We were extremely pleased with how things went - we picked up a substantial population of new users, measurably ticked up our growth rate, and I think by most accounts broke through the noise to be one of the top stories of the conference - which is getting trickier and trickier to accomplish.

I'll say that we were totally puzzled when we first started thinking about SXSW last November as newbies trying to analyze the twin myths of Foursquare and Twitter ;). The famed 'Foursquare court' strategy in particular seemed impossibly simple. So if it's of any help to other people considering a SXSW launch or event marketing in general - here are some high-level thoughts on what we did that worked, and what we would do differently.

WHAT WORKED:

1. Focused on Pre-SXSW Marketing

One of our guiding principles from the outset was that there's too much noise to break thru at SXSW itself - so we should focus on creating awareness and conversion ahead of time. I think this was a critical and correct assumption.

2. Developed a Relevant Mobile Use Case

The big 4 apps this year imo were Foursquare, Instagram, Hashable, and GroupMe – social mobile apps with high utility in social settings.

You need to isolate a mobile app use case that is directly useful at the conference. We focused on the ‘Business Card Replacement’ use case on Android & iPhone and put all of our development behind that. It seems hard to believe but from an internal product debate standpoint this wasn't a foregone conclusion.

3. Evangelist Contest

The evangelist strategy - to send power users down all-expenses paid via a contest - was a great idea on many levels. Among other things it drew attention to us ahead of time as a company that was going for it at SXSW.

4. Influencer Outreach

We sat down with Robert Scoble and several other key influencers in January and early February.

Influencers talk about you, Tweet about you, blog about you, Quora about you, etc. They basically dictate the unofficial slate of contenders for SXSW. You need to go out of your way to get on their radar.

5. Single-Message Marketing Campaign

This I believe is the single most important thing we did. We crafted a specific marketing campaign around the ‘ditch your business cards’ theme to educate people on a single use case and motivate them to download our app ahead of the conference.

I think in marketing it's relatively easy to create brand awareness and extremely difficult to get people actually using your product. I was terrified that we would have everyone at SXSW talking about us, but nobody actually using us.

Our “Kick Ass & Take Names” campaign strategy was kicked off in mid-February and designed to get people 'demo'd and downloaded' before Austin. It included these components:

• Singular messaging around ‘ditch your business cards’ – this is all we talked about to the press and to our users. Nothing made me more excited or proud than seeing the business card messaging get picked up and carried through again and again on point. I believe had we not narrowed the messaging, our presence at SXSW would have been hopelessly equivocal.
• Presenting as a social leader – we tried to have enough going on that people headed to SXSW from various parts of the country might look to us for cues on what to do down there.
• A dedicated SXSW landing page describing how to use Hashable at SXSW (videos etc) and giving full details of our parties and other doings before and at SXSW.
• A ‘roadshow’ wherein we visited a few key target communities in person to get people demo’d and downloaded.
• NYXSW. We thought of NYXSW as our ‘minimum viable marketing plan’ – if we could at least get NYC activated, we’d be in good shape. And we thought other companies should be thinking the same thing and that this would benefit everyone. I think NYXSW helped put us top of mind among NYC’ers and also clarified the biz card use case among many who still thought of us as a Twitter intro service. I hope it helped other NY companies do the same.
• Hiring Rachel Sklar to help us execute on the campaign and amplify the signal. Rachel is terrific. Our ideas got better, our reach got broader, media opportunities opened up, and she just made everything more fun.

6. ‘Rolling Thunder’ Noise & PR Strategy

From January forward we created a steady stream of product and marketing announcements. We built up velocity culminating in very high communications volume about 2 weeks before SXSW started.

The official press cycle began around Feb 21 and lasted about a month. We had 83 press hits during this timeframe with TechCrunch, Mashable, Forbes, CNN, AdAge, WSJ, Business Insider, AdWeek, and PCMag being some of the key formal media outlets in the SXSW mix. I'm proud to say that we did this without any external PR help.

On the user comms front, we retweeted any press hit like crazy and sent an aggressive stream of SXSW-related emails to our users in the few weeks before SXSW began.

