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Lean Analytics
Lean Startup conference
San Francisco, November 16 2015
@acroll
Don’t sell what you can make. Make what you can sell.
Kevin Costner is a lousy entrepreneur.
The core of Lean
is iteration.
Waterfall approach
You know the problem and the solution.
Known set of
requirements
Known ways to satisfy
them
Spec Build Test Launch
Agile methodologies
Know the problem, find the solution
Known set of
requirements
Unclear how to satisfy
them
Build Test LaunchViable?Problem

statement
Adjust
Sprints
Unknown se...
Lean approach
First, know that you don’t know.
Possible problem
space
Product/
market
hypothesis
Trial startup
Product/
market
hypothesis
Trial startup
Product/market
hy...
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 a...
Most startups don’t know what they’ll
be when they grow up.
Hotmail

was a
database
company
Flickr

was going to
be an MMO...
Gottfried von Leibniz
was a geek just like you.
First calculator

(stepped reckoner)
One of the first
to recognize the
importance of
binary.
“I thought again
about my earl...
The best of all possible
worlds is the one in
which the fewest
starting conditions
produce the greatest
variety of outcome...
Rethinking the fundamentals is how
you discover new models.
What’s the
biggest
problem

in a hair
salon?
The empty chair.
Knowing this, how
might you change
the client/customer
relationship?
Finding the tipping points of markets.
“Using Cue, you can tell if someone
has the ‘flu in 10 minutes.”
http://tiltthewindmill.com/when-can-becomes-must/
“Using Cue, you must tell if someone
has the ‘flu in 10 minutes…
…or Johnny can’t come on the school trip.”
Quantifying the riskiest parts.
The Attention Economy
“What information consumes
is rather obvious: it consumes
the attention of its recipients.
Hence a w...
Lit motors tests the risky part
But how?
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.
Some fundamentals.
Analytics, performance, aggregation, and the right metrics
Fundamental:

What makes a good metric?
A good metric is:
Understandable
If you’re busy
explaining the
data, you won’t
be busy acting
on it.
Comparative
Compariso...
The
simplest
rule
bad

metric.
If a metric won’t change how
you behave, it’s a
h"p://www.flickr.com/photos/circasassy/78581...
Metrics help you know yourself.
Acquisition
Hybrid
Loyalty
70%

of retailers
20%

of retailers
10%

of retailers
You are
j...
Qualitative
Unstructured, anecdotal,
revealing, hard to
aggregate, often too
positive & reassuring.
Warm and fuzzy.
Quanti...
Exploratory
Speculative. Tries to find
unexpected or
interesting insights.
Source of unfair
advantages.
Cool.
Reporting
Pre...
Rumsfeld on Analytics
(Or rather, Avinash Kaushik channeling Rumsfeld)
Things we
know
don’t

know
we know Are facts which ...
MayAprMarFeb
Slicing and dicing data
Jan
0
5,000
Activeusers
Cohort:
Comparison of
similar groups
along a timeline.
(this ...
Which of these two companies
is doing better?
  January February March April May
Rev/customer $5.00 $4.50 $4.33 $4.25 $4.50
Is this company
growing or stagnating?
Cohor...
Cohort 1 2 3 4 5
January $5 $3 $2 $1 $0.5
February $6 $4 $2 $1  
March $7 $6 $5    
April $8 $7      
May $9        
Avera...
Lagging
Historical. Shows you
how you’re doing;
reports the news.
Example: sales.
Explaining the
past.
Leading
Forward-loo...
Fundamental:

Correlation
1
10
100
1000
10000
Ice cream consumption Drownings
Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
Correlated
Two variables that are
related (but may be
dependent on
something else.)
Ice cream &
drowning.
Causal
An indepe...
A leading, causal metric
is a superpower.
h"p://www.flickr.com/photos/bloke_with_camera/401812833/sizes/o/in/photostream/
A Facebook user reaching 7 friends within 10 days of signing up
(Chamath Palihapitiya)
If someone comes back to Zynga a da...
Why is Nigerian spam so badly
written?
Aunshul Rege of Rutgers University, USA in 2009
Experienced scammers expect a “strike rate” of 1 or 2 replies per 1,000 me...
Turns out the word “Nigeria” is the best
way to identify promising prospects.
Nigerian spammers
really understand their target market.
They see past vanity metrics.
Eric’s three engines of growth
Virality
Make people
invite friends.
How many they
tell, how fast they
tell them.
Price
Spe...
Dave’s Pirate Metrics
AARRR
Acquisition
How do your users become aware of you?
SEO, SEM, widgets, email, PR, campaigns, bl...
Stage
EMPATHY
I’ve found a real, poorly-met need that a
reachable market faces.
STICKINESS
I’ve figured out how to solve th...
Six business model archetypes.
E-commerce SaaS Media
Mobile

app
User-gen

content
2-sided

market
The business you’re in
(Which means eye
charts like these.)
Customer Acquisition Cost
paid direct search wom
inherent
virality
VISITOR
Freemium/t...
Model + Stage = One Metric That Matters.
One Metric

