spark59 | @ashmaurya

Life is too short to build something nobody wants

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