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Lecture 6 - How to Start a Startup

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Thank you for coming. >> Move us all, thank you. Cool, so you guys this is awesome, I've been watching the lectures in this course, isn't it absolutely amazing the content? And now you're stuck with me today. >> We'll, so how that goes. Unlike Paul, when he was talking in the Q and A, and you guys asked him what he would do if he was at college today and he said physics, I actually indulged myself. I went in, I went and did physics, did physics at Cambridge and I think physics is an amazing class to give you transferable skills that are really useful in other areas. But I guess that's not, that's not why you're listening to me today. Like, physics isn't the class, like, so I paid for college doing online marketing. Direct sales marketing. I started with SEO in the 1990s. I created a paper airplane site. I had a monopoly. In the small niche market of paper airplanes globally which you know, when you want to start a startup also see how big the market could be in the long term it wasn't great. But what that taught me was how to do SEO. And back in those days it was Altavista, and the way to do SEO was to have white text on a white background five pages below the fold. And you would rank top of Alta Vista if you just paper airplanes 20 or 30 times in that text. And that was how you won at SEO in the 1990s. Like it was a really easy, easy skill to learn. When I went to college, being a physicist, I thought paper airplanes would make me cool, and I was actually the most nerdy person in the physics class, so I created a cocktail site. Which was how I learned to program. And that grew to be the largest cocktail site in the UK. And that really got me into SEO properly when Google launched. So with Google, you had to worry about page rank, and you had to worry about getting links back to your site. Which basically, at that stage, meant one link from the Yahoo directory. Got you to the top listing in Google if you had white text, on a white background, below the fold, as well. When Google launched AdWords that's when I really started to learn how to do all my marketing. And that was buying paid clicks from Google, and reselling them to eBay for a small margin of like 20% using our affiliate program. And that was what really kicked me into overdrive into doing what everyone nowadays talks about is growth, or growth hacking, or growth marketing. And in my mind it's just internet marketing. Using whatever channel you can to get whatever output you want. And that's how I paid for college and how I ended up going from being a physicist to a marketer and transitioning to the dark side of the force. So what do you think matters most for growth. You've had loads of lectures and people have said it over and over, so what do you guys think matters most for growth? Someone give me an answer. >> Great product. >> Great product. I agree, great product. What does great product lead to? >> Customers. >> Customers. And what do you need those customers to do? >> Spread the word. Someone said stay on your site. Someone said that. That's it. Retention. Retention is the single most important thing for growth. Now we have an awesome growth team at Facebook, and I'm super proud to work on it. But the truth of the matter is we have a fantastic product. But getting to work on growth at Facebook is a massive privilege, because we're promoting something that everyone in the world really wants to use. Which is absolutely incredible. If we can get people on, and get them ramped up, they stick on Facebook. So many times I go advise multiple startups, my favorite was working with Airbnb, but I've worked with Coursera, I've worked with other ones that haven't done as well as those guys. But the one thing that is true over, and over, and over again is if you look at this curve. The sentiment, the active, versus number of days from acquisition. If you end up with a retention curve that ascentotes to a line parallel to the x axis. You have a viable business, and you have product market fit for some subset of market. But most of the companies that you see fly up, we talk about growth hacking and virality and all of this other stuff. I'm gonna try so hard not to swear, but it'll happen. Their attention curve slopes down towards the X-axis, and in the end intercepts the X-axis. Now when I show this chart to most people they say that's all well and good. You had a million people a day in terms of growth when you started the growth team at Facebook, or you were at 50 million users. You had a lot of people joining the site so you had a ton of data to do this. We used this same methodology for our B to B growth. Getting people to sign up as self-service advertisers, we used this analysis to understand how much growth we were gonna have in that market as well. And in that place, when I joined Facebook, the product was three days old. And within 90 days of the product launching, we were able to use this technique to be able to figure out what the one year value of an advertiser was, and we predicted it for the first year to 97% of what the number turned out to be. So I think it's very important to look at your attention curve, and this is how we did it. If you see here. This red line is number of users, who have been on your product for a certain number of days. So, a bunch of people, that should say zero, a bunch of people will have been on your product, all of your users will have been on it at least one day. But, if your product's been around a year, or whatever, you will have zero users who've been on it 366 days. Make sense? The curves sensible? Cool. So what you then do is look for all of your users, who have been on your product one day. What percentage of them are monthly active. 