BUSINESS METRICS THAT MATTER. TIPS TO ACCELERATE BUSINESS GROWTH
User Engagement Business Metrics
There has been a fundamental shift when it comes to startups and Silicon Valley where investors have started worrying about different metrics. It used to be that investors would be willing to give money to a company, but would first and foremost be concerned with how exactly they would get a return on their investment. Of course, this won’t ever change – as that is the point of investment, to get a return. However, the culture has shifted to caring more about user numbers, growth, and other metrics. The idea is that first and foremost, an application, product, or service, needs to prove that it useful to a certain number of people. Everybody can claim that “x” number of people would be interested in an app, but none of that matters if the app isn’t being used by a certain number of people. For example, someone can come out with a gaming-related app, and claim that over a billion people in the world play video games – so your app is targeting a huge market. None of that matters if the people who DO use your app find it uninteresting, ineffective, or have no real incentive to keep using it. The climate has now shifted to investors first and foremost being interested in startups that organically have created a user base. The startup now has leverage, by showing investors that their user base is growing by a certain rate, and the whole idea of revenues or coming up with the perfect business model now can wait a little bit, because at least it is clear that people are interested. The bottom line is that many people in the startup space are simply fighting for users, especially in the social media and application space. As a result, users and growth have become perhaps the most important possible metric for startups now, and that certainly isn’t changing anytime soon.
Adam Schulz is the VP of growth at Facebook, and joined the company when it had 100 million users, which is obviously impressive. However, Facebook has grown to be a company that now has over 1.6 billion users, and Adam Schulz is a big reason for that. He is considering a leading expert on growth in general – and it is his belief that the number one most important aspect of growth is retention. Growth only matters if it is continuing, and actually keeping users engaged and interested.
There is a phenomenon that is well-known in business and psychology called “the network effect”. The network effect is a phenomenon where the more users use a particular company or service, the higher the value of that product or company becomes, in terms of public perception. The obvious examples for this are in art. Music albums have the most effect the week or two after their release, when they are dominating the air waves, and when people are ranting about a particular song on their blog, Youtube channel, or simply in their social circles. Similarly, video games and apps have this effect – as people are most excited once the application is released, and begins to get popular.
Adam Schulz acknowledges that Facebook had an incredible network effect, perhaps more so than any other social media company in history. However, while he was constantly interested in user numbers – his focus was a little different. There were many companies at the time who were obsessed with daily user statistics, and touting them as the most important metric. Instead, Adam Schulz was looking at something different: the monthly daily users. He knew that the people that downloaded Facebook on the first day were going to use Facebook. It even followed logically that because of the novelty of the experience, they might be browsing through the website/app on the second and third day. However, Mr. Schulz wanted to know who exactly was using Facebook the 31st day after first engaging.
Of course, if this was all graphed – there will be a downward slope. Human beings have lives, and apps have competition. The person that was fascinated with Facebook, and searching for friends from their childhood until recently for five hours on their first day, was eager to engage in a new platform. It is simply impossible for that person to maintain a life while browsing Facebook for five hours every day afterwards. However, it is notable if by Day 31, the user is not logging in at all – and of course, is very worrying for Facebook. If on Day 31, they are still logging in, and this time for an hour, it naturally follows that the user is still engaged, and incorporating Facebook as part of their daily routine. This, of course, is what Facebook, and investors, ultimately want: for new users to be lured in, while existing users are retained. It was this “big picture” mentality that separated many other apps, who were more concerned with the daily and weekly ups and downs in terms of metrics, without thinking of the advantages that pulling back can provide, in terms of perspective.
Of course, it isn’t simply about users being interested. There are other factors that can cause for a spike in user retention, or bring a user back. One great example of this is adding a new interface. For example, many consumers may switch between IoS and Android systems, depending on which smartphone they own. As a result, that affects the way that the user retention looks on a graph, as a release on a new interface can cause people to return to an old app that they hadn’t been using in a while. It could even be arguing that purchasing a new phone may lead a consumer to start using new apps, as they have more memory. These factors may not be earth-shattering, but can certainly change the metrics significantly.
Categories are important. Many people are familiar with the fact that Amazon was originally focused on books. However, it isn’t books that necessarily helped propel Amazon into being one of the largest companies in the world – it was their ability to add all sorts of categories, from food, to clothing, and more. Of course, this logically follows that user retention can increase based on what the company is doing to diversify and address the needs of its users.
Adam Schulz also noticed an important aspect about growth. He calls it a “magic moment”. He truly believes that companies these days offer a brand new experience. For example, Ebay offers you the first chance to auction off a prized possession of yours, for example. Airbnb offers you the first chance to have a homely stay in a place that you may not be familiar with. Similarly, Facebook was the first platform that allowed you to reconnect with friends or family that you may not have seen in a while. It is that particular “moment” that gives user a satisfaction that is beyond any metric, and he truly believes that this is the reason that Facebook was initially successful.
Of course, it goes past simple emotions and “feeling good”. Adam Schulz found that there is a direct correlation in the amount of friends that you were able to find and connect with in the first 14 days and your subsequent use of Facebook. It sounds simple, but the more friends that you have, the more interactions that you have – and as a result, the more that Facebook might become part of your routine. One can assume that rekindling these friendships and relationships can be a positive experience, which could lead the user to wanting to find more and more people – which of course leads to more users, and user retention.
