Lean Startup Marketing: Agile... Table of Contents
Lean Startup Marketing: Agile... Table of Contents

Table of Contents

I. Introduction to Startup Marketing
Picking the Right Startups

What Makes A Great Startup?

Key Elements of a Massively Scalable Startup

The Startup Pyramid

Milestones to Startup Success

II. Customer and Product
Development
Demand Harvesting – The Easiest Driver for Startups

The Cult of “Great Product”

Getting to Product-Market Fit

Indifference is Your Real Competitor

Vision Syncing in a Lean Startup

Wasting Time Validating Assumptions?

Fast Vs. Careful Decision Making in Startups

Chasing Problems?

Hyperink Blog to Book Series 1
Hyperink Blog to Book Series

Lean Startup Marketing: Agile... Table of Contents
Lean Startup Marketing: Agile... Table of Contents

III. Web Analytics and Startup
Growth
What is Metrics Driven Marketing?

Iterating Without Understanding?

Keys to Unlocking Startup Growth

Deconstructing Startup Growth

Key to Sustaining Rapid Growth

To Pay Or Not To Pay To Acquire Users?

My Favorite Online Marketing Tactic – Doesn’t Work

Optimization Mistakes that Kill Startups

IV. Viral Marketing and Social Media
The Difference Between Word-of-Mouth and Viral Marketing

The Science Behind Viral Marketing

Social Media Marketing Strategy for Startups

Three Key Lessons From the Slide/rockyou Facebook App Fallout

V. Business Model Design
The Right Business Model for Your Startup

The Ups and Downs of a Free-to-Premium Marketing Approach

The Three Keys to Success with Freemium

Chris Anderson "Gets" Freemium Business Model

User Growth Vs. Revenue (Why “Free Only” May Limit Growth)

@Calacanis RE: "The business model comes AFTER you get to scale."

Hyperink Blog to Book Series 2
Hyperink Blog to Book Series

..Lean Startup Marketing: Agile... Table of Contents When Should a Startup Start Charging? How to Determine the Optimal Price for Your Web Service Great Guidance on Pricing from Zoosk CEO VI. The Right Marketing Team Don’t Hire a Marketer before Product/Market Fit What Makes an Effective Startup Marketer? Find a Growth Hacker for Your Startup Recruiting Startup Marketers from Wall Street Hiring Unproven Talent for your Startup The Ideal Startup Marketing Leader Founders Make the Best Startup Marketing Leaders The Startup Marketing Launch Process is Broken Figuring Out Your Way to Startup Success Hyperink Blog to Book Series 3 Hyperink Blog to Book Series . Table of Contents Lean Startup Marketing: Agile.

..Lean Startup Marketing: Agile. Introduction to Startup Marketing I... Introduction to Startup Marketing Lean Startup Marketing: Agile. Introduction to Startup Marketing Hyperink Blog to Book Series 4 Hyperink Blog to Book Series .

. it will damage my reputation. Probably the most important long-term reward is that each startup success enhances my reputation and opens doors to additional startups with strong potential – while improving the skills I need to maximize these opportunities. I set the requirement that I’ll only work with companies that have recently raised a series A or large seed round. But the risks are very real. A very good VC can also help improve the odds. Of course most people recognize that it’s impossible to have a perfect startup record. One of the biggest risks of any business is the inability to raise capital. The standard format makes it easier to compare opportunities. but there are risks too. This allows me to continue doing the most enjoyable “job” of my life. These are businesses that enter an existing category with a breakthrough feature or very disruptive pricing model. Generally these businesses can get substantial traction just by harvesting the existing Hyperink Blog to Book Series 5 Hyperink Blog to Book Series . But there are less tangible benefits like the thrill of being part of a team realizing the potential of their vision. Introduction to Startup Marketing Picking the Right Startups Each new startup I help take to market offers many potential rewards. The most obvious reward is the financial upside of equity in a successful company. I increasingly find myself evaluating opportunities with a VC-like diligence. Given these rewards and risks. I obviously need to be confident that it is a marketable business and one on which I can make a meaningful impact. And when the company flops. differentiate appropriately and identify viable customer acquisition drivers. I’ve created an opportunity assessment worksheet that identifies key risks in the business. but the opportunity cost of committing to the wrong startup means I won’t have the bandwidth to take on a potentially hot company. metrics driven marketing approach is perfect for helping these types of businesses discover their ideal market. Introduction to Startup Marketing Lean Startup Marketing: Agile. Enough damage to my reputation and I’ll have to figure out a new pursuit.. as they’ve achieved a better track record with their historical picks (and many would argue their “added value”). so early on. My iterative. The ideal category is what I refer to as a “disruptor” startup.Lean Startup Marketing: Agile. Beyond general business risks. A startup in a bad space with a bad product won’t be much fun to market – and I’ll probably fail...

. Not only do they need to suffer from the problem. your product needs to effectively solve the problem. Your next big problem is finding a profitable way to reach these target users and messaging they’ll respond to. but under certain conditions they are very marketable. Introduction to Startup Marketing demand for the category. Introduction to Startup Marketing Lean Startup Marketing: Agile.. it is generally possible to fund the full demand generation process.. If they solve a specific important problem for a large addressable market and the potential customer lifetime value is high enough. Hyperink Blog to Book Series 6 Hyperink Blog to Book Series . Still. Another startup category I often consider is what I call “innovator” startups.Lean Startup Marketing: Agile. it takes a lot of time to discover the right target users. These are much more challenging to take to market. These are difficult go to market assignments.. but they definitely improve my skills. For now I find myself alternating between these types of startups and avoiding those that don’t fall into these categories.

And no one knows the answer definitively.. Sean O’Malley’s blog and Eric Ries’ blog are both great resources for helping you hone your product. And the executive behind Microsoft’s lucrative Xbox business has added much less value with the Zune.. But every startup that becomes a large profitable company has the following two elements in common. and why it’s resonating. MBAs often spend way too much time obsessing over the business model before they’ve figured out how to create a useful product. but I didn’t create that potential. See this list for examples. I was lucky in my first two startups to work with great products – the original founder’s vision really resonated with users. I’m not sure anyone is an expert. They drill the mantra “make something people want” into hackers’ heads who are actually capable of executing the vision. But remember.. I don’t really consider myself an expert on creating useful products. Then we decide a timeline for going to market. Every launch program starts with a discovery phase where we dig into how well the product is resonating with users. Steve Jobs may be considered the world’s best product visionary. Introduction to Startup Marketing Lean Startup Marketing: Agile. Many startups succeed with a refined vision rather than their original product. so I now obsess over finding better ways to figure out if a product has potential before committing to take it to market. A great business model can never make up for a product that doesn’t meet a want or need. I helped both companies reach their potential. it’s better to delay an aggressive go to market push.. Even the most successful VCs have major duds in their portfolios. The only way to know if a product will resonate is to get actual users on it – and the sooner the better. A “product/service people want” is the starting point for any successful startup and part of the reason that I love working with Y Combinator startups. Introduction to Startup Marketing What Makes A Great Startup? That’s the zillion dollar question. 1) Product/service people really want or need. In fact. the only way to know if you’ve succeeded is to trickle some Hyperink Blog to Book Series 7 Hyperink Blog to Book Series . but NeXT Computer was hardly a smash hit. Luck of stumbling into great products can’t last forever.Lean Startup Marketing: Agile. If the product isn’t striking a nerve. who really needs it.

WATCH: Sean O’Malley’s Slideshare Presentation 2) Business model that works Ultimately startups get VC funding based on their potential to create a thriving business. Most traditional software has zero marginal cost. Introduction to Startup Marketing Lean Startup Marketing: Agile.. the only way to know if you’ve succeeded is to trickle some users onto it. scalable user acquisition channels: Lifetime value of a user Cost of acquiring a user Marginal costs (besides acquisition cost) The lifetime value of a user must exceed the cost of acquiring the user and any marginal material/service costs (costs that increase incrementally with each customer). It is a thing of beauty when all the pieces fit together in a perfectly tuned economic engine... which is why freeware is possible (it may not be profitable. but it Hyperink Blog to Book Series 8 Hyperink Blog to Book Series . There is as much art in creating a strong business model as there is in creating the perfect product. but making them work together at scale is extremely difficult. These are the key variables to consider when developing a business model that supports profitable. This requires combining a needed product with a business model that pays the costs of building a lucrative business.Lean Startup Marketing: Agile. Introduction to Startup Marketing your product. This is generally pretty easy to achieve if you have low marginal costs. But remember.. Sean O’Malley’s slideshare presentation below is also very helpful. Each ingredient is relatively simple.

find ways to increase LTV… ). In this case you have a lot leftover to spend on profitable customer acquisition. Introduction to Startup Marketing is sustainable). On the other hand. Introduction to Startup Marketing Lean Startup Marketing: Agile.. The science behind viral marketing has rapidly evolved in recent years. Hope I can get some of the early equity in it. the lifetime value of each user is significantly higher than the marginal cost. then the next part of the business model puzzle is figuring out ”customer acquisition channels. The Ultimate Startup The ultimate startup would be one where the product meets a critical need for a huge addressable market. If you’re lucky.e. Facebook comes close. No VC is interested in funding a business that maxes out at $1 million/year in revenue – even if it has 90 percent profit margins. keep tuning all pieces to make it work better (improve conversion rates. If your product is useful and the basic business economics work.. no matter how useful the product is.. Unfortunately I don’t know any businesses like this. if you have marginal costs that exceed the lifetime value. This will open additional profitable customer acquisition channels.Lean Startup Marketing: Agile. there are no marginal costs and there are very scalable user acquisition channels that are completely free (i.. Hyperink Blog to Book Series 9 Hyperink Blog to Book Series . bring marginal costs down. And obsessively tuning all these areas has been a major factor in my ability to attract tens of millions of users for startups that ultimately filed for NASDAQ IPOs. users have a very high average lifetime value. which helps explain their valuation of $15 billion (who knows what it is now?)… The only piece they are missing is a high lifetime value per user. so I’m anxiously waiting for this ultimate startup to launch.” VC funded businesses must have very scalable customer acquisition opportunities. Once you have a basic engine that works. then this is a non-starter. viral).

The Hyperink Blog to Book Series 10 Hyperink Blog to Book Series .. you’ll also be able to effectively arbitrage growth through paid tactics like display advertising and SEM. If you have relatively limited revenue per user. Beyond business sustainability.. they are of course very difficult to achieve. With a higher revenue per user... SEO or viral marketing. your next challenge is creating a viable economic engine. you’ll need to pursue tactics with a very low marginal cost such as PR. your process of gratifying users can be optimized with tools like Performable for landing pages and KISSmetrics for full funnel tracking/improvement (I’m an advisor to both). but you can’t force customers to want. Once you get the basics right. the right monetization approach will also be based on the value users get from your solution. but very few really consider all of the elements they’ll need to make it happen. Building an effective gratification engine is an iterative process driven by a lot of prospective customer feedback. Still your best chance of achieving them is to know what they are. Introduction to Startup Marketing Key Elements of a Massively Scalable Startup VC backed startups generally aspire to valuations in the hundreds of millions or even billions of dollars. After analyzing several startups I’ve worked with that have reached or are approaching these valuations I’ve boiled it down to four interdependent commonalities that always seem to exist. Tenacious execution works for a lot of things. For your business to be sustainable in the long run your average revenue per user will need to exceed your average cost per user. Element 2: Economic engine Once you have figured out how to gratify prospects. the competitive environment and your ultimate growth strategy. need or like what you have created. Element 3: Growth engine Your growth engine is very dependent on your economic engine. an effective gratification engine is probably the hardest of the four elements for a startup to get right. Whether you are aiming big or small.Lean Startup Marketing: Agile. While they are easy to describe. Introduction to Startup Marketing Lean Startup Marketing: Agile. Element 1: Gratification engine Your gratification engine is the repeatable process of turning cold prospects into highly gratified customers.

Again. They don’t invest too much time in one off gimmicks.. If you are having a hard time creating a realistic hypothesis for one or more of these elements. Introduction to Startup Marketing Lean Startup Marketing: Agile. I can often look at a business for less than an hour and decide if I believe it is massively scalable opportunity based on my hypothesis for each of these. start with the practical bottoms up execution described in the following Startup Pyramid article. You also want to breakdown potential segments and people that are new to the market or coming from an existing related market. Instead creative scenarios that show how it will likely be big should generally suffice.. your vision probably isn’t viable.. If I’m not confident on a specific element. Element 4: Huge addressable market The best opportunities generally have the hardest markets to accurately size. Perfect accuracy on market sizing isn’t important here. instead they focus on growth drivers that can be repeatable and scalable. The best opportunities have multiple contingency plans in case your initial theory doesn’t work.. This often means a strategy with lower revenue per user. Start with a Hypothesis for Each Element It is important to have a realistic hypothesis for each of these elements before you even get started with the business. Hyperink Blog to Book Series 11 Hyperink Blog to Book Series . Introduction to Startup Marketing most valuable companies generally choose an approach that allows them to capture the biggest share of the market in a sustainable way. you’ll likely have a very hard time raising VC funds.Lean Startup Marketing: Agile. That’s because these are fast growing or whole new markets that are based on potential rather than existing customers. I spend a lot of time vetting this with the CEO before committing to a project Of course it won’t happen exactly the way you plan. But if you can’t even creatively come up with a viable theory for each. Once you have a theory for each. you just want to have approximations that are believable and big.

Yet many entrepreneurs have highlighted the importance of creating a product that resonates with the target market: Paul Graham: The mantra at Paul’s successful startup incubator YCombinator is: “make things people want.. Introduction to Startup Marketing Lean Startup Marketing: Agile.. Achieving Product/Market Fit Product/market fit has always been a fairly abstract concept making it difficult to know when you have actually achieved it. Startups require a solid foundation of product/market fit before progressing up the pyramid and scaling the business. Lately I’ve been using a pyramid to represent the process I’m using..” Steve Blank: In Steve’s book Four Steps to the Epiphany he writes: “Customer Validation proves that you have found a set of customers and a market who react positively to the product: By relieving those customers of some of their money. Introduction to Startup Marketing The Startup Pyramid Every six months I rethink the optimal startup go to market approach based on new insights gained at recent startups..” Marc Andreessen: A couple years ago Marc wrote the following on his blog: “… the life of any startup can be divided into two parts – before product/market fit and after Hyperink Blog to Book Series 12 Hyperink Blog to Book Series .Lean Startup Marketing: Agile.

Those that struggle for traction are always under 40 percent. I recommend reading Marc Andreessen’s full post via archive. Avoid bringing in VPs of Marketing and Sales to try to solve the problem.. If you haven’t reached product/market fit yet it is critical to keep your burn low and focus all resources on improving the percentage of users that say they would be very disappointed without your product. For more on getting to product/market fit. moving into a different market. achieving product/market fit requires at least 40 percent of users saying they would be “very disappointed” without your product. Economics: Implement the business model that allows you to profitably acquire the Hyperink Blog to Book Series 13 Hyperink Blog to Book Series .” He goes on to write: “When you are BPMF. telling customers yes when you don’t want to. you (the founders) should engage existing and target users to learn how to make your product a “must have. Do whatever is required to get to product/market fit. telling customers no when you don’t want to. You should measure your product/market fit as soon as possible because it will significantly impact how you operate your startup. focus obsessively on getting to product/market fit. Introduction to Startup Marketing Lean Startup Marketing: Agile. Introduction to Startup Marketing product/market fit. Instead. it’s time to accelerate through the next steps of the pyramid and then begin scaling your business. I ask existing users of a product how they would feel if they could no longer use the product. Of course progressing beyond “early traction” requires that these users represent a large enough target market to build an interesting business.Lean Startup Marketing: Agile. while most that gain strong traction exceed 40 percent. They will only add to your burn and likely won’t be any better than you at solving the problem. rewriting your product. In my experience.. raising that fourth round of highly dilutive venture capital – whatever is required.” Sometimes it is as simple as highlighting a more compelling attribute of your product – but often it requires significant product revisions or possibly even hitting the restart button on your vision. Including changing out people.” I’ve tried to make the concept less abstract by offering a specific metric for determining product/market fit. but I defined it after comparing results across nearly 100 startups... Admittedly this threshold is a bit arbitrary. Race up the Pyramid Once you have achieved product/market fit. Here’s a brief description of what to do at each of the steps before scaling: Promise: Highlight the benefits described by your “must have” users (those that say they would be very disappointed without your product).org (it has been removed from his blog).

. Introduction to Startup Marketing Lean Startup Marketing: Agile. Introduction to Startup Marketing most users. Hyperink Blog to Book Series 14 Hyperink Blog to Book Series . This directly boosts the effectiveness of every future marketing initiative by the same proportion. Just don’t rush into this fine-tuning phase until you have first achieved product/market fit.. scalable customer acquisition process by testing multiple approaches and tracking to improve the right metrics. Optimize: Streamline a repeatable. Effectively executing these pre-scale steps often improves the conversion rate to transactions by five times or more..Lean Startup Marketing: Agile..

This is frustrating. is worth solving. Eric Ries offers more details on the minimum viable product concept in this post/video. expensive. our CEO was intuitive enough to know the right time to “hit the gas pedal. This was definitely the case at the two startups where I ran marketing from launch through NASDAQ IPO filings. Some growth would have been automatic. Most entrepreneurs understand the importance of growth. This can best be achieved by meeting with the prospects most likely to need your solution.” We didn’t accelerate until verifying that the team had created a great product that met real customer needs and we could generate sufficient user revenue to support sustainable customer acquisition programs. While we didn’t follow a specific methodology. the common mistake is trying to force growth prematurely..Lean Startup Marketing: Agile. Reaching the full growth potential of your startup requires focus. In my post on the startup growth pyramid I talk about the high level milestones you must achieve in order to unlock sustainable growth. This post looks at it on a more granular level with links to several of my previous blog posts and other resources that provide additional details.. For most startups this is directly based on your ability to grow (customers. specifically focusing on what matters when it matters. revenue and eventually profit). Several startups later I have a much better understanding of the key milestones needed for a startup to reach its full growth potential. Day 1: Validate Need for Minimum Viable Product (MVP) Before any coding begins it is important to validate that the problem/need you are trying to solve actually exists. the marketing team simply accelerated this growth. Hyperink Blog to Book Series 15 Hyperink Blog to Book Series . Introduction to Startup Marketing Lean Startup Marketing: Agile. It’s taken years for me to realize that our growth was less a function of clever marketing tactics than beginning with something that customers truly needed. Steve Blank published a great post on this. These are based more on observing universal truths than inventing some type of methodology. Introduction to Startup Marketing Milestones to Startup Success When your startup accepts outside money (such as venture capital). and the proposed minimum feature set solves it. you are obligated to focus on maximizing long-term shareholder value. and unsustainable – killing many startups with otherwise strong potential... Most successful entrepreneurs have a good balance of execution intuition and luck.

