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A Great Case Study of Customer Development + Pirate Metrics + Lean Startup

This is a brilliant case study of someone using Customer Development, Pirate Metrics and Lean Startup principles to develop their startup.

If you’re not familiar with these three concepts, here are the 3 links you need:

  1. Steve Blank’s blog on Customer Development
  2. Startup Metrics for Pirates: AARRR! by Dave McClure
  3. Startup Lessons Learned by Eric Ries

And you should also consider buying Steve Blank’s book: The Four Steps to the Epiphany (aff)

The presentation is something you should bookmark (or bookmark this post) for future reference. If you’re in the midst of launching a startup, you’ve already launched, or you’re thinking about launching something, please do yourself a favor and check out this presentation and the additional resources provided. You’ll save yourself a considerable amount of pain and frustration.

Startup Case Study
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To summarize Customer Development, Lean Startup and AARRR – Pirate Metrics, here’s what you need to know:

  • Write out your key assumptions based on the problem you’re solving. There’s a very good chance your assumptions will be wrong, but if you don’t write them down succinctly and with some manner of thought behind them, you won’t be able to test against them properly.
  • Think about a Minimum Viable Product (MVP). An MVP is the smallest possible product you can launch that people will pay for. I’m simplifying and generalizing (and there’s a ton more you should dig into), but do away with the waterfall strategy of building some robust, full-scale application before launching and instead get down to the real crux of things – what’s the smallest thing people will buy?
  • Use actionable metrics for testing. A lot of metrics are just bullshit. They aren’t actionable; you can’t do anything with them. AARRR stands for: Acquisition, Activation, Retention, Referral, Revenue. You need actionable metrics that you can adjust your assumptions, product, and entire business on.
  • Stay lean, learn to pivot. The concept of a pivot from Eric Ries is that you have to shift direction (sometimes quite substantially) with your product and/or business, but it must be grounded in learning.

The Customer Development process might seem tedious but it will save you a ton of headaches down the road. This overall approach might feel like an increased burden of planning and management, but these systems are in place to make sure you don’t head down a path that’s not going to generate the result you want: a successful startup.

YourVersion Sign-Up Process Works

YourVersion is a newly launched web application from the Techcrunch50 conference. YourVersion is a discovery engine that looks to provide you with good content from all over (blogs, multimedia sites, social sites, Twitter, etc.) in an easy-to-use, aggregated way. It also has a toolbar for bookmarking (and categorizing) content, plus sharing. Tracking all the content you’re interested in online is a huge challenge; there’s just too much content and not enough time. So this is generally a huge problem that a lot of companies are working on.

Whether YourVersion will succeed or not remains to be seen. But what’s interesting (and a good sign) is their sign-up process.

The initial sign-up process and subsequent next steps in many web apps is done very poorly. It’s something I recently complained about in a blog post, Web Apps Don’t Motivate New Users Enough.

The key problem isn’t just the sign-up process and getting into an application but what you do immediately after. What hooks you to play around, test out and ultimately / hopefully, get hooked on the app?

If you follow Joshua Porter’s recent presentation – Designing for Social Traction – you’ll see that YouVersion is doing a lot of things right.

Click images below for larger versions:

1. YourVersion’s Home Page

YourVersion Homepage

The home page of the site could use a bit of work, but generally it’s OK. I don’t like the use of the word, revolutionary, but having the BuzzTracker and Twitter integration gives the site a real-time feel, which is important since that’s a key aspect of the site.

Having the video on the home page is a nice touch as well, to give people a deeper (but still quick) view of things.

2. Welcome to the YourVersion Beta

Welcome to YourVersion Beta

There’s nothing incredibly magical about this page, but it’s simple and it works. The Facebook Connect option makes a ton of sense. I’d be curious to know how many people use that to get in versus the sign-up form.

I like the title of the page, Welcome to the YourVersion Beta. It makes me feel like I’m already participating. And the immediate feedback as I fill in form fields is a nice touch as well.

Again, there’s nothing revolutionary here – and I think they would benefit from telling me what step I’m on in the process, or how quickly I can get into things – but it’s a simple, clean and fast sign-up process.

3. Add Your Interests

YourVersion - Add Interests

This is the key step in the process. If people abandon here YourVersion is screwed. That’s probably not going to be an issue for the next little while as they ride the Techcrunch buzz, but over time this is the spot where they’ll need to measure conversion to the next step.

But I think they do a good job here. The process has been very quick and welcoming to-date, so I feel like I’m already participating and I want to fill in some interests. I do it quickly and move on, and this is where YourVersion does another smart thing:

more-interests

They change what I’m shown on the right side, suggesting some popular interests. I like this step because it suggests some things that they’re likely very good at finding content for, and at least for the early adopters I’d bet there’s at least 1 or 2 interests that people will check off in there. (Again, that would be a great thing for them to test.)

