Slides from New Media Manitoba Lean Analytics workshop, June 2015

1. Lean Analytics New Media Manitoba June, 2015 @acroll

2. I can’t tell you how to succeed (If I could, I’d be starting your company instead of standing here.)

3. I can tell you how to avoid failure (At least, some forms of it.)

4. Percent of businesses that fail Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 71%69%66%63%60%55%50%44%36%25% http://www.statisticbrain.com/startup-failure-by-industry/

5. Still operating after 4 years Finance Insurance and Real Estate Education and Health Agriculture Services Wholesale Mining Manufacturing Construction Retail Transportation Communication and Utilities Information 37% 45% 47% 47% 49% 51% 54% 55% 56% 56% 58% http://www.statisticbrain.com/startup-failure-by-industry/

6. Why ﬁrms die http://www.statisticbrain.com/startup-failure-by-industry/ Neglect, fraud, disaster 1% Lack of industry experience 13% Lack of managerial experience 34% Incompetence 52% Emotional Pricing Living too high for the business Nonpayment of taxes No knowledge of pricing Lack of planning No knowledge of ﬁnancing No experience in record-keeping Poor credit granting practices Expansion too rapid Inadequate borrowing practices Carry inadequate inventory No knowledge of suppliers Wasted advertising budget

7. Part one:  Introduction to Lean Analytics

8. Don’t sell what you can make. Make what you can sell. Kevin Costner is a lousy entrepreneur.

9. The core of Lean is iteration.

10. Waterfall approach You know the problem and the solution.

11. Known set of requirements Known ways to satisfy them Spec Build Test Launch

12. Agile methodologies Know the problem, ﬁnd the solution

13. Known set of requirements Unclear how to satisfy them Build Test LaunchViable?Problem  statement Adjust Sprints Unknown set of requirements

14. Lean approach First, know that you don’t know.

15. Possible problem space Product/ market hypothesis Trial startup Product/ market hypothesis Trial startup Product/market hypothesis Trialstartup Product/market hypothesis Trialstartup You are herePIVOT

16. Unfortunately, we’re all liars.

17. Everyone’s idea is the best right? People love this part! (but that’s not always a good thing) This is where things fall apart. No data, no learning.

18. Most startups don’t know what they’ll be when they grow up. Hotmail  was a database company Flickr  was going to be an MMO Twitter  was a podcasting company Autodesk  made desktop automation Paypal  ﬁrst built for Palmpilots Freshbooks  was invoicing for a web design ﬁrm Wikipedia  was to be written by experts only Mitel  was a lawnmower company

19. Gottfried von Leibniz was a geek just like you.

20. First calculator (stepped reckoner) One of the ﬁrst to recognize the importance of binary. “I thought again about my early plan of a new language or writing-system of reason, which could serve as a communication tool for all diﬀerent nations..”

21. The best of all possible worlds is the one in which the fewest starting conditions produce the greatest variety of outcomes.

22. Analytics can help.

23. Analytics is the measurement of movement towards your business goals.

24. In a startup, the purpose of analytics is to iterate to product/market ﬁt before the money runs out.

25. Why now? First: High rate of change of digital technologies & channels.

26. Arbitron and radio data

27. Times a song in “heavy rotation” is played daily 0 15 30 2007 2012 266

28. Some fundamentals. Analytics, performance, aggregation, and the right metrics

29. We’re bad at data.

30. I have two kids. At least one of them is a girl.

31. What are the chances the other is a boy?

32. BB BG GB GG

33. 2 of 3 (66%) are boys. GB GG BG

34. Fundamental:  What makes a good metric?

35. A good metric is: Understandable If you’re busy explaining the data, you won’t be busy acting on it. Comparative Comparison is context. A ratio or rate The only way to measure change and roll up the tension between two metrics (MPH) Behavior  changing What will you do differently based on the results you collect?

36. The simplest rule bad  metric. If a metric won’t change how you behave, it’s a h"p://www.ﬂickr.com/photos/circasassy/7858155676/

37. Metrics help you know yourself. Acquisition Hybrid Loyalty 70%  of retailers 20%  of retailers 10%  of retailers You are just like Customers that buy >1x in 90d Once 2-2.5  per year >2.5  per year Your customers will buy from you Then you are in this mode 1-15% 15-30% >30% Low acquisition cost, high checkout Increasing return rates, market share Loyalty, selection, inventory size Focus on (Thanks to Kevin Hillstrom for this.)

38. Qualitative Unstructured, anecdotal, revealing, hard to aggregate, often too positive & reassuring. Warm and fuzzy. Quantitative Numbers and stats. Hard facts, less insight, easier to analyze; often sour and disappointing. Cold and hard.

39. Exploratory Speculative. Tries to ﬁnd unexpected or interesting insights. Source of unfair advantages. Cool. Reporting Predictable. Keeps you abreast of the normal, day-to-day operations. Can be managed by exception. Necessary.

40. Rumsfeld on Analytics (Or rather, Avinash Kaushik channeling Rumsfeld) Things we know don’t  know we know Are facts which may be wrong and should be checked against data. we don’t  know Are questions we can answer by reporting, which we should baseline & automate. we know Are intuition which we should quantify and teach to improve effectiveness, efﬁciency. we don’t  know Are exploration which is where unfair advantage and interesting epiphanies live.

41. MayAprMarFeb Slicing and dicing data Jan 0 5,000 Activeusers Cohort: Comparison of similar groups along a timeline. (this is the April cohort) A/B test: Changing one thing (i.e. color) and measuring the result (i.e. revenue.) Multivariate  analysis Changing several things at once to see which correlates with a result. ☀ ☁ ☀ ☁ Segment: Cross-sectional comparison of all people divided by some attribute (age, gender, etc.) ☀ ☁

42. Which of these two companies is doing better?

43. January February March April May Rev/customer $5.00 $4.50 $4.33 $4.25 $4.50 Is this company growing or stagnating? Cohort 1 2 3 4 5 January $5 $3 $2 $1 $0.5 February $6 $4 $2 $1 March $7 $6 $5 April $8 $7 May $9 How about this one?

