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Lean Analytics

Cover of Lean Analytics by Alistair Croll... Published by O'Reilly Media, Inc.
  1. Praise for Lean Analytics
  2. Dedication
  3. Foreword
  4. Preface
    1. Who This Book Is For
    2. How This Book Works
    3. The Building Blocks
      1. Customer Development
      2. Lean Startup
    4. We’d Like to Hear from You
    5. O’Reilly Safari
    6. Thanks and Acknowledgments
  5. I. Stop Lying to Yourself
    1. 1. We’re All Liars
      1. The Lean Startup Movement
      2. Poking a Hole in Your Reality Distortion Field
      3. Airbnb Photography—Growth Within Growth
    2. 2. How to Keep Score
      1. What Makes a Good Metric?
      2. Qualitative Versus Quantitative Metrics
      3. Vanity Versus Real Metrics
      4. Eight Vanity Metrics to Watch Out For
      5. Exploratory Versus Reporting Metrics
      6. Circle of Moms Explores Its Way to Success
      7. Leading Versus Lagging Metrics
      8. Correlated Versus Causal Metrics
      9. Moving Targets
      10. HighScore House Defines an “Active User”
      11. Segments, Cohorts, A/B Testing, and Multivariate Analysis
      12. The Lean Analytics Cycle
      13. Evaluating the Metrics You Track
    3. 3. Deciding What to Do with Your Life
      1. The Lean Canvas
      2. What Should You Work On?
      3. Create a Lean Canvas
    4. 4. Data-Driven Versus Data-Informed
      1. How to Think Like a Data Scientist
      2. Lean Startup and Big Vision
  6. II. Finding the Right Metric for Right Now
    1. 5. Analytics Frameworks
      1. Dave McClure’s Pirate Metrics
      2. Eric Ries’s Engines of Growth
      3. Ash Maurya’s Lean Canvas
      4. Sean Ellis’s Startup Growth Pyramid
      5. The Long Funnel
      6. The Lean Analytics Stages and Gates
    2. 6. The Discipline of One Metric That Matters
      1. Moz Tracks Fewer KPIs to Increase Focus
      2. Four Reasons to Use the One Metric That Matters
      3. Solare Focuses on a Few Key Metrics
      4. Drawing Lines in the Sand
      5. The Squeeze Toy
      6. Define Your OMTM
    3. 7. What Business Are You In?
      1. About Those People
      2. The Business Model Flipbook
      3. Six Business Models
      4. Pick Your Business Model
    4. 8. Model One: E-commerce
      1. What Mode of E-commerce Are You?
      2. A Practical Example
      3. WineExpress Increases Revenue by 41% Per Visitor
      4. Offline and Online Combinations
      5. Visualizing the E-commerce Business
      6. Wrinkles: Traditional E-commerce Versus Subscription E-commerce
      7. Key Takeaways
    5. 9. Model Two: Software as a Service (SaaS)
      1. Backupify’s Customer Lifecycle Learning
      2. Measuring Engagement
      3. Churn
      4. Visualizing the SaaS Business
      5. ClearFit Abandons Monthly Subscriptions for 10x Growth
      6. Wrinkles: Freemium, Tiers, and Other Pricing Models
      7. Key Takeaways
    6. 10. Model Three: Free Mobile App
      1. Installation Volume
      2. Average Revenue Per User
      3. Percentage of Users Who Pay
      4. Churn
      5. Visualizing the Mobile App Business
      6. Wrinkles: In-App Monetization Versus Advertising
      7. Key Takeaways
    7. 11. Model Four: Media Site
      1. Audience and Churn
      2. Inventory
      3. Performance and the Sessions-to-Clicks Ratio
      4. Ad Rates
      5. Content/Advertising Trade-off
      6. Visualizing the Media Business
      7. Wrinkles: Hidden Affiliates, Background Noise, Ad Blockers, and Paywalls
      8. Key Takeaways
    8. 12. Model Five: User-Generated Content
      1. Visitor Engagement
      2. Content Creation and Interaction
      3. Engagement Funnel Changes
      4. Value of Created Content
      5. Content Sharing and Virality
      6. Notification Effectiveness
      7. Visualizing a UCG Business
      8. Wrinkles: Passive Content Creation
      9. Key Takeaways
    9. 13. Model Six: Two-Sided Marketplaces
      1. What DuProprio Watches
      2. Rate at Which You’re Adding Buyers and Sellers
      3. Rate of Inventory Growth
