But the mobile landscape has changed: mobile is blossoming as a distribution and engagement channel for a second time. 24 months ago, mobile app distribution boomed. No matter your question, the answer rang true: there’s an app for that. And mobile app downloads continue to thrive: there are 50M apps downloaded each day from the iTunes store.

But mobile is undergoing a second wave of distribution innovation: mobile web distribution. Facebook’s mobile app is driving huge amounts of traffic to OpenGraph enabled mobile web properties. This form of distribution is entirely parallel to iOS and Android because users arrive on HTML5 pages, not dedicated apps.

For startups, any new distribution channel is a boon. New channels mean better access to users. The rules for attraction and engagement are yet to be written. It’s a user acquisition gold rush. The biggest challenge is supporting multiple platforms and debating the best solution: dedicated development teams or cross-platform languages like Trigger.io, PhoneGap or homegrown systems. But that’s a solvable problem.

There’s no question that dedicated applications will continue to thrive, but if the data I’m seeing is any indication, HTML5 mobile web is about to explode.

There are many who believe Steve Jobs was a creative genius. I think it would be more accurate to say he was a genius who loved creativity.

Ken Segall in Insanely Simple: The Obsession that Drives Apple’s Success

I’ve been reading Ken’s book for the past few days and this statement is the most striking observation so far. It’s striking because it’s unexpected and true. Ken’s point is that Jobs may have been creative, but the characteristic that made him great was his relentless defense of creativity.

Creativity blossoms in environments of mercilessly small teams, honest/direct/brutal feedback, and “no compromises” attitudes. I haven’t worked at Apple, but I get the sense from those who have that this was largely the case.  Jobs greatest strength may have been clearing the way for creative people to achieve their potential.

Applied more generally, this defense of creativity is an ideal that all leaders should strive to achieve: enabling teams to achieve greatness.

In short, CEOs should knock down obstacles for their teams.   Practically speaking this means deploying small teams on projects and constraining meeting sizes; empowering/trusting these small teams to make bold strides; hiring well; providing clear direction and honest feedback – ultimately enabling faster iteration cycles for better results.

The lesson applies to leaders at every level: tech leads, engineering managers, general managers, founders and VCs. It’s what we should all think when we wake up in the morning. “How am I going to enable greatness today?”

The trend toward experiences is important for technology startups. The era of competing over technical specifications is over. Users want better experiences from devices, applications, websites, and the offline services they enable.

I agree this trend is happening. But I’m not sure it’s an inexorable, monotonic movement that started in the 1950s. Rather, it represents a fundamental shift in technology – a shift from performance to design as a differentiator. This is the hallmark of an industry that has reached commodification.

Ten years ago, consumers cared about megahertz, megapixels, megabits per second. We were trained to care about specs because they really mattered. There was a noticeable difference in a Pentium I and Pentium III. Today, that’s no longer the case. Any computer will do what a user needs. So will most smart phones. From a performance point of view, most devices are functionally identical.

This is the same state of the industry as cars and planes. Any car will take you from A to B; they are all functionally identical. But how you get there, the experience, is the differentiator between a Prius and a BMW. Or United compared to Virgin America. Cars and air flight are commodities. The only way to differentiate is experience and brand.

Technology hardware has reached the same (temporary) apogee. I look at the current focus on design as a wonderful event because it means we’re on the cusp of some new disruptive force that will reinvigorate hardware and eventually software and eventually design again.

When I make an investment, my aim is to fund the company to a milestone that enables the company to raise a subsequent round. Such a milestone tends to be achievable in 12 to 14 months. But a startup should raise 18 to 24 months’ capital to ensure some flexibility in case things don’t go according to plan.

A good rule of thumb in Silicon Valley is that every employee costs about $10k per month. By that estimate, a company of 20 people burns $200k for staff plus 25% for overhead, or $250k per month/$3M per year. This is on the richer side of burn rate calculations but given the rate of increase in engineering salaries recently, it may be closer to the norm.

For revenue generating companies, net burn (revenue – expenses) should be kept under $400k – $500k. A company burning more without the immediate prospect of revenue can be a concern because of how quickly these high burn rates reduce runway. Additionally, the company should aim to reach cash flow break even sometime after the Series B, before a Growth round. Again, every company is different, these guidelines are the mental model I’ve built of typical companies who have pitched us and worked with us.

Ex Post Facto will remain focused on startups and venture capital. And my Svbtle blog will be on personal reflections, inspirations and interests. If you’re interested, I’ve posted my first post on the EU Cookie Law and Defining the Personal API.

