Tag Archives: lean startup

Was the Tesla Roadster a MVP?

Tesla recently announced their plans to go IPO. The  desire to go public was not much of a surprise to anyone who had been paying attention, but buried in the S-1 was one thing that most people hadn’t speculated upon: Tesla is no longer going to make the only car they’ve ever made… the Tesla Roadster.

This was somewhat surprising news and while many people have been very skeptical of Tesla (myself included), they have managed to turn very little into a lot of financial support (from Daimler and the US Government) and now seek an additional $100 million in their IPO. How did they do this?

And then I thought about it. The Tesla Roadster, in prototypical lean startup fashion, was a minimum viable product (MVP). They identified a product that they thought the market was interested in. They threw an electric engine in a Lotus body and they stood back an saw if anyone would buy it. Consumers ( and investors) bought in and then Tesla said, “OK, now we have to make the real car.”

It was the equivalent of selling a barely functional web service by merely setting up a sell page with a Google Forms document.

Also in true lean startup fashion, Tesla made an iteration based on the market. Through sophisticated market research (I’m sure) they realized that they would need to expand their target market beyond aggro VCs from Atherton. Hence the move from the sporty Roadster to the Model S sedan. Well, that and the fact that the US government gave them money for the Model S, not the MVP.

Obviously, this article is somewhat tongue-in-cheek, but what Tesla has done really does validate the lean startup model. Get your product out there first, make sure it works and then make the changes that the market demands. The one caveat is that if you are an automobile or consumer electronics startup you are not lean. You have high manufacturing and material costs. You need sufficient runway to succeed.

I worked at a CE startup that launched what the customers called a “beta product,” but could adequately be described as a MVP. The result was not pretty and not because valuable data wasn’t gathered in the process, but because most consumers do not want an MVP– especially in an established space. If you are going to try an MVP in anything but a burgeoning market, you should expect a major hit on your brand and you need to have the runway to survive. As far as I can tell Tesla may have succeeded by the slimmest of margins. Time will tell.

Marketing for coders (part 1)

The situation: You’re a technical co-founder, launching/managing a startup on a shoestring. You don’t have a marketing budget, but you need to reach a consumer (non-technical) audience. There’s good news to be had, you can use your technical skills to build a marketing apparatus for virtually nothing.

For the sake of this discussion, marketing will be discussed in relation to the customer ecosystem model.  Part one will focus on acquisition and conversion. Part two will look at upsell and retention.

Acquisition

Acquisition is what most people think of when they think of marketing. However, it’s important to keep in mind that marketing does more than acquire customers.  Marketing engages customers. Marketing upsells customers. Marketing retains customers.

Because acquisition is when the funnel is the broadest, it gets most of the attention.

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Search engine optimization (SEO) is the no-brainer of acquisition. SEOmoz.com is a great resource for those interested in SEO information and I found this presentation that they gave to the Y Combinator folks to be a great overview. There are two ways  to attack the problem of SEO. You can see what keywords you appear in and improve your ranks in those areas or you can see what people are searching for and then build around that. I prefer the latter. The best way to optimize in my view is through multiple landing pages with relevant content that can be swapped out early and often to remain fresh. Utilizing a free content management system is probably the easiest way to do so. That being said, if you’re a real estate site don’t optimize around Miley Cyrus. You should optimize around FSBO, foreclosures, and short sale even if you’re a site like Zillow whose niche is not listings but property values.

All of this can be accomplished for free through an adwords account. You don’t need to specifically pay to advertise with Google to get access to their tools, you just need an adwords account. As far as optimizing for other search engines, I wouldn’t really bother. Google’s share of the paid market is about 80% and for all intents and purposes, the paid market represent the value of the search.

SEO also helps validate your idea. If you’re having trouble finding the right long tail of searches, perhaps the market isn’t there for the solution you proffer.

