Actionable metrics in lean product development
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The document discusses the importance of actionable metrics in lean product development, emphasizing the need for effective measurement to improve product viability and business success. It outlines a framework that includes idea selection, business modeling, and the validation of minimum viable products (MVPs) focused on stickiness, virality, and revenue. Additionally, it highlights the use of metrics for continuous learning and efficient resource management throughout the product life cycle.
Actionable metrics in lean product development
- 1. Huong Ngo 2016 Actionable Metrics in Lean Product Development
- 2. Agenda Introduction • Motivation • Objectives • Background Actionable Metrics Framework • Lean Product Development Life Cycle • Idea Selection • Business Model • Discovery- Problem/Solution Fit • MVP- Product/Market Fit • Scale
- 3. High failure rate in software product development • 30% projects failed • 92% start-ups failed within the first three years Main Reasons • Wrong products having been developed • Failed to realise benefits Required Solutions • Validate business viability of the product early in the process • Deliver the product early and continuously to enable quick learning loops • Employ actionable metrics for validation and learning purpose Motivation
- 4. Metrics are required for measurement and management • If you can’t measure it, you can’t manage it – Peter Ducker Wrong metrics might cause severe negative impact • Give false motivation • Lost focus • Reduce quality • Reduce staff morale Important to employ “right” metrics having 3 “A” attributes: • Actionable • Auditable • Accessible Why Actionable Metrics?
- 5. • Invest to “right” product • Optimise the Products • marketability • profitability • scalability • development efficiency Design actionable metrics framework for full life cycles of Lean product development Objectives
- 6. Background Lean Metrics Frameworks • Dave McClure’s AARRR • Eric Rie’s Three Engines of Growth • Alistair Croll & Benjamin Yoskovitz’s Lean Analytics Stages And Gates Analysis Techniques • Cohort Analysis • A/B Testing Web Analytics
- 7. Ideas Business Model Discovery MVP Scale Lean Product Development Life Cycles Includes stages in the whole life cycle of a product development, from cradle to grave
- 8. Fuel for innovation and trigger for product development/ improvement Management framework for collection, handling, selection and distribution of ideas Selection Metrics •Idea Selection Criteria •Align to core business? •Align to business strategy? •Create new cient value? •Marketplace win? •Technically and/or financially feasible? •Weighted Score Model: •Give a weight (0-1) to each criteria based on their importance •Define Minimum Success Score Idea Management and Selection Criteria Weight Score Alignment to core business 0.2 5 Alignment to business strategy 0.2 5 Create new values to clients 0.2 3 High possibility to win marketplace 0.2 3 Technically possible 0.1 4 Financially possible 0.1 4 Total Score 4 Minimum Success Score 4.5 Shortlisted No
- 9. Business modelling is critical for product development • A product is not only a solution to resolve a problem but also encapsulates the whole business model to deliver and capture values Traditional business case and financial metrics rely on assumptions and estimation. • Thus they are expensive to develop but not suitable for products with high uncertainties Lean Canvas provides full picture of business model and quick to develop • Allowing time and resources to experiment Business Model “A business model is a story about how an organisation creates, delivers and captures value” – Saul Kaplan.
- 10. Valid Problem • Enough people care? How many % respondents have the problem? • Painful enough? How many % respondents have tried or want to resolve the problem? Valid Solution • How many % respondents are willing to sign up? • How many % respondents show interests to the product by asking more details and suggest features? Valid Value • How many % respondents are willing to pay at targeted price and above for the solution? • How many % respondents are willing to pay some amount for the solution? Discovery- Problem/Solution Fit
- 11. Discovery- Problem/Solution Fit (con’t) Respondents- 100% % Have Problem – 70% % Try/Want to Resolve Problem- 60% % Want to sign up to the solution- 40% % Willing to pay at minimum price – 30%
- 12. MVP- Minimum Viable Product A slice of the system which has just enough features to make the product feasible, valuable, usable and delightful to its customers
- 13. Validate business viability of the product before committing to scale. Validate MVP in 3 areas: Stickiness, Virality and Revenue MVP Validation- Product/Market Fit MVP Scale Stickiness Virality Revenue Known customer segment
- 14. Clearly define who is considered as customer, returning customer, churning customer. Choose a period for your customer stickiness measurement Define which metrics to measure and its secondary metrics • Retention Rate/Churn Rate • 𝑐ℎ𝑢𝑟𝑛 𝑟𝑎𝑡𝑒 = 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑐ℎ𝑢𝑟𝑛𝑖𝑛𝑔 𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 𝑑𝑢𝑟𝑖𝑛𝑔 𝑝𝑒𝑟𝑖𝑜𝑑 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 𝑎𝑡 𝑡ℎ𝑒 𝑏𝑒𝑔𝑖𝑛𝑖𝑛𝑔 𝑜𝑓 𝑝𝑒𝑟𝑖𝑜𝑑 𝑥100(%) • Drill down report to each individual • Usage patterns in site/app • Returning channel frequency • Identify customer retention patterns, customer churn patterns MVP- Stickiness The goal is to prove (or disprove) that the product is interesting and value enough to keep customers coming back and what you can do differently to improve customer engagement.
