 Okay, we're back here live at Stratoconference, day three, wall-to-wall coverage, this is Silicon Angles coverage of a Riley Media Stratoconference, and we're here back with Dave Vellante, my co-host, and Alistair Cole, co-chair, but also now author, in addition to his awesomeness in terms of running an amazing program here, which you guys have done another exceptional job here at Strata. Not only are you out scouring the landscape and prospecting for great programming here, you're also an author, and you're doing a lot of research around analytics and big data, so we're here to talk about your new upcoming book, Lean Analytics. There's the Lean startup, there's the startup playbook, there's the soon-to-be Lean Analytics playbook, so show the picture of the book cover because you don't have the jacket. That's right, we ran out of books, so hold up high like that. Yeah, we ran out of books, so I had to picture the screen, but there it is. Yeah, so it's been a lot of fun writing, it's been a really interesting experience. A little higher, a little higher. Hey, look at that, right there, virtual book. That's actually just a picture of the cover. Okay, so let's break down the book. When is it coming out, okay, and what's the thesis behind the book? So it comes up March 8th, I've been working on it with a good friend, longtime companion, business partner, kind of a partner in crime, guy named Ben Yoskovitz. Ben works for Go Insta, which is a guy by Salesforce, and the two of us ran a startup accelerator in Montreal called Year One Labs, and we learned a lot of stuff from that, and from our own experiences, starting companies, what we realized is that most companies, the Lean startup was this transformative idea on like, fail fast, understand problems, adapt quickly, don't invest heavily until you know you've found the right product for the right market, but there was a real need for hard numbers around when should you move forward based on the kind of business you're on what stage you're at. So the book is really, this is the kind of business you're in, this is the problem you're trying to solve, this is where you are as a company what stage you're at, and as a result, this is the metric you need to measure and fix right now before you can move forward. So Dave and I always talk about our philosophy and entrepreneurship, which we have our own obviously views on, and we always say sell design, build and be agile and agile programming, agile ventures as we say, but really it's hard for an entrepreneur because there's always risks, and entrepreneurs like to take risks, that's not the problem, the issue is when do you give up, or if you don't do the right data analysis, you end up in a cul-de-sac of no customers, a solution looking for a problem, and then you have to do the proverbial pivot. So what you're trying to get at is to lay out some analytical frameworks around how to evaluate market data, is it internal data, is it all the above, is it to address those hurdles? Yeah, so I mean one of the things the lean starter was really about is identifying the riskiest part of your business model and then want to find that risk so you can either overcome it or change your plan, over and over and over again, and it's really hard work, it's not that much fun, but I'll give you a good example, let's say you're running a software as a service business, you lose a quarter of your customers a year, sucks right, that's no fun, turns out that's actually really good, turns out that to churn 2% of your customers a month is almost as good as you're going to get in the industry, only huge companies like Salesforce do it better. So we talked to a founder who was just killing himself trying to get below 2% a month, churned when instead he should have been focused on customer acquisition costs, right? So he didn't know that he'd already found the business metric that mattered and optimized it, and once he knew that he could go focus on something that would, the next metric that mattered the most. So it's like, go ahead, sorry. So really understanding which business metric for what stage of the business, based on what business you're in, is a huge challenge. A lot of the times I want to ask this question, because this is really important, and for the entrepreneurs out there, this is really something that I can share with my scar tissue of experience, this is really hard to do, but important. And the question is when do they need to think about when to start doing the metrics? There's a lot of times when you're doing development, you want to be in this creative space, and you want to get out there and kind of iterate through, but at some point when you start growing, you got to put the metrics and identify your metrics. Is there a feel for that? What's your experience? So the first metric you want starts on day one, it's called how many people do I talk to, right? The big trick here is you got to do a lot of qualitative discussions upfront without leading the witness to try and get an understanding of what people's needs are. You mean market, customer? Yeah, just customer development, go talk to the customers, to identify what are their needs. Before you show up and say I have a solution for you, because everyone wants to be polite, they'll agree with you, right? So you identify their needs. Nobody wanted a minivan, nobody wanted a Walkman, but they had needs for some personal space while commuting or for larger families suburban weekends, right? So if you identify the needs, then you go back and you say, now I get this problem, what do you think of the problem? I haven't counted anything yet except how many people I've talked to. But once I have a good enough understanding of a pattern of people I can go talk to, then I can start to quantify that, right? I can start to look at things like how likely they are to refer to other people, I can build the