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High Growth in High Tides: Startup Metrics for Pirates

In 2007, entrepreneur and angel investor Dave McClure created what he called Startup Metrics for Pirates, a useful 5-step customer lifecycle model for startups.

Also known as the “AARRR” framework, McClure’s goal while creating these metrics was to assist startups in determining their weak points. When you’re analyzing your business as a whole and things aren’t going the way you’d like, it’s easy to fall into the trap of believing that your entire model is broken. However, if you examine your startup using these metrics, you’ll have a much better idea of where your company is succeeding and where it needs work.

Take a look at the graphic to the left for a brief overview of the framework – we’ll continue with an in-depth analysis of each metric below.

Next to each metric you’ll find example goals you can set to measure your performance.

Acquisition

Acquisition is the first transaction you have with a potential customer or client.

They’ve been exposed to content you’ve created or paid for, and are interested enough to check out your website and learn more about what you have to offer. This content could be advertisements, partnerships, blogs, videos – anything that gets your name out there.

Record how many users visit your site and what they do on it. Do people interact with your site for a short time, exploring multiple pages, or do they bounce off your home page immediately? If your bounce rate is high (70%+), your site is repelling visitors for one reason or another. Whether it’s the site’s design, functionality, or lack of useful content, a high bounce rate is something you should work to decrease if you want to increase your number of potential customers.

You can gain this useful acquisition data by using programs like Google Analytics and HotJar to analyze how users interact with your website. To the left, you’ll find some examples of metrics you can use to gauge your performance.

Activation

Activation describes your users first experience on your site or with your product.

The goal here is to get the user to realize the value in your product quickly so they’ll return and use it again, what some marketers call the “A-ha moment”. As we all know, attention is in short supply right now, so you’ll have to find a way to remind these users to come back.

Have your users create an account or sign up with their email – nudging them every so often will keep your name fresh in their mind.

However, make sure your signup process is low friction. Defined as “the psychological resistance your visitors experience when trying to complete an action“, a high friction process will result in droves of your users leaving before you get their contact information.

These visitors are interested in your product, but that doesn’t mean they’re comfortable sending you all of their personal information before seeing what your company is all about – you’re still a stranger to them, so make signing up quick and painless to get the highest conversion rates.

Retention

You may have heard that acquiring new customers can cost five times more than satisfying and retaining current customers, which is precisely why customer retention rates should be one of your key performance indicators.

If you’re retaining less customers as time goes on, take a closer look at your product and quality of service. If this is your case, think of your business model as a leaky bucket – just because you put more water in (acquire more customers) doesn’t mean you’re going to hold on to them.

Customer retention is important for a few reasons – consider the fact that returning customers spend 67% more than new customers. 

Since they’ve bought from you before, you don’t have to spend more money to acquire them again, and they’re more likely to recommend your products and services to their friends – but we’ll save that for the next metric.

Referral

An effective way to increase your bottom line is to decrease you customer acquisition cost (CAC) and increase your customer lifetime value (CLV). What better way to do that than to have your current customers recommend your services to their friends?

Aim to make as many of your customers promoters of your business – they’re loyal buyers, likely to recommend your services to others, and as a result they fuel your company’s growth immensely. Offering great customer service is only the beginning.

While not necessary, many companies have had success offering referral incentives. Dropbox pulled off one of the most effective referral programs ever when they first started – for every person a user referred, both the user and their friend gained 500mb of free cloud storage. Read more about Dropbox’s incredible success story here.

Revenue/Conclusion

If you optimize the previously-mentioned metrics, you’ll have fewer roadblocks in place that keep your company from bringing in revenue. As with any business, the goal is to maximize revenue, and you’ll find more than a few marketers and entrepreneurs stressing the importance of optimizing the retention and referral metrics to accomplish that objective. Turning your customers into promoters who’ll freely spread word of your products and services is key to achieving optimization in every other metric.