100% for the first 30 days obviously, because monthly active they all signed up on one day. But then you look at 31. Every single user, on their 31st day after registration, what percentage of them were monthly active, 32nd day, 33rd day, 34th day? And that allows you, with only something like 10,000 customers or whatever, to get a real idea of what this curve is gonna look like for your product. And you're gonna be able to tell does it asymptote. And it'll get noisy out towards the right-hand side. Like I'm not using real data. It'll get noisy out towards the right hand side, but you'll be able to get a handle on, does this curve flatten out or does it not. If it doesn't flatten out, don't go and do growth tactics, don't go and do virality, don't hire a growth hacker. Focus on getting product market fit. Because in the end, as Sam said in the beginning of this course, idea, product, team, execution. If you don't have a great product, there's no point executing well on growing it. Because it won't grow. Number one problem I've seen inside Facebook for new products, number one problem I've seen for startups I ever devised has been, they don't actually have product market fit when they think they do. So the next obvious question that people ask over and over and over again is okay, so what does good retention look like? Sure I can have five percent retention but I'm guessing that Facebook had better than that, so that's not gonna be a successful business. And I get really pissed off when people ask me that question. Because I think you can figure it out. And I love this story, and this is like my one gratuitous story that I love that I'm throwing in here, so the rest of it may not be as gratuitous. But this is a picture that was published in Life magazine in 1950 of one of the Trinity nuclear bomb tests. And there's a guy, Geoffrey Taylor, who's heard of Geoffrey Taylor. Awesome. Yes. Someone's heard of him. Geoffrey Taylor was a British physicist, who ended up actually winning the Nobel Prize. And he was able to figure out from looking at this picture, what the power of the atomic bomb was, the U.S. atomic bomb. And Russian's were publishing similar pictures, just using dimensional reasoning. And dimensional reasoning is I think, one of the best skills that I learned during my time studying physics back in the U.K.. And what dimensional reasoning is, is you look at the dimensions that are involved in a problem. So, you wanna figure out energy? Newtons, meters, newtons are kilograms, meters are second to the minus 2, so you've got kilograms, meters squared, seconds to the minus 2, and then you try and figure out how you can get each of those numbers from what data you have. So, the mass. Is the volume of this sphere. So, that's a meter cubed you throw in there. So you've got meters the 5 over seconds the minus 2, and he was able to use that to just figure out what the power of this atomic bomb was, what the ratios of the power between the Russian and US atomic bomb, and essentially reveal one of the top secrets that existed in the world at that time. That's a hard problem. Figuring out what Facebook's retention rate is not a hard problem. How many people are there on the internet? Give or take someone throw something out. >> 2.4 billion, 2.3 billion. Something like that right? Okay, Facebook's banned in China. So. What now? >> About a billion. >> About 2 billion? 2 billion. So 2 billion people on the internet. Facebook in their last earnings call said something around 1.3 billion in terms of the number of active users. You can divide those numbers by each other. And yeah, that won't give you the right answer. Course it's not gonna give you the right answer. But it's gonna give you close enough to a ballpark figure. Of what the retention rate looks like for Facebook. If we signed everyone on the internet up, and then you will know it is higher than that. Similarly if you look at Whats App, they've announced six hundred million active users. How many people have smart phones? You can figure out that number. That number is out knocking around. It can give an idea of how many users there are. Amazon has had a pop at signing up almost everyone in the United States. You know how many people are online in the US, and you've got a good idea of how many customers Amazon are from the numbers they throw out. Different verticals need different terminal retention rates for them to have successful businesses. If you're in e-commerce and you're retaining on a monthly active basis like 20, 30% of your users, you're probably gonna do pretty well. If you're in social media, and your first batch of people signing up to your product are not like 80% retained, you're not gonna have a massive social media site. And so, it really depends on the vertical you're in, what the retention rates are. What you need to do is have the tools to think about who out there is comparable. And how you can look at it and say, am I anywhere close to what real success looks like in this vertical? So retention is the single most important thing for growth. And retention comes from having a great idea, and a great product to back up that idea and great product market fit. The way we look at whether a product has great retention or not is whether or not the users who install it. Actually stay on it long term, when you normalize on a cohort basis, and I think that's a really good methodology for looking at your product and saying, okay, the first 100, the first 1,000, the first 10,000 people I get on this, will they be retained in the long run? So now how do you attack operating for growth? Let's say you have awesome product market fit. You have built an e-commerce site and you have 60% of people coming back every single month and making a purchase from you. Which would be absolutely fantastic. How do you take that and say now it's time to scale? Now it's time to execute was the last thing in your thought. Right? And that's where I think growth teams come in. Like my contrarian viewpoint, or whatever is if you're a start-up you shouldn't have a growth team. >> Damn it. So close. Halfway through and I failed. You shouldn't have a growth team. Start-ups should not have growth teams. The whole company should be the growth team. The CEO. Should be the head of growth. You need someone to set a North Star for you, gratuitous shot of the, you know, NASA page. You need someone to set a North Star for you about where the company wants to go. And that person needs to be the person leading the company, in my opinion, from what I've seen. And Mark is a fantastic example of that. Back when Facebook started lots of people were putting out their registered user numbers. Right? You'd see registered user numbers for MySpace. You'd see registered user numbers for Compact. You'd see registered user numbers. Mark put out monthly active users as the number both internally he held everyone to. And said we