44. Cohort 1 2 3 4 5 January $5 $3 $2 $1 $0.5 February $6 $4 $2 $1 March $7 $6 $5 April $8 $7 May $9 Averages $7 $5 $3 $1 $0.5 Look at the same data in cohorts

45. Lagging Historical. Shows you how you’re doing; reports the news. Example: sales. Explaining the past. Leading Forward-looking. Number today that predicts tomorrow; reports the news. Example: pipeline. Predicting the future.

46. Fundamental:  Correlation

47. 1 10 100 1000 10000 Ice cream consumption Drownings Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec

48. Correlated Two variables that are related (but may be dependent on something else.) Ice cream & drowning. Causal An independent variable that directly impacts a dependent one. Summertime & drowning.

49. A leading, causal metric is a superpower. h"p://www.ﬂickr.com/photos/bloke_with_camera/401812833/sizes/o/in/photostream/

50. Is social action a leading indicator of donation? http://blog.justgiving.com/nine-reasons-why-social-and-mobile-are-the-future-of-fundraising/

51. Is mobile use? http://blog.justgiving.com/nine-reasons-why-social-and-mobile-are-the-future-of-fundraising/

52. Soundcloud Cory Levinson, Soundcloud

53. A Facebook user reaching 7 friends within 10 days of signing up (Chamath Palihapitiya) If someone comes back to Zynga a day after signing up for a game, they’ll probably become an engaged, paying user (Nabeel Hyatt) A Dropbox user who puts at least one ﬁle in one folder on one device (ChenLi Wang) Twitter user following a certain number of people, and a certain percentage of those people following the user back (Josh Elman) A LinkedIn user getting to X connections in Y days (Elliot Schmukler) Some examples (From the 2012 Growth Hacking conference. http://growthhackersconference.com/)

54. AirBnB and Craigslist

55. http://www.ﬂickr.com/photos/bootbearwdc/1243690099/ Think subversively.

56. Why is Nigerian spam so badly written?

57. Aunshul Rege of Rutgers University, USA in 2009 Experienced scammers expect a “strike rate” of 1 or 2 replies per 1,000 messages emailed; they expect to land 2 or 3 “Mugu” (fools) each week. One scammer boasted “When you get a reply it’s 70% sure you’ll get the money” “By sending an email that repels all but the most gullible,” says [Microsoft Researcher Corman] Herley, “the scammer gets the most promising marks to self-select, and tilts the true to false positive ratio in his favor.” 1000 emails 1-2 responses 1 fool and their money, parted. Bad language (0.1% conversion) Gullible (70% conversion) 1000 emails 100 responses 1 fool and their money, parted. Good language (10% conversion) Not-gullible (.07% conversion) This would be horribly ineﬃcient since humans are involved.

58. Turns out the word “Nigeria” is the best way to identify promising prospects.

59. Nigerian spammers really understand their target market. They see past vanity metrics.

60. Fundamental: KISS

61. “It can scarcely be denied that the supreme goal of all theory is to make the irreducible basic elements as simple and as few as possible without having to surrender the adequate representation of a single datum of experience.” http://media.photobucket.com/image/einstein/derekabril/einstein_010.png

62. “As simple as possible,  but no simpler.” *(FYI, this is irony.)

63. The Lean Analytics framework.

64. Eric’s three engines of growth Virality Make people invite friends. How many they tell, how fast they tell them. Price Spend money to get customers. Customers are worth more than they cost. Stickiness Keep people coming back. Approach Get customers faster than you lose them. Math that matters

65. Dave’s Pirate Metrics AARRR Acquisition How do your users become aware of you? SEO, SEM, widgets, email, PR, campaigns, blogs ... Activation Do drive-by visitors subscribe, use, etc? Features, design, tone, compensation, affirmation ... Retention Does a one-time user become engaged? Notifications, alerts, reminders, emails, updates... Revenue Do you make money from user activity? Transactions, clicks, subscriptions, DLC, analytics... Referral Do users promote your product? Email, widgets, campaigns, likes, RTs, affiliates...

66. Stage EMPATHY I’ve found a real, poorly-met need that a reachable market faces. STICKINESS I’ve figured out how to solve the problem in a way they will keep using and pay for. VIRALITY I’ve found ways to get them to tell their friends, either intrinsically or through incentives. REVENUE The users and features fuel growth organically and artificially. SCALE I’ve found a sustainable, scalable business with the right margins in a healthy ecosystem. Gate Thefivestages

67. Do you have a business model?

68. http://www.ﬂickr.com/photos/tinfoilraccoon/197640807/ A lemonade stand’s business model is simple. Yours should be too.

69. A hobby. PhotobyRakkaonFlickr.https://www.ﬂickr.com/photos/rakka/6889638004

70. Market Sizing Top-down and bottoms-up

71. Top-down Start with the whole planet, then narrow it down.

72. Population of Canada

73. Percent mobile phones by country

74. IOS penetration

75. Put this all together Metric/Assumption Value Population of Canada 34.88M Mobile phone percentage 80% Mobile phones in Canada 27,904M IOS percentage 15.5% IOS phones in Canada 4.32M IOS devices per account 3.1* IOS accounts we can sell to in Canada (this is our Total Addressable Market) 1.39M * I made this up. Don’t believe everything you read.

76. How much is the TAM worth? Metric/Assumption Value TAM 1.39M Percent we will claim 5% Number of users 69,500 User lifetime 40 months Revenue per month $5 per month CLV $200 Expected total revenues $13.9M * I made this up. Don’t believe everything you read.

