Startups have a difficult equation to solve in the early days. There's a lot to do, and little time to do it. Fortunately, there are many frameworks that we can use to order our thoughts. One such framework is the AARRR funnel, and teams can use it to figure out how in which order they need to stack their bricks.
What's the AARRR Funnel?
The AARRR Funnel, also called the Pirate Metrics is a simple way to divide your customer's journey into 5 stages:
- Acquisition: how many people find your product?
- Activation: how many of these people sign up?
- Retention: how many users come back for more?
- Referral: how many users bring others to your platform?
- Revenue: how many people end up paying for your product?
This model can be applied to many different types of companies, and it's especially helpful to bring structure to goals and roadmap discussions. Rather than considering the value of feature X vs. feature Y, you can elevate the discussion to figure out which part of the funnel needs to be improved.
The challenge for teams is to know in which order they need to tackle that funnel.
RARRA: a prescriptive approach to building your startup
We're going to assume here that you have a valid idea, and a valid market. The question is not "should we pursue this?", but more "how should we make this happen?". It's tempting to build your business by following the steps of the AARRR funnel, but it's best to approach your customer journey in this order:
- Retention: do people find value in your product?
- Activation: can people set it up themselves?
- Revenue: is your pricing effective?
- Referral: can you leverage existing customers to find the next ones?
- Acquisition: do you know how to land new leads effectively
As you can see, Acquisition is at the bottom, which seems weird. But let's dive into why we picked that particular order.
Brick 1: Retention
Great Marketing x Poor Product = Wasted Leads.
There's no use being great at generating leads if you know that most people will end up leaving your product soon after they sign up. A better strategy is to focus on a small group of early adopters and figure out how to make them happy.
You don't even need a good onboarding flow (that's Activation). You could be adding folks manually in the backend, setting up their account yourself, and not having a way to reset passwords. It might be super annoying for you to get a new customer up & running. But at that stage, you need first to confirm that you have a good enough solution for the problem you're tackling.
Pick up a small cohort. Then work with them to build the first iteration of your solution. You could even leverage no-code tools to go faster if that makes sense. The goal is to get to a place where you know that your solution is solid enough to onboard more users (40+ NPS, 40% Product-Market Fit survey).
Brick 2: Activation
Once you have great product, you can start investing more in your onboarding flow. Things will vary between industries and companies, and you'll need your own definition of what good onboarding means. In the era of Product-Led Growth we tend to equate "good" with "automated" but that's not always the right answer. An example of that is Superhuman that has a high-touch activation—you can't get into the product unless you go through a call with an onboarding specialist.
Define your flow, set some goals for your activation metrics, and then figure out how to get there. This is when you generally need a small number of leads coming in every week, so you can test and iterate on your activation process.
Brick 3: Revenue
You have a good product, and you know how to onboard customers. Now it's time to charge them!
Don't wait too long before looking into your pricing structure and the levers available to turn users into paying customers. You should already have a pricing model at that stage (this should have been part of the validation process), but now is a good time to review your assumptions in light of what you have learned through bricks 1 and 2.Do you have multiple tiers? Do you need a setup fee? Is your billing system robust? Do you have clear upgrade paths? Is it worth exploring freemium?
Pricing is never right, and it's likely that you'll have to change things again a year from now. But, the next 2 bricks are all about increasing the volume of leads, and it's worth spending a few days looking at your business model before bringing more people in.
Brick 4: Referral
✓ Good product
✓ Good onboarding
✓ Good pricing
Congratulations! You're ready to grow! A low-hanging fruit is to start with your existing customers. Find the happy ones and see if they can help you find other people like them. Look at whether or not you can build incentives or features that help put your product or service in front of others.
Companies like Dropbox, Calendly, Zoom, and DocuSign managed to grow rapidly thanks to having natural network effects. Take some time to look into your own product to see if there's not a simple way for you to get more leads out of existing customers.
Brick 5: Acquisition
That's it. Now you're ready to put some serious efforts in your acquisition channels. And that's because:
- You know leads will have a great onboarding.
- You know they'll love your product.
- You know they'll be happy to pay.
- Your successful customers will help you find your next leads.
You're in a great situation, and every dollar invested in acquiring new users is likely to produce an excellent return. So, it's a safe time to optimise Sales & Marketing, and try to get as many leads as you can possibly have.
Okay, the reality is messier
DON'T TAKE THIS LITERALLY.
The reality of startups is that you can't fully ignore any part of your funnel. I'm not advocating for zero Marketing until you have network effects. Building a brand is good, charging early is good. It's expected that you'll be working on a mixed bag of ideas to be successful.
But you need some structure, and there is a sensible order to things. This post is just here to help you think your own roadmap through.
Goals and metrics to help
YMMV, but you might find the 2 templates below useful.
For bricks 1 and 2 👇
- KR1: Achieve an NPS above 40 with early-adopters
- KR2: 60% of new users complete their onboarding process
- KR3: Our 8-week retention rate is above 30%
For bricks 3, 4, and 5 👇
- KR1: 30% of new leads start a trial
- KR2: Get 0.1 leads/active customer/week
- KR3: Increase weekly leads by 30%
You can find these 2 templates in Tability, a platform built to help you track progress on your goals and keep you honest.
Have some questions or feedback? Reach out to me on Twitter.