— Teddy Roosevelt
It goes without saying that data-driven iteration is a tigerblood of sorts for tech startups these days. The ability to quickly and cheaply run and test multiple iterations of websites has helped companies accelerate towards the elusive product-market fit, as well as introduce data-supported enhancements and optimizations for more fully-baked products. The doctrine has been to launch early, launch often, test, rinse, and repeat. Getting your product out into the wild quickly enables real feedback from real users, to either confirm or deny initial product intuitions before significant investments in time and money are made. On the web, this practice is pretty much a given. Far better to launch a rough sketch of your product quickly than to sit in a vacuum and develop what you consider the “perfect” product only to find out the world doesn’t think your baby is as cute as you do.
However, today’s mobile app marketplace demands new rules for engagement.
A Different Landscape
There are three main reasons why it is difficult to iterate quickly on mobile applications.
- Approval Process – Particularly within the Apple app store, each application (and subsequent update) must be approved by the Apple gatekeepers before going live. This delays feedback and causes developers to bunch improvements, which can mute specific causation links between each improvement and subsequent usage effect.
- A/B Testing – While there are a number of mobile analytic products available today that measure absolute usage (e.g. Flurry, Admob Analytics, etc), it is still difficult and clunky to run proper A/B tests. For websites, A/B testing is seamless and invisible to users. For mobile apps, a specific control group must be selected (which can lead to biased results), and each new iteration must be separately downloaded and installed.
- App Store Dynamics & UX – While both Android and Apple have app stores where users can search for, review and download apps, users predominantly download apps based on the Top 25 Most-Downloaded category. In addition, the process of downloading applications, whether free or paid, presents a hurdle for adoption that’s significant when compared to the web where users can simply click on a link to try out a new site. As such, users rely heavily on ratings and reviews before investing time to download and try new apps.
Taken together, the facets of friction inherent in the mobile app marketplace today suggest developers should not fail fast and fail often, but rather wait and launch a more refined product initially. In particular, the exaggerated feedback loop for mobile apps can cause half-baked products to be D.O.A. if the app receives bad ratings from early adopters. In response, many developers have found that launching first on the Android market (which doesn’t have a thorny approval process like Apple) is an effective alternative to quickly get feedback and refine their product before launching on Apple. Although discovery-driven planning is more difficult within the mobile app world, it is not impossible. You must adapt to the parameters of the situation.
Perhaps mobile apps and iteration are closer to oil and vinegar rather than oil andwater – still hard to mix, but, when combined, can help produce universally tasty things.
[This post originally appeared on the Harvard Business School Launching Tech Ventures course blog - March 2011.]
In business, timing is everything and priorities matter. For a business, there’s nothing more important or more pressing than monetization, right? Not necessarily. I’m often asked whether startups should focus first on monetization or on reaching scale. As with most everything, it depends. In particular, it depends on the circumstances facing your company and the type of company you’re trying to create.
Conventional business wisdom holds that any new venture should first establish product-market fit and then optimize unit economics before expansion. That is, make sure there is an appetite in the market for your product and that your sales price exceeds your cost of goods sold, or that your estimated lifetime customer value exceeds your customer acquisition costs. If these metrics are inverted, scale will only amplify the losses produced by the venture.
Why, then, do some of the most successful consumer internet companies fly in the face of this logic?
Twitter, Facebook, YouTube and Google all focused on user growth first, accruing significant losses, before ramping up monetization efforts. On the other hand, similar strategies have led to some of the most infamous internet flameouts – Pets.com anyone?
Investor sentiment influences action. After the dotcom crash and the “meat cleaver” days of the recent credit crisis, the pendulum of VC advice swung from championing first mover advantage and getting big fast to instead running as lean as possible and zeroing in on monetization efforts early to preserve capital and extend runway. When times are tough, there’s seemingly no escaping these strong external headwinds, but in more stable times, I argue platform-based consumer internet companies should focus first on user acquisition and engagement, then monetization.
For consumer internet companies today, given the large number of competitors and the low barriers to entry, rising above the noise and achieving scale is the most difficult thing to do. If achieved, however, it follows that the money-making opportunities for a large set of aggregated eyeballs are expanded and enhanced, whether through advertising, micro-payments, etc. Platform-based internet companies are a scale business – network effects enhance a site’s usefulness, defensibility, and profit potential.
To achieve scale, though, you’ll likely operate at a loss initially. Rapid prototyping is needed to uncover market demand, to show that users actually want to use your product. Engagement and viral hooks should be the key measures of success here, not profitability. Focusing too early on optimizations of your customer conversion funnel or advertising efforts can be a distraction. Instead, your time would be better spent releasing and testing new products/features to drive growth, in hope that the favorable, emergent properties of operating at scale can be unlocked.
Given finite resources and time constraints, platform-based consumer tech companies should ignore profitability and focus first on growth. Of course, you must be prudent and not overspend on things like Super Bowl commercials simply to buy users. In addition, this ‘cart-before-the-horse’ strategy applies uniquely to platform-based consumer internet companies. An online pet store, for instance, would meet its own peril if it followed this advice for obvious reasons. However, to me, all things being equal, the Silicon Valley adage, “ubiquity first, revenue later”, rings true more today than ever before.
Remember to shake your money maker only after the dance floor is full.
[This post originally appeared on the Harvard Business School Launching Tech Ventures course blog - February 2011.]