#143 - Startup School Week 2 Recap: Michael Seibel, Adora Cheung, and Ilya Volodarsky

Podcast Summary

• Start with a Minimum Viable Product: Focus on a simple MVP, launch quickly, gather feedback, and iterate to solve user problems

  When starting a new business, focusing on a minimum viable product (MVP) is key. Michael Sible, a partner at Y Combinator, emphasizes that an MVP should be ridiculously simple and the first thing given to target users to determine if value is being delivered. The goal is to launch quickly, get initial customers, talk to them for feedback, and iterate based on their needs. It's important to remember that the initial product may not be the final product, and the focus should be on solving the user's problem rather than falling in love with the initial solution. Building a lean MVP can be done quickly, allowing for flexibility and adaptation to user feedback.

• Focus on initial users and their highest order problems to create a Minimum Viable Product (MVP): Start by addressing a small set of users' biggest pain points with a simple MVP, then iterate and learn based on customer feedback

  When starting a business, it's crucial to focus on a small set of initial users and their highest order problems, rather than trying to address all potential users' needs at once. This means creating a Minimum Viable Product (MVP) with limited functionality, which can be a simple website or other low-cost solution, and iterating from there. Launches are not as special or magical as they may seem, and the real goal should be to get customers as soon as possible. This allows for valuable feedback and learning about whether the product solves their problems. To build an MVP quickly, time box your spec by determining what can be built within a specific timeframe, and remove features that cannot be completed within that time. Remember, the goal is to start and learn, not to have a perfect or special MVP from the beginning.

• Stick to your specification for startup success: Write clear specifications, cut unnecessary features, focus on one primary metric for early-stage startups to simplify priorities and make informed decisions.

  Writing down and sticking to your specification is crucial for the success of a startup. This may seem simple, but many people fail to do so, leading to endless changes and delays. Once you have a clear spec, be willing to cut unnecessary features to meet deadlines. Also, remember that your minimum viable product (MVP) is just the beginning of your journey, not something to fall in love with. Regarding setting KPIs and goals for early-stage startups, it's essential to define a primary metric that indicates the overall health of your business. This one metric should be quantifiable and represent the value you're delivering to your customers. By focusing on one primary metric, you can simplify your priorities and make informed decisions based on the feedback it provides. Remember, incorrect KPIs and goals can lead your startup in the wrong direction, potentially causing its demise.

• Choosing Primary Metrics: Revenue vs Active Users: Consider metrics with real value, recurring or enduring value, lagging indicators for success, and useful feedback mechanisms. Revenue and active users are two primary options, with revenue being the ideal choice due to its direct correlation with value, but active users can be a suitable proxy for revenue in specific cases.

  When choosing a primary metric for a business, it's essential to consider metrics that indicate real value, capture recurring or enduring value, be a lagging indicator for success, and serve as a useful feedback mechanism. Two primary metrics that fit these characteristics are revenue and active users. While revenue is the ideal choice due to its direct correlation with delivering real value, active users can be a suitable proxy for revenue in specific business models, such as advertising-based platforms or those with strong network effects. However, it's crucial to define the user appropriately when focusing on active users as a metric. Ultimately, the choice between revenue and active users depends on the unique circumstances of each business.

• Choosing the right primary metric for your business: Define a primary metric that accurately represents your business's value to customers, considering unique business characteristics. Pair it with secondary metrics for a complete performance overview.

  Defining your primary metric accurately is crucial for understanding the health and direction of your business. However, the definition of users and what constitutes a primary metric can vary greatly depending on the nature of the business. For instance, in a marketplace, there may be multiple types of users, each with their own value. In a biotech or hard tech business, the primary metric might not be revenue or active users at all, but rather technical milestones to prove the viability of the product. It's essential to choose a primary metric that truly represents the value your business provides to its customers. Additionally, it's recommended to pair your primary metric with a few secondary metrics for a comprehensive overview of your company's performance. Ultimately, the choice of primary metric depends on the unique characteristics of your business, and it's essential to avoid analysis paralysis by focusing on a few key metrics at a time.

• Setting ambitious growth goals is crucial for a startup's success: Aim for 5-10% weekly growth in the early stages, understand market size and competition to define success, and adapt to user feedback for optimal growth.

