Is There A Magic Formula To Building A Billion Dollar App?

Billion Dollar App

aabracadabra make me a zebra

Apparently not!

“The formula is not magic, it is simple, and it’s about how religiously you adhere to the tactics and the calibre of people you attract to join you on the journey.” – George Berkowski

But why should you believe “Georgie Porgie who kissed the girls and made them cry”?

For one, he is one of the minds behind the internationally successful taxi hailing app Hailo where he led the product team and launched the app in 13 cities and helped drive the first $150 million in revenue. Hailo was acquired by Daimler in mid 2016.

But a more relevant reason may be because he has put in the effort to research common threads and practices, tying them through his experience and stories of some of the billion dollar club members – wassapp, Instagram, Snapchat, Square, Flipboard, and a few more, to publish “How To Build A Billion Dollar App: Discover The Secrets Of The Most Successful Entrepreneurs Of Our Time”

Sharing extracts from the book of my key take-aways, for those aspiring to build (or are part of building) a billion (or even million) dollar app.

7 tips for building the B-App (pun intended)

  1. Think big by thinking about –
    1. What people love to do
    2. What people need to do (solving a universal problem)
  2. Disrupt and reinvent a service that millions of people around the world use on a daily basis
    1. A disruptive idea is one that
      1. Delivers a step change
      2. Hard for an existing player to copy
    2. Mass appeal is a core component of far-reaching disruption.
  3. Disruptive entrepreneurs need to understand –
    1. The capabilities of technology available to them
    2. The necessity of building a new platform
    3. How to integrate virality into their products
    4. Power of timing (probably most important)
  4. The best disruptions appear simple –
    1. They are best because they are the simplest to communicate and the simplest to understand by the largest number of people.
    2. Despite the veneer, simple ideas are rarely simple to execute
  5. Leading apps trigger and maintain strong emotional relationships (2 strongest sentiments being ‘connected’ and ‘excited’) by focusing exceptional effort on –
    1. Usability
    2. Design
    3. Performance
    4. Tone of voice used in copy
  6. Build a business, not an app. 5 business models that work –
    1. Gaming: Users pay for a virtual service or good
    2. E-commerce/market place: Users pay for a real world good or a service
    3. Advertising:
    4. Software as a Service (SaaS): Users pay for cloud-based software (typically via subscription model)
    5. Enterprise: Companies pat for larger-scale software (again, via a subscription model)
  7. Big ideas are going to take a while to get there (and it’s bloody hard… so you’ll need to want it bloody badly)
    1. Evan Williams, founder of Blogger, Twitter and Medium says, “By definition, if it’s big, and no one has done it before, it’s not going to be 1-2-3, ‘We got it!’ There is going to be a dark period in there, because you don’t know what the key to getting there is. You have to be willing to be in some murky territory, and be prepared to invest, if you really want to do something different”
    2. It takes about 7 years on an average to build a company that raises $30 mn and gets acquired for $150 mn
    3. You need to be tenacious and lucky to make it to the top

Bonus tip (from moi) – Focus on building an amazing product that people can’t live without, not chasing the billion dollar dream. After all, that’s also what’s common between Mark Zuckerberg, Sergei Brin, Larry Page, Evan Spiegel, Brian Acton, Jan Koum, Brian Chesky and all other 37 founders in the Billion Dollar club when they first started out.

The 7 Step Journey (till Stage 2: Ten Million Dollar App…Series A)

Step 1: Figure out what you want to build

  1. Start with a big problem. Works best if you want to solve a problem for yourself
  2. Find a novel solution
  3. Make sure there’s a market to adopt it. Preferably a huge market if you want to “change the world”