It is important to realize that since Facebook wasn’t relying on users for their revenue (as in, they weren’t charging for their services), retention is a different metric. We all know that if you run a high-end clothing store, you don’t necessarily need to have repeat customers. In fact, there are luxury retail stores that can only have five to ten percentage retention, but can be wildly successful, because of the profit margins involved. Facebook was a free way to connect with other people, and became more valuable the more people on it – so five to ten percent retention is absolutely unacceptable. If ninety percent of the people who signed up for Facebook found it uninteresting, or couldn’t find people close to them to connect with, the entire company concept and mission wouldn’t work. It is one of the reasons why Facebook acquired Whatsapp – because they knew that millions of people were connecting with the platform, and that it would be an increasing force, as they were only gaining users.
One of the reasons why Adam Schulz emphasizes monthly active users is because he believes that this helps align the company. It is hard to have a company with a certain amount of employees attempting to come up with constant daily and weekly strategies for users, and it is much easier to ensure that people are looking at the right trends, and coming up with the right plans. This can be extremely hard to do when looking at shorter time-frames.
This doesn’t just apply to user metrics. Facebook, of course, began implementing advertising as a huge source of revenue. They can now use the monthly active user data to help maximize the effectiveness of their advertising. This is the kind of information that really helps Facebook become a company that is worth hundreds of billions of dollars.
Adam Schulz also emphasizes that the same strategy at Facebook won’t work for a scrappy startup. He emphasizes that the only thing that a truly new startup should be focusing on is growth, and all aspects of it. A new startup should be communicating with users, and understanding as many metrics as possible. How are people resurrecting and coming back to your service? Is it because you are advertising? It is because you are e-mailing them? Are people searching for your company on search engines, and if they are, are they actually becoming users afterwards? Are they not searching traditionally, but engaged with your company on social media networks? If so, why is that? Are your SMS marketing techniques more effective than your e-mails? Why is that? Adam Schulz believes that strategizing should come after a whole lot of information is initially collected, and of course, there are literally billions of people at Facebook so that there is so much data for him to draw from. However, this doesn’t work for new startups who are struggling to reach twenty thousand users, for example, so that means the team must be examining their metrics as closely as possible, and understanding why they are where they are.
The truth is that metrics can truly help a company “move faster”. Once the right data set and calculations are made, so much can be concluded. Adam Schulz concludes, for example, that he can use a graph to know how much possible revenue could come from, say, a thousand advertisers that may have signed up with Facebook on one particular day. It is this new context of revenue that can help lead to other important decisions, which of course, makes decisions happen faster, which helps a company stay ahead of the competition, and be as effective as possible. In his words, now, “every decision won’t have to come to you”. This is of extreme important as Facebook relies on ad revenue, so they need to understand metrics when it comes to users, and this helps them understand advertisers, as well.
Of course, metrics help the company identify important flaws. Where are the big drop-offs? Why are less users responding to notifications, and where are they located? Metrics can help identify where growth is slowing down, and to address the issue immediately. Adam Schulz points out that there was a particular feature that was dependent on the size of the screen, and that this led to less user growth in the Philippines, where many people were using Facebook on narrow screens in internet cafes. It is truly amazing that Facebook was able to realize that people were friending people less in this particular community, because of this particular feature, and for this particular reason.
Metrics also help identify particular user groups. Every company and application has its “power users”, who try to utilize every feature and customize their experience as much as possible. This is much different from the marginal user’s experience, who may not go through the trouble of toggling every setting, and might be more frustrated. This frustration, if not addressed, may lead to slowing user growth. Every new startup should be concerned with metrics, in that they can tell the company what is being looked at, and clicked on, and use that information to tinker with their service until it reaches its maximum potential.
The bottom line is that every startup should be focusing on metrics, because of the information that they provide. In this day and age, retaining users is more important than anything else, as there can always be some kind of business model that can be developed to create revenue, whether it is an advertisement or subscription model. The data obtained from metrics can allow companies to make instant decisions that can put them way ahead of the competitor, because Adam Schulz truly believes that a good idea executed today can do more for users and a startup than a perfect plan executed much later. In fact, he truly believes that acting on 70% of the data, instead of 90% of the data, can lead to the kind of rapid growth that every startup dreams of having.
The bottom line is that user retention is of the utmost important. No one wants to be a one-hit wonder musician, the same way that no startup wants to be a “hot company” for a year, only to never really retain any users later on. It is also important to focus on what the key “magic moment” is, and for Facebook – it is about friends. As long as a certain amount of your friends use Facebook, it will grow, and continue to be relevant, despite certain user groups growing more than others. It is therefore important for your company to define the business metrics that are most important to them, so it can tailor its growth, ethics, and overall mission towards these metrics more than ever.
- When it comes to users, retention is more important than anything else. Monthly active users is a great way to see the big picture of where your company is headed.
- Metrics aren’t just about users – the data can end up being applied to what actually ends up making the company profitable, whether it is advertisement, a certain feature, or a certain business model.
- It’s always important to communicate with users and collect as much information as early as possible. A new startup should be “obsessed” with growth.
- Metrics help you work on your strengths AND weaknesses.
- Metrics help you make decisions faster, which could mean life or death in the startup world.