Fred Wilson and Charlie O’Donnell also wrote awesome, pointed blog posts the week of SXSW – those helped a lot and we’re grateful to both of them.

At SXSW

By the time we got to the actual conference, our strategy was to have fun and just kind of be all over the place. This is what we did in Austin:

• Flood the Zone with evangelists & our team - all in t-shirts & hashing it up
• Stickers  - people love stickers
• VIP party - it was small and hopefully civilized and awesome
• “Major Rager” party with GroupMe - great brand partnership with a team and product we love; truly a rager
• Panels - help lend gravity to your approach and access different audiences
• Demo Events - we participated in every demo bake-off we got invited to (and also hosted a NYXSW one)
• Sklar-events - Rachel is ubiquitous at SXSW and she pulled us into everything she did
• Press during the event - We were so proud & psyched to be mentioned on so many 'Top 5 Apps' and 'SXSW Winners' lists - great feeling, thanks to awesome bloggers everywhere!

WHAT WE’D DO DIFFERENTLY

1.      Create an HQ for users to come connect with us. GroupMe’s grilled cheese stand was a great strategy on this front – and it’s why the Foursquare Court is so brilliant.

2.      Someone at home Tweeting all day. We left a lot of customer support questions unanswered - I hate to think of that.

3.      More T-shirts. We wish we’d had a couple thousand t-shirts to give to people. Next time!

TEAM

The one last thing I want to mention – is that whatever success we had at SXSW, we had because of our awesome team (including so many of our passionate users who basically are a part of the team). I think the key ingredient to succeeding at SXSW is creative thinking - and it takes an awesome, engaged team to come up with off-the-wall strategies. In our case, ideas came from all corners, we had great camaraderie – and we let the effort and lack of sleep pull us together. I believe that sense of creativity and togetherness permeated the tone of what we were doing and created an accessible, upbeat vibe.

So hats off to the team – Jane Kim, who 100% ran point on all things sxsw and earned an honorary PhD in event production, Mike Yavo who came up with the evangelist contest and VIP party and a zillion other things, Sklar as already touted, our truly sick product & dev teams who hardly slept for two months and then represented hard in Austin, our amazing Hash-Evangelists who rocked the conference, and our interns who nailed the details. Hopefully we can tap into that same moj to capitalize on the growth and push into the next phase.

So that’s that! A few details and trade secrets kept admittedly on the downlow - but I hope still helpful. I would have killed for this post last November. See you next year Austin!

The basic premise is that everyone goes through four stages of learning.  First, a person starts in stage 1, the “enthusiastic beginner.”  We’ve all been there….  It’s the “you don’t know what you don’t know” stage.  I remember the first term sheet I ever drafted; I thought it was a piece of cake.  It probably took me 30 minutes to complete a draft.  Then I got redline back from the Partner with whom I was working.  Clearly, I didn’t know what the heck I was doing! 

This moment of realization is when a person progresses to stage 2.  Stage 2 is the “struggling learner.”  You suck, and you realize it.  This is obviously the toughest stage.  But gradually, you push through, learn, and move to stage 3, the “cautious contributor.”   Here, you’re able to contribute, but you’re still tentative and unsure.  You’re highly competent, but you don’t realize it yet.  Some positive feedback later, and you start to realize your own competence and you become a “peak performer.”

Some people start in Stage 1 and never leave.  I think this is what is meant when people say that someone is not “coachable.”  The person never lets themself have that moment of humility and self reflection when they realize their own lack of competence. 

My lunch date on the other hand was clearly a cautious contributor and well on his way to being a peak performer.  All the ideas he had around the business model were great; he just wasn’t yet completely confident in his own business model savvy.  Suffice to say, I emailed the CEO after his board meeting and asked how the meeting went.  “Great!” was the response.  Sounds like someone made it to stage 4.

