Consumer Startup Metrics (YC)
In this episode of Startup School, YC Group Partner Tom Blomfield dives deeper into the metrics that matter most for consumer startups. Tom discusses paid and organic user growth, unit economics, net promoter scores, and the "magic moment" in your product that is most important to track.
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00:00 - Intro
01:00 - Growth Rates
The focus is on growth rates, particularly for consumer companies. A good growth rate is 15% month-over-month, while 10% is acceptable. The significance of organic versus paid growth is highlighted.
01:24 - Organic vs. Paid Growth
Importance of focusing on organic growth, using virality and network effects, is emphasized. Monzo's growth strategy, which involved reaching a million customers without spending on direct marketing, is cited as an example.
05:27 - Cannibalization
Discusses the pitfalls of paid referral schemes and the need to be wary of cannibalization and fraud.
06:21 - Paid Growth
He starts by elaborating on paid referral schemes, describing them as a blend of organic and paid growth. These schemes, like member-get-member programs, are treated as paid acquisition because they involve spending money to acquire customers.
Blomfield warns about two major issues with paid referral schemes:
Cannibalization: This refers to paying for referrals that would have happened organically, leading to unnecessary expenditure. To avoid this, he suggests testing the referral scheme in specific regions or discontinuing it temporarily to measure the natural rate of organic referrals.
Fraud: There's a risk of people exploiting referral schemes, and he shares an anecdote about someone who gamed Zipcar's referral system.
The discussion then moves to broader paid growth strategies, emphasizing the importance of tracking user acquisition sources. He stresses the need for good tracking setups to discern whether users come from digital ads like Facebook and Instagram or other channels. Simple tools like UTM parameters in URLs or directly asking users about their discovery source are recommended.
Understanding the customer acquisition cost (CAC) per channel is crucial, and Blomfield advises companies to record each user's origin in their database for long-term monitoring. This approach helps in evaluating the performance and profitability of different advertising channels. He shares an example from Monzo, where they found that customers acquired from a particular blog appeared cost-effective initially but turned out to be unprofitable in the long run.
10:59 - Unit Economics
The significance of tracking revenue and variable costs on a per-customer basis. Tom uses Monzo as an example to explain how understanding unit economics is crucial, especially in operationally complex businesses with thin margins.
17:04 - Net Promoter Score (NPS)
Explains the concept of NPS as a measure of customer satisfaction and its correlation with word-of-mouth referral. A high NPS is crucial for new consumer companies to succeed.
20:23 - Recap
A recap of the main points: targeting a 15% month-on-month growth rate, focusing on organic growth, tracking unit economics, understanding the importance of retention and NPS. It’s also emphasized that these are benchmarks and may vary based on the specific context of each business.