need everyone on Facebook, but that means everyone active on Facebook. Not everyone signed up to Facebook. So monthly active people was the number internally. And it was also the number he published externally. It was the number he made the whole world hold Facebook to as the number that we cared about. If you look at what Yam has done with What's Up I think it's another great example. He always published send numbers. If you're a messaging application, sends is probably the single most important number. If people use you once a day. Maybe that's great, but they send one message. They, you're not really their primary messaging mechanism, so Yan published the sentence number. Right? Inside AvianB they talk about nice book, and they also published that in all of the, like, infographics that you see inside Tech Crunch. They always benchmark themselves against how many nights booked they have compared to the largest hotel chains in the world. They have, each of these companies, a different north star. The north start doesn't have to be monthly active users for every different vertical. For eBay, when I was there, it was gross merchandised volume. How much stuff did people actually buy through eBay. Everyone externally tends to judge eBay based on revenue. Actually, Benedict Evans has done this amazing breakdown of Amazon's business. Which is really interesting. To look at their marketplace business versus their direct business. EBay is all marketplace business, right. So eBay's being judged by its revenue when it actually has ten times, or whatever more gross merchandised volume going through the site. And that was the number that eBay looked at when I was inside there, and optimized for. So every different company when it thinks about growth needs a different north star. But when you are operating for growth, it is critical that you have that north star and you define it as a leader. The reason this matters is. The second you have more than one person working on anything, you cannot control what everyone else is doing. Right? I promise you, having now might have hit 100 people I'm managing, I have no control. It's all influence. Yes, I can say to one person, do this one thing. But then the other 99 are gonna do whatever the hell they want. And the thing is, it's not clear to everybody what the most important thing is a for a company. It would be very easy inside eBay for people to say, you know what? We should focus on revenue. Or you know what? We should focus on the number of people buying from us. Or you know what? We should focus on how many people list items on eBay. And Pierre and Meg and John. Those guys, those various leaders, always said no, it's the amount of gross merchandise volume that goes through our site. It's the percentage of e-commerce that goes through our site. That is what really matters for this company. Which means when people are having a conversation and you're not in the room, when they're sitting in front of their computer screen and thinking about how they build this particular product or this particular feature. In their head, it's gonna be clear to them that it's not about revenue. It's about gross merchandise volume. Or it's not about getting more registrations. Registrations don't matter unless they become long term active users. A great example of this is when I was at Ebay in 2004. We changed the way we paid our affiliates for new users. And affiliate programs are a bit out of fashion these days, but the idea of an affiliate program is essentially you pay anyone on the internet. A referral for sending traffic to your site. But it's mostly about getting access to like, big marketers who do it on their own, like separately and some really good stories from this. We were paying for confirmed registered users. So all of our affiliates were aligned, they're out getting confirmed registered users, to the base site. We changed our payment model to pay for activated confirmed registered users. So you had to confirm your account and then bid on an item, or buy an item or list an item, to become someone that we paid for. Overnight when we made that change, we lost something like 20% of confirmed registered users that were being driven by the affiliates. But the ACIUs only dropped by about 5%. The ratio of CIU to ACIU went up, and then the growth of ACIUs, massively accelerated. The cause of this was if you wanna drive CRUs if someone searches for a trampoline, you land them on the registration page cuz they think they have to register and confirm, before they get that trampoline. If you wanna drive ACRUs you land them on the search results page within eBay for trampolines so they can see the thing they want to buy, get excited about it and register when they want to buy it. And if you drive just CRUs people don't have an amazing, magic moment on eBay when they visit the site. And that's the next most important thing to think about, is how do you drive towards the magic moment that gets people hooked on your service? So in the lecture notes for this course I've stuck in a bunch of links to people I think are brilliant at all of this stuff. That retention curve I showed earlier, there's a link to this guy Danny Ferrante whose incredible talking about retention curves. The magic moment, there are two videos linked. One is Chimoff talking about growth, who was the guy who set up the growth team at Facebook. And one is my friend Naomi and I talking at F8 four years ago about how we were thinking about growth back then. And in both of those mem, both of those videos we talk about the magic moment. So, what do you guys think the magic moment is for when you're signing up to Facebook? You hit that big green button, what is the moment when users are like ha? Mark even talked about it at the start up school a few years back. >> See your friends. >> See your friends. Simple as that. And usually it is very simple. I talked to so many companies, and they try and get incredibly complicated about what they're doing. But it is as simple as just when you see that first picture of one of your friends on Facebook. You go, oh my God, this is what the site is about. And Zucks talked at Y Combinator about getting people to ten friends in 14 days. That is why we focus on that metric. The number one most important thing in a social media site is connecting to your friends. Because without that, you have a completely