In the third week of Startup School, the focus shifted from building your product to attracting users and growing your product.
The best presentation of the week was from Suhail Doshi. Suhail is a Y Combinator alumni and the founder of Mixpanel. Mixpanel helps businesses measure user analytics, so Suhail is an expert on tracking user interaction.
Suhail started off with three important questions any business/founder/product manager need to ask as they are creating a product for users. These three questions are:
- Is my product easy to understand?
- Is it easy to get started with my product?
- Are people coming back to my product?
The key to these questions is that you need customer feedback or data to provide realistic answers. You may have a hunch, but that hunch is useless if it doesn't accurately reflect your customer's experience.
To help us know how to better answer these questions, Suhail provided a formula for growth. This formula walks you through five different areas you need to track to better understand your user's experience with your product.
The formula is essentially:
Visits + Sign ups + Value + Retention + Referrals = Growth
I want to break each of these down and take a quick look of what goes into each area. This will help you on your journey to creating a great experience for your customer and lead to significant and faster growth.
Visits
In his definition, Suhail is talking about visits to your website. This is a great thing to track, especially if you are building software. However, if you are building something a little less techie, you may need to track something else.
For example, if you have a service based business, you need to track people asking for more information. This could be tracking emails, contact form submissions, or phone calls. For a retail business, it may be tracking how many people visit your store.
Essentially, you are tracking how many people are making first contact with you based on your efforts to get the word out there about your business.
Sign Ups
Once people visit your site or receive more information, do they take the next step of signing up to use your product or service?
This is an essential piece of information that is important to track. If they read the information and leave without taking the next step, something is wrong. Either, you are not providing value by solving their problem or it is not clear that you can solve a problem they have.
This could mean a couple of things. It could mean you are not attracting the right type of customer. It could mean you are not clearly communicating the value you offer to your customer. Or it could mean you are not providing enough perceived value to your customer.
If any of these are the case, you may need to attract a different customer, change up your website and marketing materials, or iterate your product or service to provide a higher level of value.
Using tests on customer segments can provide insight into why something is not working and what needs to change.
Value
Once customers start using your product or service, you need to track how they use it.
This will determine if the perceived value lines up with actual value. In other words, are they getting what they thought they were getting? Is the value communicated on your website or in your sales pitch matching up with what you delivered?
If so, customers will keep using your product in a way that is expected. If they don't come back after the first use or use it infrequently, it is not meeting their expectations.
It might be solving the problem, but could be hard to access or navigate. Unless you are making an exclusive product, you want the barrier for entry to be low. And even if you are creating an exclusive product or service, once customers meet the threshold, you want them to have a seamless user experience.
You need to track when and how customers are using what you created. If it is not as frequent as you expected, you may need to iterate and make it more accessible or increase the level of value you provide.
Also, tracking this may provide some insight you never expected. People may start using your product or service in a way you never expected. In week 2, Michael Seibel talked about his experience at Justin.tv when they noticed gamers using their product in an unexpected way and pivoted their business to embrace this unexpected customer.
Tracking how people use your product or service will uncover if you need to make it more accessible, increase the value, or pivot your business model.
Retention
Once you have repeat customers, you need to track how long they stay with your business. Even if you have a high level of initial engagement, if customers stop engaging after a short period of time, you may have a problem.
Tracking this will help you know three things.
Lifetime Value
First, it will help you determine the lifetime value you can expect to receive from your customer. For example, if you receive $10 per month from your customer, and they use your product for one year, their lifetime value is $120.
If this is the case, and you spend $150 to acquire that customer, then you are losing money.
Attrition
Second, it will help you know how many customers you will lose during a specific time period.
If you have a drop off rate of 50% over six months, you know how many customers you will need to replace during this time period. This will help you create customer acquisition goals.
Increase Value
Tracking this will also allow you to test things that increase the lifetime value of your customer.
You can start testing ways to increase the value of your product or service. Do customers appreciate the increase in value and decide to stay longer? Is the cost of the improvement less than the increased revenue from the customer? If so, make the improvement!
Tracking retention is incredibly important. It is going to provide information that is invaluable and will help you test and adapt your business model.
Referrals
Tracking this will help you know when you have struck gold.
Do customers love your product enough to recommend it to their friends? If so, you have provided a level of value where customers are willing to market your product for FREE! If they are willing to recommend you to their friends and family, you know you have gained their trust.
This allows for exponential growth. Without increasing your marketing spend, you are acquiring an increasing number of new customers. And these referrals should have a higher conversion rate to customers as they have be recommended to you by a trusted source.
Make sure you track when and how your customers are referring other potential customers. Test ways you can improve this and make it easier for your customers to make referrals. And once this starts, see if you can incentives customers to increase their number of referrals.
Growth
Tracking all of these metrics will help you know what areas of your product or business need work. It will inform where you need to improve, increase value, or pivot.
Every time you make an improvement in one of these areas, it will increase your potential for growth. And it will help you better understand your customer and their needs so that you can serve them better both in the short-term and the long-term.
Update on MyDaily
To conclude, I want to circle back to the reason I'm going through StartUp School with my friend Ryan - MyDaily. Ryan is getting his product into the hands of customers. We have identified some potential leads who can test the product for him. He is reaching out to these leads to see if they will be willing to try out the prototype he has created. I'll keep you updated on how this goes.