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Virality of product is probably the best way to acquire new customer. How did you first register for Facebook or Twitter? I can promise it wasn’t via a banner ad or a paid text link. Chances are, however, that you’re not building the next Facebook or Twitter. Therefore, it is important that you build social tools into your product in a way to enable sharing and promotion.

Virality works best when it’s baked into the product. The quick and easy thing to do is to enable someone to share their activity via Facebook or Twitter. This is getting old quick, however, and I’m sure that I’m not the only one with status ennui. Much better to have engaged user send a customized e-mail to a close friend or share a heartfelt message to their blog than to have them post a half-assed Twitter update to 72 followers.

Be creative and you can build a viral feature into almost any web product

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Co-marketing is another great way to great way to acquire customers. Now since we’re talking zero budget marketing this might be tough, but not impossible. Look at these examples from Billshrink and FourSquare. Getting a top-tier mobile carrier or cable network to feature your product in a national television advertising campaign may not be in the cards, but look around for natural partners, especially ones that might benefit from aligning with your technology and your product.

If that doesn’t work so well, do a charity fundraising with your users. First off, you will get lots of karma for doing something good. Secondly, you will engender a lot of goodwill and curiosity with others who are associated with that charity. Silicon Valley is in LOVE with Kiva.org and doing a campaign for them will get the attention of the valley’s entrepreneurs. Be sure, though, that your charity efforts are something that your users and your target market are passionate about. This is marketing after all and don’t feel guilty or cynical for using this as a way to acquire new users. It’s still a net positive for the charitable organization.

Conversion:

Conversion is all about landing pages. The better the landing page, the better the conversion. Period.

Ideally you should have a landing page for almost every search term, while this is an important part of optimization to bring in the traffic, it’s also an important part of the converting the traffic.

Having multiple landing pages is a great way to bring in diverse traffic. Once you bring that traffic in, you need to fine tune the landing pages to determine the best way to convert those potential customers.

A few tips:

  • A strong visual component.
  • Very little text
  • A strong call-to-action (CTA)

Your CTA should probably be in the form of a button. Here’s a great primer to get you started. The important thing is to have multiple iterations and to continue to refine.

Working with Google Website Optimizer makes the process almost pain-free. Starting off with simple AB tests makes sense, but you’ll probably want to move into full multivariate testing soon thereafter just because it’s so much fun.

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The other big part of conversion is  understanding where your traffic is coming from. While it’s easy to find out where traffic is coming via Google, it’s a lot harder to track conversion from viral efforts. it is especially hard to track success when you have multiple viral efforts going at once. Therefore it’s important to build the ability to track campaigns.

Ability for promo codes is probably the best way to track a viral campaigns success. The ability to accept promo codes will help whether it’s an invite to a closed beta or an opportunity for free/discounted use of a premium feature. Moving forward, it will also help track the success of paid marketing campaigns.

Easier than setting up a promo code is a unique landing page: it.com/promo, but in my experience people tend to read right through these and go straight to the homepage. Especially if they are obviously promotional, like it.com/radioad.

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Look for part 2 to this post next week.

Lean startup viability: how to know when to quit

This post was prompted in part by a discussion a few weeks back by former Joost COO Hedrik Werdelin’s post, “Twitter used to be a crappy idea”,  about Twitter and their viability as a startup based on user metrics. While I think the article was more linkbait than reasoned analysis, it did raise an interesting question. How do you determine the viability of a lean startup? Or more importantly, how do you know when to quit?

In a VC or even angel-backed startup your viability, assuming you are not profitable, is generally based on one thing…. The ability to raise additional funding. When the money runs out either you raise more funds or you go home.

In a lean startup however, there is no such Darwinian fate. By the very nature of a lean startup and its iterative customer development process, a lean startup can live virtually forever and perhaps never find success. Therefore it falls to the entrepreneur to decide when to cut bait.

In this post I have applied the customer ecosystem model below (also see examples for Zynga and Twitter) as a means of determining lean startup viability.

Wederlin’s point was that Twitter had poor user acquisition growth and user numbers in the early years of the business.