empty news feed, and clearly you're not gonna come back. You'll never get any notifications, you'll never have any friends telling you about things they're missing on the site. So for Facebook the magic moment is that moment when you see your friend's face, and everything we do on growth. And if you look at the LinkedIn registration flow, or you look at the Twitter registration flow, or you look at what WhatsApp does when you sign up, the number one thing all these services look to do is to show you the people you want to follow, connect to, send messages to, as quickly as possible. Because in this vertical, that's what matters. When you think about Airbnb or you think about eBay, it's finding on eBay that unique item, that PEZ dispenser or broken laser pointer that you really, really cared about, and wanted to get hold of. Like when you see that collectible thing that you were missing, that is the real magic moment on eBay. When you look on Airbnb and you find that first, you find that, that first listing that's like a cool house that you can stay in and when you go through the door, that's a magic moment. And similarly on the other side, when you're listing your house, the first time you get paid, is an amazing moment. When you're listing an item on eBay, the first time you get paid is a magic moment. You should ask Brian what he thinks, cuz they've done these amazing storyboards which I think has been shared, of like the journey through a user's moment on life on, on Airbnb and how excited. Isn't, he's talking in three lectures time? The guy's awesome at talking about the magic moment and getting his users to feel love and joy and all this stuff. So think about what the magic moment is for your product, and get people connected to it as fast as possible. Because then you can move up where that blue line has asymptoted. Then you can go from 50% retention to 60% retention to 70% retention easily, if you can connect people with the thing that makes them stick on your site. The second thing to think about is everyone in the Valley gets wrong, that we optimize when we think about growth for ourselves. So my favorite example is notifications. Again, talk to lots of companies, advise lots of companies, every single company when they talk about notifications, goes, oh I'm getting too many notifications, I think that's what we need to optimize for in notifications. Okay, are your power users leaving your site because they're getting too many notifications? No, then why would you optimize that, they're probably grownups and they can use filters. What you need to focus on is the marginal user. The one person who doesn't get a notification in a given day, or month, or year. Our experience of our products, and by the way like building an awesome product is all about thinking about the power user, right? Building an incredible product is definitely optimizing for the people who use your product the most. But driving growth, people who are already using your product all the time, are not the ones you have to worry about. So, in this Danny Ferrante video there's also this link from the lecture page, there's also talk about our growth accounting framework that we use to think about for growth. And we looked at new users, resurrected users, people who weren't on Facebook for 30 days and came back, and churned users. And the resurrected and churn numbers for pretty much every product I've ever seen, dominate the new user account. Once you reach a sensible point of growth, a couple of years, and whatever. And all those users who were churning and resurrecting, had low friend counts. And didn't find their friends, and so weren't connected to the great stuff that was going on, on Facebook. And so the number one thing we needed to focus on was getting them to those ten friends, getting them to the whatever number of friends they needed. So think about the user on the margin, don't think about where yourself when you're thinking about growth. So, operating for growth, what you really need to think about is, what is the north star of your company. What is the one metric where, if everyone in the company is thinking about it and driving their product was that metric and their actions towards moving that metric up, you know in the long run your company will be successful. And by the way, they're probably all correlated to each other so it's fine to pick almost any metric. Whichever one is like the deepest, like, that you feel the best about, that aligns with like your mission and your values, probably go for that one. But realistically, daily active users fairly correlated to monthly active users. We could've gone with either one. Amount of content shared, also very correlated to how many users there are because, guess what, you add a user, they share content. So, lots of things end up being correlated. Pick the one that fits with you and that you know you're gonna be able to stick with for a long time, but have a north star. Have a north star and know the magic moment that when a user experiences that, they will deliver on that metric for you on the north star, and then think about the marginal user, don't think about yourself. Those are, I think, the really important points when you're operating for growth. Everything has to come from the top. So the last area here is tactics. And my hope was that I could hit a few of these and then I've got a list of tactics I wanna go through that I'm better talking with a whiteboard and whatever on, but you can ask me questions as I'm going through on those about how they work and what goes better. But the important tactics that you need to think about this is great guy by the way, Tom Fishburne, he lives, he lives in the Bay Area and he does these really cynical cartoons that I love. So let's say you found your, your niche market that you're gonna have a monopoly on inside the mousetrap market. It's a silenced mousetrap that's sitting under beds so that if the mice come to your bed overnight, like they can be killed without waking you up, so that's your niche market. And your, your mousetrap is better than anybody else for that market. What typically happens in Silicon Valley is, everyone think mar, thinks marketers are useless. Like I thought marketers were useless when I was a physics student, so I'm sure as engineering students you must thing we're awful, awful people who aren't useful