Retention clearly is the most crucial metric for early-stage startups. By tracking and measuring how often individuals (f.e. an ideal customer vs. a newly signed up customer), groups of users (f.e. cohorts of users sharing the same signup date) or even all customers are coming back to use your product following initial activation, you are able to get an idea of how valuable your current product and feature set really is.

Increasing retention instead of working with vanity metrics (like only focussing on the daily or overall app downloads count) almost always determines the long-term success of any software.

When defining retention by the ratio of users launching your app at least once a day in relation to all users who have downloaded it in the past, you might compare yourself with these numbers:

Less than 5% of all users are coming back daily: Houston, we have a problem.

Action: Get feedback from prospective customers and mentors who have done it before. You might consider drastic changes in your overall company strategy, substantial parts of your product or design of the most important features. Chances are, you might have build something nobody wants or likes to use. Take this as a learning and get again into protoyping and customer development.

5-10%: Go and do your homework.

Action: Your aim is not to acquire, but keep users. Even if the number of signups is low, you can learn a lot, probably more than with thousands of customers or more. Now is the chance to try things, so in a Facebook-manner “Move fast and break things”. Or, in Eric Ries’ words: “Build, measure, repeat.”

10-20% or more: Good job. Now dig deeper.

Action: Refine your analytics toolset. Try Mixpanel or KISSmetrics. And maybe Intercom to easily get in touch with specific customers. Find out why customers are coming back and why not. Improve your product, then try push notifications or e-mail marketing to reactivate passive users.

Above 20%: Go out and party. You deserve it. For now.

Action: Only very few products and services achieve that so many users are coming back each and every day. This means, you have created something people at some point in the future might not be able to live without. Try to comfort yourself with the thought of seeing your face on the cover of Forbes someday and get back to work.

Important notice

Keep in mind that on the day of their first activation, each user’s 1-day retention as defined above is approximately 100% since most people launch apps they have installed at least once thereafter. So make sure your analysis time frame is set to at least 7 days, better a few months or all time since your last major release and excludes the once who have just signed up, best by taking the largest possible fraction of your user base that has installed your app before yesterday.

But not only put your numbers in perspective to the time frame underlying your benchmark. Also, retention is highly influenced by an app’s category and thus typical use case. Communication and news apps, especially those with push notifications, are used naturally more frequently, while productivity apps like to-do lists or casual games are used in specific contexts only and might show some seasonality.

EISENHOWER for example is highly frequented from Monday until Thursday, activity is then decreasing on Fridays and relatively low over the weekend. This is totally reasonable since our app is mostly used at work and primarily for managing business tasks. Tax preparation apps instead are used maybe once or twice a year—but still can possibly sport a pretty loyal following.

Check out Flurry’s 90-day retention matrix to get a better feeling where you can narrow or widen the rule of thumb’s intervals. But be careful, they are defining retention slightly differently—interpreting any app activity within a generous time frame of 90 days as defining an “active user” to better cover a broad range of categories’ use cases.

Final remarks

Taking this into consideration, you now understand Facebook’s valuation—when there are so many people using their service every day, some even every hour while being awake: A better daily retention rate than some other startups’ monthly retention, and a stickiness that some may even describe as addiction.

Virality is not a feature you can add after designing your product. It is neither adding a Like or Tweet this button nor vigorously integrating all Facebook Social Graph API features. It is instead something inherently built into your product or not. When turning an initial app idea into a product concept, ask yourself:

1. Can my product idea ever be viral or are there certain limiting beliefs preventing people from sharing their experience?
   Platforms like dating services can even offer hugely different subscription fees per acquisition channel at the same time, because people rarely talk about this in public or recommend a specific service to friends and coworkers.
2. Is a viral engine of growth really what works best or might I be better off with focussing on paid marketing?
   In e-commerce, companies can measure and thus optimize their conversion funnels from search intent to purchase on a cost per order basis. As long as their bid is always lower than the customer lifetime value minus all costs of service delivery, they grow the more they purchase optimized ads.

If you have figured out that viral is the way to go, stick with these questions:

1. Is my product really worth much more when a users brings his friends—probably up to a degree where it does not work without them?
   Facebook’s entire business model relies on users generating content and convincing their friends to join and stay for easy status updates, picture sharing or organization of events and group communication.
2. What gets a user made (feel like a hero) or paid (in respect or money) when inviting others and with which overall product and feature design can I achieve that best?
   Letting friends know about a free, easy and reliable online backup solutions makes early adopters feel special. In addition to that, Dropbox grants additional storage for every successful referral as soon as friends have signed up and installed Dropbox on one of their devices.

