“The quickest path to a fast-growing company is through efficient leadership and constant evaluation of your goals” Eric Ries, author of the Lean Start-up.
Nowadays the biggest challenge innovators are facing is to demonstrate that the activities that are being performed at microscale will sustain growth consistently. Imagine what would happen if you’re an investor and I come to you and say “Hey look, I’m in a viral business. I only have a few thousand costumers but I have empirical data about what is really working and what is not. The data says we are in the right path. So, if you give me resources we will be able to pass the threshold and make a lot of money”.
Innovators are currently evaluated based on a plan. If they are below the plan they are performing bad, in contrast, if they are delivering faster than what was planned they are performing extremely good. But the question is, what if the plan leads to nowhere? That kind of accounting based on a plan is from the past century, we now need other metrics to measure innovation. Here’s how:
1 – Establish a standard measure of progress
Let’s use as an example that you are developing an App that will allow expats to meet with other expats that are currently living in the same city.
ACQUISITION – How do users find you? What’s the percentage of users who see your ad and visit your website?
ACTIVATION – Do users have a great experience? What’s the percentage of users that, for example, are logging in to your platform. How much time do they spend in the platform? Are they behaving the way you expected?
RETENTION – Do users come back? YES! Ok, do you know what essential feature is calling them back? If you’re not able to answer this question you’re in trouble because you don’t know which are the roots of your success. Therefore you don’t know what features you need to develop to keep growing.
REVENUE – How do you make money? What is the percentage of users who are currently paying to use your platform?
REFERRAL – Do users tell others? That is critical. If users are not referring your platform you will be stuck in the land of the living dead. You are making some money, achieving some growth but actually growing way below your expectations.
How do I know what is working and what is not? By experimenting. By performing A/B split tests and by tracking the results of that experiments. Experiment 1 might have features A, B, C and experiment 2 features B, C and D. If the activation rate and retention of experiment 2 is higher than that of experiment 1 then you just discovered that feature D is essential to your platform.
2 – Measure everything as a cohort
That is a crucial thing to do. You need to track the results of each experiment by cohorts (Independent groups of people) to see whether the metrics you are evaluating are increasing or decreasing over time. Accumulated metrics can lead to misunderstand what is really going on. I won’t invest money if someone approaches me and says: “I have 2000 users in my platform” My answer will be, so what? Can you demonstrate me that you’re in the right path?
On the other hand, if someone comes and shows you 1) A clear tracking of insightful baseline metrics with a positive tendency 2) The hypothesis that needed to be validated and 3) A set of experiments performed in order to test that hypothesis… What would be your reaction?