to have around. Like, build it and they will come. That is something that is very much the mantra in the Valley and I don't believe it's true. I believe you actually have to work. There's a good article, again, in the lecture page, from interviewing Ben Silvermann where he talks about how the growth of Pinterest was driven by marketing. It's a really good article to read into. I'm biased, of course. So, the first tactic I want to talk about is internationalization. Facebook internationalized too late. Sheryl said it broadly in public and I definitely agree with that. One of the biggest barriers to our long term growth and one of the biggest things we have to deal with was all the countries where there were clones. Famously Studeveldt said had Fakebook.css in their, in their HTML. And there were a ton of sites like that out there, whether it was Studeveldt site as a clear clone, Vkontakte, Mixi, Cyworld, Orkut, there were all these different social networks around the world that grew up while Facebook was focused on the US. And so internationalizing was an important barrier we needed to knock down, and knocking down barriers is often a very important to think about for growth. Facebook started off as college only. So every college that it was launched in was knocking down a barrier. When Facebook expanded beyond colleges to high schools I wasn't at the company, but that was a company shaking moment where people questioned whether or not Facebook could actually survive, the culture of the site could survive. Then expanding from high schools to everyone, that was like, just before I joined and that was a shocking moment and that spurred the growth on to 50 million and then we hit a brick wall. And when we hit that brick wall that was the point when a lot of existential questions were being asked inside Facebook about whether any social network could ever get to more than 100 million users. Which sounds stupid now, but at the time no one had ever achieved it. Everyone had kind of tapped out between 50 and 100 million users and we were worried that it wasn't possible. And that was the point at which the growth team got set up. Chimoff brought a whole bunch of us together. It was he said very publicly that he wanted to fire me on multiple occasions, and he probably should have done. But, without Chimoff I think none of us would have stayed at the company. We were a really weird bunch of people, but it worked out. And, the two things we did, I think, that really, really drove growth initially, was number one, we focused on that ten friends in 14 days and getting users to the magic moment. And that was something Zuck drove, cuz we were all stuck in analysis paralysis, saying is it causation, is it correlation. Zuck was like, you really think if no one gets a friend that they'll be active on Facebook? Are you crazy? The second thing was internationalization. It was knocking down another barrier. And when we launched it, I think there were two things that we did really well. Number one was, even though we were late, and we were stressed about being late, we took the time to build it in a scalable way. We moved slow to move fast. And you can actually read, hear the full story from Naomi in one of the videos linked from the lecture page. But what we did was we wrapped all the strings in the site in FPT which our translation script, and then, or translation extraction script, and then, we created the community translation platform. So that we didn't just have professional translators translating a site we could have all of our users translating a site. And we got French translated in 12 hours, but we managed to get to this day we are now at 104 languages translated by Facebook for Facebook. 80 plus 70 of those are translated by the community. And we took the time to build something that would enable us to scale. The other thing is we prioritized the right languages. So back then the right languages, the big four languages were French, Italian, German and Spanish, figs and Chinese, but we were blocked in China. >> So we focused on French, Italian, German, and Spanish. Now look at that list, that's today's distribution of languages. Italian isn't on the list anymore. French and German are about to fall off. In the last year we quadrupled the number of people on Facebook in Hindi, quadrupled. And so building for where the world is today, is an easy mistake to make and it's what a lot of the other social networks did. We built a scalable translation infrastructure that actually enabled us to attack all of the languages, so we can be ready for where the future is going to, is gonna be. And you'll probably be able to see some stuff from our Internet.org Summit in India about where we want to go with language translations later today, cuz I think they're talking about that stuff there. So these are the tactics I wanna go through now, and I'll stick with the white board for that stuff. But I'd really encourage you guys as I go through these, if you've got any questions about them let me know. I think this should be like, a more free form time anyway. But I think some these tactics are quite interesting. So Virality. Yes, I think there are two ways to look at virality. There's a great book whoops, the book on the right here, by Adam Penenberg, Viral Loop, goes through a bunch of case studies of companies that have grown through viral marketing. And I strongly encourage you, if you're interested in viral marketing, to get that book. I think Ogilvy on Advertising's great as well because chapter seven he's like if you can't think of anything else stick a car to a billboard with super glue and people will buy your super glue. And he's got some really, he's got some really good creative tips in there. >> Like the, the guy's been dead 20 years and I think he still, I, I buy everyone on my team gets both of these books when they start on my team. So virality. So Sean Park has this model that he taught or he told us about when he, when, when I joined Facebook. Which is to think about virality for a product in terms of three things. First is payload. So how many people can you hit with any given viral blast? Second, he had cooler words for these, I'm not quite as cool. Second is conversion rate, and third is frequency. Payload frequency and conversion rate, whatever, that order. So, how many people can you hit at once is payload. How