Both Dave McClure and I are advising KISSmetrics on a solution to this problem Start Charging Another key step before growing your business is to implement a business model. A good place to start collecting this information is the survey I’ve made freely available on Survey. These people hold the keys to the kingdom. He explained “the flock always finds the best grass. Expose the Core Gratifying Experience The majority of our project focus at 12in6 has been helping startups find their core user perceived value and exposing it in messaging optimized for response.. Your objective should be to remove complexity from the initial user experience and messaging in order to highlight this core user perceived value. Often this means burying or even completely eliminating features that don’t relate to this gratifying experience. Try to get more of these types of people.io (a KISSmetrics product). If you’re lucky you’ll be able to use this early signal to find the product/market fit. Introduction to Startup Marketing Where’s the Love? Vinod Khosla. Learn everything you can about them including their specific use cases and demographic characteristics.. Hyperink Blog to Book Series 16 Hyperink Blog to Book Series . Metrics Metrics don’t matter until you achieve product/market fit – then they are critical to your success. I’ve often heard the argument that startups are focused on user growth and prefer to delay revenue in the short-term. Most products have at least a few people that truly consider it a must have... once suggested to me that startups should think of their early users as a flock of sheep. I believe the fastest way to grow is with a business model and explain why in this blog post. You can read more about this product/market fit survey in this blog post. Most of the tools out there provide way too many irrelevant metrics and miss the essential few.Lean Startup Marketing: Agile.” For you this means you should start looking for a signal about who loves your product and why as soon as you release your MVP. The ideal timing for implementing your business model is discussed in this blog post. Introduction to Startup Marketing Lean Startup Marketing: Agile. one of the most successful Silicon Valley VCs in history.

Introduction to Startup Marketing Lean Startup Marketing: Agile. Brand Experience Over Brand Awareness Back in the “Dotcom Bubble” days billions were wasted on brand awareness campaigns for startups. If your customer support team is overwhelmed now.. your first marketing expense should be to expand the customer support team. CEOs must take an active role in driving customer growth whether or not they have an interest in marketing. fine tuning things that customers don’t care about. While startups often realize the importance of brand experience. Nearly all of the risk and upside in a startup is in your ability to gain customer traction and then drive scalable customer growth. Anyone that cares enough about your solution to contact customer support is a great source of insight about your target market.Lean Startup Marketing: Agile. I cover more on brand experience in this blog post. Once you’ve addressed these issues you’ll have fewer barriers to adoption and will be able to grow without overwhelming customer support. it’s much cheaper and more effective for startups to focus on creating a fantastic brand experience. wait until you understand why certain customers love your product. Instead.. The CEO should not abdicate this responsibility to the marketer.. Today most entrepreneurs understand that brand awareness campaigns are a waste of money for startups. This will enable customer support to go above and beyond expectations. Apple is probably the best tech company out there on coordinating a perfect brand experience for its target users. then you can focus on driving growth.. they focus on it too early. This approach pays more dividends today than ever before – as I explain in this post on Social Media. And fixing these issues will make it much easier to grow when you do start spending. Also. It’s important to stay aggressive and take all slack out of the market (make it completely Hyperink Blog to Book Series 17 Hyperink Blog to Book Series . then obsess over every element of this customer experience. I don’t recommend trying to grow until you address the issues driving most support calls. Driving Growth Once you’ve achieved all of the previous milestones. customer support will uncover issues that will help you grow faster without spending. Introduction to Startup Marketing why in this blog post Extreme Customer Support Now that you have a business model in place. which is an important way to drive customer loyalty and enhance word of mouth. Instead.

Introduction to Startup Marketing Lean Startup Marketing: Agile. Business Building Fast growing businesses are difficult to manage. the key focus should be on exposing lots of the right people to your fantastic product experience. the top three risks to growing via these milestones are: 1. While ROI lets you know if a user acquisition channel is sustainable. You lose patience and decide that one or more of the milestones really aren’t that important. extra effort should be put into channels that show strong potential for scale. VCs and/or board of directors lose patience because you did not achieve conceptual agreement on this approach from beginning. When you begin building paid channels. Hyperink Blog to Book Series 18 Hyperink Blog to Book Series . “nice to have” is good enough. 2. This is the point where you should bring in some experienced operations people if they aren’t already on the team.Lean Startup Marketing: Agile. You delude yourself into believing that for “our type of business” customers really don’t need to consider our product a “must have. 3.. The most effective startup marketers are relentless about experimenting with channels until finding things that work. It’s much easier to get passionate and creative about this than purely thinking about things from an ROI perspective.” For us. Start by building out free channels such as listing in directories and basic SEO. Of course positive ROI is essential for any customer acquisition program to remain in the mix. As a result we start piling into the most effective tactics. Your early advantage is the ability to iterate on the customer feedback loop and leverage strong customer loyalty to drive word of mouth. When it’s time to hire a marketing leader to partner with the CEO. Unfortunately you can’t count on effective online tactics working forever.. This is because online tracking makes it easier for marketers to quickly figure out what actually works. It Won’t Be Easy Finally.. Introduction to Startup Marketing uninteresting to pursue the market for any other competitor). this post explains my recommendations for an ideal startup marketing leader.. as explained in this post. Eventually online tactics get saturated. I’ve seen many hot online marketing tactics lose their effectiveness over time.

. dating sites. eduFire. Hopefully this milestone driven approach to growing your startup will make it a bit easier.. Like the book? Support our author and leave a comment! Hyperink Blog to Book Series 19 Hyperink Blog to Book Series . Many of the articles linked to from this blog post also cover exceptions such as when a startup should start charging (it’s different for enterprise targeted startups). Become a Hyperink reader. Get a special surprise.. Introduction to Startup Marketing Building a successful business is hard.. Introduction to Startup Marketing Lean Startup Marketing: Agile. etc. For example.Lean Startup Marketing: Agile. social networks. Some startup types may need to reverse the order of some of these milestones. with marketplaces (EBay. Update: It’s hard to write a blog post on “milestones to startup success” that covers every type of startup.) user gratification increases with more users so there is a bit of chicken and egg here… Ad supported sites also benefit from early scale.

Lean Startup Marketing: Agile... Customer and Product Development Hyperink Blog to Book Series 20 Hyperink Blog to Book Series .. Customer and Product Development Lean Startup Marketing: Agile.. Customer and Product Development II.

Customer and Product Development Lean Startup Marketing: Agile. It’s great news when discover healthy demand for your product category. Demand harvesting is much easier than demand creation – and it has a faster sales cycle. but today it is Google. In discovering Hyperink Blog to Book Series 21 Hyperink Blog to Book Series . we decided to counter with a free-to-premium offer. I’ve found it is helpful to survey existing users for other places they would potentially look.. The best situation is to discover heavy unmet demand and no competition.Lean Startup Marketing: Agile. Beyond Google. If you discover that the existing competitors are executing well.. This was the situation in my last company. You don’t have to convince someone they need your category of product. In this case. The first question to ask is “where would someone seek my product category?” Twenty years ago the most obvious answer would have been the yellow pages. you can afford a more prominent promotion at the initial point of connection and begin capturing market share. you should hope for weak execution from these existing competitors. you just need to be easier to find/buy and have a better value proposition than the other guys. so don’t count on it. A lot of information has been published on getting the most out of SEO or SEM and there are also many experts you can tap in this area. That is about as likely as winning the lottery. If you can be significantly more effective at extracting money from each prospect. The next step is to analyze the solutions competing for that demand. Rather than simply trying to out-execute them (they were extremely efficient). We faced a well entrenched competitor who was harvesting the majority of existing demand and spending millions every month creating new demand. This gave us a high response rate among existing main category searchers but also played into a new trend that had been developing over the last few years. Customer and Product Development Demand Harvesting – The Easiest Driver for Startups I always begin a new startup marketing assignment by looking for any untapped existing demand... More realistically. there will be a few companies with varying offers competing for that demand. you’ll have to differentiate your offer with a better value proposition for at least a segment of the existing prospects.

Lean Startup Marketing: Agile... Customer and Product Development a new expensive software solution. you’ll eventually have to begin creating demand. we quickly became the dominant market player. many prospective customers now check for free alternatives. we could patiently upsell various complementary premium services. Customer and Product Development Lean Startup Marketing: Agile. Once we had these users engaged on the free product. Whether competing for existing demand or creating a brand new product category.. This is a much more difficult and unpredictable art that I’ll cover in a future post. Hyperink Blog to Book Series 22 Hyperink Blog to Book Series . For this new segment of demand..

Customer and Product Development The Cult of “Great Product” Many of the most successful founders. Customer and Product Development Lean Startup Marketing: Agile. One way to decide which market to serve is to ask yourself: “when we are generating $100m in revenue. All customers change from something. but there tends to be a lot of confusion about what makes a great product. then usually features are an important part of people’s decision to try it. Generally they either switch from a competitive solution or from just tolerating a problem without a solution.. News around the life of Steve Jobs has galvanized even more people to jump on the “great product” bandwagon.. In this case. Great products aren’t anointed by product gurus. Simplicity is usually much more important for greenfield users than being feature rich. Competitive Solution Customers If you are targeting people who will be switching from another solution. but on a greenfield user’s first experience they should not be emphasized. Trying to serve both markets generally leads to failure. CEOs. Only customers can decide if a product is great. Greenfield Customers If you decide to target “greenfield” people (those without a current solution). New products should decide on one of these markets. and VCs in Silicon Valley belong to the cult of great product. Dropbox is a great example of a product that has succeeded in a greenfield market with a dead simple solution. you’ll want to make sure that you at least have parity on the key features. so you’ll need to understand their switching motivation.. Generally this is a good thing.. Of course they have no reason to switch if everything you do is the same. For some categories. effective execution of their desired task. then your product roadmap should be focused on simple. which type of customer do we think will contribute the majority of this revenue?” Your guess is usually the market you should serve. features do eventually become important to users. If you can differentiate on one of the key gripes of the competitive Hyperink Blog to Book Series 23 Hyperink Blog to Book Series . Customers will decide your product is great if you can map it to their motivation for changing to your solution.Lean Startup Marketing: Agile. They understand that a great product is critical to the success of a startup.

. poor customer service. there is a good chance you can be successful.. You’ll need to both message this differentiation and also deliver on the promise. A “false promise” will cause a high churn rate (people who stop using your product).. Common gripes include price. Reduce Conversion Hurdles Either way. You’ll know you have created a great product when users tell you they can’t live without it. etc. Hyperink Blog to Book Series 24 Hyperink Blog to Book Series .. most will give up before actually trying it. Even for those who take the initiative to consider your solution. Customer and Product Development solution. So it’s also critical to reduce all hurdles that may cause them to abandon the conversion process. lack of key features. Customer and Product Development Lean Startup Marketing: Agile. Most people are afraid and/or complacent about switching. Unfortunately the “cult of great product” occasionally forgets about these critical components of building an indispensable product. reliability. switching takes a lot of guts and effort.Lean Startup Marketing: Agile.

Lean Startup Marketing: Agile. Customer and Product Development Lean Startup Marketing: Agile. Nothing else really matters to a startup other than getting to Product-Market Fit as fast as possible. who encouraged us to write the book as a primer to the first step of Customer Development.” A Lean Startup is one that combines fast-release.. Steve Blank. but the core takeaway is that most startups fail not because they don’t manage to develop and deliver a product to the market. based on The Entrepreneur’s Guide to Customer Hyperink Blog to Book Series 25 Hyperink Blog to Book Series . The ramifications of this deceptively simple observation are manifold and underpin much of what you will read below. they fail because they develop and deliver a product that no customers want or need. Below is a brief outline. Customer and Product Development Getting to Product-Market Fit I’m very excited about this guest post and confident that it will be a huge help for anyone struggling to find Product-Market fit. The Four Steps to the Epiphany.. culminating in our book called The Entrepreneur’s Guide to Customer Development. The most important insights were gained from successful serial entrepreneur. making it virtually impossible to drive sustainable growth... If you haven’t read the book (you really should). I’ve just completed what amounts to a comprehensive study on the topic of getting to Product-Market Fit with Brant Cooper. Eric has built upon Steve’s work and expanded it with his concept of “The Lean Startup. the following Lean Startup and Customer Development concepts can help you achieve Product-Market Fit. Guest Post By Patrick Vlaskovits Sean asked me to write this guest post to help startups achieve Product-Market Fit since he primarily advises startup after they’ve already reached it (during their transition to high growth businesses). iterative development methodologies (e. Wherever you are in the process of taking your product to market.g.. Actually getting to Product-Market Fit is an important topic since the vast majority of startups never get there. Sean has provided a free survey that should be helpful in validating if you have created a product people want or need. Customer Development is the startup framework he codified in his landmark book. The Entrepreneur’s Guide to Customer Development also folds in the work of Eric Ries. Agile) with Customer Development concepts. Steve’s many insights are deep.

meet and speak with prospective customers about your product and ascertain the validity of your assumptions. who they are.. how you will acquire and monetize them – are simply that.Lean Startup Marketing: Agile. are operating in near-chaos.. as an entrepreneur at somewhere pre- Product Market Fit with your startup. The way to test and learn from your market is to build an: MVP (Minimum Viable Product) Hyperink Blog to Book Series 26 Hyperink Blog to Book Series . which will hopefully help you do just that. This is the crux of Customer Development. each failed hypothesis leads to a new pivot. positioning) – but don’t abandon everything we’ve learned.. untested assumptions. the better off you are.. What problems do they face? How do they solve them? What matters to them? What is a must-have for them? As you speak to potential customers. you must: Pivot but not jump By changing an element of your customer-problem-solution hypotheses or business model. With your assumptions documented and in-hand you will: “Get out of the Building” to validate (or invalidate) your assumptions You must find. feature set. if certain risk factors prove insurmountable. Customer and Product Development Development. based on actual learning from a customer. you should: Identify the risk factors in the opportunity Are you facing significant technology risks? Or more of market risk? How can you test and validate these (starting with the most risky)? What market testable milestones can you build that would result in sufficient evidence to induce you to pivot or move forward? A proof of concept? A letter of intent? A prototype? As your understanding of the market betters. As Eric Ries writes “by testing. where we change just one element of the business plan (customer segment. where all your assumptions and hypotheses about how you gratify your users. the risks will begin to crystallize. Customer and Product Development Lean Startup Marketing: Agile. Identify and document your assumptions The sooner you understand and accept that you. Only by speaking to these people will you have any sort of understanding about “their reality” as Dan Martell likes to put it.

it is time to: Double-down and strip away the unnecessary Now you know what your customers want. but potential customers always hold the answer to creating a must have product. you must define the currency (the scarce resource) and your objective (what you are trying to learn).. For non-paying milestones. Hyperink Blog to Book Series 27 Hyperink Blog to Book Series . mentioned earlier. intermediate MVPs might include: landing page click-through that prove there’s some amount of interest in a product. can be useful in finding your must have signal. Customer and Product Development Lean Startup Marketing: Agile. a time commitment for an in-person meeting to view a demo that shows the customer’s problem being resolved. you need to focus with laser-like intensity in building a gratification engine that does not disappoint. listen for and tune into the: Must-have signal that demonstrates the core product functionality that your customers absolutely must have. such that the transaction demonstrates the product might be “viable”.Lean Startup Marketing: Agile. there is a good chance you can get to Product-Market Fit.. Once you have users using your MVP. If you can do all of the above successfully and throw in a hearty amount of luck for good measure.. money. or a resource commitment for a pilot program to test how the product fits into a particular environment.. Customer and Product Development Don’t forget that an MVP is a product with the fewest set of features needed to achieve a specific objective and that you should require a trade of some scarce resource (time. Once you successfully developed a minimal viable product and have found the must have signal. For example. Sean’s survey. while testing your assumptions and learning the characteristics of your market segment that will allow you to reach out and acquire them efficiently. attention) for the use of the product. It may take a significant amount of time and persistence.

. Acquiring several hundred users is relatively easy for a funded company. don’t expect much relevant search volume. Take the Time to Understand Early Users It’s OK to passively monitor your competition (in case they figure something out). Once you have around 1.. Don’t worry too much about the acquisition cost on these initial users (but don’t go too crazy either). shift all your energy to engaging/understanding them.000 users. get some. Obviously the most receptive users are the ones that are actually searching for a solution like yours. Customer and Product Development Lean Startup Marketing: Agile. look for other contextually relevant ways to reach prospects. They hold all the answers for reaching your full market potential. but spend the majority of your time getting to know your early users. Customer and Product Development Indifference is Your Real Competitor Your Competitors are Clueless (initially) If you are creating a new market (as is often the case for tech startups) your best chance of success is taking the time to figure out how to become relevant to the right people. If the competition is going for a land grab. Getting their attention Hyperink Blog to Book Series 28 Hyperink Blog to Book Series . And remember. a person isn’t actually acquired until they have a gratifying experience with your product.. If you don’t have any users.. The likely result is mutually assured destruction.Lean Startup Marketing: Agile. Start by trying to reach prospects when they’ll be most receptive to your message. Of course if your solution is truly creating a new market. they feel compelled to do the same. Who is most/least satisfied with your product and why? What is the primary benefit they are getting from your product? Why did they decide to try your product? Did they have a problem that they thought you might be able to solve? Or are they early adopters that often try interesting new software even if it isn’t likely to have a real practical application? Context Creates Relevance The key to effectively scaling customer acquisition is applying this understanding through the entire customer acquisition process. Next. Most startups spend way too much time obsessing over their clueless competition.

. Customer and Product Development through the clutter is much easier if you reach them at a time they are likely to be experiencing the problem you are solving.Lean Startup Marketing: Agile. This post gives more insight on getting the full user acquisition flow right. Hyperink Blog to Book Series 29 Hyperink Blog to Book Series . Customer and Product Development Lean Startup Marketing: Agile. Be sure to have the relevant messages through the entire acquisition process (from landing page to actually using the product)....