77. Bottoms-up Start with one buyer, then add it up

78. Bottoms-up Metric/Assumption Value Impressions (acquisition) 9,266,667 Percent that install 10% Installs (activation) 926,667 Percent still using after 30 days 25% Become regular users (retention) 231,667 Percent that buy 30% Buy premium version (revenue) 69,500 Percent that churn each month 2.5% Customer lifespan 40 Revenue per month 5 Customer lifetime value 200 TAM value $13,900,000

79. Reality check Bottoms-up (TAM) Value Impressions (acquisition) 9.3 M impressions Top-down (TAM) Value IOS accounts we can sell to in Canada (this is our Total Addressable Market) 1.39 M users in Canada You Shall Not Pass.

80. Six business model archetypes. E-commerce SaaS Media Mobile  app User-gen  content 2-sided  market The business you’re in

81. Can you move enough customers through this cycle to make more money than you spend? Make them refer others Retain them Get revenue from them Acquire customers Activate them http://www.slideshare.net/dmc500hats/startup-metrics-for-pirates-long-version

82. (Which means eye charts like these.) Customer Acquisition Cost paid direct search wom inherent virality VISITOR Freemium/trial offer Enrollment User Disengaged User Cancel Freemium churn Engaged User Free user disengagement Reactivate Cancel Trial abandonment rate Invite Others Paying Customer Reactivation  rate Paid conversion FORMER USERS User Lifetime Value Reactivate FORMER CUSTOMERS Customer Lifetime Value Viral coefficient Viral rate Resolution Support data Account Cancelled Billing Info Exp. Paid Churn Rate Tiering Capacity Limit Upselling rate Upselling Disengaged DissatisfiedTrial Over

83. Model + Stage = One Metric That Matters. One Metric  That Matters. The business you’re in E-Com SaaS Mobile 2-Sided Media UCG Empathy Stickiness Virality Revenue Scale Thestageyou’reat

84. Really? Just one?

85. Yes, one.

86. In a startup, focus is hard to achieve.

87. Having only one metric addresses this problem.

88. www.theeastsiderla.com

89. Moz cuts down on metrics SaaS-based SEO toolkit in the scale stage. Focused on net adds. Was a marketing campaign successful? Were customer complaints lowered? Was a product upgrade valuable? Net adds up: Can we acquire more valuable customers? What product features can increase engagement? Can we improve customer support? Net adds ﬂat: Are the new customers not the right segment? Did a marketing campaign fail? Did a product upgrade fail somehow? Is customer support falling apart? Net adds down:

90. Metrics are like squeeze toys. http://www.ﬂickr.com/photos/connortarter/4791605202/

91. Empathy Stickiness Virality Revenue Scale E- commerce SaaS Media Mobile  app User-gen  content 2-sided  market Interviews; qualitative results; quantitative scoring; surveys Loyalty, conversion CAC, shares, reactivation Transaction, CLV Affiliates, white-label Engagement, churn Inherent virality, CAC Upselling, CAC, CLV API, magic #, mktplace Content, spam Invites, sharing Ads, donations Analytics, user data Inventory, listings SEM, sharing Transactions, commission Other verticals (Money from transactions) Downloads, churn, virality WoM, app ratings, CAC CLV, ARPDAU Spinoffs, publishers (Money from active users) Traffic, visits, returns Content virality, SEM CPE, affiliate %, eyeballs Syndication, licenses (Money from ad clicks)

92. Better: bit.ly/BigLeanTable

93. Drawing some lines in the sand.

94. A company loses a quarter of its customers every year. Is this good or bad?

95. Not knowing what normal is makes you do stupid things.

96. Baseline: 5-7% growth a week “A good growth rate during YC is 5-7% a week,” he says. “If you can hit 10% a week you're doing exceptionally well. If you can only manage 1%, it's a sign you haven't yet ﬁgured out what you're doing.” At revenue stage, measure growth in revenue. Before that, measure growth in active users. Paul Graham, Y Combinator • Are there enough people who really care enough to sustain a 5% growth rate? • Don’t strive for a 5% growth at the expense of really understanding your customers and building a meaningful solution • Once you’re a pre-revenue startup at or near product/market ﬁt, you should have 5% growth of active users each week • Once you’re generating revenues, they should grow at 5% a week

97. It’s oxygen You need customers to keep learning It’s a substitute for solvency PhotobyPaulMilleronFlickr.https://www.ﬂickr.com/photos/94674772@N03/8788576498

98. Baseline: 10% visitor engagement/day Fred Wilson’s social ratios 30% of users/month use web or mobile app 10% of users/day use web or mobile app 1% of users/day use it concurrently

99. Baseline: 2-5% monthly churn • The best SaaS get 1.5% - 3% a month. They have multiple Ph.D’s on the job. • Get below a 5% monthly churn rate before you know you’ve got a business that’s ready to grow (Mark MacLeod) and around 2% before you really step on the gas (David Skok) • Last-ditch appeals and reactivation can have a big impact. Facebook’s “don’t leave” reduces attrition by 7%.

