Authoritative, actionable strategies on how to grow
your business.
Intercom builds a suite of messaging-first products
that all modern internet businesses can use to
accelerate growth across the customer lifecycle, from
acquisition to engagement and support.
www.intercom.com
We also regularly share our thoughts on growth,
marketing, sales, startups and the business of
software.
blog.intercom.com
Executive Editors: Adam Risman and Geoffrey Keating
Copy Editor: Karen Ostergren
Book Design: Judson Collier and Kelly Carpenter
Art Direction: Justin Pervorse
2018 Intercom Inc.
ISBN: 978-0-9861392-9-1
We'll spare you the legal mumbo jumbo. But please don't share
this book or rip off any content or imagery in it without giving us
appropriate credit and a link.
Got questions? Drop us a note at team@intercom.com.
06
21

31
48
57
69
When asked, I often tell people that the key to
understanding growth is two things:
1. A fundamental understanding of your product and,
specifically, what the key reasons people use it are.
It's easy to be confused about what true value looks like
and, as a byproduct, conflate causation and correlation:
motivations and root causes versus byproducts and
outcomes. Knowing your true product value allows you to
design the experiments necessary so that you can properly
isolate cause and effect. For example, at Facebook, one
thing we were able to determine early on was a key link
between the number of friends you had in a given time and
your likelihood to churn. Knowing this allowed us to do a lot
to get new users to their "aha" moment quickly. However,
this required us knowing what the "aha" moment was
with a fair amount of certainty in the first place.
2. A simple framework for doing your work. Too
many people "complexify" things in an attempt to
seem smart. Great things are simple. We had a very
simple framework for growth acquisition, activation,
engagement, virality. Having this framework allowed
us to prioritize our work, design experiments, build
products and so on. It also allowed everyone to
understand it and see how decisions were made in a
logical, transparent way.
This book will help you and your business understand
all of the above. It serves up a full package of ideas,
suggestions and lessons from across the entire
spectrum of growth, from acquisition to activation.
Featuring contributions from people who've grown
businesses from $0 to many billions in revenue, it
outlines time-tested advice for anyone working in
product, marketing and sales.
Done right, a smart effort around growth puts
companies into hyperdrive. Good luck on your journey.
Chamath Palihapitiya, Founder and CEO,
Social Capital and Facebook's first VP of Growth
If your business isn't growing, nothing else matters.
It's the perennial problem that faces businesses at all
stages of their development. Late in 2017 we began
to think about creating a podcast series devoted to
the topic of growth. The thesis was simple: we wanted
to interview the people who established the growth
marketing function at some of the most successful
software companies of our generation.
We got such a positive reaction from listeners that we
began to think about how we could bring that content to
an even bigger audience, the result of which is this book.
As well as excerpts from our podcast, we interviewed
our own team for their insights and have also included
samples from some of the best writing on growth that
helped and inspired Intercom in its early days.
The result is a set of stories from people who have figured
out some of the hardest growth problems so you don't
have to. Perhaps you're acquiring customers but they're
not sticking around. Perhaps you don't understand
what metrics you should be tracking? Or maybe you've
found product market fit but are struggling with getting
pricing right. This book will help you answer all of these
questions, and much, much more.
The book is written as a collection of short sections,
which are self-contained and address one of six topics
we feel are essential to growth: acquisition, activation,
retention, monetization, testing and optimization, and
metrics and measurement. Read the sections in any
order that works for you this isn't a book you need to
read front-to-back.
In each section, you'll find links to learn more about
each topic. We don't pretend to have all (or even most)
of the answers, nor are all of our ideas applicable in all
situations. We'd love for this book to be the first point in
your journey to learn more about growth, not the last.
Last but not least, we owe a huge debt to our
contributors. Without their valuable insights and hard-
learned lessons, this book simply wouldn't be possible.
Thank you for all your time and wisdom.
Geoffrey Keating & Adam Risman, Intercom
6
[01] Acquisition
In the early days of a startup, customers are likely
discovering a product through word of mouth. At first, this
looks like a founder emailing contact after contact, asking
all of them to try the product and showing them how it can
help accomplish their goals in a cheaper, faster or easier
way. If the team is doing everything in their power to help
those very first customers fall in love with the product,
they'll tell their friends, and the cycle will begin anew.
Word of mouth is the most economical way to acquire
new users, but over time, its returns are diminishing. This
requires new thinking and new acquisition channels alike.
Let's be clear there are no silver bullets when it comes to
where and how to acquire new customers; there is, however,
a golden rule before getting started: Your software has
product market fit. Marc Andreessen, who coined the phrase,
defines that as "Being in a good market with a product that
can satisfy that market." In practice, that looks like:
Software solves a fundamental problem;
People who have that problem are able to find that
software;
They're successfully activated and experience
value through the software;
They stick around, and would be genuinely sad to
see this software cease to exist;
They tell their friends about the software; and
Product usage continues to grow up and to the left.
When your software shows this pattern, and you've got
a system in place that can accomodate onboarding and
activating all these fresh faces, then it's time to ask,
where are my future users spending their time? What pain
points are most important to them, and how can I (cost-
effectively) connect those dots back to my product?
[01] Acquisition
[01] Acquisition
7
[01] Acquisition
The new sales and
marketing funnel
Des Traynor,
Co-founder, Intercom
Sales and marketing funnels are a very
old concept but they're finally changing in a
substantial way. So many businesses, both B2C
and B2B, are shifting to subscription models. This
changes the nature of what it means to "close" a
customer. Landing a new deal in this subscription
economy might mean $500 per month, not quite
the $20,000 upfront deal you once got. As a
result it's no longer enough to just get a customer
to convert. This new model only works when
retention is strong enough such that the customer
is still paying $500 or more in month 40 and your
customer lifetime value is realized. In this new era,
acquisition is just not as important as retention.
Plan accordingly.
8
[01] Acquisition
The nail in the coffin is that the
prevalence of competition and the rapidity in
producing product has made acquisition so much
harder that the effectiveness of focusing on that
lever solely has diminished considerably. To put
it another way, because it's continuing to become
easier to switch from product to product and the
increase of ad, content and social noise has gone
up, it's not only harder to acquire a customer, it's
also harder to keep them.
Yet, just focusing on acquisition means your bucket
becomes so leaky, all you can do is add more
customers to the top of the funnel in the hopes that
you'll make up for all those you're losing.
To quantify this a bit more, we built what's called
a simultaneous equations model to normalize and
compare the impact of doing one unit of effort on
acquisition, retention and monetization and seeing
what that unit of efforts impact on that pillar. Put
another way (although it's a bit oversimplifying),
Acquisition is
diminishing in
revenue
effectiveness
Patrick Campbell,
CEO, ProfitWell
we basically looked at if you spent an hour of time on
each of the three pillars, what would be the relative
impact on that hour of time to your bottom line.
What we found is that if you improve your
acquisition by 1% (by increasing your lead volume
or conversion rate), you'll see just over a 3%
boost in your bottom line. This contrasts starkly
with the relative improvements in monetization
(increasing your ARPU by 1%) and retention
(lowering your gross churn by 1%) that see boost
in roughly 13% and 7% respectively.
The individual numbers aren't as important as the
relationship that shows improving your retention
or monetization has 2-4x the impact as improving
your acquisition. Yet, all we want to focus on is
acquisition, and to make matters worse, data
indicates that this trend is getting worse over time.
Excerpt from "Data shows our addiction to acquisition based growth is getting worse".
9
[01] Acquisition
[01] Acquisition
Short-term hacks
vs. long-term
strategy
Steli Efti,
CEO, Close.io
Most new businesses use short-term
sales tactics to get their first 10 customers. That's
great at the start but terrible for sustainable
growth. Transition to more long-term plans as
you grow.
A short-term plan is one that you won't continue
doing in the future.
For example:

Handling every support call

Visiting every new customer in person

Personally following up with every new user

Tapping into your personal and profes-
sional network to get customers
A long-term plan is one that scales with your
business. For example:

Cold-calling and cold-emailing

Creating a drip email campaign

Search engine optimization

Building a scalable lead generation process
010 customers: 90% short-term
tactics | 10% long-term tactics
10100 customers: 80% short-term
tactics | 20% long-term tactics
100+ customers: 20% short-term
tactics | 80% long-term tactics
Excerpt from "Early B2B SaaS growth: How to go from 10 to 100 customers."
10
[01] Acquisition
[01] Acquisition
Don't trade growth
for profitability
Brian Kotlyar,
Director of Demand Generation, Intercom
There's a silly old business expression
that says, "We're going to lose a dollar on every
deal, but we'll make it up in volume." It is also
an extremely common way that venture-funded
businesses think about how to grow. They think
they can burn through tons of capital acquiring
users and figure out monetization later. But no
matter how much volume you have, if you don't
make money on any of the transactions, you
won't make money at all.
If you look at many of the initially successful
companies that have come and gone over the
past 36 months, that's exactly what they were
doing. These companies had incredibly smart
and experienced people, but the underlying
business model was broken: They were creating
volume businesses without a clear-enough plan
for how to solve the profitability question. For a
viable business, the value of the customer must
exceed the cost of acquiring that customer. You
don't need to have this solved on day one of your
business, but you need to have a plan as to how
that's going to happen.
11
[01] Acquisition
[01] Acquisition
After product
market fit comes
productchannel fit
Sujan Patel,
Co-founder, Web Profits
Once you figure out product market fit,
it's immediately time to figure out what Andrew
Chen and Brian Balfour call product channel fit.
You need to identify your marketing channels,
particularly the one or two you can use to go from
wherever you're at to that next level. The whole
process of first investing in growth marketing
isn't, "Can I get social ads to work? Can I get
AdWords to work? Can I do SEO? Can I do content
marketing?" You have to invest in one or two.
Look at the biggest companies out there, like
Apple and Microsoft. Each company usually has
one main channel and two or three secondary
channels. A startup with limited resources
has never been able to achieve success at three
different things at the same time, so find one
channel that you want to enter, and then as you
get that one humming along, go after the next
one, and then the next one.
Let's say you're trying to raise money. You
probably don't want to invest in content
marketing or SEO as a primary channel to move
the needle, because they take too long. Spend
your marketing budget on ads or outbound sales.
Image credit: Brian Balfour
Sujan Patel as heard on the Inside Intercom podcast.
12
[01] Acquisition
[01] Acquisition
Why every
business needs
a mechanism for
free acquisition
Andrew Chen,
General Partner,
Andreessen Horowitz

