Dave McClure of Founders Fund (who also runs fbFund) talks about startup metrics for product marketing and product management, emphasizing the importance of a measurable feedback loop that startups use to iterate.
Dave prefaces his talk by stating that the most important thing about web businesses and web 2.0 businesses is that you can collect usage metrics in real time. The hard part part however, is then being able to make decisions with this data. It is important to understand how to collect and use these metrics, and thus important to develop a decision-making framework for product development and product marketing. The framework should be based on goals that are measured through discrete customer or company events that have either customer or business value, ideally looking for happy medium of value to both the customer and business.
Dave suggests that one of the biggest mistakes many startups make is equating progress with adding more features (see Eric Ries). Engaging and activating more users is less related to the number of features and more related to the user experience at a basic visual level with text, images, colors, call-to-action buttons, and the overall size and placement of these elements. Often startups underestimate the value of user experience at the early customer acquisition and activation level, when it is crucial. Subsequently, investing in user experience resources early is key and the impact can be significant. The actual quality of features is more important at the macroeconomic, customer retention stage.
Events should be measured in a simple discrete way and Dave uses the acronym AARRR (hence the pirate reference) to introduce five main steps or ways in which to bucket the events you are measuring. The goal is to create a feedback loop that makes the metrics you gather drive a decision process for product features/marketing efforts.
Here are the 5 main steps to AARRR:
Acquisition: The various ways you acquire users/customers, via the distribution channels that bring them to your product or service (paid or organic search, social media & social networks, apps & widgets, traditional PR, affiliates, etc).
Activation: The “happy” first experience where users take some kind of activation step (click on a link, provide an email address, buy something).
Retention: Creating repeat and regular visits from your users (weekly emails, blog posts, periodic notifications).
Referral: Users tell other people about your service (viral loop, forward email to a friend, send a link).
Revenue: Users conduct some monetization behavior, either direct (e-commerce, subscriptions) or indirect (advertising).
The podcast and slides go into depth on each of the five steps and how to measure different customer events. Check them out!
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