many times can you hit them per blast is frequency. And what are they gonna convert at? And that gives you a fundamental idea of how viral a product is. So Hotmail is like, the canonical example of brilliant viral marketing, right? Back when Hotmail launched, there were a bunch of mail companies that had been funded and they were throwing huge amounts of money at traditional advertising. How many people know the Hotmail story, of virality? Awesome, great, new audience, sorry. Those two or three people will be bored. But Hotmail back in, back at that time. People couldn't get free email clients, they had to be tied to their ISP. And Hotmail and a few other companies launched and their clients were available wherever you went. You could log in via library internet or whatever, school internet, and be able to get access to that. Which was a really big value proposition for everyone, who wanted to access it. Most of the companies, went out there and did big TV campaigns and billboard campaigns and newspaper campaigns and things like that forced a lot of advertising of Yahoo, all of those things. But the Hotmail team didn't have as much funding, and so they had to scrabble around to figure out how to do it. So, what they did was add that little link at the bottom of every email that said, sent from Hotmail, get your free email here. Now, the interesting thing is that meant the payload was low. Right, you email one person at a time, not necessarily gonna have a huge payload. Maybe you send around some of those viral spam emails. But then I'm not sure I'll click on your link. The frequency is high, though because you're emailing the same people over and over and over. Which means you're gonna hit them once, twice, three times a day with that same link and really move up the impressions. And the conversion rate was also very high because people didn't like being tied to their ISP email. And so Hotmail ended up being extremely viral because it had high frequency and high conversion rates. Another example is PayPal. PayPal, PayPal is interesting because PayPal has two sites to it. PayPal has the buyer and the seller site. The other thing that's interesting about PayPal is its mechanism for viral growth was eBay. And so you can use all kinds of things for virality that may not look necessarily obviously viral. So PayPal, if you sent money, if you said to a seller, I am going to send you money. Like, I can't think of a higher conversion rate. Frequency was low, payload was low, but PayPal did this thing, where they gave away money when you got your friends to sign up for PayPal, and so that's how they went viral on the consumer side. They didn't have to do that for sellers, because if I said I'm gonna send you money via this, you will take that. And even on the consumer side they went viral because someone said sign up for this thing and you'll get 10 bucks. Why wouldn't you? So, they were able to go viral, but in both cases it was because their conversion rate was incredibly high on the buyer and the seller side. No. Because their payload and frequency was high. Makes sense? So this is a really good way to look at virality if you wanna say, is this product viral? Facebook was not viral via email sharing or anything like that. Facebook was purely viral by a word of mouth. Because the interesting thing about PayPal and Hotmail Is to use them the first person had to send an email to someone who wasn't on the service. With Facebook there's no native way to contact people who aren't on the service. Everyone thinks of Facebook as viral marketing success, and that's actually, not how it grew. It was word of mouth virality, because it was an awesome product you wanted to tell your friends about. How's everyone doing? Is this interesting? Great, question, yes. >> So when you're talking about this low pay load in both of the examples. In the later rounds as this sort of campaign or whatever you want to call it gets going. Aren't you going to have a much higher pay load as more and more people are sending Hotmail] to more and more folks, and that way your pay load grows and grows and grows? So, the question is in the first round it makes sense that it has a low pay load, but in later rounds, aren't you gonna have higher pay loads as people send more and more and more emails. I guess in my head, well, first and foremost, I think you actually, only send emails to a small number of people. So, compared to like the massive viral engines that exist today, where you import someone's entire contact book. And send them all. Send them all an email, or where you post to everyone's friends on Facebook. The actual payloads are still very small. Even if it's everyone that you email on a frequent basis you hit. I'm also thinking really per email sent out. How many people are on it? But it's a fair point, like yeah, as more people get on, get on Hotmail they'll send more emails, as more people use email. The product actually, grows more and more successfully. So, that's a fair point. Go for it. >> Doesn't, like, point of conversion also matter? So, like, when just click and sign up. But if you skip the goal ad it's >> Completely agree, that's why, oh I'm sorry. Doesn't point to conversion matters as well, so on Hotmail, you click to sign up, but on a billboard you have to remember that the URL goes to the website, type it in, find the registration button, click register and sign up. Yes. Yes, anything you can do to move friction out of the flow. And going from an offline ad to an online ad removes huge amounts of frictions from the flow. Obviously. Totally agree with that. One more at the back. >> Aren't frequency and conversion related? >> Aren't frequency and conversion rate related? Absolutely. If you hit someone with the same promotion, I repeated that. Aren't frequency and conversion rate related? If you hit someone with the same email over and over and over again. All the same banner ads, this is one of the things that's fundamental about online marketing. The same rules apply to every channel. If you hit someone with the same Facebook ad over, and over, and over, the more times you hit them with the same ad the less they'll click. That's why we have creative exhaustion you have to rotate creatives on Facebook. Same with banner ads, same with news feed stories. The fiftieth time you see the IQ story in your news feed, you are not gonna click