A tale of two ventures: How UX strengthens your venture’s lifecycle

Businesses are 77 percent more profitable if they execute successful growth strategies. Ironically, when surveyed, only two percent of leaders are confident they will accomplish 80 percent of their strategy.

And then, when you look at organizations, only 10 percent successfully execute their strategies, and 90 percent do not accomplish their strategies effectively.

So you see this extreme dissonance between how organizations can be profitable if they implement successful growth strategies. Yet, only a few do it.

I’m currently a co-founder and CEO of a company called Riley AI. Before this, I built successful strategies at several companies, usually mid-to-late-stage start-ups. I helped drive a $5B total valuation across all the companies I worked in. Today, my role is to help you understand how to strategize to improve your company’s valuation.

Introduction to profitability ratios and ineffective product

There are two different profitability ratios. (Well, if you’re a day trader or in finance, you know that there are a bunch of different ratios). Today, we’ll focus on two:

Net profit margins Profit margin is income over sales. Ideally, you’d want to generate sales and income efficiently—it’s not enough to create high income if you’re not making sales efficiently.

Net asset margins Similarly, if you work in an industry that’s more like physical goods, net asset margins are especially important—income over assets. You don’t want to get too many assets—you don’t want to buy too much inventory and be unable to convert it easily to income.

So, what drives profits? Essentially, two things drive profits, including increasing income. We talked about that earlier and driving more efficient sales. I’ll give an example of how we, as product practitioners, managers, researchers, and designers, can help influence the efficiency of our sales organization. We will focus on net profit margins today (as opposed to assets) just for this talk.

A tale of a misguided venture (aka, what not to do)

All right. Let’s start with what we should not do. Let me tell you a tale of a not-so-good venture. Let’s say we all work at a company. And right now, we are thinking about investing in a particular feature, let’s call it Feature A.

Building feature A without proper insight into drivers

Now, a few months later, we have decided that Feature A works—maybe we’ll enhance the UX a little more. Then we work on Feature B, and then we work on Feature C, and eventually, we’ll work on a bunch of other features up to Feature Z—putting more and more into our core UX, building more and more without really knowing what drives metrics.

Economic downturn

As we all know, the economy is cyclical; there are times of high growth, slower growth, and times of decline. When the times of decline happen, we ask ourselves, what’s going on? Why aren’t our metrics moving? We’re shipping all of these features. We’re investing so much into driving whatever we want to drive. But in fact, we’re not seeing results. And then we feel pressured to drive a particular metric, like lifetime value.

Understanding customer lifetime value (CLV)

For those unfamiliar with customer lifetime value, it’s a retention metric that’s a product of churn. We want to avoid churn to drive higher LTV. Let’s say our guiding metric right now is driving LTV and preventing churn in this terrible economy.

The challenge of identifying key drivers

How would we understand the combination of features that essentially drives churn? It’s tough as researchers, product managers, and designers—even if you’re not part of a product team (I’ve heard strategy consultants face the same issue).

So, if I want to learn from the past, what exactly drives this metric? We’re often confused and call more users to understand what’s driving their metric. Why are they churning?

We investigate product analytics from various sources without necessarily fully understanding the reason behind what we see.

A tale of a promising venture (what to do)

Let’s talk about a tale of a good venture and how this company I was part of was able to turn all of this around and ultimately use insights productively to drive results. And the results are significant:

The Fivestars success story

At Fivestars, where I led product research, product analytics, and data science, we ultimately drove a $300M acquisition by a European point of sale in this company called SumUp.

I’m going to ground this example with Fivestars on net profit margins again—mainly how we were able to increase income and help Fivestars develop a more efficient sales process.

Let’s start with the example of increasing income.

For those unfamiliar with Fivestars, the one-liner is, “It’s a payments marketing- automation platform for small businesses.”

If you’ve been to a Boba store or a coffee shop and signed into a loyalty program with your phone number and received text messages about rewards, that’s us.

Dual focus: acquisition and retention

Basic ways to increase income are through two ways: acquisition and retention.

When you want to increase your company’s income or revenue, you’d like to acquire new customers and retain them.

These two things are crucial. You can’t have one without the other—you can’t acquire new customers while your bucket is leaky and your core customers churn yearly.