4. YourVersion Toolbar

YourVersion Toolbar

I’m now committed to the process, having provided my interests. I’m now motivated – and that’s key for the sign-up process. In my mind I’m already experimenting with the application and eager to see more.

I can skip the toolbar, but downloading it isn’t that painful an experience, so I do it. I even have to restart Firefox but I’m committed, so I go through the process.

5. Registration Complete!

registration-complete

The registration process is complete, and YourVersion does another smart thing by giving me the option to view the video. I’m more than likely going to just jump right into “start discovering” but I might pop open the video anyway for future reference.

It’s also a very smart move that I don’t have to verify my email address to get in. I can start discovering right away, and verify the email address after the fact. Having to jump into email to verify is a buzz kill.

6. YourVersion Discovery Page

YourVersion Discovery

Here’s what I see immediately after getting into the application. The video is again there – a great way to teach me how to use the app more thoroughly. Two links are highlighted in the right sidebar – one is for a survey. This is a great move: getting people to complete a survey as soon as possible helps collect a lot of valuable data about people’s expectations (as they were signing up), what they’d like to see, etc.

The sign-up / initial workflow into YourVersion isn’t ultra fast – there are a fair number of steps, especially with the installation of the toolbar. But they engage the user quickly and keep the pages very basic. The information is clear and I get more and more curious about the application as I go through the process. It’s quite clear what the application does and what I can (and should) do after signing up.

The sign-up process into a web app is critical. Equally as important (if not more important because of how easy it is to sign-up for most web apps these days) is what you ask the user to do immediately thereafter. For YourVersion it’s really the step of adding your interests (since just prior to that you completed the “standard” sign-up form.) From that point forward they’re working to get you motivated and engaged with their product even if you haven’t discovered anything yet.

Changing Equity Structures for Early Startup Employees

Recently someone asked me for advice on how much equity they should give to their early employees. His company had just closed an early round of funding and he wanted to cement the employee relationships. I gave him similar numbers to what I had been given when I was hiring the first few employees for Standout Jobs. And I told him that the numbers were fairly standard, based on guidelines I had seen used in other places. But I also told him that I though the numbers were wrong.

The numbers look quite similar to what is provided by Venture Hacks.

David Crow just posted about this very topic: Founders vs. Early Employees and shows the Venture Hacks chart.

Equity for startups

David’s absolutely correct when he writes, “Remember the goal is to incent early employees to have an emotional ownership of the product and company they are building. Equally said, potential employees need to understand what they are getting into.”

But having thought about this for some time, I’m not sure the numbers provided as guidelines above really do incent early employees to have an emotional ownership of the product and company.

This is especially true when you think of a tech startup, where the first few hires are typically engineers/programmers. 0.5-1% is just not a lot. Those first few hires – done correctly – will be so insanely critical for the success of your startup; I believe they deserve more. Those first employees will take 0.5-1% but they’re not going to be overwhelmed by it, or insanely incentivized by that equity alone. Most people know that the chance of a huge, $100MM exit are very slim (where their 0.5-1% is actually worth something!) The people who join startups would all nod their heads reading Dharmesh Shah’s 17 Pithy Insights for Startup Employees. (If not, you better go check them out.)

Paul Graham offers up a formula for the equity challenge, which I think proves the fact that those first few employees deserve more.

I recognize that it’s challenging to give much more than the accepted guidelines on equity to early startup employees. You can’t have an option pool that takes up 50% of the company’s shares, and you have to leave room for future employees as well. And, I don’t believe that anyone joins a startup exclusively (or even primarily) for the equity; if that’s the case, they’re the wrong employee. But nevertheless, I do think that the first few employees – especially those ever-critical developers – need to be more properly incentivized and made to feel closer to founders than employees. As John Cook puts it, great startup cultures are, in part, equity-driven.

The more that those first employees feel like founders in terms of their ownership, emotional attachment, responsibility and overall understanding of the startup process (including financing, running day-to-day activities, etc.) the better the startup will be.

I do believe that early employees should trade salary for equity. And if the equity values increase, it provides more reasonable wiggle room between salary and equity.

Incidentally, for all startup employees (or potential startup employees) I would strongly encourage you to read Chris Dixon’s blog, including this post: The one number you should know about your equity grant. Chris is putting out a ton of great content, and encouraging exceptional debate and discussion on startups and investing.

About Ben Yoskovitz
I recently joined GoInstant as VP Product. GoInstant changes how we use the web, making it shareable like never before.

I'm also a Founding Partner at Year One Labs, an early stage accelerator in Montreal. Previously I founded Standout Jobs (and sold it). I'm a hands-on startup guy, helping companies grow successfully from the idea forward. You can reach me at byosko at gmail dot com.

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