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April 3 - May 28, 2022
Entrepreneur, author, and investor Tim Ferriss, in an interview with Kevin Rose, said that if you focus on making 10,000 people really happy, you could reach millions later.[56] For the first launch of your MVP, you can think even smaller, but Ferriss’s point is absolutely correct: total focus is necessary in order to make genuine progress.
Don’t drive new traffic until you know you can turn that extra attention into engagement. When you know users keep coming back, it’s time to grow your user base.
As we’ve said, the MVP is a process, not a product. You don’t pass Go just because you put something into people’s hands. Expect to go through many iterations of your MVP before it’s time to shift your focus to customer acquisition. Iterating on your MVP is difficult, tedious work. It’s methodical. Sometimes it doesn’t feel like innovation. Iterations are evolutionary; pivots are revolutionary. This is one of the reasons founders get frustrated and decide instead to pivot repeatedly in the hopes that something will accidentally engage their users. Resist that temptation.
The MVP should include the simplest, least-friction path between your user and the “aha!” moment you’re trying to deliver.
One mobile analytics expert for an adult-content site told us his rule for new features is simple: “If you can’t do it in three taps with one hand, it’s broken.”
It’s better to make big bets, swing for the fences, try more radical experiments, and build more disruptive things, particularly since you have fewer user expectations to contend with than you will later on.
Stickiness Stage
Prioritizing feature development during an MVP isn’t an exact science. User actions speak louder than words.
“Only once we understand ‘why’ can we really look at ‘what’ and ‘how’.”
Even with such a deep level of planning and an all-inclusive approach to product development, Zach still says that the company is careful not to “blindly build features based on internal or customer requests.” Instead, it runs experiments to learn more.
Laura Klein is a user experience (UX) professional and consultant, as well as the author of UX for Lean Startups (forthcoming from O’Reilly), part of the Lean Series along with this book. She writes a great blog called Users Know. You should read her post, “Why Your Customer Feedback is Useless,” in its entirety.[
Products that boost revenues are easier for people to believe in — just look at lotteries and get-rich-quick schemes versus savings plans and life insurance. Eventbrite and Kickstarter know this.
well-heeled
Problem-Solution Canvas
On a weekly basis we’d ask founders to prepare a Problem-Solution Canvas and present it. The canvas became the focal point for our status meetings, and it was extremely helpful for keeping those meetings productive.
The problem-solution canvas
The problem-solution canvas 2
What’s the problem, how do you propose to fix it, and how will you know if you succeeded? That’s the core of the Problem-Solution Canvas.
The core of the problem-solution canvas
Be careful that you haven’t moved on from stickiness too soon. If you’re investing in adding users, but your churn is high, you may not be getting a good enough return on investment. Premature growth burns money and time, and will quickly kill your startup.
viral coefficient, which venture capitalist David Skok sums up nicely as “the number of new customers that each existing customer is able to successfully convert.”[
To calculate your viral coefficient: 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. Table 17-1 shows sample math for a company with 2,000 customers who send 5,000 invitations, 500 of which are accepted. Table 17-1. Sample math for a viral coefficient calculation Existing customers 2,000 Total invitations sent 5,000 Invitation rate 2.5 Number that get clicked 500 Acceptance rate
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Cycle time makes a huge difference —
The metrics that matter in the virality phase are about outreach and new user adoption. While the most fundamental of these is the viral coefficient, you can also measure the volume of invites sent by a user, or the time it takes her to invite someone.
For companies selling to an enterprise market, where click-to-invite virality isn’t the norm, there are other metrics that might work better. One is the net promoter score, which simply asks how likely a user is to tell his friends about your product and compares the number of strong advocates to those who are unwilling to recommend it.[64
That doesn’t mean you should ignore virality; rather, it means you need to treat it as a force multiplier that will make your paid marketing initiatives more successful. That’s why the Virality stage comes before the Revenue and Scale stages: you want to get the biggest bang for your marketing buck, and to do so, you need to optimize your viral engines first.
Hyatt also underscored the importance of identifying One Metric That Matters, then optimizing it before moving on to the next one.
Number of feed views was a leading indicator of revenue potential even before the company hit the Revenue stage.
You find leading indicators by segmentation and cohort analysis. Looking at one group of users who stuck around and another group who didn’t, you might see something they all have in common.
Product-focused growth hacks — what Chamath Palihapitiya calls “aha moments” — need to happen early in the user’s lifecycle in order to have an impact on the greatest number of possible users. That’s why social sites suggest friends for you almost immediately.