There's a reason why B2B SaaS
companies have a recurring revenue model.
It's also why a transactional marketplace like
Uber, which has a large number of riders who
use it use it every day for commuting, is nice.
That regularity and habit formation means the
company has better lifetime value. It also means
the engagement can power organic acquisition,
because customers naturally tell their friends
about it. Look at Dropbox or Slack a natural
network forms, where every user has the
opportunity to acquire one of their co-workers.
Another example is DocuSign, where folks who
are collaborating within a workflow involve other
people from across companies. That's going to
be even more viral than something that only
exists within a company. How many folks have
discovered Intercom because they saw the little
window on the bottom right and thought, I want
that too? You get all of this free acquisition.
13
[01] Acquisition
[01] Acquisition
right moment, you can build a pretty decent
company. But eventually you should just plan
on losing it, right? This is another reason why a
lot of gaming companies are hard to fund from
a venture perspective: there's built-in natural
churn. Dating apps are also like this. You have
that combined with the need to actually buy
the traffic because it's very hard in a dating
app to say, "Oh, you should download this
too." That doesn't make sense.
If you're building something in fintech or
healthcare, these are all things you have to be
very careful with. Make sure you understand
how customer acquisition is going to play out
long-term.
Make sure you understand
how customer acquisition is
going to play out long-term.
When I look at some of the high-profile cases
where chasing acquisition didn't work, I see a
couple of things that work in concert to make it
more difficult. First, you have an acquisition model
that is a single channel. Maybe it's Facebook ads,
maybe it's Google ads, maybe it's SEO but you
don't have any natural virality.
Second, specific to ecommerce, if you're
buying something like a mattress or a car,
that happens very infrequently. Because of
that, you end up in an acquisition treadmill,
where you've got to run really, really fast and
then if you're on a single point of failure on
your acquisition channel there's an arbitrage
for a period of time. If you hit it at exactly the
Andrew Chen as heard on the Inside Intercom podcast.
14
[01] Acquisition
[01] Acquisition
Mobilizing your
influencers
Karen Peacock,
COO, Intercom
When it comes to getting the word out
about your product, ask yourself, "Who do my
customers and prospects turn to for advice when
they are looking to learn about great solutions
or make a buying decision?" Understand who
influences your prospects most, then earn the
trust of those influencers. You'll need to win both
their hearts and their minds.
Before I joined Intercom, I led all of Intuit's
small-business products and services, including
QuickBooks accounting, payroll and payments.
For accounting and payroll products, the No.
1 influencer for a buyer was the accountant.
Makes sense, right? When small businesses make
decisions around accounting and payroll, they
end up talking to an accountant roughly half
of the time. So, we focused on being great for
accountants winning their hearts and minds to
help drive word of mouth.
15
[01] Acquisition
[01] Acquisition
Once you find the folks who are trusted advisers to your
customers and prospects, you need to help them do four things.
In order, they need to know, use, love and recommend your
products or services.
1. Know: They can't recommend your solution if they
don't know about it.
2. Use: To build their confidence, they have to actually use
and understand your product.
3. Love: Figuring out what matters most to those folks is
crucial. Make sure that they're experiencing real value
and that they see the value your product will provide
for others. This is also about giving them an experience
that is emotionally engaging, wins their hearts (not just
their minds) and gets them excited.
4. Recommend: Find ways to help influencers amplify this
love. Make it easy and rewarding for them to recommend
your product. You can use things like referral fees
to align your business interests. At Intuit, we built
capabilities into our products that made accountant's
lives easier when their clients used QuickBooks, so they
were motivated to get more folks using our products.
How can you motivate your influencers to get more
folks using your product or service?
Understand
who
influences
your
prospects
most, then
earn the
trust of those
influencers.
16
[01] Acquisition
[01] Acquisition
Why content is your most
powerful acquisition channel
Eric Siu,
CEO, Single Grain
I was talking growth with Neil Patel recently and we discussed
the channels that we would both invest in long term. If we were to start all
over again, what would we do? The answer was one you'd expect us to give:
content marketing.
The way we see it, content is the foundation. If you get content marketing
working, then you are able to retarget people. You are able to build lookalike
audiences on different channels. If you're creating great content, it builds
links, which brings your domain authority up.
You can write more content and then you can collect more emails and
optimize your conversion rate from there, but everything starts with content
first. Look at a lot of media companies they're building agency services
divisions now. It's easier to build an audience first, and from there you can
start to branch out into other areas.
I'll share a story. Four years ago, I spent six hours a week on "Growth
Everywhere," the first podcast I started. Editing, recording I did
everything by hand the first year. And after the first year I was only
getting nine downloads a day. That number is terrible. I should probably
have given up, but I kept going because people kept emailing me saying,
"Hey, I don't know why you're not getting more downloads but this has
been really helpful. It's made a difference in my life." I worked for another
year, again six hours a week, and I was only getting 30 downloads a day.
My point
is just be
relentless.
Content
marketing
works. Yes,
it takes time,
but anything
good takes
time. Just be
patient.
17
[01] Acquisition
[01] Acquisition
Nowadays "Growth Everywhere" has
about 80,000 downloads a month. Not
bad, but the "Marketing School" podcast
gets about 640,000 downloads a month.
Those succeeded because I was relentless.
The framework that I'll give is really easy
for everyone to follow. It's the Content
Reusage Framework from Aleyda Solis.
She has this flowchart you can follow
when you're creating content, and it
doesn't mean you always have to be
writing new stuff all the time. If you use
that framework, it's going to work out
really well for you.
My point is just be relentless. Content
marketing works. Content marketing
is the foundation for building whatever
you're trying to do in the long term. Yes,
it takes time, but anything good takes
time. Just be patient.
Eric Siu as heard on the Inside Intercom podcast.
18
[01] Acquisition
[01] Acquisition
How early is too early?
Sujan Patel,
Co-founder, Web Profits
Yes, you can definitely invest in acquisition too early.
Unfortunately, at my first SaaS endeavor contentmarketer.io, which has
pivoted to Mailshake, we made that exact mistake.
If you don't have a product that can fit that channel, then I would
recommend not leveraging that. For example, at contentmarketer.io, we
had a product that was kind of okay, and we were still validating product
market fit. Naturally, I went to town as a marketer. I built an audience.
I built an email list. We started blogging. We got lots and lots of traffic.
People even converted into customers. But the feedback we got from the
first month was, "I don't think this product is right for me. It doesn't
fit." We wasted that whole channel, and we had too many people talking
about us. That sounds like a good problem to have, but it's a really bad
one because the first impression those people had of us was a product that
doesn't work for them or a bad product.
In the early days, if you're figuring out your product and it's still not fully
ironed out, go lay the groundwork of content that you know is going to be
potentially optimized or something that can rank. Go to town on channels
that you can turn on and off, like outbound or cold email or advertising.
Make sure when you turn them on you get feedback and data, and then
turn them off until you're ready to go.
Sujan Patel as heard on the Inside Intercom podcast.
19
[01] Acquisition
[01] Acquisition
Acquiring the right kind of
customers
Rachel Hepworth,
Head of Growth Marketing, Slack
One of the things I'm really concerned about is that we're not just
acquiring free teams. We're here to acquire teams that have the potential of
paying Slack at some point. Last year we pivoted from asking "How many
teams are we creating?" to "How many work teams are we creating?" Even
though an enormous amount of our team creation is social, based on how
much people love Slack, work teams are the teams that pay Slack.
Then we moved from looking at work teams created to looking at what
we call "early-activated work teams created", which are teams that have
actually invited somebody to join. A Slack team of one is a lonely place, and
unlikely to be successful. Then, if a team has invited a couple people, have
they exchanged any messages? The bar is fairly low, because it has to be
something people can achieve quickly, so that we can iterate and test off of
it and not wait five months. But, it's high enough that it actually screens out
a lot of teams of people who have said, "I don't really know what Slack is. I
just want to get in there and experiment with it and see if it's at all like what
I think it's like."
Looking at the full funnel of metrics and not just stopping at that team creation
number is really important for knowing whether we are driving value for the
company. The friction is so low to starting a Slack team that you could really
drive a lot of really poor quality teams if you didn't pay attention to it.
Rachel Hepworth as heard on the Inside Intercom podcast.
20
[01] Acquisition
Your ideal customer
profile should bend
but not break
LB Harvey,
VP of Sales, Intercom
Acquiring customers through outbound
sales is expensive. So, the more your company
has honed its ideal customer profile, the better
targeted your sales team can be. That allows you
to be a lot more efficient from both a sales and
marketing standpoint, because you're investing
dollars against a segment of customers that is
more willing and likely to buy your products, and
to find success with them too. You know those
target prospects are going to have good product
market fit, and you know that when you actually
sell those deals, they're not going to quickly churn
out and leave you with a brand that's known in
the market for its lack of customer success.
That said, if your sales team isn't pushing the
envelope a little bit when it comes to your
customer profile or target segment, that's a miss
too. Your sales team talks to more prospective
customers than any other team in your
organization, and they will have the best pulse
on where you might unexpectedly be resonating
in the market. They'll press on the edge of
product market fit and gather important intel. If
those prospective customers represent the next
wave of customers you want to start acquiring,
then begin to understand the largest problems or
business pains your product can solve for them.
That's valuable information for R&D.
21
[02] Activation
If you work at a growing SaaS company, you might be
familiar with the "Pirate Metrics Model" (termed so
because of its acronym AARRR). Its five metrics represent
the five most important stages of a customer's life cycle
acquisition, activation, retention, referral, and revenue.
Most growing SaaS companies focus first on acquiring
users and getting them into the funnel. Then, they focus
on retaining those users and turning them into loyal, long-
term customers. But they're missing that second A in
AARRR activation.
Activation is the science of turning acquired users into
active customers: people that pay for and value your
solution. After all, 10,000 free trial signups is a vanity
metric if no one actually uses your software.
Since activation comes right after acquisition and right
before revenue, it's an incredibly important part of your
business to optimize. In fact, when a lot of companies are
struggling with growth, it's not that too few people are
coming to the products. The real growth problems start
when people land, and then leave.
[02] Activation
[02] Activation
22
[02] Activation
Acquisition vs. Activation
Justin Mares,
Co-author of Traction: A Startup Guide to
Getting More Customers
Most SaaS companies are (rightly) concerned with user acquisition
but fail to pay adequate attention to activation. What few realize is that
activation plays a major role in user acquisition itself.
Imagine that you (and your competitors) can spend $10 on Facebook to get
one user signup, and that you make $20 for every customer you have. Let's
also say that half of your users that sign up for a trial will not activate they'll
never experience the key action that separates your product from the other
SaaS tools out there, and won't become a fully featured user.
So, overall, you're breaking even on your marketing spend: $20 per customer
x 50% of users that activate equals the $10 per signup you spent on Facebook.
If you can boost this activation number even just to 60%, your marketing
channel suddenly becomes profitable, not just break-even. That increase
also opens up new audience and ad targeting options, and allows you to
profitably scale your advertising.
Just like you'd optimize your ads, you should be optimizing your activation
process to successfully onboard as many users as possible.
Excerpt from "Activate or die: 10+ ways you can improve your user activation for SaaS."
You should
be optimizing
your
activation
process to
successfully
onboard as
many users
as possible.
[02] Activation
23
[02] Activation
When I became the VP of Marketing
for the Intuit payroll business, I took the first 60
days to assess what was working and what wasn't
working, and then came up with a set of priorities
about where we were going to invest. The first big
decision I made was to take a significant chunk
of my marketing program budget and use it to
hire a product team to build a better first use and
onboarding experience.
My peers in marketing came to me and said, "Karen,
we know that you're new to being a VP of Marketing,
but this is not what we do. We don't hire product
teams. Our money and our budget is the biggest
source of control and power we have to hit our
numbers you can't give it away to a product team."
I understood where they were coming from,
but I wasn't giving it away. I was making what I
believed was one of the best investments I could
Activation the
hidden marketing
opportunity
Karen Peacock,
COO, Intercom
make an investment that not only would enable
us to hit our numbers that year, but would drive
results for many years to come.
We were able to staff up a team on the product
side, which I worked with closely, and that team
was able to increase the trial to paid conversion
by about 20%. It was the best investment not
only that I made, but that any of the marketers
across the company made. It enabled all of my
other spending to be wildly more efficient. We
complemented this with the right engagement
activity led by marketing, including messaging
to welcome new customers, get them started and
successful, move them to the next step and upsell
and cross-sell with targeted streams depending
on who they were and what they had or hadn't
done yet with our product.
Marketers should care as much about the
onboarding and first use experience and getting
customers from trial to paid as they do about
driving customers to their website or to sign
up for trials. The points on the board are when
customers become paying users or active users
who get real value and tell others.
[02] Activation
24
[02] Activation
Helping your customers experience
the full value of your product is key to ensuring
their loyalty, and you do that through first
uncovering your activation steps. For your
product to survive, you need to activate your
new signups by getting them to take the
actions that will enable them to see value in
what you're selling. These are the actions that
Uncovering your
activation steps
Ruair Galavan,
Senior Manager, Product Education,
Intercom
if a customer takes, you know they'll start to see
value in your product, and thus stick around.
The key to getting this right is to first know what
the key actions are for your product. Start by
first looking at the steps your most successful
customers take before becoming successful. As an
example, let's imagine a ride sharing app, where
all customers who complete two trips in the first
30 days after signup are 40% more likely to retain
in month two, compared with the customers who
take just one or no trips. In this case the activation
step is "orders 2 rides by the end of day 30".
Once you're aware of these steps, it will directly
influence your activation strategy. In this case
you'd get laser focused on encouraging customers
to take 2 rides in their first 30 days. Hopefully
you'll know these steps in your product already,
or at least have a good idea of the steps successful
users are taking.
Remember, over a long enough timeframe most
customers churn. And most companies die. It's
tough out there. This lack of traction with new
signups isn't because your product has no value.
Well, it could be. But, it's more likely because your
customers just don't see the value of your product.
25
[02] Activation
[02] Activation
If I were starting up and had $100, I'd
bet $80 of it in the activation phase, because
what happens is people fail to have their "aha"
moment. And even if they have their "aha"
moment, they can drop out before using the
product becomes a habit. And that's a huge
amount of value lost.
The tactics I use in that space are first understanding
what my dropoff rates are, and then watching users
in their very first experience. I try to understand:
What are the buttons they don't find? What are
the things they are confused about? Then try really
simple stuff like a dialogue box saying, "These are
things you are probably looking for." Lead them in
the three places they most likely want to go.
Putting all your chips
on activation
Shaun Clowes,
VP of Product Management, Metromile
(former Head of Growth at Atlassian)
At one point we had a 12-step onboarding flow at
Atlassian. It was deeply involved; it had a whole
bunch of things that it taught you; it was very
successful. But when I talk about champion/
challenger, we were constantly trying to beat
that, and we later ended up with an onboarding
flow called "Choose your own adventure". It
was one dialogue box with three buttons, and it
outperformed the 12-step program. The 12-step
program was trying to tell you enough that you
could do the rest, but most people arriving at the
software wanted to do one of three things. Rather
than needing to educate them about those three
things, about the way in which they could go about
thinking about the software and finding them, just
giving those three things to them was enough.
Shaun Clowes as heard on the Inside Intercom podcast.
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[02] Activation
[02] Activation
For Facebook the "magic moment" is that moment when you
see your friend's face. Everything we do on growth if you look at the
Linkedin registration flow, if you look at the Twitter registration flow,
or you look at what WhatsApp registration flow when you sign up the
No. 1 thing all these services look to do is show you the people you want
to follow, connect to, send messages to, as quickly as possible. Because in
our vertical, this is what matters.
When you think of eBay, it's about finding that unique item, that PEZ
dispenser or laser pointer, that you really, really cared about and want
to get a hold of. When you see that collectible you are missing, that is the
magic moment on eBay. When you look on Airbnb and you find that first
listing, that cool house you can stay in, and when you go through the door,
that's a magic moment.
On the other side, when you're listing your house on Airbnb or an item on
eBay, that first time you get paid is your magic moment.
Think about what the magic moment is for your product, and get people
to experience it as fast as possible. You can go from 60% retention to
70% retention easily if you can connect people with what makes them
stick on your site.
Finding your product's
magic moment
Alex Schultz,
VP of Growth, Facebook
Excerpt from "Alex Schultz's Lecture in How to Start a Startup."
27
[02] Activation
At Intercom, we define activation as
the point at which a customer first realizes or
derives real value from the product. In order to
define value, we look at it through a retention
lens. Customers who find value in your product
come back. Customers who continue to find
value over time will continue to come back.
So we look at customers who retain versus
customers who churn, and investigate the
actions they took in the first few weeks. What
are the actions that separate these groups in
particular during their early experiences with
the product?
To understand activation,
understand retention first
Karen Church,
Director of Product Analytics & Data Science, Intercom
If you can identify the
early actions that separate
the retained customers from the
customers who leave, you'll be able to
define and track activation and what drives
real customer value. To use a concrete example
from Intercom: For our Capture & Convert Use
Case, a team that has five conversations with
a lead is 79% more likely to retain than a team
who has no conversations with a lead.
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[02] Activation
[02] Activation
Identifying the key action can be easy or
hard it depends on your business. At Grubhub,
it was pretty easy to determine. You receive value
only if you ordered food, so we looked at if you
placed a second order. At Pinterest, this was a
little harder to determine. People derive value
from Pinterest in different ways, from browsing
lots of images to saving images to clicking through
to the source of content. Eventually, we settled
on saving (pinning an image to a board), because,
while people can get value from browsing or
clicking through on something, we weren't sure
whether it was satisfying. People only save things
if they like them.
Tracking activation
Casey Winters,
Scaling and growth advisor
(former growth leader at Pinterest and GrubHub)
Once you know your key action and your
frequency target, you have to track that target
over time. You should be able to draw a line of
all users who sign up during a specific period,
and measure if they do the key action within
the frequency target after signup. For products
with product market fit, the line flattens as a
percentage of the users complete the key action
every period:

If the line flattens rather quickly, your successful
activation metric is people who are still doing
[key action] at [set interval] at [this period
after signup]. So, for Pinterest, that was weekly
"savers" four weeks after signup. If your cohort
takes a longer time to flatten, you measure
a leading indicator. At Grubhub, the leading
indicator was a second order within 30 days of
the first order.
Excerpt from "Why onboarding is the most crucial part of your growth strategy."
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[02] Activation
[02] Activation
Define your
activation metrics
before it's too late
Andrew Capland,
Director of Growth, Wistia
I wish someone had told me to clearly
define our activation metric and get serious about
tracking the inputs to that metric ASAP. Many
teams avoid this because it seems hard (and time-
consuming) to define which is a huge mistake.
The clearer that definition is, the easier it will
be to prioritize projects to increase it. Before we
begin any new onboarding project, we ask "How
does this project increase our activation metric?"
and "Will this project increase our activation
metric more than this other project?" Clearly
defining your activation metric will provide huge
dividends to your users and your company.
Excerpt from "User Onboarding Advice From SaaS Leaders."
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[02] Activation
[02] Activation
Activating customers
long term
Ruair Galavan,
Senior Manager, Product Education, Intercom
A common mistake I see companies making is only
focusing on activation for the first 14 days of a customer's life
cycle. Activation varies from product to product. For example,
if you're UberEats, activation is the customer's first order.
Nothing really changes after that. The customer just comes
back and orders food again. But for a product like Intercom,
users can be activated in hundreds of ways. They might have
used a few key features, but have whole areas of the product
they haven't even explored yet.
That's why we don't just think about activation at a product
level we tackle it on a per feature basis too. When we launched
our bot Operator, we were activating people who were active
power users of Intercom for almost two years. So we found
ourselves having to educate people all over again on a new
workflow, and how it could make their existing ways of doing
things better. It's limiting to think about product activation
too broadly. It should be about individual feature activation
too, and that has to be a continuous process that happens long
after a customer's trial ends.
31
[03] Retention
Once you have driven visitors to your product and have
successfully helped them take the most important actions
within your product, it might seem like you are out of the
woods. But another crucial component is retention. It
doesn't matter how many active customers your startup
acquires if none of them stick around in the weeks and
months after signup.
For many companies today, retention hacking is the new
growth hacking. There are a number of reasons for this:

If your retention is low then all of the ingenious
growth hacks that you apply to your product are
basically meaningless. Your members will leave
your product at the 11th hour (or the very end of
your funnel). Leaky buckets don't need more water.
They need their holes fixed.

