Data: A Startup’s Secret Money-Making Asset

matrix

The pervading approach to launching a startup is to do it quickly, iterate constantly and make as much noise as possible throughout the process. It’s not a bad way of doing things, and given the lower cost of startup operations, and the nature of consumer web startups in particular, and it’s completely doable. But be careful if you’re not a data hog.

Getting your startup launched as quickly as possible is fine – you need to get it in front of people to understand what’s working (and not), and get as much feedback as possible – but you should also spend a good chunk of time preparing to collect data. That means building the necessary infrastructure into your system to collect, review and analyze the data generated by users.

What Data Should You Collect?

Anything and everything. Collect as much as you possibly can, even if you’re not sure of its value upfront. Data has a sneaky way of revealing things over time – things you might not have thought of immediately. Data has a way of helping you figure out what questions to ask, because it exposes trends, and allows you to look at things with different perspectives.

Ask Basic Questions to Start

Start by asking yourself some basic questions on how you expect your application (or hope your application) will be used. There are some fairly common questions and data points that will be of value regardless of what type of application you’re building (be it B2B, B2C, etc.) For example:

  • how often do people log in?
  • how long do they use the system?
  • what features are people using?
  • when are people using the system?
  • where are the users located geographically?

If you’re out of the gate with a business model and charging customers, there are a whole bunch of additional questions you can ask:

  • how many people are paying?
  • what are they paying for?
  • what payment plan are they using (if you offer monthly, yearly, etc.)?
  • how much are they spending?

Questions Beget Questions

As you start to ask questions and answer them with the data you’re collecting, it will lead to more questions. Getting into an analytical mindset of evaluating trends through data will help you uncover all sorts of interesting things. Here’s a good example from Standout Jobs

We currently distribute job postings to a variety of job boards and job aggregators, including SimplyHired and Indeed. We also sponsor jobs on both SimplyHired and Indeed (through a pay per click model) to see how well those jobs perform in terms of generating clickthroughs and applications. And we want to compare the two of them.

A few simple and obvious questions we ask (and collect the data for) include:

  • how many clickthroughs are generated from these job aggregator sites?
  • how many applications are generated?
  • how much is it costing us per click and per application?

What’s interesting is that we notice a higher clickthrough and application rate for new jobs that get submitted through our feeds into SimplyHired and Indeed. That makes sense, of course, because people are always looking for the freshest jobs. So that leads to the next question, “How many clickthroughs and applications do we receive for jobs over time?”

This is interesting because it can affect how we spend money on sponsoring jobs. If we see that a job receives almost no applications after it’s been in an aggregator for 2 weeks, why bother paying for it show up anymore? So that leads us to think about optimizing our spending based on the age of jobs…

That leads to a whole bunch of other questions, all of which are answered through the data we collect.

Data = Money

You can make money from data in a few ways:

  1. The data itself can be valuable. People will pay for data if it helps them answer questions they need resolved. It’s really as simple as that. And entire businesses have been built on collecting data and reselling it, or selling the knowledge gained from the data.
  2. The data can optimize your business. You can use the knowledge gained from data to become more efficient and innovate, which will save you money. And saving money means making money.
  3. The data can lead to new business opportunities. Simply understanding what parts of your product people use can help you find ways of staying focused and making more money from it.
  4. The data can drive product development. You may even discover new products worth building based on the data you’re collecting.
  5. The data can drive sales. For example, we track “last login” for customers that haven’t yet published their career web sites. When we see a prospect that’s recently logged in, we get in touch to see how things are going, and very often can convert them on the spot.
  6. The data can improve customer support. Fixing bugs is always frustrating when you don’t really know what a user was doing. And as much as you’d like them to tell you, they can’t always do a good job of it. If the data can help you figure out how somebody was doing something when they ran into trouble, you’ll be able to fix it faster. That’ll make your customer happy. Happy customers spend more money.

Startups need to collect data.