100. Baseline: Calculating customer lifetime 25%  monthly churn 100/25=4  The average customer lasts 4 months 5%  monthly churn 100/5=20  The average customer lasts 20 months 2%  monthly churn 100/2=50  The average customer lasts 50 months

101. Baseline: CAC under 1/3 of CLV • CLV is wrong. CAC Is probably wrong, too. • Time kills all plans: It’ll take a long time to ﬁnd out whether your churn and revenue projections are right • Cashﬂow: You’re basically “loaning” the customer money between acquisition and CLV. • It keeps you honest: Limiting yourself to a CAC of only a third of your CLV will forces you to verify costs sooner. Lifetime of 20 mo. $30/mo. per customer $600 CLV $200 CAC Now segment those users! 1/3 spend

102. Who is worth more? Today A Lifetime: $200 Roberto Medri, Etsy B Lifetime: $200 Visits

103. The Lean Analytics cycle

104. Draw a new line Pivot or  give up Try again Success! Did we move the needle? Measure the results Make changes in production Design a test Hypothesis With data:  ﬁnd a commonality Without data: make a good guess Find a potential improvement Draw a linePick a KPI

105. The minimum needed to  test the core idea Survey owner adds recipient to group Survey owner asks question Recipient reads survey question Recipient responds to question Recipient sees survey results (Later, if needed…) Recipient visits site; no password! Recipient does password recovery One-time link sent to email Recipient creates password Recipient can edit profile, etc. Survey owner adds recipient to group Survey owner asks question Recipient gets invite Recipient reads survey question Recipient responds to question Recipient installs mobile app Recipient creates account, profile Recipient sees survey results Recipient can edit profile, etc. 10-25%RESPONSERATE 70-90%RESPONSERATE

106. Do AirBnB hosts get more business if their property is professionally photographed?

107. Gut instinct (hypothesis) Professional photography helps AirBnB’s business Candidate solution (MVP) 20 ﬁeld photographers posing as employees Measure the results Compare photographed listings to a control group Make a decision Launch photography as a new feature for all hosts

108. 5,000 shoots per month by February 2012

109. Hang on a second.

110. Gut instinct (hypothesis) Professional photography helps AirBnB’s business SRSLY?

111. Draw a new line Pivot or  give up Try again Success! Did we move the needle? Measure the results Make changes in production Design a test Hypothesis With data:  ﬁnd a commonality Without data: make a good guess Find a potential improvement Draw a linePick a KPI

112. “Gee, those houses that do well look really nice.” Maybe it’s the camera. “Computer: What do all the highly rented houses have in common?” Camera model. With data:  ﬁnd a commonality Without data: make a good guess

113. Circle of Moms: Not enough engagement • Too few people were actually using the product • Less than 20% of any circles had any activity after their initial creation • A few million monthly uniques from 10M registered users, but no sustained traction • They found moms were far more engaged • Their messages to one another were on average 50% longer • They were 115% more likely to attach a picture to a post they wrote • They were 110% more likely to engage in a threaded (i.e. deep) conversation • Circle owners’ friends were 50% more likely to engage with the circle • They were 75% more likely to click on Facebook notiﬁcations • They were 180% more likely to click on Facebook news feed items • They were 60% more likely to accept invitations to the app • Pivoted to the new market, including a name change • By late 2009, 4.5M users and strong engagement • Sold to Sugar, inc. in early 2012

114. Landing page design A/B testing Cohort analysis General analytics URL shortening Funnel analytics Inﬂuencer Marketing Publisher analytics SaaS analytics Gaming analytics User interaction Customer satisfaction KPI dashboardsUser segmentation User analytics Spying on users

115. Part two:  Why big companies  need to change

116. (http://csinvesting.org/2012/01/06/fortune-500-extinction/) F500 Life Expectancy Growth by entering a new business 95  % fail Corporate Strategy Board 99  % fail Clay Christensen 75 years 15 years 1950 2010...

117. mikemace.com The slow death of a market leader. Revenue over time This is what most managers track. Note that sales keep rising (making you feel safe) until you run off the edge of the cliff. “Let’s cut prices to accelerate our growth.” “Time to enter the mainstream. Cut prices.” “We may miss the quarter. Let’s do a price promotion.” “That wasn’t supposed to happen. We’ll have to lay some people off. Gross margin percent Declining profit per unit (gross margin) is actually your best signal of trouble. The adoption curve Here’s where you actually are, but you don’t know it because you can’t draw the curve until after the market saturates. Early adopters Late adopters

118. In other words, if your job is change you have your work cut out for you.

119. Lesson one: Companies die because they fail to move to new business models.

120. Clay Christensen, The Innovator’s Dilemma CostperMB $1000 $100 $10 $1 Time 14” M ainfram e 8” M inicom puter 5.25” Desktop 3.5” N otebook

121. Technologies outstrip what the market needs, driven by feedback from the “best” current customer. Clay Christensen, The Innovator’s Dilemma $1000 $100 $10 $1 Time 8” 5.25” High end customer Low end customer

122. The new market has different criteria for success, which are uninteresting to incumbents. Clay Christensen, The Innovator’s Dilemma $1000 $100 $10 $1 Time Storage  capacity Portability

123. Sometimes this has unintended consequences Clay Christensen, The Innovator’s Dilemma $1000 $100 $10 $1 Time Smaller disc size means less vibration impact, leading to greater density, increasing storage capacity

124. Why now? First: High rate of change of digital technologies & channels.

125. Arbitron and radio data

126. Times a song in “heavy rotation” is played daily 2007 2012 266

127. This alone explains the collapse of modern print media. Circulation, annually Clicks, instantaneously Letters to the editor, weekly Hashtags, always

128. Why now? Second: It’s no longer about whether you can build it—it’s about whether anyone will care.

129. The Attention Economy “What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention, and a need to allocate that attention efﬁciently among the overabundance of information sources that might consume it.” (Computers, Communications and the Public Interest, pages 40-41, Martin Greenberger, ed., The Johns Hopkins Press, 1971.)Herbert Simon

130. Lit motors tests the risky part

131. Lesson two: The difference between a rogue agent and a special operative is permission.

132. If big ﬁrms can’t innovate, it’s this guy’s fault.

133. Technology has radically changed the incremental cost of businesses.

134. http://www.ﬂickr.com/photos/ebolasmallpox/3733059220/ Software is eating the world.

135. An economic order quantity of one. Crafted Mass- produced Automated Digital Quantity Few Many Some One Cost High Low Medium Free Lead time Small Large Medium None Self-service Medium None Some Lots Customization High None Some Lots • Cloud computing • Social media • 3D printing • Per-customer analysis • Mobile tracking • Etc... This is why software is eating the world.