Increasing your customer retention rate can have a
big impact on your bottom line. Harvard Business
Review researched the value of customer retention
and found that by raising retention rates 5%, the
average business will increase profits by 25% to 95%.
People that have been retained for long periods of
time are more likely to evangelize for your product.
Word of mouth referrals result in new users, which
drives habits among groups of friends and colleagues
as they begin relying on the same product.
Plain and simple, your eye should be on retention. It's the
tide that lifts all other boats acquisition, monetization,
virality and beyond and is the difference between a
business that sustainably grows long term, and one that
flames out and dies.
[03] Retention
32
[03] Retention
[03] Retention
How churn
disrupts the SaaS
business model
Des Traynor,
Co-founder, Intercom
It's difficult for many startups to assess
the real impact of churn because they lack the
longitudinal data. Churn is usually seen as a factor
limiting growth on a month to month basis, but
the impact on customer lifetime value (LTV) is
equally significant. It's hard to build a subscription
business on short term subscriptions. The whole
idea of the SaaS business model assumes the lower
revenue per customer per month is offset by a
longer lifetime of that revenue.
If your customers aren't sticking around for years
then you have a business model problem. This
is common for products that have immediate
upfront value, but give no reason to stick around
months later. In these cases, you can spam
customers all day long, but you'll see a better
return from rethinking your business model.
If analyzing churn, cohorts or lifetime value
gives you big results that you didn't expect or
can't explain, then you should be talking with
your customers more often to work out what's
going right and wrong for them. It's likely you're
out of touch. These days you can automate and
visualize almost anything, except caring. That
has to come from you.
Excerpt from "Reduce churn by re-engaging your customers."
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[03] Retention
[03] Retention
Reducing the
"time to pie"
and increasing
stickiness
Karen Peacock,
COO, Intercom
If someone is using your product but
they're just dabbling and coming in once a
month, your whole relationship with that
customer could easily tip over. As soon as they
find a more interesting or useful solution, you'll
get cut out. Of course, what you want to have is
a deep engagement and involvement with your
customer. The question is, how do you get that?
Focus on providing meaningful value in a
way that requires as little work as possible for
customers to get that first taste of value lower
the barriers. As an example, look at Mint, the
personal finance product. That team found that
the first "aha" moment, the first taste of value,
was when a customer could see the pie chart
of where they were spending their money.
Customers who got to that point were likely to
stay, so Mint did an overhaul of the onboarding
experience to make connecting your bank
account and getting to that pie chart as fast
as possible. They took out every other part
of setup and held it for later, which reduced
the "time to pie." That led to much higher
engagement and dramatically accelerated the
growth of their active customer base.
Another key is to make your product or
service sticky. For example, when I was the
General Manager for Intuit's payroll products,
we saw that customers who set up a direct
deposit service that connected to payroll
and automatically moved money from the
employer's bank account to the employee's had
34
[03] Retention
[03] Retention
much higher retention rate and much higher
net promoter scores. They were happier and
stayed with us. This makes sense nobody
wants to go through the hassle of having to
redo a bank account routing setup, write
physical checks or manually go into their bank
account every week.
Unfortunately, setting up that direct deposit
was, at the time, a much later step in our
onboarding process and required a back and
forth to your bank that took days. We did three
things to tackle this:
1. We changed the onboarding experience
to make the direct deposit setup for the
employer early in the process.
2. We found a partner who could do a real
time confirmation of the bank routing
info for the majority of our customers,
Focus on providing meaningful value in a
way that requires as little work as possible for
customers to get that first taste of value lower
the barriers.
making the process immediate rather
than split over multiple days.
3. We created a way for employees to do
their own direct deposit setup, instead of
waiting for their employer to do it (after
all, who cares most about seeing the
money show up fast in the employee's
bank account the employer or the
employee?).
The result? Higher usage of direct deposit, higher
retention and higher net promoter. Customers
were getting more value and were switching less.
Strong retention comes from driving up the core
value of your product, helping customers get
that value as fast as possible with as few barriers
as possible, and creating an experience that is so
good that no one can imagine going back to the
old way.
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[03] Retention
[03] Retention
The no-BS way to
understand churn
Des Traynor,
Co-founder, Intercom
No matter how successful your
business is, your percentage growth of your
customer base will decay over time, but if churn
is endemic in your business, you don't have a
similar guarantee with it. At some point you'll
be faced with a reality that you'll soon be losing
as many customers are you're adding.

That's why one of our investors coined a term,
the SaaS quick ratio, to help startups understand
the extent of their customer churn.
The importance of this ratio can be crudely
summarized as: I don't care how fast you're
growing, keep your customers or it'll all go bust. If
there's a million target customers in the world and
you're winning 100,000 of them every month, but
losing at 50,000 as well, in ten month's time you'll
have a powerful monopoly in the market, and just
ten months later you'll file for bankruptcy.
Churn matters.
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[03] Retention
[03] Retention
The SaaS Quick Ratio
Mamoon Hamid,
General Partner, Kleiner Perkins
We've coined an accounting term,
"the SaaS Quick Ratio." It measures assets and
liabilities that we apply to SaaS businesses. It's the
MRR (Monthly Recurring Revenue) that's gained
every month divided by the MRR that's lost.
On the next page are two examples of companies.
On the left are two companies that we did not
invest in and to the right are two companies
that we invested in.
You do the quick math, and this is what it looks
like. The companies on the right have a quick
ratio of four or above. The companies on the left,
less than four. It's not always this simple. But
we try to use data as much as we can to make
good decisions.
It's not
always this
simple. But
we try to
use data
as much as
we can to
make good
decisions.
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[03] Retention
[03] Retention
Excerpt from "Mamoon Hamid On Why Sh*t Really Gets Funded at Saastr."
38
[03] Retention
[03] Retention
Why negative
churn is such
a powerful
growth
mechanism
David Skok,
General Partner,
Matrix Partners
In the early days of a SaaS
business, churn really doesn't
matter that much. Let's say that
you lose 3% of your customers
every month. When you have only
100 customers, losing three of them
is not that terrible. You can easily
go and find another three to replace
them. However as your business
grows in size, the problem becomes
different. Imagine that you have
become really big, and now have 1
million customers. Three percent
churn means that you are losing 30,000 customers every
month! That turns out to be a much harder number to replace.
Companies like Constant Contact have run into this problem,
and they have found keeping up their growth rate very hard.
The ultimate solution to the churn problem is to get to
Negative Churn.
There are two ways to get this expansion revenue:

Use a pricing scheme that has a variable axis, such as the
number of seats used, the number of leads tracked, etc.
That way, as your customers expand their usage of your
product, they pay you more; or

