by Y Combinator9/25/2019
We’ve cut down the fourth week of lectures to be even shorter and combined them into one podcast.
00:00 – Intro
1:51 – Ways to launch
2:14 – Why launch continuously?
3:15 – Silent launch
4:25 – Friends & Family
5:40 – Strangers
7:03 – Online communities
12:08 – Request access
13:29 – Social media
15:13 – Pre-order
16:13 – New Product or Feature
17:42 – Build your own community
19:20 – Launching isn’t one moment in time
21:06 – Most startups have nothing
22:13 – Do things that don’t scale
27:13 – Startups take off because founders make them take off
28:23 – Measuring product market fit
31:20 – Retention
34:33 – Worse ways to measure product market fit
35:23 – Bad metrics to measure as product market fit
36:18 – Growth channels and tactics
38:17 – Conversion rate optimization
41:26 – Growth channels to explore
45:33 – Referrals and vitality
48:05 – Paid growth
50:09 – Search Engine Optimization
53:00 – Making decisions using A/B testing
55:02 – Summary
Craig Cannon [00:00] – Hey how’s it going? This is Craig Cannon, and you’re listening to Y Combinator’s podcast. Today’s episode is a recap of the fourth week of Startup School. I’ve cut down the fourth week of lectures to be even shorter, and combine them into one podcast. First, we’ll have a lecture from Kat Mañalac. Kat’s a partner at YC. Her lecture focuses on how startups should think about launching, and why you should do it repeatedly. Then we’ll have a lecture from Gustaf Alstromer. Gustaf is also a partner at YC, and his lecture focuses on measuring product-market fit and growth channels. All right, here we go.
Kat Mañalac [00:35] – I’m Kat Mañalac. I’m a partner at Y Combinator, and one of the things I help founders do a lot is prepare to launch. That is what I’m going to talk to you about today. I want to change the way that you think about launching. Most people think about launching as something that you get one shot at. For example, I just talked to a team that’s been preparing to launch for six months. They were lovingly trying to get every pixel perfect on their product before they shared it with everyone, and now they are stressing over every line on their landing page, and they’re trying to line up everything right with timing, but if you’re like most startups, you will launch something and no one will care. If it took you six months to get there, your startup is probably going to be dead before you get another chance to launch. In the same sort of spirit as Always Be Shipping, I want you to think about launching as something you continually do. I want to destroy the idea that launching is just one moment in time, because assuming you do well, and assuming you ship new products and new features, you are never going to be not launching. Let’s talk about all the ways that you can launch. Here are different opportunities to launch that we’re going to go through today. I’ll go through each of these except press launches. We have done a previous startup lecture on press launches and I’ll share a link to that and some resources after this. But we’ll go over most of these, and most of these things are things
Kat Mañalac [02:08] – that you should be doing while you’re in Startup School. Let’s talk about first, why you want to continuously launch. Before you even have a fully functioning product, you get a chance to practice your pitch, and you can refine it. You can A/B test it and see how people actually respond to the idea. Once you have an MVP or a very early version of your product, launching through different channels will give you an opportunity to see how people will respond to that early version of the product. Launching to different channels will help you determine whether you’re even talking to the right users, because you might launch on one channel and get no response, you’ll launch on another channel and you’ll get a huge response, and so that will help you identify whether you’re identifying the right user for what you’re building. Let’s talk about some of the types of launches that you can do while you’re in Startup School, and I’m excited to hear that a thousand of you have launched so far since the start of Startup School. That’s incredible. I clicked on 10 random Startup School companies from founders who posted on the forum, and only about half had landing pages, so this is what I call the silent launch, and you do not need anything fancy for this. All you need is a domain name, your company name, a short description, a contact, and a call to action. For example, this is a random Startup School company that I found from a founder who’d posted on the forum. Their company is Zinc.
Kat Mañalac [03:36] – They have a domain name, they have their company name, they have their short one-line pitch, a short description, and their call to action which is get in touch. The call to action can be something like subscribe to our newsletter, or subscribe to hear more when we launch. Product Hunt, for example, has an actual product for pre-launch companies called Ship, and it’s a way to collect interest from potential users. For example, this is something called Designer School and it has a quick intro from the founders, a short description of what the company does and the call to action, which is subscribe. You can go on Product Hunt and set up one of these pages, but of course, you can also build your own landing page incredibly quickly and easily, and this should be something, if you don’t have one yet, that you do this weekend. The next thing is the friends and family launch. If you’re at idea stage, you can test out your short pitch on family and friends and see how they respond. And once you have an MVP, do a friends and family launch as quickly as possible. In its earliest days, Reddit was shared just among the founders of their batch at YC. There were only eight companies, it was a really small community. I used the way back machine to see what Reddit looked like in its earliest days. It hasn’t changed that much, but if you look closely, this is actually before they called upvotes, upvotes. They were calling it boosts. This is like 2005, I think July. That’s how they got their very first users,
Kat Mañalac [05:05] – just sharing it among their community of founders, and so what I recommend you do is share the product with your friends and family, watch them use it, sit down next to them and ask for feedback. Don’t stay in this phase for too long, because your friends and family might not be the exact right ideal user for your product or what you’re building, and so sometimes their feedback isn’t quite as helpful as a real user’s is. For example, if Alexis and Steve had shared this with their parents, their parents might have been like, “What the hell is this?” You get out of that family and friends circuit as fast as you can. Te next move would be to launch to strangers. So one of my favorite examples of a YC company launching to strangers, is the company Lugg. Lugg is an app that lets you call movers and delivery people on demand. Even before Lugg had built a fully functioning app or product, they would rent a truck, and they would go drive to IKEA, and they would sit outside of IKEA. They would watch shoppers, and they would look for people who were having a particularly difficult time tying stuff to the top of their cars, and they’d run up to those customers and they’d say like, “Hey, instead of trying to tie this mattress on top of your car, wouldn’t it be cool if you could just push a button, and someone with a truck would come and help do this for you?” And the customers would be sweating, and they’d be like, “Yes, that’s exactly what I need at this moment!” And they’d download the app, they’d click the Lugg button,
Kat Mañalac [06:32] – and the founder would run back to the parking lot, drive up in his truck, and the customer would be like, “Oh my God, it’s you,” and they were like, “Yeah!” It was a real hustle at the beginning. None of this was working on the back end, but it really confirmed for them that this was a hair-on-fire problem for their users and customers, and so they decided it makes sense for us to really build this out and spend time on this product. Launching to strangers will help do that for you. It will help show you whether people are actually willing to download and pay for what it is you’re building. Let’s talk about online communities. This is actually one of my favorite ways to launch. You should plan a launch for every single community that you are part of. When a company goes through Y Combinator, they have the option of launching on Bookface before they launch publicly. Bookface is our internal platform at YC. It’s like Facebook meets LinkedIn meets Quora and there are currently over 4,000 other founders on Bookface. It’s a fairly low-risk way to launch, because it’s not totally public, but there is enough of an audience there to get some feedback, and you’re launching in front of fairly friendly people who want to see you succeed, and so they launch there. What I think you guys are particularly lucky, because you have Startup School, and you have the Startup School forum, which about 40,000 founders are on. If you have an early version of your product, there is literally no reason that you shouldn’t be launching