Consider this example – you’ve provided excellent customer service to a customer who then shares their experience with three friends, so they try your product as well. Your cost to acquire these new users was nothing, and they’ll be easier to activate as customers because a trusted source has referred them. Now multiply that example 10, 50, or 100 times. Focusing on increasing rates of retention and referrals are necessary to accomplish cost-effective, explosive growth.

Use the framework and data gained to diagnose shortcomings in your startup as a doctor would diagnose a patient; make some changes to your model, test your customers’ acceptance of said changes, then re-calibrate your approach, improving your service along the way. Regardless of industry, any company can use Startup Metrics for Pirates to learn more about their customers and how they can best sell to them.

 

What metric in the AARRR Framework do you believe is most critical to focus on? Leave a comment on our LinkedIn or Facebook pages and let us know what you think! 

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If you’re in search of talent consulting or recruiting services and could use help determining your business needs, contact our team of experienced talent acquisition consultants now. 

Skyscraper

Scaling Startups: Staying Alive, Staying Ahead

In the startup world, staying alive is just as important as staying ahead. We discussed how you can strengthen your startup’s strategy in our last post, so now we’ll explore why some startups succeed and how they begin scaling their ventures.

Let’s begin by examining the terms growing and scaling in context of expanding a business; the words are sometimes used interchangeably, but they describe completely different situations.

Growing vs. Scaling

Growing – adding revenue at the same rate you’re adding resources. Consider the example of a gym that hires one personal trainer for every 3 customers – no matter how many new customers join, they’ll always be hiring new personal trainers to service their growing customer base. The amount of resources required increases as their customer base increases – this company is growing, but it’s not scaling.

Scaling – adding revenue at at a rapid rate while adding resources incrementally. Consider the example of a software company that’s just finished developing a new product – the costly work is done, and distributing the product to their customers costs next to nothing. The amount of of resources required doesn’t change as their customer base increases, driving consistent growth and improving profit margins.

“The Single Biggest Reason Why Start-ups Succeed”

Bill Gross is the brain behind Idealab, a startup factory founded in 1996. The “technology incubator” has created over 150 companies with more than 45 IPOs since its inception. Gross’s familiarity with the startup world led him to question and research why some ventures are successful while others fail, so he analyzed 200 different companies and rated the quality of what he considered the five most critical attributes of any business on a scale of 1-10. The five attributes were:

  • The idea – is there a market for the services/product you’re selling?
  • The team – is your team intelligent, determined, and capable enough?
  • The business model – is there a clear path to generate customer revenue?
  • The funding – did your company receive private funding? 
  • The timing – too early and the world isn’t ready, or too late and there’s too many competitors?

Gross revealed his findings in a 2015 Ted Talk – this is a smaller study so it’d be wise to take the results with a grain of salt, but Gross’s analysis showed that timing was the most critical factor as to whether or not a company succeeded; specifically, timing accounted for 42% of the difference between failure and success

After months and years of exhausting work, the last thing you want to find is that the market requesting your services is much smaller than anticipated, or that you’ve arrived to the party too late. Of course, the idea and the team behind it will make or break a startup – but the market has to be ready for your company before anything but breaking can occur.

When you’re sure the market is ready for your company, it’s time to consider how you plan to scale it.

Tips for Scaling Your Startup

Building an in-house talent management function may seem like a poor use of resources when you’re getting your business off the ground, but you’ll struggle to scale without a detailed hiring and onboarding process in place – the last thing you want is to end up a “$50 million dollar company in the body of a $5 million dollar organization“. In one of his recent articles, Ron Carucci outlined a few startup talent strategy tips entrepreneurs can use to keep candidates flowing in as their companies grow.

Don’t just hire for right now. Think about the talent your startup will need 6 months from now, a year from now, and 18 months from now. If you only ever hire for your immediate needs, within a year you’ll be left with employees without the skillsets you need to continue growing.

Identify the skills you need to grow to find the right people. Careful consideration should be given when considering candidates – the skills that will most benefit your startup won’t always be found on a resume. Carucci recommends looking into three areas when considering a new hire: their leadership and people skills, their experience in their given discipline, and whether or not they have the emotional maturity to continue learning.