Cross-sell them to more powerful versions of your
product, or upsell them on additional modules.
Excerpt from "SaaS Metrics 2.0."
39
[03] Retention
[03] Retention
How to fix a
leaky bucket
Bobby Pinero,
Senior Director of Finance, Intercom
Monthly recurring revenue (MRR) retention
will make or break the growth of your SaaS business
there's no point filling the bucket if it's full of holes.
This topic has been covered over and over and over
again. Read these articles and digest them. Investors
will be heavily focused on this aspect of your business.
You'll need to show retention in a few ways.
Gross churn:
Of all the committed revenue you had last period,
how much has walked out the door this period? Do
the same on a customer count basis.
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[03] Retention
[03] Retention
Net churn:
Of all the committed revenue you had last period,
how much has walked out the door this period net
of upsells?
Cohort retention:
Churn metrics as described above are a great
snapshot into the business at a point in time.
However, it's a blended average of all customers
at different points in their lifecycle. Retention by
cohort gives you a longitudinal view of how good
you are at keeping, upselling and cross-selling
any given customer and how that has evolved
over time. In other words, for every dollar you get
today, how many dollars do you have six months
later, one year later, and so on?
To the right is an example of how this is typically
displayed. This fictional business is getting better
at retaining customers and upselling them over
time; a promising sign. Cohorts greater than
100% is what investors want to see. Consistent
cohorts of greater than 100% will lead to negative
net MRR churn.
Excerpt from Intercom on Starting Up.
41
[03] Retention
[03] Retention
What the gaming
world can teach us
about retention
Gina Gotthilf,
Former VP of Marketing and Growth,
Duolingo
Duolingo was meant to be a game from
the get-go. That comes from our founders. They
thought, "You know what? Learning is a drag.
Learning a language takes forever. We need to
find a way to get people to keep coming back,"
so making it a game was baked in from the very
beginning.
My team would do things like assign games to
different members of the team. I'd say, "Okay,
this week you're going to play this game" a top
grossing game or top downloaded game "and
then you're going to give a little three-minute
presentation, each person, in our next meeting,
about what you thought was effective in this
game." That could be something like how they
onboard people. Look at this metric system for
points. Look at how you have this set of points,
but you also have this other type of points. Look
at how you earn them and how one influences
the other. We were constantly talking about game
mechanics and applying them to Duolingo with
the goal of getting people to stay interested in
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[03] Retention
[03] Retention
learning a language and to automatically, like a habit, go back
to Duolingo whenever they were bored, instead of to a normal
game on their phone.
It was a fine line. Our team was the growth team, and we were
just trying to get more users and users to stick around. There
was a separate learning team and a separate monetization
team. Having those three metrics separate and having teams
advocate for each one of them was really important. Otherwise,
we could have just made a product that was super easy and
fun, that people would play more of and stick around more and
buy more things, but not learn anything at the end. Because if
it's easy, it's more motivating, but you're not learning. If it's
harder, you might be learning more, but then you might also
give up more easily because it's frustrating. We didn't want to
make something that was just there to entertain, or to make
money and get users and be the next thing that everyone
forgot a year later.
We definitely had hard conversations. Sometimes one team
won, and sometimes another team won. Some things that we
A/B tested that hurt monetization, for example, or an A/B test
that the monetization team launched that hurt our retention.
The same goes with learning, although we prioritized learning
above all at Duolingo, so fighting against the learning people
was a harder battle.
We didn't want to
make something
that was just there
to entertain, or to
make money and
get users and be
the next thing that
everyone forgot a
year later.
Gina Gotthilf as heard on the Inside Intercom podcast.
43
[03] Retention
[03] Retention
A low investment
with massive
rewards
Shaun Clowes,
VP of Product Management, Metromile
(Former growth leader at Atlassian)
It never ceases to amaze me how much
time we as an industry spend optimizing our
acquisition tactics to acquire a huge bunch of
people. When I think about all the energy that
has gone into this, and understanding who those
people are and how to go and find them, and
then I look at the number of people that drop
off in the first five to 10 minutes, the first day, it
always breaks my heart. Even at Atlassian, where
I felt like we were getting better and better at
this, we had the charts that would show us what
was happening. Every one of those people is a
person whom you have fundamentally burned.
You have failed to give them what you told them
you would give them.
When I think about the ROI of things that you can
do in a business, make certain that your customer
is safely handed from acquisition to activation.
Make certain that you have done everything
in your power to help them find their "aha"
moment and begin habit forming. Then make
certain that they're getting the maximum value
from your software though engagement. Those
are generally very low investment, but with
potentially massive rewards. Not only because
you keep those users, but if you truly succeed at
that, and you get high engagement, then what
you really get is sustainable businesses, because
you get word of mouth.
People who are highly engaged with your
software are always the people who love it, and
those people who love it will tell other people.
The most authentic form of acquisition, by
far, all day, every day, is word of mouth. It's
amazing the business you can build once you
have that engine going.
Shaun Clowes as heard on the Inside Intercom podcast.
People who are highly
engaged with your
software are always the
people who love it, and
those people who love it
will tell other people.
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[03] Retention
[03] Retention
Eliminate friction
at every step
Samuel Hulick,
Founder, User Onboard
In order to hit the retention metrics
necessary for scaling and sustaining your
business, it is imperative that you smooth your
users' path forward at every opportunity.
Fortunately, however,
that doesn't mean
creating a tedious interstitial stage at every step
of your onboarding. In fact, it's best when it's just
the opposite: Rather than provide a plodding,
Playskool-level "My First Interface" for your
users, harness the power of technology to warp
your users right past the tedium of having to deal
with the task at hand at all.
Want a real world example? Look no further
than Medium.
Ever wanted to tweet a highlight of a compelling
passage that you just read? They could have left
it up to you, which would involve the clunky,
user-has-to-leave-the-product workflow of:
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[03] Retention
[03] Retention

Highlight the compelling passage

Take a screenshot

Locate the screenshot

Upload it to Twitter

Come back and copy the post's url

Go back to Twitter and paste that

Look things over before pressing "Tweet"

And then, finally, remember to come back to Medium to
pick up reading wherever you'd left off
Instead, Medium warps you through all of that by providing this
helpful little Twitter icon whenever you highlight something
(whoa, this is about to get meta). When you click on it, you're
teed up to tweet it out from the article itself! And then you're
free to keep reading, having never even left your place.
This is good for the user because it cuts out a bunch of
steps you don't actually care about, but it's even better for
Medium because they've prevented the risk of you leaving
and not coming back!
Excerpt from "Product People: Mind the Gap."
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[03] Retention
[03] Retention
Act before it's too late
Ruair Galavan,
Senior Manager of Product Education,
Intercom
Your retention strategy has to be
proactive. Don't wait until customers are on
the brink of churning to throw some last-ditch
attempts at them. What you do to stop it and how
you do it depends entirely on your relationship
to that customer. For active customers, you'll
need to continuously ship new features that better
serve their needs. For inactive customers, you'll
need to offer training so they can start seeing the
value of your product. Specifically, you'll need
to understand why someone might leave your
product, look for the signs that your customer is
getting ready to leave and then choose the right
tactic to stop it.
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[03] Retention
[03] Retention
Retention is a sales job too
LB Harvey,
VP of Sales, Intercom
Who owns customer success within an organization can vary.
For example, some companies have a Head of Sales and a separate Head of
Customer Success. When speaking with companies who use that model,
I often hear the same back and forth: Customer Success feels like Sales is
selling bad deals, and Sales feels like Customer Success is dropping the ball
when it comes to managing their beautifully sold deals and customers.
I feel strongly that Sales should be accountable for the long-term success
of their customers, not just the initial deal. Some people worry that a sales
team isn't going to be quite as ambitious about driving that success and
engagement. There's very few things better than winning the initial deal.
But guess what? There's not much worse than winning the deal only to
see it churn. That's why actually retaining and growing customers is just
as exciting and important.
As a result, Account or Relationship Managers should be talking to their
customers consistently at least once a quarter. If you're doing that, you
should be able to feel out how successful they're feeling with your tool,
and you can help steer the conversation to the value that your product is
already providing. From there, you can decide when it's appropriate to
talk about a further investment or enlarging a footprint.
48
[04] Monetization
Put simply, acquiring, activating and retaining users isn't
cheap, and they only represent one side of operating
a successful business. Going back to the all important
concept of product market fit, if you're not in a market
where you can operate profitably, then your loyal
customers should begin preparing for the cold reality of a
world where your product no longer exists.
Growth is a symbiotic relationship. Just as your customers
should be experiencing the value of your product, you
should be extracting equal value from them. This is why
the tiered pricing structure seen in SaaS is so problematic.
Small, medium and large/enterprise pricing buckets
inherently mean giving the heaviest discounts to the most
valuable customers.
Monetization is really the process of marrying your
business model to customer value. Do that successfully,
and you'll be able to reinvest in new features or solutions,
which will provide more value and bring in new users. It's
that cycle that underpins the most important monetization
philosophy of all: None of this is set in stone. Your product
will change, its value will change and your pricing must
change along with it.
[04] Monetization
49
[04] Monetization
[04] Monetization
Pricing =
product marketing
Tomasz Tunguz,
Partner at Redpoint Ventures
To figure out the right pricing strategy, determining
what the buyer cares about is crucial. Do they care about cost
or value? What is their core unit of their world: people, dollars,
gigabytes? How predictable is the pricing plan? And can the
buyer clearly articulate the pricing, advocate on your behalf
and champion the purchase?
Understanding the seller's needs is also important. How does
the pricing change the market size? The unit economics and cash
flows associated with the sale? The competitive positioning?
All of these disciplines fall under product marketing. Well-run
product marketing teams develop these perspectives before
product launch. By combining market research, interviews
with prospective customers and conversations with the sales
team, the product marketing team can develop a unified pricing
strategy that is consistent with the company strategy and the
sales tactics.
The challenge with pricing is that it's never a constant. As an
industry evolves, competitive pressures change, a vendor's
positioning changes and the buyer's needs change, and so
must pricing.
Excerpt from "Ten Year's Worth Of Learnings About Pricing."
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[04] Monetization
[04] Monetization
The only thing
certain about
pricing is change
Des Traynor,
Co-founder, Intercom
You can read all the pricing books and
academic papers in the world and dream up the
most sophisticated pricing models, but the first
thing to know about pricing is that you're going
to get it wrong. Pricing is a moving target, and
if your business is growing it's likely you'll miss
that target more than a few times, whether that's
setting their price low to attract customers and
never raising it, or keeping a feature free long
after it's clear people will pay.
The second thing to know about pricing is that
you need to keep iterating on it constantly.
If you continue to improve your product then it will
inherently deliver more value to more people and
cost you more to support and scale, so naturally
you may need to change prices to account for that.
You need to plan on changing pricing, and you
have to afford yourself that luxury for a variety
of reasons: your product's quality will change,
your target market will change, your customers
expectations of you will change.
At Intercom we went from a flat fee for the
whole product, to tiered price plans, to separate
products priced per metric. I don't think we
could have pre-empted all of this and started at
the end, the product wasn't there yet, nor were
our customers. Every time we learned more about
our business, we knew a change was coming.
If your product delivers a unique value, then the
chances are it won't map onto one of the classic
SaaS 'bronze, silver, gold' price plans that you see
everywhere. Pricing is often a tension between
effectiveness and simplicity, going too far in
either direction usually leaves either customers
or revenue on the table. Of course you won't
know the limits until you go past them, and
that's why you need to plan for change.
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[04] Monetization
[04] Monetization
You need an effective
sales process, no
matter how "viral"
your product
Mark Cranney,
Chief Commercial Officer, SignalFx
One of the myths of SaaS is that the products
are so good, so easy to use, so quick to deploy that
the product sells itself. Given the popularity of try-
before-you-buy and freemium-to-premium models
for software as a service, it's easy to see where that
myth comes from.
But as many startups discover to their horror
after they "land" users and try to "expand" to more
departments in a large company or government
agency this is far from the truth. Even with early
viral growth, SaaS products don't sell themselves.
Excerpt from "If SaaS Products Sell Themselves, Why Do We Need Sales?"
52
[04] Monetization
[04] Monetization
On your next big deal?
Double your pricing
Jason Lemkin,
Founder, Saastr
There's a fun and very lucrative and rewarding exercise
I like to go through with most of the startups I work with.
It goes like this:

First, who's your largest customer? Okay.

