Retention vs Conversion

Talking to early-startup founders (just a few days ago at the Lean Startup meeting in London) it often strikes me how much attention is paid to user acquisition and conversion in particular. Of course everybody loves to be able to talk about their millions of signed up users, but products are evaluated on active users, not on signups. Having many active users means your product is useful, while having signups means you are good at marketing and advertising.

And active users are first and foremost a consequence of retention. As Dave McClure says, your first goal is to build a better mousetrap.

The math is simple: you can spend as much money to make your website perfect, your marketing message crystal clear, but at the end of the day if your users leave the product after a week (that is, you have low retention), you don't have a business. You can spend more money, advertise like crazy, but all new users will eventually leave because your product doesn't fit their needs (you don't have product/market fit).

So early stage startups must focus on retention, rather than conversion. Steve Ellis takes a similar approach defining the product/market fit as the moment when 40% of the users say they would be very disappointed without your product.

So the first thing to do is focus uniquely on your retention until you reach a 40-60% retention (month over month, week over week, it depends on your product/business); that involves refining your product, adding/removing features, clarifying the user experience, and is the only way to know you have created a product useful for your customers. After that, you can work on conversion, and that's a pure marketing effort.