136. Sustainable competitive advantage allows for inertia and power to build up along the lines of an existing business model, which will soon die. Instead, seek transient competitive advantage. Rita Gunther McGrath, The End of Competitive Advantage

137. Scale is now a liability. Compete on cycle time.

138. CW&T make a pen

139. http://www.ﬂickr.com/photos/art_es_anna/288880795/

140. Optimizing the probable means discounting the possible.

141. This isn’t about a lack of resources.

142. http://www.flickr.com/photos/maladjusted/5207565912

143. Blockbuster had a lot going for it.

144. Plenty of inventory, of course. But that matters less than...

145. ...market intelligence, customers, existing payment approval, and customer history.

146. The problem was framing: Blockbuster thought it was in the video store management business. Netﬂix realized it was in the entertainment delivery business.

147. YOU ARE HERE

148. YOU ARE HERE LOCAL  MAXIMUM OPTIMIZATION  OF CURRENT METRICS

149. YOU ARE HERE GLOBAL  MAXIMUMINNOVATION  WITH NEW  RULES

150. YOU ARE HERE SHORT-TERM INVESTORS  HATE GOING DOWNHILL

151. • $1B invested in Nook • $475M operating loss in April 2013 • CEO gone First mover advantage happens long before the market emerges.

152. Constraints slow things down vs.

153. Capital cycles don’t ﬁt the short, iterative nature of startup uncertainty 12 month budgeting cycle; annual plan. Future based on past. Agile, scrum, lean iterations. Today’s model. No evidence about the future. Project Project Project Project Project Project Project Project Project Project Project Project (Requires budget insulation)

154. What’s the biggest problem  in a hair salon?

155. The empty chair. Knowing this, how might you change the client/customer relationship?

156. Can and must What triggers cultural change?

157. “Using Cue, you can tell if someone has the ‘ﬂu in 10 minutes.” http://tiltthewindmill.com/when-can-becomes-must/

158. “Using Cue, you must tell if someone has the ‘ﬂu in 10 minutes… …or Johnny can’t come on the school trip.”

159. Part three: Three maxima of innovation

160. When you’re a startup your goal is to ﬁnd a sustainable, repeatable business model. When you’re a big company your goal is to perpetuate one.

161. Intrapreneur: Someone working to produce disruptive change in an organization that has already found a sustainable, repeatable business model.

162. Business model vs. company stage Company size/age Early stage Big/incumbent B2B Target  market B2C LessWoM  Moreformaldecisions Slower cycle time  More legacy constraints It is way too easy to mix these up. Intrapreneurs

163. In a startup, the purpose of analytics is to iterate to product/market ﬁt before the money runs out.

164. In a big company, analytics replaces opinion with fact.

165. Companies that use data-driven analytics instead of intuition have 5%-6% higher productivity and proﬁts than competitors. Brynjolfsson, Erik, Lorin Hitt, and Heekyung Kim. "Strength in Numbers: How Does Data-Driven Decisionmaking Affect Firm Performance?." Available at SSRN 1819486 (2011). 2011 MIT study of 179 large publicly traded ﬁrms

166. The fundamental shift from Big Data Ask question Define  schema Collect  data Answer  question Refine problem Collect data Ask question Emergent schema Explore data Answer  question “Collect first; ask questions later.”

167. Three kinds of innovation Sustain/core  (optimizing for more of the same) Innovate/adjacent  (introduce nearby product,  market, or method) Disrupt/transformative  (Fundamentally changing  the business model) Improve along current metrics... ...or alter  the rate of improvement Switch to a new value model Change the business  model entirely

168. Many models for enterprise innovation Core Adjacent Transformative Do the same thing better. Nearby product, market, or method. Start something entirely new. Regional  optimizations. Innovation, go-to- market strategies. Reinvent the business model. • Get there faster • Smaller batches • Solution, then testing • Increased accountability • Customer development • Test similar cases • Parallel deployment • Analytics & cycle time • Fail fast • Skunkworks/R&D • Focus on the search • Ignore the current model & margins

169. Another way to look at it Core Adjacent Transformative Know the problem (customers tell you it) Know the solution (customers/regulations/ norms dictate it.) Know the problem (market analysis) Don’t know the solution (non-obvious innovation confers competitive advantage.) Don’t know the problem (just an emerging need/ change) Don’t know the solution. Waterfall:  Execution matters Agile/scrum:  Iteration matters Lean Startup: Discovery matters

170. Experiment with product, market, and method.

171. Product (new “what”) Market (new “who”) Method (new “how”) 3 kinds of innovation

172. Engine as a service

173. http://www.nasa.gov/images/content/365835main_airplane_noise_qtd2_3024x2016.jpg Engine as a service

174. “Efficiency is tied to analytics. We’ll still look for new materials, or for the physics of devices, but the analytics ... is what’s really untapped.”

175. Current  state Business optimization (ﬁve mores)  Product,  market,  method innovation  Business model innovation  You can convince executives of this because some of it is familiar. This terriﬁes them because it eats the current business. A three-maxima model of enterprise innovation

176. Improvement Adjacency Remodeling Do the same,  only better. Explore what’s  nearby quickly Try out new  business models Lean approaches apply, but the metrics vary widely. Sustain/  core Innovate/  adjacent Disrupt/  transformative

177. Sustaining Adjacent Disruptive Next year’s car Electric car,  same dealer On-demand, app-based  car service

178. Sustaining innovation is about more of the same. (says Sergio Zyman) More things To more people For more money More often More eﬃciently Supply chain optimization Per-transaction cost reduction Loyal customer base that returns Demand prediction, notiﬁcation Maximum shopping cart Price skimming/tiering Highly viral offering Low incremental order costs Inventory increase Gifting, wish lists

179. Blizzard extends the lifespan of WOW Early  adopters Rapid  growth Market  saturation The infamous S-curve (Product lifecycle, Bass diffusion curve, etc.)

