THE BLOG

10
Jan

Startup Metrics in Plain English

 

It’s a positive development that startups have figured out that metrics need to be at the core of their business and their pitch. Thanks to the Lean Startup, Dave McClure’sStartup Metrics for Pirates” and investors who are asking for a dose of proof with your passion.

I find that startup founders are more at ease with acquisition funnels, the viral coefficient, and cohort analysis. But many are getting lost in the weeds and losing sight of the big picture. You have a 3D cohort analysis graph (you know who you are…) but I have no idea what it means.

When you’re launching a new product, I think all of your key metrics can be derived from asking three simple questions:

  1. What is your core value proposition?
  2. How do you know people care?
  3. What’s the proof you’re delivering on your value proposition?

A shockingly large number of people still can’t define their value proposition in simple terms. E.g. we do A for B. The problem is, if you can’t even describe the core promise of your business, you can’t focus your product development, or market effectively, or measure your performance.

Customer acquisition is the time to test the promise of your business before actually having to deliver anything. This is where the fake “Buy” button works. If no one clicks on it, you don’t need to build anything. If your Facebook ads get no click throughs and no one makes it through your sign-up form, that’s the market telling you they don’t want what you’re promising and they don’t care if you can deliver it.

“Once I build my product I’ll be able to prove that customers want it.”

          – misguided entrepreneur

If you’re able to acquire customers that’s great news. But now you need to create metrics that prove that users are engaging in your product in a way that demonstrates value creation. This could be daily active use, amount of user-generated content, referrals to other friends or, obviously, spending money.

But you need to avoid the temptation to create vanity metrics that paint a rosy picture. You can’t build a business on 100k tire kickers from TechCrunch. But if you can find a few users that are truly engaged and truly getting value, you can probably find more of them. Make sure you set a high bar for what constitutes an “active user”. It doesn’t jive to say you’re disrupting an industry while making active user = “logs in at least once per week”.

Many products have more than one type of user. Not just “average users” and “whales” but people who derive different types of value from your product. In a marketplace product (real estate for example) you have buyers, sellers and brokers. All define value differently and need to be measured differently. The point is, you’ll probably have more than one metric that constitutes proof that you’re creating value overall.

Some Plain English Metrics

First, write down a 1-2 sentence value proposition. Seriously, stop avoiding it and do it.

  1. What acquisition metrics indicate a positive reception to your value proposition? Eg. effectiveness of paid and organic users; virality; activation rate.
  2. What is your definition of an “active user” and does this absolutely prove that you’re delivering on your value proposition? More clicks can be due to high engagement or bad UX… This is the toughest metric to design.
  3. Are engaged users maintaining or increasing their engagement over time? If not, how come?
  4. What % of acquired users never become active? Why?
  5. What % of engaged users drop-off? Why?

The most difficult metric to gather is why people stop using your product. By definition, these people are hard to talk to. Bend over backwards to talk to these people: offer them incentives or a personal email from the CEO or a compromising photo of the CEO. The data you get will be qualitative but you’ll be able to spot trends and make changes.

Answering the above five questions isn’t easy. One word of advice is not to worry about getting real-time data (you don’t need it) or perfectly accurate data (which you can’t get). You’ll probably have to throw in some qualitative data and wild guesses. That’s ok because at the beginning you’re looking for big obvious things. You’ll have plenty of time to optimize later.

Also, it’s expected that many of your metrics will suck. You’ll be trending down, not up. This is information you can use to change, fix, and pivot your way to success, or at least the next release.

Conclusion

Get back to basics by defining some plain English metrics for your business. If they’re well designed and information gathering isn’t crazily difficult, you’ll not only have a better view of your business but you’ll find it much easier to create meaningful projections. You’ll be able to have more intelligent conversations with your team and your investors, which hopefully are also taking place in plain English.

 

04
Aug

New unbiased blog about Canada’s SRED tax credit program

There are no good sources of intelligent information about Canada’s SRED tax credit program. Besides Revenue Canada’s own Web site on the topic, most information is biased (in favour of consultants), inaccurate, poorly-written and not that useful for business owners and managers.

SREDFacts (www.sredfacts.com)is a new blog that delves into all aspects of SRED, from determining eligibility to claiming expenses to living through an audit. It’s a useful blog for startups, technology companies and anyone else interested in learning more about this tricky program.