That Matters.
The business you’re in
E-Com SaaS Mobile 2-Sided Media ...
Really? Just one?
Yes, one.
In a startup, focus is hard to achieve.
Having only one metric
addresses this problem.
www.theeastsiderla.com
Moz cuts down on metrics
SaaS-based SEO toolkit in the scale stage. Focused on net adds.
Was a marketing campaign successf...
Metrics are like squeeze toys.
http://www.flickr.com/photos/connortarter/4791605202/
Empathy
Stickiness
Virality
Revenue
Scale
E-
commerce
SaaS Media
Mobile

app
User-gen

content
2-sided

market
Interviews;...
Better: bit.ly/BigLeanTable
Drawing some lines in the sand.
A company loses a quarter of its
customers every year.
Is this good or bad?
Not knowing what normal is
makes you do stupid things.
Baseline:
5-7% growth a week
“A good growth rate during YC
is 5-7% a week,” he says. “If
you can hit 10% a week you're
doi...
Baseline:
10% visitor engagement/day
Fred Wilson’s social ratios
30% of users/month use web or mobile app
10% of users/day...
Baseline:
2-5% monthly churn
• The best SaaS get 1.5% - 3% a month. They have multiple Ph.D’s
on the job.
• Get below a 5%...
Baseline:
Calculating customer lifetime
25%

monthly churn
100/25=4

The average
customer lasts
4 months
5%

monthly churn...
Baseline:
CAC under 1/3 of CLV
• CLV is wrong. CAC Is probably wrong, too.
• Time kills all plans: It’ll take a long time ...
Who is worth more?
Today
A
Lifetime:
$200
Roberto Medri, Etsy
B
Lifetime:
$200
Visits
<Break>
</Break>
The Lean Analytics cycle
Draw a new line
Pivot or

give up
Try again
Success!
Did we move the
needle?
Measure
the results
Make changes
in productio...
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 ...
5,000 shoots per month
by February 2012
Hang on a second.
Gut instinct (hypothesis)
Professional photography helps AirBnB’s business
SRSLY?
Draw a new line
Pivot or

give up
Try again
Success!
Did we move the
needle?
Measure
the results
Make changes
in productio...
“Gee, those
houses that do
well look really
nice.”
Maybe it’s the
camera.
“Computer: What
do all the
highly rented
houses ...
Circle of Moms: Not enough engagement
• Too few people were
actually using the
product
• Less than 20% of any
circles had ...
Landing page design A/B testing
Cohort analysis General analytics
URL shortening
Funnel analytics
Influencer Marketing
Publ...
The mobile app!
customer lifecycle!
Ratings
Reviews
Search
Leaderboards
Purchases
Downloads
Installs
Play
Disengagement
Re...
Intrapreneurship in large
organizations
(http://csinvesting.org/2012/01/06/fortune-500-extinction/)
F500 Life
Expectancy
Growth by entering
a new business 95

% f...
When you’re a startup
your goal is to find a sustainable,
repeatable business model.
When you’re a big company
your goal is...
Intrapreneur:
Someone working to produce
disruptive change in an organization
that has already found a sustainable,
repeat...
Intrapreneurship:
The difference between a rogue agent
and a special operative is permission.
The job of an intrapreneur is to
identify an adjacent market, product,
or method that conforms to
organizational filters.
I...
Also: a pariah.
Successful innovators share certain attributes.
Bad listener: Wilfully ignore feedback from your best cust...
In other words, if your job is change you
have your work cut out for you.
This isn’t about a lack of resources.
http://www.flickr.com/photos/maladjusted/5207565912
Blockbuster had a lot going for it.
Plenty of inventory, of course.
But that matters less than...
...market intelligence,
customers, existing
payment approval,
and customer
history.
The problem was framing:
Blockbuster thought it was in the video
store management business. Netflix
realized it was in the ...
YOU ARE
HERE
YOU ARE
HERE
LOCAL

MAXIMUM
OPTIMIZATION

OF CURRENT
METRICS
YOU ARE
HERE
GLOBAL

MAXIMUMINNOVATION

WITH NEW

RULES
YOU ARE
HERE
SHORT-TERM INVESTORS

HATE GOING DOWNHILL
In a big company,
analytics replaces opinion with fact.
Companies that use data-driven
analytics instead of intuition have
5%-6% higher productivity and
profits than competitors.
...
Arbitron and radio data
Times a song in “heavy
rotation” is played daily
2007 2012
266
Current

state
Business
optimization
(five mores)

Product,

market,

method
innovation

Business
model
innovation

You can...
Improvement Adjacency Remodeling
Do the same,

only better.
Explore what’s

nearby quickly
Try out new

business models
Le...
Sustaining Adjacent Disruptive
Next year’s car Electric car,

same dealer
On-demand, app-based

car service
Sustaining
innovation
is about
more of
the same.
(says Sergio Zyman)
More things
To more people
For more money
More often
...
Blizzard extends the
lifespan of WOW
Early

adopters
Rapid

growth
Market

saturation
The infamous S-curve
(Product lifecy...
Blizzard extends the
lifespan of WOW
Blizzard extends the
lifespan of WOW
Fixing this: sustaining growth with novelty
Product & market innovation
(“New & impro...
Blizzard extends the
lifespan of WOW
WOW
Burning

