Consumer Startup Metrics with Tom Blomfield | Startup School

**Tom Blomfield** (0:09)
Welcome to Metrics for Consumer Startups. In our video on metrics for B2B startups, we talked about net dollar retention and gross margin. Metrics are the most important for B2B companies. Now we're going to dig into metrics that are particularly important for consumer companies. I was previously the founder of a consumer online bank called Monzo. It's now up to about eight million customers in the UK. And I also worked at Grupa, a YC company that built a group social club and dating app.
So two consumer companies. I've also worked with dozens of consumer companies here at YC. For consumer companies, growth, headline user growth, is the most obvious metric that a lot of people track. The reason is often monetization comes later. You might have to build up some kind of network effect or viral coefficient. Things will go into later. A good growth rate is 15% month over month. At that rate, you'll 5x your user base every year. 10% monthly growth for a consumer company is okay. It means you'll approximately triple your user base every year. 5% a month or lower is unlikely to reach breakout success, I'm afraid. But growth is much more complex than simply headline user numbers. We'll split first of all into organic versus paid growth. So organic growth is really anything you don't pay for. And founders running consumer companies often neglect this. We got to a million customers at Monzo before we spent any money on direct marketing or advertising. And really, we did this in two ways, virality and network effect. It's worth pausing on these because they're so important. Virality is the idea that one user using your product introduces it to other users, somehow in the use of your product. Whereas network effect is the idea that the product gets better, that more nodes in the network exist. I'll give you an example from Facebook's early days. So when you took a picture on Facebook and uploaded it, you're prompted to tag your friends, even if they weren't already on Facebook. And those friends would get an email saying, hey, someone's tagged a photo of you, sign up to view the photo. That's a viral mechanic. By uploading the photo and tagging your friends, you spread it to new users. Another example might be Wordle. So when people play Wordle, they post their score on social networks. You see those little green and gray dots. That's a signal to everyone else that they're playing this game and it attracts new people into the game. So that's virality. A network effect comes from Metcalfe's law. The value of the network is the square of the nodes in a network. What that basically means is the more people who use this thing, the more valuable it gets. And so WhatsApp is a great example of this. If you're the only one on WhatsApp you know, you can't message with anyone. It's pretty useless. But the more people you add to the product, the more people you invite, the more useful it gets for you. You can message all these people around the world for free. And so the best consumer companies incorporate both virality and network effect, which are different concepts, but very closely related, in order to grow their user base organically. So let's think about your product. How could you incorporate both of these things, virality and network effect? First of all, for virality, what are the shareable moments? What are the points at which you've accomplished something new in the product? You've, you know, duolingo, you've reached a new level, something you want to brag about, or word, or you've completed it in two tries, or something. What are those points in the product where people naturally are inclined to share it? And then how can you make it really easy with all of those sharing prompts that both iOS and Android offer? The second is network effect. How could my product get better than more people who join? You have to shift from thinking about your product as a single player journey to a multiplayer journey. So for something like Monzo, which was a neo bank, the network effect was things like being able to send and receive money really quickly within the bank. So we've built a Venmo style money transmission within the bank. You could also open joint accounts or have big pots for groups of people who are going on holiday. And so what we'd often see is a group of six or seven people go on a holiday. At the start, only three people have Monzo, and by the end of the holiday, all of the group have been bullied to sign up to Monzo so they can jointly manage their expenses. That's a network effect. Working on these network effect and viral loops will pay back every day for the rest of the life of the company. With ad spend, you spend the money one day, tomorrow it's gone. You've got to keep spending that money to keep acquiring users. Viral loops and network effects pay back forever. So every one or two percent extra you can optimize in your viral loops and your network effect will pay back for the rest of the life of the company. Paid referral schemes are sort of interesting blend. It seems like member get member where, if you refer a friend, you get $5 and they get $5. Or maybe with Uber, you get a free ride, they get a free ride. I would treat this as paid acquisition actually. You're spending money to acquire customers, and if you stop spending, those customers won't appear.