Monthly Archives: March 2012

Virality Is a Privilege Not a Right

 

Learning-Virality-From-Will-Is-Like-300x283There is one class I never missed in high school, Drivers Ed. I had been eyeing my sister’s red 1986 Honda Prelude for years – it was going to be my ticket to the teen age nirvana – ownership, freedom, status . . . and girls. Ro (Formsprings, RockYou) and Zhao (Betterworks, Farmville) were here the other day talking to our companies about the science of virality – looking around the room, it reminded me of my driver’s ed class. . . The topic was well known yet the words coming out of Ro and Zhao’s mouth seemed a bit foreign. Everyone in the room knew that every sentence was worth millions of dollars, yet despite all the concentration and furious note taking, the comprehension rate was only somewhere around 30%. There are things that can be taught, and there are things where someone can only point us in the right direction. Nothing replaces getting behind the wheel and trying to merge into highway traffic a few hundred times to get the hang of it.

People have been studying the subject since Hotmail took off in the dot com era. The Paypal mafia made it somewhat of a secret playbook for its members, while a new generation of masters sprung up around MySpace in the mid 2000s. It finally bled into the common consciousness during the recent Facebook era. Today, it is almost a prerequisite slide topic for any venture funding pitch.

Not going to regurgitate all the great stuff that’s already out there from people miles smarter than I am.

A must read primer AND formula from David Skok of Matrix.

A tactical playbook from Yee Lee

Understanding virality in context of other impacting metrics, from socialh.com

A widely read classic from Andrew Chen

A thread to subscribe to on Quora on K-Factor

What is interesting is that given the amount of noise – hundreds of thousands of startup sites and apps, leveraging the same viral channels and techniques – the average virality (k-factor if you well) must surely be declining despite the best effort of many entrepreneurs. Further complicating the problem is that virality inherently benefits companies with existing scale. First, because a large “n” ( as in “n” number of infected), all else being equal, mathematically creates more opportunities for connections/infections. And second, because large amount traffic allows for testing a large # of permutations to create the most statistically efficient viral loop or conversion funnel. As a result, early stage companies that have achieve the highly sought after exponential growth are becoming black swan events – exceptions to the rule and arguably more based on luck than strategy. Unless an entrepreneur has “done it before” – almost everyone (especially VC’s) are highly discounting any acquisition and growth strategies based on “virality.” You just got to go out there and prove you have the viral chops to claim to know anything about the topic. (Plus VC’s don’t mind paying up for numbers so it’s good for everyone in the end.)

So what’s a startup to do to prove its chops? Certainly ignoring any viral channels/strategies is more than stupid. Here are a few things I’ve gathered along the way (including some I learned stole from talking to Ro & Zhao).

Understand Non-Linear Amplification – Traditional conversion funnel optimization creates linear improvements in the outcome – and often a few basis points improvement is simply not worth the effort required. (my eCPA dropped by 2 cents!). But in the viral loop context where the conversion funnel is repeated exponential number of times – every basis point improvement could potentially mean 2-3x increase in acquisition not too far down the line. (how much better will depend on other variable in the equation). As a result; don’t guess, have some basic understanding of how to create the best call to action for high CTR and test the hell out of every copy, color, placement, picture you include in your conversion funnel / viral loop.

Find On Ramps – Viral marketing doesn’t work by itself. You need to find a complementary acquisition channel to solve the cold start problem and to continue to “juice” the virality. By definition, viral growth requires a group of “patient zero’s” to work. Furthermore, more likely than not, it will take a few iteration of the conversion funnel/loop to get to the point where the K factor is above 1. As a result, everyone has to figure out a consistent channel for customer acquisition where virality can be bootstrapped. (this is one of the many reasons that when entrepreneurs ONLY talks about virality, they are typically screwed). Traditional customer acquisition techniques all work as on ramps – SEO, SEM, event marketing, direct community outreach etc. (btw SEO is totally under-rated as an on ramp). But don’t forget to explore paid and free channels on top of existing platforms & communities like eBay, Myspace, Facebook, Flickr, Instagram, Foursqaure etc etc.

Focus on The Registration Funnel First – The biggest variable that impact how fast a site/app can grow (mathematically) is actually not K but so called “viral cycle time” or “referral time” – it basically measures how long it takes to get an existing user to refer another user. For example, it is pretty much useless for an user to refer 2 more users after 1 year – even if EVERY user does it. As a result, the quickest way to achieve RAPID growth is to build registration into the core part of your viral loop – where you are shortening cycle time to as close to zero as possible. It also stakes a lot of creativity to make it work since some of the oldest tricks (remember the old “scan” your inbox for friends trick?) don’t work anymore. (Ro suggests taking a look @ schoolfeed.com for some inspiration). There are other benefits to focusing on the registration process first. For one, (not that it’s a sustainable situation) what if your site/app actually sucks? If it does, you wont be able to get people into the viral loop in the first place. The other benefit is that by focusing on the registration funnel and decreasing referral time, you will lessen your dependence on finding a scaled “on ramp” (see the last point).

Understand the Interactions Between Retention, Decay vs. Virality – Many of web 2.0’s first generation viral startups (rockyou, slide, hi5, tagged etc) never quite achieve the lofty promise they once held (not that those entrepreneur have anything to be ashamed of, they are still gods compared to us mortals) because of there are other equations besides customer acquisition that portend success. Customer retention (read satisfaction & engagement) is still king in the long run. You simply can’t have a leaky sieve and a rapidly decaying customer base even if you discovered the most viral acquisition channel known to the history of man. Pinterest is a great example of optimizing for acquisition AND retention – a moderately high K factor combined with a highly engaging product will also create a very large userbase AND eventually generate exponential growth once the userbase gets big enough.