first version and see do people get sticky, do they stay with it, or do they go away, all those kinds of things. Yeah, and Steve Jobs was quoted as saying, our customers don't know what they want yet. And a lot of these emerging markets, a lot like that, where you talk to people and you say, and you get some data, what they're saying might not always be what's really going on. So the entrepreneur has to be focused in on that. How do they deal with that? How do you advise companies saying, hey, I'm talking to a customer and they may be parroting a problem, which might be a feature. Right, the only people that lie more than customers are founders themselves. And so I think one of the great things about analytics is it shines a sort of harsh light of data on the business, right? Otherwise you just lie to yourself until you hit the wall at a million miles an hour. Dave and I say, man up and look in the mirror. And that's a hard thing. Dave, what's your take on this? Well, there's a saying, the data doesn't lie, but the data can be misinterpreted so easily. So that's kind of the hard part is how do you, you have the helicopter view, you have the forest through the trees view, you got the 100,000 foot view. I think that's the big challenge for startups in particular is where to focus. Do you have any advice in that? Yeah, so Ben coined this term, the one metric that matters. And we've had a lot of people go, oh, you can't possibly look at one metric, the business changes. The reality is, pick one. Because the scarcest resource you have as a startup is focus. So you pick one metric that matters to you, maybe it's the time it takes you to pay off the acquisition of a customer. And until you get that below some line in the sand that you really care about, you just focus on that. Because metrics are like squeeze toys. So you know those funny stress toys, you grab the metric and squeeze it, something else is going to bulge out. And that's the next metric you fix, right? You get enough visitors on your site and now you want to increase conversion. You get enough conversion, you want to lower support returns or you want to increase shopping cart size. Then that metric might change as you hit different milestones as well. It better change because what you've done is you've quantified the risk and you've found a part of your business. Now the hard part for an entrepreneur is to know which metrics to focus on in what order and what the line in the sand should be for those metrics. And that's a lot of what we talked to 130 founders and VCs and people like that. I was just going to ask you, how many people did you talk to? Yeah, a lot. And in fact, there were some companies like Tatango and Chartbeat and others who themselves are analytics companies who took the customer's data that was anonymized, they were allowed to share with us. And said, you know, based on 100 people, here's whether or not you should ask for a credit card up front. I want to talk to you about some, an important concept that that's out there called pivoting, you know, failing fast, you know, fail forward, all that's good stuff. And I think there's an over emphasis on failing. And what I want to talk to you about specifically is overpivoting, meaning too pivoting too many times. So Dave and I always talk to entrepreneurs about trajectory of the business and diseconomies of scale and that. You build the trajectory and you build your metrics and you have, that's an opportunity to be competitive advantage. But if you pivot, you kind of have to start over again and you have diseconomies of scale. So how do you look at that arc of trajectory for a company? Because a company ideally wants to have a trajectory of investment. And that's a competitive opportunity because no one can copy you instantly in the marketplace and have all those benefits. How do you look at that from an analytic standpoint? So let me break that down. First of all, Silicon Valley doesn't like people failing. There's a myth that they do. They just like it better than the alternative which is building something nobody wants. I mean Mark Andreessen said a market if nobody doesn't care how smart you are. It's pretty true, right? So it's not that they want you to fail fastest, they want you to adapt. And the only way you can adapt is to have a cycle time where you can iterate through feedback very quickly. As for pivoting, so we talk a lot about the lazy pivot. Like a pivot is not, like it's not a way to fuel your ADD as a founder, right? You got a, the analogy I like to use is rock climbing. If you're climbing, you usually have three of your four limbs on the wall at any time and you move one limb, right? So you're going to say, okay, we're going to try a different business model. Okay, we're going to try a different target market. We're going to try a different set of product features. We're going to try a different customer acquisition strategy. You're experimenting with all those things. The big changes happen when you've exhausted all possibilities and Ben likes to talk about the market product fit where you sort of step back and say, is there another market for whom this product will work? We had one company we talked to that was getting pennies on the dollar return on their sales by charging a monthly fee for job postings. And then they said, you know what, I'm just going to charge $300 a job posting instead of a monthly fee to have an account. Revenues went through the roof. All they did was change their pricing model. Like now they're hugely sustainably profitable. They found some nice footing on the rock climb. Yeah, and they went, oh, let's move my left hand from charge you every month for as many postings as you want to charge you $300 a posting. Wasn't a huge change, transformed their business. And that's really the incremental opportunity and the opportunity to move the ball down the field. Your