Crusade
Wrath of

the Lich King
Mists of

PandariaCataclysm
Warlords of
...
Adjacent innovation is about changing
one part of the model in a way that
alters the value network.
Experiment with product, market,
and method.
Product
(new “what”)
Market
(new “who”)
Method
(new “how”)
3 kinds of
innovation
Adjacent product
to the same
market in the
same way
Transformative innovation is about
taking a leap, changing more than one
dimension simultaneously in search of
a new busin...
If sustaining, incremental innovation
produces linear growth, then
disruptive, transformative innovation
produces exponent...
Transformative isolation:
Skunkworks
Transformative
incubation:
Metlife Infinity
Some street-smart

tactics that work
“How quickly can you test this”

should be a criteria.
You’re not building a product,

you’re figuring out what product to ...
How easily can you test these out?
Take baby steps
How you get there matters as much as where you’re going.
Netflix
Tesla
http://www.hdwallpapersinn.com/wp-content/uploads/2012/12/600-tesla.jpg
Twitter’s 140-character
limit isn’t arbitrary. It’s
constrained by the size
of SMS (160
characters) and
username (20
chara...
Black car Uberpool
Let them ask for an out
Detecting SaaS churn early without hurting cashflow
The tradeoff
Charge a monthly fee Charge annual fee up front
Find out if they hate it sooner, when
they cancel on first bil...
They’re happy, you keep your
money, goodwill for offering.
They’re unsatisfied, you made it
right, they tell you why, you l...
Protip: Campaigns that don’t suck.
Targeting
matters.
How to build a marketing campaign
http://www.yearonelabs.com/three-questions-all-marketers-must-answer/
When will you deci...
Waterslides, not funnels
The whole point of digital is personal
Segment 1
User segment

(who)
Segment 2
Segment 3
Goal

(what)
Goal 1
Goal 2
Goal 3...
http://www.thirdwunder.com/funnels-are-a-horrible-metaphor/Photo Credit: Patrick McGarvey
More like this.
Pitchers not buckets
Bounces Non-

creators
Non-

payers
Churn
Signup

rate
Engagement

level
Conversion

rate
Visitors
Subscribers
Engaged use...
Bounces Non-

creators
Non-

payers
Churn
Improve stickiness; call-to-action optimization;

A/B page testing; picking bett...
Hardcore interviews
Maybe they don’t love you

like they said they do.
N
Your offering doesn’t make them want to

brag or their contact isn’t ...
Use outliers and missed searches to
hunt for good ideas & adjacencies
(Multi-billion-dollar hygiene product company)
1/8 m...
Frame it like a study
Product creation is almost
accidental.
Unlike a VC or startup, when
the initiative fails the
organiz...
Use data to create a taste for
data
Sitting on Billions of rows of
transactional data
David Boyle ran 1M online surveys
On...
Focus on the desired behavior, not just
the information.
http://www.psychologytoday.com/blog/yes/
200808/changing-minds-an...
http://www.flickr.com/photos/bootbearwdc/1243690099/
Think subversively.
But don’t break promises.
Conclusions
“The most important figures that one
needs for management are unknown
or unknowable, but successful
management must neverth...
Pic by Twodolla on Flickr. http://www.flickr.com/photos/twodolla/3168857844
ARCHIMEDES
HAD TAKEN
BATHS BEFORE.
Once, a leader convinced others
in the absence of data.
Now, a leader knows
what questions to ask.
Alistair Croll
acroll@gmail.com
@acroll
Ben Yoskovitz
byosko@gmail.com
@byosko
Lean Analytics: Using Data to Build a Better Business Faster
Lean Analytics: Using Data to Build a Better Business Faster
Lean Analytics: Using Data to Build a Better Business Faster
Lean Analytics: Using Data to Build a Better Business Faster
Lean Analytics: Using Data to Build a Better Business Faster
Lean Analytics: Using Data to Build a Better Business Faster
Lean Analytics: Using Data to Build a Better Business Faster
Lean Analytics: Using Data to Build a Better Business Faster
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Lean Analytics: Using Data to Build a Better Business Faster

Alistair Croll, Solve for Interesting , @acroll

At the core of Lean Startup approaches is a continuous cycle of measurement and learning. But what should you measure? To find the right metric, you need to understand the stage you’re at and the business model you’re in, as well as where to draw the line so you know when to cut your losses—and when to step on the gas. In these two sessions, entrepreneur and best-selling author of Lean Analytics Alistair Croll will show you how to put data to work.
How to think about data and what makes a good metric
The importance of cohorts and proper analysis
The five stages every startup goes through
Six business model archetypes and how to find your own
What “good enough” looks like and how to run experiments
What works for larger organizations trying to change and innovate.
This session is relevant for both early-stage founders and intrapreneurs in large organizations. Based on interviews with over 130 analysts, entrepreneurs, and investors, this session is packed with practical information, hard numbers, and concrete steps you can put to work immediately. Attendees need not be technical but should come armed with a basic understanding of web analytics, business metrics, and their current business model, plus a willingness to share with one another.
This workshop is sponsored by Amplitude.