07
Sep

Build your lean startup with Year One Labs

Announcing Year One Labs: www.yearonelabs.com

There’s never been a better time to be an entrepreneur. Building a product is cheap and fast thanks to Open Source frameworks and the Cloud. Getting to market is easier than ever with app stores and affiliate programs. Super Angels and VCs are stepping on each other’s toes getting into early stage deals! Early exits

are on the rise offering lower risk (but life changing) ‘outs’ for entrepreneurs.

But what I’m most excited about is that we’re beginning to have a set of best practices, thanks to the Lean Startup. Yes you need to have passion and vision (equally true whether you’re an Evil Genius or an entrepreneur). What’s been missing is a way for entrepreneurs to know what questions to ask and how to interpret the answers, especially when they don’t conform to the original vision. This is a lot tougher than it sounds.

That’s why we created Year One Labs with Ben Yoskovitz, Alistair Croll and Ian Rae. We want to help you realize your (huge) vision of the future by focusing on achieving the important things in your first year. Things like finding out who your customers are and building a product that solves a problem they care about. You’re not building a business (yet). You’re searching for a repeatable and scalable business model

. We’ll do whatever it takes to get you there including getting you in front of the right customers, helping you build your product, and being brutally honest when your metrics don’t agree with your vision.

So what are we looking for?

  1. Passion – You love solving big huge problems (not just creating big huge companies, or Evil Empires)
  2. Ability – You have incredible knowledge and skills, and you can just get sh*t done
  3. Focus – Nothing distracts you from your goal, certainly not failure

The best way to ‘pitch’ Y1L  is to sit down with us face to face and talk about the problem you’re going to solve. Ideally without Powerpoint. Oh, and you should read Four Steps to the Epiphany and everything in Eric Ries’ blog.

21
Jan

Haiti Tweetup Wrap-Up: $10,000 for Haiti!

(tons more photos here, all photos courtesy of Julian Haber

)

A huge thank you to everyone who was involved with Haiti Tweetup! Here’s what we accomplished in one week:

  • 120 people attended the event
  • 35 businesses donated prizes
  • 20 lucky/skilled people won prize lots
  • media coverage on CBC, CJAD, the Montreal Mirror and elsewhere online
  • $5093 raised in total ($2800 from the auction, $1668 at the door, $625 online)

Since the Canadian government is matching donations, this translates into $10,186 which is going directly to Médecins Sans Frontières/Doctors Without Borders Canada.

Whether you attended the event or lent your support in other ways, we should all be proud of what we were able to achieve. I didn’t doubt for a second that the Montreal community would rise to the occasion.

A special thank-you goes to Robin Ahn who put in a huge effort to get all of the logistics sorted out including finding the venue. She is now our resident Silent Auction superhero. Believe me, organizing one is a superpower.

Thanks to the following people who volunteered or helped find sponsors: Christina Baudin, Lateef Martin, Massimo Farina, Sarah Lolley, Julian Haber, Christine LaFontaine, Peter Bailey,and DJ Andy Williams

And a huge shout-out to individuals and businesses to contributed prizes:

We’re working on new fundraising projects that will focus on the long-term rebuilding effort in Haiti so stay tuned. If you want to help out, please drop me a line

and stay in touch.

Raymond

15
Jan

Add the Haiti Tweetup Widget to Your Web Site

If you have a Web site, please consider adding the Haiti Tweetup Widget to your home page to help spread the word about the fundraiser on Tuesday January 19th. You can see an example of the widget to the right of this page.

Just cut and paste this code into your Web page:

<div style=”width: 250px;”><iframe name=”countdown” id=”mgframe” src=”http://www.eventbrite.com/countdown-widget?eid=536979119″ width=”250″ height=”420″ marginheight=”0″ marginwidth=”0″ scrolling=”no”  frameborder=”0″ ></iframe><a href=”http://www.eventbrite.com/r/ecount”><img src=”http://www.eventbrite.com/s.gif” alt=”Events” border=”0″/></a></div>

Thanks

Raymond

13
Jan

Help for Haiti – Montreal Fundraiser Tues Jan 19th @ 5:30pm

It’s rare that we post non-business stuff to the Flow Ventures blog but we’re making an exception to announce the Haiti Tweetup to help raise money for disaster relief efforts.  This fundraising get-together will be held next Tuesday January 19th at 5:30pm at Casa de Popolo in Mile-End Montreal.

See all the details and RSVP here: http://haititweetup.eventbrite.com/

Tickets are free but we’re asking that people donate at least $10 at the door. All proceeds will go to the International Red Cross (http://www.icrc.org/) who are already on the ground in Haiti and have been for quite some time. If you can’t make it, please just donate directly to the organization of your choice.

