Hi there -
Here is this week’s “1 principle, 2 strategies, and 3 actionable tactics” for running lean…
1 Universal Principle
“Measure progress with traction.”
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How do you measure progress during the early stages of a startup?
You can’t rely on revenue or profit because both these metrics stay stuck near zero or negative for a while.
The traditional approach relies on writing a business plan and measuring progress against its execution. But most Plan As seldom go as planned, so this progress measure is a false proxy.
Building something nobody wants on time and within budget isn’t progress.
The one reliable measure of progress is traction.
Here’s why:
2 Underlying Strategies at Play
I. Traction should ideally be non-zero.
The goal of a startup is to create a repeatable and scalable business model. Therefore, the right progress metric should measure the output of a working business model.
While revenue and profit are certainly outputs of a working business model, it helps to recognize that they result from customer actions.
The universal goal of every business is to create happy customers.
We can use this to define traction simply as the rate at which a business model creates happy customers.
More customers = Business model progress.
II. Traction can be further deconstructed into leading indicators.
We can take this a step further and deconstruct the making of happy customers into a series of universal steps that you can find in every business model:
These five steps were inspired by Dave McClure’s Pirate metrics funnel (AARRR), which I repurposed to create the Customer Factory model.
See The Customer Factory for more on this.
These steps can be used as leading indicators to predict future revenue and profit in a business model.
And so, while revenue and profit can be near zero or negative, traction can and should always be greater than zero and growing in a working business model:
3 Actionable Tactics
I. Identify your one traction metric.
Every business model has a single traction metric. Think of this as the value capture step.
Value capture is a fancy term for “getting paid,” but it’s important not to focus on revenue but on a specific customer action that drives that revenue.
More of this action = more traction
Examples:
- Starbucks: Buying a cup of coffee
- Facebook: Visiting a page (with ads)
- Airbnb: Booking a room
II. Deconstruct traction.
Next, deconstruct your traction metric into the four other steps in the Customer factory. Map each step into specific user and customer actions. And start measuring them regularly.
III. Create a traction roadmap.
How do you know if your traction is good enough?
Create a traction roadmap that extrapolates your business model goal into tangible and measurable traction milestones:
Then, plot your current traction against your traction roadmap and use this as your measure of progress.
That's all for today. See you next week.
Ash
Author of Running Lean and creator of Lean Canvas
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P.S.
The Customer Factory isn’t just a cute metaphor. It opens the door to applying systems thinking to business models.