Kat Mañalac [08:01] – to the Startup School community in the next few weeks. I also think that founders and other people making and building stuff, they give the best early product feedback, so you have thousands of other founders at your disposal. This gives you a leg up here. Here’s a sort of extreme example of a company that successfully launched in online communities. Magic is an on-demand personal assistant. When they started in Y Combinator in 2015, they were actually building a blood pressure monitoring app. So they were trying to get this blood pressure monitoring app to grow, and it wasn’t growing as quickly as they were hoping, so they decided, “Let’s test out another idea that we had.” They sent a link around to their friends and family, and it just looked like this. It basically said like Texas phone number, and will make anything happen like magic. It was very, very basic. One of their friends thought it was so cool that they shared it on Reddit and Hacker News, and basically overnight, like over the course of a weekend, 40,000 people signed up to use Magic, and so of course they were like, “Oh my God, this is crazy.” Let’s be honest, this is an extreme case, and almost no one who launches on Reddit and Hacker News is going to get 40,000 users overnight. But my point is, it’s definitely worth putting yourself out there, because you might be one of those extreme cases, but at the very least, you’ll get some early users, and you’ll get some great feedback. Many of the startups that go through YC launch on Hacker News and Product Hunt,
Kat Mañalac [09:32] – and we, over time, have look at the stats of how well these launches convert. A TechCrunch launch, versus a Product Hunt launch, versus a Hacker News launch, and in terms of converting to users, they’re starting to even out in terms of their impact and conversion for whether it’s sign-ups, or converting to customers. If you’re launching in these communities and aren’t active members of these communities yet, my suggestion is that you spend a little bit of time looking at the communities. You understand the rules, especially if you’re posting to subreddits. They all have their own, moderators have their own rules. Understand the best way to talk to these communities, and if it’s a community that’s known for being helpful, ask for advice, ask for feedback. If you’re not part of these communities, I’d reach out to someone who is, and ask them for advice. Ask them for the best way to launch, because there are going to be tips for every community. For example, one company in this batch was building something that he wanted to get more women’s perspectives on, and they’re two male founders and one of the users of Elpha, which is a community for women in tech said, “Hey, I’ll post that to Elpha for you, and I’ll tell you what kind of feedback they got.” I recommend like connecting with someone in the community and asking them for help if you’re not part of the community yourself. The biggest piece of advice I have for launching on online communities is write like you talk. Do not talk like a marketing robot. People hate that.
Kat Mañalac [11:06] – Don’t use marketing language or deep jargon. Talk like a human when you’re addressing the community. All you need when you introduce yourself in these posts, introduce yourself, talk about what you’re building, talk briefly about why you’re doing it or how you came across the problem. People on Hacker News, for example, are super intellectually curious. Are there any interesting insights that you’ve learned from talking to potential users or your users? Is there anything surprising or delightful that you could share with the community, brcause people love that. They also want to ask you questions, but sometimes don’t know exactly how or which questions they should ask you, so tee it up for them. Say, “Hey I’m an expert in X, Y, and Z, and I’m happy to answer questions on these topics,” otherwise you risk people going down all sorts of weird rabbit holes. Just make sure that you sort of are sharing this community, and asking them for advice. Try to cut down as much of the jargon and marketing as possible, out of these pitches. The request for access launch. The magic story that I shared with you actually reminded me of this other type of launch you could do. When Magic launched, overnight they got 40,000 people signing up, and of course, they couldn’t serve 40,000 users immediately, so they launched a wait list, and they also gave people ways to skip the line. For example, if you tweeted about Magic you’d get to skip a few spots in line. You can build these viral elements into your launches,
Kat Mañalac [12:36] – that will help get people to spread the word for you. One of my current favorite examples of this request for access launch, is Superhuman. Superhuman is building a better email experience. You can go to their site here and request access, and you can also ask a current user to refer you, and then that’ll help you skip the line. In the signature of all emails that are sent by Superhuman users, is a little tag that says sent by Superhuman, and so I’m a Superhuman user, and I get a ton of emails, like I’ll send a ton of my emails out to people, and I get a ton of emails asking me for referrals. People I email say, “Hi, how did you like Superhuman? Would you mind referring me to the product?” If you have a product that you can build a sort of viral element into, I highly recommend it. We don’t have a huge amount of time, because obviously social media and launching to bloggers is a huge, long, and well-covered topic, but I wanted to skim them briefly and give you an example of a company that we worked with that did it very well. As most of you know, launching to popular blogs that cover your industry or trade can be incredibly powerful. Joy’s a free wedding website builder, and they were one of the fastest growing companies in their batch, and a lot of their early growth, like an alarming amount of their really early growth was due to being placed on a number of lists like this. They essentially Googled, they looked at SEO and they Googled best wedding website builders, and figured out who was coming up
Kat Mañalac [14:10] – on the first couple pages of results on Google, and they reached out to all those bloggers and they said, “Hey we have this new product. We think your community would love it, would you be willing to add us to this list?” They said that they reached out and basically did a drip campaign to over 50 bloggers, and only got responses from four, but those four responses made a huge impact for their early growth. One note that I want you to keep in mind, is that some blogger and influencer opportunities are pay-to-play, and Joy did not pay early on and I do not want you paying early on either. If folks are asking you to pay, please find other or creative routes to get around this, because as startups, as early-stage startups, you just don’t have the money to do it. It is definitely possible to go this route without paying a ton of money. Figure out what routes around the expensive sort of sponsorship dollars. If you’re a hardware or physical product, of course you can do a pre-order campaign. Preparing for a pre-order launch could honestly be a whole presentation of its own, but take a look at some successful campaigns, and get a sense for how they built out their launch strategy. For example Sheertex was a company in YC that was making unbreakable sheer pantyhose. The founder Katherine made a great really compelling video, which she pitched to press. She launched on Hacker News where, Hacker News is probably, it’s a very male audience, so we were curious how they would respond to something like sheer unbreakable pantyhose, but they loved it.