      4. Buyer Searches
      5. Conversion Rates and Segmentation
      6. Buyer and Seller Ratings
      7. Visualizing a Two-Sided Marketplace
      8. Wrinkles: Chicken and Egg, Fraud, Keeping the Transaction, and Auctions
      9. Key Takeaways
    10. 14. What Stage Are You At?
      1. Pick the Stage That You’re At
    11. 15. Stage One: Empathy
      1. Metrics for the Empathy Stage
      2. This Is the Best Idea I’ve Ever Had! (or, How to Discover Problems Worth Solving)
      3. Finding a Problem to Fix (or, How to Validate a Problem)
      4. Signs You’ve Found a Problem Worth Tackling
      5. Running Lean and How to Conduct a Good Interview
      6. How to Avoid Leading the Witness
      7. Convergent and Divergent Problem Interviews
      8. How Do I Know If the Problem Is Really Painful Enough?
      9. Cloud9 IDE Interviews Existing Customers
      10. How Are People Solving the Problem Now?
      11. Are There Enough People Who Care About This Problem? (or, Understanding the Market)
      12. What Will It Take to Make Them Aware of the Problem?
      13. A “Day in the Life” of Your Customer
      14. Finding People to Talk To
      15. Getting Answers at Scale
      16. LikeBright “Mechanical Turks” Its Way into TechStars
      17. Creating an Answers-at-Scale Campaign
      18. Build It Before You Build It (or, How to Validate the Solution)
      19. Localmind Hacks Twitter
      20. Before You Launch the MVP
      21. Deciding What Goes into the MVP
      22. Measuring the MVP
      23. Static Pixels Eliminates a Step in Its Order Process
      24. A Summary of the Empathy Stage
      25. Should You Move to the Next Stage?
    12. 16. Stage Two: Stickiness
      1. MVP Stickiness
      2. Iterating the MVP
      3. qidiq Changes How It Adds Users
      4. Premature Virality
      5. The Goal Is Retention
      6. Seven Questions to Ask Yourself Before Building a Feature
      7. How Rally Builds New Features with a Lean Approach
      8. How to Handle User Feedback
      9. The Minimum Viable Vision
      10. The Problem-Solution Canvas
      11. VNN Uses the Problem-Solution Canvas to Solve Business Problems
      12. A Summary of the Stickiness Stage
      13. Exercise #1: Should You Move to the Next Stage?
      14. Exercise #2: Have You Identified Your Biggest Problems?
    13. 17. Stage Three: Virality
      1. The Three Ways Things Spread
      2. Metrics for the Viral Phase
      3. Beyond the Viral Coefficient
      4. Timehop Experiments with Content Sharing to Achieve Virality
      5. Instrumenting the Viral Pattern
      6. Growth Hacking
      7. A Summary of the Virality Stage
      8. Should You Move On to the Revenue Stage?
    14. 18. Stage Four: Revenue
      1. Metrics for the Revenue Stage
      2. The Penny Machine
      3. Finding Your Revenue Groove
      4. Customer Lifetime Value > Customer Acquisition Cost
      5. Parse.ly and the Pivot to Revenue
      6. Market/Product Fit
      7. The Breakeven Lines in the Sand
      8. Revenue Stage Summary
    15. 19. Stage Five: Scale
      1. The Hole in the Middle
      2. Metrics for the Scale Stage
      3. Is My Business Model Right?
      4. Buffer Goes from Stickiness to Scale (Through Revenue)
      5. The Three-Threes Model
      6. Finding Discipline as You Scale
      7. A Summary of the Scale Stage
    16. 20. Model + Stage Drives the Metric You Track
  7. III. Lines in the Sand
    1. 21. Am I Good Enough?
      1. WP Engine Discovers the 2% Cancellation Rate
      2. Average Isn’t Good Enough
      3. What Is Good Enough?
      4. Growth Rate
      5. Number of Engaged Visitors
      6. Pricing Metrics
      7. Socialight Discovers the Underlying Metrics of Pricing
      8. Cost of Customer Acquisition
      9. Virality
      10. Mailing List Effectiveness
      11. Uptime and Reliability
      12. Site Engagement
      13. Web Performance
      14. Make Your Own Lines in the Sand
    2. 22. E-commerce: Lines in the Sand
      1. Conversion Rate
      2. Shopping Cart Abandonment