advice to entrepreneurs, let's go back to entrepreneurs and what's your advice to them? I'm an entrepreneur out there, I'm starting a company. I have my founding team. Maybe it's less than six people, maybe it's less than a dozen. We're building a company. We want to start thinking about VC financing and we got to put the presentation together, all those things. But yeah, we might not have our metrics nailed down because the VC's always asked, what's your business model? How are you going to scale? And sometimes they don't know that. What's your advice to them when they're in this weird zone of we know what we do, we want to do, we have a base, probably we have a vision, but I got to kind of package something. So my first advice is get out of the office because if you haven't actually gone and talked to people but let's assume you've found enough approval and you have sort of initial stickiness. So in the book we talk about the empathy stage which is get inside your customer's head, the stickiness stage which is people use it and stick around. Then there's virality, revenue and scale. And so let's assume that they've got a sticky enough product, right? And they're about to try and scale, they want somebody to do so. I think the most important thing is to try and understand every metric that you focus on, if it doesn't change what you're going to do, it's a bad metric. So my good friend Randy Smerick owns a restaurant in San Diego and I love using this example because it's got nothing new to technology. So Randy at about 5 p.m. finds out how many reservations he's got. So let's say he's got 50 reservations at 5 p.m. He now knows that by the end of the night he'll have had 250 covers, it's about five to one. That's leading information that tells him I should go hire another person tonight, I should bring someone on or I should go buy some more food, right? So if you can find metrics in your business today that indicate a business model outcome later like number of sales or whatever, that's magic because now I can predict the future and I can adapt it. So start looking for those leading indicators that really drive and predict your business model and change how you behave. Have you found new tools emerging when you went and talked to people or is it still mostly Excel? No, so what's interesting, analytics really started out with the Google Analytics of the world which were very document centric, very navigational page to page navigation and mostly e-commerce and media sites. And now you're starting to see companies, I mentioned Totango earlier, very focused on software as a service CRM. So there it's about anticipating who's going to churn out and identifying which of your trial users are most likely to convert so you can love them up. You're also seeing changes, there's companies like Kiss Metrics, like Chartbeat which I mentioned earlier, Gecko Board, there's a whole bunch of companies now that are doing mixed panels, another one that are really focused on cohort analysis of like these users that came in February, who are they, what are their names that we know about them. So there's a bunch more focused on a person, there's a bunch more focused on cohorts of users that arrive January's users versus February's, so there's much more sophistication in the dual set. So how big is the book, how fat is it, how many pages, when is it going to be available? So we'd love to have it be a hundred pages. The reality is that would only work as an e-book because we'd ask you what kind of business are you in, what stage are you at and then you'd magically see a hundred pages that apply to you. Unfortunately with six business models, five stages it's a much bigger book, it's about 415 pages, 420 pages. Okay cool, is there some storytelling in the book? There's a lot, there's actually 30 case studies in there that are very concrete examples of everything from the restaurant I mentioned earlier to Reddit to government studies and all sorts of things like that. Lots of storytelling, yeah. Alice, let me ask you a personal question. What have you personally learned from this experience? Obviously writing a book is a hard task, I'm sure you're like, okay it feels good to be kind of completed the journeys through but what did you personally learn from the writing, the collaboration with your partner and talking to everybody and what you're producing? Well the number one thing was that Ben's way smarter than I am. The second thing was I think you got to really strike a balance and this is the zen of being in a startup where you're like in the depths of despondency and everything's awful and the world hates you and the numbers aren't right and then you have the heights of delusion where we're going to conquer the world and be the next Google and you have to be zen enough to hold those two worldviews simultaneously without going nuts and that's the real challenge. Bipolar narcissist translation. Exactly. Okay Alistair Kroll here inside the cube, co-chair of Stratoconference, author of the Lean Analytics book that's out and it's available now. You can pre-order it on Amazon now and actually if you go to leananalyticsbook.com there's all the pre-order stuff there. Is there a blog, is there a community? Oh yeah Lean Analytics book and Lean Analytics is the Twitter handle and we're writing a lot of stuff. We're actually, we actually published an e-book free to anybody that's got 13 case studies and we actually are running a contest right now where people who buy the book and tell us they did, one of them's going to get up to come up to a startup fest in the summer and attend the conference and all that stuff, hang out. Okay great stuff. Alistair Kroll, great executive here at Stratoconference, a program chair, again author out talking to startups. Congratulations. We'll be right back with our next guest here inside the cube after this short break.