180. Blizzard extends the lifespan of WOW

181. Blizzard extends the lifespan of WOW Fixing this: sustaining growth with novelty Product & market innovation (“New & improved!”)

182. Blizzard extends the lifespan of WOW WOW Burning  Crusade Wrath of  the Lich King Mists of  PandariaCataclysm Warlords of Draenor

183. Most of your innovation will be adjacent or sustaining. Question marks! (low market share, high growth rate) May be the next big thing. Consumes investment, but will require money to increase market share. Stars! (high growth rate, high market share) What everyone wants. As market invariably stops growing, should become cash cows. Dogs! (low market share, low growth rate) Barely breaks even, may be a distraction from better opportunities. Sell off or shut down. Cash cows! (high market share, low growth rate) Boring sources of cash, to be milked but not worth additional investment. Growthrate Market share Pivot to   increase  market  share  through  virality,  attention Pivot to  increase growth  rate through  disruption Pivot to  redeﬁne problem/  solution through  empathy Milk with  revenue  optimization as  growth slows If you don’t like this, go launch a startup.

184. Software, experimentation, and iterative cycles of learning help you get to the local maximum better and faster. That’s a good thing. But it’s not the only thing.

185. Adjacent innovation is about changing one part of the model in a way that alters the value network.

186. Amazon Web Services and the server value network Server computing • Density • Heat • GHz • MIPS Cloud computing • Instances • Objects • Spinup time • Scaleout Capex, ﬁnancing, TCO, ROI Opex, demand, time to result CIO, enterprise IT CTO, coder, app owner, line of business, startup Value  criteria Money Buyer

187. Adjacent product to the same market in the same way

188. Selling the same product to an adjacent market in the same way. Of P&G’s 38 brands, only 19 were sold in Asia as of 2011 Market expansion is seldom selling the same thing to new people. In Asia, P&G needed to Align pricing with novelty (prestige, mass-tige, over-the-counter) Change consumer expectations (moving from dilutes to concentrates) Adjust positioning and ingredients such as white fungus, ginseng, and the parasitic cordyceps

189. Selling the same product to the same market in a new way. The biggest innovation in logistics of the 20th century. http://www.flickr.com/photos/photohome_uk/1494590209

190. Changing the method of C2C classifieds A blend of who, what, how Classified C2C sales (same “what”) Strictly for Japanese women (targeted “how”) New how (phone is capture, display, payment, transaction) Did 100 interviews w/target users before launch Key insight: Japanese women sell their entire wardrobe twice in their lives 5,000 and 10,000 sales in first month 10% commission fee Average price of items is pretty low, at around 2,000 to 3,000 yen (or $22 to $34) Not an auction: seller decides price Mobile-only model Phone is payment, storefront, and even a way for sellers to build their catalog http://www.sffashtech.com/2012/10/10/a-free-market-fashion-app-exclusively-for-women-japan/

191. Selling the same product to the same market in a new way.

192. (At this point, observant Intrapreneurs should be asking, should P&G be in the house cleaning business? And that would be transformative.)

193. Transformative innovation is about taking a leap, changing more than one dimension simultaneously in search of a new business model.

194. If sustaining, incremental innovation produces linear growth, then disruptive, transformative innovation produces exponential growth.

195. Transformative isolation: Skunkworks

196. Transformative incubation: Metlife Inﬁnity

197. Significant market 850K full-time law enforcement officers in the US; 700K state/local; 525K patrol officers 130M incident reports/y. 70M new incidents; 200K involve use of force Only 31% of local police agencies keep computer files on use-of-force incidents Strong product benefits Exonerates the officer 96% of the time. 47% percent increase in charges and summons (2007) Patrol officers spend 15-25% of their time writing incident reports, recorded evidence reduces this by 22%, meaning 50m more on patrol Challenges New business model Pricing unclear SaaS offering Compliance and governance Unions, regulation, chain of evidence Changing the current model (radio is everything) Transformative incubation: Taser evidence.com

198. Part four: What works for large companies (A bagful of tricks from agitators in companies of all sizes.)

199. The job of an intrapreneur is to identify an adjacent market, product, or method that conforms to organizational ﬁlters. It is not to improve the current product, market, or method.

200. Also: a pariah. Successful innovators share certain attributes. Bad listener: Wilfully ignore feedback from your best customers. Cannibal: If successful, destroying existing revenue streams. Job killer: Automation & lower margins are your favorite tools. Security risk: Advocate of transparency, open data, communities. Narcissist: Worry constantly about how you’ll get attention. Slum lord: Sell to those with less money, deviants, and weirdos.

201. Know what kind of innovation you’re after. New Current Current New Market Product Penetrate:  Increase revenues, market share, product quality, brand differentiation. Marketing. Market development:  Sell existing products to new markets, segments, uses. Export & license. Product development:  Invent new products for your market. R&D, enhancements. Acquisition. Startup:  New products for new markets. New rules, business units, organizational structure. Innovation. Based on H. Igor Ansoﬀ’s matrix Increased risk of political fallout (and great success!)

202. Innovation portfolios at big companies Core Adjacent Transformative 70% 20% 10% Investment 70%20%10% Return

203. Use outliers and missed searches to hunt for good ideas & adjacencies (Multi-billion-dollar hygiene product company) 1/8 men have an incontinence issue. 1/3 women do. When search results show a signiﬁcant number of men searching, this suggests the adjacent (male) market is underserved.