The EU passed legislation in 2009 that requires websites to ask user permission before storing any user data on cookies or other client side storage (local browser database). The UK is required to begin enforcing the law this year. link

Google’s Android won a unanimous victory against Oracle, clearing the mobile giant of any wrong doing in the use of Java code as part of Android source code. link

Product Releases

Facebook released a new stand-alone camera application that is meant to replace the iOS camera app. The application was well received. It is unclear how FB Camera will impact Instagram. link

Salesforce announces chat and video screen sharing will be integrated into Chatter/Salesforce by Q3 2012. The company is looking to compete with Microsoft’s integration of Skype into Outlook. link

Nvidia announced a $199 Android tablet powered by the Kal El that it will sell to its client base as a quick way of getting a vertically integrated tablet/service to market. link

Company Announcements

PayPal continues its move into points-of-sale. The company has negotiated agreements with the top 3 terminal makers and now has access to 40M terminals at which PayPal users can elect to pay with their account.  link

The five largest cable companies in the US, TimeWarner, Cox, BrightHouse and Comcast, are unifying their Wifi services to compete with mobile hotspots and Wifi systems offered by Verizon and ATT. Customers of these cable companies will be able to use any WiFi hotspots in the network as part of their existing internet plan.  link

Hertz announced a move into car sharing after observing Zipcar’s investment in Wheelz. link

The Android Store, aka Google Play, has introduced subscriptions.  link

Belly, a loyalty application for local businesses, announced 1M check ins. link

Liquidity

SAP will acquire Ariba for $4.5B  link

Seagate agrees to acquire LaCie for at least $186M. link

Oracle buys social marketing startup Vitrue for $300M. link

Bazaarvoice has acquired PowerReviews for $151M. link

Financings

Q1 saw the most tech IPOs in four years, but funding amounts are down (exclusive)|Q1 saw the most tech IPOs in four years, but funding amounts are down (exclusive) | VentureBeat link

There are a few different models that seem to work: up front payment, freemium, limited free trials, money back guarantee. Picking the right one depends on a number of different factors. Below is a table that summarizes what I’ve seen work at various companies.

Freemium

Freemium is a strategy for products whose value proposition is simply conveyed and whose value increases with time. Evernote’s value compounds with the data the user enters into the database. Expensify’s utility increases with the number of expense reporters on the system.

Freemium businesses must target markets with very large user bases because the conversion to paid rates vary between 2 to 4%. To drive $50M in annual revenue at that conversion rate and $100/year subscription, you would need 17M users.

Sometimes, the end users are buyers (typically in consumer services). Other times (for enterprise customers), end users are sales prequalifiiers. Given enough users of a product in an organization, the enterprise can be upsold to a company wide license. Freemium distribution enables a company to acquire those users inexpensively.

Limited Free Trial

The main difference between freemium and trial products is product complexity: trial products are more complex and need time for the user to gain a deeper understanding of the value. CRM tools like Salesforce and 37Signal’s HighRise both use limited trials. The goal with these marketing mechanisms is to drive customers to explore the product for a brief period of time and then force a conversion. Allow too much time to pass and the customer will forget the value proposition. LFT is also present in gamiing. In a shift away from freemium, Zynga moved in this direction with several of their more sophisticated games, requiring users to pay to advance in the game.

These kinds of products tend to require significant user behavior change so these products must market a promise and then use the conversion to paid event to enforce that behavior change (carrot + stick).  Because of the behavior change, these products are marketed to decision makers who select the software for their teams: product managers, tech leads and heads of sales. Many of the tests I’ve seen have indicated shorter trial periods are better: 7 days is better than 14 days is better than 30 days.

Up Front Payment

To pursue up front payment, you need an established brand with a clear value proposition and you sell the product to the end-user. Adobe’s Creative Suite is a canonical example. Customers know what the software can do and if they need it, customers will pay for it. The same is true for AutoCad, MS Office, and operating systems. Most of these products are high cost per seat products. Because they are well-known in the market, they command a price premium.

Money Back Guarantee

For products lacking an established brand, but offering an immediate value proposition and charging a high average seat value, there is no better solution than the money back guarantee. It mitigates the customers commitment phobia but establishes a billing relationship at the outset. This pricing strategy requires contact with a sales or account management team which implies a higher cost of sales. Ideally, higher conversion rates mitigate these costs. In other words, the up front commitment is a sales pre-qualifier. Your sales team will have fewer, higher quality leads. Plus, your sales team will have direct product feedback to share with product.  Oracle offers this for many of their products as do Eloqua.

Earlier in the week we reviewed how to build a simple product roadmap. Today I want to outline the metrics I’ve found to be most useful in board meetings. They answer the question how should you be measuring your business at the highest level. You should have many more metrics than these, but I’ve highlighted the ones that you should present to your board and you should review every week.

