Startup Metrics for Pirates (Sept 2010, Vancouver)

Startup Metrics for Pirates Western Canada Entrepreneur Bootcamp Vancouver, CAN - Sept 2010 Dave McClure @DaveMcClure http://www.500startups.com http://500hats.typepad.com http://slideshare.net/dmc500hats HashTags: #c100 #aarrr #leanstartup AARRR !

AARRR! : 5-Step Startup Metrics Model Website.com R evenue $$$ Biz Dev Ads, Lead Gen, Subscriptions, ECommerce A CQUISITION SEO SEM Apps & Widgets Affiliates Email PR Biz Dev Campaigns, Contests Direct, Tel, TV Social Networks Blogs Domains R etention Emails & Alerts System Events & Time-based Features Blogs, RSS, News Feeds

Startup Challenges Startups have problems in 3 key areas: Management : Set Priorities, Define Key Metrics Product : Build “Right” Features. Measure, Iterate. Marketing : Distribution, Distribution, Distribution. ( Search , Social , Mobile )

Startup 2.0 : “Lean Investor” Model Method : Invest in startups using incremental investment, iterative development. Start with lots of small experiments, filter out failure, and expand investment upon success. Incubator : $0-100K (“ Product Viability ”) Seed : $100-$1M (“ Expand Distribution ”) Venture : $1M-$5M (“ Maximize Revenue ”)

[Pardon The Blatant Commercial]

Dave McClure 2001-2009: Startup Investor: 500 Hats LLC, Founders Fund Tech Marketing : PayPal, Simply Hired, Mint Advisor, Angel Investor : 60+ Startups Conf. Organizer : Web 2.0, O’Reilly, Startonomics Stanford Visiting Lecturer : Facebook, Startup Metrics 80’s & 90’s: Entrepreneur : Founder/CEO Aslan Computing (acq.) Developer : Windows Apps / SQL DB Admin User Groups : E-Commerce, Internet, Client-Server Engineer : Johns Hopkins ‘88, BS Eng / Applied Math GEEK, CODER, ENTREPRENEUR Blogger, Startup Advisor Internet Marketing, SuperAngel/VC Investor

500 Hats Investments (13 deals, 2004-2008, ~$300K) 2004-2008: 13 deals, avg $25K results: 1 exit @ $170M (9x), +3-7 future wins

Founders Fund Investments (43 deals, 2008-2010, ~2.9M) Results : 8 raised seed rd $500K+ (+3 more break-even) Results : 5 raised next rd $2M+, 1 exit (expect 5+ more) fbFund REV (Facebook Incubator) 22 deals ($850K) ~$15-75K FF Angel LLC 21 deals ($2M) ~$50-250K

500 Startups Investments (~40 deals, 2010, ~$3.5M) Q1-Q3 / 2010: 38 deals, avg $100K Wildfire Crave Tello AwayFind MyGengo Recurly Mogotix EcoMom Zencoder Crocodoc SayHired RevNetics AppBistro Foodspotting Medialets Rapportive TransFS SiteJabber Estately FlowTown OneForty Twilio Postling Plancast WePay OtherInbox Viikii Zozi Graphicly Networked Blogs

Web 2.0: Hell Yes , Good Times. # Users, Bandwidth = Bigger . Lower Startup Costs = Cheaper . PPC, E-Com $ Growing = Better . Collect Usage Metrics in Real-Time Decisions Based on Measured User Behavior R.I.P. *BAD* TIMES

Discover Meaning Why Should Users Give a SHIT About You? Kathy Sierra: “ Creating Passionate Users”

Read Geoffrey Miller Sex + Evolution + Consumer Mktg = Awesome Sauce

Other Great Shit. Psychology + Comics

Discover Meaning Keywords, Images, Call-to-Action Top 10 - 100 words Your Brand / Products Customer Needs / Benefits Competitor’s Brand / Products Semantic Equivalents Misspellings Relevant images People Products Problems Solutions Call-to-Action Words Images Context Button/Link Emotion Result Positive? Negative? Neutral (= Death) A/B test & Iterate

KILL A FEATURE. Something Sucks . Find It. KILL It. STOP ADDING FEATURES. Find the ONE THING that users LOVE . How to figure out? TAKE. SHIT. AWAY . When they SCREAM , you’ve FOUND it. Then Bring it Back … Only Better. Tip: KILL a Feature Every Week .