I find that realizing what stage I’m in of this learning process helps me understand what I need, especially when I feel myself going from stage 1 to 2.  But you can also use the framework to help coach someone through each stage.  To do so, here are my crib notes:

Stage 1:  If you’re managing an enthusiastic beginner, assign the person specific tasks and give them direct feedback on their work outputs.  Give them positive encouragement, but don’t hold their hand too much.  Remember:  they need to realize they need help. 

Stage 2:  This stage is when your ability as a coach shines the most.  This stage is all about giving feedback and direction.  They’re open to learning so take advantage of it. Give them clear direction on how to complete the task, let them do it, then give them feedback.  Rinse, recycle, repeat.  On to stage 3.

Stage 3:  Positive encouragement and support is what this stage is all about.  They’re almost there.

Stage 4: Your reward of being a great coach:  time to delegate!

If this framework resonates, read more about it here: http://store.situational.com/products/Situational-Leader-Book.html

Hey EarlyStager readers,

Come hang with us next Thursday evening when Change the Ratio presents EarlyStager Stories as part of Social Media Week. We’ll be chatting up founding stories, financing obstacles & pivots that woulda-shoulda happened with the inimitable Rachel Sklar at TechStars / Pivotal Labs. 

What we will not be doing is talking about what it’s like to be a woman in tech or similar gender-driven topics. Gotham Gal and the ITP folks covered that and a whole lot more in smashing fashion last weekend, so get on the #WEFestival list for 2012. 

In the meantime, we look forward to seeing you on Feb 10 and, apparently, drinking Pepsi.

Register Here.



Company culture is notoriously hard to define and measure but it’s critically important to the success of a business. In any company, no matter how small, the company culture is a product of the leadership and the leadership's vision for the company. In most companies, it starts with the CEO.

Office layout and design, team building, offsites, and perks like free lunch, doggie day care, etc are usually good signs of a company that cares about culture, but they may just be window dressing. Take a closer look.

What really matters: How employees are treated on an individual level

Most employees really want to enjoy what they are doing, but when you boil down why most people work it’s to earn a living. In all of this talk about culture, this fact is the key aspect is missing in many of the discussions.  If you have individuals that are happy, you can foster a happy team.  Here are some of the most important factors:

Compensation:  Not all startups have the ability to pay market, but get there and beyond as soon as you can.  Pay employees generously. Review your employee compensation as you grow and if you don’t want to pay your team market – you may have the wrong employee and it may be time to let them go.  Combine equity and cash to make all employees feel like important and valued members of the team.  Today, the market is only getting better and compensation is becoming a bigger consideration.

Career path:  Care and support all employees careers.  There may not be room for “moving up the ladder” but if you want to keep talented people, even small companies need to help create and allocate growth projects. Most people want to make a difference and feel like they are moving the business forward. As long as there are big challenges and meaty projects, great employees are generally self improving through experience, discussion and observation. It is important to acknowledge this need even If there’s not a job big enough for a particular employee at the moment.  The employee can make the decision for themselves if they think the role will grow into something bigger or if it is time to move on.

Reward system:  Who gets promoted, rewarded and who gets let go is a big indicator of culture.  Your employees know who is pulling their weight, who is a star and who should leave.  If your company doesn’t do what it is necessary to evaluate these situations objectively, this will drag down morale and hurt the overall culture.  The company needs to show what behaviors and skills it values.

Reviews:  Closely linked to reward system is reviews.  Employees should know where they stand and whether its informal or written, reviews should be done at a minimum annually.  Reviews are just another way values and culture can be reinforced throughout the company.  It’s about creating the best team that learns from each other.

Respect of downtime:

Generally there is not a lot of downtime when you work at a startup, but when there is some.

Vacation – Vacation policies make sense when there are necessary reasons for people to be in an office everyday.   But the reality today is you probably get emails at all hours of the night and have a steady flow during the weekend.  No one asks for vacation credit for being on their iPhone while sitting on the beach over a long weekend.  In a startup, few people would even think of taking more than a few weeks in total over the year.  My vote:  No vacation policy, particularly for the early stages.

