The startup phase is tricky, because we can fool ourselves that we are making progress, when we are not.

This is one of the many lessons I'm taking away from the book, The Lean Startup.  This is the second part in a two-part posting about concepts in the book that are making a difference for me as an entrepreneur. 

BTW–all of these ideas are ones that can apply to social entrepreneurs as well as "traditional" for-profit entrepreneurs. Whether your "customer" is one who pays with money or one who pays with attention/engagement, whether you are building a sustainable business or a long-lasting movement, these ideas apply.

 

Metrics That Matter vs. Vanity Metrics

Have you heard the saying, "What gets measured, gets done?"  Complementary to that idea is this one: "Measuring the wrong thing is worse than measuring nothing at all." 

The reason why is that when you are measuring the wrong thing, you have the illusion that things are going well. It's easy to put resources into a losing proposition. At least if you aren't measuring at all, you don't have this false sense of security. Photo by tmorkemo

Author Eric Ries calls these metrics gone bad, "vanity metrics".  An example is number of customers or accounts. Might work if the cost of acquisition is lower than the lifetime revenue of an account. But what if it isn't? 

This is what I discovered in my start-up, My Alumni Link, where my clients have been university alumni associations.  I could point to over a dozen high profile universities as my clients.  But how many were profitable over the long run. Uhhhh….that's another story.

So what should you be measuring?  Metrics that allow for clear cause and effect to be made visible. Conversion rate on a sales page.  Product usage by customer.  Metrics that allow you to show that improving X leads to Y.  Ries introduced me to the idea of cohort analysis, where groups of customers, having a shared characteristic, are tracked by a behavior that you care about (e.g., amount of time spent on a site, number of discussions posted per individual).  Each group is a mini-experiment whose results can then be compared with other group's results. I'm now tracking things I never tracked before, seeing clearly what progress I'm making towards being a sustainable business. A better understanding of cause and effect help me to decide where to devote resources. Photo by RDECOM

 

The Wisdom of Small Batches

I used to subscribe to the Big Bang theory of product development and marketing.  It started with working for a monopoly (the telephone company), with too much money to let things fail early, surrounded by fellow engineers who thought perfectionism was a virtue. Well, in some environments, perfectionism is a virtue (e.g., air traffic controllers, SWAT teams.)

But in today's environment, where betas are the norm, aspiring to get to nirvana before releasing something doesn't make sense. Same goes with marketing.  Start now, and find out where the glitches are, in small batches, before too much is at stake. Photo by Rachel From Cupcakes Take the Cake.

In launching a new career development tool, I've experimented with the idea of a "continuous launch". In prior years, I would have made a super duper announcement of product availability, in one big email blast, after slaving over just the right marketing words for a week. And then I would have waited. And waited. And waited.

Ries points out that if you try things out in small batches, you'll find what you need to improve upon a lot faster.  That's exactly what happened with the site, breakoutofyourbubble.com. The current version is the result of announcing the site to small groups of people, and getting their feedback as well as tracking their behavior (e.g, time spent on site and number of unique visitors/sales that day). By the time the site was announced to thousands of people at a time, it had been through several major changes in format, content, visuals and length.  The day before the start of the program, I am still launching to new groups. I have been doing this for nearly a month, learning what I can from each new group exposed to the product. Photo by kcnickerson.

 

How Many Pivots Do You Have Left?

According to Ries, a pivot is a fundamental change in its business strategy. It's a special kind of structured change designed to test a new fundamental hypothesis about the product, business model, and/or engine of growth. With my start-up, My Alumni Link, I am now using a different business model from what I used the last couple of years. 

What's really lovely and reassuring for me as an entrepreneur is that so many successful companies went through multiple pivots before getting it right.  The true measure of runway is how many pivots a startup has left. 

There are many types of pivots, including:

• Zoom-in Pivot.  Single feature becomes the whole product. 
• Zoom-out Pivot. Whole product becomes a single feature of a much larger product.
• Customer Segment Pivot.  Same product but for a different customer.
• Customer Need Pivot. Problem is not important to customer, but in the process of finding this out, it creates an intimacy with the customer that reveals a true need.
• Platform Pivot.  Moving from an application to a platform for vehicle for third parties to leverage.
• Business Architecture Pivot. B2C (low margin, high volume) vs. B2B (high margin, low volume)
• Engine of Growth Pivot.   Sticky vs. viral vs. paid. See below. Changing engine of growth requires a change in the way value is captured.
• Channel Pivot.  Same basic solution could be delivered through a different channel with greater effectiveness. Example: company abandons a previously complex sales process to "sell direct" to its end users.
• Technology Pivot.  Use different technology to deliver same solution to same customer, same channel, same value capture.

This year, I had several pivots wrapped up into a new business strategy. I helps me put into perspective how much I really am learning and allows me to cut myself some slack.   Photo by idovermani

 

New Customers Come From the Actions of Past Customers

This one sentence from the book was so simple, yet so striking.  I don't think I had ever thought about creating business sustainability in those terms–through the actions of past customers. Ries defines four possibilities:

• Word of mouth. I'm trying this out now, by providing past customers great deals on new programs for a limited time and encouraging them to share with friends. I'm finding this is not as easy as it sounds, as how the person tells their friends or network makes a huge difference as well as whether it's an individual conversation or a mass broadcast. Promo through a newsletter or social media? Not much help. Showcasing a guest blog post?  Works, but slowly. Telling your co-worker who you have lunch with everyday?  Gets even better. Photo by Ethan Hein

• Side effect of product usage.  This is where an idea or product goes viral.  I seem to think this is really hit or miss.

• Funded advertising. Cost of acquiring a new customer is less than the revenue that a customer generates. Hasn't worked for me yet, but this traditional model works for a lot of businesses. 

• Repeat purchase or use. Subscription. Yep, that's something I'm trying out this fall.

 

What's Your Engine of Growth? 

Honestly, I've been a solopreneur for nearly a decade, and I've never asked myself this question.  It's the difference between what Michael Gerber, the author of the E-Myth books would say, "working on your business vs. working in your business." Ries provides three possibilities to consider:

• Sticky. Once you start using the product, it's hard to switch.  Designed to attract and retain customers for the long term. Attrition or churn is key metric. Growth – attrition = positive number.
• Viral. Customers do the lion's share of marketing. Viral coefficient is key metric. How many new customers will use a product as a consequence of each new customer who signs up? How many friends will each new customer bring with them? Not for my business but may be for yours. 
• Paid. How much does it cost to sign up a new customer? Revenue/customer – cost of acquiring customer = positive number

It's too soon for me to tell which of the above will be the engine of growth for my newest initiative, but it's good to have this framework as I move forward. Seeing the big picture while working on the details is an art that every entrepreneur needs to master. Photo by taylor.a

Would love for you to share your stories with any of these concepts. Stories are how I learn best and how wisdom is shared.