Numbers are important in business. Yet, it’s hard to know which numbers to measure or focus on. This book by Alistair Croll & Benjamin Yoskovitz presents a framework to help you to use data more effectively in launching new solutions in startups or existing organizations. In our Lean Analytics summary, we’ll give an overview of the lean approach, where lean analytics comes in, and how you can apply it to any startup or established organization. Do get more details from our complete book summary bundle in text, infographic, and audio formats.
Overview: Lean Analytics
Eric Ries’ Lean Startup approach has revolutionized how modern businesses approach innovation. It’s about identifying and addressing the riskiest part of your business through rapid, iterative cycles of learning. It uses the Build → Measure → Learn cycle to learn as fast as possible: build something small asap for users to try, measure the outcomes and decide whether to pivot or double down on the idea.
Lean Analytics comes in for the “Measure” part of the cycle. Specifically, it helps you to focus on the single most critical metric at any point in time for your business. For example, Airbnb hypothesized that hosts with better photos would get more business. Instead of going on a hunch, they tested it out by offering to link some of their hosts with professional photographers. After proving that listings with professional photos had 2-3x more bookings (and hosts wanted to hire Airbnb photographers), they rolled it out on a large scale.
The authors Alistair Croll and Benjamin Yoskovitz are seasoned entrepreneurs who’ve also interviewed hundreds of business founders, intrapreneurs, and investors from a range of companies. In this detailed guidebook (presented in 31 chapters over 4 parts), they summarize various lean methods, and combine them into a comprehensive framework that any organization—be it a startup or an established business—can use to become more effective.
This is a content-heavy book, and we’ve consolidated the insights into 3 sections:
• Introduction to analytics and the lean approach
• Applying Lean Analytics to your start-up
• Applying Lean Analytics to any organizations.
In this free Lean Analytics summary, we’ll give a brief overview and zoom in on a few sections in detail. Feel free to get our full 23-page summary for more details, examples and tips.
1. Overview of Analytics and the Lean Approach
To innovate, we need intuition and imagination. Yet, all of us lie to ourselves. Analytics provide a reality check to ensure we don’t hurt our businesses with our delusions.
A good metric has 4 key properties: You can compare it across different dimensions, it’s easy to understand, it’s expressed as a rate or a ratio, and it changes the way you behave. Before collecting data, ask yourself, “What will I do differently with this information?
In our complete book summary, we’ll explain more about the 4 properties, along with 5 important considerations for choosing the right metrics (e.g. qualitative vs quantitative metrics, vanity vs actionable metrics, correlation vs causality, and so on).
At different stages of a startup’s growth, you need to focus on different things. In our full Lean Analytics summary, we’ll also elaborate more about these existing frameworks that address a startup’s journey:
• Dave McClure’s AARRR “pirate” metrics;
• Ash Maurya’s Lean Canvas (covered in his book Running Lean).
• The 3 engines of growth in Eric Ries’ Lean Startup;
• Sean Ellis’s Startup Growth Pyramid (read the Hacking Growth summary here); and
• The Long Funnel
The frameworks above overlap and each have their strengths. Lean Analytics basically combines them into a single framework in 5 stages: Empathy, Stickiness, Virality, Revenue, and Scale.
2. Applying Lean Analytics to your Startup
Lean Analytics is about finding the One Metric that Matters (OMTM) to focus on right now. This in turn depends on your business model and which of the 5 stages you’re at.
The One Metric that Matters (OMTM)
The main idea is this: collect data on multiple fronts, but drive only 1 critical metric at a time. The OMTM is a single metric that reflects the riskiest aspect of your business. This metric will change as your business grows and evolves.
The Components of your Business Model
To identify your OMTM, you must be able to describe your business model succinctly and distill the truly vital elements.
• There are 5 key building blocks to grow a business: more products/services, more users, more stickiness, more money and more efficiency.
• There’re also 5 sets of variables that jointly form your business model: your acquisition channel, selling tactic, revenue source, product type, and delivery model.
• To get you started, the authors detail 6 common business models. The idea is for you to use it like a flipbook to zoom in on what’s relevant to you, combine ≥2 models and adapt the metrics. You also need to have some indicative goals/benchmarks, i.e. you must know what’s a “normal” or “good” number to aim for.