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Lean Analytics: Using Data to Build a Better Business Faster

  1. 1. Lean Analytics Lean Startup conference San Francisco, November 16 2015 @acroll
  2. 2. Don’t sell what you can make. Make what you can sell. Kevin Costner is a lousy entrepreneur.
  3. 3. The core of Lean is iteration.
  4. 4. Waterfall approach You know the problem and the solution.
  5. 5. Known set of requirements Known ways to satisfy them Spec Build Test Launch
  6. 6. Agile methodologies Know the problem, find the solution
  7. 7. Known set of requirements Unclear how to satisfy them Build Test LaunchViable?Problem
 statement Adjust Sprints Unknown set of requirements
  8. 8. Lean approach First, know that you don’t know.
  9. 9. Possible problem space Product/ market hypothesis Trial startup Product/ market hypothesis Trial startup Product/market hypothesis Trialstartup Product/market hypothesis Trialstartup You are herePIVOT
  10. 10. Unfortunately, we’re all liars.
  11. 11. 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.
  12. 12. Most startups don’t know what they’ll be when they grow up. Hotmail
 was a database company Flickr
 was going to be an MMO Twitter
 was a podcasting company Autodesk
 made desktop automation Paypal
 first built for Palmpilots Freshbooks
 was invoicing for a web design firm Wikipedia
 was to be written by experts only Mitel
 was a lawnmower company
  13. 13. Gottfried von Leibniz was a geek just like you.
  14. 14. First calculator (stepped reckoner) One of the first to recognize the importance of binary. “I thought again about my early plan of a new language or writing-system of reason, which could serve as a communication tool for all different nations..”
  15. 15. The best of all possible worlds is the one in which the fewest starting conditions produce the greatest variety of outcomes.
  16. 16. Rethinking the fundamentals is how you discover new models.
  17. 17. What’s the biggest problem
 in a hair salon?
  18. 18. The empty chair. Knowing this, how might you change the client/customer relationship?
  19. 19. Finding the tipping points of markets.
  20. 20. “Using Cue, you can tell if someone has the ‘flu in 10 minutes.” http://tiltthewindmill.com/when-can-becomes-must/
  21. 21. “Using Cue, you must tell if someone has the ‘flu in 10 minutes… …or Johnny can’t come on the school trip.”
  22. 22. Quantifying the riskiest parts.
  23. 23. The Attention Economy “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
  24. 24. Lit motors tests the risky part
  25. 25. But how?
  26. 26. Analytics can help.
  27. 27. Analytics is the measurement of movement towards your business goals.
  28. 28. In a startup, the purpose of analytics is to iterate to product/market fit before the money runs out.
  29. 29. Some fundamentals. Analytics, performance, aggregation, and the right metrics
  30. 30. Fundamental:
 What makes a good metric?
  31. 31. A good metric is: Understandable If you’re busy explaining the data, you won’t be busy acting on it. Comparative Comparison is context. A ratio or rate The only way to measure change and roll up the tension between two metrics (MPH) Behavior
 changing What will you do differently based on the results you collect?
  32. 32. The simplest rule bad
 metric. If a metric won’t change how you behave, it’s a h"p://www.flickr.com/photos/circasassy/7858155676/
  33. 33. Metrics help you know yourself. Acquisition Hybrid Loyalty 70%
 of retailers 20%
 of retailers 10%
 of retailers You are just like Customers that buy >1x in 90d Once 2-2.5
 per year >2.5
 per year Your customers will buy from you Then you are in this mode 1-15% 15-30% >30% Low acquisition cost, high checkout Increasing return rates, market share Loyalty, selection, inventory size Focus on (Thanks to Kevin Hillstrom for this.)
  34. 34. Qualitative Unstructured, anecdotal, revealing, hard to aggregate, often too positive & reassuring. Warm and fuzzy. Quantitative Numbers and stats. Hard facts, less insight, easier to analyze; often sour and disappointing. Cold and hard.
  35. 35. Exploratory Speculative. Tries to find unexpected or interesting insights. Source of unfair advantages. Cool. Reporting Predictable. Keeps you abreast of the normal, day-to-day operations. Can be managed by exception. Necessary.
  36. 36. Rumsfeld on Analytics (Or rather, Avinash Kaushik channeling Rumsfeld) Things we know don’t
 know we know Are facts which may be wrong and should be checked against data. we don’t
 know Are questions we can answer by reporting, which we should baseline & automate. we know Are intuition which we should quantify and teach to improve effectiveness, efficiency. we don’t
 know Are exploration which is where unfair advantage and interesting epiphanies live.
  37. 37. MayAprMarFeb Slicing and dicing data Jan 0 5,000 Activeusers 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.) Multivariate
 analysis Changing 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.) ☀ ☁
  38. 38. Which of these two companies is doing better?
  39. 39.   January February March April May Rev/customer $5.00 $4.50 $4.33 $4.25 $4.50 Is this company growing or stagnating? Cohort 1 2 3 4 5 January $5 $3 $2 $1 $0.5 February $6 $4 $2 $1 March $7 $6 $5 April   $8 $7 May       $9 How about this one?
  40. 40. Cohort 1 2 3 4 5 January $5 $3 $2 $1 $0.5 February $6 $4 $2 $1   March $7 $6 $5     April $8 $7       May $9         Averages $7 $5 $3 $1 $0.5 Look at the same data in cohorts