204. Frame it like a study Product creation is almost accidental. Unlike a VC or startup, when the initiative fails the organization still learns. http://www.flickr.com/photos/creative_tools/8544475139

205. When in doubt, collect data From tackling the FTA rate to visualizing the criminal justice supply chain.

206. Use data to create a taste for data Sitting on Billions of rows of transactional data David Boyle ran 1M online surveys Once the value was obvious to management, got license to dig.

207. 4” e-ink display with name and specialty. Badge scans barcode and gets specs; checks inventory; enters data on a touch screen. Smart Badge Today: Workers see their own productivity. Coming soon: comparing yourself to 400,000 other employees. Ultimately: Learning what (and who) works well. Data Exhaust Tesco connects its workforce

208. Don’t just collect data, chase it.

209. Understand hidden constraints That pencil story is a myth. Graphite is conductive and explosive. The Minimum Viable Product is Viable for a reason.

210. Know what has to be built in-house SAP integration Employment law

211. http://www.ﬂickr.com/photos/bootbearwdc/1243690099/ Think subversively.

212. Everything’s an excuse to experiment

213. Find other ways to collect data; everything is an experiment.

214. Run it as a consulting business ﬁrst. (Just don’t get addicted to it. Your goal is to learn and overcome integration challenges and ﬁnd the 20% of features that 80% of the market will pay for.)

215. Convince your boss she asked for this Draw a new line Pivot or  give up Try again Success! Did we move the needle? Measure the results Make changes in production Design a test Hypothesis With data:  ﬁnd a commonality Without data: make a good guess Find a potential improvement Draw a line  in the sand Pick a KPI

216. Focus on the desired behavior, not just the information. http://www.psychologytoday.com/blog/yes/ 200808/changing-minds-and-changing-towels 26% increase in towel re-use with an appeal to social norms; 33% increase when tied to the speciﬁc room. Energy Conservation “Nudges” and Environmentalist Ideology: Evidence from a Randomized Residential Electricity Field Experiment - Costa & Kahn 2011 The effectiveness of energy conservation “nudges” depends on an individual’s political ideology ... Conservatives who learn that their consumption is less than their neighbors’ “boomerang” whereas liberals reduce their consumption.

217. Take baby steps.

218. Netﬂix

219. Tesla http://www.hdwallpapersinn.com/wp-content/uploads/2012/12/600-tesla.jpg

220. Twitter’s 140-character limit isn’t arbitrary. It’s constrained by the size of SMS (160 characters) and username (20 characters.) http://i.i.cbsi.com/cnwk.1d/i/tim/2011/11/18/ sms_screen_twitter_activity_stream_270x405.png

221. Figure out how to translate it back to a simple model that ﬁts the company’s existing value model. If your company dies, this is why.

222. Software Platform Merchandising User-generated content Marketplace Media/content Service Oracle’s accounting suite Amazon’s EC2 cloud Thinkgeek’s retail store Facebook’s status update AirBnB’s list of house rentals CNN’s news page A hairstylist Product  type What the startup does in return. May be a product or service; may be hardware or software; may be a mixture. One-time transaction Recurring subscription Consumption charges Advertising clicks Re-sale of user data Donation Single purchase from Fab Monthly charge from Freshbooks Compute cycles from Rackspace PPC revenue on CNET.com Twitter’s firehose license Wikipedia’s annual campaign Revenue  model How the startup extracts money from its visitors, users, or customers. Paid advertising Search Engine Mgmt. Social media outreach Inherent virality Artificial virality Affiliate marketing Public relations App/ecosystem mkt. Banner on Informationweek.com High pagerank for ELC in kid’s toys Active on Twitter i.e. Kissmetrics Inviting team member to Asana Rewarding Dropbox user for others’ signups Sharing a % of sales with a referring blogger Speaker submission to SXSW Placement in the Android market Acquisition  channel How the visitor, customer, or user finds out about the startup. Hosted service Digital delivery Physical delivery Salesforce.com’s CRM Valve purchase of desktop game Knife shipped from Sur La Table Delivery  model How the product gets to the customer. Simple purchase Discounts & incentives Free trial Freemium Pay for privacy Free-to-play Buying a PC on Dell.com Black Friday discount, loss leader, free ship Time-limited trial such as fitbit Premium Free tier, relying on upgrades, like Evernote  Free account content is public, like Slideshare Monetize in-app purchases, like Airmech Selling  tactic What the startup does to convince the visitor or user to become a paying customer.

223. Acquisition  channel Selling  tactic Revenue  model Product  type Delivery  model Business aspect Flipbook  page(s) Inherent virality. Artiﬁcial virality. Sharing ﬁles with others. Free storage when others sign up. Freemium. Limited-capacity accounts are free; subscribe when you need more. Recurring subscription. $99/year, monthly fees, enterprise tiers. Platform. Storage-as-a-service with APIs, collaboration, synchronization tools. Hosted service. Digital delivery. Cloud storage, web interface. Desktop client software. Dropbox example

224. Use the right proxies for B2B products Stage Startup metrics Intrapreneur metrics Empathy Customers interviewed (needs & solutions), assumptions quantified, TAM, monetization possibility Non-customers interviewed; assumptions quantified, constraints identified, TAM, disruption potential Stickiness Churn, engagement Support tickets, integration time, call center data, delays Virality Viral coefficient, viral cycle time Net Promoter Score, referrals, case study willingness Revenue Attention, engagement Billable activity; signed LOIs; pilot programs; after-development profitability Scale Automation Contribution, training costs, licensing

225. Tomorrow’s company: Running parallel businesses Innovation Sustaining/core Adjacent Transformative/ disruptive Core action Optimizing/ improving Experimenting Searching/ inventing Focus on Known metrics Risk removal Assumption validation Which will live Within current business unit Incubated, then integrated As new/separate entities Problem is Known Known Unknown Solution is Known Unknown Unknown