I’ve Hyperink Blog to Book Series 30 Hyperink Blog to Book Series . The most realistic way to get traction is to break down your vision to something very relevant now for the sweet spot of your target market. And the MVP maps well to each of the big opportunities we’re considering. I don’t have much time to monitor comments. we often forget about the importance of vision. Customer and Product Development Vision Syncing in a Lean Startup In the age of the lean startup.” It also stimulates the emotion/passion needed to fuel your team’s persistence to blast through inevitable hurdles. Vision Syncing/Expanding It’s also important to revisit your vision when new customer facts emerge. we’ve mapped out a primary vision but we continue to explore other huge opportunities we could pursue once we have some traction to leverage. Vision Needs Traction Achieving your vision requires first getting traction. This often provides inspiration for extending the original vision but you should not be exclusively tied to your original vision. but the right vision will crystallize over time. Instead. While vision syncing seems like a distraction from gaining traction. Always seek more interesting directions to be able to take the business once traction is established.. This MVP (minimum viable product) is a bridge between concrete customer needs today and your big audacious vision. I find that it reinvigorates the team and makes the pursuit of traction even more exciting. As we validate and refine our assumptions.. Eventually we’ll need to focus on one vision. A big audacious vision is critical for attracting venture capital and for getting the early team to “take the leap. I’m hoping to get some discussion around this concept on Quora. Since my team and I are heads down on FREEjit. Even while we explore these opportunities. our current execution is very focused on the MVP needed to get traction.Lean Startup Marketing: Agile. we need to make sure that the MVP is tracking to these new facts. Each new fact adds credence to some potential pivots and reduces the viability of others. Customer development teaches us that elements of the MVP are often based on flawed assumptions... At FREEjit. Customer and Product Development Lean Startup Marketing: Agile.

.... Customer and Product Development posted the following question on Quora: “How do lean startups avoid iterating their way into a small niche and missing big opportunities?” I’d appreciate your thoughts.Lean Startup Marketing: Agile. Customer and Product Development Lean Startup Marketing: Agile. Hyperink Blog to Book Series 31 Hyperink Blog to Book Series .

As with any data. “actionable” is a key word here. you will almost certainly fail. Since so much of the focus in an early stage startup should be spent validating assumptions.. actionable assumptions in your business? You should start by crystallizing your vision. In fact a classic book that studied many of the most successful entrepreneurs in history highlights this exercise as the single most important thing they did. If validating or disproving an assumption is not going to change your actions. In a startup your most precious resource is time and focus.. Visualize every detail of your business when it’s successful. an essential task is to prioritize the assumptions that need to be validated. If you waste too much time on things that don’t directly impact your ability to succeed. This is an important part of success anyway. And if you do succeed. You should be able to answer questions like: How will customers discover us? What will be their first experience? Hyperink Blog to Book Series 32 Hyperink Blog to Book Series . Customer and Product Development Wasting Time Validating Assumptions? Most founders following a lean startup approach understand the importance of documenting and validating assumptions. My team and I have been doing it since day one. certain market assumptions probably aren’t that critical to your success.. While more information about your market is always helpful.. then it may be interesting. Customer and Product Development Lean Startup Marketing: Agile. But recently I began to realize that validating assumptions can also be a waste of time.Lean Startup Marketing: Agile. Crystallize Your Vision of The Successful Business So how do you determine critical. but isn’t actionable. Prioritization is Everything in a Startup The best way to avoid wasting time is by prioritizing how it is used. it will be based mostly on luck.

startups are too resource constrained to spend time on these assumption until fully vetting the base assumptions that support your original business premise... the more you will really begin to believe it. It won’t always be clear which assumptions are critical to success and which are just nice to know. Hyperink Blog to Book Series 33 Hyperink Blog to Book Series . The more you visualize it. the sooner you can get on the right track. But some level of prioritization will ensure that you maximize time spent validating the most important assumptions. Expect some debate about the order in which assumptions need to be validated. Customer and Product Development When will they realize they’ve found something great (what specifically will they be doing)? Why will they think it’s great/important? Why will they think it’s better than the old way? How will they describe us to other people? How will their experience evolve with our business? When and how will we generate revenue? How will we reinvest that money to accelerate the business? Why will the whole model be repeatable and scalable? Document every detail you can possibly imagine that describes your successful business. These are the things that will cause you to need to course correct. This will help you generate the authentic passion needed to raise money. What are the core assumptions that if proven wrong will make it completely non-viable? These are the assumptions that will be critical to validate.. The earlier you can see the realities that affect your assumptions.. Customer and Product Development Lean Startup Marketing: Agile. They can help you develop a strategy to pursue bigger market opportunities. attract talent and partners… It will help you connect to the emotions that are so critical to getting people to take a leap of faith on your vision. Time for a Reality Check Now stop drinking your own kool aid! Document everything that will need to go right for this vision to be a reality. Of course broader market assumptions will also be important over time. However.Lean Startup Marketing: Agile.

” This is awesome guidance considering the countless hours I saw wasted at my first startup where people debated decisions that had little impact on results. they usually come around to high velocity testing with lower certainty.. Higher Velocity Testing Better than Perfect Certainty At LogMeIn (my second startup) the goal was to start a testing and analytics culture on the marketing team right from the beginning. When I suggest the following mental exercise to a mathematician. he recommends starting “a policy of making reversible decisions … before a meeting ends. Next we hired a super fast web designer/developer and an equally fast copywriter.” When debates extended across departments I abdicated the decision to others but measured the results to make sure they weren’t negatively affected. Customer and Product Development Fast Vs. With the volume of users at most startups. What matters is having forward momentum and a tight fact-based feedback loop (i.e.. On my marketing team I quickly ended these debates with “test it.” Entrepreneurs should take the time to make careful decisions when they are irreversible (such as accepting money from a VC). Customer and Product Development Lean Startup Marketing: Agile. Rather than hiring someone with a traditional marketing background. my first marketing hire had an actuarial background (the people that assess insurance risk). In a startup it doesn’t matter if you’re 100 percent right 100 percent of the time. For reversible decisions. this would limit you to very few tests. But as Steve Blank points out in a recent blog post: decisions have two states: “those that are reversible and those that are irreversible... Customer Development) to help you quickly recognize and reverse any incorrect decisions. This team was able to rapidly iterate everything to determine combinations that generated optimal conversions.Lean Startup Marketing: Agile. One warning before hiring a math wizard to lead your analytics is that they will often want sample sizes that almost completely eliminate doubt that you are making the right decision. Careful Decision Making in Startups Reversible or Irreversible Decision? Fast decision making is often the mark of a great entrepreneur. I suggest that they try modeling the Hyperink Blog to Book Series 34 Hyperink Blog to Book Series .

I also explain that we can always go back and test it again when we have higher volume. this research often confused rather than enlightened me.” So in the past. Customer and Product Development results of 25 tests with 80 percent certainty compared to 5 tests with 95 percent certainty.. making it possible to set up much more controlled experiments. For example.Lean Startup Marketing: Agile. But as Robert Cialdini points out in his latest book: “We know that people’s ability to understand the factors that affect their behavior is surprisingly poor. we also hope to leverage the blank slate to challenge some long held marketing beliefs regarding what really works. so I recently brought on someone to help me take my research and analytics to the next level.. Steve Blank recommends starting with hypotheses around the key factors that will be important for building your business – such as the real problem you are solving and the people who are most motivated to solve this problem.. By engaging prospective and actual users you can validate and/or refine these hypotheses. Customer and Product Development Lean Startup Marketing: Agile. Understanding User Motivations But some decisions are a lot harder to test and require more up front traditional research. It should be interesting to see what happens when he applies his rigorous research approach to customer development. He’ll be joining me for my two projects that start next month. Still I know there is a lot of room for improvement in my scientific approach to understanding user needs and motivations. He is molecular biologist as well as an entrepreneur who earlier in his career spent 10 years in biotech research.. Hyperink Blog to Book Series 35 Hyperink Blog to Book Series . At early stage web startups we have the distinct advantage over established companies of starting with a blank slate. It wasn’t until I read Four Steps to the Epiphany that I realized you could take a more scientific approach to understanding user motivations. we now gain clarity with more user input. when trying to understand the motivations behind users’ actions (or lack of actions) I generally interview and/or survey them. In addition to making better use of tight startup time and money. Unlike the previous approach to surveying.

Customer and Product Development Chasing Problems? The best startups generally begin by trying to address a really important problem worth solving. this is the right thing to do. In fact... fragmented solution that isn’t really needed by anyone.. But over time a startup that chases problem after problem creates a bloated. Lookout and Xobni. Find the “Must Have” Use Cases – Ignore Most Problems Ultimately the goal of any startup should be to create a “must have” product experience. The signal that tells you that you have created a “must have” product is your true north to build a successful business. Our instincts tell us to be responsive to customer feedback – especially negative feedback.Lean Startup Marketing: Agile. You should understand everything you can about the “must have” experience so you can cultivate and protect it. Problems Worth Solving So which problems are worth solving? Essentially any problem that stands in the way of delivering the “must have” experience once it has been identified. These problems are so actionable that we feel good solving them. Customer and Product Development Lean Startup Marketing: Agile. this is the most important thing that I learned in the years that I focused on helping to take startups to market such as Dropbox. why do they love it. How Solving Problems Can Lead to Failure Surprisingly. where do they come from… ? It feels totally counterintuitive to pursue these positive signals while ignoring most of the feedback about problems. Problems worth solving include: Usability issues that prevent reaching the must have experience Hyperink Blog to Book Series 36 Hyperink Blog to Book Series . why did they need it. how are they using it.. Who considers it a must have. Many startups miss success signals because they are too busy solving problems. To reiterate. they have a great chance of building a successful startup. the positive signal is much more important than the ongoing flow of new problems. But in my experience. If they can nail the solution to this important problem. founders’ instincts to solve problems can also cause us to fail.

Just don’t promise to change your product/business based on every reported problem. You might need to find one that is even more important to solve. Like the book? Support our author and leave a comment! Hyperink Blog to Book Series 37 Hyperink Blog to Book Series .. (Just to clarify. I’m referring to the data that deserves your focus. It is very important to give great customer support. Customer and Product Development Confusing value proposition about the must have experience Targeting the wrong users (AKA users who don’t need the “must have” experience) But start by focusing the majority of your energy trying to create at least one must have use case.Lean Startup Marketing: Agile. Customer and Product Development Lean Startup Marketing: Agile. then go back and revisit the original problem you were trying to solve. I don’t mean to imply that you should be unresponsive to the customers that make suggestions.. I recognize that my recommendation to ignore most problems is controversial. Hopefully we can get some good debate in the comments. Get a special surprise.. Please comment whether you agree or disagree. If you can’t find any positive signal about someone considering it a must have.) Become a Hyperink reader..

Lean Startup Marketing: Agile. Web Analytics and Startup Growth Lean Startup Marketing: Agile..... Web Analytics and Startup Growth III. Web Analytics and Startup Growth Hyperink Blog to Book Series 38 Hyperink Blog to Book Series .

More recently Rex Briggs has carried the torch of better marketing accountability to broader reaching brand advertising. Hyperink Blog to Book Series 39 Hyperink Blog to Book Series . Proven marketing activities can largely run on autopilot with periodic reviews of the performance reporting. Web Analytics and Startup Growth What is Metrics Driven Marketing? Metrics Driven Marketing is the marketing process that applies detailed metrics to every facet of marketing. His book “What Sticks” is a must read. His book. The majority of the marketing team’s time should be spent executing these tests. The chances of doing it twice in a row are about one in one hundred. The uniting goal of all these pioneers is a desire to push the tracking envelope in all marketing activities and drive better. (Read it free online.. who died in 1932. was published in 1923 and was a major breakthrough in testing the effectiveness of advertising. To achieve this goal of predictability. Only 10-20 percent of the monthly marketing budget should be allocated to testing. At my most recent venture. The goal of Metrics Driven Marketing is to better predict returns on marketing investments and thus drive superior overall marketing results.) Lester Wunderman was also a key driver of Metrics Driven Marketing. but will be small enough not to burn though a significant portion of the testing budget. Scientific Advertising. more predictable results.. Hopkins. primarily through his advancement of direct marketing (a phrase he was believed to have coined in the early 1960s). it is important that the majority of marketing funds are invested into proven activities. Metrics Driven Marketing ranges from very quantifiable direct response marketing to more challenging measurement of brand awareness advertising. I am a big believer in the power of Metrics Driven Marketing.. To understand the rarity of this. it is important to note that less than 10 percent of venture funded companies offer seed investors a return in excess of 10 times their original investment.Lean Startup Marketing: Agile. It has helped my marketing teams overcome daunting odds to deliver back-to-back blowout successes at venture funded companies. Metrics Driven Marketing can trace it roots to Claude C. Ideally the investment in each new test will provide a large enough sample size to accurately assess the performance. Web Analytics and Startup Growth Lean Startup Marketing: Agile.. my first marketing hire was trained as an actuary (actuaries are the math wizards at insurance companies who calculate premiums based on risks).

brand experience and conversion metrics will pay dividends in broader reaching campaigns. viral marketing.. That is because the purest form of Metrics Driven Marketing is direct response marketing – which should be the primary marketing approach of all startups. It favors the small budgets available to most startups. We are now recruiting our third marketing analyst to the team in addition to a database analyst. This highlights the importance top level mathematical and analytical skills to try to push marketing tracking to its limits. it allows a marketing team to focus on refining the brand experience and if applicable helps them optimize website conversion rates. Eventually a successful startups company will have to complement their direct marketing initiatives with more scalable branding campaigns. Direct response marketing is a low risk approach that has been around for decades.. The marketing leaders who do use it (and succeed with it) generally have a good balance of analytical skills. What about marketing activities that provide important benefits that can’t be tracked? I discuss this in another recent article.. Web Analytics and Startup Growth are the math wizards at insurance companies who calculate premiums based on risks).Lean Startup Marketing: Agile. Metrics Driven Marketing is not always about perfect ROI tracking – it’s about continuously pushing the tracking envelope and directing marketing funds to the most effective and accountable initiatives. Not just the kind of creativity Hyperink Blog to Book Series 40 Hyperink Blog to Book Series . Web Analytics and Startup Growth Lean Startup Marketing: Agile. For an example on tracking blogs. Metrics Driven Marketing is surprisingly underused by many experienced marketers. It is also challenging to analyze the marketing effectiveness of Blogs. see my post on measuring the loyalty impact of social media. Additionally. That’s where Metrics Driven Marketing gets really tough. It’s almost impossible to have too many analytical minds. Fortunately earlier efforts to refine the value proposition. It also supports a startup’s discovery process of identifying the right target customers and developing a powerful value proposition. the ROI from the direct response marketing initiatives also improves. discipline and a deep reservoir of creativity. As customer acquisition conversion rates improve. In an early stage startup it is relatively easy to apply the principles of Metrics Driven Marketing. These activities require more creativity to determine appropriate measurable ROI targets than others. and word-of-mouth initiatives. Rex Brigg’s book “What Sticks” provides excellent guidance for executing a Metrics Driven Marketing approach at scale. though the time investment can be quite large. To track the effectiveness of these campaigns most savvy marketers use test markets and trend analysis.. Fortunately most of these activities require relatively small financial investments.

the testing halts and marketing results stop improving (and often start declining).. Web Analytics and Startup Growth Lean Startup Marketing: Agile. As is customer segmentation strategies. Metrics Driven Marketing is just the foundation of a strong integrated marketing approach. these can all be strengthened by a foundation in Metrics Driven Marketing. If this creativity runs dry. Market research. Of course.. particularly in depth customer research.. but rather business creativity to invent new marketing methods and tweak existing methods for cost-effectively reaching their target customers. PR. Hyperink Blog to Book Series 41 Hyperink Blog to Book Series . enhancing the brand experience.. is essential. mapping marketing objectives/strategies to overall company objectives/strategies… But.Lean Startup Marketing: Agile. Web Analytics and Startup Growth needed to come up with clever slogans.

. Informed iteration helped us increase purchase transaction rates ten times in just a few months. few combined these powerful forces. These revenue opportunities eventually accounted for more than half of the company’s overall revenue volume – making possible the eventual IPO filing. so this is no longer a competitive advantage – it’s a necessity. To be honest I initially focused on engaging customers just to appease this VC. which made scaling a profitable marketing spend infinitely easier. Ultimately.Lean Startup Marketing: Agile. Hyperink Blog to Book Series 42 Hyperink Blog to Book Series .. He constantly grilled me with the question “Who is your customer?” During our weekly meetings he never failed to ask about the last time I spoke to a customer. In my next startup I was fortunate enough to have a venture capitalist who helped take our approach to the next level. Later customer engagements uncovered revenue opportunities we never could have found through metrics driven iteration. But it didn’t take long until I was able to use this information to improve results. Web Analytics and Startup Growth Iterating Without Understanding? It seems there are two camps of “evolved” marketers these days. We tested. But many web marketers stop there. metrics were our competitive advantage. At Uproar in the mid to late nineties... The other group is completely focused on metrics driven iteration. One group recognizes that it is critical to understand customer needs by engaging them at every opportunity. Sony). I got extra brownie points for meeting with customers in person. We knew we couldn’t afford any waste if we were going to have a chance to beat the heavily funded Silicon Valley gaming startups and the established companies getting into online games (Microsoft. I started in the camp of online metrics and scorned the beanbag marketers who didn’t “get” analytics. this obsession with leveraging metrics to track ROI and improve conversion through iteration was key to becoming the worldwide leader in online games and peaking at a billion dollar stock market valuation. the beanbag marketers couldn’t compete with our no waste metrics driven approach. measured and optimized everything. Yahoo. Despite their much deeper cash war chests. Until recently. Web Analytics and Startup Growth Lean Startup Marketing: Agile. Today the Darwinian economy has killed off most web businesses that don’t leverage metrics. We attracted his investment with our metrics driven online marketing approach and then he quickly improved it.