Now, do you have a prospect in the pipeline that's
somewhat similar?

You do? Great.

On that deal, go quote twice your highest price ever.
This is a terrific exercise to drive your deal size up. It does not
mean you should rip off your customer.
What it does force you to think about is providing a true solution
to a big problem. A thousand dollars a month is a lot of money
for a widget, even if everyone on my team uses it. But $12,000 a
year is dirt cheap for anything that solves a true problem. That
solves me having to hire an engineer, or three, to do something.
That fixes something broken in my 500+ person organization.
Challenge yourself.
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[04] Monetization
[04] Monetization
Your biggest deal so far is with Google, for $100,000? Well,
when Facebook comes in as a prospect, ask for $200,000.
With confidence. I know you just got comfortable asking for
$100,000. But if you're worth $100,000, then either your
product today, or some future variant of that product, is
worth $200,000.
You may have to build them an extra feature. Provide better
onboarding. Improve customer success. Upgrade your sales
team or, at least, add reps with more experience selling larger
deals. Build a new integration. Who knows.
You may have to change a bunch of things to get twice what
you did on your largest previous deal. Or possibly nothing.
Either way, you'll learn. It's a journey.
And if you have a true solution that really makes an impact,
you'll probably get the 2x pricing at least some of the time.
Once you do it once, level up. Make 2x the new 1x. Make
$200,000 your new enterprise price point, not $100,000. Do
that for a little while, and then you can multiply it all over again.
Rinse. Wash. Repeat.
Excerpt from "On Your Next Big Deal? Double Your Pricing."
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[04] Monetization
[04] Monetization
Justify or kill your
lowest price point
Des Traynor,
Co-founder, Intercom
A lot of products include a "starter" plan
for $5 or $9 per month. Usually that's to reinforce
the claim that the product is "affordable enough
for everyone", while boosting your customer
numbers. But remember that a customer on
the $9 plan often costs just as much to acquire
and support as a customer on the top tier, $499
plan. This means your bottom tier can often be
unprofitable, which is fine if you are confident
that it's paying out in some other way.
Some small companies can grow into large
customers, but more often they remain a small
customer paying that amount forever. If you can
justify your lowest price plan either by migration
to higher price plans, or through marketing
benefits (word of mouth, etc.) then it's a great
idea. But you do need to justify it.
Excerpt from Intercom on Starting Up.
A customer
on the $9 plan
often costs
just as much
to acquire and
support as a
customer on
the top tier,
$499 plan.
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[04] Monetization
[04] Monetization
Make your pricing
disappear
Yao Choong,
Director of Business Operations, Intercom
Your monetization has to feel fair to your customers,
and that means your pricing has to disappear. When you're
telling a potential customer the story of your product and how
great it is, you never want them to think, Do I like this pricing,
or not? You want pricing to disappear as a consideration. You
want them to hear it, think that it's fair and then have it go out
the window. It should never be on their minds.
As a result, "fairness" is the imperfect way to label the quality
that gets people to hear your price and ignore it. Ultimately, if
they think it's unfair, or if they think that it doesn't align with
their conception of the value that they're getting from the
product, they will not be able to let that go. That is the biggest
reason why people reject pricing, because it stops feeling fair.
"Fair" can be simplified to mean industry standard, which is a
shortcut most companies take. That approach might work, but
in the process, you might lose out on
the opportunity to come up with a
better solution than anybody else.
This is where you have to pick your
battles carefully: Do you put in the
effort to come up with an unusual
solution and take a risk in exchange
for
some hypothetical benefit,
or do you pick the safe route and
differentiate yourself in some other
way? Making this tradeoff is, in my
experience, the most complicated
thing about monetization.
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[04] Monetization
[04] Monetization
Earning the right to
the upsell
Brian Kotlyar,
Director of Demand Generation, Intercom
If you have a multitude of features you're trying to get
people to adopt in a certain order, or you're selling multiple
products or solutions, getting every customer to buy everything
at once is not realistic. There's an order of operations for most
platform products, in terms of consumption, that creates the
most value for both the customer and the company.
It's easy to fall into a trap of selling everything you've got as
quickly as possible to everyone who walks through the door,
but that's rarely the right approach. Instead, ask yourself,
"What part of my product has the strongest value, the strongest
brand positioning and the most differentiated capabilities,
and can create the most value the fastest?" In many cases a
subset of your product or solution creates strong initial value,
but minimizes the complexity of the initial sale. For most
consulting businesses, this is an initial onsite consultation.
You do that as a proof of concept for your value, and then you
transition from that into a long-term consulting engagement.
In SaaS it tends to be a free trial.
It's easy to fall into
a trap of selling
everything you've
got as quickly as
possible to everyone
who walks through
the door, but that's
rarely the right
approach.
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[04] Monetization
[04] Monetization
My last company, Sprinklr, sold a social media
management solution. That was our market-
leading differentiated product, and if you adopted
that, you were getting world class value. We knew
that if a customer then added the Facebook ad
buying tool that was linked to that initial platform,
they got way more value and we got way more
value. When we tried to sell both at first; however,
we often failed. It was just too complex there
were two different buyers with two different
budgets and two different sets of requirements.
Using Intercom as an example, let's say someone
implements our Capture and Convert solution for
sales and marketing teams. When they see a ton of
value from lead generation, that gives us the right
to show up a little later and say, "You would really
benefit from onboarding those same users with
the context you've already established."
You can anecdotally figure a lot of this out just by
looking at your best customers. Find someone
who's been a customer for years, who's slowly
over time added every product that you've sold
them. Then ask, "Does this pattern exist anywhere
else? Are there other companies who have done
parts one and two of this four-step pattern?"
That's your opportunity.
58
[05] Testing & Optimization
"To learn is to grow."
This is a common phrase in the world of professional
development, but it's equally true when it comes to
growing a business. A culture of, and dedication to, testing
and optimization is a core component of meaningful
growth.
This is because growth is often a game of diminishing
returns. The growth tactics and channels that worked
yesterday likely aren't working as well today, and will yield
even worse returns tomorrow. What's more, these tactics
are hardly repeatable. What lit a fuse under acquisition for
a financial technology company, or increased the number
of daily active users for an education app, is never a sure
thing in another vertical.
To stay ahead of the curve, you have to test, test and test
again. Every growth experiment, no matter the results,
yields an opportunity to learn about your business and
users, and grow further. If the results are really good,
you've found something with meaningful impact
optimize it for all its worth. If you see a small change, ask
yourself, was the impact worth the effort?
And if you've found something that doesn't move the needle
at all, there's value in that too. It signals that something was
wrong with your intuition (about your product or user), or
you've missed something along the way.
The quickest way to stunt your company's growth is
resting on your laurels. So, what growth experiment will
you run next?
[05] Testing & Optimization
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[05] Testing & Optimization
[05] Testing & Optimization
There's a time and place for
growth hacking (and it's not a
startup)
Des Traynor,
Co-founder, Intercom
For young companies, small optimization projects just don't make
sense. Changing the copy from "sign up free" to "sign up for 30 days free,"
or comparing a red button with a green button might see a slight uptick, but
you're likely working towards a local maximum. You're trying to go to the
last 100 yards, and you're doing it with small experiments, each of which,
unfortunately, takes a long time to run unless you have a very high traffic site.
That means these generally tend to be a waste of time for startups, distracting
you from working on projects that matter.
There's a lot of big company envy that happens in startups. They see a
big company doing an A/B test that pays off with a .2% improvement in
conversion rate, and for Amazon, that change might be worth $100 million,
and they get their result in days. But for a startup, it's more like worth $1,000
in MRR and it took 7 months of a frozen homepage to get the 'learning'.
When you're pre-scale the time, money and headspace spent trying to
tweak systems that have to prove their worth is better spent elsewhere.
Similarly, don't stress yourself if you read an A/B test that guarantees a 5%
lift in conversions. It never delivers. Copying someone else's test results is
like wearing someone else's glasses. They weren't meant for you.
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[05] Testing & Optimization
[05] Testing & Optimization
Navigating the landscape
of growth opportunities
Jeff Chang,
Growth Tech Lead, Pinterest
A common problem that new growth teams have is that
they overinvest in a growth opportunity that is not paying off,
while many other good opportunities are lying around. If a growth
opportunity is not paying off anywhere near expectations, fail fast
and try some other ones. Naturally, as the growth team expands,
it will invest more into opportunities that continue to show high
impact. In the beginning of Pinterest's growth, quite a few times we
had decent-size teams working on a project for months, with little
to no impact. Sometimes, a project would be completely scrapped
and months of work would be wasted. Since then, we've learned to
fail fast and now every subteam on growth has a significant amount
of impact.
As for specific opportunities, I would recommend trying at least
one acquisition opportunity and one retention opportunity to start
out. Acquisition without retention has a well known "collecting
water into a leaky bucket" problem, and retention without
acquisition leads to slow growth rates. So, you will eventually need
to solve both problems. Here are some sample opportunities in
each category and some product characteristics that suggest you
should try each one.
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[05] Testing & Optimization
[05] Testing & Optimization
Acquisition:
SEO - Product has quality web content
Mobile web to app conversion - Product gets mobile web traffic and also
has an app
Signup conversion - Every product that requires authentication
Performance - Every product
Paid acquisition - Company has a budget and decent LTV
Virality - Product has social aspect
Referrals - Product has something to give to users to incentivize them
Retention:
SEO - Product has a lot of web content
Email - Every product
Performance - Every product
Push notifications - Product has an app
Login conversion - Every product
Paid resurrections - Company has a budget and decent LTV
As you can see, a lot of these opportunities probably apply to your product,
and this list is not exhaustive. Eventually, you want to have tried them all!
Excerpt from "How to prioritize the right projects."
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[05] Testing & Optimization
[05] Testing & Optimization
How incremental
improvements compound
Yao Choong,
Director of Business Operations, Intercom