226. How to build a message map

227. I need a carA. I should buy  a car B. It should be  a hybridC. I should buy  a Honda CivicD. Everyone in the world

228. People who want to drive Prospective car buyers People looking for a hybrid Honda Civic Hybrid owners I need a carA. I should buy  a car B. It should be  a hybridC. I should buy  a Honda CivicD. Everyone in the world

229. “Isn’t it time you got out of the city?” campaign showing how cars make nature accessible & ridiculing urban hipsters. Ads showing how cars are needed any time (pregnancy, errands, urgent business) and how a car is a “personal assistant.” Urgency (“every time you drive a non-hybrid car you kill the planet a little”) and testimonials from buyers who’ve saved money. Honda branding ads and model- speciﬁc promotions. Follow-up satisfaction campaign to encourage buyers to tell their friends People who want to drive “I need a vehicle to get around, be productive, and enjoy my life.” Prospective car buyers “I want to own a car because it’s convenient; it’s a personal relationship; I don’t trust others.” People looking for a hybrid “I want to save money and fuel. I also care about the environment and want to be seen as ‘green’.” Honda Civic Hybrid owners I need a carA. I should buy  a car B. It should be  a hybridC. I should buy  a Honda CivicD. Everyone in the world

230. People who want to drive “I need a vehicle to get around, be productive, and enjoy my life.” Prospective car buyers “I want to own a car because it’s convenient; it’s a personal relationship; I don’t trust others.” People looking for a hybrid “I want to save money and fuel. I also care about the environment and want to be seen as ‘green’.” Honda Civic Hybrid owners Those who don’t need cars • I’m too young to drive • I’m too old to drive • I can walk or take public transit Car users who won’t buy • It’s too expensive for me • I will use a shared car service • It’ll get stolen Those who won’t buy hybrids • Hybrids are gutless • Batteries are toxic & explosive • In the end it costs more than it saves I will buy another brand • I buy domestic • I’ve always driven a VW • Toyotas are reliable • I want something prestigious I need a carA. I should buy  a car B. It should be  a hybridC. I should buy  a Honda CivicD. Everyone in the world

231. People who want to drive “I need a vehicle to get around, be productive, and enjoy my life.” Prospective car buyers “I want to own a car because it’s convenient; it’s a personal relationship; I don’t trust others.” People looking for a hybrid “I want to save money and fuel. I also care about the environment and want to be seen as ‘green’.” Honda Civic Hybrid owners Those who don’t need cars • I’m too young to drive • I’m too old to drive • I can walk or take public transit Car users who won’t buy • It’s too expensive for me • I will use a shared car service • It’ll get stolen Those who won’t buy hybrids • Hybrids are gutless • Batteries are toxic & explosive • In the end it costs more than it saves I will buy another brand • I buy domestic • I’ve always driven a VW • Toyotas are reliable • I want something prestigious Sponsor a driving school “Give the gift of driving” campaign for grandparents. Financing, cashback Sell to carshares; underscore their limitations PR on dangers of commuting, pedestrian deaths Theft warranty, tracking services, high-end locks Independent tests, standard metrics (0-60 in X) Lab research, studies ROI calculator; replacement programs Prove Honda hires US workers “Time to leave Germany” ads Spontaneous accel. stories Premium brand (Acura) I need a carA. I should buy  a car B. It should be  a hybridC. I should buy  a Honda CivicD. Everyone in the world

232. “Isn’t it time you got out of the city?” campaign showing how cars make nature accessible & ridiculing urban hipsters. Ads showing how cars are needed any time (pregnancy, errands, urgent business) and how a car is a “personal assistant.” Urgency (“every time you drive a non-hybrid car you kill the planet a little”) and testimonials from buyers who’ve saved money. Honda branding ads and model- speciﬁc promotions. Follow-up satisfaction campaign to encourage buyers to tell their friends People who want to drive “I need a vehicle to get around, be productive, and enjoy my life.” Prospective car buyers “I want to own a car because it’s convenient; it’s a personal relationship; I don’t trust others.” People looking for a hybrid “I want to save money and fuel. I also care about the environment and want to be seen as ‘green’.” Honda Civic Hybrid owners Those who don’t need cars • I’m too young to drive • I’m too old to drive • I can walk or take public transit Car users who won’t buy • It’s too expensive for me • I will use a shared car service • It’ll get stolen Those who won’t buy hybrids • Hybrids are gutless • Batteries are toxic & explosive • In the end it costs more than it saves I will buy another brand • I buy domestic • I’ve always driven a VW • Toyotas are reliable • I want something prestigious Sponsor a driving school “Give the gift of driving” campaign for grandparents. Financing, cashback Sell to carshares; underscore their limitations PR on dangers of commuting, pedestrian deaths Theft warranty, tracking services, high-end locks Independent tests, standard metrics (0-60 in X) Lab research, studies ROI calculator; replacement programs Prove Honda hires US workers “Time to leave Germany” ads Spontaneous accel. stories Premium brand (Acura) I need a carA. I should buy  a car B. It should be  a hybridC. I should buy  a Honda CivicD. Everyone in the world

233. Hits A metric from the early, foolish days of the Web. Count people instead. Page views Marginally better than hits. Unless you’re displaying ad inventory, count people. Visits Is this one person visiting a hundred times, or are a hundred people visiting once? Fail. Unique visitors This tells you nothing about what they did, why they stuck around, or if they left. Followers/friends/ likes Count actions instead. Find out how many followers will do your bidding. Time on site, or pages/visit Poor version of engagement. Lots of tim

Slides from New Media Manitoba Lean Analytics workshop, June 2015

Estás leyendo una previsualización.

Eche un vistazo a continuación

Slides from New Media Manitoba Lean Analytics workshop, June 2015

Más Contenido Relacionado

Presentaciones para usted (20)

Similares a Slides from New Media Manitoba Lean Analytics workshop, June 2015 (20)

Más reciente (20)