Now, I think this point is debatable, but let’s assume for a moment that this is the case for StartupX.  StartupX launches and sees low to moderate user adoption. Despite this, there is no reason to necessarily throw in the towel. However (contrary to Wederlin’s assertions), mere faith in the technology or the team is not enough. You need to have strength in one of the following customer ecosystem areas: conversion, upsell, or retention.

Conversion

Almost more important than user acquisition is converting those new users once they arrive at the site. Obviously each type of web startup has has its own metrics, but  if conversion and usage is high it can more than make up for poor acquisition results. Consider the case of Twitter. Sure it’s user base may have been growing slowly, but is that how they were measuring success? More than likely they were looking at other metrics as being important:

  • % of unique visitors who register
  • % of users who send a tweet
  • % of users who follow someone
  • % of users who have followers
  • % of users who tweet 5 times a day
  • % of users who have more than 100 followers

Merely looking at the number of new registrants is a poor way of measuring success, but also growth. Internally, even though acquisition growth may have not been growing as they had hoped, my hunch is that metrics like those above were growing strongly, indicating that they were on the right path. They weren’t just flying blind.

Now let’s look at imaginary StartupX:

After a brief write-up in a techblog, StartupX gains 15,000 new users. Six months later they are adding only 500 new users a month and the active userbase is steady. Time to cut the cord? Not necessarily.

Consider:

  • 65 percent of unique site visitors register and create a profile (up from 33% just two months ago)
  • 35 percent of users post content on StartupX (up from 25% three months ago)

Metrics like these are good and would indicate that (contrary to the acquisition numbers) that StartupX is still viable. There obviously are acquisition issues (wrong target market, poor virality, etc.), but when one aspect of the customer ecosystem is executing well, it means that with a sufficient pivot, the startup is viable.

Upsell

Are people paying money for your product? Usually this excludes about 90% of web startups, but cash money can be an amazing salve for a startup which is not experiencing substantial new user growth. If you are able to get users to pay either a one-time fee or a subscription then you have something to build upon.

Let’s look at the StartupX upsell scenario.

StartupX has a premium service for active users which includes and enhanced profile and unlimited uploads. Despite the fact that user growth is slow, more than 5% of active users pay for the premium service. Not only that, only 1% of users paid for a premium membership 4 months ago. Growth in premium subscriptions is a much more valuable metric than total user growth. Some users are more equal than others.

The trick here is that if you are getting people to pay for your product, you need to work to identify how large the realistic addressable market is and determine strategies to get traction in this market. If you’re bootstrapping, it does you no good to be exaggerating your addressable market (as opposed to when you’re trying to raise VC). However it behooves you to look far wand wide and identify other groups that may pay for your product. The key here is to continue growth in this revenue stream.

Retention

Retention is the kissing cousin of conversion in the customer ecosystem model. For conversion, is the content/experience compelling enough to for you to register or participate? For retention, is the content/experience compelling enough to keep you coming back.

If, for example, 80% of registered users are coming back on a weekly/monthly basis, there’s a lot of potential in what you are doing. Even low to moderate user growth with high retention levels can be a success.

Overcoming Acquisition Issues

In order to be successful, every startup will eventually need to figure out the acquisition puzzle. Sometimes there are businesses where the acquisition costs are just too high for a viable business. The point however of this blog post is that startups need not initially live and die by acquisition numbers. Other components of the customer ecosystem model are equally important components to figure out and basing viability on initial acquisition efforts is foolhardy.

Knowing When To Quit

If your acquisition efforts are failing, there need to be signs from other places in the model (conversion, upsell, retention) that the business is on the right path. If you’ve been at it for a long time and acquisition is poor and everything else is muddling along, then it’s time to quit. However, if you have found that you can either convert, upsell or retain customers well, then keep plugging away.  The feedback from users is that your startup is on the right path…. now it’s time for incremental improvements in the other areas of the model to allow the business to reach the next level.