. Perhaps even better news is that Venture Hacks now records Steve Blank’s lectures at UC Berkeley and posts them online.com. So what’s next? I’m certain that eventually a platform will emerge that ties it all together. Rather than holding my breath for someone to deliver this dream platform.. Off-the-shelf analytics programs have been bloated with data that is useless for improving results. This book added a systematic process for uncovering the critical information needed to build a thriving business and keep improving results. Of course they have given me equity in the company – but I’d be passionate about this metrics driven customer development platform either way. I’ve been advising KISSmetrics as they work to create it.Lean Startup Marketing: Agile. The same Darwinian forces that made metrics a necessity for online marketers are once again shaking up the web startup world. I’ve given them total visibility into my approach and turned over reports that have evolved over many years of execution. The great news is that Steve Blank recently started blogging at steveblank. Hyperink Blog to Book Series 43 Hyperink Blog to Book Series .. Excel… ). It has become a major competitive advantage to combine Steve Blank’s customer development approach with informed metrics driven iteration.. while using disconnected systems to drive understanding (surveys. And it’s only a matter of time until this approach becomes a necessity for survival. Web Analytics and Startup Growth It wasn’t until I began the Interim VP Marketing role at Xobni that I discovered Steve Blank’s The Four Steps to the Epiphany. Web Analytics and Startup Growth Lean Startup Marketing: Agile. Up to this point we’ve always had to custom develop these tracking and reporting systems. This platform will facilitate the process of collecting and analyzing actionable customer information and manage the iterations that deliver optimal results.

Customer validation 3. While experienced marketers recognize the need for some positioning work upfront. they still generally lack a broader understanding of where to focus resources and in which order. If you haven’t read the book.” VCs don’t fund lifestyle businesses. For a more Hyperink Blog to Book Series 44 Hyperink Blog to Book Series . Scale company He warns that a company should not kick into growth mode until reaching the fourth step. it seems natural that they should “get the word out” about their new innovative solution. Customer creation 4. There are generally two opposite mindsets that lead to the same mistakes: 1. Web Analytics and Startup Growth Keys to Unlocking Startup Growth When a startup takes VC funds. Generally this is a complete waste of money. so let’s move fast (get traction before we run out). Panic: “We are running out of money. they usually accept the premise that they need to “get big fast..Lean Startup Marketing: Agile. I highly recommend it. His roadmap consists of the following four steps: 1. The first time I saw an effective go to market roadmap was when I read Steve Blank’s Four Steps to the Epiphany.. so let’s move fast (no need to be cautious). Overconfidence: “We have lots of money.. Unfortunately desire for growth causes many startups to make poor choices.. Thus many startups quickly launch awareness building initiatives ranging from advertisements in a tech magazine to exhibiting at trade shows. By this point they have figured out a sustainable and scalable process for acquiring and monetizing customers. Web Analytics and Startup Growth Lean Startup Marketing: Agile.” For an entrepreneur focused on growth.” 2. Customer discovery 2.

Web Analytics and Startup Growth detailed overview of the book see this post from Eric Ries.. With a much higher allowable acquisition cost. I recommend starting with free channels first and ultimately spending up to your allowable acquisition cost.. we just want to generate enough new user volume to iterate landing pages and sign up flows. Hyperink Blog to Book Series 45 Hyperink Blog to Book Series . Within a few weeks of initiating the understand phase. but allows growth a little earlier (click graphic below for full size).. Instead. Web Analytics and Startup Growth Lean Startup Marketing: Agile.Lean Startup Marketing: Agile. The approach I’ve used to attract tens of millions of users to startups is similar. the process of building profitable channels is relatively easy (and even fun). At the completion of the iteration phase we can put all of our energy into building profitable customer acquisition channels. but finding and managing these channels takes too much time to already be a priority. we generally have enough user insight to baseline allowable acquisition costs of a new user and begin iterating. It can be tempting to start building all customer acquisition channels that fall within this allowable acquisition cost. These iterations can increase the allowable acquisition cost by more than 10 times in only a few months..

Lean Startup Marketing: Agile... Web Analytics and Startup Growth
Lean Startup Marketing: Agile... Web Analytics and Startup Growth

Deconstructing Startup Growth

After product/market fit, driving sustainable growth is probably the most
important/difficult part of creating value in a startup.

For most of the last 15 years of my startup experience, I’ve been the point person
responsible for primarily one thing: driving growth. Even after two IPOs, I didn’t really
have a firm grasp of the essential elements of driving growth. My view has evolved from
externally focused metrics-driven marketing, to a more holistic approach built on a solid
foundation of product/market fit.

Growth Foundation

Even the greatest marketers can’t sustain growth on a weak foundation. Eventually, their
growth curves crater.

So what is required for a strong foundation?

Must Have Product

The most important element is having a large percentage of users who consider your
product a “must have” (over 40 percent is a good benchmark). This gives you two key
benefits:

1. The first is that your churn will be relatively low (if it’s a “must have” why would users
leave?), so you won’t be wasting resources filling a leaky bucket.

2. The second is that “must have” products generally maintain strong word of mouth.

Hyperink Blog to Book Series 46
Hyperink Blog to Book Series

Lean Startup Marketing: Agile... Web Analytics and Startup Growth
Lean Startup Marketing: Agile... Web Analytics and Startup Growth

Together, these two elements give you a steady upward trajectory of your growth curve
until you reach market saturation (hopefully you are in a big market!).

Must Have is Perishable

An important caveat is that your product will stop being a “must have” if a competitor
offering a viable substitute enters your space. If they are really a good alternative to your
product, then you’ve been downgraded to a “nice to have” and your foundation starts
getting shaky. Therefore, once you become a “must have” it is critical to get to the
growth phase of your business as quickly as possible.

Conversion Optimization

Your ability to accelerate growth will be greatly enhanced if you optimize conversions.
There are many ways to define a “conversion” but for me, it’s a person who reaches the
“must have” experience. If 1,000 new visitors come to your website and only 50
experience the “must have” benefit, it’s very difficult to efficiently grow your business.
However, with focused attention on fine-tuning the first user experience, startups often
see a two to ten times improvement in conversions.

This immediately enhances your growth curve since word-of-mouth referrals begin
“sticking.” It also greatly enhances your ability to find viable, scalable ways to grow your
user base (especially when combined with a good monetization approach).

Driving Growth

Most startups entering the growth stage obsess too much on finding a VP marketing
capable of building and managing a large marketing organization. At this stage your
more immediate challenge is finding sustainable, scalable growth drivers to augment the
organic growth achieved through solid product/market fit and conversion optimization. If
you are compelled to bring in a VP Marketing at this stage, make sure he/she has a track
record of developing scalable growth drivers and is willing to make this their core focus
until it is figured out. Otherwise, I recommend instead bringing in a scrappy growth
hacker to generate a strong flow of ideas for experiments that will scale if successful.

The faster you run high quality experiments, the more likely you’ll find scalable, effective
growth tactics. Determining the success of a customer acquisition idea is dependent on
an effective tracking and reporting system, so don’t start testing until your
tracking/reporting system has been implemented. Once scalable growth tactics are
developed, then a VP Marketing may be important for building and managing the
marketing team that will execute these tactics.

Hyperink Blog to Book Series 47
Hyperink Blog to Book Series

Lean Startup Marketing: Agile... Web Analytics and Startup Growth
Lean Startup Marketing: Agile... Web Analytics and Startup Growth

One benefit that is emerging from advising multiple startups is that our rate of collective
discoveries is accelerating across the non-competitive network of startups. With sharp,
creative growth hackers in each startup we are able to brainstorm and test many more
tactics. The best ones are exchanged across the network for everyone’s benefit.

Growth

As the preceding paragraphs hopefully demonstrate, growth is a function of multiple
factors. Focusing on the right factors at any given time offers the best chance of
ultimately becoming a high growth startup. One exception to this rule are startups like
eBay, Facebook, and Twitter, where “must have” status could only be achieved after
critical mass. In these startups, they did not have the luxury to focus on one element at a
time – instead they had to work on the full growth ecosystem at one time. But for most
startups, you will approach your full growth potential by obsessively focusing on the most
important goal for your particular stage.

Hyperink Blog to Book Series 48
Hyperink Blog to Book Series

I found that the key to sustaining rapid growth is understanding your “must have” experience and then aligning the entire business around that experience. While the backend data processing is complex. MustHaveScore Makes it Much Easier Working with the team of engineers at CatchFree. The emergence of a new competitor can instantly turn your “must have” experience into a “nice-to-have” experience.” Given my background with freemium. This involved a rigorous process for identifying the most passionate users and then getting their unstructured feedback about how they were getting value. We provide a comparative overview of all use cases that shows the relative popularity and passion around each use case. With each new cohort of users that I engaged. I immediately started working to uncover the “must have” experience before I formed preconceptions about how and why a product would be useful. I began to get more structured feedback to converge on a signal of the “must have” experience. Each new product update can change it.. Web Analytics and Startup Growth Key to Sustaining Rapid Growth After helping to bring several startups to market including Dropbox. LogMeIn and Lookout. Process for Uncovering Your Must Have Experience With each new startup.Lean Startup Marketing: Agile. Shifts in the competitive landscape can also affect it. Once I had a clear signal. Over time we Hyperink Blog to Book Series 49 Hyperink Blog to Book Series . funnel optimization. I could work with the team to start aligning the business around the “must have” experience.com. and then we segment user feedback to give you the context to understand why the use case is a “must have. the output is simple and easy to understand. This includes aligning the product roadmap. Our feedback widget requires no customization and intelligently evolves as more users provide feedback. For an experience to be a “must have” it should be both valuable and unique.. we’ve been able to not only productize the approach but also improve it.. Web Analytics and Startup Growth Lean Startup Marketing: Agile.. The user input is simple and requires less than a minute of their time. I also found that it was important to monitor this “must have” experience over time. The result is MustHaveScore. and messaging. it’s not surprising that we decided to offer the most valuable analysis for free (everything described in the previous paragraph).

targeting and eventually customer acquisition. but if you’d like to work directly with me interpreting and acting on your data please ask with a Tweet similar to this “Excited to run MustHaveScore. Web Analytics and Startup Growth Lean Startup Marketing: Agile. we want to eventually work with you (optionally) to help expose these use cases to prospective customers.. so I apologize if it takes me awhile to schedule time with you. Hyperink Blog to Book Series 50 Hyperink Blog to Book Series . There a couple key reasons why early stage startups must meet face-to-face with existing and prospective customers: 1. And even when you do have enough users to automate it. This slow rollout has been mutually beneficial since early companies have gotten hands on help interpreting and acting on the data... A startup generally doesn’t have enough users to automate the customer feedback function via surveys. With my Tweet earlier this week we’ve received increased volume making it hard for me to work with everyone directly.. Benefits for Early Users We’ve been slowly rolling out MustHaveScore over the last couple months and now have about 50 companies on the service.com on (CompanyName) and get some free consulting from @seanellis to act on the data. It is not a replacement for early stage customer development. Not a Replacement for Customer Development This toolset is really for transitioning to growth and then maintaining a strong growth rate after you have achieved product/market fit.” I recommend sending it from your personal account rather than your company’s account. This will be first come first serve. After we help you identify your must have use cases. it is essential to meet face-to-face with existing and prospective customers. 2. This is not a pivot. and we’ve gotten direct feedback to help us improve the service. face-to-face interviews should always complement surveys.Lean Startup Marketing: Agile. MustHaveScore is part of our broader goal of helping people get more value out of innovative technology solutions. automated feedback. They help you form insights that you could never get through structured. Web Analytics and Startup Growth plan to offer additional premium services to help with positioning. which is all about “getting out of the building” to reach product/market fit. I expect that this will only get harder with this blog post explaining the value of the service. My best epiphanies that led to big boosts in growth have always followed concentrated face-to-face engagements with customers. In the early days.

. Hyperink Blog to Book Series 51 Hyperink Blog to Book Series . Web Analytics and Startup Growth Also. We’re looking forward to everyone’s feedback about MustHaveScore! Thanks for giving it a try..Lean Startup Marketing: Agile. Web Analytics and Startup Growth Lean Startup Marketing: Agile... we plan to give people who signup before the end of March an early free invite to the premium version while it’s in Beta.

Kill the Opportunity for the Competition If your growth is accelerating.Lean Startup Marketing: Agile. I like to start with free customer acquisition channels since they obviously offer the best opportunity to generate a positive ROI. Hyperink Blog to Book Series 52 Hyperink Blog to Book Series . we work our way through the lowest hanging fruit first.. Web Analytics and Startup Growth Lean Startup Marketing: Agile. Free drivers may include viral marketing. So it is important to make it as difficult as possible for them to get traction. Web Analytics and Startup Growth To Pay Or Not To Pay To Acquire Users? I recently heard a VC say that startups “should spend the least amount of money possible on marketing. beginning with demand harvesting channels. When we start developing paid channels...” My point was not to ignore the competition forever. Marketing opportunities that offer a fast payback with additional profit margin are a key component for reaching your startup’s full market potential.. Leveraging this early user flow we optimize the first user experience for the right target users and introduce a business model that generates sufficient revenue to fund future paid user acquisition. I know some of you are saying “but your recent post told us to ignore the competition. positive ROI way to acquire customers. But it often takes several months after “launching” to transition to aggressive scaling. later adding demand creation channels.” This is a healthier attitude than the opposite prescription of undisciplined land grab. Competition (especially those that are spending irrationally) will distract you from this critical task. simply to ignore them while you are figuring out a repeatable. Work from Free to Paid Drivers Ultimately my goal with any startup is to acquire the highest number of qualified users possible – at a positive return on investment. but a better approach is pure ROI marketing. And this competition will likely be savvy enough to replicate the customer acquisition and monetization approaches that you worked hard to invent. you will attract competition. self- implemented SEO and listing with any directories that are appropriate for your product.

Web Analytics and Startup Growth But once you have optimized the first user experience and introduced a business model that generates sufficient revenue to fund user acquisition.Lean Startup Marketing: Agile... Hyperink Blog to Book Series 53 Hyperink Blog to Book Series . Web Analytics and Startup Growth Lean Startup Marketing: Agile.. it’s time to focus your marketing efforts to aggressively build new customer acquisition channels and scaling existing channels – both free and paid..

. In the nineties. And most of the critical go to market projects are very different from traditional marketing functions. Web Analytics and Startup Growth My Favorite Online Marketing Tactic – Doesn’t Work That’s a pretty safe prediction for two years from now. Potential customers start tuning out the whole channel as it gets cluttered with advertisers. Their lack of experience often means it’s easier for them to adopt new effective tactics as well as concentrating their efforts on the pre-tactical projects. marketers and VCs do to combat the short shelf life of online marketing tactics? Advice to Startup CEOs: Don’t pay a premium for a marketing veteran’s many years of tactical online marketing experience – only the last couple years really matter. I’ve seen many hot online marketing tactics lose their effectiveness over the last decade. So what can startups. In Hyperink Blog to Book Series 54 Hyperink Blog to Book Series . The best marketing vets are looking for startups that have a bit of “wind at their back. Eventually they get saturated. In fact I generally encourage startups to hire a complete rookie. The marketing leader is one of the most challenging roles for a startup to hire.. An equilibrium is reached where most of the big profit potential is lost. I used to get 20 times higher click-through rates on banners than what’s typical today. As a result we start piling into the most effective tactics. Today very few keyword categories offer that fast payback at any kind of meaningful scale. Today banners rarely appear in the marketing mix for my startup clients.. Web Analytics and Startup Growth Lean Startup Marketing: Agile. SEM (Google Adwords) is the best example of this..” It’s the rookie that can create this momentum. And now it appears Facebook apps are quickly fading as a viable marketing channel. The other reason that popular tactics fade so quickly is that popular tactics generate a lot of noise. There were several months in the late nineties at Uproar where we ran the most viewed banner on the entire web (according to Nielsen NetRatings). A few years ago I was able to spend seven figures per month on SEM with a tracked payback of three months. The key cause: Online tracking makes it easier for marketers to quickly figure out what actually works.Lean Startup Marketing: Agile.