  41. 41. Lagging Historical. Shows you how you’re doing; reports the news. Example: sales. Explaining the past. Leading Forward-looking. Number today that predicts tomorrow; reports the news. Example: pipeline. Predicting the future.
  42. 42. Fundamental:
 Correlation
  43. 43. 1 10 100 1000 10000 Ice cream consumption Drownings Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
  44. 44. Correlated Two variables that are related (but may be dependent on something else.) Ice cream & drowning. Causal An independent variable that directly impacts a dependent one. Summertime & drowning.
  45. 45. A leading, causal metric is a superpower. h"p://www.flickr.com/photos/bloke_with_camera/401812833/sizes/o/in/photostream/
  46. 46. A Facebook user reaching 7 friends within 10 days of signing up (Chamath Palihapitiya) If someone comes back to Zynga a day after signing up for a game, they’ll probably become an engaged, paying user (Nabeel Hyatt) A Dropbox user who puts at least one file in one folder on one device (ChenLi Wang) Twitter user following a certain number of people, and a certain percentage of those people following the user back (Josh Elman) A LinkedIn user getting to X connections in Y days (Elliot Schmukler) Some examples (From the 2012 Growth Hacking conference. http://growthhackersconference.com/)
  47. 47. Why is Nigerian spam so badly written?
  48. 48. Aunshul Rege of Rutgers University, USA in 2009 Experienced scammers expect a “strike rate” of 1 or 2 replies per 1,000 messages emailed; they expect to land 2 or 3 “Mugu” (fools) each week. One scammer boasted “When you get a reply it’s 70% sure you’ll get the money” “By sending an email that repels all but the most gullible,” says [Microsoft Researcher Corman] Herley, “the scammer gets the most promising marks to self-select, and tilts the true to false positive ratio in his favor.” 1000 emails 1-2 responses 1 fool and their money, parted. Bad language (0.1% conversion) Gullible (70% conversion) 1000 emails 100 responses 1 fool and their money, parted. Good language (10% conversion) Not-gullible (.07% conversion) This would be horribly inefficient since humans are involved.
  49. 49. Turns out the word “Nigeria” is the best way to identify promising prospects.
  50. 50. Nigerian spammers really understand their target market. They see past vanity metrics.
  51. 51. Eric’s three engines of growth Virality Make people invite friends. How many they tell, how fast they tell them. Price Spend money to get customers. Customers are worth more than they cost. Stickiness Keep people coming back. Approach Get customers faster than you lose them. Math that matters
  52. 52. Dave’s Pirate Metrics AARRR Acquisition How do your users become aware of you? SEO, SEM, widgets, email, PR, campaigns, blogs ... Activation Do drive-by visitors subscribe, use, etc? Features, design, tone, compensation, affirmation ... Retention Does a one-time user become engaged? Notifications, alerts, reminders, emails, updates... Revenue Do you make money from user activity? Transactions, clicks, subscriptions, DLC, analytics... Referral Do users promote your product? Email, widgets, campaigns, likes, RTs, affiliates...
  53. 53. 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. Gate Thefivestages
  54. 54. Six business model archetypes. E-commerce SaaS Media Mobile
 app User-gen
 content 2-sided
 market The business you’re in
  55. 55. (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 Reactivation
 rate Paid conversion FORMER USERS User Lifetime Value Reactivate FORMER CUSTOMERS Customer Lifetime Value Viral coefficient Viral rate Resolution Support data Account Cancelled Billing Info Exp. Paid Churn Rate Tiering Capacity Limit Upselling rate Upselling Disengaged DissatisfiedTrial Over
  56. 56. Model + Stage = One Metric That Matters. One Metric
 That Matters. The business you’re in E-Com SaaS Mobile 2-Sided Media UCG Empathy Stickiness Virality Revenue Scale Thestageyou’reat
  57. 57. Really? Just one?
  58. 58. Yes, one.
  59. 59. In a startup, focus is hard to achieve.
  60. 60. Having only one metric addresses this problem.
  61. 61. www.theeastsiderla.com
  62. 62. Moz cuts down on metrics SaaS-based SEO toolkit in the scale stage. Focused on net adds. Was a marketing campaign successful? Were customer complaints lowered? Was a product upgrade valuable? Net adds up: Can we acquire more valuable customers? What product features can increase engagement? Can we improve customer support? Net adds flat: Are the new customers not the right segment? Did a marketing campaign fail? Did a product upgrade fail somehow? Is customer support falling apart? Net adds down:
  63. 63. Metrics are like squeeze toys. http://www.flickr.com/photos/connortarter/4791605202/
  64. 64. Empathy Stickiness Virality Revenue Scale E- commerce SaaS Media Mobile
 app User-gen
 content 2-sided
 market 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)
  65. 65. Better: bit.ly/BigLeanTable
  66. 66. Drawing some lines in the sand.
  67. 67. A company loses a quarter of its customers every year. Is this good or bad?
  68. 68. Not knowing what normal is makes you do stupid things.
