OSCON Mainstage Talks: Create more value than you capture
At OSCON 2013, Tim (@timoreilly) asked us to aim higher and work on difficult problems while highlighting the most important trends that should be guiding open source developers and entrepreneurs. To illustrate his points, he offered up great examples from companies as diverse as Google, Square, Wikipedia, and O’Reilly Media.
Learn to resist vanity metrics
One of the things we preach in Lean Analytics is that entrepreneurs should avoid vanity metrics—numbers that make you feel good, but ultimately, don’t change your behavior. Vanity metrics (such as “total visitors”) tend to go “up and to the right” but don’t tell you much about how you’re doing.
Many people find solace in graphs that go up and to the right. The metric “Total number of people who have visited my restaurant” will always increase; but on its own it doesn’t tell you anything about the health of the business. It’s just head-in-the-sand comforting.
A good metric is often a comparative rate or ratio. Consider what happens when you put the word “per” before or after a metric. “Restaurant visitors per day” is vastly more meaningful. Time is the universal denominator, since the universe moves inexorably forwards. But there are plenty of other good ratios. For example, “revenue per restaurant visitor” matters a lot, since it tells you what each diner contributes.
What’s an active user, anyway?
For many businesses, the go-to metric revolves around “active users.” In a mobile app or software-as-a-service business, only some percentage of people are actively engaged. In a media site, only some percentage uses the site each day. And in a loyalty-focused e-commerce company, only some buyers are active.
This is true of more traditional businesses, too. Only a percentage of citizens are actively engaged in local government; only a certain number of employees are using the Intranet; only a percentage of coffee shop patrons return daily.
Unfortunately, saying “measure active users” begs the question: What’s active, anyway?
To figure this out, you need to look at your business model. Not your business plan, which is a hypothetical projection of how you’ll fare, but your business model. If you’re running a lemonade stand, your business model likely has a few key assumptions:
- The cost of lemonade;
- The amount of foot traffic past your stand;
- The percent of passers-by who will buy from you;
- The price they are willing to pay.
Our Lean lemonade stand would then set about testing and improving each metric, running experiments to find the best street corner, or determine the optimal price.
Lemonade stands are wonderfully simple, so your business may have many other assumptions, but it is essential that you quantify them and state them so you can then focus on improving them, one by one, until your business model and reality align. In a restaurant, for example, these assumptions might be, “we will have at least 50 diners a day” or “diners will spend on average $20 a meal.”
The activity you want changes
We believe most new companies and products go through five distinct stages of growth:
- Empathy, where you figure out what problem you’re solving and what solution people want;
- Stickiness, where you measure how many people adopt your solution rather than trying it and leaving;
- Virality, where you maximize word-of-mouth and references;
- Revenue, where you pour some part of your revenues back into paid acquisition or advertising;
- Scale, where you grow the business through automation, delegation, and process.
“Ever tried. Ever failed. No matter. Try again. Fail again. Fail better.” —Samuel Beckett
Entrepreneurial success hinges in large part on a founder’s mastery of psychology. This requires the ability to manage one’s responses to what Ben Horowitz calls “The Struggle,” that is, the emotional roller coaster of startup life. Paul DeJoe captures the ups and downs of being a startup CEO in a post reprinted in a book that I edited, Managing Startups: Best Blog Posts.
It’s all in a founder’s head: the drive to build something great; the resilience to dust yourself off when you repeatedly get knocked down; the passion powering a Reality Distortion Field that mesmerizes potential teammates, investors, and partners. But inside a founder’s head may also be delusional arrogance; an overly impulsive “ready-fire-aim” bias for action; a preoccupation with control; fear of failure; and self-doubt fueling the impostor syndrome. That’s why VC-turned-founder-coach Jerry Colonna named his blog The Monster in Your Head. In a recent interview with Jason Calacanis, Colonna does a nice job of summarizing some of the psychological challenges confronting entrepreneurs. So does a classic article by the psychoanalyst Manfred Kets de Vries: “The Dark Side of Entrepreneurship.”
The only thing harder to find than a great designer is a unicorn
I know, I know. Founders and entrepreneurs are already being told that they need to learn how to code, hire, raise money, and get customers.
Screw that. What founders and entrepreneurs should really do is learn how to build a useful product. And that means learning the fundamentals of research and design.
Don’t believe me? Here are six reasons you should be your own UX designer (or at least learn enough about UX design to fake it).
1. You need to know what problem you’re solving and for whom
GPS solved the problem of getting lost when going to new places. Kindle solved the problem of my entire house filling up with books I’d already read. Instagram and other similar tools solved the problem of how to share all those great photos on your phone with your friends.
Of course, not every product idea solves a problem, and not every problem is something that people are willing to pay you to solve. That’s why it’s so important to learn the fundamentals of customer development and user research.
If you know how to validate your product ideas, you’ll be able to more accurately predict which products solve important problems for large groups of people. This means that you’ll be more likely to build something that lots of people want to pay you for.