And encourage your CEO/VCs to arrange marketing summits with other startup marketers where you can learn from each other (and please invite me). Expertise in the group ranged from viral marketing to creative ways of generating press. focus on developing marketing skills that will always remain relevant. Hyperink Blog to Book Series 55 Hyperink Blog to Book Series . Finally encourage your VCs to hold regular marketing summits so your marketer can trade effective customer acquisition tactics with other marketers (share “Advice to VCs” below with your VC). persuasive website architecture. Advice to VCs: Encourage your portfolio companies to exchange their most effective tactics. really analyze them to understand why they work. give them a legitimate shot at the long-term marketing leadership role. And when you discover effective new tactics. but rarely do I hear about VCs bringing together their marketing leaders (mine never did in any formal way). diffusion of innovation. And they will likely be every bit as effective as a veteran marketer but available for a fraction of the equity and cash. Web Analytics and Startup Growth exchange for coming in early... Most VCs get their CEOs together. actionable marketing metrics… Stay on top of the latest tactics. Web Analytics and Startup Growth Lean Startup Marketing: Agile. These include things like marketing psychology. Advice to Marketers: Don’t specialize in a single tactic. The collective insight across your portfolio of what works is enormous... They fade too fast and then you have to start building a new specialty. but always balance this with developing expertise that will remain important in the long term. Marketers probably have much more relevant insights to offer each other than CEOs. Effective online marketing tactics are surprisingly effective across different business categories. I was happy to share my insights at no cost – well actually in exchange for their insights. I’m sure the other marketers would agree that it was an extremely valuable use of a few hours of our time. I recently attended one of the rare marketing summits at a VC and found it to be extremely valuable. This is counter to the advice of most people.Lean Startup Marketing: Agile. Instead. I also shared some of my tools/projects that can be leveraged to get better results out of every tactic. but hopefully by now you understand the flaw in focusing on a single tactic. customer research methods. After a year they will be intimately familiar with your customers. Those principles will remain important and will help you create/spot the next effective tactic. company building.

doubling the percentage of users that get there won’t help much. We decided to temporarily stop trying to find new customer acquisition channels and focus instead on improving conversion rates. Here are the three most common optimization mistakes startups make: 1) Premature optimization – Optimization is about improving the path that users take to reach a certain destination within your website. While this seems like an important goal from the beginning. For most sites it’s ultimately about getting people to experience and buy your product. These benefits probably have you chomping at the bit to start your own optimization program. It was certainly a critical part of reaching millions of users in each of my first five startup marketing roles. A few months later we resumed channel building and were able to scale the same previously tested channels to support 100-times the marketing spend with the same target ROI per dollar spent. the company maintained cash flow positive results. But be careful. we tripled the effectiveness of every future marketing dollar.. Web Analytics and Startup Growth Optimization Mistakes that Kill Startups I once believed optimization was the secret weapon that could make almost any startup successful. My recommendation for startups is not to begin optimizing until at least 40 percent of your randomly surveyed users say they would be “very disappointed” without your Hyperink Blog to Book Series 56 Hyperink Blog to Book Series . the improved user experience also resulted in a multifold increase in free organic growth. I first became a fan of funnel optimization at one of my early startups where we had hit a wall trying to develop scalable customer acquisition channels... Products that don’t become a “must have” almost always fail. optimization can easily kill a startup when not done right (or at the right time). Beyond the clear benefit of enabling scalable marketing campaigns. If the value of your core product is weak. it’s not. Web Analytics and Startup Growth Lean Startup Marketing: Agile. All the while.Lean Startup Marketing: Agile. At a couple of startups we saw a tripling of conversion rates from a single experiment. And it will actually hurt you because every unit of effort put into optimization is one less unit that you can put into improving your core product. When we tripled conversion rates.. User growth immediately hockey-sticked and years later still hasn’t diminished.

but it must be done very carefully. Your ability to deliver an experience that creates passionate users is your most important asset as a business and must be protected. It can be improved. That’s the theory. Since every change is also an opportunity to screw things up it’s extremely important to measure the actual results of a change. I’ll try to write a post on this scenario soon.. Effective optimization requires the right tools. The only exception to this is if your value proposition will increase because of a network effect (like eBay). but the reality is that you’ll never get past the first few tests if the early ones don’t yield improvements. 2) Not being deliberate –To execute full funnel optimization you test multiple changes at every step in the acquisition process. No business will come close to its potential without a concerted optimization effort. Web Analytics and Startup Growth product. This presents a new problem. I never attempt an optimization project without first doing a project that helps me understand the use cases of the most passionate users.. In the early startups I worked with we spent months building systems internally to track conversions at the user level. People quickly lose faith in the process. Prioritize test ideas so that the easiest and/or most likely to improve results are implemented first. but be careful to avoid the mistakes listed above.. qualitative research/understanding and a systematic approach to testing. That doesn’t mean you shouldn’t try to have a great first user experience. Therefore it is essential to vet every test idea before asking the development team implement it. Unfortunately traditional analytics programs aren’t helpful here since they don’t track specific user cohorts moving through the funnel (AKA groups of users). If you test enough things you will definitely find something that improves your key measures.. Fortunately “off the shelf” systems are now cropping up that make user level funnel tracking much easier (I’ve been advising KISSmetrics on such a system for over a year and I’m now using it in a couple projects). Anyone with a basic understanding of statistics will realize that optimization is a numbers game.Lean Startup Marketing: Agile. Hyperink Blog to Book Series 57 Hyperink Blog to Book Series . When executed properly it can easily result in 2.to 10- times improvements in conversion rates. which I combine with messaging optimization. The first step in protecting it is to understand it. I am in a much better position to safely optimize the full conversion funnel. rather it means you shouldn’t start iterating flows until the core product meets this threshold. After this initial project. 3) Killing the love – One thing that is rarely measured in an optimization project is a reduction in the core value perceived by your most passionate users. With the right system you can track your “measures of success” and rollback any changes that have a negative effect on these metrics. Web Analytics and Startup Growth Lean Startup Marketing: Agile.

. Get a special surprise..Lean Startup Marketing: Agile.. Web Analytics and Startup Growth Lean Startup Marketing: Agile. Like the book? Support our author and leave a comment! Hyperink Blog to Book Series 58 Hyperink Blog to Book Series . Web Analytics and Startup Growth Become a Hyperink reader..

.. Viral Marketing and Social Media Hyperink Blog to Book Series 59 Hyperink Blog to Book Series . Viral Marketing and Social Media Lean Startup Marketing: Agile..Lean Startup Marketing: Agile. Viral Marketing and Social Media IV..

but I’ve tried to decipher the difference below. a few years ago my accountant in Belgrade asked me to download Skype so we wouldn’t run up a big phone bill. Skype falls into this combo camp.. Word of mouth. TIVO is a great example of this.. early IM products or Facebook). every new communication platform shares this viral characteristic (the first fax machines. because it improves the value of your own experience. The confusion probably stems from their shared potential for driving exponential growth rates by leveraging existing users. There is no inherent usage benefit for telling other people to buy TIVO. Like Skype. While they may technically be different. It’s easier to “engineer” viral marketing into some environments than others. Viral Marketing and Social Media The Difference Between Word-of- Mouth and Viral Marketing I often hear knowledgeable people say “that’s not viral marketing. Skype didn’t need to do a whole lot to drive this virality. Or even better combine the two. I still wouldn’t consider this a viral growth driver. is really based more on doing a favor for the other person (clueing them into something unexpectedly cool). For example. but making it easier to invite friends improves their viral growth rate. I’ll take either exponential viral growth or exponential word-of-mouth growth if I can get it. But it is such a surprisingly great experience that people tell their friends about it anyway.Lean Startup Marketing: Agile. It’s just incentivized word of mouth. The primary difference is that strong word of mouth is primarily based on a compelling customer experience while viral marketing is more “engineered” to specifically propagate a product. Viral Marketing and Social Media Lean Startup Marketing: Agile. on the other hand. I’ve reached the following conclusion. Based on the two sources I’ve found that tried to answer this question (pasted below) and my own experience.. There is a strong incentive to tell other people to join the network. I’m not sure why it’s particularly important. You’d probably be compelled to tell friends about the ability to Hyperink Blog to Book Series 60 Hyperink Blog to Book Series .” Rarely do they go on to try to explain the difference or why the difference is important. Even if TIVO were to offer a free month of service for everybody you tell. it’s word of mouth..

... However. Seth Godin’s post points out the decaying nature of word of mouth. He mentions multi-level marketing and chain letters as a couple of great non-online examples of viral marketing (and MLM is an example of a non-communication form of viral marketing also). Viral Marketing and Social Media Lean Startup Marketing: Agile. Hyperink Blog to Book Series 61 Hyperink Blog to Book Series . this wouldn’t be the case if word-of-mouth referrals always result in a new user who also refers the product/service.. A great experience fades quickly when it reaches a couple links into the word of mouth chain. Here are links from other bloggers that try to answer this question: Andrew Chen’s comparison is a response to the question I posted on his blog. The fact that you also benefit when they install the software only accelerates this growth.Lean Startup Marketing: Agile. Viral Marketing and Social Media make free phone calls (especially overseas) even if the software weren’t required on both ends.

The higher your viral coefficient. Experts often known as ”Viral Tuners” are applying a systematic data driven process to creating viral customer acquisition drivers. so I’ll give you an example of the only viral growth driver I’ve ever created.0 is still important. Viral Marketing and Social Media The Science Behind Viral Marketing Many people don’t realize the advances in the science behind viral marketing. the bigger the echo effect of every dollar spent. By testing and optimizing the viral elements of a widget or websites they are often able to push the viral coefficient above 1. As long as you don’t have a significant marginal cost per user outside the acquisition cost.. it was important to transition users from the referring site to the engaging multiplayer games on the Uproar. growth accelerates geometrically until saturation. The echo effect of a viral coefficient that falls below 1. All of the above is pretty abstract. you can still greatly benefit from virality.Lean Startup Marketing: Agile. paying the referring site 50 cents per user (a small fraction of the average lifetime value each user generated in advertising revenue). the echo effect is infinite and your cost per acquired user approaches zero. Even if you can’t get the viral coefficient above 1. if a tracked user from a campaign costs $1 to acquire and you have a . you have a strong business – even if you spend $1 to acquire that first user. Ten years ago I launched a YouTube sized game widget called Trivia Blitz that appeared on over 35. Hyperink Blog to Book Series 62 Hyperink Blog to Book Series ..000 websites. For example. Again.0.com website – which was already among the stickiest on the entire web.5 customers for that $1 and therefore your average customer acquisition cost goes down to less than 30 cents.. Viral Marketing and Social Media Lean Startup Marketing: Agile. you actually acquire about 3. helping it to spread virally between sites. This essentially means that each new user generates more than one additional user. We acquired several million users with this widget.75 viral coefficient.. Any time you can acquire users for free. If you can find a way to generate an ARPU (average revenue per user) of 50 cents. you simply need to micro-monetize these people and you’ll easily be able to grow a profitable business.0. a viable business model becomes almost inevitable. In other words. Each widget carried an “add this game to your website” link. To achieve a high average lifetime value. if you can get the viral coefficient above 1.0.

com for a NASDAQ IPO. Trivia Blitz was such an efficient customer acquisition tool that it eventually helped position Uproar. While we didn’t optimize the virality of Trivia Blitz.. and many gaming startups backed by leading Silicon Valley VCs. surpassing Microsoft.. Among public companies. Uproar was able to achieve the lowest customer acquisition costs for a free registered user (about 1/6 of Yahoo’s cost which was considered pretty good at the time). I’m now focused on learning the skills of viral optimization. I highly recommend Andrew Chen’s blog. By focusing our resources on Trivia Blitz and tightly tracked direct response marketing drivers we were able to take leadership of the game category. Hyperink Blog to Book Series 63 Hyperink Blog to Book Series . Viral Marketing and Social Media During these irrational dotcom bubble years. Viral Marketing and Social Media Lean Startup Marketing: Agile. it is still illustrative of the results that are possible if you can create a viral coefficient above 1. so I can take something that is slightly viral and fine tune it into a major viral marketing driver.. If you are interested in reading more about viral marketing.. our competitors were wasting millions on crazy marketing campaigns like expensive branding campaigns on TV or multi-million dollar AOL deals.0. Sony. Yahoo.Lean Startup Marketing: Agile.

Despite this. Viral Marketing and Social Media Social Media Marketing Strategy for Startups Recently. OK.. Facebook. Hyperink Blog to Book Series 64 Hyperink Blog to Book Series . I’d have a hard time writing a 10 page book on Social Media Marketing. others a bit more narrowly through twitter and status updates and finally others through facebook wall posts. here it is: effective customer development… By figuring out who needs your product/service. but we’ve been blocked from the channels that were so critical for established companies. since most startups went out of business anyway. but I doubt it would be worth wading through hundreds of pages to find them... Social Media sources (blogs. One contained over 350 pages of social media marketing “wisdom. why they need it. you need to understand why social media is important for startup marketers.” I’m sure there are a few useful nuggets in each of these books. The most relevant part of social media is that it includes a person’s network of trusted online contacts. etc) have quickly emerged as the most powerful growth drivers in the startups I’ve helped launch. A little startup had a very hard time competing even if they had a vastly superior product.. etc. Digg. You are probably asking: How can this possibly be an effective Social Media strategy? To understand this. what constitutes a gratifying experience with the product/service and getting more of the right type of people to this gratifying experience (highlighting the right benefits and reducing barriers) social media can become a powerful driver for your business too.Lean Startup Marketing: Agile. So how does this help startups? The best innovations have always come from startups. Viral Marketing and Social Media Lean Startup Marketing: Agile. And the channels were seldom awarded for trying to help the startup. Twitter. Social media has given consumers better access to their expanded personal networks and a megaphone to broadcast their opinions and experiences to people who actually care. Some of these contacts broadcast their opinions widely through blogs. This will be a very brief blog post explaining how we’ve been able to drive hundreds of thousands of new users through social media in recent startups. So on a recent trip to Barnes and Noble I was surprised to see several thick books on the subject. Over time these companies educated the channels and expanded their presence.

And that is after I earlier blogged about the service and verbally recommended it to many. Once you’ve accomplished this.. it also empowers vigilante customers that have been wronged. This is often successful because a small percentage of users inadvertently agree to allow their address book to be scraped when they initially sign up for the service. While social media makes it easier to spread useful innovative products.Lean Startup Marketing: Agile. social networks make it much easier for useful innovative products to spread to the masses (especially when combined with Google Adwords). Eventually these tactics bite the company in the ass. If 1 in 10 people get their address book scraped and each one has over 100 contacts. One of my favorite travel services recently burned my mother with this tactic (after I introduced her to the service)... But for a startup to leverage these social networks. Not only has she expressed her anger to every contact. Therefore be very careful trying to game these systems. Viral Marketing and Social Media Lean Startup Marketing: Agile. Hyperink Blog to Book Series 65 Hyperink Blog to Book Series . these users will be able to more easily spread the innovation to their networks. growth quickly goes viral. I’d reveal the name. One of the most common short-term gaming tactics is address book scraping where users are prompted to invite their entire address book to join a service.. twitter account. I will never recommend the service again. they need to get their innovation into the hands of the right users and ensure they have the right experience. Viral Marketing and Social Media Today. you can use these networks to enhance your relationship with your customers (through a company blog. In the short-term the marketer looks brilliant as numbers go through the roof. facebook page. etc). But many of these (former) customers are now furious and let their network know about it. Was that really worth the short-term gain of address book scraping? Effective social media marketing is really just about good old fashion doing the right thing for your customers. but I believe these tactics are minor compared to the approach described above. but a good friend is an investor. And if they are able to create a clear value proposition.

Facebook has banned some apps and shut down two of the three most important viral channels for others (invites and news feeds). Viral Marketing and Social Media Lean Startup Marketing: Agile. both rockyou and Slide should be recognized for their pioneering role in advancing viral marketing. Slide and rockyou have worked hard to diversify their platforms. This rockyou presentation from April 2008 describes their growth as resulting from the “Rise of open platforms + laser-like focus on metrics and viral channels. but monitor this “annoyance” closely to ensure it is a very small minority. Despite their mistakes. I believe there are three key lessons all online marketers can learn from Slide and rockyou’s challenging situation: 1) Don’t get too aggressive. Some people will always be annoyed by viral tactics. Eventually you will cross the line and become annoying – particularly if it can be perceived that you are tricking users into inviting their friends.” But after today it’s clear that this growth sits on a shaky foundation..Lean Startup Marketing: Agile. 3) Try to aggregate loyal users on your own website. Facebook’s crackdown on aggressive viral tactics has exposed a key vulnerability of these businesses. When the key driver of your business is engineered virality... Viral Marketing and Social Media Three Key Lessons From the Slide/rockyou Facebook App Fallout Well it was only a matter of time before Slide and rockyou pushed things too far. It may seem so 90’s. And according to this TechCrunch article. Rockyou even makes a good case on slide 8 of the presentation (linked above) that they can help drive the overall growth of the platform. so they will probably weather this storm. it’s tempting to keep pushing the envelope. the growth of these apps has been dramatically squeezed as a result. Through metrics and iteration both companies have achieved unprecedented user growth rates. 2) Building your business on one or two social networks puts you at the mercy of these platform owners. but I Hyperink Blog to Book Series 66 Hyperink Blog to Book Series ..

This approach seems more sustainable and defensible than the current Rockyou and Slide approaches (though the growth rate was certainly slower).. Get a special surprise. At Uproar. Become a Hyperink reader.000+ syndicate websites and even paid partner sites a bounty. By not offering a compelling trail back to their own websites. Viral Marketing and Social Media think this is one of the key issues with the rockyou and Slide business models.. they have very little control over their relationships with users. While this was more expensive in the short run. Viral Marketing and Social Media Lean Startup Marketing: Agile.Lean Startup Marketing: Agile. we “owned” the users and could work to extend their loyalty and lifetime value – ultimately building the biggest game site on the web. Hopefully we can all learn as much from rockyou and Slide’s setbacks as we have from their viral successes... Like the book? Support our author and leave a comment! Hyperink Blog to Book Series 67 Hyperink Blog to Book Series .com (in the late nineties) we used a viral widget with a smooth customer acquisition trail from our 40.

Business Model Design Lean Startup Marketing: Agile..... Business Model Design V.Lean Startup Marketing: Agile. Business Model Design Hyperink Blog to Book Series 68 Hyperink Blog to Book Series .

Each time you try to please your advertisers. These guys had multimillion dollar monthly advertising budgets. I asked our CEO for the opportunity to focus on user growth so that we could eventually attract big budget advertisers. etc).. but even then still suffered from rapidly dropping ad rates that plagued the entire web. Hyperink Blog to Book Series 69 Hyperink Blog to Book Series . We managed to generate a substantial audience (becoming the world’s biggest game site). And considering the custom integration work. Even if we could offer a strong ROI on their advertising investment. What I like least about an advertising supported business is that it is almost impossible to always do the right thing for your customers..Lean Startup Marketing: Agile. it wasn’t going to appeal to anyone but the most “visionary” advertiser. subscription. e-commerce. Typical business model choices for software. Business Model Design The Right Business Model for Your Startup The right business model is critical to sustainably drive scalable adoption of your startup’s product or service. It seemed each time we doubled traffic. Our potential contribution to overall results was a rounding error on their typical campaign. when I explained we only had a few thousand users interest quickly faded. the online advertising rates cut in half. However. In the first month after launch I presented the games to the big Madison Avenue advertising agencies and they were initially excited about the integrated advertising opportunities. and online media startups are advertising or direct monetization (licensing. you damage the user experience – and vice versa... virtual goods. Business Model Design Lean Startup Marketing: Agile. We had created very engaging online games that we were certain would eventually attract a large user base. web services. it wouldn’t be worth their time setting up and managing the campaign. Your two primary customer groups have opposing needs. It was at this point that I realized the life savings I invested in Uproar was in serious jeopardy. I generally avoid customer development roles with advertising supported startups because it is very difficult to self-fund (via arbitrage) early growth. I faced this challenge at Uproar in the mid nineties when building an ad supported business was arguably easier.

