Entrepreneurs Design Their Metrics for Success
Something we do together with our partner for the Belgian startup and entrepreneurial community is what we call the “Startup Coaching Retreats” and is based on similar principles as all the above but focused on the needs of entrepreneurs with a startup company. – see report of our first run ‘here‘ - Participation for the ones we do in Belgium is managed by IBBT Entrepreneurship and this event is organized every last friday of the month. As we strongly believe in the concept of "sharing is caring", we want to share the learning from Septembers Startup Retreat session where we addressed some concepts of "Customer Development" combined with the "Lean Startup" principles. We did this with a specific goal in mind and used 2 anchors to guide the participating entrepreneurs: Customer Value Stream + AARRR Metrics Meta Framework. These anchors served very well to briefly touch on A-B Testing, Cohort, Viral Coefficients, Lifetime Value and more.
Startup Retreat Goal
There are several ways to discover and explore your customer segment's needs and how your product will serve them, one of them is called: “Customer Development” (others: co-creation, innovation games, crowdsourcing…). Looking at the domain of Customer Development we’ll focus for now on how to answer the following questions:
- How do we know our business model is valid without spending loads of money?
- When should we pivot our business model/strategy towards another hypothesis?
We explored Customer Development ideas and recommendations in relation to your business model and keep the rest of the Customer Development thoughts and directions for another time.
Customer Value Stream
Customer Value Stream is a meta-model to brainstorm around ideas that would make your customer “happy” in relation to your current Business Model. In many cases the technique provides insights that open doors to new Business Models that you didn’t think about before. The basics of the Customer Value Stream technique can be found in the Lean Value Stream Mapping and Innovation Games Remember the Future techniques that are combined into something even stronger. With the technique you are forced to start thinking from the viewpoint of a “Happy Customer” and work your way backwards to yourself and your business. The information discovered is used to verify the assumptions that were put in the Business Model. Both information resources together form the basis to build a scientific method that validates ideas and helps to find the right Product-Market Fit and market traction.
AARRR Metrics meta-model is promoted by Dave McClure and provides us with a guideline to measure the success of our business related to Product-Market Fit and market traction. It provides real data that shows when to pivot to the next business strategy or even business model. AARRR is a simple acronym that identifies the following system:
- Acquisition – get customers to notice you
- Activation – get customers active
- Retention – get customers to come back
- Referral – get customers to lure in other customers
- Revenue – get money
The first thing to do is to build narratives of your business strategy/model into a storyline. If there are many strategies behind your business model then it is recommended to create multiple storylines as you use multiple storylines generated through the previously described Customer Value Stream exercise. Next thing is to stay away from “Vanity Metrics” and look for real valuable metrics, metrics that matter! Metrics that matter can validate your “Value Hypothesis” or “Growth Hypothesis” and focuses on the new users, as they are more engaged. Examples:
- Viral Coefficient: focused on acquisition and referral as where revenue is a side effect. (Facebook, Hotmail…) – Viral Coeff = Invites * Conversion Rate
- Lifetime Value: focused on activiation and retention where payment is central. (Amazon, match.com…) – LTV = Cost of acquiring customer vs Earnings from that customer
If you see less progress in your AARRR storyline, then it is time to change strategy and try something else! Pivot from where you are aiming at today to some other hypothesis you have or generate. So let us have a closer look at what the meta-model can help you with in relation to Alexander Osterwalders Business Model Canvas and bring things together…
- Are you using the right “Channels” to reach your audience?
- Are you focusing on the right “People”?
- Is your message clear?
- Are you helping your customers?
- How do you make customers stay?
- Do you offer the right experience?
- Do you offer quality?
- How important is word of mouth?
- How easy is it for customers to share?
- How do you make money?
- Are you catching the right fish?
As entrepreneurs used the above techniques to explore their own businesses they experienced some 'AHA Moments' that will change how they do business in the future!
Next Startup Retreat session is scheduled for October 26th and will address the need for a clear Business Model Canvas to generate focus and accelerate the speed of validating market hypothesizes. Do you want to host a retreat yourself? Read this. See our Agenda for more retreat sessions to join, they are FREE.