At the same time, you can’t just keep customers and try to upsell and grow them without acquiring new ones. (Then, your top of the funnel will not increase.)

Drivers of acquisition and retention

And what are the drivers of acquisition and retention? There are many, but today, for acquisition, I’ll focus on this concept called competitive arbitrage and break it down.

I started my career in banking. So, I love using these financial terminologies like arbitrage. We’ll have a fascinating example of arbitrage in a UX and product setting.

For retention, we’ll examine some data science methods to capture growing behavioral clusters of users that ultimately indicate areas for increased investments.

Competitive arbitrage explained (the first driver)

What is arbitrage?

If you invest in currency, arbitrage is buying one country’s currency at a lower price and then selling it later on at a higher price. So, at no risk, you’ll be able to earn a little bit more—and this exists in the world of UX and products.

Fivestars began as a customer loyalty program (our tablet). If you were going to a coffee shop or your favorite local store, you could enter your phone number on a tablet, join our loyalty program, and get rewarded over time for visiting that store over and over.

Identifying merchant pain points

Then we discovered (after looking at many review sites) many different community channels where all of the small business owners are part of user research studies, interviews, etc. After analyzing all that data, we discovered that many of our merchants were using archaic payment systems and complaining about how expensive they were.

Uncovering hidden fees

Through analyzing payment data from these providers, we also discovered that many of these payment systems have hidden costs. It’s not ‘X amount monthly’ for payments—there are many hidden fees.

Combining insights to find opportunities

So, combining all those different insights, user research studies, review sites, online blog posts and forums we analyzed, and payments data, we discovered an arbitrage opportunity.

In addition to payments, we already have a presence in all these small business stores with a loyalty tablet. So, imagine a world where instead of just doing loyalty, these small business owners can also have an experience that combines loyalty and payments...and that’s exactly what we built.

We started a specific product team that worked on this for a year. Within a few months, we consolidated the loyalty program and built an in-house payment system.

Driving significant results

We introduced it to a couple of our merchants and, in the end, drove $500M in yearly processing volume in just two years. This result would not have happened if we had relied solely on one type of insight, such as the user research study, payments, or customer service phone calls.

The fact that we combined all of the insights and uncovered this opportunity to integrate payments and loyalty allowed us to delve deep into this arbitrage opportunity before anyone else did.

The second driver, behavioral clusters

Let’s discuss the second driver, growing behavioral clusters. Remember, this is what drives retention.

In this particular example, let’s time-travel back to 2010. Instagram just started. Remember when it was just uploading photos and then doing the filters on Instagram—VSCO and all those other things did not exist yet?

The early days of mobile adoption

So, we were getting comfortable with mobile back then, but nothing was fully mobile like it is now. Back then, Fivestar started as an in-store experience. We built these in-store tablets, and as I mentioned earlier, you can enter your phone number on these tablets. And for the longest time, that was the experience.

Uncovering the mobile trend

What the research and product team uncovered, looking at all of the user research studies and also all of the customer phone calls and different inputs from customer forums, was a slight movement towards mobile (between 2012 and 2014). People are continuously moving towards mobile, not just for Fivestars but for other things. We saw that people spent most of their time browsing Instagram on their phones.

The rise of mobile sharing behaviors

We started seeing huge upticks in Instagram adoption. We also started seeing people texting recommendations to their friends. Whenever I discovered a new place to eat in San Francisco, I’d just text it to my friend. I’d text it to my boyfriend (my husband now).

So many different sharing behaviors started popping up on mobile during this time. Then, we looked at Google Maps data and saw that people began browsing Google Maps more and traveling a little bit further from their direct vicinity.

Experimenting with nearby deals

On our tablet, we launched this experiment, showing nearby deals. If you were at your local Boba store in Potrero Hill, we’d also show a nearby deal from a clothing store down the street, hoping you’ll save this deal. We’ll remind you of the deal later, and you can visit the store.

The decision to build a mobile app

So we started seeing that the daily active usage of saving these nearby deals increased eventually by 70 percent.

Looking at product analytics data helped us understand the increase in this behavior of saving nearby deals and all of these friend-sharings going on on mobile... let’s build a mobile app!

That’s precisely what we did. We built a mobile app to help users discover deals and share more efficiently.