You are about to launch or just recently have released your freshly built web service or mobile application? There are many ways to get noticed and acquire your first customers. While it is always easy to pay for clicks on Google, Bing or Facebook, you might as well generate remarkable reach within your target customer group without investing money, but only a little time and effort instead:

Step 1. Launch your product and get yourself ready

1. Get your minimum viable product online (a plain LaunchRock placeholder or MailChimp form does not generate much buzz anymore) and prepare for future visitor peaks by relying on scalable infrastructure hosting from Heroku or similar and content delivery networks such as CloudFlare.
2. Fine-tune headings, description and especially your product’s value proposition on its landing page. Add meaningful previews using screenshots or videos to give visitors an impression before asking them to sign-up. Maybe provide higher resolution screenshots and some likeable photos for journalists to use.
3. Integrate web analytics to measure and build on your most effective marketing channels over time. See ranks of your referrers and which search terms visitors have used (and if they are bouncing). Then optimize your landing page to include only the most relevant keywords while first focussing on your customer, not search engine crawlers only.
4. Claim and configure relevant social media accounts (at least Facebook and Twitter) and post some initial news. Personal, transparent and unique posts usually tend to perform better.
5. Update your own profiles in personal and professional social networks, adding links to your product and update your e-mail signature with a descriptive slogan and a failsafe textlink to your product. Every click counts and could be a future referral multiplier.

Step 3. Leverage your social network and generate referral traffic

1. E-mail your family, friends, current or former colleagues and ask for early feedback. Quickly act on their issues before approaching the big fishes. Some might even be able to help or have contacts to potential customers.
2. Create a fan page and invite all your Facebook friends which might use your product. Also post updates on your own timeline, referring both to your fan page and directly to your product’s website.
3. Follow key influencers and potential customers with your product’s Twitter account and tweet using keyword hashtags essentially connected to your product. Many people on Twitter ask for help or respond with solutions to specific problems.
4. Introduce your product directly or indirectly in relevant message boards, groups (f.e. on LinkedIn), in Quora threads or anywhere else where it may make sense. Do not spam, but join and engage in conversations in a meaningful way.
5. Re-use existing channels like mailing lists or fan pages of your previous products and let them know about your newest venture. Especially if you are planning to sunrise them in the near future to concentrate your efforts on the new one.

Step 4. Reach out to influencers, press and media outlets

1. Provide key influencers (bloggers, journalists and early adopters with many followers like founders, angels and VCs) with exclusive beta accounts. Having access to a service before others makes people feel valued and special, sometimes leading them to publicly bragging about.
2. Reach out to relevant tech blogs including a short pitch, a remarkable story worth writing about and links/contact details for more information. Use being small and unknown as an advantage: be charming, but straightforward. Do not hesitate to ask for things you want, but make sure to bring a good idea together with a solution every time.
3. Offer your service as a guest blogger on other blogs. First at some with smaller, then at those with larger audiences. To start, find something worth writing about, tell your story and revise it until it feels right. Then use your draft to pitch different editors until the first one approves.
4. Do the same with established online or traditional media—it is worth a try. Probably even give journalists a cold call. You will have more luck in working yourself up from the bottom: start with local news outlets, then approach bigger brands.
5. Contact software and hardware manufactures you are relying on whether they might be interested in featuring your product as a reference case. This is much easier when you have already gained some traction.

Step 5. Get creative and do something special

1. Prepare gift-like suprise packages including a few offline goodies for the most important and influential people within your network (press, investors, business partners).
2. Design limited time offers, distribute promotion codes, or set-up contests for new or existing customers to drive attention. Figure out something that fits your product’s business model. Only do promotions that have proven healthy to your business in the long-term.
3. Host a small launch party and invite friends and people who are or will be of most help. You might also give some local journalists a chance to RSVP. Do not forget to bring all contributors and a projector with screens or a demo running on repeat somewhere in the center of the venue.
4. Apply for pitch sessions at conferences and identify suitable business plan competitions to increase awareness. Forget about stealth mode. The more people you tell about your idea, the feedback you will get and the more doors will open just magically.
5. Organize stunts or demos to draw the attention of social media. If it makes sense, do some guerilla advertising with self-made stickers, flyers and mailings. Being small has certain advantages you should leverage knowingly. Loss is not losing something, but not having tried everything on the way to visibility.