Business Model Design Of course it is possible to build a valuable advertising supported company that overcomes this challenge – just look at Google. over time you can add additional monetization channels to boost your allowable acquisition cost and expand the number of viable acquisition channels.Lean Startup Marketing: Agile. And eventually enough marginally profitable users offset fixed costs – creating an overall profitable business. it going to be a much harder to incubate a startup with advertising. then you’ll generate a $50 marginal profit on this user. Long-term success will require years of high burn. In fact Google’s advertising results were so good that later as an advertiser I was able to scale a profitable marketing spend to millions of dollars without ever speaking to a sales person (the results sold the ads). if your users have an average lifetime value of $100. Business Model Design Lean Startup Marketing: Agile. but have a lot more thoughts to share as I’ve helped several additional startups implement the model since my last freemium post. improving the user experience and advertiser results with perfectly targeted advertisements. your customer acquisition can be self funded from the beginning because it works at a very small scale. but your allowable acquisition cost for a free user will be much lower when you average revenue across the whole free user base. So if you are considering an advertising model. I highly encourage you to develop one that delivers results that will minimize the need for a sales team. Today most online marketers buy on tracked ROI. As tracking continues to improve. For example. With a good arbitrage model.. software licensing or e-commerce. it becomes much easier to sustainably build a customer base from day one keeping burn at a minimum. I’ve blogged about freemium several times already. Arbitrage supported customer acquisition can even work on a freemium model. With these business models.. Still. because you’ve built the premium portion of your business to compete in the toughest economic scenario. it is much easier to build a lean startup using a direct monetization model such as subscription.. Hyperink Blog to Book Series 70 Hyperink Blog to Book Series . In my experience. Of course if you can acquire the user for $50 and there is no marginal service cost. Google reconciled the needs of advertisers and users.. I do not envy the salesperson that has to make a case on the abstract branding value of their web property. Ultimately freemium businesses become more defensible than “premium only” businesses. your breakeven acquisition cost is $100 less any direct costs of serving this customer (such as storage or bandwidth).

” Once traction has been established with free-to-premium marketing. Over the years many marketing approaches have emerged to address this challenge. and this not only applies to consumers. People love to talk about valuable free products.. One of the best ways to accomplish a trusted relationship is by offering a very valuable. Hyperink Blog to Book Series 71 Hyperink Blog to Book Series . Since then we have attracted millions of users – with upgrades driving sales across several product lines. Business buyers also enjoy being “in the know” about free alternatives and sharing this information with their peers. Efax has attracted over nine million registered users by offering a completely free fax number that delivers faxes to your email... not just free trials or “crippleware. Other successful free-to-premium products include AVG and Zone Alarms. Two of the most notable are “relationship marketing” and “permission marketing. It is important to understand that these products must be completely free and valuable. Efax likely contributes a significant portion of its parent’s (J2 Communications) $1 billion market cap.” Both approaches advocate trying to retain someone’s attention once you have paid to get it in the first place. which lets you choose the area code for your fax number. I call this approach free-to-premium marketing. Business Model Design The Ups and Downs of a Free-to- Premium Marketing Approach We’ve all faced the challenges of trying to break through the flood of advertisements that overwhelm our prospective customers. Business Model Design Lean Startup Marketing: Agile. One of the most noteworthy is Efax. Many successful businesses have been built using the free-to-premium model. completely free product or service.Lean Startup Marketing: Agile. Many Efax users upgrade to the premium version. Both products entered highly competitive markets (antivirus and firewall) and became significant players in their respective categories. In 2004 I also introduced this model at my company. This can be achieved by building a trusted relationship and selling products over time. it can also be very effective for attracting new users via word-of-mouth.. This gives you an ongoing opportunity to patiently introduce the benefits of your premium products.

Even within the same category. free products or services must have a low marginal cost and very efficient marketing. Webex. one of my competitors. Business Model Design Lean Startup Marketing: Agile. There are several confidential reasons why we had an advantage offering a free version. Still.... This generally requires both a large marketing investment and near flawless marketing execution. Hyperink Blog to Book Series 72 Hyperink Blog to Book Series .Lean Startup Marketing: Agile. there is downselling pressure for anyone that discovers the premium product first or upgrades and then decides that the free version was enough.. you must continuously work the funnel to improve upgrade rates. tried to replicate our free-to- premium model. with the right product and marketing execution. Once free users have been acquired. Finally. a company must first gain initial market traction. Business Model Design Not all products and services are ideal for the free-to-premium model. For example. In order to be successful. While word-of-mouth will likely become a strong driver. one provider might be able to execute the model while it is impossible for another. a free-to-premium model can be a powerful growth driver. Acquisition costs must remain low since a large portion of the free users will never generate any revenue. but eventually discontinued it.

freemium requires that the marginal user cost for the free product is zero or low. Lookout. Why? Users have always loved free and the freemium business model makes it viable to offer something of value for free. Of course incumbent players serving the category are unlikely to want to shrink the market. Finally. Xobni. Hyperink Blog to Book Series 73 Hyperink Blog to Book Series .. they generally gain strong organic growth and are very defensible businesses. freemium shrinks the potential revenue of the total addressable market for the category. Business Model Design The Three Keys to Success with Freemium Freemium is a difficult business model to execute but can create a valuable. Through these roles I’ve discovered the following three elements always seem to be present with successful freemium businesses: 1) A free version that provides users with a lot of value and at least one premium version that also offers users a lot of value but is clearly differentiated from your free version 2) Precise metrics-driven execution with a very optimized conversion funnel 3) Deep understanding of customer perceived value and use cases There are times when freemium doesn’t make sense. so freemium generally comes from disruptive startups with nothing to lose. I helped to conceive and execute the freemium business model at LogMeIn. which is now valued at over $800 million.. WordPress. it rarely works with products exclusively targeting enterprises (open source has done well with enterprises. Webs.. sustainable company when things go well. As startups get better at executing the freemium business model I think we will see a lot more of it in both existing and emerging categories. For example. but that’s probably more a function of product flexibility than price).Lean Startup Marketing: Agile. Also. Business Model Design Lean Startup Marketing: Agile.. Eventbrite. so the overall market needs to be big enough to still be interesting after a successful freemium company shrinks it. etc. If these startups are able to gain traction and meet the three requirements above. Since then I’ve helped optimize the model at another 14 startups including Dropbox.com.

. Business Model Design Lean Startup Marketing: Agile..Lean Startup Marketing: Agile. music. identity protection. phone service… Hyperink Blog to Book Series 74 Hyperink Blog to Book Series .. video. Business Model Design Already the model extends well beyond software to dating..

It is an excellent overview of the drivers behind the important trend of companies offering free versions of their products. For those who aren’t familiar with Chris Anderson. a book that kicked off a frenzy among internet entrepreneurs and VCs a couple of years ago. When the service neared launch in mid 1996. Ultimately this free online experience combined with a systematic approach to customer acquisition propelled the site to the eighth biggest web property worldwide in terms of total usage time (a key metric for ad supported websites). For confidentiality reasons I won’t go into details about the executing the model. In fact I’ve spent most of the last 13 years in the “free” space. In 1995 I made an angel investment in a “free” company call Uproar. It’s bringing back years of thinking about the best ways to execute these models.com. he’s the author of The Long Tail. but the LogMeIn home page states the service has “Over 30 million devices connected worldwide for remote support.. I especially Hyperink Blog to Book Series 75 Hyperink Blog to Book Series . Uproar was acquired by Vivendi Universal in 2001 for $140 million but the bubble valuation peaked at about $1 billion.. access and backup. We used this detailed registration information to target advertising. A quick recap of my specific experiences with free business models.. While “free games for cash and prizes” was the hook. It highlighted the impact of unlimited online shelf space. Business Model Design Chris Anderson "Gets" Freemium Business Model There has been a lot of attention this week on an article called “Free! Why $0. From March 2003 until December 2007. I plan over the next few weeks to make several “brain dump” blog posts on the subject. Every time I start reading this “Free… ” article I interrupt myself to write down more thoughts on free business models.” Through both opportunities I gained lots of insight in executing this model. Our business model was to require users to complete a detailed registration form to be able to win cash and prizes in “free” online game shows. I led marketing for a more classic “freemium” service called LogMeIn. I joined full time as VP Marketing. we created a very sticky site through community and a great game playing experience.00 Is the Future of Business” published by Chris Anderson in Wired Magazine. Business Model Design Lean Startup Marketing: Agile.Lean Startup Marketing: Agile. He plans to release a full book on the subject next year..

. Business Model Design Lean Startup Marketing: Agile. it’s much better to be the freemium player than the premium only player.. Business Model Design learned that. in a competitive category. Hyperink Blog to Book Series 76 Hyperink Blog to Book Series ...Lean Startup Marketing: Agile.

I had no idea why these users were dropping out of the acquisition funnel at such alarmingly high rates. it can drive faster growth today. Business customers looking for sustainable solutions. But many startups aren’t convinced they should even have a business model (yet). Hyperink Blog to Book Series 77 Hyperink Blog to Book Series . It wasn’t until we surveyed users from impulse sources that we realized the primary problem was that people didn’t trust our claim of having a free product. Once we knew the cause. Business Model Design Lean Startup Marketing: Agile. 2. Business buyers are usually more concerned with eliminating risks than saving the company a few dollars on a free offering. solving this problem was easy. By simply giving these users the alternative to download a trial of the premium product we were able to triple the download rate of our free product.Lean Startup Marketing: Agile.. It takes time for a business to implement a new IT product or service throughout an organization. I discovered this dynamic a few years ago when I sent visitors to a landing page that made no mention of our premium product.. This is particularly the case when users respond impulsively to an advertisement – without the assurance of press or a trusted referral from a friend. They claim “our current priority is growth. This implementation cost often exceeds the direct financial cost of buying the product. So when a business sees that you have free offering. Bigger download buttons and snappier headlines didn’t solve the problem. I’ve found three primary reasons for this: 1. Business Model Design User Growth Vs.” In my experience... the right business model not only supports sustainable growth in the long run. Site visitors often face a “what’s the catch?” moment when downloading free software that doesn’t have a visible business model. “Free only” offering freezes prospective users. they may fear that you are generating revenue through more nefarious ways such as selling their information. Revenue (Why “Free Only” May Limit Growth) Last week I wrote about finding the right business model for your startup. they will be hesitant to standardize on your offering if they worry you don’t have a sustainable business. Even worse. This experience demonstrates the risks of a startup that makes no mention of a premium product anywhere on their site.

but the example demonstrates why it’s a lot harder to aggressively grow your user base on unproven monetization assumptions. you start worrying. if your assumptions are wrong. But ultimately you’ll still need a business model to monetize this growth. Business Model Design Lean Startup Marketing: Agile... Great. then a business model may in fact hamper your growth. if you have an extremely viral product. you’ll probably go out of business. I realize it can be a bit nerve-racking to implement your first business model. this looks like a safe bet. so you might as well figure it out early. They want you to pay $4 per user (free or paid) and your Excel model predicts upgrade rates that will give an average lifetime value of $6 per user across your entire free and paid user base. For example. Generally you won’t decisions on this scale. particularly if you have strong organic growth. Hard to get aggressive on unproven assumptions. Hyperink Blog to Book Series 78 Hyperink Blog to Book Series . imagine you get an opportunity to bundle with the next release of a popular complementary product. Of course. Business models can and should be honed over time to increase the value of your users whether or not the first iteration is fruitful. If your assumptions are right. But when the company tells you they’ll drive 1 million new users per month. But it’s not a moment of truth you should dread – instead it is a baseline that you will work to improve over the life of your company. Business Model Design 3... Committing to aggressive acceleration is difficult when your business is loaded with unproven assumptions. you’ll generate $24 million in annual ROI – enough to put you well on your way to an IPO! However.Lean Startup Marketing: Agile.

It’s generally about bringing life-changing technology to the masses (say 20m+ users) as quickly as possible.com that Jason Calacanis wrote back in January. YouTube.. Skype… ) bringing life-changing technology to the masses costs money. a more common scenario is an outright failure or an exit where employees and founders earn little if anything.Lean Startup Marketing: Agile.. And the Silicon Valley venture capital ecosystem exists to create multi-billion dollar ventures. Hyperink Blog to Book Series 79 Hyperink Blog to Book Series . But a startup with $50-100 million in venture financing will require a $1 billion exit to be considered successful. He recommends spending some time in Silicon Valley where the prevailing wisdom is that you should reach scale before obsessing over a business model. I agree with Jason that a small profitable business is not what VC-backed startups are all about. A self funding marketing program makes this possible. I can see his point… Everyone can name a company like YouTube that was acquired for billions before they ever figured out a viable business model. Twitter. These exits are extremely rare." I stumbled across this old post on Calacanis. Business Model Design @Calacanis RE: "The business model comes AFTER you get to scale. For a company that raises that much money. It also offers a much broader range of attractive exit options. Business Model Design Lean Startup Marketing: Agile. he made some strong statements about when a startup should focus on business models. Jason points out that an endless supply of capital makes this possible. This is how multibillion dollar businesses are created. In discussing Twitter. And again he’s right. Now comes the “but”… Unless it’s viral (like Flickr.. but it requires a solid business model and of course a product/service that people actually value. Wouldn’t it be better to have a business model that allows you to spend the same $10 million several times over a few years? This limits dilution and still lets you grow into the tens of millions of users.. A lot of money – think $50-100 million in marketing to acquire 20+ million users.

Critical mass should be the goal of a VC backed startup and an ROI driven aggressive marketing plan is one of the most reliable ways to get there..01 to . are there ways to buy decent/real traffic for . But even startups with zero marginal unit cost can benefit from this approach. That would be $10 to $30 per thousand.” He goes on to ask. “What I’m wonder[ing] is. Business Model Design Lean Startup Marketing: Agile.Lean Startup Marketing: Agile. Business Model Design I’ve been able to use self funding marketing programs to attract 40+ million users across my last few startups..” (Funny timing… the same day I posted this.. Dell is another company that used direct response marketing to build a massive business. GoToMyPC created the easy remote PC access category with this model.”) Hyperink Blog to Book Series 80 Hyperink Blog to Book Series . This even applies if you are “a player with unlimited access to capital. Many others have also used this approach to build valuable companies.” He acknowledges that he may be missing a “huge opportunity.03 per visit. Both of these businesses did it out of necessity – their cost per unit required a monetization plan early. Jason made a related post called “Traffic buying strategies – a complete education on every detail.. so that we could possibly break even on buying the traffic.

When surveys tell you that you’ve reached product/market fit. the final validation is charging for your product (or a version of it).Lean Startup Marketing: Agile. For these startups it was right to encourage a quick implementation of the business model.” The first five startups I helped take to market all amazingly achieved product/market on the initial release. If your initial release hits (think winning the lottery). your attempts to engage the customer and find value are likely to be perceived as an aggressive sales annoyance rather than genuinely helpful.. Business Model Design When Should a Startup Start Charging? I’ve recently changed my long held belief that all startups should charge immediately upon the release of a new product. If you haven’t charged anything. you are like most startups. I now believe that non-enterprise targeted startups should only charge once you have achieved product/market fit. This is the best way to help the enterprise figure out how to get value from your product (somebody on the inside will be motivated to work with you to unlock value since they’ve already spent the budget). Users are forced to quickly decide if the product is worth the financial investment (and we already know it’s probably not since most wouldn’t be “very disappointed” without the product – when free). However. Hyperink Blog to Book Series 81 Hyperink Blog to Book Series . then you can quickly implement your business model as you transition to a growth company. for startups that haven’t yet found product/market fit. If however.. It is safest to assume you won’t have product/market fit right out of the gate. It’s Different for Enterprise Targeted Startups For startups targeting enterprises. I define product/market fit as at least 40 percent of your active users saying they would be “very disappointed” if they could no longer use your product. it actually does make sense to charge before reaching product/market fit. you will spend an undefined period of time engaging users and evolving your product to better meet their needs. a business model can hinder the process of figuring out how to deliver value. As explained in my Startup Pyramid post. The evolution in my thinking to charge only after product/market fit is based on finally working with some “normal startups. Business Model Design Lean Startup Marketing: Agile...

If you are truly offering value (have achieved product/market fit). then there is a business model that will work.. Business Model Design Lean Startup Marketing: Agile. The only way to find it is to start experimenting.. Hyperink Blog to Book Series 82 Hyperink Blog to Book Series . A business model gives you rational constraints within which you can execute very aggressively – otherwise you are held back by fear that you may be wasting money on paid marketing programs. you don’t know if your business is real.. Without a business model.” But once you’ve achieved product/market fit. “we’re focused on growth right now. Of course some prefer to hope that a business model implemented in the future might work rather than know that one implemented today doesn’t work.. Business Model Design Growing Your Startup with a Business Model Startups often delay implementing a business model claiming. most startups will grow faster with a business model.Lean Startup Marketing: Agile.

If you have bandwidth and storage costs that are $5/user/year. one of our most important projects is determining their optimal price. etc. so be sure to launch with “introductory pricing” which should be at the low end of your expectations. Adjust the price when volume allows you to hone in on the optimal pricing. Hyperink Blog to Book Series 83 Hyperink Blog to Book Series .000 trials (or visitors. Business Model Design Lean Startup Marketing: Agile. 2..). determining your optimal price can become an enormous competitive advantage.. You can find this number by determining how many units you would sell at each price. then $10 is obviously the better price for you. optimal pricing for a software startup mostly relates to maximizing revenue.000 users at $20/unit compared to only $1. then your business would not be sustainable if you priced your service at $4/user/year. This marginal cost is essentially a floor on your pricing. yield is higher at $20 so it would be a better price than $10 ($1600 per 1.Lean Startup Marketing: Agile. there is no marginal cost per user (beyond marketing costs). For most downloadable software. DLs. if you have a 10 percent conversion rate at both $8/unit and $10/unit.000 per 1. Business Model Design How to Determine the Optimal Price for Your Web Service For the startups I help take to market. I estimate max yield pricing first through surveys and then through experimentation at several price points.. But let’s say at $20/unit demand drops to 8 percent.000 users at $10/unit). There are three key factors to consider when determining your optimal pricing: 1. Despite lower demand. Marginal cost – For web services it’s important to understand your cost per unit to avoid pricing at a loss. Around launch your volume will be too low for a meaningful sample size. Price sensitivity – You want to find the price that generates the highest yield per 1. Considering most software startups simply guess a price. Unlike companies in established categories with high unit costs. The optimal pricing project is part of the overall “optimization phase” I describe in my metrics driven go to market approach presentation.. For example. An optimal price allows the startup to grow at the fastest possible rate by maximizing profitable investments in customer acquisition programs and/or offering a free version to drive broad user adoption.