The Lean Startup Talk to Customers ; Discover Problems Progress ≠ Features ( Less = More ) Fast, Frequent Iteration (+ Feedback Loop ) Measure Conversion ; Compare 2+ Options Focus on Product/Market Fit (don’t “launch” b4) Keep it Simple & Actionable

Discover Customers (Steve Blank, SteveBlank.com)

Iterate , Dammit. (Eric Ries, StartupLessonsLearned.com) LEARN BUILD MEASURE IDEAS CODE DATA

Product/Market Fit b4 “Launch” (Sean Ellis, Startup-Marketing.com) [email_address] Blog: startup-marketing.com

Just Gimme the GOOD Metrics. Users, Pages, Clicks, Emails, $$$...? Q: Which of these is best? How do you know? 1,000,000 one-time, unregistered unique visitors 500,000 visitors who view 2+ pages / stay 10+ sec 200,000 visitors who clicked on a link or button 20,000 registered users w/ email address 2,000 passionate fans who refer 5+ users / mo. 1,000 monthly subscribers @ $5/mo the good stuff.

Q: What’s My Business Model? Can be one of the following: Drive Usage (= Activation, Retention) Get Users (= Acquisition, Referral) Make Money (= Revenue*) * ideally profitable revenue Note: eventually need to turn Users / Usage -> Money

Optimize 4 Happiness (both User + Business) Define States of User + Business Value Prioritize (Estimate) Relative Value of Each State Move Users: Lower Value -> Higher Value Optimize for User Happiness / Business $$$ Achieve Low Cost + High Value @ Scale $$$

Startup Metrics for Pirates A cquisition: users come to site from various channels A ctivation: users enjoy 1 st visit: " happy ” experience R etention: users come back , visit site multiple times R eferral: users like product enough to refer others R evenue: users conduct some monetization behavior (note: If you’re in a hurry, Google “Startup Metrics” & watch 5m video) AARRR !

AARRR!: 5-Step Startup Metrics Model Website.com R evenue $$$ Biz Dev Ads, Lead Gen, Subscriptions, ECommerce A CQUISITION SEO SEM Apps & Widgets Affiliates Email PR Biz Dev Campaigns, Contests Direct, Tel, TV Social Networks Blogs Domains R etention Emails & Alerts System Events & Time-based Features Blogs, RSS, News Feeds

Startup Challenges Startups have problems in 3 key areas: Management : Set Priorities, Define Key Metrics Product : Build the “Right” Features. Measure, Iterate. Marketing : Distribution, Distribution, Distribution. ( Search , Social , Mobile )

Role: Founder / CEO Q: Which Metrics? Why? A: Focus on Critical Few Actionable Metrics (if you don’t use the metric to make a decision, it’s not actionable) Hypothesize Customer Lifecycle Target ~3-5 Conversion Events (tip: Less = More) Test, Measure, Iterate to Improve

Role: Product / Eng / Design Q: What Features to Build? Why? When are you “Done”? A: Easy-to-Find , Fun / Useful , Unique Features that Increase Conversion (stop iterating when increase decelerates) Wireframes = Conversion Steps Measure, A/B Test, Iterate FAST (daily/weekly) Optimize for Conversion Improvement 80% on existing feature optimization 20% on new feature development

Example Conversion Dashboard (note: *not* actuals… your mileage may vary) Stage Conversion Status Conv. % Est. Value (*not* cost) Acquisition Visitors -> Site/Widget/Landing Page (2+ pages, 10+ sec, 1+ clicks = don’t abandon) 60% $.05 Activation “ Happy” 1 st Visit; Usage/Signup (clicks/time/pages, email/profile reg, feature usage) 15% $.25 Retention Users Come Back; Multiple Visits (1-3x visits/mo; email/feed open rate / CTR) 5% $1 Referral Users Refer Others (cust sat >=8; viral K factor > 1; ) 1% $5 Revenue Users Pay / Generate $$$ (first txn, break-even, target profitability) 2% $50

