Question

It always seems easy to spot the big winners after they are successful. It’s much harder in the early stages when there is less information. And, there are many false signals that lead managers astray.

DrawQuest

DrawQuest developed an app that created daily drawing challenges for users. The app was immediately popular. In 2013, its first year of operations, 1.4 million users downloaded the app and 400,000 used it at least once a month. DrawQuest’s storage vaults held eight million drawings, which it promised to maintain forever for its user-artists.

Do you think that user downloads or per-month users were good metrics for DrawQuest? DrawQuest intended to make money by offering premium drawing tools and other services. Unfortunately, few users opted to pay and the company went out of business in 2014. Having lots of users and rave reviews is not the same as creating and capturing value. A better metric might have been the number or percentage of users who purchased their premium packages.

Cashé

Another venture, Cashé, developed a software program for creating and analyzing financial forecasts. The early response to the program was positive and the company booked almost $500,000 per month in revenues. Management ramped up expenses to reflect the early indications of successful product-market fit. The challenge was that purchasers began to send the program back for refunds and accounts receivable were difficult to collect. The company failed because it couldn’t make its program as powerful and easy to use as demanded by the marketplace.

What metrics might have alerted Cashé to their underlying problems?

Answer 1

As stipulated in the question, having a lot of users and rave reviews is not the same as creating and capturing value. This was the case as for Draw Quest and Cashe where both belonged to different industries.

In case of Cashe which was a software programme for creating and analyzing financial forecasts also the problem was the same as they believed the early reviews and users mounting as a sign of success and more revenue. They also fixed that they are never going to fail due to the limited knowledge about the market and the user’s psychology.

Coming to the metrics which might have alerted to Cashe regarding their underlying problems would have been the following;

1. Retention Rate: This would have helped Cashe to get an idea regarding the number or the percentage of customers that that they were able to retain and also with this they would get an idea regarding how many customers they were leaving to churn. This retention may be based on certain elements like the cohort or how many people have downloaded your app last month and comparing the same with the downloads during this month which will help us analyses the increase or decrease in ratio.

2. Churn Rate: Churning rate is the just opposite of the retention rate and this would let you know how many people have eliminated or stopped using your app when compared to the last results.

3. Daily Access Users/DAU: It is a human or smart phone user nature to download all the available apps and just leave them as it is in your phone. There might be apps which you are not using since many a months. So mere downloading and not deleting the same cannot be counted as the success rate by the owners and for this these downloaders should be one active user of the app.

4. Monthly Active Users/MAU: A person or user active today or tomorrow might not be active next month. The reason for this might be a lot. As he or she got better alternative app or lost interest in the base reason why he or she downloaded the same. SO the company should also analyze if there is an increase or decrease in the ‘active users’ of their app when compared to last month and do the same in the upcoming months.

5. Stickiness: Now this is another interesting metric where the people who once left you return to your app due to different reasons. If the daily active users are divided by the monthly active users, you will get the stickiness of users to your app.

Another metric which can be used by these companies and app developers are the purchase ratio of the users with respect to the premium products you are offering like Draw Quest and many other apps which even provide you with subscription opportunities. If the users are purchasing this then you can believe that you are worth.