One is a Market Builder pricing strategy where the majority of your users are coming through your demand generation initiatives. Business Model Design 3. Essentially as the Market Builder creates awareness for the category..Lean Startup Marketing: Agile.. In the long term. These include: Setting the price a bit higher than the optimal level and then frequently discounting it. which combined premium pricing with aggressive radio demand generation. Freemium pricing is ideal for a market drafter. An example of a company that took a Market Builder approach to grow the personal remote PC access category is GoToMyPC. When they were both discounted an additional penny (making the Hershey Kiss free). there are many tactics that can used to boost response rates. Demand generation is expensive (unless driven through viral tactics) and therefore requires premium pricing to create a high allowable user acquisition cost. Growth strategy – I generally prefer one of the following pricing strategies for innovative products. At the price of zero. Hyperink Blog to Book Series 84 Hyperink Blog to Book Series . the Market Drafter swoops in and offers a much better deal (SEM is a good place to focus for a Market Drafter). Participants (who could only select one) purchased the Lindt Truffle 73 percent of the time and the Hershey Kiss 27 percent of the time. Zero is a different place.. An alternative strategy is a Market Drafter pricing strategy. Business Model Design Lean Startup Marketing: Agile.” He supports this point through the following experiment: He first offered a Lindt Truffle for 15 cents and a Hershey Kiss for 1 cent. Dan Ariely also makes this point in his book Predictably Irrational. I prefer the Market Drafter position when possible (see this post for more details on why). demand soars. He concludes.. combined with carefully researched max yield pricing on the premium version of the product – then applying the response boosting tactics listed above.” It is an exploration of the “power of free” in driving customer adoption and suggests that elasticity of demand is not linear. “Zero is not just another discount. My favorite pricing model for driving demand is Freemium. demand for the Hershey Kiss shot up to 69 percent and demand for the Lindt Truffle dropped to 31 percent. The difference between two cents and one cent is small. This strategy only works when a Market Builder is aggressively investing to grow the category. But the difference between one cent and zero is huge. Using a decoy super premium version to make the version with the “real price” seem cheaper. the Market Builder must focus on differentiation to justify its higher prices (or reduce prices) Once the optimal price has been established. An insightful read on Freemium pricing is Josh Kopelman’s post “The Penny Gap.

He presents a fascinating experiment that shows people got more relief from a $2. Lifetime value will probably be lower when considering future pricing pressure. He uses the example of black pearls. This price has a long-term effect on our willingness to pay for the product from then on. soft drinks. Initially there was no demand for them. His example here was that Starbucks differentiated the coffee shop experience allowing them to more than double the price of a cup of coffee compared to Dunkin Donuts. Finally remember that technology prices tend to drop over time. It goes well beyond the three basic pricing factors presented above. demand shot up. but when they were anchored to the finest gems in the world with premium pricing. I highly recommend reading it. Keep this in mind when determining allowable acquisition cost based on a user’s lifetime value.” When we encounter a new product. we accept the first price that comes before our eyes as the anchor. Hyperink Blog to Book Series 85 Hyperink Blog to Book Series . It’s better to be ahead of the curve in driving prices lower.Lean Startup Marketing: Agile.. can become real value. He concludes “the perception of value. Business Model Design Lean Startup Marketing: Agile. even though they were both just vitamin C. Some useful points include: A higher price not only positions your product as superior.. people may actually have a better experience using the product.. in medicine. which often requires innovation that allows you to profitably offer the service at a lower cost than competitors (for web based services with marginal costs)..50 pain killer than a 10 cent painkiller. drugstore cosmetics or cars. Business Model Design There are several other great pricing psychology nuggets in Predictably Irrational. Differentiation gives more flexibility to increase price.

you can do say. Kindle Edition. Become a Hyperink reader. but if everything else is fixed.Tarang. The model that I have in mind is a graph where the X-axis is the price and the Y-axis is the revenue. Business Model Design Lean Startup Marketing: Agile. the founder/CEO of Zoosk on pricing: “There is a way to think about that. This curve starts from zero and then goes up and then comes down. If you can figure it out. Venture Capitalists at Work: How VCs Identify and Build Billion-Dollar Successes (p.” Shah. It’s a great articulation of the theory behind the process I’ve used for years.. A ridiculous price or a very high price point. There is a peak... and thought it was the best explanation I’d ever seen.Sheetal (2011-11-16). etc. Apress. I don’t look at it as a continuous thing. Alex Mehr. Shah. I would try to pinpoint the revenue-maximizing price point and then find the nearest round number right before.. Theoretically it is there whether you know it or not. This morning I read the following statement from Alex Mehr. Business Model Design Great Guidance on Pricing from Zoosk CEO A lot of people have asked me about how to determine optimal pricing for a product or service. If you actually know the revenue-maximizing price point. Hyperink Blog to Book Series 86 Hyperink Blog to Book Series . that’s the top of the peak. the revenue maximizing price point.Lean Startup Marketing: Agile. again you make zero money because no one buys your product. you can go from a company. I would shoot for $19. At a price point of zero. I prefer to make 10 percent less money but have 20 percent more customers. The way I think about it is a little bit different. Get a special surprise. If my revenue maximizing price point is somewhere between $20 and $30. I can tell you that there is at least 20 to 30 percent additional profit you can get by optimizing your product packaging and your product pricing. the founder/CEO of Zoosk.. okay.95. It depends on your product and your demographics. there is a revenue-maximizing price point. 64). However. you make zero money. It is around 90 percent of the revenue maximization point. You want to stay a little bit to the left side of the peak.

.. Business Model Design Like the book? Support our author and leave a comment! Hyperink Blog to Book Series 87 Hyperink Blog to Book Series ... Business Model Design Lean Startup Marketing: Agile.Lean Startup Marketing: Agile.

.. The Right Marketing Team Hyperink Blog to Book Series 88 Hyperink Blog to Book Series .. The Right Marketing Team Lean Startup Marketing: Agile..Lean Startup Marketing: Agile. The Right Marketing Team VI.

He says this team “must have the authority to radically change the company’s direction. But the fact is marketing is not appropriate for startups in the initial stages of customer development. I consider Steve Blank to be the world’s foremost expert on customer development. too. author of Four Steps to the Epiphany and teacher of customer development at both University of California- Berkeley’s Haas School of Business and Stanford University’s School of Engineering. his model is definitely worth considering vs. I completely agree with his claim that none of the traditional VP Marketing skills are relevant in the first two customer development steps of a startup’s life.. Hyperink Blog to Book Series 89 Hyperink Blog to Book Series . he has concluded that the ideal model is very different from the traditional startup approach of abdicating customer development to a VP of Marketing. I.. Through his experience as CEO. Founder or VP Marketing at eight startups (five of which resulted in $100+ million exits – the last was E.Lean Startup Marketing: Agile. In fact.. I decided that going forward I would specialize in early stage customer development.com. The Right Marketing Team Lean Startup Marketing: Agile. The Right Marketing Team Don’t Hire a Marketer before Product/Market Fit This must seem like heresy coming from a guy who had the title VP Marketing for 10 years and writes a blog called Startup-Marketing. recognized that the initial stages of customer development are very different from marketing in the later stages of a startup or especially a large established company.” After five years in the VP Marketing role at LogMeIn. I concluded that much of my success as a later stage VP Marketing (both companies filed for IPOs) was the result of momentum we had built in the early stages of customer development.. A newer model is emerging originally sparked by Steve Blank. flexible mindset of an entrepreneur. Given the high VP Marketing turnover rate at startups and more importantly the extremely high failure rate of startups. the traditional startup marketing approach.” The team should include the CEO and spend a considerable amount of time in the field with prospective customers validating/refining hypotheses about their target customers and the problems they are solving.piphany) and advisor/board member to numerous other startups. product or mission and the creative. His recommendation is to form a customer development team led by a “head of customer development.

They are easy to find and their salary and equity requirements are also much lower than a VP Marketing – freeing up resources to bring in a customer development specialist. This guidance is really directed at startups that are trying to hire an experienced marketer – and a warning that you will be paying a premium for skills Hyperink Blog to Book Series 90 Hyperink Blog to Book Series .Lean Startup Marketing: Agile. The Right Marketing Team I was first introduced to Four Steps to the Epiphany when I was Interim VP Marketing at Xobni during the first half of 2008. while continuing to advise at Xobni. and generally costs the startup less cash and equity. There are two key twists I’ve made to his framework. I was thrilled for the opportunity to meet with Steve Blank for coffee earlier this week and was flattered when he invited me to present to his class at Haas on March 10. The second twist is that I add a customer development specialist when the Validation Step begins. analytical recent college graduates to be ideal candidates. Without a specialist. which is the role I fill with startups. which disrupted an existing market)..” They know enough about product marketing to want to focus efforts on areas that are usually irrelevant to startups.. Since then I have helped to accelerate market adoption at two additional startups.. I had been looking for resources to help me understand how to drive adoption of this innovative market-creating product (a very different challenge than we had at LogMeIn. The Right Marketing Team Lean Startup Marketing: Agile.. One place where my views diverge a bit from Steve Blank’s is that he suggests that a good candidate for the Head of Customer Development is someone with a product management or product marketing background. Given my obsession with startup customer development. Of course if you already have an experienced marketer I wouldn’t advocate replacing them. This combination accomplishes more results faster than an experienced product marketer by himself. We agreed that my approach really begins at his Customer Validation step. startups waste critical time and resources deciding where to execute. In fact I’m working closely with KISSmetrics (where I am an advisor) to define all the tools and reports needed to build a complete Customer Development Platform. The book provided a great framework to follow as we worked to drive early customer adoption. The first is that I drive the entire process with metrics. The key issue I see here is that experienced product marketers suffer from the “curse of knowledge. The good news is that I’ve found ambitious. I believe eventually many people will specialize in this critical stage. It’s surprising how similar the process of uncovering the critical information needed to drive customer adoption across different types of startups. Having the discipline to follow the right process at this stage is much more important than experience.

The Right Marketing Team Lean Startup Marketing: Agile... it should be easier to attract the long-term VP Marketing (or promote the head of customer development). The Right Marketing Team that aren’t critical at this point.Lean Startup Marketing: Agile. Once the startup has discovered how to drive customer adoption and begins building momentum. Hyperink Blog to Book Series 91 Hyperink Blog to Book Series ...

effective startup marketers must retain the discipline to follow a systematic Hyperink Blog to Book Series 92 Hyperink Blog to Book Series . The Right Marketing Team What Makes an Effective Startup Marketer? Should startups seek a seasoned large company marketing executive to give them credibility with VCs and drive their company to greatness? Not necessarily. A marketing executive from a large company is likely accustomed to relying on functional experts from across a big marketing department. The Right Marketing Team Lean Startup Marketing: Agile.. Initially they trickle in customers to optimize their business model and hone their value proposition. Once the business model has been refined and proven economically viable the marketer must switch into an aggressive mode to capture market share and quickly scale the business to cash-flow positive performance. startup marketers must approach their job with much more urgency than their counterparts at big companies. Startups must manage many micro campaigns while they struggle for traction. Small but profitable campaigns generally aren’t worth the time they take to manage. Their role is much more of a conductor than someone who actually executes marketing. but large companies must evaluate every marketing campaign for its potential impact against enormous marketing targets... the financial targets at a startup are initially much smaller than those at a large company.. Startup marketers must have strengths in both the creative and analytical sides of their brain. While they are trying to discover marketing programs with a positive ROI. And they can’t just be thinkers. They must also be scrappy. They should possess the creative skills to know what to throw against the wall and the analytical skills to figure out what actually sticks. It is also important for startup marketers to be both conservative and aggressive. Finding a dynamic marketing leader for a startup is more difficult than it may seem. Finally. disciplined executors. Startup marketing leaders must be hands-on and dynamic. their company is burning precious cash on salaries and other fixed costs. Despite the need for aggressive growth.Lean Startup Marketing: Agile. Additionally. There is no momentum to carry them from quarter to quarter.

The Right Marketing Team testing process of measurable programs. Marketers coming from enterprises succeed despite their large company experience. Hyperink Blog to Book Series 93 Hyperink Blog to Book Series . a new venture dramatically improves its chances of success. The Right Marketing Team Lean Startup Marketing: Agile.. With the right startup marketer. not because of it....Lean Startup Marketing: Agile.

. Is positioning important? Only if a case can be made that it is important for driving sustainable growth (for what it’s worth. What is a Growth Hacker? A growth hacker is a person whose true north is growth. I recommend hiring or appointing a growth hacker. I’ve met great growth hackers with engineering backgrounds and others with sales backgrounds. If you can’t do this.Lean Startup Marketing: Agile. The good news is that when you strip away everything that doesn’t have a direct impact on growth. Generally speaking. the job requirements/skills mentioned above are not paramount for startups in or before the early growth phase. nothing else really matters. etc. the next critical step is finding scalable. Everything they do is scrutinized by its potential impact on scalable growth. A marketer with the right talents and approach can kick some serious ass once product-market fit and an efficient conversion/monetization process have been proven. But the problem is that most startups try to hire for skills and experience that are irrelevant.. The common characteristic seems to be an ability to take responsibility for growth and an Hyperink Blog to Book Series 94 Hyperink Blog to Book Series . a growth hacker should be easier to hire than a VP Marketing (or maybe an insider already has the needed skills).. build and manage the marketing team. After product-market fit and an efficient conversion process. So rather than hiring a VP Marketing with all of the previously mentioned prerequisites. The Right Marketing Team Lean Startup Marketing: Agile. a case can generally be made). The Right Marketing Team Find a Growth Hacker for Your Startup Once startups are ready to scale. repeatable and sustainable ways to grow the business.. Typical job descriptions are often laden with generic but seemingly necessary requirements like an ability to establish a strategic marketing plan to achieve corporate objectives. manage outside vendors. while failing to focus on the essential few skills. their biggest challenge is often hiring someone capable of leading the growth charge.

The Right Marketing Team Lean Startup Marketing: Agile. Are You A Growth Hacker? Some of my favorite conversations are those I have with fellow growth hackers. testing the ideas.. A VP marketing needs to be able to help shape the overall company strategy.. repeatable ways to grow the business.Lean Startup Marketing: Agile. please post a link to your LinkedIn profile below so other growth hackers in your area can connect. The faster this process can be repeated. these things will not matter.. build and manage a marketing team and coordinate outside vendors among many other responsibilities. the more likely they’ll find scalable. while others will be bored out of their minds. I’m a big proponent of establishing and building a broader community of growth hackers. The important thing to note is that without some proven scalable. If you think you are a growth hacker. Some growth hackers will be great at this. The right growth hacker will have a burning desire to connect your target market with your must have solution. The Right Marketing Team entrepreneurial drive (it’s risky taking that responsibility). and being analytical enough to know which tested growth drivers to keep and which ones to cut. An effective growth hacker also needs to be disciplined to follow a process of prioritizing ideas (their own and others in the company). two are CEOs and the other is VP User Growth at a very hot company). When VP Marketing? Not all growth hackers can or should evolve into VPs of marketing. The problem is that not all people are cut out to be growth hackers. They must have the creativity to figure out unique ways of driving growth in addition to testing/evolving the techniques proven by other companies.. Hyperink Blog to Book Series 95 Hyperink Blog to Book Series . Last week in San Francisco. sustainable ways of growing the business. I had breakfast with three fantastic growth hackers and we traded insights that benefited each of us (don’t bother asking me for names to try to recruit them.

Before I stopped watching the news. The Right Marketing Team Lean Startup Marketing: Agile.. Unfortunately. CNBC was blaming these mathematicians for creating the complicated investment instruments that led to the recent collapse – claiming that even the CEOs didn’t understand them. The financial crisis of 1998 has also been blamed on overconfidence in mathematicians ability to predict speculative markets. However. As long as you don’t saturate a source.. For years. I’ve always insisted my teams test every new media with $500 buys. my first hire was a trained actuary (the guys that calculate risk for insurance companies). which makes it is nearly impossible to remove risk regardless of the sophistication of the model. By knowing the lifetime value of your users. I’ve used this approach to discover ways to spend millions with a very fast return on investment. The beauty is that a very small investment can give you excellent guidance for the returns of a much larger investment. The returns in online marketing are a lot more predictable than investment banking. this is a place where mathematicians can create vast wealth – and that’s in startups. And it’s not the first time that too much trust has been put into the abilities of these whiz kids. it generally delivers the same ROI with each campaign. At my last long term VP marketing role.. Wall Street has used brilliant mathematicians to create investment models that they hoped would reduce risk and generate billions of dollars in investment returns. Even with seven figure monthly budgets. I’ve never trusted mutual fund managers with my cash – instead always putting most non-angel investments into S&P 500 index funds. mathematicians should be guiding online marketing for startups. most Wall Street investments are based on speculation.. you know exactly how much you can pay to acquire new users with an acceptable profit margin. The Right Marketing Team Recruiting Startup Marketers from Wall Street Rather than wasting their time on Wall Street. And the marketers at two startups I’m working Hyperink Blog to Book Series 96 Hyperink Blog to Book Series .Lean Startup Marketing: Agile. They increasingly leveraged their investments falsely believing that they had eliminated most of the risk – which of course added more risk. I have zero confidence in really smart people being able to predict speculative markets.

in online marketing leverage only increases the reward. They were so effective that they took over the marketing and product leadership at Uproar (I had already moved on to President of Uproar Europe). In a very short time they had created the second most popular casual game website in the world on cash flow positive results. The 12in6 Methodology is all about focusing on high leverage projects that improve the ROI of every future marketing initiative. In 2000 we acquired a startup called iWin. Hyperink Blog to Book Series 97 Hyperink Blog to Book Series . And who is dominating the field of viral marketing? You guessed it: mathematicians. The Right Marketing Team Lean Startup Marketing: Agile. The math behind viral marketing is even more intriguing... I first witnessed the power of marketing number crunchers when I was at Uproar.Lean Startup Marketing: Agile. Unlike investment banking where leverage increases both risk and reward.. The Right Marketing Team with now are both sharp mathematicians – one recently graduated from MIT as a math major. Their secret weapon? Several math whizzes in their early 20s who had spent a year in investment banking before running the iWin marketing and product teams. Read Andrew Chen’s Blog for the inside scoop on how it works. Viral marketing has created some of the fastest growing companies in history and most have never spent a dime on marketing. Looking to hire someone to lead your marketing? Hire one of the recently unemployed Wall Street analysts (and show them this post to get them excited about the potential of their new job)..