Work Hours – Nothing kills morale faster than someone who has been working round the clock and on weekends who gets reprimanded for coming into the office 20 minutes late.  That same employee will think twice before opening their email on the weekends or double checking a project at 2:00am.   The idea is that people will get their work done in a timely fashion, sometime during the week.

Trust – The bottom line is the best companies trust their employees. If you don’t trust your employees, replace them.  If you do trust them, give them autonomy.  Trust from the company will also foster trust and cooperation between employees.

There are many, many more areas that contribute to culture including, following your own mission statement, facilitating effective communication, limiting process and procedures, use of spot bonuses and rewards and how you welcome and let go employees.   And…last but most importantly overall respect.

It is about building an all-star team, not a family (which is more than likely dysfunctional).



Fred Wilson wrote an awesome post yesterday isolating 2 critical catalysts for NYC: 1) engineering talent, and 2) pervasive high speed internet access so that cheap neighborhoods can be put to use as start-up districts. Over Twitter these got awesomely coined as 'Hires & Wires,' and the post was possibly a response to an email Charlie O'Donnell sent earlier this week re: how best to use an audience with a local politician.

There needs to be a focal point for these discussions, ideas & efforts. Is it a naive idea to put together a Silicon Alley Chamber of Commerce, with the mission of focusing our community thinking around key challenges and advertising us to key external demographics?

- Would be set up as a non-profit

- Funded by VC's, law firms, recruiting firms, and a 'business association' membership fee from funded start-ups pro-rated by level of funding.

- Also potentially supported by job posting revenues and advertising

- 1-2 full-time, dedicated staff to run it

- A Board of Directors and an extensive Advisory panel

The programs would align to Hires & Wires or whatever key needs arise out of quarterly planning meetings. For example, the Hires program could include:

• Creating an aggressive awareness/presence on key engineering campuses across US and possibly internationally - including coordinated recruitment drives akin to what the banks and consulting companies do at campuses. Institute a recruiting week for CS seniors.

• Running a Silicon Alley job board (free or maybe Yoga-to-the-People-style donations) - I still contend part of the hiring problem here is that the start-up scene seems completely amorphous to engineers and other talent looking to join it. It's very hard to grock the universe of options.

• Coordinating an Alley-wide summer internship program.

• Running point with local universities to help integrate their programs into the start-up ecosystem and even to help support their recruitment efforts into key high schools. I've seen first-hand the power of the Stanford-Silion Valley integration - they are one in the same.

• Definitive list of investors, meetups, events, dev groups (like hackny), incubators etc.

• Possibly even a classifieds section for office space, equipment, services, whatever...

Charlie's initiative NextNY is an awesome community-based effort - with 3.000+ members and a lot of activity at the ground level. 

But to make a major leap forward on broad needs like Hires & Wires - I believe that will only happen through a concerted effort that is funded and staffed and supported by the top people and groups in the community - with a high degree of visibility.

Has anything like this already been attempted, or are their analogs in other industries?

-- Beth, Emily, Alexis, Sarah

P.S. Props to our awesome gifters for participating...a grateful shout out to the talented Krystle Mobayeni for rocking the design & layout...and much appreciation to NY Mag for continued inspiration.

In large companies, business development usually means establishing and managing strategic relationships and alliances  with other companies.  Despite whole departments focused on this, it often remains a mystery as to what they actually do.

In early stage companies, the definition is a lot more fluid, but in general is an opportunity to test products or theories, gain some customer traction and make some money.  It is often the early stage company that can be flexible and creative enough to get some of these deals done.

Early stage companies are often paralyzed on this front.  The team is so busy thinking about and building the product and getting adoption (both very important) it is easy to miss potentially big opportunities with partners, licensing or other arrangements that would allow the business to reach new customers or extend the product or brand into other areas.

Here are some thoughts on approaching business development:

Keep your company’s goal(s) in mind.  Examples include (and likely in this order): 

1. Attracting new customers 
2. Penetrating existing or new markets 
3. Generating revenue

Be creative.  The best deals are the deals that haven’t been done before.  This is a huge competitive advantage for early stage companies and few take advantage of this.  Help your potential partner think about their business in a different way, show them opportunity, help the guy on the other side of the table look smart.