Help spread the word using #haititweetup on Twitter. Look for the Facebook event called “Haiti Tweetup Montreal”.

thanks,

The Flow Ventures team

24
Nov

Why you should attend StartupDrinksCA

This week marks a major milestone in the life of StartupDrinksCA. It’s the first time the event can be called a truly Canadian event rather than something that’s just happening in a few cities. Since organizing StartupDrinks in Montreal over a year ago, we’ve managed to expand it to Toronto, Ottawa and Waterloo. Now we’re happy to welcome Halifax (which ran its first StartupDrinks last week), Moncton, St. John, Edmonton, Calgary and Vancouver. I’m sure there will be more Canadian communities joining.

We’ve created a new Web site (www.startupdrinks.ca) to make it easier to organize and promote StartupDrinks in your city. Check it out to see when StartupDrinksCA is happening in your city.

To mark this important milestone, I thought I would highlight the 3 reasons why I think you should attend StartupDrinksCA:

  1. Celebrate your community – I’ve recently started reading Who’s Your City? by Richard Florida. He talks about how important creative clusters are to the work of creative people. StartupDrinks is a great way to celebrate how vibrant your local tech entrepreneurship community is. Take a step back and realize that you’re surrounded by passionate, talented people who’ll go out of their way to enable your passion and talent.
  2. Build your reputation – Your personal reputation in the community is crucial, not only if you’re a social media professional. It applies to all types of businesses. Regularly attending StartupDrinks is a way for you to develop a reputation with people you aren’t necessarily doing business with today. But when opportunities arise (e.g. someone looking for a co-founder, or their next investment) you’ll appreciate the fact that you have a social bond to back up the fact you’re LinkedIn.
  3. Talk about yourself – All startups (and entrepreneurs) are works-in-progress. There’s no better way to develop and hone your pitch (business or personal) than getting out there and doing it. You’ll get great feedback and just the exercise of hearing yourself pitch will give you new insight into what works and what doesn’t. The nice thing about StartupDrinks is that there are no speeches and no panel of judges. Be yourself, share a pint and talk about your projects.

One last reason: there’s a fabulous prize (paid out in kudos) for the person who attends the most Startupdrinks in different cities. We call it: Startup Lush. So far I’m winning but I’d love to have some competition!

05
Nov

Playing for the Tie

Like Playing to Lose, Playing for the Tie is a strategy that doesn’t lead to winning. The difference is that people inadvertently playing to lose think they’re aiming their boat at the far shore, instead they’re heading for an iceberg. Playing for a tie means you’re more scared of losing than winning.

Why is not losing (but not winning) a bad strategy for a startup? Because:

  • Opportunity cost – What aren’t you doing while you’re not succeeding? What next great startup idea are you not working on while your current one treads water?
  • Survival is not (necessarily) a milestone – Survival is a huge achievement for any startup, but it’s not the goal. You have to be able to tell the difference.

Many startups have a strategy to win at the beginning but this gets diluted to a strategy for a tie when things get operational. Here are some telltale signs:

  • You’re afraid to say that you are or will be a world leader in your category (ask yourself why)
  • You never hear your team talk about being the best
  • You gravitate towards any type of validation (“they like me!”) even if it’s too scattered to truly prove your business value
  • You’re risk averse. I’m a firm believer that many risks, like operational risks, can be mitigated in a startup. But you just can’t avoid the fundamental leaps of faith that will be required in proving your business. If you’re afraid of leaping ask yourself what you’re preserving by avoiding risk. If you’re still proving out your business then you really don’t have anything to protect (yet).

Caveat: I’m not saying swing for the fences every time. Be iterative, i.e. get out there and see what sticks. But don’t forget that getting a little traction reduces some risk (a few people like me) and sets you up for new risks (how do I get everyone to like me). See Crossing the Chasm.

Next up: Playing to Win

04
Nov

Playing to Lose

I heard a bunch of different pitches from startups this week that made me think: too few startups are playing to win. Most people have a strategy for moving from point A to point B but I’m hearing more and more strategies for getting “better” not becoming the “best”. I think it’s a problem.