Growth hacking combines many of the disciplines we’ve looked at in the book: finding a business model, identifying the most important metric for your current stage, and constantly learning and optimizing that metric to create a better future for your organization.
A Summary of the Virality Stage Virality refers to the spread of a message from existing, “infected” users to new users. If every user successfully invites more than one other user, your growth is almost assured. While this is seldom the case, any word of mouth adds to customer growth and reduces your overall customer acquisition costs. Inherent virality happens naturally as users interact with your product. Artificial virality is incentivized and less genuine. And word of mouth, while hard to create and track, drives a lot of early adoption. You need to segment users who come from all three
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Customer lifetime value and customer acquisition cost drive your growth, and you’ll run experiments to try to capture more loyal users for less, tweaking how you charge, when you charge, and what you charge for.
The goal in the Revenue stage is to turn your focus from proving your idea is right to proving you can make money in a scalable, consistent, self-sustaining way.
revenue per customer is a better indicator of actual health. It’s a ratio, after all, and there’s a lot more you can learn from it. For example, if revenue is going up but revenue per customer is going down, it tells you that you’re going to need a lot more customers to continue growing at the same pace.
Balancing acquisition, revenue, and cash flow is at the core of running many business models, particularly those that rely on subscription revenue and paying to gain customers.
collects and analyzes a lot of data. In addition to using Dash themselves, they rely on Woopra for engagement and to arm their sales team, Graphite for tracking time-series data, and Pingdom for uptime and availability.
Every company lives in an ecosystem — in this case, of readers, publishers, and advertisers. It’s often easier to pivot to a new market than to create an entirely new product, and, once you’ve done so, for the market to help you realize what product you should have made in the first place.
A key measurement of successful revenue growth is whether the customer lifetime value exceeds the customer acquisition cost.
EBITDA — earnings before income tax, depreciation, and amortization — is an accounting term that fell out of favor when the dot-com bubble burst. Many companies used this model because it let them ignore their large capital investments and crushing debt. But in today’s startup world, where up-front capital expenses have been replaced by pay-as-you-go costs like cloud computing, EBITDA is an acceptable way to consider how well you’re doing.
You’re moving from proving you have the right product to proving you have a real business. As a result, your metrics shift from usage patterns to business ratios.
Revenue stage
If the Revenue stage was about proving a business, the Scale stage is about proving a market.
In the Scale stage, you want to compare higher-order metrics like Backupify’s OMTM — customer acquisition payback — across channels, regions, and marketing campaigns.
By now, you’re a bigger organization. You’re worrying about more people, doing more things, in more ways. It’s easy to get distracted. So we’d like to propose a simple way of focusing on metrics that gives you the ability to change while avoiding the back-and-forth whipsawing that can come from management-by-opinion. We call it the Three-Threes Model. It’s really the organizational implementation of the Problem-Solution Canvas we saw in Chapter 16.
leap off
As you grow, you’ll need to have more than one metric at a time. Set up a hierarchy of metrics that keeps the strategy, the tactics, and the implementation aligned with a consistent set of goals. We call this the three threes.
The core idea behind Lean Analytics is this: by knowing the kind of business you are, and the stage you’re at, you can track and optimize the One Metric That Matters to your startup right now.
Lean anlytics stage
Business model Company stage E-commerce Two-sided marketplace Software as a Service Free mobile app Media User-generated content The really big question Will they buy enough for enough money from you? Will it solve a pain they’ll pay for? Will they engage with content in a repeatable manner? Empathy stage: Problem validation: getting inside your market’s head to discover real needs you can solve. These tend to be qualitative discussions and open questions. How do buyers become aware of the need? How do they try to find a solution? What pain do they encounter as a result? What are their
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What metrics matters depending on your business model and stage
It’s easy to get stuck on one specific metric that looks bad and invest considerable time and money trying to improve it. Until you know where you stand against competitors and industry averages, you’re blind. Having benchmarks helps you decide whether to keep working on a specific metric or move on to the next challenge.
Investor Paul Graham makes a good case[78] that above all else, a startup is a company designed to grow fast. In fact, it’s this growth that distinguishes a startup from other new ventures like a cobbler or a restaurant. Startups, Paul says, go through three distinct growth phases: slow, where the organization is searching for a product and market to tackle; fast, where it has figured out how to make and sell it at scale; and slow again, as it becomes a big company and encounters internal constraints or market saturation, and tries to overcome Porter’s “hole in the middle.”
If the company is at the Revenue stage, then growth is measured in revenue; if it’s not charging money yet, growth is measured in active users.
