Investors have all sorts of criteria for trying to predict whether a company will become a runaway hit. Here’s ours:
It’s about the experience of the user (individually) and the user base (collectively).
Each person goes through their own personal story of interacting with your product. At each step, they have a certain impression and attitude. Each person is unique, but collectively, their actions create awesome effects. I have a great respect for the power of the crowd. Edward Burnays, who all but started the field of PR, understood that you can change the world by motivating the crowd, and to do that, you need to appeal to individual people.
Social media is the next generation of this. We get to craft products today that can have an incredibly rich and individual interaction with people, and give them a way to connect with the other users of the product. There are a million possibilities, and the products that succeed are the ones that can become viral and engaging. The products that become great are the ones that give users the tools to create even larger social effects, and have an effect on our culture.
How to be confident that you will succeed
Every person that uses your product will go through certain steps in a user flow, including:
A) They somehow find out about your product
B) They get their first initial experience with it.
E) They get engaged and start investing their time into it.
M) They discover other people using the product.
R) They start generating revenue for you
V) You achieve viral growth
X) Your company is successful.
Z) Your company is great.
Given what I said above, the main question I ask when I want to know a company’s chances of succeeding, is:
How will you get a person to go from step A to step R?
Once you are step R, you are fine. Turning revenues into profits can be done by streamlining your business, charging enough to cover your costs. You can reduce your customer acquisition costs to zero by increasing your viral coefficient. And your revenues should be able to help get you to step V.
Once you hit step V, you are in really good shape. This is mostly because once you start growing virally, a lot of people with money and connections will be interested in helping you grow. With so many people and resources on your side, it’s not about you failing anymore. You will expand in new directions. The investors win, you win.
But for me, it’s all about the experience of the user at every step. What will make them want to progress to the next step?
- Social proof. When a user first encounters your application, will it come recommended by a friend? Even better, will it have an activity that your friend needs you to join, that you would enjoy more together?
- Self-expression. Make it easy to publish something to your friends. Then you will want to invite them to look at it. YouTube won because of this.
- Potential reward. The prospect of earning points towards a reward, such as a badge or extra privileges on the service, motivates a lot of people. Just make sure the game mechanics are not cheesy, and show people a taste of what they will get before they put in their time and effort.
There are lots more things you can do. Our products are all distinguished by the fact that we give groups of people the tools to collaborate on a common activity. So you don’t just invite your friends to view what you’re doing, but to participate in it. It combines social proof, self-expression, and — we believe — increases productivity for everyone.
How can we be confident that we will succeed? Because we have investigated the way people will interact with our products, before we even built them. You can do a simple market study with people from all walks of life, and it will tell you a lot about your chances. Here is what you do:
- For each screen and stage of your product, mock up a realistic image of what the user will see.
- Have the person imagine interacting with the product.
- Tell them the story of how they arrived at this screen. Perhaps a friend just invited them and they are at step A. Perhaps they have the opportunity to invite friends to see their work, or abandon it and leave the site.
- Ask them to literally “click” or “tap” what they would do next, and describe what they are thinking, and what they want.
- Try different variations of the screens. We found that the word “Save” is better than “Share”, because people are worried about their work being discarded after putting in the effort to create it.
- Realize that the probabilities multiply. If a person has a high probability of going from A to B, B, to C, but most people don’t want to go from C to D, then you have to fix that before you can claim your business will be successful.
In my opinion, this sort of research is crucial for predicting the success of an internet startup. Of course, your business model should make sense, given the projected viral coefficient from this research. But if you can show that the business model remains profitable for a broad range of inputs, and if you can show through empirical research that a significant proportion of people have gladly taken the steps A – R on paper, then your project is probably worth funding.
At that point, it’s a question of execution and metrics. If you build your product and your metrics are falling below what your research predicted, then you should work on getting them within your business model parameters. You would do this through repeated A/B testing. Finally, when everything checks out, you can publicly launch.
Good luck and may we all be involved with great companies.