The Engine of Growth (Thu Nov 2, lecture 17)

Homework due for today

Legend: :Participation :Early :PDF

  1. Read: “The Lean Startup”, Chapter 10. This chapter is all about achieving sustainable growth. Please answer the following warmup questions: * Can you distinguish sustainable growth from unsustainable growth? Come up with a specific example to demonstrate your explanation. * The chapter talks about the cost of customer acquisition. What does that mean, and give some examples of different customer acquisition tactics and what their costs might relate to. * What is the viral coefficient? Use an example NOT in the chapter. * What 1 or 2 important things from the reading did you not understand? And if you understood it all, then what 1 or 2 important things were most insightful/useful/valuable to you. Please make sure I can tell which is which! * Deliverable: Answer the Warmup questions in Latte
  2. Develop and test a landing page. This is a team deliverable. Make sure you tie it to a real hypothesis. Be specific in the audience to whom you are presenting it so you can make sense of what it’s telling you. There should be at least 30 distinct responses to it. This is also one of the deliverables for Stage 2 of Term Project Outline. Here are lots of more tips on how to proceed: Landing page. Team Deliverable: Brief report on process and results. Include url to the actual page.
  3. Self and peer assessments:: <p>Self and Peer Assessments: Think about your and each of your teammates contribution to your team. Factors to think about: attendance and timeliness to the team meetings, contributions in words and deeds, contributor to positivity and harmony, willingness to step in when things go wrong, factor in the overall success of the team so far. For each individual team member, including yourself, rate them numerically: * 4: Critical factor in our success, a leader, always there for us, couldn’t have succeeded without him/her. It’s unlikely that all members rate a 4. * 3: A good contributor, a full fledged team member, glad to have him or her on the team. * 2: Usually a good collegague to have, but could have done more. Didn’t always show up or deliver on commitments. Not sure we could count on him/her. * 1: Disappointing, often a no-show, caused us delay and frustration. A net negative. * Write at most 3 sentences to explain ratings other than 3. * Deliverable: Posted on latte as a pdf. It should be around 5-10 lines of text total.</p>

  4. Teams: Meet for at least 2 hours per week! Continue working on Stage 2 of Term Project Outline. Continue refining your product, getting more feedback and supporting information and preparing your Term Project Final Deliverables

Getting to growth

  • Some basic questions to ponder
    • Is it a business or a hobby?
    • What is the objective?
    • Is it sustainable?
    • How much investment does it need?
    • How do YOU define success?
  • Revenue
    • Where does the revenue come from?
    • When does it arrive?
    • What metrics drive it? (revenue drivers)
  • Non-revenue goals
    • It’s not always about money
    • Number of people vaccinated
    • Number of students who get an internship
    • Number of voters who vote
  • Some models of growth
    • Sticky Engine of Growth (subscription)
    • Viral (users invite other users)
    • Paid (simple purchase, one shot)
    • Accessory (in product purchases)
Let’s work through a detailed example!
  • Group work. Lets model a very simple case
    • Company “MerchMachine”
    • Manufactures and sells t-shirts
    • With advertising expects to sell 10% more t-shirts each month
    • Each t-shirt costs $7 to manufacture and sells for $12
    • Employs 3 people
    • Question: Is this a good business?

Sustainable growth

Discussion: Under what circumstances do we say that we have sustainable growth?

  • Excludes one-time campaigns and actions
  • Systematic: built into the product’s usage
  • Comes from actions of past and existing users or customers
  • There are many ways in which using a product can drive revenue
    • Word Of Mouth (people recommend your product to others)
    • Side Effect of Usage (people see you using and want to use it too. Or in order to benefit you have to invite.)
    • In-product purchases (part of the experience of the product requires you to spend money inside it.)
    • Subscription (or need to re-buy) (access charges, periodicals, expiration or consumption.)
    • Funded advertising (When advertising gets more users, and is funded from revenue from users.)

Discussion: More ways? Think of all the products you know and use!

Tuning the Engine of growth

  • What is an engine of growth? It’s A metaphor and a financial model
  • Approach
    1. Identify key stages of relationship with customer
    2. Measure customers at each stage
    3. Analyze impact on financial model
    4. Tune the engine

Download and take a look at this simple financial model spreadsheet.

Key stages
  • Key stages…You don’t want all of these:
    • Visit: users come to the site from various channels
    • Repeat: come back to the site because they liked it.
    • Register: request a log in or register to become a user
    • Activate: actually activate their account (respond to an email)
    • Retain: come back at lease X times and use the site repeatedly
    • Refer: they refer their friends within X days
    • Pay: Actually send you money within X days
    • Abandon: Don’t log in aagain after X days
    • Cancel: Actually cancel their account
  • Measure
    • Which stage can you actually measure in your product or service?
    • Be very precise about the ones you decide to measure
    • You can’t/shouldn’t measure all of them
    • The ones that matter to you are the ones that tie in with your engine of growth
  • Model
    • How do you plan to make money or achieve your objectives?
    • Remember the different types of engines of growth
      • Sticky Engine of Growth (subscription)
      • Viral (users invite other users)
      • Paid (simple purchase, one shot)
      • Accessory (in product purchases)
  • Tune: Make changes, see the impact
    • Now that you know what you’re optimizing for
    • And you have a wy to see before and after
    • You can experiment and tune your engine

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