figuring that our salary will eventually catch up to our valuable contribution. The question is: “How would you react if you felt like you were underpaid in your position?” I came up with this question based on a conversation with my younger sister. You can pay a significant premium for proven talent. And I’ve always preferred to be underpaid than overpaid (much better job security). It will be interesting to hear the reactions when I use this question in interviews.Lean Startup Marketing: Agile. Hyperink Blog to Book Series 98 Hyperink Blog to Book Series . My best hires have usually been relatively unproven when they joined the team. The Right Marketing Team Hiring Unproven Talent for your Startup Building the right team is critical to the success of any startup. Most people would lose motivation and begin putting less effort into their work. But how do you gauge the potential of these people? I may have figured out a critical interview question to ask when hiring unproven talent (and maybe proven talent too).. We understand that being underpaid gives us enormous leverage and eventually a smart employer will give us a raise for fear of losing us. I have always taken this approach when I felt underpaid.... Defying logic. or take a risk and get a deal on unproven talent. The Right Marketing Team Lean Startup Marketing: Agile. I have a feeling that this is a key characteristic of most people that have had success in their career. From the inception of my career. A few of us though would take the exact opposite approach. She was recently promoted and very disappointed that she didn’t get a pay raise with her promotion. we would actually work harder.

but one of my key requirements is that they have a marketing leader in place. The majority of their skills are completely irrelevant in the early go to market stage of a truly innovative startup. Most importantly they must be very curious about discovering how your solution maps to the needs and the buying process of prospective customers.. When the role is positioned correctly. it’s probably easier to train someone with no marketing experience than someone with years of the wrong type of marketing experience.. So why pay their required high salary and give up multiple points of equity? The good news is that for about half the salary and a fraction of the equity they can hire a qualified candidate to be trained and mentored to successfully execute this early marketing stage. The Right Marketing Team The Ideal Startup Marketing Leader In the last couple weeks. For the next several months they will have the critical responsibility for the planning and execution of the company’s go to market strategy. In fact. Experienced marketing execs haven’t rolled up their sleeves and executed for a long time. the right candidate will leap at the opportunity.Lean Startup Marketing: Agile. Having led marketing in both early stage ventures and in more established companies. I tell most that they don’t need a seasoned marketing vet. Many of these companies have expressed a strong desire to work with me on their go to market execution. This ensures strong knowledge transfer and reduces the need for a long-term engagement with me. And (by working with a go-to market specialist) they will have guidance and training from someone who has taken multiple companies to market. Nothing is more exciting than being on the ground floor of a hot new startup. Of course the right candidate must be dynamic and possess the essential soft skills. The Right Marketing Team Lean Startup Marketing: Agile.. They must be analytical enough to execute a data driven marketing approach and have the discipline to follow a proven go to market process.. I’ve met with CEOs at nearly a dozen well-funded startups desperately in need of a marketing leader. The challenge many of these startups have faced with their hiring is that they were seeking a seasoned marketing leader. It’s important to be honest with them that they may not become the long-term Hyperink Blog to Book Series 99 Hyperink Blog to Book Series .

but they are in pole position to get the role. particularly those with strong online marketing skills. Stay tuned. setting up a training boot camp for aspiring startup marketers or some combination of each. The Right Marketing Team marketing leader.. So I’m exploring other ways to address this need/opportunity. The ideal candidate will understand that they have everything to gain from this opportunity and nothing to lose. (The above recommendations are for startups that have an opening in the marketing leader position. The Right Marketing Team Lean Startup Marketing: Agile. partnering with someone who could specialize in filling this type of role. But how do you find these candidates? While it would be tempting for me to set up a recruiting business to help startups with this crucial hire.) Hyperink Blog to Book Series 100 Hyperink Blog to Book Series . I know many marketing vets. that have done exceptionally well with startups..Lean Startup Marketing: Agile... my hands are full with startup marketing advising. These include working with existing recruiters.

then startups are often tempted to hire a “next level marketer” to replace them. Based on anecdotal evidence. One is still CEO of his company but has done more to drive customer adoption with a fraction of his time than most startup marketers do with undivided attention. it is important to comprehend why the role is so challenging. And if they do succeed. I finally believe I have it figured out. I came to this conclusion after finding the common thread between myself and the two most effective people I’ve met at uncovering growth channels. But to really understand the ideal profile. The Right Marketing Team Founders Make the Best Startup Marketing Leaders CEOs often ask for my advice on the ideal candidate profile to lead their ongoing customer growth efforts once we’ve completed the key steps to unlocking growth. So it’s not surprising that the best startup marketers are entrepreneurs at the core. After implementing critical tracking systems and an efficient customer acquisition process. They share a persistent desire to connect their innovative solutions with the people that really need them. they are now relentless about experimenting with channels until they find things that work. Hyperink Blog to Book Series 101 Hyperink Blog to Book Series . Entrepreneurs are willing to take the risk and are generally tenacious enough to uncover the channels necessary to drive long-term growth. Even those fortunate enough to gain early user traction still face the uphill battle of finding cost effective ways to acquire users at scale. I’d guess that 90 percent of startup marketing leaders don’t work out. The other highly effective startup marketer is a founder that transitioned to leading marketing. the startup marketing leader is the first to go.. That sounds a lot like the profile of most startup founders. You would think that after running marketing at two startups through IPO filings that I could easily answer that question..Lean Startup Marketing: Agile.. The Right Marketing Team Lean Startup Marketing: Agile. A successful startup marketing leader must be undaunted by these risks and believe they uniquely have what it takes to succeed. This corresponds to the overwhelming majority of startups falling short of expectations of founders and early investors.. After many course corrections. But I’ve struggled to define the ideal profile of a successful startup marketing leader. When a startup falls short of expectations.

and he agreed that his most important growth contribution was not getting in the way of the viral growth engine.. My experience with Dropbox certainly supports this assertion. In my experience. Agree that this is an acceptable outcome if they are willing to give you at least a couple years. I don’t think that will work. it is not an essential characteristic for the rest of the marketing team.Lean Startup Marketing: Agile. Sometimes great products really do market themselves. Of course the marketer should be able to make a case for why these resources are important. The CEO should be a partner in this process rather than setting arbitrary unrealistic goals. most of the remaining company risk and upside lies in your ability to aggressively drive customer adoption. What about successful startups that had an initial marketing leader with a more traditional background? First. who is generally more focused on marketing activities than marketing results. Hyperink Blog to Book Series 102 Hyperink Blog to Book Series . This is not something a CEO should abdicate to the marketer until they’ve demonstrated a relentless drive to uncover profitable customer acquisition channels. the founding CEO should micromanage the process by being an active participant in channel brainstorming sessions and challenging the marketer to ensure tests have been implemented to perfection. there is nothing wrong with a traditional marketing background if at the core the marketer is entrepreneurial. the marketer does not always deserve credit for strong user growth. Finally. but make the marketer feel good because they are working hard. I recently spoke to the former VP Marketing at a company that sold for billions. The Right Marketing Team Lean Startup Marketing: Agile. Most of these activities do nothing to move the needle on the business. only the marketing leader needs to be entrepreneurial. Also. Effective marketing leaders will challenge themselves by pushing the boundaries of the startup’s growth potential. Once you have created a product that people really want. If you don’t have confidence in your marketing leader. The Right Marketing Team Contrast this to a typical marketer.. The CEO can also facilitate channel discovery by ensuring that the marketing leader gets the tracking systems they need to execute marketing efficiently... Of course the risk in hiring an entrepreneur to lead your marketing is that they’ll eventually leave to start their own company. It may be tempting for a startup CEO to read this and think that aggressive targets can steer the marketer in the right direction. Second.

Lean Startup Marketing: Agile... The Right Marketing Team
Lean Startup Marketing: Agile... The Right Marketing Team

The Startup Marketing Launch
Process is Broken

The majority of VC funded startups fail and a large part of the blame should fall on
marketing. Specifically, executing a flawed marketing process during the startup’s critical
customer traction stage.

Through running marketing at two startups for the full cycle from launch to IPO filing, I’ve
discovered that success at various stages requires very different marketing skills. It also
became clear that early stage marketing execution was the most critical to long-term
success. Yet it is nearly impossible to get good at this critical marketing stage.

Why? Because effective marketers don’t get enough repetition in the early stage to
master it. Any skills they do develop become rusty. Stock option vesting periods lock
them in well beyond the traction stage (typically four years).

I actually stayed five years in each of my last two startups. In that final year I had very
little time for hands on marketing; I was too busy with such things as managing a team of
marketers, recruiting more marketers, meeting with the sales team and other
executives, preparing for board meetings, traveling to conferences and trade shows,
etc…

I know that my skills are best suited to the earliest stage of marketing, but I wasn’t about
to walk away from extremely valuable options. Even after the options vest it’s still hard to
walk away. Beyond paying hundreds of thousands of dollars to exercise options, you also
have to pay income tax on the appreciated value of those options. If the company isn’t
public, you can’t even sell the options to get the money to pay the tax… Anyway, the
point is that despite knowing I’m best at marketing during the early traction stage, I was
compelled every year to let those skills get rustier as my options appreciated and vested.

My solution to the problem may seem a bit radical at first, but considering the billions lost
in failed VC investments it deserves careful consideration. Here it is: Startups should plan
from the beginning to have different marketing leaders at different stages of the
company. One marketing leader to gain traction and kick start growth, one to manage

Hyperink Blog to Book Series 103
Hyperink Blog to Book Series

Lean Startup Marketing: Agile... The Right Marketing Team
Lean Startup Marketing: Agile... The Right Marketing Team

growth until an IPO and one for post IPO leadership. Considering the average tenure of a
VP Marketing is less than two years anyway, this really isn’t that radical. It’s just planning
the transitions rather than making a bunch of disruptive firing/demoting/hiring decisions.

You might be thinking that a consultant approach would work here, but I believe to be
effective the marketing leader needs to be totally immersed in the role. Another common
approach is just to force the early stage marketer out when they become less effective
(the disruptive approach mentioned above). If they have played a key role in the
company’s success, I don’t believe this is a very ethical approach – even though it’s
probably the best thing for the company.

So rather than forcing out the effective early stage marketer, have an agreement from
the start that it is a short-term role. I recommend calling it an interim VP Marketing role
and planning for full time 3 to 6 months followed by another 6 to 12 months of advising
(working with the longer term VP marketing). This ensures full knowledge transfer and
gives the company access to two sharp marketing thinkers during the very important
second stage of the company’s growth. Options will still be an important motivator for the
Interim VP Marketing, but they should have a much shorter vesting period. The total
options allocation to marketers will be higher, but this approach should result in faster
market traction, meaning less burn and less need for future dilutive rounds of funding.

It’s probably already clear that I am now specializing in this traction stage. Xobni is my
first assignment. Of course everybody warns that it will be tempting to want to stay on
(especially since Xobni is really picking up steam), but I am very committed to developing
this approach over the next few years.

Another advantage of this approach is that it will hone my ability to identify great startup
opportunities. Even the best marketing approach can’t save a crappy idea. The
challenges and opportunities of each former assignment will be fresh in my mind when I
look for the next startup to join. I’ll try to avoid startups with key challenges that I could
not previously overcome and try to join startups that have the types of assets that proved
important in an earlier assignment.

This knowledge is also very valuable to VCs and I already have several that have asked
me to help them assess new investment opportunities. I’m expecting this will be my
pipeline for finding new startup opportunities. Given the alignment of my interest with VCs
in picking the right opportunities, they are willing to pay me to conduct a marketing
viability assessments to dig into target customer’s need for the solution, real addressable
market size and segments and any existing current demand for the category. If
everything looks good after this assessment, the VC can make a less risky investment and

Hyperink Blog to Book Series 104
Hyperink Blog to Book Series

Lean Startup Marketing: Agile... The Right Marketing Team
Lean Startup Marketing: Agile... The Right Marketing Team

I can make a less risky decision to try to take on the interim VP marketing role (if a
marketing leader is not already in place).

Hyperink Blog to Book Series 105
Hyperink Blog to Book Series

An important part of figuring things out is getting into a state of flow (sometimes known as being in “the zone”) and a focus on financial incentives often prevents this state of mind. The Right Marketing Team Figuring Out Your Way to Startup Success “Team... Engineers figure out how to build a well functioning product that meets this need. we can all benefit by improving our work environment. but few realize that the repetitive discussions about financial outcomes can also shut down your ability to figure stuff out.” He describes several experiments where people who were offered a financial reward to quickly complete a challenging task actually performed worse than those who simply did it for enjoyment. There are two areas in particular that prevent creative problem solving.” Founders figure out potential customer problems that are worth solving.. The book mostly challenges the effectiveness of typical incentive structures inside more established businesses..” It’s the cliché response from VCs when asked about the most important factor in deciding to fund a new startup. 1) Too much focus on financial rewards It is obvious that the effort required to raise VC funds can be a major distraction from executing the business. The Right Marketing Team Lean Startup Marketing: Agile. The Surprising Truth About What Motivates Us. In my 15 years in startups. I can’t think of a single breakthrough epiphany we experienced while fundraising. but I believe the implications are even stronger in startups where survival is contingent on our ability to figure stuff out and the financial rewards of doing so are potentially enormous. But what separates great teams from weak teams? I believe it’s the team’s ability to “figure stuff out. Hyperink Blog to Book Series 106 Hyperink Blog to Book Series . Marketers figure out how to reach people who really need the product and how to convert them into customers… While natural talent is a big part of figuring stuff out. Daniel Pink demonstrates the potentially negative effect of financial incentives in his new book “Drive.Lean Startup Marketing: Agile.

Get a special surprise. Finally. that I had virtually shut down my creative abilities. This may result in more dilution. The Right Marketing Team 2) Too much pressure I’ve also realized that I’m not good at figuring stuff out when I put too much pressure on myself. encourage the team to obsess about solving customer problems rather than their potential financial outcome from success. This is especially important in the early days of a startup while the team is still figuring out a viable formula for the business. I recommend fewer/bigger rounds of financing (if possible). I now remind myself to loosen up and immediately feel my creative problem solving abilities return. I had put myself under so much pressure to help the startup with which I was working. The solution: loosen up and have fun When breakthrough thinking is needed. It is okay to apply pressure for better execution of things that have been figured out. Become a Hyperink reader. collaborative and supportive environment will generally yield better/faster results than the pressure of sticks and carrots. Most leaders don’t realize how counterproductive this can be in a startup... pressure can also be applied externally by the Board (or the CEO to the rest of the team). Run leanly on your first round while you figure out the key success elements of the startup. Also. Like the book? Support our author and leave a comment! Hyperink Blog to Book Series 107 Hyperink Blog to Book Series . Antony Brydon. His career only recovered when he remembered to loosen up and have fun. A few months ago I had a beer with a friend and successful serial entrepreneur. given the likely negative effects of fundraising.Lean Startup Marketing: Agile.. The best breakthroughs initially come from immersion in customer problems and then later from understanding the customer experience and benefits of your solution. Every time I feel myself getting tense. The Right Marketing Team Lean Startup Marketing: Agile. and he zoomed right in on my problem. but it should be applied very sparingly when trying to encourage the team to figure out the remaining unknowns. but a more valuable company should offset this dilution. He mentioned that he’d been reading Andre Agassi’s autobiography and similar self-induced pressure had destroyed Andre’s ability to play tennis. While self-induced pressure is common in startups. Then raise another round while executing the formula.. a fun.

usage.. I refined my recommendations as I helped bring Dropbox. Xobni. I am now founder and CEO of Qualaroo. Lookout. World Golf Tour. and Grockit to market and helped accelerate growth at Eventbrite.Lean Startup Marketing: Agile.. Webs. So a few years ago. a company focused on making it easy for marketers to improve website visitor engagement without help from the dev team. Hyperink Blog to Book Series 108 Hyperink Blog to Book Series . I decided to publish the Startup Marketing Blog to share the insights I gained while running marketing at LogMeIn and Uproar from launch to NASDAQ IPO filings. referrals and sales volume. and Songkick. as well as run inflow surveys to better understand user decisions.. About The Author Lean Startup Marketing: Agile. About The Author About The Author Sean Ellis I’ve found that traditional marketing books are not very helpful in the startup world. Our flexible DIY toolset can be used to boost key website metrics such as signups..

Lean Startup Marketing: Agile. from Android apps marketing to barefoot running.. About The Author Lean Startup Marketing: Agile. We work closely with subject matter experts to create each book. We'll send you a PDF copy. Hyperink is based in SF and actively hiring people who want to shape publishing's future. Get in touch: Hyperink Blog to Book Series 109 Hyperink Blog to Book Series . so you can access all of the great content we've included as clickable links. please email books@hyperinkpress. If you have interesting knowledge that people are willing to pay for. We cover topics ranging from higher education to job recruiting. especially if you've already produced content on the topic. About The Author About the Publisher Hyperink is the easiest way for anyone to publish a beautiful... Email us if you'd like to meet our team! Note: If you're reading this book in print or on a device that's not web-enabled. high-quality book. please reach out to us! There's no writing required and it's a unique opportunity to build your own brand and earn royalties..com with the title of this book in the subject line.

Adventure Vacation Ideas INKYBUCKS1 Hyperink Blog to Book Series 110 Hyperink Blog to Book Series . Startup Culture....... Reinventing the Book: How eReaders. Google. Free The Animal: Lose Weight & Fat On Business School For Startups the Paleo Diet You're Damn Right I'm a Fanboy: MG Siegler on Apple. and Social Reading.... Honey? Rock Star Productivity: Time Management Tips.Lean Startup Marketing: Agile. Leadership Skills. My Itchy Travel Feet: Breathtaking Multimedia Content. and Other... Philly Dog: Why Dogs are Better Than Sacha Greif's Thinking Like A Designer Cats . Other Awesome Books Lean Startup Marketing: Agile... Other Awesome Books Other Awesome Books Hyperink Benefits Interesting Insights The Best Commentary Shocking Trivia What's For Lunch.

as long as you give us credit. Other Awesome Books Lean Startup Marketing: Agile.... The standard legal stuff: All rights reserved. except for brief excerpts in reviews or analysis. You're welcome to borrow (reasonable) pieces of it as needed. Good luck! Hyperink Blog to Book Series 111 Hyperink Blog to Book Series . No part of this book may be reproduced in any form or by any electronic or mechanical means. This book is not affiliated with or sponsored by any other works..and we share a lot of it for free on our sites . Thanks for understanding. Thanks! The Hyperink Team Disclaimer This ebook provides information that you read and use at your own risk.but these books are how we support our authors and the whole enterprise. without permission in writing from Hyperink Inc..Lean Startup Marketing: Agile. or publishers mentioned in the content. Hyperink Inc. including information storage and retrieval systems. Our note: Please don't make copies of this book. Other Awesome Books Copyright © 2012-Present. authors. We work hard to provide the highest quality content possible .

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