Kat Mañalac [15:50] – They thought it was very clever. They thought the technical piece behind it was really interesting, and so I would recommend like any company try to launch and see how different communities respond. She launched on Product Hunt, she asked her friends, and family, and batch mates, and investors to help spread the word, and she had an incredibly successful campaign. Of course there’s the new feature or new product line launches, so two very different companies that do this incredibly well are Stripe and Glossier. Both companies are incredibly smart about how they launch new products. Stripe has always been great from the very beginning. They’ve been really great at engaging the community. Every time they launch a product, so for example when they launched Stripe Atlas, they launched it on Hacker News, and the founders were in the thread talking to all potential users, and talking about the product and why they were launching it, and the problems that they felt it was solving. They blogged about it, they spread the word on social media, they pitched press. This is something that they do over and over again. If you look at Stripe’s blog, if you look at Hacker News, you can kind of see the history, since the beginning, they’ve been very great at sort of activating the community. Glossier which is a beauty brand, is incredible at launching new product, and the way they think about it is actually very scientific. They release products on a very specific cadence, at specific intervals, and for every product they essentially hit every single launch button
Kat Mañalac [17:22] – again and again. Community, social media, press, advertising. So each time this new product lunches, which is basically like every six to eight weeks, they have this cycle going. Tere’s a constant drum beat about Glossier out in the world. One last note before we jump into questions, is while you’re in Startup School, you should start to build your own communities. You can do this even really pre-product. There was one YC founder, Gadi Evron who is founder of Symmetria, and he had a really particularly successful TechCrunch launch. A TechCrunch launch is a story about what they were doing launched in TechCrunch, and I noticed that they had a ton of shares, a ton of engagement, so I asked them to share how did you set this up? What did you do to share and spread the word about your launch? And he said that over the years, even before launching the product, he started to build his own email list. Every person he met that he discussed his startup with, even very loosely, he would add them to an email list, and they would get email updates about what he was working on on a semi-regular intervals. When the TechCrunch article came out he said he sent that email to the list full of all the people that he ever talked to, other startup founders, investors, friends, family, and asked for their help in spreading the news, and he said the response was significant, and he even saw VCs who hadn’t invested in them sharing the story from their own personal Twitter accounts. He said, “You would be really surprised
Kat Mañalac [18:58] – by who comes out of the woodwork to help when you ask for it.” I would recommend, while you’re in Startup School, you have the opportunity to talk to so many people about what you’re building, and start, and ask them, “Hey can I add you to my update list?” Over time you’ll get that into the hundreds, maybe even thousands. I would definitely recommend that you start doing that now. To sum up, I want you to stop thinking about launching as this one moment in time. I don’t want you to spend all of Startup School getting ready for this one big day, this one big launch day that you’re trying to line up all these things for. This is something that is a continuous process that you can do over the course of the next couple months, and into the life cycle of your company.
Craig Cannon [19:46] – All right, now for Gustaf’s lecture.
Gustaf Alströmer [19:49] – My name is Gustaf. I’m going to give a talk on growth for startups. This is going to be for some of you guys, not super relevant right now, because you might not launched, and thinking too much about growth when you haven’t launched isn’t that relevant. But for those of you that launched, this is hopefully going to be a good talk. I’m going to cover three different things today. First, I’m going to talk about product-market fit and retention. The reason that that relates to growth so much, is because working on growth before you have product-market fit and good retention is not a good idea. The second thing I’m going to talk about is growth channels and tactics. These things definitely apply after you have launched, and often after you have a good product-market fit. You’ve found something that people really want, and then you want to scale it up to the larger world. Lastly, I want to talk about how you make decisions. When you have several people on your team, you want to start redoing things, and you’re not really sure exactly if you’re making the right decisions or not, and these are all the things that apply when you’re a little bit bigger. My background, I learned most of these things I’m going to talk about at Airbnb. I worked on the growth team for almost five years from where we were two people until we were over 100 people on that team. This is the team back in 2015. Most of the lessons I’ll talk to you today are things I learned there. Most of you are going to be somewhere on this line. Most startups don’t have product-market fit.