Here are some strategies that I consider Playing to Lose:

  • You don’t have a strategy. No further explanation necessary.
  • You only have one strategy. A good sign that you are playing to lose is that you can’t describe several alternative strategies in detail. A strategy is only as good as the ones you considered, but rejected. Be a skeptic.
  • You don’t understand the cost of success. When people plan to scale a business they often forget that revenues don’t scale by themselves without a some kind of scaling of expenses. Take headcount. Double headcount and I bet you’ll more than double HR expenses. Double the feature set of your product and I bet it doesn’t maintain itself anymore. These ‘diseconomies’ of scale better be built into your strategy.
  • Your winning strategy is your losing strategy in disguise. Sometimes I hear a strategy for winning that sounds a lot like a strategy for losing. Here’s an example: Your platform is so feature-rich and versatile that it can be used by anyone. Your strategy is to sell it to anyone. But soon you’ll realize that all of your customers are different and all your recurring license revenues are replaced by low-margin service fees for customization. Yep, that’s your winning strategy.

I think you can avoid Playing to Lose by spending more time understanding your winning scenario and making sure it holds up to scrutiny. Why do you think your cost structure will be leaner than other comparable companies? Why will acquisition costs go down, not up? What things get more difficult, not easier, the more you achieve success?

Are you sure your idea of winning is actually winning?

Next up: Playing for the tie

04
Aug

Ontario Emerging Technologies Fund: Good for Investment, Not Good for Angels

The Ontario Emerging Technologies Fund was unveiled last week and I know investors across the country have been anxiously awaiting the details. Here’s the skinny:

  • $250 million fund size
  • Matches investments for qualified investors (more on that later)
  • Invests in Ontario companies
  • Sectoral targets: clean technology, life sciences and advanced health technologies, and digital media and information and communications technology sectors

Most Angels I talked to previously were wondering what the qualification process would be and whether the fund would discriminate against out-of-province investors.

Now that the details (at least version 1.0) have been released, I can say that there’s good news and bad news.

The good news is that, over five years, $250 million will be flowing to early stage tech ventures in Ontario. This is nothing to sneeze at and a much-needed shot in the arm for Ontario entrepreneurs. Will this encourage new investments? Absolutely, especially in clean tech and life sciences where capital needs are greater.

But several aspects of the fund are not great for Angels and other seed-stage investors, especially in ICT or even the earliest stages of clean tech and life sciences.

Investment Round Must Be $1 Million or More(p. 10, Fund Guidelines, link to PDF)

According to the Kauffman Foundation (Appendix to Returns to Angels Investors in Groups) the average Angel investment is less than $200,000. This is consistent with what I’ve seen in Canada. Many Angel groups and seed funds invest in this range. So why the $1million threshold?

If this is a conscious choice by the OETF to favour later stage deals, they may actually draw Angel dollars away from pure startups and towards later-stage entitities. This would be a bad thing for growing the number of startups in Ontario.

If this is a subtle encouragement to Angels to invest more dollars, it ignores the fact that many (I’d say most) pure startups don’t need $1 million. I would personally never invest in a startup whose capital needs from day one were in this range. It’s not exactly “lean”.

Angels Must Re-Apply for Qualification for Each Investment (p. 7, Fund Guidelines, link to PDF)

Venture funds can apply for qualification once and have this remain in place for all future investments. Angels, on the other hand, must re-apply for each investment they make. I’m going to give the OETF the benefit of the doubt and assume that getting qualified once will mean getting qualified again. But this doesn’t exactly reward Angels or Angel groups who have a proven track record. Why not treat them the same as VCs?

Ontario Footprint

OETF is not the only fund tied to a specific geographical region so this is not a new complaint. But it still bothers me to see penalties for a company no longer having “enough” of an Ontario footprint:

  • OETF has the right to force repurchase of its shares at a price set by a 3rd party, or
  • OETF has the right to force refund of its investment + 10% compounded annually

As an investor, I prefer the highest return on my investment no matter where the company needs to grow. These kinds of terms discourage investment from outside the province and outside Canada.

Favouring Ontario-Based Investors

Finally, there are some silly questions in the Angel application about proving that you are dedicated to investing in Ontario. Presumably, this doesn’t apply to Angels who live in Ontario. This is counter-productive. It’s better for Ontario to draw in investment dollars from outside the province. And why do I have to prove that I want to invest in Ontario when I’m already showing that by applying to invest in a specific deal?

The not-invented-hear syndrome is not good for startups and it’s not good for regional investment.

Conclusion

I applaud the Ontario Government for taking steps to encourage early-stage investments in the province. It’s difficult for governments to truly take a back seat to private investors when it comes to investments and the OETF is a good example of this struggle. It’s not really the matching investment fund that we had hoped for, but a new investment entity with specific regional and sectoral focuses. It’s still good to have a new player on the scene and I hope that the model evolves based on market feedback.

Angels and entrepreneurs: what do you think of the OETF?