Venture capital is an interesting, risky game of finding a small number
of outlier companies that are going to generate all of your returns. When I
worked at Social Capital, our CEO, Chamath Palihapitiya, tried to change the
game. He thought that if we could shift the odds of success for the companies we
invest in, even by a few percentage points, that edge would compound across
all the investments in our portfolio, and result in a large cumulative gain in our
performance. A good public markets investor might make a good decision 55%
of the time versus a mediocre investor who's basically a coin flip (or worse), but
the performance of the good investor compounds over time. Creating a growth
mindset and applying a set of growth best practices across our portfolio was his
way to systematically shifting our odds.
What this looked like in practice was helping our portfolio companies make
little investments in doing things better: Could we make one improvement in
X? If that works, could we make another improvement in Y? As long as these
investments are carefully judged and fit into a holistic framework, they stack
on top of one another and compound. They synergize, which is precisely
the power of exponential growth: Consistent 1% improvements over time
will yield larger and larger absolute increases in performance. In that sense,
growth is not about coming up with the one master stroke that fixes all of your
problems. Growth is the judicious, iterative improvement of all of the parts of
your business that need to be improved, while maintaining a holistic sense of
how all the parts fit together.
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[05] Testing & Optimization
[05] Testing & Optimization
Test to learn
Sean Ellis,
CEO, Growth Hackers
The goal of a growth team is to test at a high
tempo. You're testing across each of the vectors
in the AARRR framework. The more testing you
do, the more you're going to learn. It's all about
learning to figure out what's going to work and
what's not going to work in the business.
A good example of that is Twitter. We all know that
Twitter's had some growth problems recently.
That's probably part of the reason they're open
to the idea of adding an algorithm. This isn't the
first time that Twitter had growth challenges.
In late 2010, they had an almost flat quarter. At
that time, they were running less than one test
per week; they brought in a new head of growth,
who pushed to get that testing frequency up.
They got it to 10 tests per week. You can see they
had years of consistent growth once they got
their testing up to 10 a week.
It really does come down to testing, and you
obviously want to be smart about what you're
testing.
Excerpt from "Sean Ellis On Building a Company Wide Growth Culture."
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[05] Testing & Optimization
[05] Testing & Optimization
The temptation of
recency bias
Brian Kotlyar,
Director of Demand Generation, Intercom
It's human nature to have recency bias. "This works,
let's do more." Salespeople see this challenge often. They index
on a deal that they recently lost or recently won, and they
assume that's a pattern they can exploit more broadly. The
truth is they can't, because they either don't see or don't fully
appreciate all the unique factors in how they closed, or lost,
that deal.
It's the same in marketing. In online advertising, for example,
you'll find a targeting tactic or a creative tactic that works
super well on a small scale, and when you try and scale it up,
it doesn't work. The efficiency dissipates as you spend more
money. This happens to us all the time. We figure out a good
piece of creative and a good piece of copy, and it produces a
couple customers at a really good rate. I'll tell our agency to
push it harder, they try and all of a sudden we're spending
10 times more than we had planned to get those customers.
Then I have to tell them to pull back.
On one hand, you want to keep a childlike mindset where
you're willing to continue to try and experiment and not feel
burned by a particular channel or tactic. At the same time, you
have to really be cautious as you try to scale push too hard too
fast based on limited data and you might end up in big trouble.
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[05] Testing & Optimization
[05] Testing & Optimization
The law of shitty
clickthroughs
Andrew Chen,
General Partner at Andreessen Horowitz
The very first banner ad was for
HotWired, and it had a clickthrough rate of
more than 70%. Now, 20 years later, the average
clickthrough rate is close to .05%. It's very low,
and anyone who has worked in the industry long
enough has seen this happen with email, SMS and
all sorts of other things for a bunch of reasons. You
have competition, and you have the platforms
themselves saying, "Hey, we need to clamp down
on this." There's literally habituation from end
users who are thinking, Oh, it used to be fun to
get a invite from my friend, but now I'm getting
it all the time. It's less effective, because you have
a crowding effect.
I call this "The Law of Shitty Clickthroughs",
because it's something that has been with us for
a really long time and will continue to be. For
all of us in marketing and growth, that means
we have to continually find the fresh powder,
because inevitably whatever worked in the past
will no longer work. By the time a case study has
been published on Medium about something that
works, it's probably done. Everyone still has to do
it, but then you have to move beyond it.
A lot of the interesting work happening out there
ends up on these "frontier platforms." These are
areas where maybe some of the big companies
haven't quite wised up yet; maybe they haven't
started experimenting; maybe the channel is a
little too small. These are things like Alexa Skills.
One big area I have found really fascinating is the
ecosystem that's being built around gaming right
now. You can livestream things, you can do voice
chat you can do all of these different things
around ephemeral networks of players who are
getting together over a short period of time to
play one game. You're not going to want to add
all these folks to your Skype or Google Hangouts
because you are literally just coming together for
one game. However, a product that understands
that ephemeral network can then build a whole
ecosystem around it, and that's what we've seen
with Discord and Twitch.
It behooves all of us in the industry to stay on top
of these trends and to see what's working, because
otherwise we're in constant competition where
all of our stuff stops working over time.
Andrew Chen as heard on on the Inside Intercom podcast.
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[05] Testing & Optimization
[05] Testing & Optimization
The best startups resist
snacks
Des Traynor,
Co-founder, Intercom
The best lessons in business come in plain English and
speak uncomfortable truths. One such example is something we
learned from Hunter Walk. He pointed out how fundamental it
is to avoid low-impact work. To explain, he drew a 22 graph
that has since become famous in our company.
Everyone's favorite quadrant is the low-effort, high-impact
stuff. But when you continually pick the low-hanging fruit,
the branches will stop growing, so this work dries up quickly
as your product and team matures. Most startups are sensible
enough to avoid the high-effort, low-impact work. The lower
left quadrant is the one worth talking about.
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[05] Testing & Optimization
[05] Testing & Optimization
It's the low-effort, low-impact work that can kill you, because
it's so attractive. Hunter refers to it as "snacking". It feels
rewarding and can solve a short term problem, but if you never
eat anything of substance you'll suffer.
This work is easy to justify, because "Why not? It'll only take a
few hours." And when it achieves nothing useful, it's easy to
excuse, because it "What's the problem? We only spent a few
hours on it". The wasted time compounds a lot quicker than
the insignificant results. Do this enough times and you'll grow
a low impact team that doesn't achieve anything.
Excerpt from "The first rule of prioritization: No snacking"
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[05] Testing & Optimization
[05] Testing & Optimization
Adding layers to
the cake
Jeff Jordan,
General Partner, Andreessen Horowitz
(Former GM, eBay North America)
One of the first places eBay looked for
growth was in buying formats. At the time, ebay.
com enabled users to buy and sell solely through
online auctions. Many in the community
thought this was the magic of the site, and it
clearly helped propel the company to a very
strong start. But auctions intimidated many
prospective users who expressed preference for
the ease and simplicity of fixed price formats.
Interestingly, our research suggested that
our online auction users were biased toward
men, who relished the competitive aspect of
the auction. So the first major innovation we
pursued was to implement the (revolutionary!)
concept of allowing sellers to offer items for a
fixed price on ebay.com, which we termed
"Buy It Now."
Buy It Now was surprisingly controversial to
many in both the eBay community and eBay
headquarters. But we swallowed hard, took the
risk and launched the feature and it paid off
big: Buy It Now complemented auctions well,
brought new users and new listings to the site
and became a very important driver of growth for
many years. These days, the Buy It Now format
represents more than $40 billion of annual Gross
Merchandise Volume for eBay, 62% of their total.
After that initial success, we doubled down on
innovation to drive growth. We introduced stores
on eBay, which dramatically increased the amount
of product offered for sale on the platform. We
expanded the menu of optional paid features for
sellers to better highlight their listings on the site.
We improved the post-transaction experience
on ebay.com by significantly improving the
"checkout" flow, including the eventual seamless
integration of PayPal on the eBay site. Each of these
innovations supported the growth of the business
and helped to keep that gravity at bay.
I came to call this process of layering in new
innovations on top of the core business "adding
layers to the cake." Much of the natural effort in
the organization is spent on chasing optimization
of the core business. This makes sense, as small
improvements in a big business can have a
meaningful impact. But there is huge potential
leverage to adding layers of new, complementary
businesses on top of the core (aka "cake"). In
the ebay.com case, Buy It Now, stores, features,
checkout and PayPal integration were all new
initiatives that layered on top of the core business.
Excerpt from "A Recipe for Growth: Adding Layers to the Cake."
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[05] Testing & Optimization
[05] Testing & Optimization
You are not your
customer
Casey Winters,
Scaling and growth adviser
(former growth leader at Pinterest and GrubHub)
It's common to hear someone at a startup say, "When I
do this, this is the way that I do it." But you're not the customer.
I don't care how much you look like the customer, you have
way too much knowledge about this problem to assume that
the way you do it is the way other people will do it. Do a lot
of qualitative research and get something in front of potential
customers. Put a phone in front of them, tell them to sign up
for your product and watch what they do. Ask them questions.
I spent most of 2015 traveling to different countries to watch
people sign up for Pinterest. It was horrifying. Everyone was
confused. No one understood what the product was for. It was
bad. But that time led to a number of insights and, in turn, a
bunch of successful experiments that grew the activation and
retention rates of our products. You can't learn if you're not
putting your product in front of users and watching how they
do it. Sure, an experiment can tell you what's going on, but it's
not going to tell you why. You really need to get in front of your
user base to understand that.
Casey Winters as heard on on the Inside Intercom podcast.
70
[06] Metrics & Measurement
Growth metrics are the heartbeat, blood pressure and
temperature of your company: the core indicators that
reveal the health of your SaaS business at its most
fundamental level. (This is the reason they form a crucial
part of many investors' due diligence.)
The problem is that growth metrics can be complex,
confusing and contradictory; keeping a finger on the
pulse of your business can be easier said than done. For