Gustaf Alströmer [21:13] – Founders tell themself that they do, and they try to convince themself that this is working, but the truth is, for most companies it’s not working. That means you’re going to be somewhere on this line. People also have this idea that if I launch my product it will work. Somehow, it’s going to work if I just tell the world that I built that and it’s now there. Now unfortunately, that’s not the case. The world is a really busy place, and there isn’t really lots of people waiting for you to launch your product. They’re not standing there, and they’re not going to try it the moment you launch it. That is, unfortunately, not the truth and for many people who have never thought of these questions before, of how do I reach the world, this actually comes as a surprise. People have been used to working in big companies where this is not a problem. People are used to going to school or other areas where this is just not a problem. In this case, when you launch a startup, it’s all down to you, and it is going to be a problem in the very early days. There’s a great article that I recommend for you guys to read on this. This is called “Doing Things that Don’t Scale” by Paul Graham. He wrote that six years ago. It is about the early days of the Airbnb story, and the thing that’s really important about this, is as a founder, you need to keep two different skillsets in mind as your company grows. In the beginning of your company, you’re going to do a lot of things that don’t feel right. They don’t feel natural to you, because it’s not the kind of thing that you learned
Gustaf Alströmer [22:42] – in your previous jobs or in school. It’s just so like the most physical or real things that you have to do, that you aren’t going to be relevant later on. But later on as your company grows bigger, you’re going to be doing a lot of things that are things that directly relate to software, are things that scale to company. These are two things, two skillsets that you have to keep in mind at the same time. In YC we have this thing where we tell companies that you just launched, you got to do things that don’t scale. We got lots of these MBAs that went to school and said, “Well this idea does not scale. Standing outside of this store, or standing in this elevator to sell people something, that certainly doesn’t scale.” Correct, that does not scale. But that is where everyone needs to start. And if you went to school, and you learned that you should only work on things that are really scaled, you’re going to have to unlearn that skill, because when you start your company the most important thing is going to do things that don’t scale. Get comfortable with that idea. This is the early days of Airbnb. This is sometimes in 2009, they were just a few people. The article I mentioned earlier, “Doing Things that Don’t Scale,” tells the story of the first year or two of Airbnb. When the founders came to YC, they had spent almost a year trying to get Airbnb off the ground. It didn’t really work. This was the first version of the Airbnb website. Airbedandbreakfast.com. In fact, the website itself didn’t really speak to what the company does.
Gustaf Alströmer [24:10] – It was started as a website to offer air mattresses to people that visited design conferences. They had to navigate their way to find the place where Airbnb is today. When Airbnb joined YC the first question they got from Paul Graham was who are your users? And at the time the site looked something like this. You click on a listing, and you had three different pieces of information. You had a photo of the host. You have one photo, in this case, of the building from the outside, and then you have one map of where that place was. Now, at the time, the only comparison to what a site like this would look like would be Craigslist. Craigslist wasn’t a lot better than this, so at least it met that criteria, but it wasn’t something that would make Airbnb take off. They didn’t really have in the product would make Airbnb take off. The things they were missing is, is this a good listing? How does this listing actually look like? Can I trust the host? Lots of things that were missing in that early product, and how do you learn that? The way they learned that is they went and talked to the their hosts. On their first week in YC, Paul Graham told the founders of Airbnb, you guys go and meet your hosts. Where are your hosts? Most of our hosts are in New York. We don’t have that many, but most of them are in New York. They flew to New York, undercover, not on the cover. They claimed to be hired photographers for Airbnb, Air Bed and Breakfast. So went and met all their hosts. They said, “We want to come by your home and take photos.” They didn’t say they were the founders,
Gustaf Alströmer [25:43] – because that made the company sound much smaller. They came and met with the hosts, and while one of the founders were taking the photos of the listings to make this look at lot better, the other founder sat down with the hosts and asked them questions about what are the challenges you’re having with the product? What are the things that are not working, can you show me how you use the product, and by doing that, they got for the first time, to meet the people that were the customers, which they really haven’t done before, and they got to see how they use the products. That’s doing things that don’t scale and that is nothing that scales. You can’t go and fly to meet every single one of of your customers, but when you start doing that you will learn things that you can’t learn sitting in front of a computer. So they learned that this payouts thing didn’t work, or there was a big UI bug on this page, or didn’t work on Internet Explorer well; all these things that you can’t learn sitting in front of your computer. They went back to San Francisco, back to Y Combinator, and they sent an email the morning after and it said, “Harold the photos we took of your house, they’re now up on airbedandbreakfast.com, and by the way, we fixed half of the bugs that you emailed us about, or, “We fixed the bug that you told us about yesterday.” That made the hosts love them, and those hosts became the reason that Airbnb eventually took off. Doing things that don’t scale, fixing the product, making the product work for the early hosts
Gustaf Alströmer [27:09] – which became the backbones of the early days of Airbnb. The lesson here is that founders are the ones who make starters take off. The founders, you guys, are the ones that make the starters take off. You’re going to have to do unconventional things. You’re going to have to do things that don’t feel right. Surely you’re going to do things that you didn’t learn in business school, and you’re just going to do the things that are needed. And this is basically what the YC badge is about. When someone joins YC, we’re going to be like, “You’re going to launch,” because that’s the most important that you can do right now. Once you’ve launched it’s like, “How do I get users?” You’ve got to figure out how to do it, and it’s different for every company. For many other company that means sales. For other companies that means doing things that don’t scale. Typically, people start with their friends, and then friends of friends, and then hopefully you get one step further that people that are now not your friends of friends, and they’re going to give you a true opinion by a company. Those are the the people you’re going to have to reach early on. It doesn’t really start with like, “I launched my website and I put up Google Ads,” or, “I launched my website and somehow it’s being discovered.” That’s not how companies get started. That’s how they end up much later, but that’s not how they get started. There’s only one way to grow when you’re really small, and that is doing things that don’t scale. All right, next topic, I’m going to talk about
Gustaf Alströmer [28:23] – product-market fit. This is terminology that probably most of you have heard of. This is a thing that’s been hard to measure, or hard for people to say, “Do I have product-market fit or not?” A lot of people like to tell themselves that they do have product-market fit. It’s this thing that we throw around as a way to say, “My product is great, so now I have product-market fit.” I would argue that there’s some ways you can measure product-market fit, and there are many ways that you can’t. Let’s talk about the one thing that I think is the best way to do that. I think that the best way to figure out if product-market fit, is to use data, unbiased data, to understand if you basically have made something people want. The two ways that I do that or that I start that, the first way is I try to figure out what is the metric, the data point, that represents the value of your company? That’s the first thing I do. The second thing I do is try to figure out how often should I really be doing that? Great example might be Startup School. The metric here is like, are people showing up to that video talk as a Startup School? How often is that? It’s every week! All right, that’s pretty easy. But most companies can be defined this way. Let’s give some example. So, Airbnb, what is the metric that represents the value? Well it’s the bookings and the space, it’s not the searches. Search is not that. It’s going to be the bookings and the stay. When I travel Airbnb, I’ve experienced the value. So now I know what Airbnb’s about. How often do people do this? Well travel is actually mostly an annual thing.
