Finding something that the customer actually wants.

Here is the presentation to go along with the video.

Overview:

Talk about -

1. Lean Analytics (A way of using data to build a better business faster)
   Co-authored with Eric Reves - Continuation of the book 'Lean Startup
2. Exploits and Growth Hacks
3. How not to fail

The first basic rule of a Lean Startup is

IF THEY COME YOU SHOULD BUILD IT...

Not if you build it they will come.

Don't make what you can sell, make what you can sell.

Silicon Valley - they hate building something that nobody wants...waste of your time and energy.

The core of the Lean Startup process is

• Have and idea and build something
• Measure what that does in the market
• and then use that to learn

Your FIRST product is not a product to be successful as a product.

Its a tool to learn what you should have built in the first place.

We all delude ourselves into thinking our idea is awesome.
The risk is not CAN YOU BUILD IT?
The risk is WILL ANYBODY CARE?

Things fall apart in the measure part because

1. You didn't measure things
2. You are so delusional about your idea that you think you don't need to measure things
3. Measurements are so sad, you sweep them under the rug and hope they get better later.

No measure means you didn't learn anything...no data, no learning, no next product.

Most successful products started of building something else.
Eg: Flickr was going to be multi-player online game - but people started uploading pic > sold to yahoo.
Flickr team went back to build that video game thing - ending up building Slack to coordinate that distributed team.

Products have no idea what they are going to be, and Analytics is going to help you figure that out.

Analytics - is the measurement of movement towards your business goals

In a startup the reason you use analytics, is to find the product market fit.
That magical unicorn - I have figured out what to SELL to people in a certain market I can reach before the money runs out.

Analytics is about tracking the right metrics.

A good metric has 4 fundamental attributes.

1. A good metric is understandable
   • If you are explaining the metric to people...they are not talking about the business they are talking about what the metric means.
   • Should be something like a golf score - I was supposed to get it in Hole in 5, I got there in 7 - easy to understand.
2. A metric must be comparative
   • How did we do against last week, last month, against competition.
3. A metric must be a ratio or a rate.
   • Like miles/hr.
4. A METRIC HAS TO BE BEHAVIOR CHANGING (SINGLE MOST IMPORTANT THING)
   • If a metric won’t change how you behave, it is a bad metric.

Lots of people create numbers because it makes them feel like they are doing something.

eg: If its goes over 5%, we are going to do this.

E-Commerce example - Super important, almost nobody measures it.

Measure the number of customers who come back and purchase from you a second time in 90 days. (very simple to measure)

Say <15% buy from you a 2nd time in 90 days ----> It means, you are an acquisition focused e-commerce provider (not keeping them around - ok if you are selling wedding rings)
You are going to get that person once, charge them as much as you can - insurance, etc.

Say >30% buy from you a 2nd time in 90 days → Maybe you are a pizza business, you are in loyalty business.  One individual pizza is not that important, so you can offer free if you screw up.

Qualitative Vs Quantitative Metric
Qualitative - that pizza is good, it is soft > useful in discovering the things your customers need.
Quantitative - I finished it in 7 bites > hard numbers, facts 

Exploratory Vs Reporting Metric
Exploratory - I don't know what I am looking for, just digging around.  Looking at data to look for ideas.
Reporting - Static data

Cohorts & Segments
Cohorts - A group of people that arrived at a particular amount of time.  Looking at people who experience the March product, or April product.
Segments - multi variant analysis (A/B)...see what combination of buttons, colors etc work best.

People don't realize how important Cohort analysis is because if you use averages, you are dragging down your numbers with past group who experienced an inferior product compared to your latest and greatest.
 

Start @ 15min

Eric Ries - The Lean Startup

Any sustainable company grows based on the actions of its customers

If a company is growing based on your actions, that's not sustainable.

The three engines of growth!

1. Stickiness Engine - Keep people coming back
   • If you have customers, and they keep coming back - you will make money.
   • Can you get customers faster than you lose them?
2. Virality Engine - Can I get people to invite their friends
   • If people invite their friends, I will grow.
   • How many will tell their friends and how fast or how quickly they do it. Cycle time is important to measure.
3. Price Engine - I am going to spend money to get some customers.
   • How much money are my customers bringing in.
   • How much can I spend to acquire them - Is it costing me less to acquire a customer, then I get from that customer?

---

Dave McClure - Accelerator 500 Startups... Super Angel Investor.
http://www.slideshare.net/dmc500hats/startup-metrics-for-pirates-long-version

Pirate Metrics (AARRR) - Customer Life Cycle

1. Acquisition
   1. How do your users become aware of you?
2. Activation
   1. Can you get them to engage?
3. Retention
   1. How do I get them to keep coming back?
4. Revenue
   1. Can I extract money?
5. Referral
   1. Do users go and promote your product.

Growth Hacking - How do I increase ALL of these things.
Using a combination of Humans & Machines to scale ably increase one of these.