on it. If you haven't clicked on the 49 before, you're not gonna click on the 50th. The same is absolutely true with these emails. So, if you send the same email over and over and over to people for an invite. Or if you send the same little link at the bottom over and over and over to people for Hotmail. Or I mean the PayPal one's different because people just signed up. But yes, you will get lower conversion rate. And the more you hit someone with the same message the less they convert. Is fundamental across every online marketing channel, every online marketing channel, cool. Second way, to look at virality, which I think is awesome, is by this guy Ed. And Ed runs the growth team at Uber now, he was at the growth team at Facebook. And he was a Stanford MBA student, and did a class similar to this, where they talked about virility. And they all went and built viral products. And there was a bunch of press about that actually. And these brilliance of these stuff. The interesting thing about Uber. If you look at there growth team they're incredibly focused on drivers. Because it's a two sided market place they need drivers. That's a huge, huge chunk of their focus as a team. Even they've got like probably the best viral guy in the world at the company. So, with virality, you get someone to contact import, let's say. Then the question is, how many of those people do you get to send imports? Then the question is, to how many people? Then, how many click? And you can put extra steps in this. You could put how many open, how many click, whatever. How many click, how many sign up. And then how many of those import. So essentially, you want people who sign up to your site, to import their contacts. You want to then get them to send an invite to all of those contacts. You want to get. It to all of those contacts, not just one of them. Then you want to get a percentage of those to click, and a percentage of those to sign up. If you multiply out the percents at every point in this, this is essentially, where well this isn't a percent, this is a number. If you multiply those out, that's essentially, the point where you get to the question of what is the k factor. So, if you have, when someone imports if on average they send invites to 100 people. Sorry doing that wrong, let's say 100 people get an invite per person who imports. And then of those 10% click. That gets you to 10. And then, of those, let's say, 50% sign up. That gets you to 5. And then, of those, only 10 to 20% actually, subsequently import. You're gonna be at a point where you're at 0.5 to 1 as your K factor. And you're gonna not be viral. So, a lot of things like Vidi are very good at pumping, or were very good at pumping out stories. They got the cave factor over one, and it's perfectly doable to get the cave factor over one, but if you have something that doesn't have high retention on the back end then it doesn't really matter. So, you should look at your invite flow and say, what is my equivalent import? How many people, per import, are invites sent to? How many of those receive clicks? How many of those convert to my site? How many of those then import? To get an idea of your k factor. But the really, important thing is still to think about retention, and not to think about virality. And only do this after you have a large number of people retained on your product per person who signs up. So, couple more things we were gonna touch on. SEO, email, SMS and push notifications. So, in SEO, there are three things you need to think about. First one is keyword research. People do this badly all the time. So I launched this cocktail site that I talked to you about. I spent a year optimizing it to rank for the word cocktail making. Turns out in the UK no one searches for cocktail making. About 500 people a month. I dominated that search term. It was awesome. >> I got 400 visitors a month. It was amazing. Everyone searches for cocktail recipes In the UK. And in the US, which is the biggest market, everyone searches for drink recipes. So I optimize for the wrong word. So you've gotta do your research first about what you're gonna go after. So, research consists of what do people search for that's related to your sites, how many people search for it, how many other people are ranking for it, and how valuable is it for you. Supply, demands and value. Simple economics I guess. So you do your keyword research. You figure out which keywords you want to rank for. There are great tools out there to enable you to do that. Honestly the best is quite often the Google AdWords, keyword planner tool. Really. Once you've done, that the next most important thing is links. So, page rank is how all of SEO is essentially, is driven and Google is based on authority. Now there's a lot of other things in Google's algorithm now like do people search for your website? There's a lot stuff about the distribution of what the anchor text is. That's send to your site. So, if you abuse it and spam it they can pop up with spam. White on a white background five pages below the fold doesn't work anymore. But, the single most important thing is to get valuable links from high authority websites future ranking Google. Most important thing. Then you need to distribute that log inside your site, by internally linking effectively. And when I joined Facebook. We'd launched SEO in September 2007, which was before I joined. I joined November 2007. And we'd launched it, and we were getting no traffic from the pages we'd launched, public user profiles. So, when I went in and looked at it. The only way you could get to any public user profile was to click on the footer of the page, for the about link. Then click on one of the blog articles, then click on one of the authors, and then spider out through their friends to get to all their friends. Turns out that, Google was like they buried these papers, they're not very valuable, and we're not going to rank them. We made one change. We added a directory so that Google could quickly get to every page on the site. And we 100 xd SEO traffic. Very, very simple change drove a lot of upside about distributing the link love internally. And then the last thing is there's a bunch of table stakes stuff, HML sitemaps, making sure you have the right headers, it's all covered really well online for what you wanna do. I'm gonna stop now and make sure, cuz we have a