Gustaf Alströmer [30:01] – You don’t really travel every month. Most people don’t do that. When we were measuring retention at Airbnb, we were looking at annual. Let’s look at Instagram. What’s the expected use case of Instagram? It’s basically just coming back to Instagram. Most people are not expected to post photos every day. It’s just going to be coming back to Instagram and viewing photos. That’s what most people do. And that’s fine. That’s actually what they want. They want some people to post photos sometimes, but most of the time just coming back is good enough. How often? Probably every day. Let’s think of a B2B company. Gusto. For Gusto, the most valuable thing that they do for their customers is they run payroll, and they pay out money to employees that are the employees of Gusto’s customers. How often do you run payroll? Well it depends, probably bi-weekly or monthly, and by measuring these two things, how many people am I running payroll, and are they continually running payroll with me? That’s probably the best way to figure out if people enjoy using Gusto, or if they’re going to switch to some other payroll provider. And finally Lyft. You might want to think it’s rides here, that rides is the best metric here. It’s actually riders, like the people that are taking the rides are the ones that matter, because it’s the individuals that we want to measure here, and we’re not really necessarily want to measure the action that they take. That’s probably weekly or monthly. We have these two metrics, we have a bunch of examples of those companies.
Gustaf Alströmer [31:25] – Let’s put in a graph. One piece on the graph is going to be the metric, and the other one is going to be the time window. Every single time window, we can put some percentage of those people on the graph. So let’s give an example. On week zero, in the case of Lyft, you were at 100% drivers. What do I mean by that? I basically mean that if I had say 10 riders this week that rode with Lyft, they would be calculated on the week zero. Now how many of the riders that I had last week are now traveling with Lyft this week? That is your week one number, and the week two number, and the week three number. Now why is this important? Because we’re trying to measure repeat usage. Repeat usage is the best most unbiased way to figure out if someone is liking your product. It’s more true than what they tell you. They might tell you things, but what they do is going to be the most important thing. Most companies can be defined this way, and even if you have a B2B company that do annual contracts, measuring say, what do people do with my product could be a really good way on like this regular basis. Even if I would pay for Gusto on an annual basis, which they don’t do, measuring the activity I use in Gusto on a regular basis, let’s say bi-weekly and monthly, is the way to figure out if people are actually using the product. Most of the ideas, even your B2B or consumers could be plotted on this line. Now why is this important? Well if you’re ever going to raise money this is a graph that investors are going to ask for. Like how much retention do you have?
Gustaf Alströmer [33:03] – Are people actually repetitively using your product? Those are the things they’re really curious about because they know there are other metrics that you might have that don’t matter. This is a sign of a bad product. Basically every single week after I started using this product, fewer, and fewer, and fewer people continued to come back to use the product. This graph can be plotted and basically show that this wasn’t a good product. This, however, is a good product. Every week it eventually flattens out, and the people that stopped on the product, stopped stop using the product, and eventually here, week eight, nine, 10, we have a flat line of people that continues to use the product every single week. That means that they are retained, you have product-market fit for those users for this product. SI’m not going to ask you these questions, but here are two examples of two companies that I would argue have product-market fit. The first one here has 30% after two months, and 21% after 20 months. This is pretty good. You kept a fifth of your users 21 months later, or 20 months later. DoorDash. DoorDash have a monthly retention of 20% two years later, a year and a half later. Here’s another company, more like a B2B company. 80% retention after one month, and then 30% after 60 months. This is really good. This is a really good product. Very sticky. People like this product and they don’t stop using it. It’s good to have. Retention is the best way to measure product-market fit. Let’s talk about specific things
Gustaf Alströmer [34:30] – that some people think is a better way. I’ll argue that they’re not. Here are some worst ways to measure product-market fits. Net promoter score. Why is it not good? Well you can just Google the best products and best companies in the world. They all have that net promoter score. Like the iPhone, Apple, all of them bad net promoter scores. It doesn’t necessarily correlate with good products. It correlates with perceptions of companies. Surveys. The problem with surveys is they are going to be biased. If you ask your users, you’re going to have some level of bias. There are good ways to use service to improve your products but it’s not going to be the best way to figure out this metric. There is one cool question you can ask a user which is, “How would you feel if you no longer used this product?” Sometimes this works. We can give you an idea. But I wouldn’t do it instead of retention. Always try to find a way to measure retention. All right, so what are some bad metrics for product-market fit? These are not the kind of things you want to throw around as like evidence for your product is working. Registered users, really bad. That does not say anything about repeat usage or if they liked you or not. Visitors, also bad. That does not say anything about whether your product is going to be valuable. Conversion rate. We have this conversion rate of visitors to something else. Well that doesn’t really say much, because you don’t know what people you’re converting. You don’t know who they are, so this does not say much about product-market fit either.