Metrics Format

Great data leads to helpful conversations. I’ve found the following format works best to drive the board to focus on the right questions. I suggest presenting three slides, one for each category (Distribution, Engagement, Revenue) in the following format as the first set of slides in your board deck:

The one column you may not recognize is TSM Average which stands for Trailing Six Month Average. It is calculated in this way: (ending_value/starting_value)^(1/num_periods-1)-1.

In most businesses, a monthly growth percent is too volatile to be meaningful. However a TSM Average smooths out the monthly average into a rolling average. Comparing the monthly to the TSM, I can get a sense of whether the monthly growth is accelerating or decelerating and how it compares to the goal you set each quarter. In this example, the total user growth was slower this month than in the past six month, but activity is way up. The next question, the one board members should ask, is why?

Metrics/Question Pairs

Now that we have the base format of the metrics, let’s talk about which metrics matter. Each metric is followed by the question it’s designed to answer. Pick the ones that are relevant to your business.

Distribution

• New users added last month by channel/TSM growth rate: How are well are we growing the user base? Which user sources are the best?
• Total user base/TSM growth rate: How important is our monthly growth compared to our total user base?
• Cost of customer acquisition, lifetime value, pay back period: Can we grow faster through paid acquisition? Are we acquiring customers profitably? How much can we afford to spend on new customers? How is this changing over time?

Engagement

• Active users (can defined in several different ways depending on your product) by channel/TSM growth rate: Are we getting better at giving our customers what they want/need? Which channels of users are most effective in finding us the right kind of user?
• % of users using top 3 key features in a given month: Are our product initiatives the right ones?

Revenue

• Revenue / TSM Revenue growth: Are we growing our revenue?
• Conversion to paid rate in that month/by cohort: How many users converted to paid? Are we improving our ability to convert customers to paid?
• Avg spend per paying customer of a managed account vs solo account: What is the impact of the account management team?
• Churn rate/ TSM Churn rate: How well do we retain our customers?
• Burn rate: When are we profitable? When do we run out of cash? When do we need to raise?

These are the metrics that have been most valuable/insightful for me working with our companies. Let me know if there are other metrics you use to measure your business that might be useful to add to this list. This list is most useful for e-commerce/freemium businesses.

“Tell me the brand of Whiskey that Grant drinks. I would like to send a barrel of it to my other generals.”

– Abraham Lincoln, in response to news about General Grant’s drinking, November 26, 1863.

Ulysses S. Grant was a tremendous general – Lincoln’s finest, in fact. When other generals complained to the President of his drinking habit, Lincoln responded with the quote above. Lincoln focused on Grant’s strengths: winning battles. He also accepted Grant’s weaknesses and worked around them. Lincoln had his eyes on the prize: winning battles which would eventually win him the war.

When you hire, remember this idea. Everyone has strengths and weaknesses. Figure these out with personal references. Then play to your employees’ strengths and complement their weaknesses by pairing them with the right counterpart. The most successful teams are built this way.

You should analyze your funnels relentlessly. Case in point: Branchout’s tremendous growth is due to a relentless focus on marginal improvements of their funnel. Every day for 6 months, the company set small daily improvement targets in the conversion funnel. These small gains compounded to create exponential growth. And then? 25M users. Boom.

Below are three different funnels, A, B and C. Which one would you rather see in your business?

A is the best funnel. Why? It has the best performance at the top of the funnel (the  step from visit to user).

The top of the funnel is the most critical part of the funnel because:

1. Fits the 3 main product priorities. Distribution, Engagement, Monetization. Those are your priorities in that order. Your funnel should reflect this focus.
2. Proves product resonance. A 10% conversion to user is a strong indicator that you have identified a problem for your customers and marketed the solution in a way that resonates with your customers. A 1% conversion to user indicates the opposite: your message is unclear or your problem doesn’t resonate.
3. Offers a much larger data set. Funnel A has twice the data points on usage as funnel B. More data is better data. Better data drives better decisions and faster time to reaching an optimal product state. Plus, you have twice the number of email addresses for user retention and re-engagement should customers churn.
4. Prevents early optimization. Global maximums are better than local maximums. You want to make certain that you’re optimizing the funnel across all users. If you start with a small population of users and optimize the tail of the funnel for them, you may be leaving a much larger, more valuable group of users on the table. You won’t know until you have a larger data set.

So at the beginning, focus on distribution – the top of your funnel. Then engagement – the middle of your funnel. Then monetization – the end of the funnel. You’ll build more successful products.