Incidentally, VCs love data. They understand the value behind it, and how entire businesses can be discovered, created and evolved off of collecting lots and lots of data.

Data Doesn’t Always Tell You Why

Data can tell you a lot of things, but it doesn’t always answer the question “why?” Answering “why” typically requires more analysis of what’s going on, a deeper understanding of user behaviors, some guesswork and investigation. Don’t be afraid to go to your customers and ask them “why” — often they’ll be happy to tell you. And then you can correlate user answers to what you see in the data, and make the best decisions from there.

April 21, 2008 Posted in Startups by

  • Lior

    Another great post.One of the best thing about the web is that you can measure everything. Using tools like crazyegg and clicktale could also help.

  • Lior

    Another great post.One of the best thing about the web is that you can measure everything. Using tools like crazyegg and clicktale could also help.

  • http://montrealtechwatch.com heri

    Ben, thanks for this. I am in tune to what you are writing.

    can you point out to any solution that does this? are you guys using a third-party service? or is it a trivial thing to do technology-wise that you guys implemented this yourself?

    thanks

  • http://montrealtechwatch.com heri

    Ben, thanks for this. I am in tune to what you are writing.

    can you point out to any solution that does this? are you guys using a third-party service? or is it a trivial thing to do technology-wise that you guys implemented this yourself?

    thanks

  • http://theretailblog.com Erik

    This is really interesting. When we built our search engine for retailers to find new products to sell we built in the capability to track just about everything that the user does. Our privacy policy also allows us to aggregate that information. We’ve been operating for just about a year now. We’ve got gigabytes of usage data that is very helpful in determining how people use our site. However we’re still not sure if we can monetize the data. This post certainly helps!

  • http://theretailblog.com Erik

    This is really interesting. When we built our search engine for retailers to find new products to sell we built in the capability to track just about everything that the user does. Our privacy policy also allows us to aggregate that information. We've been operating for just about a year now. We've got gigabytes of usage data that is very helpful in determining how people use our site. However we're still not sure if we can monetize the data. This post certainly helps!

  • http://www.jscreeb.com J. Screeb

    Keep up the good work.

  • http://www.jscreeb.com J. Screeb

    Keep up the good work.

  • http://startupcfo.ca Mark MacLeod

    Ben,

    As you can imagine, I’m all about data. One tool I use to quickly get a handle on vast amounts of info is Tableau (http://www.tableausoftware.com/). This is a visual analysis tool that sits on top of your database. One of the founders is from Pixar, so the UI is great. Very usable and very powerful.

  • http://startupcfo.ca Mark MacLeod

    Ben,

    As you can imagine, I'm all about data. One tool I use to quickly get a handle on vast amounts of info is Tableau (http://www.tableausoftware.com/). This is a visual analysis tool that sits on top of your database. One of the founders is from Pixar, so the UI is great. Very usable and very powerful.

  • http://www.instigatorblog.com Ben Yoskovitz

    @heri: We build our own reporting, but Mark’s suggestion is something I’ll take a look at further.

    @Mark: Sounds like an interesting application, I’ll definitely take a look.

    @Erik: Obviously I don’t know what you have in terms of data, but it sounds like there’s a lot of value locked in there…

  • http://www.instigatorblog.com Ben Yoskovitz

    @heri: We build our own reporting, but Mark's suggestion is something I'll take a look at further.

    @Mark: Sounds like an interesting application, I'll definitely take a look.

    @Erik: Obviously I don't know what you have in terms of data, but it sounds like there's a lot of value locked in there…

  • http://www.simplesearchapartments.com/ Jonathan Frank

    I actually just set up all my data collecting software a few day a go and the data has not been collecting long enough for me to make heads or tails of it yet.

  • http://www.simplesearchapartments.com/ Jonathan Frank

    I actually just set up all my data collecting software a few day a go and the data has not been collecting long enough for me to make heads or tails of it yet.