  Setting achievable yet ambitious growth goals is crucial for the success of a startup. According to Paul Graham's essay "Startup Equals Growth," a startup's primary objective should be to grow its primary metric, which proves that the product is desired by a large audience and has the potential to reach and serve them all. Setting weekly growth rates is recommended for startups in their early stages due to the need for frequent user feedback and the ability to divide progress into manageable chunks. Good startups from recent YC demo days grew anywhere from 20 to 200 percent month over month, with most clustered around 20 to 50 percent. This translates to about 5 to 10 percent weekly growth. It's essential to understand that growth rates can significantly impact the monthly and yearly time horizon, and fast growth indicates a product that solves a real problem in a large market. Ultimately, the goal is to define what success and being on track mean for your specific business based on your unique products and user base.

• Setting growth goals for startups: Instant vs long sales cycles, organic vs paid growth, and exponential goals: Consider sales cycle length, prioritize organic growth, and aim for exponential goals when setting startup growth targets. Regularly track progress and adjust strategies based on metrics.

  Setting growth goals for a startup involves considering the time it takes to make a sale, focusing on organic growth, and aiming for exponential goals. The time to make a sale can vary greatly between consumer and enterprise startups, with consumer startups typically seeing instant sales and enterprise startups dealing with longer sales cycles. Organic growth, where users discover the product through word of mouth, is preferred in the early stages, while paid growth can be seen as cheating. Exponential goals, rather than linear ones, should be the focus for significant growth. To set these goals, startups can choose between setting a growth rate or a time-boxed absolute goal. Regularly tracking progress and adjusting strategies based on metrics and weekly goals is crucial. It's important to remember that not hitting weekly targets is not a failure, but an opportunity to learn and adjust.

• Setting up analytics for an MVP: To measure product-market fit, track key metrics through the funnel, including acquisition, engagement, and monetization. Use analytics APIs and tools to collect data on primary and secondary metrics, such as user growth and retention.

  Setting up analytics is crucial for building an MVP and measuring key metrics to ensure product-market fit. The funnel, which includes acquisition, engagement, and monetization, provides a framework for understanding your business and identifying areas for improvement. Primary and secondary metrics, such as user growth and retention, help evaluate product-market fit and guide team priorities. To collect data, use analytics APIs and tools like Segment and Amplitude to track events and event properties. By focusing on analytics, founders can effectively measure and optimize their business, from a two-person team to a large corporation.

• Focus on acquisition, retention, and revenue metrics: Track weekly organic sign-ups, aim for 20-30% retention rate, and monitor weekly net new revenue to drive growth

  Effective use of analytics involves focusing on three key metrics: acquisition, retention, and revenue. For acquisition, it's important to track the number of organic users signing up on a weekly basis and aim to increase this number through targeted efforts. Retention cohorts help identify the percentage of users who continue to use the product over a certain period of time, and aiming for a retention rate of at least 20-30% is a good sign of product-market fit. Lastly, revenue is the primary metric for any business and tracking weekly net new revenue can help set monthly growth goals. By focusing on these metrics and setting achievable goals, teams can operate in a data-driven manner and make informed decisions to drive growth.

• Displaying key metrics on a TV dashboard and encouraging team discussions are crucial for data-driven startups.: Focus on product-market fit using tools like Google Analytics and Amplitude, communicate openly with customers, and invest in a data warehouse for better decision-making.

  Having a data-driven approach is crucial for startups to scale and succeed. This can be achieved by displaying key metrics on a TV dashboard in the office, encouraging team discussions around project performance, and sending regular updates to advisors. During the early stages, focusing on product-market fit is essential, and tools like Google Analytics and Amplitude can provide valuable insights into user behavior. Open communication channels, such as live chat, are also essential for gathering feedback from customers. A data warehouse can help non-technical team members access and understand the data, making it an invaluable investment. By implementing these tactics, startups can make data a driving force behind their decision-making, ultimately leading to better performance and growth.

• Streamlining operations with the right tools during MVP process: Use Google BigQuery for data access, Google Analytics and Amplitude for user behavior insights, Intercom and Fullstory for customer communication, and Google Ads and Facebook Ads for paid customer acquisition. Implement email and push tools and a shared help desk inbox for customer support.

  During the Minimum Viable Product (MVP) process, utilizing the right tools can significantly streamline operations and improve communication within a startup team. One such tool is a data warehouse like Google BigQuery, which democratizes data access and allows everyone in the company to ask questions and gain insights. Google Analytics and Amplitude are recommended for understanding user behavior and feature analytics, respectively. For customer communication, Intercom and Fullstory are suggested for managing customer relationships and improving product usability. As the startup grows, tools like Google Ads and Facebook Ads can be employed for paid customer acquisition. Additionally, implementing email and push tools, as well as a shared help desk inbox, can help manage customer support and ensure timely responses. These tools not only help non-technical co-founders but also the entire team, allowing for effective and efficient communication and decision-making.