Friday Q & A: The Most Inspiring Businesses, Important Startup Metrics And How To Build The First Version Of Your Product
Every Friday, we’re answering your questions about business, startups, customer success and more.
In our Groove Friday Q & A segment, we’re answering any questions that you have about, well, anything.
A huge thank you to Sarah B., Brandon Davis and Daniel Jones for this week’s questions.
Check out this week’s answers below, and jump in with your own thoughts in the comments!
What are some of the businesses that inspire you?
There are many.
In the SaaS world, the include:
Slack: They’ve built some of the simplest, most beautiful (but still functional) software I’ve ever used.
Buffer is another incredible content company. Their posts are always so rich and actionable, which provides a great yardstick to measure our own content by.
Basecamp: These guys have been very public about their wins and fails, and in a world of massively funded TechCrunch fairytales, their “let’s just be profitable” approach is a refreshing reminder of what most businesses should actually be doing.
Outside of software, I’m a huge fan of companies like Apple, Tesla (no big surprises there), and Southwest (for their dedication to serving only their stated core purpose, and ruthlessly ignoring everything else).
What are the most important startup metrics?
We’ve spent a lot of time thinking about metrics in the past few months. They’re going to play a huge role in our 2016 strategy, and we’re changing the way that we think about them.
There’s going to be a much longer post coming about this, including how we actually set up tracking for them, but I thought it’d be useful, in the meantime, to share which metrics we’re going to be focusing on.
Note that these aren’t necessarily the best metrics for you. That will depend on your specific business, customers and growth model. But I think that for any B2B SaaS company, these are a good place to start:
Monthly Recurring Revenue: This is the key performance indicator that we’re focusing on in most quarters. With our model, we’re a lot more interested in recurring revenue than single transactions, since we want long-term customers. Knowing our MRR makes planning for the future a lot easier.
Monthly Churn: It’s impossible to get a “real” look at your revenue and growth without accounting for churn, whether it’s total number of customers churned, revenue churn or, as you grow larger and “total customers churned” becomes harder to make use of, percentage of customers churned. This tells you what you’re losing each month, and focusing on reducing churn can result in much bigger wins that many people think.
Monthly Unique Visitors: Since our blogs are the biggest drivers of our growth, we track blog traffic closely. As you grow you’ll segment this metric out into more granular metrics, but this is a good place to start. Increasing traffic is important, as even if your other numbers aren’t great yet, in absolute terms, more traffic almost always means more customers.
Visitor-To-Trial Conversion Rate: The second step in our funnel is turning website visitors into trial users. This metric tells us in very simple terms if we’re doing a good job at that. The higher your traffic, the bigger the impact you can make on your business by optimizing this metric.
Trial-To-Paid Conversion Rate: This metric tells us about the quality of our product and onboarding; how many trial users are staying on to become paying customers? It even tells us about the quality of our marketing; are we making promises and telling a story that actually matches what our product delivers? Trial-to-Paid conversions is a great catch-all “business health” metric.
The bigger you grow and the more time you spend on all of these things, the more you’ll learn which metrics actually matter for your business.
But I hope that this serves as a helpful starting point.
How should I go about building the first version of my product?
Our entire first version was outsourced. It was what I felt we needed to do at the time given our position, but it’s not for everyone, and certainly came with challenges when we transitioned to our in-house team. Check out the story of our first build here.
It sounds like you’re considering hiring a more affordable team that will write less buttoned-up code, or a more expensive team to build the same product.
A weak technical foundation will cause a lot of problems in the future and is very difficult to recover from, so if you’re considering a shop that you expect will do poor work, I’d abandon that idea off the bat.
So now, you need to consider your options for a good product: hiring an agency, hiring a single developer, or taking on a technical co-founder who can build the product themselves.
How you can accomplish both a strong minimum viable product and a solid technical foundation for the lowest amount of money possible?
The best way to control the cost of a development project is to control the scope.
Most MVP scopes are far, far too large. Ours definitely was.
So think very hard about whether the features you think you need are all necessary out of the gate.
If you haven’t, spend 40+ hours doing customer development and paring down your idea to only the most deep, burning pain point that you want your initial product to solve, and nothing else.
Once you have an MVP (remember, an MVP isn’t just a weaker version of your dream product; it’s a strong product that does the bare minimum to still be valuable) and get a much clearer picture from your users of where you need to take your product, it’ll become much easier to make the next decision about where to invest your money for further development.
But for this very first step, I’d exhaust every possible opportunity to narrow your scope, and then consider your budget and get the very best development resource you can afford.
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Your Turn: Ask Groove Anything
I’d love for this new weekly segment to be successful, and provide a valuable repository of answers from our entire community for entrepreneurs everywhere.
To do that, I need your help.
Here’s what you can do to get involved:
- Ask questions. Post them in the comments of this post, or Tweet them to us at @Groove.
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