The Order of how things happen is important

1. Empathy (Understanding your customers need)
   • I've found a real poorly met need that a reachable market faces.
     Eg: Excellent Customer Development Example @18:30
     • Explain your product get feedback
     • End conversation - ask if they know someone who might find this useful
     • If they say NO -> it's a bad sign! they don't feel proud or smart enough.
       If they say YES - (put them on spot) ---> Ask if they can CALL them.
       If unwilling to call them - you are not proud of the idea, doesn't make you feel smart...maybe you wouldn't share even if you liked it
       If they call them - ask them to explain it to that person, now see if they tell your message to someone else.
       When they are done - Ask them if you can talk to them.
       • Customer Development is NOT soft and how they feel etc - If you end each interview with this, its easily measurable
         YOU DON'T NEED TO WRITE A LINE OF CODE TO TEST THIS IDEA
         Problem is not that you can build stuff...nobody cares.
         • % of People could name a friend
         • % willing to call the friend
         • % who picked up the phone
         • % willing to let you talk to them
         • % willing to meet. 
2. Stickiness - Can I get people coming back
   • I've figured out how to solve the problem in way they will keep using and pay for.
   • Need to know what an engaged users looks like
3. Virality - Getting them to tell their friends
   • I've found ways to get them to tell their friends, either intrinsically or through incentives.
   • No point in virality, if you don't have stickiness.
4. Revenue - take money and use it to acquire more new customers.
   • The users and features fuel growth organically and artificially.
   • Virality before revenue - because when you have virality, your cost of acquisition is cheaper
5. Scale - growing revenue or users in a non-linear way 
   • I've found a sustainable, scalable business with the right margins an a healthy ecosystem.

eg: SaaS user acquisition cost.
Avg user sticks around for say 2 years
6 months of revenue to pay the cost of acquisition --> then I am loaning every user money for six months  >> its a cash flow problem or working capital issue,
but your model works.

Question: Prepay --- its good, but you as business don't know when they abandon you (12 months later)...to minimize a load of customers falling off at the end of the year.
You want to implement "would you like to cancel" model to get feedback sooner and solve issue.
---The above applies if you are in the stickiness phase (you don't know what product you are building, still testing and improving)
If you are at Revenue & Scale - you won't be asking if user wants to cancel, you probably have other metrics to measure.

Start @24min

The metrics you are going look at depend on the STAGE you are at and the BUSINESS (ecom, SaaS, marketplace etc)

Acquisition Cost >  visitors > freemium > enroll > User

Disengaged user > signed up and never use it > try to reactivate the disengaged users > churn > former users > Trial is over / not freemium

Engaged > trial > paying customers > capacity limit (upselling) > disengaged / dissatisfied > all things must end = former customers

All the 5 pieces are in their >  AARRR  (Acquisition, Activation, Retention, Revenue, Referral)

Each of these have a Metric...

• Customer Lifetime Value
• Support Data
• Viral Coefficient
• Reactivation Rate
• Paid Conversion

You need to have these for your business model - > If you have business model, this is a spreadsheet turned into a picture.

Eg: like a user story!

We assume we will have 50 customers a day, and off those 10 will become users, of those we'll have 3 will become customers .

If you don't have these - you don't have a business - it's a hobby.

Usually, business are not tracking the proper metrics, so you need to fix that fist.

The process

• Draw your systems diagram (like above)
• Have your business plan with your assumptions
• Measure what reality is
• Figure out what is most unreal (plan/assumption) and fix it
• If you can't fix it you either have to change your business model or give up and go do something else

 

 

By having these diagrams you know what business you are in, and what stage you are at.

Based on that you can focus on the ONE METRIC for that specific model & stage.

In a Startup - Focus is really hard to achieve, its your biggest problem.

http://bit.ly/BigLeanTable - PDF with explanation

Must have metrics

If you are not growing your customer or your revenue by 5% a week you should not be a startup!

In the early stages of growth, if you cant find 5-7% of growth a week - you need to have a long hard conversation with your founders.

Knowing the normal is important, your 3% doesn't mean anything.

Baseline:

30% users/month use web or mobile app
10% visitor engagement/day
1% will be on the site concurrently.

2-5% churn is pretty good ( the best SaaS companies get 1.5 - 3% a month)
You get to this before you move to your 'scaling' stage. 
eg: Facebook crying pic (reduces abandonment by 7% - EMOTIONAL appeal works well here)

Calculating Customer Life Time

If you know 25% of your customers leave every month, then average Lifetime of a customer is four months.

25% churn = 100/25 = 4 months
5% churn = 100/5 = 20 months
2% churn = 100/2 = 50 months

Figuring out what the acquisition cost should be?

Rule of thumb - Don't spend more than 1/3 of your customer LV on your customer acquisition cost.

Eg:
5% churn = Lifetime of 20 months
Paying $30/mo = $600 LV
1/3 spend = $200 
Now you are still lending $200/-
At this stage you segment and find out who sticks around longer - eg - twitter user are longer term users, moms etc.

 

 

A key performance indicator (KPI) is a business metric used to evaluate factors that are crucial to the success of an organization.

You've done your diagram, you have picked your KPI - Draw a line in the Sand...don't do anything else till this KPI reaches its goal.

Eg: 5% growth, Churn <5% etc. pick one....go fix it.

Draw a new line - Only allowed if the CUSTOMER gave you permission.

You need data to come up with some hypothesis....

Here are some SaaS analytics solutions
https://www.totango.com/
http://www.gainsight.com/
Intercom - https://www.quora.com/What-are-alternatives-to-Totango

https://www.parsely.com/ focuses on publishing