every growth expert telling you to track month-on-month
growth, there's another telling you that tracking daily
active users is where the rubber hits the road.
It's impossible for one metric to give you a 360 degree
view of your business's growth, but taken together they
can provide answers to difficult questions: How can we
increase customer acquisition? How profitable are our
customers? What do we need to do before we pitch our
next funding round?
Remember, what you measure is what you end up
optimizing for. Get a handle on your growth metrics
early, and you'll lay the foundations for authentic growth
to follow.
[06] Metrics & Measurement
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[06] Metrics & Measurement
[06] Metrics & Measurement
Bringing analytics
into your startup
early
Bobby Pinero,
Senior Director of Finance, Intercom
I came to Intercom right after we closed
our Series A funding round. At that point only
product people were at Intercom. I think our
lead series A investor, Mamoon Hamid from
Social Capital, looked around and said it was
time to get the house in order from a finance and
measurement perspective.
Joining at that early stage, right before we hit $1
million dollars in annual recurring revenue, was
really insightful. Eoghan and the founders had
done a great job setting up the fundamentals, but
by bringing in finance and analytics, we could
start to understand deeper questions about the
business. We could figure out where that ARR
was coming from. How could we think about
it moving forward? Why might we need future
capital? When might we need it? Who might we
want to start hiring?
Getting these questions answered made our
later rounds of fundraising easier. Your job while
fundraising, whether you're the CEO or the CFO,
is to use data to build a case for why your company
is going to be X times more valuable than it is today.
Then it's up to you to put those data together in a
compelling story.
Every business is so different. Every business has
a different story, is selling to different segments,
has different market positioning and has different
buyers. For us and this is something I'd advise
any other startup to do it was all about finding
the metrics that proved Intercom was on the road
to being successful.
Bringing finance and analytics in early also meant
we could all get on the same page regarding
metrics. One mistake I see at a lot of other early
stage startups is that they don't have well-defined
sources of truth. People start talking about churn,
but what are they really talking about? Are they
talking about gross MRR (Monthly Recurring
Revenue) churn? Are they talking about net
MRR churn? Are they talking about customer
churn? Too often, metrics get thrown out, and
it's unclear exactly what they mean. It's easy to
spend a lot of time arguing about the actual data
and numbers instead of figuring out what those
data and numbers are telling you.
Excerpt from Intercom on Starting Up
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[06] Metrics & Measurement
[06] Metrics & Measurement
Bringing analytics into your
startup early
Tomasz Tunguz,
Partner at Redpoint Ventures
Proxy metrics are powerful for four reasons:
They are easy to measure;
They are correlated to (and ideally predictive of) the business' goals;
They are concrete and create a unifying vision for the team; and
They enable businesses to iterate faster by reducing latency.
Great companies employ proxy metrics all the time. If a new Facebook
user adds seven friends in 10 days, they'll be a long term user. The more
engagement minutes a customer spent digging through their data in Looker
during a trial, the greater the likelihood that trial customer converted to a
paid customer. At ThredUp, the world's largest online consignment store,
buying products both on web and on the mobile app indicates high customer
lifetime value. If a user creates an expense policy on Expensify, there's a very
high chance a company will buy the product.
How do you find proxy metrics for your business? There's no shortcut.
Andrew Chen has written a blog post describing how to do it, step by step.
Define the goal, explore the data, run a regression and then backtest.
Excerpt from "How To Create Competitive Advantage For Your Startup With Proxy Metrics."
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[06] Metrics & Measurement
[06] Metrics & Measurement
Why lead velocity
rate is the most
important metric
in SaaS
Jason Lemkin,
Founder, Saastr
Sales as a metric is a lagging indicator,
and pipelines are crap for predicting the future.
The pipeline for this month is useful, but still
dependent on how various reps get probability
right. The pipeline for next quarter is almost
useless for most SaaS startups, even once they
get pretty big. And actual sales reflect leads from
the past that were qualified, managed, and then
closed over a 12-plus month period. Even if your
sales cycle is short, how long ago was the lead first
created? The sales you get this month are really
the sales you began to create more than a year ago.
But there's a better metric, your key metric, that
you should track and score yourself to, and hold
your VP of Marketing and your marketing team to
qualified lead velocity rate (LVR), your growth
in qualified leads, measure month over month,
every month. It's real time, not lagging, and it
clearly predicts your future revenues and growth.
And it's more important strategically than your
revenue growth this month or this quarter.
If you set as a top corporate metric growing your
LVR about 10-20% greater than your desired MRR
growth and you have a consistent sales team
you'll hit your revenue goals.
And the great thing about LVR is that while sales
ultimately may vary quarterly, and a lost renewal
can hurt, there's no reason leads can't grow every
single month like clockwork every single month.
As long as you are using qualified leads, and you
use a consistent formula and process to qualify
them, you can then see the future.
Excerpt from "Why lead velocity rate is the most important metric in SaaS."
The pipeline for next
quarter is almost
useless for most SaaS
startups, even once
they get pretty big.
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[06] Metrics & Measurement
[06] Metrics & Measurement
The Customer Lifetime
Value to Customer
Acquisition Cost Ratio
Dave Kellogg,
CEO, Host Analytics
Some people say, for example, that a customer
acquisition cost (CAC) ratio of 2.0 meaning that you paying
a $2 CAC for every $1 in ARR is bad. And indeed, if you're
selling a month-to-month product where most customers
discontinue by month nine, then a CAC of 2.0 is horrific.
However, if you're selling sticky enterprise infrastructure,
replacing systems that have been in place for a decade with
applications that might well be in place for another decade,
then a CAC of 2.0 is probably fine.
That's the point: There is no absolute right or wrong answer to
what a company should be willing to pay for a customer. What
you are willing to pay for a customer should be a function of
what they are worth.
Excerpt from "The Ultimate SaaS Metric: The Customer Lifetime Value to Customer Acquisition Cost Ratio"
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[06] Metrics & Measurement
[06] Metrics & Measurement
How many people
are really using
your product?
Josh Elman,
VP Product, Robinhood and
Venture Partner, Greylock
You need a metric that specifically
answers this. It can be "x people did three searches
in the past week." Or "y people visited my site nine
times in the past month." Or "z people made at
least one purchase in the past 90 days." Whatever
it is, it should be a signal that customers are using
your product in the way you expected and that
they use it enough so that you believe they will
come back to use it more and more.
Once you can define a metric to answer this,
then you can really track your growth on a day-
to-day, week-over-week, month-over-month
basis. And from there, you can identify the key
supporting metrics that show you how likely it
is more people will convert to using
your product on a frequent basis, how
likely they are to stay on your product
vs churn out, etc.
At Twitter, we found that if you
visited Twitter at least seven times in
a month, then it was likely you were
going to be visiting Twitter in the next
month, and the next month, and the
next month. And we decided this was
enough initially to be "really using it,"
though of course I think Twitter gets
even better when people use Twitter
at least once every day.
Excerpt from "The Only Metric That Matters."
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[06] Metrics & Measurement
[06] Metrics & Measurement
Understanding what activity
means for your product
Karen Church,
Director of Product Analytics & Data Science, Intercom
MAU (monthly active users), WAU (weekly active users) and DAU
(daily active users) are a useful way to help you think about how engaged your
user base is. However, if you're going to use one of these metrics, it's important
to assess what "activity" means for your product. Simply logging in is often not
a good signal of engagement.
Take daily active users. Is the product or feature you're building something
you expect people to use every day? Is it every week? For example, if you're
building tax return software like TurboTax, a metric like daily active users
doesn't necessarily correspond with how people use the product.
A more meaningful approach is to break your users into segments and look at
activity based on segments these segments might be based on demographics,
company type, geographic location, sales-owned versus self-serve, product
mix, etc. By tracking MAU/WAU/DAU across these segments, you can often
learn more about your user base and potential issues specific segments have
with your product.
Time is another important measure of engagement to consider. This might be
time spent in your app or some measure like session duration or session length.
Think of a session as a group of user interactions. Session length is the number
of actions or interactions in a given session. Session duration is the total amount
of time a user spends in your app or product in one session. The premise is
that the more time users spend in your product, the more engaged they are. If
users log in but don't spend much time interacting with your product or they
quickly bounce, that might indicate a lack of engagement.
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[06] Metrics & Measurement
[06] Metrics & Measurement
Setting your
analytics team up for
success
Sylvia Ng,
Director of Product Operations, Shopify
At a certain point of your startup's life cycle, it
simply isn't enough to be doing analytics piecemeal anymore
somebody needs to set a strategic direction and make sure
data engineering happens to serve the company's needs. A lack
of a good analytics program can leave you with a whole slew of
problems, including projects launching without tracking put in
place for measuring success, KPI charts with peaks and valleys
and no known causes, hours spent matching reports produced
by different teams (e.g., one team has Daily Active Users going
up; the other has it going down).
Some of these problems may sound mundane, but trust me, they
are more than just annoyances when you want things to scale.
If you're trying to build your company's growth machine, you
can't experiment properly if you have all these issues getting in
your way.
A lot of startups spend a considerable amount of energy on
picking the right analytics tools and technology, but even the
best technology won't help unless you lay the groundwork for
success. So what is the solution?
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[06] Metrics & Measurement
There are probably many ways to tackle it, but here I'll delve into how we
approached it at 500px, which is roughly following this framework:
The basics were already set up before I arrived KPIs, reports and data
infrastructure. The next step was to scale that out, which required additional
investments in the team and tools, leveraging the data modeling for deeper
insights, and most important, implementing standards and process to deal
with the problems I mentioned above. Once you have a program that can
scale, you can then focus on the gold leveraging data in your products,
making automated decisions (spend allocation in marketing campaigns or
personalizing your homepage for example) and setting up the infrastructure
so that data is delivered reliably.
Excerpt from "How to Setup Analytics for Scale."
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