  69. 69. Baseline: 5-7% growth a week “A good growth rate during YC is 5-7% a week,” he says. “If you can hit 10% a week you're doing exceptionally well. If you can only manage 1%, it's a sign you haven't yet figured out what you're doing.” At revenue stage, measure growth in revenue. Before that, measure growth in active users. Paul Graham, Y Combinator • Are there enough people who really care enough to sustain a 5% growth rate? • Don’t strive for a 5% growth at the expense of really understanding your customers and building a meaningful solution • Once you’re a pre-revenue startup at or near product/market fit, you should have 5% growth of active users each week • Once you’re generating revenues, they should grow at 5% a week
  70. 70. Baseline: 10% visitor engagement/day Fred Wilson’s social ratios 30% of users/month use web or mobile app 10% of users/day use web or mobile app 1% of users/day use it concurrently
  71. 71. Baseline: 2-5% monthly churn • The best SaaS get 1.5% - 3% a month. They have multiple Ph.D’s on the job. • Get below a 5% monthly churn rate before you know you’ve got a business that’s ready to grow (Mark MacLeod) and around 2% before you really step on the gas (David Skok) • Last-ditch appeals and reactivation can have a big impact. Facebook’s “don’t leave” reduces attrition by 7%.
  72. 72. Baseline: Calculating customer lifetime 25%
 monthly churn 100/25=4
 The average customer lasts 4 months 5%
 monthly churn 100/5=20
 The average customer lasts 20 months 2%
 monthly churn 100/2=50
 The average customer lasts 50 months
  73. 73. Baseline: CAC under 1/3 of CLV • CLV is wrong. CAC Is probably wrong, too. • Time kills all plans: It’ll take a long time to find out whether your churn and revenue projections are right • Cashflow: You’re basically “loaning” the customer money between acquisition and CLV. • It keeps you honest: Limiting yourself to a CAC of only a third of your CLV will forces you to verify costs sooner. Lifetime of 20 mo. $30/mo. per customer $600 CLV $200 CAC Now segment those users! 1/3 spend
  74. 74. Who is worth more? Today A Lifetime: $200 Roberto Medri, Etsy B Lifetime: $200 Visits
  75. 75. <Break>
  76. 76. </Break>
  77. 77. The Lean Analytics cycle
  78. 78. Draw a new line Pivot or
 give up Try again Success! Did we move the needle? Measure the results Make changes in production Design a test Hypothesis With data:
 find a commonality Without data: make a good guess Find a potential improvement Draw a linePick a KPI
  79. 79. Do AirBnB hosts get more business if their property is professionally photographed?
  80. 80. Gut instinct (hypothesis) Professional photography helps AirBnB’s business Candidate solution (MVP) 20 field photographers posing as employees Measure the results Compare photographed listings to a control group Make a decision Launch photography as a new feature for all hosts
  81. 81. 5,000 shoots per month by February 2012
  82. 82. Hang on a second.
  83. 83. Gut instinct (hypothesis) Professional photography helps AirBnB’s business SRSLY?
  84. 84. Draw a new line Pivot or
 give up Try again Success! Did we move the needle? Measure the results Make changes in production Design a test Hypothesis With data:
 find a commonality Without data: make a good guess Find a potential improvement Draw a linePick a KPI
  85. 85. “Gee, those houses that do well look really nice.” Maybe it’s the camera. “Computer: What do all the highly rented houses have in common?” Camera model. With data:
 find a commonality Without data: make a good guess
  86. 86. Circle of Moms: Not enough engagement • Too few people were actually using the product • Less than 20% of any circles had any activity after their initial creation • A few million monthly uniques from 10M registered users, but no sustained traction • They found moms were far more engaged • Their messages to one another were on average 50% longer • They were 115% more likely to attach a picture to a post they wrote • They were 110% more likely to engage in a threaded (i.e. deep) conversation • Circle owners’ friends were 50% more likely to engage with the circle • They were 75% more likely to click on Facebook notifications • They were 180% more likely to click on Facebook news feed items • They were 60% more likely to accept invitations to the app • Pivoted to the new market, including a name change • By late 2009, 4.5M users and strong engagement • Sold to Sugar, inc. in early 2012
  87. 87. Landing page design A/B testing Cohort analysis General analytics URL shortening Funnel analytics Influencer Marketing Publisher analytics SaaS analytics Gaming analytics User interaction Customer satisfaction KPI dashboardsUser segmentation User analytics Spying on users
  88. 88. The mobile app! customer lifecycle! Ratings Reviews Search Leaderboards Purchases Downloads Installs Play Disengagement Reactivation Uninstallation Disengagement Account" creation Virality Downloads," Gross revenue ARPU App sales Activation Churn, CLV In-app" purchases Appstore! Incentivized Legitimate Fraudulent Ratings!
  89. 89. Intrapreneurship in large organizations
  90. 90. (http://csinvesting.org/2012/01/06/fortune-500-extinction/) F500 Life Expectancy Growth by entering a new business 95
 % fail Corporate Strategy Board 99
 % fail Clay Christensen 75 years 15 years 1950 2010...
  91. 91. When you’re a startup your goal is to find a sustainable, repeatable business model. When you’re a big company your goal is to perpetuate one.
  92. 92. Intrapreneur: Someone working to produce disruptive change in an organization that has already found a sustainable, repeatable business model.
  93. 93. Intrapreneurship: The difference between a rogue agent and a special operative is permission.