There are so much more chances to drive attention, especially with creativity enforced through limited budgets. So do not stop at building and tweaking your product, build its success through adequate marketing in parallel and hereafter. You do not need to be a marketing guru or press agency to get the first initiatives off the ground.

A while ago, Alexey Komissarouk posted an article on TechCrunch proposing that founders should learn to code themselves – just as Foursquare founder Dennis Crowley did years ago. Shortly hereafter, Salim Virani also chimed in on this topic with some really valuable remarks.

However, this should not mean for business people from Mannheim University or creative geniuses from UDK Berlin to spend hours and days desperately trying to get their head into Ruby on Rails before starting their web startups. Although learning to code might sound fun and easy at first, learning to do it right is hard work, especially for non-techies.

Truth is, Crowley not only got his master’s degree from Tisch’s Interactive Telecommunications Program (ITP), a two-year NYU master’s program that explores the imaginative uses of communications technologies, but before already spent some time at an Internet research firm and a tech start-up. He therefore might have already had some understanding of web software projects and programming before starting Dodgeball, the Foursquare successor bought by Google in 2005.

And even though I attended Java development courses at university and had solid experience with front-end development in XHTML, CSS and a bit of jQuery, I tried and failed to build working web application prototypes multiple times while relying on more or less amusing programming books and online tutorials. Only with the strong support of a friend I finally got into back-end development, but doubt it is worth the effort if you are not planning to get too serious about development in your future business. And if you still manage to build your own prototype in lots of expensive hours, then you are still far away from efficiency and knowing best practices how to develop and set-up a rock solid environment.

So if you are more passionate about business, product management or design than software engineering and development, better invest most of your valuable time in sharpening your product’s specification and design, target market and value proposition prior to actively starting and leave the real coding to others.

Note: This post on outsourcing minimum viable products and rebuilding them yourself in times of validated success has also been published in a revised version on VentureVillage on 2012/05/21.

Abstract

Instead of trying to talk developers you know or even don’t know into joining your company based on some idea or pitch deck you might have, build something first. Either to validate your idea and its marketability or at least to demonstrate your capabilities to both manage and execute—with a focus on the latter in the first few months. Just as with venture capital, it is always easier to recruit collaborators with both a grown concept and a working prototype. This not only gives you the opportunity to better explain yourself and sell your ideas, but also provides a solid basis for valuable discussions and the reason of having them in the first place.

Background

At last year’s betahaus Köln Startup Supper I was giving a short speech on simfy and how it is like to work at a startup.

Right before me, Claudia Pelzer from CrowdsourcingBlog was on stage talking about crowdsourcing and how she managed to establish herself as an authority on this topic by not only maintaining her blog, but also just recently founding the first German crowdsourcing association. In her presentation, Claudia included some popular examples for design and development platforms.

When it came to oDesk and Elance, I remembered checking out both marketplaces together with a bunch of alternatives some years ago already. However, so far I never recognized the potential of such alternatives in terms of developing a minimum viable product (MVP) for fulfilling your very own needs or even testing a startup’s central hypotheses.

On outsourcing product development

My assumption was that prototyping a desired product should lie in the hands of trusted technical co-founders, not hired low-cost resources. While this is true for platforms with high expectations in terms of scalability it is irrational to invest a founder’s invaluable time in a very specific and small MVP that is only built for market testing purposes. You later need to refactor or trash underlying source code anyway due to required changes, sometimes as large as a radical pivot.

This is not true once you make the real bet on only the most promising MVP and start your test-based iteration cycle on its core components and features. Outsourcing development shortly before or within a stage of growth can easily cost you more than you could ever save in the end. Communication overhead, unbalanced interests between startup and contractor and contractual agreements in contrast to desired iteration flexibility while growing a business can kill any case in the long-term.

From idea to product

Shortly before the betahaus event in November (27/11), we had a time management training at work (07/10), allowing me to refresh basic task prioritization principles like the Eisenhower matrix. While desperately trying to find a simple and well-designed web application incorporating this strategy afterwards, I started to realize that there might be still an inadequately covered niche for this kind of productivity software online.