      3. Search Effectiveness
    3. 23. SaaS: Lines in the Sand
      1. Paid Enrollment
      2. Freemium Versus Paid
      3. Upselling and Growing Revenue
      4. Churn
      5. OfficeDrop’s Key Metric: Paid Churn
    4. 24. Free Mobile App: Lines in the Sand
      1. Mobile Downloads
      2. Mobile Download Size
      3. Mobile Customer Acquisition Cost
      4. Sincerely Learns the Challenges of Mobile Customer Acquisition
      5. Application Launch Rate
      6. Percent Active Mobile Users/Players
      7. Percentage of Mobile Users Who Pay
      8. Average Revenue Per Daily Active User
      9. Monthly Average Revenue Per Mobile User
      10. Average Revenue Per Paying User
      11. Mobile App Ratings Click-Through
      12. Mobile Customer Lifetime Value
    5. 25. Media Site: Lines in the Sand
      1. Click-Through Rates
      2. Sessions-to-Clicks Ratio
      3. Referrers
      4. Engaged Time
      5. What Onsite Engagement Can Tell You About Goals and Behaviors
      6. Sharing with Others
      7. JFL Gags Cracks Up YouTube
    6. 26. User-Generated Content: Lines in the Sand
      1. Content Upload Success
      2. Time on Site Per Day
      3. Reddit Part 1—From Links to a Community
      4. Engagement Funnel Changes
      5. Reddit Part 2—There’s Gold in Those Users
      6. Spam and Bad Content
    7. 27. Two-Sided Marketplaces: Lines in the Sand
      1. Transaction Size
      2. What Etsy Watches
      3. Top 10 Lists
    8. 28. What to Do When You Don’t Have a Baseline
  8. IV. Putting Lean Analytics to Work
    1. 29. Selling into Enterprise Markets
      1. Why Are Enterprise Customers Different?
      2. Legacy Products
      3. The Enterprise Startup Lifecycle
      4. How Coradiant Found a Market
      5. So What Metrics Matter?
      6. The Bottom Line: Startups Are Startups
    2. 30. Lean from Within: Intrapreneurs
      1. Span of Control and the Railroads
      2. Skunk Works for Intrapreneurs
      3. Changing—or Innovating to Resist Change?
      4. Stars, Dogs, Cows, and Question Marks
      5. Swiffer Gives Up on Chemistry
      6. Doritos Chooses a Flavor
      7. Working with an Executive Sponsor
      8. EMI Embraces Data to Understand Its Customers
      9. The Stages of Intrapreneur Lean Analytics
    3. 31. Conclusion: Beyond Startups
      1. How to Instill a Culture of Data in Your Company
  9. A. References and Further Reading
  10. B. About the Authors
  11. C. The Lean Series
  12. Index
  13. About the Authors
  14. Copyright
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Chapter 5. Analytics Frameworks

Over the years we’ve seen a number of frameworks emerge that help us understand startups and the changes they undergo as they grow, find their markets, and help startups acquire customers and revenue. Each framework offers a different perspective on the startup lifecycle, and each suggests a set of metrics and areas on which to focus.

After comparing and contrasting a number of these frameworks, we’ve created our own way to think about startups, and in particular the metrics that you use to measure your progress. We’ll use this new framework throughout the book—but first, let’s take a look at some of the existing frameworks and how they fit into Lean Analytics.

Dave McClure’s Pirate Metrics

Pirate Metrics—a term coined by venture capitalist Dave McClure—gets its name from the acronym for five distinct elements of building a successful business. McClure categorizes the metrics a startup needs to watch into acquisition, activation, retention, revenue, and referral—AARRR.[16]

Figure 5-1 shows our interpretation of his model, describing the five steps through which users, customers, or visitors must progress in order for your company to extract all the value from them. Value comes not only from a transaction (revenue) but also from their role as marketers (referral) and content creators (retention).

Even pirates need metrics, says Dave McClure
Figure 5-1. Even pirates need metrics, says Dave McClure

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