Growth hacking your startup? Be a pirate!

Opinions & Insights

Max Tiong, DBS Innovation Group Startup and Ecosystems Lead

13

Aug 2014

Your product is launched and you've got your first batch of customers. Congratulations! Now, your focus is to keep growing. But how do you do that? Many would advise that you start small with low marketing costs as you are a startup. While I agree with that general advice, I'd like to recommend using a more measurable approach - AARRR, also known as the Pirates Metrics.

THE PIRATE METRICS

Coined by famous investor and entrepreneur, Dave McClure of 500Startups, the AAARR system has been immortalised by so many in the ecosystem. Dave argues that for a startup to be effective at driving the company towards its vision, the founders/CEO needs to focus on only 5 key metrics and develop strategies to constantly improve on them.

Ask yourself - Is 10,000 weekly unique visitors better than 100 customers who each tell 3 friends about your website? If questions like - "How long are the weekly unique visitors staying for?" and "Are the friends turning into paying customers?" are running through your head, you're on the right track. While both unique visitors and customers are important, it's how we use the data behind these metrics that makes a difference. Don't just drive metrics, seek to understand them throughout the customer journey instead.

1. ACQUISITION

Driving visitors to our landing page is often the immediate answer when we think about marketing our product or service. But it's more than just driving traffic to the site, you'll need to identify where your visitors are coming from, the most effective acquisition channels and the cost-effectiveness of each channel. Acquisition channels include blogs, affiliates, search engines and social media. Most analytics tools provide these basic information for free (e.g. Google Analytics). Services like Bit.ly are very effective in measuring and experimenting the tone-of-voice and micro-copies posted on your acquisition channels.

Most startup growth-hackers break down acquisition numbers into 2 types: landed and engaged. Every acquisition that arrives at your landing page would be a landed acquisition while an engaged acquisition is usually defined as a visitor who doesn't bounce off immediately and spends at least a certain amount of time on the website. In order to grow efficiently, constantly challenge yourself to increase engaged acquisitions percentages instead of only driving new landed acquisitions.

Example - Squarespace Analytics

2. ACTIVATION

After driving traffic to your landing page, you'll need to "activate" them. Startups need to define what this means and adapt the definition to fit their growth stage. For some, an activated visitor might be defined as a visitor who indicated an interest for early beta trials by providing their email address (e.g. mobile applications), signed up for a free trial (e.g. software-as-a-service) or viewed product details on the website (e.g. e-commerce). To improve on activation rates, you'll need to monitor data-points such as which pages visitors typically click on first when arriving at your landing page, which page they usually drop off and how much time they spend on the site. Crazy Egg's visual heat maps is a very useful tool for businesses to gather such information.

Example - Crazy Egg's Heat Map for Chef Box Singapore

You may ask - "Why not define activation as paying for the product?". The rationale behind this is simple. Visitors usually go through a phase of discovering the product (Acquisition) followed by experiencing or understanding the product (Activation), using the product repeatedly (Retention) before paying for the product (Revenue). By breaking down the user experience, we are able to create effective and actionable strategies for every step along way. During a startup's early stages, it is important to focus on activation metrics as most startups do not have a huge marketing budget to dump into acquisition. Having a high activation rate helps you stay afloat longer while you work on retention and revenue.

3. RETENTION

After activating visitors who have experienced your product in one way or another, you'll want them coming back for more. Retention metrics can be as simple as having a user returning to our mobile application twice in a month, or visiting our website once a week. To increase retention, craft strategies by analysing how the users are coming back and where are they coming back from. Are your weekly mailers effective at driving retention and what's the tone-of-voice that drives the most re-engagement?

Having a high retention value also increases the lifetime value of your users. This metric becomes even more important for digital advertising business models as typical consumers rarely click-through on advertisements when they see it for the first time. It takes a few sightings before consumers will actually click on the advertisement. If users don't revisit the service often enough, it will become increasingly difficult to execute such business models. There's also the value of user data. Having high retention numbers usually means you are able to gather more information about your users in a long run, opening up revenue opportunities for your business. Remember - keep wooing your users and don't be complacent just because they have used your service once.

4. REFERRALS

If you do very well on retention by focusing on your customers, there's a high chance that some of them will turn into your company's evangelists. Word of mouth marketing has been around for a long time and is still highly effective. Even the concept of viral campaigns stems from word of mouth mechanisms. Having a customer tweet about what you do, share their experience with your product on Facebook or tell their friends about your company are one of best affirmations any entrepreneur can ask for.

To encourage this metric, you'll need to build it into the user experience. Users like to share when they feel their friends can also benefit from that value. Make this apparent and easy for them. Dropbox's refer-a-friend program and Canva's invite-only systems are good examples. As referrals end up as acquisitions and activations, tracking this second cycle allows you to identify key influencers and increase the quality of your referrals.

5. REVENUE

While all the previous AARR steps are important for early startups, it pays to understand your potential revenue models as soon as possible. You might not need to integrate revenue functionality early in your product, but by understanding how many of your activated visitors will end up paying for it helps build up investor confidence.

Experiment on your price points to find out what's the optimal revenue model for your startup while keeping an eye on your actual customer acquisition cost. The cost to acquire a paying customer needs to be lower than the total lifetime value of the customer. For subscription services, a customer's lifetime cost can usually be increased by having high retention rates - this is why it is important for startups to not skip a step in the AARRR framework. Just as the work ethic and motivation of each startup founder has a huge impact on the progress of a startup, every step in the AARRR framework plays a big part in defining a successful revenue model for your company.

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