  94. 94. The job of an intrapreneur is to identify an adjacent market, product, or method that conforms to organizational filters. It is not to improve the current product, market, or method.
  95. 95. Also: a pariah. Successful innovators share certain attributes. Bad listener: Wilfully ignore feedback from your best customers. Cannibal: If successful, destroying existing revenue streams. Job killer: Automation & lower margins are your favorite tools. Security risk: Advocate of transparency, open data, communities. Narcissist: Worry constantly about how you’ll get attention. Slum lord: Sell to those with less money, deviants, and weirdos.
  96. 96. In other words, if your job is change you have your work cut out for you.
  97. 97. This isn’t about a lack of resources.
  98. 98. http://www.flickr.com/photos/maladjusted/5207565912
  99. 99. Blockbuster had a lot going for it.
  100. 100. Plenty of inventory, of course. But that matters less than...
  101. 101. ...market intelligence, customers, existing payment approval, and customer history.
  102. 102. The problem was framing: Blockbuster thought it was in the video store management business. Netflix realized it was in the entertainment delivery business.
  103. 103. YOU ARE HERE
  104. 104. YOU ARE HERE LOCAL
 MAXIMUM OPTIMIZATION
 OF CURRENT METRICS
  105. 105. YOU ARE HERE GLOBAL
 MAXIMUMINNOVATION
 WITH NEW
 RULES
  106. 106. YOU ARE HERE SHORT-TERM INVESTORS
 HATE GOING DOWNHILL
  107. 107. In a big company, analytics replaces opinion with fact.
  108. 108. Companies that use data-driven analytics instead of intuition have 5%-6% higher productivity and profits than competitors. Brynjolfsson, Erik, Lorin Hitt, and Heekyung Kim. "Strength in Numbers: How Does Data-Driven Decisionmaking Affect Firm Performance?." Available at SSRN 1819486 (2011). 2011 MIT study of 179 large publicly traded firms
  109. 109. Arbitron and radio data
  110. 110. Times a song in “heavy rotation” is played daily 2007 2012 266
  111. 111. Current
 state Business optimization (five mores)
 Product,
 market,
 method innovation
 Business model innovation
 You can convince executives of this because some of it is familiar. This terrifies them because it eats the current business. A three-maxima model of enterprise innovation
  112. 112. Improvement Adjacency Remodeling Do the same,
 only better. Explore what’s
 nearby quickly Try out new
 business models Lean approaches apply, but the metrics vary widely. Sustain/
 core Innovate/
 adjacent Disrupt/
 transformative
  113. 113. Sustaining Adjacent Disruptive Next year’s car Electric car,
 same dealer On-demand, app-based
 car service
  114. 114. Sustaining innovation is about more of the same. (says Sergio Zyman) More things To more people For more money More often More efficiently Supply chain optimization Per-transaction cost reduction Loyal customer base that returns Demand prediction, notification Maximum shopping cart Price skimming/tiering Highly viral offering Low incremental order costs Inventory increase Gifting, wish lists
  115. 115. Blizzard extends the lifespan of WOW Early
 adopters Rapid
 growth Market
 saturation The infamous S-curve (Product lifecycle, Bass diffusion curve, etc.)
  116. 116. Blizzard extends the lifespan of WOW
  117. 117. Blizzard extends the lifespan of WOW Fixing this: sustaining growth with novelty Product & market innovation (“New & improved!”)
  118. 118. Blizzard extends the lifespan of WOW WOW Burning
 Crusade Wrath of
 the Lich King Mists of
 PandariaCataclysm Warlords of Draenor
  119. 119. Adjacent innovation is about changing one part of the model in a way that alters the value network.
  120. 120. Experiment with product, market, and method.
  121. 121. Product (new “what”) Market (new “who”) Method (new “how”) 3 kinds of innovation
  122. 122. Adjacent product to the same market in the same way
  123. 123. Transformative innovation is about taking a leap, changing more than one dimension simultaneously in search of a new business model.
  124. 124. If sustaining, incremental innovation produces linear growth, then disruptive, transformative innovation produces exponential growth.
  125. 125. Transformative isolation: Skunkworks
  126. 126. Transformative incubation: Metlife Infinity
  127. 127. Some street-smart
 tactics that work
  128. 128. “How quickly can you test this”
 should be a criteria. You’re not building a product,
 you’re figuring out what product to build.
  129. 129. How easily can you test these out?
  130. 130. Take baby steps How you get there matters as much as where you’re going.
  131. 131. Netflix
  132. 132. Tesla http://www.hdwallpapersinn.com/wp-content/uploads/2012/12/600-tesla.jpg
  133. 133. Twitter’s 140-character limit isn’t arbitrary. It’s constrained by the size of SMS (160 characters) and username (20 characters.) http://i.i.cbsi.com/cnwk.1d/i/tim/2011/11/18/ sms_screen_twitter_activity_stream_270x405.png
  134. 134. Black car Uberpool
  135. 135. Let them ask for an out Detecting SaaS churn early without hurting cashflow
  136. 136. The tradeoff Charge a monthly fee Charge annual fee up front Find out if they hate it sooner, when they cancel on first billing cycle. No need to pay back CAC; cash you can use right away. Takes months to recoup the money you spent acquiring them. May be a zombie user who vanishes when the year is up.
