19/11/2020
Lean Analytics - Fuel business growth with data-driven decisions Lean Analytics refers to the implementation of concise data analysis in lean startups, which aims to track and measure the growth of the startups itself. It focuses on finding the one metric that matters (OMTM) that corresponds to each development stage of the startup, thereby, simplifying the complexity of analyzing data and helping to identify the most pressing problems in a quicker way. This enables startups to concentrate on developing the most essential elements for success.A. Why lean analytics?
A startup is basically a company looking for an effective business model. As a result, startups tend to experiment with different business models during their development, and with each change in the business model, there will be a respective analysis to be performed. Therefore, focusing on the One Metric That Matters (OMTM) instead of multiple metrics at the same time will help startups save resources, time and costs. If startups are not sure about their target customers, for example, lean analytics will help them quickly find the most painful problem, hence a prompt need to innovate the product to make it suitable for the target market, before the money is run out.
In addition, lean analytics will also help founders to stay real and grounded of the current development and avoid making decisions based on just gut feelings or subjective perspectives that can lead to detrimental mistakes.
B. Characteristics of a good OMTM and some important OMTMs
What makes a good metric? Here are some rules of thumb:
It is comparative: so that we can make comparison to other time periods, groups of users or competitors. This helps startups grasp the situation quickly and know which way things are moving. For instance, instead of saying "the number of users has increased by 5%”, we can say “the number of users has increased compared to last week", which conveys a more meaningful message.
It changes your behavior: this is probably the most important one: How will startups react and do differently when the metrics change?
It is easy to understand: This makes it possible for everyone to remember and discuss it, thereby turning changes in data into changes in the way the business operates.
It is a ratio or a rate: since it is inherently comparative and you can get the overall impression of the startup’s health. It is also easier to act on.
Some important OMTMs:
1. Customer acquisition cost (CAC): the amount of money spent to get new customers, such as research, marketing, advertising costs.
2. Customer retention rate: indicates the proportion of paying customers who remain to be paying customers in a given time period.
3. Lifetime value (LTV): the revenue an average customer brings to the business during the life of his/her relationship with your company
4. CAC recovery time: the time it takes for a customer to generate enough net revenue to cover the CAC
5. Monthly active users (MAU): showing the number of users (of an app, game or social networking sites) engaging with the site or app in a 30-day period.
6. Conversion Rate (CR): the ratio of customers using the product / service to the total number of potential customers marketed for the product / service
7. Churn rate: the rate of customers leaving (stop using the product/ service)
8. Overhead: measures the fixed costs the business incurs irrespective of how many customers have been acquired, such as site rental, advertising, salaries for employees... It is a telling OMTM about the business’s capital efficiency.
9. Burn rate (Monthly burn): The amount of money the business spends in 1 month.
10. Runway: The amount of time until the company runs out of cash, calculated based on monthly burn or burn rate. Therefore, it is a critical metric for the survival of startups. Generally, investors prefer to fund startups that have at least 12 months of Runway.
In the next part, we will answer the question How to choose an OMTM for your startup:
http://startup.gov.vn/Pages/chi-tiet-tin-tuc.aspx?l=Tintucsukien&ItemID=324
Lean Analytics refers to the implementation of concise data analysis in lean startups, which aims to track and measure the growth of the startups itself. It focuses on finding the one metric that matters (OMTM) that corresponds to each development stage of the startup, thereby, simplifying the complexity of analyzing data and helping to identify the most pressing problems in a quicker way. This enables startups to concentrate on developing the most essential elements for success.
A. Why lean analytics?
A startup is basically a company looking for an effective business model. As a result, startups tend to experiment with different business models during their development, and with each change in the business model, there will be a respective analysis to be performed. Therefore, focusing on the One Metric That Matters (OMTM) instead of multiple metrics at the same time will help startups save resources, time and costs. If startups are not sure about their target customers, for example, lean analytics will help them quickly find the most painful problem, hence a prompt need to innovate the product to make it suitable for the target market, before the money is run out.
In addition, lean analytics will also help founders to stay real and grounded of the current development and avoid making decisions based on just gut feelings or subjective perspectives that can lead to detrimental mistakes.
B. Characteristics of a good OMTM and some important OMTMs
What makes a good metric? Here are some rules of thumb:
- It is comparative: so that we can make comparison to other time periods, groups of users or competitors. This helps startups grasp the situation quickly and know which way things are moving. For instance, instead of saying "the number of users has increased by 5%”, we can say “the number of users has increased compared to last week", which conveys a more meaningful message.
- It changes your behavior: this is probably the most important one: How will startups react and do differently when the metrics change?
- It is easy to understand: This makes it possible for everyone to remember and discuss it, thereby turning changes in data into changes in the way the business operates.
- It is a ratio or a rate: since it is inherently comparative and you can get the overall impression of the startup’s health. It is also easier to act on.
Some important OMTMs:
1. Customer acquisition cost (CAC): the amount of money spent to get new customers, such as research, marketing, advertising costs.
2. Customer retention rate: indicates the proportion of paying customers who remain to be paying customers in a given time period.
3. Lifetime value (LTV): the revenue an average customer brings to the business during the life of his/her relationship with your company
4. CAC recovery time: the time it takes for a customer to generate enough net revenue to cover the CAC
5. Monthly active users (MAU): showing the number of users (of an app, game or social networking sites) engaging with the site or app in a 30-day period.
6. Conversion Rate (CR): the ratio of customers using the product / service to the total number of potential customers marketed for the product / service
7. Churn rate: the rate of customers leaving (stop using the product/ service)
8. Overhead: measures the fixed costs the business incurs irrespective of how many customers have been acquired, such as site rental, advertising, salaries for employees... It is a telling OMTM about the business’s capital efficiency.
9. Burn rate (Monthly burn): The amount of money the business spends in 1 month.
10. Runway: The amount of time until the company runs out of cash, calculated based on monthly burn or burn rate. Therefore, it is a critical metric for the survival of startups. Generally, investors prefer to fund startups that have at least 12 months of Runway.
In the next part, we will answer the question How to choose an OMTM for your startup:
http://startup.gov.vn/Pages/chi-tiet-tin-tuc.aspx?l=Tintucsukien&ItemID=324