leanconf 2014 keynote - the one metric to rule them all by ash maurya
DESCRIPTION
Companies drown in a sea of numbers. Google Analytics alone spits out over a thousand numbers. Add to that a few other analytics tools and your own homegrown dashboard and you know what I mean. We don’t need more numbers, but actionable metrics. In this talk, I’m going to show you how to measure the progress of any business using just a handful of metrics. And then I’m going to distill these metrics even further into a single macro metric that drives every businessTRANSCRIPT
Lean Startup is deeply rooted in the Scientific Method.
IDEAS
PRODUCTDATA
MEASURE
BUILDLEARN
Experiment = 1 cycle
Reasonably smart people can rationalize anything but entrepreneurs are especially gifted at this.
But this can also be taken too far…
IDEAS
PRODUCTDATA
MEASURE
BUILDLEARN
Learning as the measure of progress
Science versus Entrepreneurship
Science versus Entrepreneurship
Driven by pursuit of raw knowledge
Science versus Entrepreneurship
Driven by pursuit of repeatable and scalable results
Driven by pursuit of raw knowledge
Empirical Learning ➤
Empirical Learning ➤ Business Model Results
Empirical Learning ➤ Business Model Results
Measure of Progress
In God we trust, all others bring data.
-W. Edwards Deming
Startups don’t starve, they drown.
-Shawn Carolan, Menlo Ventures
WTF?
The reality
01 The Universal Goal of Every Business
AG
END
A
02 The Goal Deconstructed
03 Seeing it in Action
The Goal:
Make happy customers
Happy customers get you paid and doing this repeatedly and efficiently is the goal of every business.
Unaware visitors Happy customers
Unaware visitors Happy customers
Direct models
Unaware visitors Happy users
Multi-sided models
Unaware visitors Happy users
Multi-sided models
Derivative asset
Unaware visitors Happy users
Multi-sided models
Happy customers
Derivative asset
Unaware visitors Happy users
Multi-sided models
Happy customers
Derivative asset
Advertisers
Unaware visitors Happy users
Not for Profit Models
Derivative asset
Unaware visitors Happy users
Not for Profit Models
Happy customers
Derivative asset
Donors
Unaware visitors Happy customers
Customer Throughput is the one metric to rule them all.
Definition:
Customer Throughput is the rate at which you are making new customers.
01 The Universal Goal of Every Business
AG
END
A
02 The Goal Deconstructed
03 Putting it to Practice
Making happy customers
Making customers happy
vs
Unaware visitors Happy customers
Epiphany:
Everyone is in the manufacturing business.
Unaware visitors Happy customers
The Customer Factory
ACQUISITION How do you first identify users?
ACQUISITION How do you first identify users?
ACTIVATION What is first value experience?
ACQUISITION How do you first identify users?
ACTIVATION What is first value experience?
RETENTION What drives repeat usage?
ACQUISITION How do you first identify users?
ACTIVATION What is first value experience?
RETENTION What drives repeat usage?
REVENUE What is pricing model?
ACQUISITION How do you first identify users?
ACTIVATION What is first value experience?
RETENTION What drives repeat usage?
REVENUE What is pricing model?
REFERRAL What is referral engine?
ACQUISITION
ACTIVATION
RETENTION
REVENUE
REFERRAL
Unaware visitor
Passionate Happy Customer
Pirate Metrics (AARRR)
ACQUISITION How do you first identify users?
ACTIVATION What is first value experience?
RETENTION What drives repeat usage?
REVENUE What is pricing model?
REFERRAL What is referral engine?
More Visual
ACQUISITION How do you first identify users?
ACTIVATION What is first value experience?
RETENTION What drives repeat usage?
REVENUE What is pricing model?
REFERRAL What is referral engine?
Happy Customer Loop
ACQUISITION How do you first identify users?
ACTIVATION What is first value experience?
RETENTION What drives repeat usage?
REVENUE What is pricing model?
REFERRAL What is referral engine?
Engines of Growth
ACQUISITION How do you first identify users?
ACTIVATION What is first value experience?
RETENTION What drives repeat usage?
REVENUE What is pricing model?
REFERRAL What is referral engine?
Systems Thinking
What is a system?
01 The Universal Goal of Every Business
AG
END
A
02 The Goal Deconstructed
03 Seeing it in Action
3
2
1 Repeatability
3 ATTRIBUTES OF A SYSTEM
Constraints
Throughput
A system’s throughput is predictable
StepA
StepB
StepC
StepD
StepERAW
MATERIALS
Production Example
OUTPUT 7 units/day
Establishing repeatability is pre-requisite step before pursuing growth.
“Invest in Lines, Not Dots.” -Mark Suster, Both Sides of the Table
Repeatability enables staged rollouts.
3 Stages of a Product
PROBLEM/SOLUTIONFIT
PRODUCT/MARKETFIT
SCALE
Stage 1 Stage 2 Stage 3
Hockey-stick curve
Hockey-stick curve
Product/Market Fit
Scale
Problem/Solution Fit
A business model can be validated at micro-scale.
Facebook won on strategy, not vision.
3
2
1 Repeatability
3 ATTRIBUTES OF A SYSTEM
Constraints
Throughput
Theory of Constraints:
Every business is a system of interconnected processes with a single constraint.
