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