Role: Marketing / Sales Q: What channels? Which users? Why? A: High Volume (#), Low Cost ($), High Conv (%) Design & Test Multiple Marketing Channels + Campaigns Select & Focus on Best-Performing Channels & Themes Optimize for conversion to target CTAs, not just site/landing page Match/Drive channel cost to/below revenue potential Low-Hanging Fruit: Blogs SEO/SEM Landing Pages Automated Emails

Example Marketing Channels PR Contest Biz Dev Direct Marketing Radio / TV / Print Dedicated Sales Telemarketing Email SEO / SEM Blogs / Bloggers Viral / Referral Affiliate / CPA Widgets / Apps LOLCats ;)

M AARRR keting Plan Marketing Plan = Target Customer Acquisition Channels 3 Important Factors = Volume (#), Cost ($), Conversion (%) Measure conversion to target customer actions Test audience segments, campaign themes, Call-To-Action ( CTA s) [Gradually] Match Channel Costs => Revenue Potential Increase Vol. & Conversion, Decrease Cost, Optimize for Revenue Potential Avg Txn Value ( ATV ), Ann Rev Per User ( ARPU ), Cust Lifetime Value ( CLV ) Design channels that (eventually) cost <20-50% of target ATV, ARPU, CLV Consider Costs, Scarce Resource Tradeoffs Actual $ expenses Marketing time & resources Product/Engineering time & resources Cashflow timing of expense vs. revenue, profit

One Step at a Time. Make a Good Product : Activation & Retention Market the Product : Acquisition & Referral Make Money : Revenue & Profitability “ You probably can’t save your Ass and your Face at the same time… choose carefully .” – DMC

Startup 2.0: “Lean Investor” Model Method : Invest in startups using incremental investment, iterative development. Start with lots of small experiments, filter out failure, and expand investment upon success. Incubator : $0-100K (“ Product Viability ”) Seed : $100-$1M (“ Expand Distribution ”) Venture : $1M-$5M (“ Maximize Revenue ”)

Investment #1: Incubate (“Product”) Structure 1-3 founders $25K-$100K investment Incubator environment: multiple peers, mentors/advisors Build Functional Prototype / “ Minimum Viable Product ” ( MVP ): Concept->Alpha, ~3-6 months Develop Minimal Critical Feature Set => Get to “ It Works ” Instrument Basic Dashboard, Conversion Metrics Test Cust. Adoption (10-1000 users) / Cust. Satisfaction (Scale: 1-10) Demonstrate Concept, Reduce Product Risk, Test Functional Use Develop Metrics & Filter for Follow-on Investment

Investment #2: Seed (“Market”) Structure 2-5 person team $100K-$1M investment Syndicate of Angel Investors / Small VC Funds Improve Product, Expand Market , Test Revenue: Alpha->Beta, ~6-12 months Customer Sat ≥ 6 => Get to “ Doesn’t Suck ” Setup A/B Testing Framework, Optimize Conversion Test Marketing Campaigns, Cust Acqstn Channels Prove Solution/Benefit, Assess Market Size Test Channel Cost, Revenue Opportunity Determine Org Structure, Key Hires

Investment #3: Venture (“Revenue”) Structure 5-10 person team $1M-$5M investment VC Investors Make Money , Get to Sustainability: Beta->Production, 12-18 months Customer Sat ≥ 8 => “ It Rocks, I’ll Tell My Friends ” MktgPlan => Predictable Channels / Campaigns + Budget Scalability & Infrastructure, Customer Service & Operations Connect with Distribution Partners Prove/Expand Market, Operationalize Business Future Milestones: Profitable/Sustainable , Exit Options

[ Don’t Pitch Me, Bro. ] Seriously : Don’t. Fucking . Pitch Me. (and don’t email me either, cuz i won’t read it)

Don’t Pitch Me, Bro. 1 st : Read my stuff (blogs, decks, tweets). 2 nd : Get a referral from someone I trust. Fellow Investors Portfolio Companies *Not* Your Mom. 3 rd : Be Concise. Don’t Suck . Email

