Lean Analytics: Use Data to Build a Better Startup Faster (Lean (O'Reilly))

by Alistair Croll

More efficiently means reducing the cost of delivering and supporting your service, but also lowering the cost of customer acquisition by doing less...

The plain truth is that not every user is good for you.

The key here is analytics. You need to segment real, valuable users from drive-by, curious, or detrimental ones.

Then you need to make changes that maximize the real users and weed out the bad ones.

When you purchase an iPhone, you’re also getting a tiny piece of Steve Jobs’s persona.

Many people blur these dimensions of a business model. We’re guilty of it, too. Freemium isn’t a business model — it’s a marketing tactic. SaaS isn’t a business model — it’s a way of delivering software. The ads on a media site aren’t a business model — they’re a way of collecting revenue.

The acquisition channel is how people find out about you.

12 revenue models: advertising, consulting, data, lead generation, licensing fee, listing fee, ownership/hardware, rental, sponsorship, subscription, transaction fee, and virtual goods.

Flair and customization of in-character appearance and gaming content (a pet, clothing for a player’s avatar)

Advantages (better weapons, upgrades, etc.)

Elimination of countdown timers

Upselling to a paid version

In-game ads

Percent of active users/players The percentage of users who’ve launched the application and use it on a daily and monthly basis: these are your daily active users (DAU) and monthly active users (MAU).

Time to first purchase How long it takes after activation for a user to make a purchase.

Virality On average, how many other users a user invites.

Churn How many customers have uninstalled the application, or haven’t launched it in a certain time period.

The business model for the company hinges on these numbers. The company needs to increase download volumes, increase the engagement rate, maximize ARPU, minimize churn, and improve virality so customer acquisition costs go down.

The most basic metric here is the percentage of users who pay something. Beyond this basic metric, you want to do segmentation and cohort analysis.

Track churn at 1 day, 1 week, and 1 month, because users leave at different times for different reasons. After one day it could be you have a lousy tutorial or just aren’t hooking users. After a week it could be that your game isn’t “deep enough,” and after a month it could be poor update planning.

Most of the money comes from a small number of users; these should be segmented and analyzed as a distinct group.

focus on whomever has the money.

buyers: if you can find a group that wants to spend money, it’s easy to find a group that wants to make money.

Early on, a marketplace can grow its inventory by hand, using decidedly low-tech approaches. Do things that don’t scale.

For some marketplaces, a per-listing or per-transaction fee, rather than a commission, works well.

If you can build buyer attention, it’ll be easy to convince sellers to join you, ...

Ultimately, volume of sales, and the resulting revenue, is the only metric that matters.

If you want to seed the seller side, you might crawl Craigslist and approach console owners to see if they have inventory, encouraging them to list items. If you want to seed the buyer side, you might set up a forum for nostalgic game players, bringing them together and inviting them from social sites.

You could create an artificial inventory by selling consoles to start with, and then gradually adding inventory from others. Car-service provider Uber overcame the chicken-and-egg problem in new markets by simply buying up available towncars: when the company launched in Seattle, it paid drivers $30 an hour to drive passengers around, and switched to a commission model only once it had sufficient demand to make it worthwhile for the drivers. The company created supply.

The first step of a two-sided marketplace — and the first thing to measure — is your ability to create an inventory (supply) or an audience (demand).

Buyer and seller growth The rate at which you’re adding new buyers and sellers, as measured by return visitors.

Inventory growth The rate at which sellers are adding inventory — such as new listings — as well as completeness of those listings.

Search effectiveness What buyers are searching for, and whether it matches the in...

Conversion funnels The conversion rates for items sold, and any segmentation that reveals what helps sell items — such as the professional photographs of a property me...

Ratings and signs of fraud The ratings for buyers and sellers, signs of fraud, a...

Pricing metrics If you have a bidding method in place (as eBay does), then you care whether sellers are setting prices too ...

Long-term, you can always buy supply, but you can’t buy demand. In an attention economy, having an engaged, attentive user base is priceless.

sellers. You need to track the number of searches that return no results — this is a lost sales opportunity.

These stages — Empathy, Stickiness, Virality, Revenue, and Scale

First, you need empathy. You need to get inside your target market’s head and be sure you’re solving a problem people care about in a way someone will pay for. That means getting out of the building, interviewing people, and running surveys.

Third, you need virality. Once you’ve got a product or service that’s sticky, it’s time to use word of mouth.

Stickiness: She meets with an initial group of prospects and signs contracts that look more like consulting agreements,

She attends trade shows to collect leads, carefully measuring cost of acquisition against close rate and lead value.

business. Premature focus or optimization of things that don’t really matter is a surefire way of killing your startup.

Enough people care Solving a problem for one person is called consulting. You need an addressable market. Marketers want audiences that are homogeneous within (that is, members of the segment have things in common to which you can appeal) and heterogeneous between (that is, you can segment and target each market segment in a focused manner with a tailored message).

in what it takes to make them aware of the problem.

recognition. Here are a few positive patterns to look out for when interviewing people: They want to pay you right away. They’re actively trying to (or have tried to) solve the problem in question. They talk a lot and ask a lot of questions demonstrating a passion for the problem. They lean forward and are animated (positive body language). Here are a few negative patterns to look out for: They’re distracted. They talk a lot, but it’s not about the problem or the issues at hand (they’re rambling). Their shoulders are slumped or they’re slouching in their chairs (negative body language). At the end of the problem interviews, it’s time for a gut check. Ask yourself: “am I prepared to spend the next five years of my life doing nothing else but solving the problem in question?”

Briefly set the stage for how the interview works. This is the point where you tell the interviewee what you’re going to tell (or ask) her. Highlight the goals of the interview to put the interviewee in the right frame of mind. Test the customer segment by collecting demographics. Ask the subject some basic questions to learn more about her and understand what market segment she represents. These questions depend a great deal on the types of people you speak to. Ultimately, you want to learn about their business or their lifestyle (in the context of the problems you’re proposing to solve), and learn more about their role.