“How to start a startup” class 4

Following up on my previous post, here are the notes from Lecture 4 of the “how to start a startup” class at Stanford, featuring Adora Cheung, founder of Homejoy. Notes from class 1-3 are here. I also consolidate all notes into a single page here.

Lecture on how to get users. Disclaimer: every business is different, bring those advices smartly in your context

PRE-REQUISITES TO START A STARTUP
– Find a problem: what is it?
– Am I really passionate about that problem?
– Is it a problem other people have?
– have a lot of time to develop solutions to the problems you want to solve

THE NEWBIES APPROACH TO STARTUPS (I.E. WHAT NOT TO DO)
– build product in secret
– excessive press launch
– wait for users
– buy users
– give up
Don’t get into that cycle because you won’t get anything good.

WHERE TO START?
1) learn a lot, become an expert in a certain area, immerse yourself. Become a cog in your industry. You can become trapped into an industry you know too well, and start thinking like everybody else. But on the other side, if you’re totally new to an industry, you should immerse yourself in it to see where the pain points are.
Example of HomeJoy: Adora became a cleaner at a local company, learned how to do that job week, but more importantly, why cleaning companies would not scale, and what the market needed. Immersion resulted in key knowledge used to disrupt the industry.
2) identify customer segments. At the beginning, focus on a subset of users and really cater to their needs. You can expand to larger public later, but start with a smaller segment.
3) storyboard ideal user experience, that’s before you create the product or start coding. Not only the web site, but how customers find out about you, how they visit your site, learn more about you, then sign up, to after they finished using the product. Then put it into code, etc.

BUILD A MINIMAL VIABLE PRODUCT
– minimal features set. Smallest feature set to solve the problem you want to solve. You should be able to go to a person and explain what the company does in one sentence. When you start with no users, need to explain value simply.
– simple product positioning
– but this is not the hard part… getting first users is
– build fast, but optimise for now
– propose features even if they involve manual work, you’ll automate later
– perfection is irrelevant during early stage. Worry about giving a product to as many people as possible, ignore the edge cases
– beware of the frankenstein effect: listen to user feedback, but don’t build all the features you are asked. Give it a bit of time and consolidate all ideas, build only the most relevant ones.

FIRST USERS
– you and co-founder
– friends and family
– online communities: HackerNews, Reddit
– local communities: influential local community mailing lists (for ex: sites for parents)
– niche influencers
– cold calls + emails
– press

CUSTOMER FEEDBACK
– immediately after first users, make yourself easily available for customer feedback
– if you setup a phone line, have a voicemail so you don’t have to pick up
– survey ok, interviews much better. Meet people using your product, make it into a conversation. Get users at a level where they feel they should be honest with you
– quantitative feedback: customer retention is one of the key metric, but a very hard one to measure.
– qualitative: ask why, why and why again
– beware of honesty curve. People won’t necessarily dare to tell you your product sucks in your face
– you will get more honest feedback on a paying product than on a free product (click on image to enlarge)

FEAR OF BEING COPIED
– S is for stealth, and stupid…
– there is a first mover advantage
– execution is the key, beat competitors with a superior product

READY FOR A LOT OF USERS?
– learn one channel at a time (Facebook ads ≠ google ads, android ≠ iOS) [See for example BuzzFeed, company organised by channel http://a16z.com/2014/09/18/a16z-podcast-for-buzzfeed-sharing-is-the-metric-that-matters/]
– iterate on things that work, get better at them
– revisit a failed channel and try to crack it at a later time

TYPES OF GROWTH: STICKY
good experience wins
customer lifetime value +  cohort analysis (https://en.wikipedia.org/wiki/Cohort_Analysis) important. Look at the graph below, what you want is to push the black solid line up, as repeat users buy more and more (click to enlarge)

TYPES OF GROWTH: VIRAL
wow experience: what’s going to make people shout about your product on twitter and Facebook?
good referral programs (where users can refer the product to their friends, and perhaps get rewards in the process):
1) touch points (where can people learn they can refer their friends? after a certain time of usage, or just after signup? Propose referring friends at point when users are highly engaged and happy)
2) program mechanics: make money when people you refer sign up
3) referral conversion flow: optimise the signup process for someone who has been referred. Might have to be a different process from traditional signup process (for ex, user will already be connected to user who referred them).

TYPES OF GROWTH: PAID
[Personal note: remember “advertising is the price you pay for being boring”]
– Search Engine Marketing, display ads, Facebook ads, groupon / daily deals, street marketing, b2b sales, direct mailers
– is your CLV (customer lifetime value) superior to your CAC (customer acquisition cost)?
– CAC = CPC (cost per click) x conversion. For ex: CPC = $10, conversion = 10%, so CAC = $100. If your CLV > 100 -> this advertising makes sense
– try to calculate CAC & CPC per customer segment
– beware of payback time. If CAC takes time to come your way (for ex: customers pay after 6 months), CPC is immediate and will kill your cash-flow.

THE ART OF THE PIVOT
– when do you decide to pivot? when growth stops, or when the business stops making sense.
– have a growth plan when you start out, try to set objectives for yourself in terms of users growth
– if you see a stagnation in the growth of users for 3-4 weeks [startup time is x10 corporate time!], then it’s time to consider a pivot, you’re probably doing fundamentally wrong.

I am an entrepreneur and researcher passionate about understanding the social implications of digital technologies.
1 comment
  1. […] on Stanford’s “How to start a startup class” [update: I've added lecture 4's notes, and compiled all notes in a single page […]

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