Step 2: Build a great product that users love

  1. Name your app
    1. Don’t settle for an OK name. A great name is 10 times better than a good name. We are subject to the influence of first impressions and the name can have an influence on what people think about your app, before they’ve even tried it out.
    2. Important factors that you need to consider when coming up with a name
      1. Is your name short, catchy and memorable?
      2. Is your name distinctive?
      3. Is your name clever?
      4. Can your name become a verb?
    3. Some online services that can help solve your identity crisis –
      1. www.namestation.com
      2. www.Sedo.com
      3. www.domainnamesoup.com
      4. www.instantdomainsearch. Com
  1. Create a landing page/website
    1. You’ll need to announce to the world that you’re gonna conquer it.. or at least that you’ve arrived
    2. Use this to collect leads of people interested in your app by capturing their email address
  2. Creating the 1st version of the app, version 0.1, typically referred to as an mvp (minimum viable product)
    1. This is a bare bones version of your app. A version that will definitely make you cringe, but like Reid Hoffman says, “if you’re not embarrassed by the first version of your product, you’ve launched too late”. In this version you want to focus on the most basic set of features that will make your app useful and unique.
      1. George shares his example about the first version of Hailo, “Since we had limited time and resources we ignored everything else – there wasn’t a proper way to register an account, you couldn’t add your name, you couldn’t interact with the map, and you could see only the taxi’s number plate. It was bare bones. But it delivered a feature that no one else could offer!”
    2. Create wireframes and user journeys (a detailed blueprint of your app)
      1. This blueprint has two goals:
        1. To illustrate what each screen of your app looks like; and
        2. To explain how your app behaves. Since smartphones are small, intimate and all based on touch, there are lots of ways you can make your app behave.
      2. Tools to help you do this –
        1. https://www.adobe.com/in/products/xd.html
        2. moqups.com
        3. balsamiq.com
        4. marvelapp.com
        5. proto.io
        6. sketch.com (only mac)
        7. PowerPoint – create a slide-by-slide outline (using the shapes elements) for every screen in your app. Immediately, you will see the challenge of translating the idea of the app you have in your head to precisely how it’s going to look on a screen. It’s challenging!
      3. Don’t ignore (great) design
        1. Design matters because competition in the app world is heating up and because people can be fickle. (26% of users will open your app and never use it again). From the very first experience you need to be able to deliver value to the user. You need them to say, ‘Wow, this is really cool!’
        2. “Good Design is as little design as possible – less, but better – because it concentrates on the essential aspects, and the products are not burdened with non-essentials. Back to purity, back to simplicity.” – Dieter Rams
        3. FUNCTIONAL VERSUS BEAUTIFUL. There is a fine line between beautiful and functional design. The highest praise is reserved for apps that achieve both. But let’s be 100 per cent clear: functionality should be your number-one priority.
          1. WhatsApp is arguably a rather spartan app, and not super-pretty, but it’s damn intuitive, has great performance and always works. Similarly, Snapchat has a simple and uncluttered interface, and, despite requiring you to learn a new behaviour to view a snap (press and hold to view the content while the clock counts down), achieves that goal easily
        4. A great source of inspiration of screenshots is pttrns.com

Step 3: Acquiring your first set of users (early adopters)

  1. The objective at this step is not to focus on getting many many users to download your app at this point, but rather to a) get initial validation on your product and b) create a viable and realistic plan to drive downloads and regular usage by ensuring your users can find your app
  2. A break-down (fig 1) of how users find apps via each channel indicates the channels that you need to create and optimize (You’ll find a ton of resources on Google for ASO (App-Store Optimization) and SEO for website
Mobile App User Acquisition Channels

Fig 1: User Acquisition Channels

Step 4: Measure metrics

  1. Reactions to the early versions of your app are key to your success, and you want to use real user feedback to tune the direction in which you’re heading
  2. Reality of (auto) feedback is you only hear the extremes, the great experiences and the very bad experiences
  3. Analytics is the answer. By including snippets of software in your app code, you can automatically track what every single user is doing on your app – what they are looking at, what they are clicking, how long they spend performing an action and at what point they open and close the app. Analytics tools gives you powerful visualization of all this information and more. How you interpret this information, i.e., what insight you can gleam from it, and what should do as a result – well, is an art.
  4. Some great analytics tools –
    1. mixpanel.com
    2. flurry.com
    3. googleanalytics.com
    4. localanalytics.com
    5. clevertap.com
  5. Metrics to live and die for – There are five types of metrics to remember (AARRR):
    1. ACQUISITION: users downloading your app from a variety of channels;
    2. ACTIVATION: users enjoying their first ‘happy’ experience on your app;
    3. RETENTION: users coming back and using your app multiple times;
    4. REFERRAL: users loving your app so much they refer others to download it;
    5. REVENUE: users completing actions on your app that you’re able to monetise
  6. One thing to remember is that all your metrics should be valuable and actionable, and they shouldn’t just be vanity metrics. Valuable metrics are ones that drive decisions.
  7. It’s also essential to agree on the definition of each of the metrics from and get their buy in from different stakeholders. Examples from Hailo with respect to how they defined their AARRR metrics
    1. Acquisition isn’t just getting a download. It’s about acquiring a user – so you need to set the bar higher. A user should be someone who downloads your app, opens it and clicks at least one button, or has a session length of more than 10 seconds. Counting someone who abandons your app as an acquisition isn’t particularly useful (and nor is the channel that brought them to your app)
    2. This is about a minimum threshold of engagement – someone who has completed an action that might lead to potential revenue. At Hailo we counted a user who created an account as an ‘activation’. Alternatively, you could count someone who has clicked X times within your app, or someone who has a session time of more than 60 seconds
    3. Understanding and driving this metric is critical to success. If you can’t keep users coming back, then your app is doomed. At Hailo we measured this as how many times a user opened up the app per month, and how many times they opened the app and requested a taxi. You can also drill down to the level of measuring how many times per month a user opens or clicks on the emails that you send to them
    4. This can be a tricky metric to track, so it helps to build a product feature to encourage it. From Day One we built in the ability to input into the passenger app on Hailo ‘promotion codes’ that would give passengers £5, £10 or more off their next taxi ride. The system was flexible enough to track every single ‘referral code’ back to a user, a driver or a specific marketing promotion
    5. You should be aiming to make this work from the very beginning. We monitored not only spending per customer, but also any discounts, refunds and the actual gross margin we made per user. We also monitored how much people were tipping their drivers
  8. Avoid these rookie mistakes while measuring your metrics –
    1. Putting in analytics too late
    2. Relying on a single analytical solution
    3. Not attributing marketing or referral sources
    4. Not plugging in revenue metrics