Gustaf Alströmer [35:54] – And finally, something that should be a paid product, you’re giving it away for free, is not a good sign of product-market fit. Like you want to figure out if people are willing to pay for it because price, if someone says, “I love this if it’s free, but if it costs money I’m not going to use it,” well that’s pretty bad. Like then there, it’s not going to work out for you. You want to make sure that the people that are doing something like this on this graph if it’s expected that you pay for a product, they should be paying for the product. All right, next section. Let’s talk about growth channels and tactics. This section really applies if you have product-market fit. If most of the people that come to your product go down the drain right away and they never come back, this section doesn’t matter. Like why would you work on trying to get more people to a product, that no one is using your product anyway? If most people are just churning, and like they try it once and then they don’t come back, like don’t work up the stuff. Wait with the stuff until you have some people that care about your product, and you can try to use some of these channels to reach those people specifically. There’s really two ways that you can grow at scale. When I looked at that team, that sort of photo of the Airbnb team, they worked on two things. They either worked on what I call product growth, or conversion rate optimization. What this means is you have typically engineers, designers, data scientists, product managers, working on improving specific parts of your product
Gustaf Alströmer [37:16] – to get more people through that funnel. So a good example, I’m going to give you some example in a second. But that’s basically what I defined as the first section. Most of those people in that photo were in this category. They were engineers, designer, product managers and they were scientists. The second group is what I call growth channels. Growth channels is basically platforms in the world that people tend to discover products on. Let me give you some specific examples. Google is a huge platform for new products to be discovered. Anything that you want to use that is a rare behavior in your life, Google, that’s what you do. Insurance, I forgot the insurance, Google. I want to find a doctor, Google. Everything you do rarely is going to be Google, which means lots of products are being discovered on Google. And growth channels like Google, is an extremely important one for many companies. Another one might be Facebook or Instagram. Advertising on Facebook and Instagram is critical to company’s growth these days. What I mean by growth channels, that means basically other platforms but your website or your app. Let’s talk about conversion rate and optimization. What does it mean? Every single step of your product experience is a funnel that, like the retention curve, can be measured. You can have a measured, and I think Ilia talked about this earlier, Startup School talk, when he built funnels. If you put a metric on every single page in your product, you will know what percent of people that make it from the first page, let’s say the home page, to the booking page.
Gustaf Alströmer [38:44] – In the case of Airbnb, we call the home page P one, the search results page P two, and the listing page P three, and then the booking page was P four. Four pages, that was the entire website. Now what’s the funnel. What percent of people make it from P one to P four? What percent? Not that many. One percent, two percent. Most people don’t make it that far. Your job is to figure out how many people make it that far, why are they dropping off, what can I do to increase that number? That’s basically multiple teams or multiple people at startups that do work on those things. Every single step in that funnel is going to have some kind of drop off for some reason. They might be that the content on the page is not suited for them. Land of Airbnb, all the content speaks to millennials. I have a family. That’s not good content. I land on some other website and the content doesn’t speak to me because I’m not the right customer. That’s one example of a drop off that you can fix with changing the content. Another one might be, I land on the website, it doesn’t work because Internet Explorer is not optimized for it, it’s not optimized for that. You’re going to drop off. So you got to fix that, too. There are lots of different reasons people want to drop off. Here are some specific things that people tend to work on when they work on conversion rate optimization. Internationalization. If your website or your product is international, translating the product is really a good idea. We saw that at Airbnb, I’ve seen that at Facebook, I’ve seen that many other companies
Gustaf Alströmer [40:10] – where translation is really, really important. Authentication. Most products have some flow where you’re signing up. Now that flow, probably your products too, have some kind of authentication flow, that flow is very critical and the users are kind of vulnerable in that case, because they don’t really have time for too much friction. So if it’s not working perfect they might just go to the next website. So make sure the authentication flow works really well. Look at the best websites in the world. Look at Pinterest, look at Airbnb. Look at some of those sites. They have teams optimizing these flows, the authentication flow. Copy what they do. They’ll probably figure it out. They spend a lot of time optimizing. Onboarding. This is a huge effort, specifically for products that need a lot of involvement from the users to be able to become active users. So there are a lot of question you might want to ask early on in a new product. The more you can onboard users by asking them questions that make the experience better, the more active and the more retained they will be. So onboarding, there are lots of things that you can do. And finally, purchase conversion. When you’re about to purchase there are a lot of things around urgency, and scarcity, and just user flow and UI. All of these things matters, and that’s another great example of conversion optimization. So let’s talk about channels. So again, don’t get here until you have some good sense that this is something people want. First one, like I said earlier, if this is a rare behavior,
Gustaf Alströmer [41:39] – most new ideas are rare behaviors, either because they don’t exist yet, or because they’re not something you do every day. We tend to go to Google to learn about rare things that we don’t do very often. That’s why, if that is the kind of product that you have, being on Google is going to be really important. It can be either on Google through paid marketing, through SEM, or through SEO. We’ll talk about it in a second. Second, does your product, do people already share your product through word-of-mouth? Some products are viral in its nature because they sound really exciting to talk about. Lyft, and Uber, and Airbnb are examples of those. If that’s the case, you want to make sure you focus on virality and referrals. What does that mean? It means you’re building into your product flow that friends can tell other friends about the product. Referrals is a way that you can do that by giving some kind of financial incentive. Does the product get better if you have more users? Well this is true for marketplaces, but it’s specifically true for anything that’s social. If you think of a LinkedIn or Facebook, then having more people on the products is going to make it better. It’s going to be really important for you to get more people, and those people on your site’s going to be the ones doing it. You want to provide a good viral loop. When you sign up to LinkedIn, the first thing they ask you is to invite more people. That’s because your experience get better when there are more people on LinkedIn. Now many products do work this way,