Links & Resources Additional References: Influence: The Psychology of Persuasion Robert Cialdini (book) The Mating Mind Geoffrey Miller (book) Putting the Fun in Functional Amy Jo Kim (etech 2006 preso) Futuristic Play Andrew Chen (blog) Don’t Make Me Think Steve Krug (book) Designing for the Social Web Joshua Porter (book, website) Startup Lessons Learned Eric Ries (blog) Customer Development Methodology Steve Blank (presentation, blog ) Startup-Marketing.com Sean Ellis (blog) KISSmetrics.com Hiten Shah / Neil Patel (website) How To Pitch a VC Dave McClure (slides, NSFW) Understanding Comics Scott McCloud (book)

Website.com Activation Criteria: 10-30+ seconds 2-3+ page views 3-5+ clicks 1 key feature usage do LOTS of landing page & A/B tests – make lots of dumb guesses & iterate FAST Activation SEO SEM Apps & Widgets Affiliates Email PR Biz Dev Campaigns, Contests Direct, Tel, TV Social Networks Blogs Domains

Activation What do users do on their first visit? Example Activation Goals Click on something! Account sign up / Emails Referrals / Tell a friend Widgets / Embeds Low Bounce Rate Activation Tips Less is more Focus on user experience / usability Provide incentives & call to actions Test and iterate continuously

Activation What do users do on their first visit? Key Metrics to Track Pages per visit Time on site Conversions

Activation Tools Crazy Egg (Visual Click Mapping) http://crazyegg.com Google Website Optimizer (A/B & Multivariate Testing) http://google.com/websiteoptimizer Marketo.com (B2B Lead Generation Management) http://marketo.com Resources Experimentation and Testing: A Primer kaushik.net/avinash/2006/05/experimentation-and-testing-a-primer.html Landing Page Design Toolbox: 100 Tips & Tools http://tinyurl.com/326co6 Landing Page Tutorials & Case Studies http://www.copyblogger.com/landing-pages/ 101 Easy Easy to use Google Website Optimizer http://conversion-rate-experts.com/articles/101-google-website-optimizer-tips/

Website.com Automated emails: lifecycle emails @ +3, +7, +30d status / “best of” weekly/monthly “ something happened” emails BUT: make it easy to unsubscribe Tip on emails: > 80% or more on SUBJECT LINE < 20% or less on BODY TEXT Retention SEO SEM Apps & Widgets Affiliates Email PR Biz Dev Campaigns, Contests Direct, Tel, TV Social Networks Blogs Domains Emails & Alerts System Events & Time-based Features Blogs, RSS, News Feeds

Cohort Analysis: Distrib of Visits over Time Rate of Decay Effective Customer Lifecycle Retention Methods Automated Emails * Track open rate / CTR / Quantity RSS / News Feeds * Track % viewed / CTR / Quantity Widgets / Embeds * Track impressions / CTR / Quantity Retention How do users come back? How often?

Example Retention Goals 1 - 3+ visits per month 20% open rate / 2% CTR High deliverability / Low spam rating Long customer life cycle / Low decay Identify fanatics and cheerleaders Retention Tips Email is simple and it works BUT make unsubscribe easy 80% subject line / 20% body text ACTUALLY 99% subject line / 1% body text Fanatics = virality + affiliate channel (bloggers?) Retention How do users come back? How often?

Retention How do users come back? How often? Key Metrics to Track Source Quantity Conversions Visitor Loyalty Session Length

Retention Tools Campaign Monitor / MailChimp (email newsletter software) campaignmonitor.com / mailchimp.com TriggerMail (site-centric email management) triggermail.net Litmus (email and website design testing - clients / browsers) litmusapp.com Resources 30 free HTML email templates campaignmonitor.com/resources/templates.aspx Best Practices in Writing Email Subject Lines mailchimp.com/resources/best-practices-in-writing-email-subject-lines.phtml Learning Viral: Viral Emails of Tagged.com okdork.com/2008/04/10/learning-viral-studying-taggedcom/