few questions, but, what other questions are there? Go for it. >> We're going to email actually,. >> Let's go into email. Okay great. Email is dead for people under 25 in my opinion. Right? Young people don't use email. They use WhatsApp, they use SMS, they use Snapchat, they use Facebook. They don't use email. If you're targeting an older audience, email is, pretty successful. Email still works for distribution, but realistically, email is not that great for teenagers, especially, and even people at university. You know, how much you use instant messaging apps and how little you use email. And you guys are probably, on the high end of the scale for email, because you're in Silicon Valley. That being said, on email the things to think about. Email, SMS, and push notifications all behave the same way. They all have questions of deliverability. So to finish first, first you have to finish. Your email has to get to someones inbox. So if you send a lot of spam and you end up with dirty IP's, or you send spam from shared servers where other people are. Or if you send email notifications, from shared servers where other people are sending spam from, you are gonna end up being put in the spam folder consistently, and your email will fail completely. You may end up, being blocked and have your email bounce. There's a lot of stuff around email where you have to look. When you receive feedback from the servers you are sending email too. 500 series errors versus 400 series errors, you have to be respectful of how those are handled. If someone gives you a hard bounce, retry once or twice and, then stop trying. Because if you are someone who abuses people's inboxes, the email companies spam folder you and it's very hard to get out. If you get caught, on a Spamhaus link, or anything like that, it's very hard to get out. It's really important with email, that you are a high-class citizen, that you do good work with email because you want to have deliverability for the long run. That counts for push notifications and SMS2. With SMS, you can go and buy SMS traffic, via gray routes with people with their having phones strung up. Attached to a like computer and pumping out SMS's. That works for a time but it always get shut down. And I've seen so many companies make these mistakes. Where they think they're gonna grow by using these kind of tactics. If you can't get your email, your SMS or your push delivered. You will never get any success from these. Push, you spam your power users, I know that's slightly different to what I said earlier. But you actually, spam your power users and give them notifications that they don't care about and make it really hard for them to opt out. So, there's no settings where they can opt out, and they start blocking you. You can never push them once, they've opted out of your push notifications. And it's very hard actually, to prompt them to turn them on once they've turned them off. So, number one thing to think about about email, SMS, and push notification is you have to get them delivered. Beyond that, it's a question of open rate, click through rate. So, what is the compelling subject line you can put there. So, that people are gonna open your email. And how can you get them to click when they visit? Everyone focuses towards doing, marketing email that are just spam. In my opinion Newsletters are stupid. Don't do newsletters, because you'll send the same message to everyone on your site. Someone, who signed up to your site yesterday versus someone, who's been using your product for three years. Do they need the same message? No. The most effective email you can do is notifications. So, what are you sending? What should you be notifying people of? And this is a great place where we're in the wrong mindset. As a Facebook user I don't want Facebook to email me about every like I receive, because I receive a lot of likes cuz I've got a bunch of Facebook friends. But as a new Facebook user, that first like you receive is a magic moment. Turning on that notification across all of of our channels, increased the click through rate on our email, SMS and push-notifications. But we only turned it on, for low-engaged users who weren't coming back to the site so it wouldn't be spamming them. So, it was a great experience. To think about that. What notifications should we be sending is the first thing you need to think about on email, SMS, and push. And then the second thing you need to be thinking about is. How can you create great triggered marketing campaigns? So, when someone creates their first, cross border trade transaction was one of the best email campaigns, I was ever part of at eBay in terms of click-through rates. It was awesome. Because it was really timely, really in context the right thing to do for the user. So I'd say, make sure you have deliverability. Most important thing. Focus on notifications and trigger based email, SMS, and push notifications beyond that. So, I think we're out of time. There's one thing I wanted to finish with which is. And if you guys have any questions, I guess, like, you can reach me and if I get spammed, I just won't reply. We have great spam filters, no, my only favorite quotes is from General Patton, and it's so cliche it's crazy but it's awesome. A good plan, violently executed today is better than a perfect plan tomorrow and one of the things the most instilled in us. And Harvey still instills in us and Mark instills across the whole of Facebook is this move fast and don't be afraid to break stuff ethos. If you can run more experiments than the next guy, if you can be hungry for growth. If you fight and die for every extra user. And you stay up late at night to get those extra users to run those experiments to get the data and do it over and over and over again. You will grow faster. Marcus said he thinks we won 'cause we wanted it more, and I really believe that. We just worked really hard. It's not like we're crazy smart, or we've all done these crazy things before. We just worked really, really hard, and we executed fast. And I strongly encourage you to do that. Growth is optional. Thank you.

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Duration: 47 minutes and 27 seconds
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Posted by: pulak on Oct 10, 2014

Lecture 5 - How to Start a Startup

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