Gustaf Alströmer [43:03] – and this can be perfected, and the ones that really succeed in the world of social products, are the ones that really nail this down, that figure how to do this really well. Many people that make social apps underestimate how important it’s going to be to get your friends on that product. If you can make a list of all your customers, even if that list is 100,000 or 500,000. As long as it’s not mainstream enough that it’ll be in the tens of millions, you’re probably going to do sales. You’ll make that list and you’ll start contacting those people. Why make it anymore complicated? Why go out and reach the world for people, if there are only a few people that you really want to reach? Most companies in YC these days, I ask them this question, “Can you make a list of your customers?” Yeah, all right make that list. Start listing them out. Who are the people? Decision makers in those companies you’re trying to sell to. These people, make the lists, email addresses, phone numbers, try to figure how to reach them, but start by making the list. Don’t make it complicated by going out in a world that most people are going to be relevant for your product. And finally, this is a channel that nowadays, is bigger than it ever has been, and more important than it ever has been, which is if you look at how the entire world of startups has changed in the last 10 years, more and more of them are churning more money, and therefore getting what’s called a high LTV, high lifetime value. By getting high lifetime value
Gustaf Alströmer [44:29] – you’re enabling the biller to buy paid advertising. If you don’t have people paying for your product, where you’re making money from your product, you should not be spending time on online marketing. Now the truth is that most companies these days are charging for their products, and they are making money from the product, and therefore they spend money on online marketing. If that’s true for you, this can be an extremely powerful channel. The biggest mistakes founders make is to start working on online marketing when they don’t have people paying for their product. Here’s an insight you probably didn’t think of. Most really big companies didn’t use all of those channels. They use one or two channels. Think of a TripAdvisor. How is TripAdvisor big? SEO. You guys type in something on Google, you’ll land on TripAdvisor, and that’s how you found this website. Most companies have it set up where there’s going to be one or two channels that really matters. If you think of Pinterest, SEO is the real way how Pinterest is going. You type something on Google, there already exists a Pinterest board for that, you can go land on that Pinterest board. That’s how they acquire new users. I’m going to give some specific tactical advice on some of these channels. The first one I talked about is referrals and virality. Referrals is word-of-mouth. If word-of-mouth is a strong driver of your product, then referrals is going to be one way that you can amplify that word-of-mouth. How do I define referrals? Financial incentive to tell your friends about the product.
Gustaf Alströmer [45:57] – That is my definition. This is the Airbnb referral product. You give someone $40 to sign up to Airbnb, and when they do, I get $20. Pretty simple concept. We had that on the website, and on the mobile app. Now that’s actually more complicated than you might think. It’s entire product funnel where there’s multiple steps in that funnel, I’m not going to go into detail here, but if you think of a referral product, it’s not just as simple as throwing that offer out. This probably wouldn’t the very beginning, but once you have a referral product you want to start measuring each of these steps, like what is that referral offer? Am I able to go to that page? How many people send invites? How many of those invites are being clicked on? How many of those people sign up from those invites? How many of those people that sign up end up booking? Each one of those steps is a step in this funnel. Let’s talk about one specific step. The referral’s email invite. We would spend a lot of time optimizing this step because there were lots of people getting their referrals email invite at Airbnb. What are the things you can optimize in the referral invite email? First, who’s the sender of the email? If it’s just Airbnb, I’ve probably never hear of Airbnb the first time I get this email. If it’s Gustaf that sent the email, and I send it to my friends, they have heard of me. That’s a reason to open the email. People open the email. Clear value. What is this email about? Many emails just start out with text. Don’t start out with text. Have the clear value prop at the top.
Gustaf Alströmer [47:21] – Why should I care about this email? In this case, it’s extremely simple. Gustaf sent you $40 for your first trip. That sounds good. What is that about? I’m going to read about it. When do I have to care about this? By this date, in the next month. I can’t just leave this email then never open it again. I have to do it right now. What do I have to do here? Well I could sign up, which is a undefined thing that you can do sometime in the future, or I can do what we did here, was accept my invitation. This sounds more exclusive. It sounds like something that is just for me. It doesn’t sound like something that I can do anytime in the future. Finally, here’s some social proof from this email. This is me. I live in San Francisco. I can reveal that. I’ve actually been a member of Airbnb since 2009, and we can reveal that as well. Let’s talk about paid growth. Each of these sections, referrals, paid growth, SEO, could be a presentation on its own, so it’s impossible for me to go into deep details on this, but if you’re determined that you have product-market fit, you want to go one of these channels, and this is the channel you want to go deep on, you’re going to have to go really deep on it, because being really good at one of these channels require a lot of work. There’s lots and lots of stuff online about how to get really good at one of these channels. It doesn’t really make sense to get good at all of them, because most of you won’t really need all of them. The number one lesson in paid growth, i.e. online marketing,
Gustaf Alströmer [48:42] – is to not do it unless you have revenue. This is the most common mistake that founders make is that some want to start buying ads for products and they’ll never be able to pay them back. Don’t do that. The next thing you want to figure out is what’s called CAC, customer acquisition cost. How much does it cost to acquire a new paying, or new valuable customer? Someone’s giving you value back. Many of the advertising schools like Google and Facebook have a very clear system for how they calculate this, and once you start running ads, they’ll start telling you what the cost is going to be. Next is going to be that your revenue, projected revenue from this user, is going to have to be higher than the CAC, higher than the cost. Very simple. Otherwise, you can’t do this. How do you know, this is the common question you get early on in paid marketing. Well, it seems like in eight months it would be higher, but not in the first month. But you can’t take all your money and spend on something that you have no clear certainty of it’s going to happen in the future. You’re going to have to either wait eight months, or you’re going to look for early indicators that your hypothesis about a value’s going to be stronger. The best thing a startup can do is don’t wait eight months. You’ll just have a much lower target on what your CAC is going to be. Maybe one month, two months, three months, first transaction, something like that. That’s a much better way to do it. The main channels for all the marketing these days is going to be Google, Facebook, Instagram. That’s pretty much it.