Step 5: Find product-market fit

  1. Product-market fit means
    1. First, being in a good market
    2. Second, building a product that can satisfy what people in that market want. Without that you’re not going to experience explosive growth.
  2. How to find product-market fit
    1. By building the best possible product that appeals to the biggest number of users – the sweet spot where truly successful apps focus. This entails the following –
      1. Everyone in the team from the CEO down in your business being product-centric, that is, maniacally focussing on delivering the best user experience. (If, however, the product is not the primary focus of the CEO/Founders – perhaps they are more interested in developing partnerships, or raising money or focusing on profit margins, then you will have a hard time reaching product-market fit).
      2. Creating a data-driven process to build, test, measure and roll out product improvements. If the product improvement doesn’t work, it must be changed or killed.
        1. Testing your ideas: You need to figure out an effective way of communicating with your early users frequently – at least once a week – and getting their qualitative feedback. Try also to form a group of 20 to 30 power users whom you can email or call 24/7. These people should be frank and brutal and give you detailed feedback. Combined with your quantitative feedback – analytics – you should be in a pretty good position. You need to keep improving features, testing them and then releasing the new or improved features to all your users and measuring the results. You can try usertesting.com , a resources to get more users to try your product and give feedback.
      3. Saying ‘No’ to features to enable focus. Given the limited time, money and resources, maintaining focus is the only way to get to product-market fit.
  1. Signs that you have achieved product-market fit –
    1. Users are downloading your app in droves
    2. You can’t spin up servers fast enough to support demand
    3. iTunes and Google are depositing more and more money in your bank account
    4. Find it hard to hire support staff any faster
    5. Tired of talking to reporters
    6. According to Sean Ellis (founder of Growth Hacker), “In my experience, achieving product-market fit requires at least 40% of users saying they would be very disappointed without your product
  2. Signs that you have NOT quite achieved the point of product-market fit –
    1. Your users don’t seem to get the value of your app
    2. There doesn’t seem to be much word of mouth growth
    3. Usage isn’t growing that fast
    4. You’re receiving rather flat publicity
    5. You’re stuck in the limbo world of ‘me-too product’

Step 6: Get your growth engine on (Acquiring users)

  1. Your user-acquisition strategy is going to be focused on experimentation and validation. You need to go out there and
    1. find the most efficient channels to get users downloading your app, and at the same time
    2. you need to test what campaigns – messaging, wording, imagery, propositions – are going to get those channels to perform the actions you want.
  2. Get emotional with campaigns
    1. For users to love your app, you need to be able to actively make them feel something. Your goal is to get users to love – or even hate – your app. Death is when they don’t feel anything strong about you and you become someone stuck in the zone of indifference. Red Bull has achieved that well: it formulated its taste so that 50 per cent of people would more than like it: they would love it. And it actively didn’t care about the rest (the company is worth more than $7 billion).
    2. Start by making a few lists of the following things:
      1. The top five emotions you want your app to elicit
      2. The top fifty words that describe your app
      3. The top fifty words that describe your brand
      4. The top customer needs your app satisfies and benefits it delivers
      5. The top problems your app solves
      6. The top fifty words that describe your competitors’ apps
      7. The top fifty words that describe your competitors’ brands
  1. Basic user acquisition tactics
    1. Ensuring you have a responsive website with a clear call to download your app
    2. Core SEO (search-engine optimisation) elements in place on your website
    3. ASO (app-store optimisation) in place
    4. A basic understanding of PPD (pay-per-download) advertising
    5. Leveraging social features in your app, empowering people to more easily share your app and broadcast it to social-media channels.
    6. Publicity – one of the biggest low-cost channels you can pursue at this point. Reaching out to bloggers, app review sites and similar online channels
  2. Track attribution – sources your users are coming from and optimize your spend on users who are driving value in your app
    1. Mobile App Tracking
    2. Referral Tracking
  3. Mobile advertising
    1. Top 10 mobile advertising platforms – Google’s AdMob, Millennial Media, iAd (from Apple), Flurry, inMobi, Chartboost, MoPub, Amobee, HasOffers and Euclid Analytics