Remembering earlier difficulties in finding a fitting developer with the same passion and timeline to develop an early protoype, I started out with initial sketches and basic HTML protoypes based on Twitter’s Bootstrap framework (which everyone with a will to succeed can learn to do). After compiling a draft specification, I immediately filed a request for proposal on oDesk (28/11):

Request
I am looking for an experienced PHP developer to build a tiny todo management web application in the style of an Eisenhower/Covey 2×2 matrix, allowing users to manage their todos by importance and urgency. I will be providing a HTML5 template with different header states and overlays, CSS and graphics (please see preview attached).

Background
Using oDesk, I wish to create a minimum viable product to collect early adopter feedback and further develop this concept towards market needs. Nevertheless, I prefer a clean and smart technical solution, because I would like to have the code maintained as the product scales.

Scope
The site itself consists of a navigation header, a form which stores all todos in a MySQL database anytime a save button is clicked, and a static footer. On page reload or login, a user’s saved data will be retrieved from the database. Users are able to use, sign-up for the service, login and logout on a single page.

Sign-up
Following sign-up with e-mail address and password, an e-mail confirmation request is sent to the new user. The e-mail address needs to be confirmed before the corresponding user account is finally set-up and the ability to save the todo list gets enabled.

Use case
1. Guest visits page
2. Guest enters first todo in form
3. Guest hits save button
4. Overlay appears, requesting sign-up to save
5. Guest enters e-mail address (must not be in database already) and chooses a password
6. Overlay says, that e-mail address needs to be confirmed to enable save button
7. Guest confirms his e-mail address by clicking a link in a confirmation request e-mail
8. User account is created, the user is logged in with the ability to save todo list
9. User enters todos and saves them
10. User leaves page by navigating away or logging out

Technical solution
I wish to get a deployment-ready PHP solution with database configuration file. When running, I expect a user’s save operations to be performed using Ajax without the need to refresh the page. The same is true for the sign-up overlay. Using proven frameworks for PHP (f.e. CakePHP) or JavaScript (f.e. jQuery) to speed up development time is appreciated.

Deployment scenario
Linux server, running Ubuntu, Apache and MySQL

After sifting through roughly 20 applications and choosing the most promising while affordable contractor, I sent out a refined specification including relevant screenshots  and a package of finished HTML5 templates.

The assigned contractor delivered most of the requested scope within only two consecutive days (01/12 to 02/12). Including minor tweaks and bug fixes based on our ongoing e-mail conversations, I spent 155 USD altogether (15,5 hours at 9 USD each plus oDesk commissions):

Shortly before deploying the final application to my shared web server (03/12), I figured out a plain Eisenhower as best describing the service, renamed all brand placeholders and purchased Eisenhower.me as a suitable domain which was still available (02/12).

As a last step, I added web tracking to better understand early customers’ behaviour by watching the acquisition funnel and their interactions with functions like the site’s manual save button. Herewith I can measure the impact of product changes—or sometimes just enjoy daily visits and sign-ups and their sources.

Finding a co-founder

Soon after referring Eisenhower to a few people in my network, I talked to a friend and developer who—all by himself—promptly suggested building an Eisenhower iPhone app, if I could contribute the necessary design work. While having lunch together the following day, we decided to split future profits and since then are investing night shifts and weekends to soon finish our part-time project which has already grown far beyond our both expectations.

Meanwhile, rebuilding the web application with focus on quality and scalability has already begun. This time developed from the ground up by—now co-founder—Tim.

Over the past 3 years I have read endless feed items by sifting through hundreds of unread items in my Google Reader on a more or less daily basis—consuming everything on startups, founders and the international venture capital scene I got my hands on. Primarily blog posts, newspaper and magazine articles, books and summaries thereof, as well as tons of hours of videos soon replaced my corporate career expectation with a burning love for entrepreneurship.

While mostly reading at home or on the go (when it happens, even before starting to work early), I usually send lengthier articles to my Kindle and, if of any long-term value, to Evernote. The corresponding notebook of startup knowledge now is approaching 6000 articles, covering all phases from idea generation over product building and marketing to growth and exit. Containing snippets and posts in both English and German, I have made it publicly available here. Evernote by default sorts chronologically by date added, but around 90 topic tags are there to help you to get started.

Hint in advance or before subscribing to relevant startup and tech blogs in general: Although most educated people tend to dive in deep before acting, make sure you don’t unintentionally stop there by simply chasing unread items day after day or finding excuses for not being able to take the risk to start your own big or tiny venture. Instead, prepare for actually doing something in a reasonable timeframe—best knowledge of what to do next will follow automatically.