Gustaf Alströmer [50:11] – Let’s talk about search engine optimization. This has changed a lot in the last couple of years. It’s very competitive, and what changed is there used to be millions of websites that each would rank for tens of millions of keywords. Now what have changed is that the really big companies have started getting really good at ranking for all those keywords. Pinterest or TripAdvisor might rank for every single travel keyword that you can imagine. That’s hard for small companies. What that means, that if you’re going to rely on search engine optimization to grow, you’re going to have to be as good as Pinterest or TripAdvisor, eventually. Not right away, but eventually. Because it’s so competitive to win in this large world of SEO. When you get started, you can think of it this way. SEO is a zero sum game, because you’re competing against other, so what you do in SEO, what you compare to others. The second thing is that the key words that people search for are changing constantly. If you’re building something new, let’s say ASMR, I think was a thing that came up recently, lots of companies are able to rank for that because it’s a new keyword. There weren’t websites built 10 years ago that ranked for that, because the thing didn’t really exist. All right, let’s talk about SEO, how it works on the technology side. This is the Airbnb search results page. This is what you and me see when we go to the Airbnb. This is what Google see. Google just see text. To be good at SEO, you need to understand what text am I showing to Google
Gustaf Alströmer [51:36] – so Google can understand what the website is about? Google can’t understand what your site is about it’s not going to rank it. What are the two main leverage for SEO? The first one is going to be things I do on my page. For example, what’s the title of the page? Can Google read the page? Does the page throw errors? What specific page keyword am I trying to rank my page for? Well start with the keywords. Do some research and see what are people searching for? How many people are searching for ASMR in the United States per month? Maybe I want to try to rank for that keyword. Well build a website just trying to rank for that keyword. Start with Google. Don’t start with your own content. You don’t know exactly what people searching for, you got to start doing some research. The second thing is the thing you can’t do that much about, which is called off-page optimization or domain authority, or something like that, which basically means how valuable does Google perceive your website to be in the grand scheme of all websites? The more inbound links you get from press, the more links you get from all kinds of people, that also have high authority, the more valuable your website will be in the eyes of Google, which means it will rank you higher on some of the keywords you’re trying to rank for, because it’ll compare you to other websites and see if they seem more or less authoritative. I’m going to details here, what is basically how Google work. If you’re curious about this, you can Google pay track, and go to the Wikipedia article on pay track.
Gustaf Alströmer [52:59] – Basically it will explain sort of like high level, how Google works. Final section, I’m going to go through this one a little faster. Most of you guys don’t have to focus on A/B testing at all. It won’t matter for a long time. It is a great decision-making tool later on. Here’s the situation that startups tend to get into. I want to launch a new homepage. I want to launch a new design. I did, and the numbers went down. What happened? It’s a really hard problem to launch something new and then sort of like look at the metric over time. Don’t do that. There’s a better way. First, before you get into that stage, you want to figure out, is A/B testing something I want to do? The best way to do that is go to Google and type in A/B testing calculator. Think of the metrics that you’re trying to change here, so like visitors to some conversion metric. Put that into the first link you see on Google, and that’ll tell you whether it’s going to be worth doing. Mostly it won’t be worth doing for quite a while. Here’s the example I try to give you on the website. I want to ship a new experiment, our new design on the home page. Let’s ship it. The metric went up, or the metric went down. Either way, like, I don’t know if the website actually costed or not. The only way for me to know if this new design actually changed the metric, is if I had an alternative site of history. Two different parallel universes at the same time, one with the new design, and one with the old design. If I had that, I can tell exactly what happened. That’s the definition of A/B testing.
Gustaf Alströmer [54:29] – You basically have two different parallel universes of the thing you shipped at the same time, and you measure the metrics that matter to you. The reason this is so powerful, it helps you make decisions at scale. What ends up happening, if founders, when they get five or 10 people in the company and they launch a new design, and they’re arguing about what costs a thing to go up or go down. The only way to really know is to run an A/B test to figure out what does the metric say about whether it went up or down? This is hard to internalize because most people think of themself as good product thinkers. Product decisions are really hard, so using data to make them is a good way. Most of you won’t have to worry about this for a while so don’t worry about it. Here’s a summary of my talk today. Most of you need to do things that don’t scale. You are not at the place where you can think about real growth things that growth teams do. You have to unlearn the things that you’ve learned at your big companies or in MBA programs, and just do things that don’t scale. Secondly, you want to measure your retention to understand if you have product-market fit. There are other ways, too, but that’s the best way in my opinion. Third, you want to build a cult of experimentation. You want to use data, and not have the loudest voice in your room decide what the best decision is. But you want to use data experimentation to decide what is the best decision. Probably doesn’t matter right now, but it will matter at some point.
Craig Cannon [55:52] – All right, thanks for listening. As always, you can find the transcript and video at blog.ycombinator.com. If you have a second, it would be awesome to give us a rating and review wherever you find your podcasts. See you next time.
Y Combinator created a new model for funding early stage startups. Twice a year we invest a small amount of money ($150k) in a large number of startups (recently 200). The startups move to Silicon