Building for Believers: How to Create a Successful Community and Measure Startup Metrics

Kazuki

Hatched by Kazuki

Jul 17, 2023

5 min read

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Building for Believers: How to Create a Successful Community and Measure Startup Metrics

Introduction:

Building a successful community and understanding startup metrics are two crucial aspects of running a business. In this article, we will explore the strategies behind building a community of believers and discuss important metrics that can help founders make informed decisions. By combining these two topics, we will gain valuable insights into creating a thriving community and effectively measuring the growth and health of a startup.

Building a Community of Believers:

When it comes to building a community, it is important to focus on lowering the barrier to entry and gradually increasing commitment. Starting with low barrier asks and incrementally ramping up the commitment curve allows members to gradually become more involved and make larger contributions to the community over time. This approach has been successfully implemented by companies like Meetup and Airbnb.

Meetup, for example, does not immediately ask new members to host a meetup. Instead, they first ask them to read a blog post and attend an event. Similarly, Airbnb does not immediately ask new members to post a listing. They first ask them to watch a video about how Airbnb works and then try booking a stay. By starting with smaller asks and gaining incremental commitment, these companies have been able to increase member participation and create a strong sense of community.

Additionally, people are more likely to say yes to larger asks if they have already said yes to smaller ones. This concept of "commitment consistency" is crucial in building a community of believers. By starting with highly committed individuals and gradually ramping up their involvement, companies can create a community where members consistently provide meaningful value to each other without being asked.

Finding Community-Member-Fit (CMF) is another essential aspect of building a successful community. CMF refers to the point at which members consistently provide meaningful value to each other without being prompted. To find CMF, it is important to focus on individuals who already have a strong motivation to engage in the activities that the community offers. These individuals may be struggling to achieve their goals independently and would benefit from the support and resources provided by the community.

Contrary to popular belief, starting a community does not require a large number of members. In fact, it is more important to have a small group of true believers who are highly committed and motivated. These believers will serve as the foundation of the community and attract like-minded individuals. By focusing on finding CMF for a small group of believers, companies can lay the groundwork for a successful and thriving community.

Measuring Startup Metrics:

While building a community is important, understanding startup metrics is equally crucial for running a successful business. Metrics not only help in securing funding from investors but also provide founders with insights into the workings of their business and enable them to make informed decisions.

One key metric that investors highly value is the percentage of total revenue that comes from product revenue rather than services revenue. Product revenue is recurring, has higher margins, and is more scalable compared to services revenue. By focusing on generating revenue from products, startups can increase their profitability and scalability.

Another common mistake when calculating metrics is to estimate the Lifetime Value (LTV) of a customer based on present value or gross margin. Instead, LTV should be calculated as the net profit of the customer over the entire duration of the relationship. This provides a more accurate representation of the value that a customer brings to the business.

The Contribution Margin LTV to CAC (Customer Acquisition Cost) ratio is also an important metric to determine CAC payback and manage advertising and marketing spend effectively. This ratio helps in understanding whether the cost of acquiring new customers is justified by their lifetime value.

In the SaaS (Software as a Service) industry, billings are often used as a proxy to measure growth and the overall health of a company. Billings are calculated by taking the revenue in one quarter and adding the change in deferred revenue from the prior quarter to the current quarter. By analyzing billings, founders can assess the growth trajectory of their SaaS company and make necessary adjustments to ensure its success.

While blended CAC, which considers the total acquisition cost across all channels, is commonly used as a metric, it fails to provide insights into the profitability of paid campaigns. Investors often prioritize paid CAC, which focuses on the acquisition cost of customers through paid marketing, as it determines whether a company can scale its user acquisition budget profitably.

It is important to note that cumulative charts, which show continuous growth, are not always a valid measure of a company's health. They can be misleading, as a business can appear to be growing even when it is actually shrinking. Metrics such as monthly revenue and new user acquisition offer a more accurate representation of a company's growth and health.

Conclusion:

Building a community of believers and understanding startup metrics are crucial for the success of any business. By focusing on lowering the barrier to entry, gradually increasing commitment, and finding community-member-fit, companies can create a strong and engaged community. Additionally, by measuring metrics such as product revenue, LTV, CAC, billings, and paid acquisition, founders can gain valuable insights into the growth and health of their startup, enabling them to make informed decisions and drive success.

Actionable Advice:

  • 1. Start small: Focus on finding a small group of highly committed individuals who believe in your community's mission. These true believers will lay the foundation for a successful community.
  • 2. Gradually increase commitment: Lower the barrier to entry and gradually ramp up the commitment curve. Start with smaller asks and incrementally increase the level of involvement to foster long-term commitment from members.
  • 3. Measure the right metrics: Pay attention to metrics that accurately reflect the growth and health of your startup. Consider metrics such as product revenue, LTV, CAC, billings, and paid acquisition to gain valuable insights and make informed decisions.

Remember, building a thriving community and understanding startup metrics go hand in hand. By incorporating these strategies and measuring the right metrics, founders can set their businesses up for long-term success.

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