StepA
StepB
StepC
StepD
StepE
10 units/day 15 units/day 7 units/day 9 units/day 10 units/day
MARKET DEMAND 12 units/day
Production Example
StepA
StepB
StepC
StepD
StepE
10 units/day 15 units/day 7 units/day 9 units/day 10 units/day
MARKET DEMAND 12 units/day
Production Example
1. What is the maximum system output per day?
StepA
StepB
StepC
StepD
StepE
10 units/day 15 units/day 7 units/day 9 units/day 10 units/day
MARKET DEMAND 12 units/day
Production Example
1. What is the maximum system output per day? 2. Where is the constraint?
StepA
StepB
StepC
StepD
StepE
10 units/day 15 units/day 7 units/day 9 units/day 10 units/day
MARKET DEMAND 12 units/day
Production Example
Throughput is 7 units/day
Indicates interest through teaser page
Ongoing engagement with sessions and tool
Interview and then start trialOrganic Channels
Blog, twitter, workshops
Customer Throughput
Ask for referrals to like-minded companies
Monthly SaaS paymentafter first 30 days
20 customers/mo(desired)
1 trial/week(5%)
20 interviews/week(66.67%)
30 leads/week(45.6%)
65 visitors/week 2 customers/mo(50%)
20 customers/mo(desired)
1 trial/week(5%)
20 interviews/week(66.67%)
30 leads/week(45.6%)
65 visitors/week 2 customers/mo(50%)
20 customers/mo(desired)
1 trial/week(5%)
20 interviews/week(66.67%)
30 leads/week(45.6%)
65 visitors/week 2 customers/mo(50%)
Prioritizes focus
3
2
1 Repeatability
3 ATTRIBUTES OF A SYSTEM
Constraints
Throughput
The goal of a system is to increase throughput.
ACQUISITION How do you first identify users?
ACTIVATION What is first value experience?
RETENTION What drives repeat usage?
REVENUE What is pricing model?
REFERRAL What is referral engine?
The only macro that matters
Local versus system optima.
StepA
StepB
StepC
StepD
StepE
10 units/day 15 units/day 7 units/day 9 units/day 10 units/day
MARKET DEMAND 12 units/day
Production Example
Throughput is 7 units/day
StepA
StepB
StepC
StepD
StepE
10 units/day 15 units/day 12 units/day 9 units/day 10 units/day
MARKET DEMAND 12 units/day
Production Example
StepA
StepB
StepC
StepD
StepE
10 units/day 15 units/day 12 units/day 9 units/day 10 units/day
MARKET DEMAND 12 units/day
Production Example
1. What is the maximum system output per day? 2. Where is the constraint?
StepA
StepB
StepC
StepD
StepE
10 units/day 15 units/day 12 units/day 9 units/day 10 units/day
MARKET DEMAND 12 units/day
Production Example
New throughput is 9 units/day
20 customers/mo(desired)
1 trial/week(5%)
20 interviews/week(66.67%)
30 leads/week(45.6%)
65 visitors/week 2 customers/mo(50%)
Prioritizes focus
20 customers/mo(desired)
1 trial/week(5%)
20 interviews/week(66.67%)
30 leads/week(45.6%)
65 visitors/week 2 customers/mo(50%)
Strategy 1:
Incentivize salespeople
20 customers/mo(desired)
1 trial/week(5%)4 trials/week(20%)
20 interviews/week(66.67%)
30 leads/week(45.6%)
65 visitors/week 2 customers/mo(50%)
Strategy 1:
Incentivize salespeople
20 customers/mo(desired)
1 trial/week(5%)4 trials/week(20%)
20 interviews/week(66.67%)
30 leads/week(45.6%)
65 visitors/week 2 customers/mo(50%)
Strategy 1:
Incentivize salespeople
20 customers/mo(desired)
1 trial/week(5%)
20 interviews/week(66.67%)
30 leads/week(45.6%)
65 visitors/week 2 customers/mo(50%)
Strategy 2:
Qualify leads
20 customers/mo(desired)1 trial/week
(5%)2 trials/week(25%)
20 interviews/week(66.67%)8 interviews/week(80%)
30 leads/week(45.6%)10 leads/week(15%)
65 visitors/week 2 customers/mo(50%)4 customers/mo(50%)
Strategy 2:
Qualify leads
20 customers/mo(desired)1 trial/week
(5%)2 trials/week(25%)
20 interviews/week(66.67%)8 interviews/week(80%)
30 leads/week(45.6%)10 leads/week(15%)
65 visitors/week 2 customers/mo(50%)4 customers/mo(50%)
Strategy 2:
Qualify leads
20 customers/mo(desired)1 trial/week
(5%)2 trials/week(25%)
20 interviews/week(66.67%)8 interviews/week(80%)
30 leads/week(45.6%)10 leads/week(15%)
65 visitors/week 2 customers/mo(50%)4 customers/mo(50%)
Strategy 2:
Qualify leads
Key Takeaways
01 Establish a customer throughput goal.
02 Identify limiting constraint(s).
03 Formulate possible strategies.
Created by Spark59 // online version available at leanstack.com
STRATEGY REPORT Title: Created:
Background
Analysis & Proposal
Current Condition
Goal
Follow-on Strategies (if any)
Implementation Plan
04 Break each strategy into small, fast, additive, experiments.
Created by Spark59 // online version available at leanstack.com
EXPERIMENT REPORT Title: Owner: Duration:
Background
Details
Falsifiable Hypotheses
Next Action
Validated Learning
Results
05 Measure effect on throughput and double-down on the strategies that work.
05 Measure effect on throughput and double-down on the strategies that work.
THANKS!
Get Slides + Worksheets Here: PracticeTrumpsTheory.com/one-metric-slides
Ash Maurya | Author, Running Lean | Founder, Spark59 | @ashmaurya
Life is too short to build something nobody wants
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