  137. 137. They’re happy, you keep your money, goodwill for offering. They’re unsatisfied, you made it right, they tell you why, you learn. The solution—because the goal is to learn, not to trap customers. Annual fee, with an out 1. Offer an annual, discounted fee. 2. After a couple of weeks, ask if they’d like a refund.
  138. 138. Protip: Campaigns that don’t suck.
  139. 139. Targeting matters.
  140. 140. How to build a marketing campaign http://www.yearonelabs.com/three-questions-all-marketers-must-answer/ When will you decide if it worked, and adjust? Who are you targeting? Size, reachability,
 homogeneity. What do you want them to do? Specific, measurable
 call to action. Why should they do it? Laid, paid, made,
 or afraid; message
 fits their mindset. How will you know if they did? Analytics,
 instrumentation.
  141. 141. Waterslides, not funnels
  142. 142. The whole point of digital is personal Segment 1 User segment
 (who) Segment 2 Segment 3 Goal
 (what) Goal 1 Goal 2 Goal 3 Motivation
 (why) Goal 1 Goal 2 Goal 3
  143. 143. http://www.thirdwunder.com/funnels-are-a-horrible-metaphor/Photo Credit: Patrick McGarvey More like this.
  144. 144. Pitchers not buckets
  145. 145. Bounces Non-
 creators Non-
 payers Churn Signup
 rate Engagement
 level Conversion
 rate Visitors Subscribers Engaged users Paying
 customers Leaky buckets are a bad metaphor
  146. 146. Bounces Non-
 creators Non-
 payers Churn Improve stickiness; call-to-action optimization;
 A/B page testing; picking better traffic sources Notifications; updates; reactivating users;
 segmenting those who are engaged. Usage caps, natural upselling;
 premium features Better support; credit card renewal; naturally sustained features
  147. 147. Hardcore interviews
  148. 148. Maybe they don’t love you
 like they said they do. N Your offering doesn’t make them want to
 brag or their contact isn’t really a friend N Advocates can’t learn & convey
 your message easily N They don’t trust you entirely N Woohoo! Scalable, viral,
 explainable product! Y Get a meeting Y Grab the phone Y They pitch it Y Call them now? Y Intro to a friend? Interview
  149. 149. Use outliers and missed searches to hunt for good ideas & adjacencies (Multi-billion-dollar hygiene product company) 1/8 men have an incontinence issue. 1/3 women do. When search results show a significant number of men searching, this suggests the adjacent (male) market is underserved.
  150. 150. Frame it like a study Product creation is almost accidental. Unlike a VC or startup, when the initiative fails the organization still learns. http://www.flickr.com/photos/creative_tools/8544475139
  151. 151. Use data to create a taste for data Sitting on Billions of rows of transactional data David Boyle ran 1M online surveys Once the value was obvious to management, got license to dig.
  152. 152. Focus on the desired behavior, not just the information. http://www.psychologytoday.com/blog/yes/ 200808/changing-minds-and-changing-towels 26% increase in towel re-use with an appeal to social norms; 33% increase when tied to the specific room. Energy Conservation “Nudges” and Environmentalist Ideology: Evidence from a Randomized Residential Electricity Field Experiment - Costa & Kahn 2011 The effectiveness of energy conservation “nudges” depends on an individual’s political ideology ... Conservatives who learn that their consumption is less than their neighbors’ “boomerang” whereas liberals reduce their consumption.
  153. 153. http://www.flickr.com/photos/bootbearwdc/1243690099/ Think subversively.
  154. 154. But don’t break promises.
  155. 155. Conclusions
  156. 156. “The most important figures that one needs for management are unknown or unknowable, but successful management must nevertheless take account of them.” Lloyd S. Nelson
  157. 157. Pic by Twodolla on Flickr. http://www.flickr.com/photos/twodolla/3168857844
  158. 158. ARCHIMEDES HAD TAKEN BATHS BEFORE.
  159. 159. Once, a leader convinced others in the absence of data.
  160. 160. Now, a leader knows what questions to ask.
  161. 161. Alistair Croll acroll@gmail.com @acroll Ben Yoskovitz byosko@gmail.com @byosko

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Alistair Croll, Solve for Interesting , @acroll At the core of Lean Startup approaches is a continuous cycle of measurement and learning. But what should you measure? To find the right metric, you need to understand the stage you’re at and the business model you’re in, as well as where to draw the line so you know when to cut your losses—and when to step on the gas. In these two sessions, entrepreneur and best-selling author of Lean Analytics Alistair Croll will show you how to put data to work. How to think about data and what makes a good metric The importance of cohorts and proper analysis The five stages every startup goes through Six business model archetypes and how to find your own What “good enough” looks like and how to run experiments What works for larger organizations trying to change and innovate. This session is relevant for both early-stage founders and intrapreneurs in large organizations. Based on interviews with over 130 analysts, entrepreneurs, and investors, this session is packed with practical information, hard numbers, and concrete steps you can put to work immediately. Attendees need not be technical but should come armed with a basic understanding of web analytics, business metrics, and their current business model, plus a willingness to share with one another. This workshop is sponsored by Amplitude.

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