- 15. Traditional financial statements - do not give indicators on achievability of sustainable growth revenue model Monetisation model consists of three elements •From whom •How •How much Define what is a customer in your business Funnel Analysis MVP- Revenue The goal is to validate and achieve a profitable, sustainable monetisation model before committing to Scale
- 16. Customer Acquisition Cost • 𝐶𝐴𝐶 = 𝑇𝑜𝑡𝑎𝑙 𝑠𝑎𝑙𝑒𝑠 𝑎𝑛𝑑 𝑚𝑎𝑟𝑘𝑒𝑡𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 𝑑𝑢𝑟𝑖𝑛𝑔 𝑝𝑒𝑟𝑖𝑜𝑑 𝑇𝑜𝑡𝑎𝑙 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑛𝑒𝑤 𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 𝑎𝑐𝑞𝑢𝑖𝑟𝑒𝑑 𝑑𝑢𝑟𝑖𝑛𝑔 𝑝𝑒𝑟𝑖𝑜𝑑 Customer Life Time Value •LTV = ∑ revenue per customer - ∑ service cost per customer CAC: LTV ratio •CAC: LTV metric is the proportion of cost to acquire a new customer in total net value brought by a customer. Time to Customer Breakeven •BEV (months) = CAC ÷ ARR •ARR: Average recurring revenue per month. •ARR (£) = LTV ÷ customer life time (month) MVP Revenue (cont’t)
- 17. Viral Cycle Time Viral Cycle Time = t1 + t2+ t3 MVP- Virality Virality is the ability of having new customers by referrals from existing customers. Virality helps to boost profitability and scalability Sign up Use the product Send Invitation to others Invitee receives invitation Invitee reviews and decides to sign up t1 t2 Almost no delay t3 0 50000 100000 150000 200000 250000 m1 m2 m3 m4 m5 m6 m7 m8 m9 m10 m11 m12 Impact of Viral Cycle Time to Growth cycle time = 2 months cycle time = 1 month
- 18. Viral Coefficient Viral coefficient = invitation rate x acceptance rate MVP- Virality (Con’t)
- 19. Exploit validated business model, product and captured market to maximise benefits. Build quick momentum in product development and market scale to outperform competitors and fast followers Focus on product/service quality and customer satisfaction Be aware of crossing the chasm Scale Technology Adoption Cycle - from 'Crossing the Chasm’ by Geoffrey Moore
- 20. Continuous validation via metrics of stickiness, revenue and virality Measure business performance against targets Watch the market of the product and identify its market maturity stage to have relevant strategy Scale- Market metrics Market maturity life cycle, from Dealing with Darwin by Geoffrey A. Moore, 2006
- 21. Feature priotisation • Differential Values to increase customer satisfaction • Cost of Delay • Return on Investment • Others Development efficiency (using flow-based approach) • Little’s Law extention • Cycle Time = 𝑊𝑜𝑟𝑘 𝑖𝑛 𝑃𝑟𝑜𝑔𝑟𝑒𝑠𝑠 𝑇ℎ𝑟𝑜𝑢𝑔ℎ𝑝𝑢𝑡 Throughput = 𝑊𝑜𝑟𝑘 𝑖𝑛 𝑃𝑟𝑜𝑔𝑟𝑒𝑠𝑠 𝐶𝑦𝑐𝑙𝑒 𝑇𝑖𝑚𝑒 • Limit Work in Progress, tracking Cycle time and Throughput Development Efficiency “Deliver highest values within the shortest time”
- 22. The Lean Startup Eric Ries Lean Analytics Croll & Yoskovitz AARRR framework Dave McClure Dealing with Darwin Geoffrey A. Moore Lean Enterprise Jez Humble, Joanne Molesky, Barry O’Reilly References