Don’t Forget About Email – Not much to say except that email is one of the oldest customer acquisition and retention channels out there but decades later still underutilized. Don’t get too scared of your own shadows – let open and CTR rates determine the optimal frequency and call to action – push the envelope.

Explore New Channels – Don’t want to give away the farm here – but lots of industry insiders are raving about Facebook’s new Open Graph / Ticker integration and mobile app notifications (ipad in particular). Go dig in yourself.

 

 

 

200 First Dates

 

gp055767-245x300I’m not a VC. I’m barely an investor. I’m a wanna be. I fall in love easily. I believe too naively. I don’t see hurdles I see a fun rubrik’s cube. I like taking the leap of faith because that’s what we are taught to do – go “change the world,” they all told me (I also like to spread the blame). Despite the fact that most leaps end somewhere at the bottom of the chasm, the junkie in me gets back up again and look for the next most impossible cliff – rinse & repeat.

So this muckerlab thing . . . . is different – making binary decisions instead of sitting in the other side of the table, trying to convince someone else that nothing is impossible. I’m sure I will become calloused, jaded, and be able to say “no” in 50 different way real soon. Right now though, I feel like I’m 18 again, starting to date for the first time (yes, I’m a late bloomer): awkward, brash, insecure, excited, insensitive, unsure, too easily seduced. After about 200 “first dates” with entrepreneurs, the meetings are starting to blend into one another. Typically, they all seem to follow the same 5 or 6 patterns . . . .

“Say Anything . . . ” His/her reputation precedes him/her. I know PG has called him/her twice already. Hell, even the real VC’s are sniffing around. I get there 10 min early – he/she is late and I check my email four times to make sure I’m not at the wrong place. The entrepreneur looks good in jeans. For the length of the meeting, I pretty much nod my head and smile eagerly the whole time. I try to convince the entrepreneur I can introduce him to Larry Page and the Pope – and both will take him on a ski strip on their private jets – most likely together. He/she gets up and leaves and casually mentions that he/she needs to run to a meeting with Sequoia. I stay seated slumped . . . wondering what brand of jeans he/she was wearing.

“I’m Too Sexy . . “ – I’ve found that pair of jeans on Hautelook. I took this meeting because Joe from HotStartup.com referred the entrepreneur to me. The idea sounded stupid on paper and even more asinine in person. It’s a mash up of all the hottest topics on Techcrunch except 6 month ago. I try to smile absently – I wish I know if Jeremy Lin lowered his assist to turn over ratio last night. The entrepreneur drones on about being the leader in the collaborative daily deal sourcing space. It was a “no” before I meet him/her – I listen for some nugget of information that will allow me to make up an excuse to say “its me, not you” – no engineer? unrealistic valuation? missing teeth?

“Ghost” – The powerpoint stayed on the first page. We started brainstorming on his/her strategy and product roadmap. We are both up on the whiteboard scribbling away. Unchained Melody plays in the background. I could see the future now. Billions of dollars, ringing the bell at NYSE, cover of ESPN Magazine, 2 kids, a dog and white picket fences. We both ignore our next appointment – 2 hours later still talking. We started with a hand shake and left with a fist pump and a hug.

Will: “Gee, what do you want to do tonight?
EntrepreneurBot: “The same thing we do every night, Will—try to take over the world!”

“The Graduate” – The handshake was firm. Screw jeans, corduroys are the new black. The market is huge he/she tells me – I couldn’t get a word in. The entrepreneur speaks in fast staccato voice occasionally punctuated with hand gestures. He/she moves on to the team, demos the product, and tells me the litany of fortune 500 companies that is ALMOST piloting their product. He/she then tells me about all the people we both know, praises me for being the most insightful person they’ve spoken to, and my deep knowledge of cold fusion. I forgot to ask about the company’s engagement metrics, their pricing model, the stratospheric valuation, the fact their CTO seems to be based in Moldova. Doesn’t matter – if he/she can seduce me, he/she can convince anyone. The Newtonian law of physics doesn’t apply – we are now into quantum physics. I strap on, close my eyes, and wait for the rocketship to count down to zero.

“Dazed & Confused” – I don’t get it. Everyone told me this is the next big thing. I still don’t get it. I don’t know why anyone would buy this – but apparently they are – 20,000 units and counting. I hate the idea, the founder (ugly jeans), the color of the website. But every slide has a graph going up to the right. Every number ends in a B. I still don’t get it. I must be the stupidest guy in . . . . Santa Monica?. . . or worse . . . old, over the hill, a dinosaur whom time has past by. Before the entrepreneur figures out how uncool I am, I tweet out how I think I just found the next Google . . Instagram.

“10 Things I Hate About You” – Erik told me I HAVE to meet them, I was skeptical. The powerpoint was barely decipherable, the emails was in all caps, they had no idea what Instagram was (how unhip), and they never worked at Google or Facebook. Even their domain name pissed me off. BUT . . . the founder was persistent. He/she didn’t know how to use powerpoint because he/she rather be coding (I feel ashamed). The entrepreneur knows more about the technology and problem than anyone else. This is a diamond in the rough – a “makeover project.” Nerds can look good in jeans too. Its like discovering Skype in the caves of Estonia. . . I’m not just going to be super rich – people will actually think I’m smart too. Muahahahah.