In this article, we’ll just share 1 sample model (E-commerce), to illustrate how you can apply Lean Analytics to your business. Do refer to our complete Lean Analytics summary (click here for the full 23-page summary with infographic and audio options) for details on the OMTM, 5 building blocks and variables, plus all 6 common business models (e-commerce, software as a service (SaaS), free mobile app, media sites, two-sided marketplaces, user generated content sites).
Sample details for MODEL #1: E-COMMERCE
In e-commerce, you sell things online, then deliver the products digitally (e.g. music files) or physically (e.g. clothes). Examples include Amazon and Expedia.
• Depending on the products you sell, you’ll fall into one of these 3 modes for ecommerce. You can’t change the mode you are in; you can only adopt the best strategy for it.
(i) Acquisition mode: Less than 40% of last year’s buyers will buy this year (e.g. rock climbing equipment). Focus on new customer acquisition, not loyalty programs.
(ii) Hybrid mode: 40%-60% of last year’s buyers will buy this year (e.g. Zappos). Focus on both acquisition and purchase frequency. An average customer buys 2-2.5x a year.
(iii) Loyalty mode: >60% of last year’s buyers will buy this year (e.g. Amazon). Focus on loyalty and purchase frequency.
• The important metrics include:
• Indicative goals/benchmarks include:
(i) Conversion rate: Initially, about 2% is considered normal and 10% is very good. The numbers will vary with your industry.
(ii) Expect 65% or more of visitors to abandon during checkout.
Do check out our complete book summary for details of the remaining 5 business models.
Identify Which Lean Analytics Stage You’re At
You can’t track everything at once. So, besides knowing your business model, you must know which of the 5 stages you’re at. The idea is to identify the biggest risk at the current stage of your business, then do enough to quantify, understand and address the risk. You should only move to the next stage when you’ve cleared the “gate” or achieved the goal.
Here’s a brief overview of the 5 stages. In our complete Lean Analytics summary, we’ll break down the action steps and tips for each stage:
• Stage 1: Empathy. Your goal is to identify a real problem for a reachable market, which you can solve in a way that people will pay for. This requires that you get inside your target customer’s head, and you can only do so by talking to enough people. Find out how to identify real problems validate the problem and validate the solution with a Minimum Viable Product (MVP).
• Stage 2: Stickiness. This stage is about building a “sticky” solution with a right mix of features/functions that will keep users around. Previously, you had an MVP but now you need a product with a core set of features that users interact with regularly and successfully. Know the 7 questions to ask before building a feature, how to interpret feedback effectively and use the “Problem/Solution Canvas” to guide your weekly experimentation efforts.
• Stage 3: Virality. You’re now ready to focus on user acquisition and growth. Virality is the extent to which existing users share your message/product with new users. Know the 3 key types of virality, key metrics (Viral Coefficient, Viral Cycle Time, Net Promoter Score, and how to maximize results with “growth hacking”.
• Stage 4: Revenue. Imagine if you could build a machine that produces a dollar for every penny you put in. That’s the goal at this stage: to ensure that you can make money in a consistent, scalable, and self-sustaining way. Learn ways to increase revenue and get to breakeven.
• Stage 5: Scale. By this stage, you’re no longer a startup figuring things out. You’re ready to expand to new markets and verticals, and must look at business ratios, channel development, competitive strategies, etc. Know the risk of crossing the mid-sized gap and how to use the Three-Three’s Model to do iterative learning and testing on a large scale.
Putting it Together
By this point, you probably realize there’s a lot going on in this book. Here’s a quick visual recap of how to connect the various ideas above to apply lean analytics to your startup.
3. Applying Lean Analytics in Any Organization
Up till this point, we’ve focused on startups with a primarily business-to-consumer (B2C) model. This final section will zoom in on what it takes to:
• Adopt lean analytics for enterprise sales (or business-to-business models);
• Launch a disruptive innovation in established organizations as an intrapreneur; and
• Build a data-driven culture.
Do get more details from our full book summary.
Other Details in the “Lean Analytics” Book
This is an extremely detailed guidebook on analytics and lean strategies/tactics. Besides the key ideas captured in our summary, the authors also included (i) their own summaries of many frameworks and tools, (ii) >30 case studies, (iii) FAQs and short exercises, (iv) flow charts, tables and diagrams, and (v) technical details such as sources of surveys, how to use pivot tables, etc. Do get a copy of the book for the full mojo, get our Lean Analytics full summary bundle for a detailed overview, or check out leananalyticsbook.com.
Use analytics to innovate more effectively and grow your startup faster!