Find the decision maker.  Don’t start discussions until you know who makes the ultimate decision.  Although not a requirement, it is always better if this person is part of the discussions.  Limiting the number of people who can say “no” is not a bad tactic either.

Make a real connection.  Not unlike dating, you want to make a real connection.  Do your homework, find out everything about their background, if they have kids, and what their interests are.  Make the effort – visit the partner in their office and don’t make them come to you (or worse, if you are an early stage company, a random coffee shop).  Treat your potential partner with respect, address their needs and genuinely care if they are successful.

Focus on execution.  Don’t walk in to the meeting with grand ideas, but grand ideas and a way to get those ideas into reality.  The “how” will help keep the door open for further discussions. It will help to have a quick discussion with your tech team before entering into the conversation to get a sense of what you can and can’t offer and the level on investment or difficulty.

Create solutions.  Early stage companies are inevitably resource constrained and are not optimized for partnerships. Superstars don’t complain that they can’t get a particular feature created or partner highlighted.  Superstars figure out what they have at their disposal, what can and can’t get done within the team and create opportunities to optimize these strengths.

Always on the lookout.  I’ve seen this described as “sitting in the exit row” or “never eating alone.”  It is the idea that you should be creating opportunities to meet to people, get ideas, or find the next potential partner.  Sometimes you will be surprised where you will find them.

The best business development deals are the deals that bring value to both sides.  The more value you bring to your partner, the more leverage you ultimately have.  These are just a few tactics that I could think of this morning…



The good news for your beta period is that you can save your dev hours for features - you don't need a big dashboard report right now. Just focus on measuring user engagement.

Why? Because beta is all about nailing product/market fit and your on-boarding process – and user engagement is the metric that most directly reflects both.

There are 2 critical reports to measuring engagement. The first is a blunt instrument; the second more parsed out – and during beta, lots more useful.

Here’s how they work.

1.       Rolling % Active

The idea here is that you want to get some sense of what % of your overall user base is active in any given week or month. The calendar week or month is an artificial and rigid way to measure engagement activity. So instead of saying ‘50% of our users were active in November, vs. 45% in October’ – you generate a weekly report showing the rolling % of users active in the past 7 and 30 days. It gives you a smoother curve.

While overall % active is clearly a key stat, it has some shortcomings especially during the beta phase.

The primary shortcoming is that you can’t tell *which* of your users are active or inactive.

For example, are your active users mostly just new sign-ups who go nuts with rookie enthusiasm for a few days and then go silent, or are they your old powerhouse users who’ve been with you since the start -- or both?

Relatedly, an overall % active number doesn’t allow you to easily map engagement fluctuations to product changes. For example, have users who signed up after you implemented some new on-boarding technique engaged better than the users who signed up before that technique was implemented?

Also, I think it’s common during the first 12-24 months of a new product to have some subset of people sign up, go dormant, and then come back as real, engaged users x months later (it took me at least 9 months to actually start using Twitter, and I’m still dragging my feet on Evernote). An overall % Active metric won’t give you a sense of whether or not the initial sign-ups who did not convert to active users are coming back to you over time - or just staying dormant.

2.       Weekly Sign-Up Cohorts

Cohort reports are the best way to get behind the overall % Active stat and understand which users are active in any given time period.

The best way to understand cohorts is to look at an example.

Let’s say you launched your product on October 4^th and have therefore been live in beta for 6 weeks. The following report shows for every week you’ve been live – how many people signed up each week, and how many of those users (per weekly sign-up cohort) remained active in each subsequent week:

(*these numbers are goofy btw, just trying to show the concept)



So if 30 people signed up in your first week of being live, then per this report, 14 of them were still active 6 weeks later.

Notice that of those first 30 sign-ups, lots of them went dormant in weeks 2-4, but came roaring back in week 5. Why did they come back? Maybe you implemented your weekly digest in that 5^th week and reminded users you existed. Or maybe social proof kicked in and they realized how awesome you are.