Develop scalable roles for talented employees/future candidates. Carucci explains, “The common mayhem of the startup world isn’t permanent, and moving from jacks-of-all-trades generalists to more specialized roles is inevitable.” Consider today how you want your startup to look a few years from now – what types of positions will you need to fill? Creating a succession plan early on will save you time and money you’d otherwise spend hiring and training new employees.

Consult this exhaustive list of tools and resources for more startup tips – from upfront operation costs, to social media marketing, to helpful legal information, you can find it all here.

 

Do you agree that timing is the most critical factor when it comes to creating a successful startup? Leave a comment on our LinkedIn or Facebook pages and let us know what you think!

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If you’re in search of talent consulting or recruiting services and could use help determining your business needs, contact our team of experienced talent acquisition consultants now. 

On Startups: Recruiting, the Forgotten Function

During the initial stages of creating a startup, common sense might lend that establishing or outsourcing a recruiting function early on isn’t a priority.

You’ve got to obtain business loans, meet with investors, build a website, market to your customer base… the list goes on. Until the money starts flowing in, hiring recruiters that’ll search for additional staff is probably the last thing on your mind.

Here’s why it shouldn’t be. 

To quote seasoned entrepreneur Michael Skok, “The best people are almost never on the market, and you are going to have to develop recruiting processes to find and sell passive candidates… closing them takes greater selling efforts than in the past due to the intense competition over the good candidates.”

Your business venture’s growth potential will be severely limited without an effective recruiting process in place, but not only because of the reasons you might think.  

They build your brand.

Attracting choice candidates to work for your startup is no simple feat – your brand is not yet recognized in the marketplace, and the top players in your industry are far more likely to attract the talent you’re pining for. By introducing a recruiting function early on, you’ll have a team of employees dedicated to strengthening your brand’s perception in your industry from the very beginning.

Recruiting today is primarily a marketing and selling function, and you’re going to fall behind in the war for talent if you neglect to develop and advertise your employment brand. A report by LinkedIn revealed that 75% of job seekers consider an employer’s brand before even applying for a job; you can imagine the negative impact poor branding has on attracting talented candidates.

A reputable brand gives you an advantage over your competition by influencing prospective employees to apply to your company and your current employees to remain working for you.

They sell your brand.

85% of the global workforce considers themselves passive candidates, not actively looking for a new job but open to the idea of starting one. You won’t find them on Indeed or Monster, but they’re still interested in hearing about the opportunities you have to offer. Outreach and relationship building with potential candidates is unavoidable if you’re looking to hire top talent; consider the fact that almost 1/3 of all hires are proactively sourced, and the importance of an established recruiting function becomes even more apparent. 

However, the type of recruiting solution your team chooses should ultimately be decided by your business needs.

They determine your needs.

If you’re having trouble defining your needs, you’re not alone – many business leaders struggle to align their recruiting strategies with their organizational goals. In fact, Almost half of all employers rate their recruiting process as below average at attaining their desired quality of hire. A substantial 40% of those employers rate quality of hire as their recruiting team’s primary key performance indicator, yet 2/3rds of that group admit they have no metrics in place to measure actual performance.

Unsurprisingly, it’s quite difficult to improve your recruiting process without first analyzing where you’re going wrong. As father of modern business management Peter Drucker said, “If you can’t measure it, you can’t improve it.” Equipped with the right technology, your team of recruiters can determine your business strategy’s shortcomings and deploy a solution before it begins to stunt your company’s growth. 

Recruiting efficiently is a scientific process shaped by trial and error, and every business will face it’s own unique challenges. By establishing or outsourcing your recruiting function early on, developing and marketing your employment brand, and intertwining your hiring strategy with your business needs, you’ll avoid many of the pitfalls your competitors face.  

If you could use a hand pinpointing your business needs, contact our team of consultants for a specialized talent acquisition assessment.