Step 7: Seducing Investors

  1. If you’re building a B-App, then at some point you will need to consider outside investment to help you grow faster. Investment will help you hire more people, spend more on advertising and get more people to use your app.
  2. Depending on the stage of your app, the sources investment will be from friends, families, fools and accelerators in seed stage, angel investors in early stage and VCs from series A onwards.

George Berkowski loosely breaks up the funding/investment and valuation in 5 lifecycle stages.

  1. Stage 1: The Million Dollar App – Building a founding team, validating your product and raising seed fund
  2. Stage 2: The 10 Million Dollar App – Achieving product-market fit and raising Series A funding
  3. Stage 3: The 100 Million Dollar App – Tuning your revenue engine, growing users and raising Series B funding
  4. Stage 4: The Five Hundred Million Dollar App – Scaling your business and raising Series C funding
  5. Stage 5: The Billion Dollar App – The promised land

Here’s a comparison summary for the 1st 2 stages –

Stage 1: The Million Dollar App Stage 2: The 10 Million Dollar App
Objective Through this first part of the journey it’s all about validating your idea, the market, your product, the basics of your business model – and putting together a plan of attack. You’re putting together an end-to-end plan for your business, and supporting it with research, data and innovative thinking.

At the end of this section you’ll have real customer validation and metrics, and be confident that your basic app will become a business

Throughout this stage you’re going to need to be 100 per cent focused. The only thing you care about now is achieving strong product-market fit, ensuring users love your app so much they are willing to pay for it.
App Minimum Viable Product (MVP) that’s functional and ready for real user’s hands.

Your goal is to get it into user’s hands quickly so that you can get as much feedback as possible.

Your prototype app is impressing people and they’re using it. You have the beginnings of the ‘wow’ factor.
Team 3 key roles –

  • Someone must lead the product vision
  • Someone needs to build the technology
  • Someone needs to be focused on getting users and generating money
The founders are in place and the core team members you ear marked can now join full time because you have some funding.

 

You’re still a pretty small team, but all core functions are covered. As the product improves and traction picks up, you need to think about the next big hire you’ll probably be making to drive more users and revenue: the VP of marketing

 

But stay lean and mean, because getting to product-market fit can take a lot longer than expected

Users Apart from your mom, aim to get feedback from hundreds of real users, if not a thousand (if you’re a marketplace model, a couple of 100 will be good going) From a small user base in the hundreds, you’ll start to grow quickly into the thousands of users.

 

You’ll be developing a solid and reliable user-acquisition strategy. You’ll find out what the cost of acquiring a user is (and what needs to be done to make your business profitable)

Business Model Gone are the days of not having a business model on Day One. There are only 5 business models that power all billion-dollar apps – validate which one will power yours What was a basic business model will now evolve quickly. You need to make sure that it works in practice as well as in principle
Valuation Ideas are a penny a dozen. It’s execution that’s worth money. You’ll drive a solid valuation if you get the right team together to deliver a product that users love to use.

 

Do that and you’ll be worth $ 1 million. If you do that very well, you’ll be worth $4-5 million – the average valuation of a funded startup at this early stage.

$10 million valuation (on an average)
Investment You’re investing your own blood, sweat and tears at this point. If you nail your idea, team, prototype and some users, then someone will probably be happy to give you anywhere between $250,000 and $1 million in exchange for owning a percentage of your new app At this point things get serious. You’re going to move into the world of professional venture capital investors. That means long agreements and lots of legal paperwork.

 

But if you really want to ramp up your business, develop your app, build your team and spen on marketing, then this is the quickest and potentially smartest – way to raise around $2-3 million

Coming Soon (post Series A) – Part Deux: Summary of stages 3 to 5. In case you want to know more sooner then here’s – “How To Build A Billion Dollar App: Discover The Secrets Of The Most Successful Entrepreneurs Of Our Time”

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