Whatever the causes – cohorts let you map product or marketing activities to user engagement outcomes.

Note that you can run these *monthly* as well – so for all users who signed up in any given month, what number of those users are still active in each subsequent month.

There are lots of other helpful ‘flavors’ of cohort reports that you can easily churn out once you’ve got your basic queries in place. The most obvious of these is % of users active. This is really the same report as above, just showing % of each cohort active instead of absolute #, like this:

The cool thing about the % view is that you can benchmark engagement very easily week to week. So in the above report, look at the ‘Week 2’ column. The November 1^st cohort is doing lots better in its second week than the October cohorts. Maybe you tested a new tutorial video that week – looks like it worked!

Although I won’t get into queries, one fundamental input to mention is your definition of ‘active user.’

As a product person, I always want to define ‘active’ very narrowly or stringently - but as big Rick Eaton always says, you don’t get points for ‘difficulty level’ in the active user contest :) Maybe more on this in another post.

At any rate – cohorts are helpful. Hope it makes sense! (Also interested what other folks are doing to measure engagement out there.)

To set the stage, I wrote a rather lengthy, navel-gazing first post about The Road Trip that Started it All, with the obvious but crucial observation: start a company with people you trust & admire.  I followed this up with Taking the Plunge.  I’ll conclude this rambling series with one obvious and one perhaps-not- so-obvious lesson learned (you decide which is which).  

5. Don’t be a Jerk 

File this one under Lessons Learned in Kindergarten that Could Bear Repeating.  Often.  The world is full of people who act like jerks in the office.  I’m sure you’ve worked with them before.  They made your day-to-day miserable.  Did you found or join a start up in hopes of working with more?  No and neither did your colleagues.  Can working at a startup be frustrating? Yes. Enough to drive you crazy at times and say things you regret? You bet.  Solution: figure out a way to treat people with respect while still having a backbone.  It can be done.  My colleagues remind me of this daily.  Love them.

6. Don’t Quit Your Day Job – Yet

For the first couple of years of Curbed, the founding team retained our day jobs, dedicating night and weekend hours to our so-called aggressive hobby (fully disclosed to employers). During that time, (although some of us may not have been dating much or going to the gym) we were able to build traffic and grow revenues, which helped us raise angel funding.  Importantly, we also strengthened our conviction in the viability of the business and our ability to work together, both of which have helped solidify our foundation ever since.   

As a result of this experience, I’m a big fan of keeping your day job at least through some viability proof point. As are others. In addition to a steady salary and benefits, often your day job can provide professional development opportunities, especially if you’re a younger entrepreneur. 

When Lock, Eliot and I started Curbed, there was an obvious a bucket for everyone: editorial, tech, operations.  Today Josh Albertson runs the operations side of the house as General Manager. While this is a role I could probably do if push came to shove, it’s a role I gave up by keeping my day job and not joining the company full time when we raised angel funding.  Thank goodness I did.  Josh is awe-some.  Having Josh there to ensure the theoretical trains run on time, on the right tracks, and with the right balance of fuel, cargo and liability insurance, allows me to focus on what’s going on away from the station.  I’ve never been happier professionally and I attribute that to my amazing colleagues and working with them to craft a role for me that suits my strengths, my intellectual interests, and the company’s needs.   

Read more about joining a startup in The Business of Tech.

Company Net Promoter Score, or NPS, is a customer loyalty metric developed by Satmetrix, Bain & Company, and Fred Reichheld. This score is determined by posing a simple question to consumers; it’s a query designed to screen for customer loyalty. Consumers are asked, “On a scale of 0 to 10, how likely is it that you would recommend our company to a friend or colleague?” Consumers offering a rating of 9 or 10 are anointed “promoters”, implying they could heavily promote the company to others. Those who give a rating of 7-8 are “passives”—maybe they might not do anything. Those at the lower end of the scale, with ratings of 0-6, are dubbed “detractors,” since they might speak ill of a company and hurt its prospects with other potential customers. 

