Web 2.0 Expo: Start-Up Metrics 101

In picking my session for the afternoon today at Web 2.0 Expo, I was torn between three. Two were more interesting to me personally, but I thought Profy readers would be most interested in the Startup Metrics 101 session with Dave McClure and Hiten Shah. Most Web 2.0 projects (and that includes bloggers) live and die by their metrics, which can drive everything from funding to AdSense to media attention.

Dave McClure's premise is that Web 2.0 start-ups have low-cost investment with potential for large revenue growth, making it attractive for anyone to want to be a Web 2.0 entrepreneur. There should be three steps to building a successful Web 2.0 company (and he actually included a #2!):

1. get users
2. drive usage
3. make money (profitable revenue)

Dave pointed out that all companies need to turn users/usage into money, which may be a somewhat novel concept for many Web 2.0 entrepreneurs, who still think that you should build something cool and worry about making money with it later. CEOs should focus on three to five actionable items at a time.

The Start-up Metrics follow a pirate theme (see the AARRR mnemonic?):

• Acquisition
• Activation
• Retention
• Referral
• Revenue

For aspiring Web 2.0 entrepreneurs, the first question is what to build? According to Dave and Hiten, they should build features that increase conversion, focusing 80% of effort on existing feature optimization, and 20% on new feature development.

The role for marketing and sales is to decide what channels and which users to focus on and why, based on high volume, low cost, high conversion choices. The “low-hanging fruit” are obvious: blogs, SEO/SEM, landing pages, and automated emails.

In the Acquisition stage, the focus should be keyword vocabulary, paying close attention to the top 10-100 words, including semantic equivalents, misspellings, and competitors' brand/products. You need to determine where users are coming from and how are they converting.

A crucial piece of the Activation process should be landing page testing. Multiple versions of your home page are key to understanding activation, an a single version of a home page is probably not the best one any company could come up with. Features should be designed so that they are user-experience oriented, offer incentives and call to actions such as widgets or referrals: something to keep them there (low bounce rate). Less is more. The big launch idea/big spike from TechCrunch may be a method that is over sold. “Save it for when you really need it.” Of course, in this section we have a little pimp for Hiten's Crazy Egg (which shows visual heat mapping of clicks)

For Retention, email is often the best at bringing users back, with a fine balance of push on the channel without annoying your user base. It should be easy to unsubscribe, and focus on event-based emails, and status emails. 80% of the focus should be subject line and 20% body text, but it's actually 99% subject line when it comes to getting a user to read your email. You want to keep people from thinking of (and marking as) spam, since most users are lost after 45-90 days, and email is a good way to bring them back.

Referral is one of the most important ways to increase your user base, but you should focus on driving referrals AFTER users have had a good experience, i.e. after retention. It won't help to have more users who aren't engaged enough to return to your site. On the flip side, you can evaluate your viral growth factor= % of users who invite other people x average number of people invite x % of users who accept invite. If that number is greater than 1, you have an exponential growth and you can focus on something else.

Revenue is still the most important part, but unfortunately, Dave an Hiten had no magic formula here. Entrepreneurs still have to figure this part out for themselves, but they suggest that this should have the most based on intuition. If you start a business you' be a customer of, it gives you ideas of what people need. Just make sure it has enough value to charge a user for.

You can find slides of the presentation at Dave's blog: Master of 500 Hats.

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