Significant growth through mobile

It led to a 4x growth in new customers. It was the lever driving our large growth that led our series D and series E rounds—and what’s particularly exciting about this is that had we only relied on product analytics data and only looked at daily active usage of nearby deals, we would have just invested in improving the in-store tablet nearby deals experience.

We wouldn’t have known to invest in mobile if we only looked at the user research data. We’d only think about investing in mobile and not understand that the lever for growth is the discovery of nearby deals. Combining both insights allowed us to invest in something that’s not just linear growth but something that could drive that hockey stick, exponential growth that we wanted to see.

Efficient sales processes (the third driver)

All right, let’s talk about the third and final driver of profit, which is building more efficient sales. (This is beyond what we typically think a product organization should do).

In the more traditional definition, product organizations typically work PMM to drive better positioning but not necessarily improve sales motion.

I like to challenge everyone to think a bit broader. We’re all part of an organization and a business, and our responsibility is to drive this business’s goals.

Launching the local partners’ program

And Fivestars, we again took a look at all of these different sources of insights from our online forums from review sites. And we also looked at our active usage. We discovered that many of our customers repeatedly return to the same businesses within the same vicinity.

When combining those product analytics—return visit insights with online forums—we also discovered that many of our users love going to local businesses.

I remember talking to some users who liked one of our favorite coffee shops in South Park in Soma, which was closing down. This group of users said it was so terrible that they started a fundraising campaign—unfortunately, it ended up closing down. But, for a while, these active goers tried to make that coffee shop survive a little longer.

We found these clusters of users who absolutely love local businesses, and we started a local partners program where these users would visit their local businesses.

We worked with our marketing and sales team to drive this from the product perspective. These users would go out to these local businesses and then encourage them to use Fivestars to drive more loyalty, more returning visits, to be part of a community of nearby deals, to be part of our mobile app, and make it easier for them to get discovered by our users.

Using insights to improve sales efficiency

We helped improve sales velocity by 38 percent because of all these people.

If you are a small business owner and your customers recommend this product to drive more visits, you’d find it more trustworthy than if someone in sales were just to call or cold call.

The launch exemplifies how product discovery research and data science can help drive something beyond product improvements. We drove improvements in sales motion and helped our sales team be more efficient.

Final thoughts

So, let’s recap: How can we build good ventures? What’s the strategy kit for essentially creating a sustainable venture?

We need to drive sustainable profits. To do that, we can use two levers: increasing income and making sales more efficient. (I gave three examples of how we can do that.)

Beyond that, there are steps that I’d like to leave you all today to implement wherever you work to ensure that you all build more sustainable strategies:

1. Identify signals that are important for your business. I outlined some common

   signals here. You’d want to collect data on relevant insights, like recurring usage. If you see people using certain areas of your product a little bit more, that’s a signal that there is a lot of interest in that particular area. And I challenge you not to take that insight at face value. If someone’s using the tablet a bit more, it doesn’t necessarily mean that the in-store tablet at Fivestars was the end game. We find other things that are essentially root causes or drivers of that behavior.

2. Time-to-first-task. If you were to launch a few products or experiences, and users adopt them very quickly, the time-to-first-task metric is low. That’s usually a signal of excitement. We discussed growing behavioral clusters and seeing many users behave in a particular way. Being able to capture that also helps you understand movements and markets even before the users themselves understand that they are behaving that particular way (that’s a new habit).

3. Competitive arbitrage. What are the things that competitors are doing? What opportunities in the market are competitors missing that you can use for arbitrage?

• So, the first thing to do is to identify these signals.

• The second step is to synthesize and combine these signals into one meaningful strategy. That’s where the challenge lies. Ultimately, if my team had used those signals in isolation without combining them, we would not have really uncovered the meaningful strategy that propelled our company forward.

• The third step is to apply the insights to your product strategy.

Usually, slowness happens between steps two and three—not being able to synthesize the insights into meaningful strategy, not acting on it right away, and finally measuring success.

It’s also really important to learn and grow from all of your implementations, from all of the successes of implementing all of these strategies, and from the mistakes you make as well, and to learn and grow over time and continue to implement changes as your company matures.

Editor’s note: This article is a condensed overview of Claudia Natasia’s session and Q&A on the main stage at Insight Out 2024.