  • http://www.masslogics.com Ross

    Long time back I found it myself that Data is Money. I am pretty happy that I am getting pretty successful from it. Collecting data is not easy task but you will get reward profoundly once you manage it wisely.
    I agree this is very important discussion in this blog.
    Thanks

  • http://www.masslogics.com Ross

    Long time back I found it myself that Data is Money. I am pretty happy that I am getting pretty successful from it. Collecting data is not easy task but you will get reward profoundly once you manage it wisely.
    I agree this is very important discussion in this blog.
    Thanks

  • http://www.nepatriotsdraft.com James Christensen

    It’s amazing how much data is worth when looking to sell your company as well

  • http://www.nepatriotsdraft.com James Christensen

    It's amazing how much data is worth when looking to sell your company as well

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  • val

    Ben,
    I rarely leave comments but this is such a great post i had to drop a line and say thanks. While the adage of “there is no such thing as an original thought” is partially true what there IS is new WAYS of saying the same thing that put a new perspective on them (if you dont believe me just see how 90% of great punk songs use the same chords). As such, this post is now required reading for my friends and coworkers in the startup world. I might suggest a few additions to the list:
    1. James’ point in #9 above. I think im going to incorporate this into my Angel/VC pitches, especially to imply that even in a worst case scenario our data and ability to market the value of that data to acquirers will minimize investment loss.

    2. Data that you collect now and have no new idea what to do with might become VERY valuable in the future if you have new ideas or change direction. Data you dont know what to do with is almost MORE valuable because, as you say on another post, it becomes part of the puzzle of the startup equation. I think this is especially true since there is more and more data available and tools and thought paradigms for how to deal with that data always lag behind the explosion. This is why i keep even as much personal data (like browsing history etc) as i can.

    3. The less obvious it seems your startup is “data reliant” the MORE you need to think about data and occasionally bring it top of mind. Thinking about data and how to collect/analyze it alot in a seemingly non-data oriented business i think could be a significant source of competitive advantage. (and i think VCs would like this view)

    4. Every time your product changes, you add/remove a feature, you form a new partnerships, or anything else changes i think it is a good exercise to put on the data hat and think “ok how will this change our data strategy?”

  • val

    Ben,
    I rarely leave comments but this is such a great post i had to drop a line and say thanks. While the adage of “there is no such thing as an original thought” is partially true what there IS is new WAYS of saying the same thing that put a new perspective on them (if you dont believe me just see how 90% of great punk songs use the same chords). As such, this post is now required reading for my friends and coworkers in the startup world. I might suggest a few additions to the list:
    1. James' point in #9 above. I think im going to incorporate this into my Angel/VC pitches, especially to imply that even in a worst case scenario our data and ability to market the value of that data to acquirers will minimize investment loss.

    2. Data that you collect now and have no new idea what to do with might become VERY valuable in the future if you have new ideas or change direction. Data you dont know what to do with is almost MORE valuable because, as you say on another post, it becomes part of the puzzle of the startup equation. I think this is especially true since there is more and more data available and tools and thought paradigms for how to deal with that data always lag behind the explosion. This is why i keep even as much personal data (like browsing history etc) as i can.

    3. The less obvious it seems your startup is “data reliant” the MORE you need to think about data and occasionally bring it top of mind. Thinking about data and how to collect/analyze it alot in a seemingly non-data oriented business i think could be a significant source of competitive advantage. (and i think VCs would like this view)

    4. Every time your product changes, you add/remove a feature, you form a new partnerships, or anything else changes i think it is a good exercise to put on the data hat and think “ok how will this change our data strategy?”

  • http://www.instigatorblog.com Ben Yoskovitz

    @val: Thanks for the in-depth comment … much appreciated.

  • http://www.instigatorblog.com Ben Yoskovitz

    @val: Thanks for the in-depth comment … much appreciated.

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Ben Yoskovitz
I'm VP Product at Codified (makers of VarageSale).

I'm also a Founding Partner at Year One Labs, an early stage accelerator in Montreal. Previously I founded Standout Jobs (and sold it).

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