A company calculates its overall net-promoter score by subtracting its percentage of detractors from its percentage of promoters. So, if 65% of an e-commerce firm’s customers rank as promoters, and 15% as detractors, the firm’s overall NPS would be 50.  You should ask every customer this simple NPS question after they’ve received their shipment. 

Track and monitor your NPS every month and discuss it in your management and board meetings.  Slice and dice the metric to study specific people who have interacted with your customer-service team or who processed a product return.  You’ll be surprised by the insights that will jump out. Check out netpromoter.com to compare your score against the best brands on the planet, like Amazon, Apple and Google. Tracking NPS is invaluable. 

Customer lifetime contribution, or CLTC.  We define CLTC as the net present value (NPV) of the profit from a customer’s purchases.  Remember to include all the sales that result from a customer’s repeat visits, less any associated costs to service the resulting orders (include variable costs like COGS, credit-card processing fees, shipping, warehouse-order processing, etc).  A profitable customer will have a CLTC in excess of its customer acquisition cost (CAC).  Treat these profitable customers well.

Once you have a good handle on this metric, you shouldn’t be afraid to spend until the marginal CAC (your CAC to acquire the next customer) approaches the CLTC of your next incremental customer, even if it costs more to acquire that new customer than you recoup on his or her first purchase.  Note: This doesn’t mean you should spend until the average CAC approaches your CLTC.  Rather, you want to spend to acquire customers until your marginal contribution (CLTC – CAC for each new customer) equals zero. Anything less is under-investing in your business.  In the beginning stages when you’re not sure what your what your customers’ repeat purchasing behavior will be, track your customers Average Order Value (AOV).  In fact, AOV is a great leading indicator for CLTC regardless of the stage of your company.

Customer acquisition cost (CAC).  This is quite simply your fully-loaded average cost to acquire a new customer.  You should track this over time.  However, averages can be misleading; not all customers are created equal.  You’ll always have one group of customers that come back to your site multiple times and are profitable to you. Others may come once, perhaps pick up some of your lower-margin SKUs—and never return.  Remember: Your goal is to optimize CLTC minus CAC.  This means that trying to keep your CAC down is not always your best bet: Sometimes your better customers (those that return and/or buy higher margin SKUs) are a little more expensive to acquire.  But they’re worth it.  If your current average CLTC is at least 2.5X your average CAC, and most of that comes in year one, you’ve got enormous upside potential.  

Conversion rate.  For most e-tailers, the relevant conversion rate is the percentage of new visitors that convert to buyers.  Here, traditional blocking-and-tackling concepts like streamlined landing pages and fast page-load times are king.  If you want to take this metric to the next level, you should think of your conversion rate as a conversion of visitors to revenue producers (not necessarily to buyers)—or, better yet, to gross profit contributors.  Essentially, what you are trying to measure is how much money you make from each visit to your website.  It’s the equivalent of the eRPM (effective revenue per thousand impressions) most Web publishers use to measure their businesses. But here, we suggest eGPV (effective gross profit per visit).  Compare the eGPV for all of your visits, and tweak the site paths that are falling below the average.  Adding additional revenue streams such as on site advertising may help to optimize this metric.

Churn. Yes, e-commerce businesses have churn too!  This is the percentage of visitors to your site that don’t come back to buy anything else. You should also, of course, track the number of monthly visitors who are returning customers. 

Cash-conversion cycle and return on capital. Only the simple-minded focus on the P&L statement. No one cares what your profits are if you don’t generate any cash flow. Online retail can be tricky because there are lots of ways to burn cash even when you’re generating income-statement profits. Inventory and warehouse equipment can consume a lot of cash, particularly during periods of high growth. The best online retailers actually boast a negative cash-conversion cycle.  In other words, they get paid by their customers before they have to pay their suppliers. Amazon and Blue Nile have negative cash-conversion cycles, so it’s perhaps not surprising that these companies have the most attractive valuation metrics in the online retail industry.

Be aware of this, and make smart tradeoffs between vendor-discounts and stretching payables whenever you can.

This post is an excerpt from a 10-series post on my blog, BVP's Top Ten Laws of eCommerce.