Website.com Marketing Channels: largest-volume (#) lowest-cost ($) best-performing (%) Acquisition SEO SEM Apps & Widgets Affiliates Email PR Biz Dev Campaigns, Contests Direct, Tel, TV Social Networks Blogs Domains

Acquisition Where are users coming from? Acquisition Methods SEO / SEM Blogs Email Social Media & Social Networks Domains

Acquisition Keyword Vocabulary Top 10 - 100 words Your Brand / Products Customer Needs / Benefits Competitor’s Brand / Products Semantic Equivalents Misspellings Things to analyze Sources Volume Cost Conversion

Acquisition Where are users coming from? Key Metrics to Track Quantity (#) Cost ($) Conversions (%) Example

Acquisition Tools Google Analytics (web analytics) google.com/analytics Google Keyword Tool (keyword research tool) adwords.google.com/select/KeywordToolExternal SEO Book Tools (SEO related tools) tools.seobook.com Resources SEO Book Blog seobook.com/blog The Social Media Manual: Read Before You Play searchengineland.com/071120-144401.php Strategies to ruthlessly acquire users andrewchen.typepad.com/andrew_chens_blog/2007/04/10_obvious_stra.html

Website.com Focus on driving referrals * after * users have a “ happy ” experience; avg score >= 8 out of 10 Referral Acquisition SEO SEM Apps & Widgets Affiliates Email PR Biz Dev Campaigns, Contests Direct, Tel, TV Social Networks Blogs Domains Retention Emails & Alerts System Events & Time-based Features Blogs, RSS, News Feeds

Referral How do users refer others? Referral Methods Send to Friend: Email / IM Social Media Widgets / Embeds Affiliates

Referral Viral Growth Factor Viral Growth Factor = X * Y * Z X = % of users who invite other people Y = average # of people that they invited Z = % of users who accepted an invitation A viral growth factor > 1 means an exponential organic user acquisition.

Referral Tools Gigya (social media distribution & tracking tool) gigya.com ShareThis / AddThis (sharing buttons) sharethis.com / addthis.com GetMyContacts (PHP contacts importing & invitation software) getmycontacts.com Resources Seven Ways to GO VIRAL lsvp.wordpress.com/2007/03/02/seven-ways-to-go-viral/ What’s your viral loop? Understanding the engine of adoption andrewchen.typepad.com/andrew_chens_blog/2007/07/whats-your-vira.html Metrics: Where Users Come From slideshare.net/guest2968b8/rockyou-snap-summit-32508

Website.com Revenue This is the part *you* still have to figure out… (we don’t know jack about your business) R evenue $$$ Biz Dev Ads, Lead Gen, Subscriptions, ECommerce Acquisition SEO SEM Apps & Widgets Affiliates Email PR Biz Dev Campaigns, Contests Direct, Tel, TV Social Networks Blogs Domains Retention Emails & Alerts System Events & Time-based Features Blogs, RSS, News Feeds

Revenue How do you make money? Revenue Tips Don’t Rely on AdSense (only) Start Free => 2% “ Freemium ” Subscription / Recurring transactions Qualify your customers -> Lead generation (arbitrage) Sell something! (physical or virtual)

Revenue Resources & Tools Revenue Metrics (Andrew Chen) http://tinyurl.com/47r63a How to Create a Profitable “Freemium” Startup (Andrew Chen) http://tinyurl.com/8z9ygk 2008 Affiliate Marketing Review (Scott Jangro) http://tinyurl.com/86wak4

Types of Measurement Qualitative : Usability Testing / Session Monitoring Watch users, guess problems & solutions from small # of users Quantitative : Traffic Analysis / User Engagement Track users, usage, conv %'s for empirical sample # of users Comparative : A/B, Multivariate Testing Compare what users do in one scenario vs another Measure which copy/graphics/UI are most effective Competitive : Monitoring & Tracking Competitors Track competitor activity & compare against yours (if possible) Compare channels, keyword traffic, demographics, user sat, etc.

Startup Metrics for Pirates (Sept 2010, Vancouver)

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