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Engagement

The Fuel Powering Enduring,  Billion Dollar
Businesses

Sarah Tavel
greylockpartners.
At Greylock,  we obsess over building
enduring,  multi-billion dollar businesses.
There are only five
I publicly traded tech
I companies created since

2000 that are now worth
more than $1OB. 

$   I N  G...
_ Greylock leads Facebook’s
‘ T 2006 Series B when the company
had 7M+ users

2004 2016 Facebook now

Mark Zuckerberg laun...
Linkedfl

2002 Reid Hoffman and
l team found Linkedln

The world’s largest

‘ 2015 T

professional network, 
2004 reaches 4...
akbnb

2010 Greylock invests in the
Series A

2008 Airbnb is bigger than any hotel 2016

Chain in the world,  with 2M+
Air...
A l:  OLE t Me

Joined Bessemer and invested in

2006

Convertro,  Cornerstone
OnDemand,  MindBody,  Yodle, 
and others

l...
The Big Question

How do you know if a startup has
the potential to become an
enduring,  $1B+ company?
it’s a cor’l, t:iifatior,  of art and scietce. 

:0
o ‘i’
2.
Art Science
Understanding how Knowing how to
products work me...
The stage of the company matters. 

Early CO3Tapgaeny Mature :0

 

0000
O

The earlier the company is,  the more art is
i...
At the core,  it comes down to
understanding engageittlent. 

greylockpartners.
Tavel’s Hierarchy of Engagement

The Goal
B $]; B+ An enduring,  multi-billion dollar company. 
usiness
Level 3
Self" .  A...
As you’ll see,  there are some
similarities to Nir Eya| ’s Hook model. 

7 X J
’4'vssme“‘ 4criofi'
  (‘VJGGE/ RA At; wARo  ...
Level 1: Growing Engaged Users

Level 1
Growing engaged users Focus on growing users completing the
core action. 

greyloc...
Trope in Silicon Valley has focused on growth
and “growth hacking”

growth hacking
Sr i'ff"i'fl"l

Interest over time

Sou...
A lot of companies have growth early on. .

,  , ,  , ,  , ,  , ,  , ,  , _ .  i i .  i i s 7 ,  i .  i i s - o i z .  i 1...
But growth comes in c. 

 snapchat

~ Yik Yak

iPhone Downloads

Source:  AppAnnie

'. f.. €
Iii

iiiiii H

I I

9 V3 i'l'...
What matters is not growth of users. 
|t’s growth of users completing the
core action. 

greylockpartners.
Core Actions

(Pl'IIteI°e. sQ Pinning

Q snapchat Snapping
twilzher Tweeting
YOU Uploading a video

greylockpartners.
Will the core action scale to enough users? 

Level of of motivation and ability
determines if action will occur. 

Mlllll...
It can be really hard to tell. 

Facebook Open Graph Distribution -
Examples of Onboarding 17MM New Users in 7 Days‘! 

Vi...
Signs of it vvorltirzigs

In 2011, Pinterest was
growing quickly.  A few things
,  stood out: 

~ Product with clear value...
Level 2: Retaining Users

Level 2

Product should get better the more it’s used. 
Users have more to lose by leaving the p...
So,  we’ve got
engaged users. 

That’s great.  Now the
question is whether the
users will stick. 

greylockpartners.
Retention Matters

45

40

35

30

25

20

15

10

5

0

Monthly Active Users (M)

1 2 3 4 5 6 7 8 9 101112131415161718192...
After 6 Months: 

45

40

35

30

25

20

15

10

S

0

Monthly Active Users (M)

/ 

1 2 3 4 5 6 7 8 9 101112131415161718...
After 3 Years: 

Monthly Active Users (M)

as Company A: 
‘° 5M new users per month, 
80% monthly retention

35
SD

25

—c...
How can you predict if engaged users will
stick? 

Investors look for products that have
accruing benefits as a user engag...
Accruing Benefits

The more you use the product,  the better it gets. 
This is largely because a consumer adds data to the...
Mounting Loss

The longer you stay with the product,  the more you
have to lose by leaving.  It becomes a product you
depe...
G EVE RNOTE’

- Evernote’s freemium model is
like a drug dealer offering a
little “taste” to hook users. 

- The more note...
. i I V ‘
‘ 4 A -.  ‘ -,  1 . 
A 1, 9 9 ii it

P

~H~. ._, _. I

I ,  —~-

7

- The more you pin,  the more
you become rel...
1.

Uri the other l1anc! ..

- A lot of anonymity apps look good for
Level 1 but fail for Level 2.

- Twitter has anonymit...
To Summarize

 

 

Products that have

.  . Give more value to Which makes it
accrumg benefits users over time more likel ...
Level 3: Self-Perpetuating

Level 3
Self‘ .  As users engage,  they create virtuous loops in
perpetuatmg the product.
Okay,  so we now have a growing
base of engaged users,  and a
sticky product. 

greylockpartners.
Now the question is whether the
engagement of existing users
creates virtuous loops in the
product. 

greylockpartners.
The strongest virtuous loop is a network effect. 

[A

More content More users pin

Ky‘ J

Better discovery
experience

gr...
But there are many other virtuous loops.  For
example: 

Sends pin  User _ Notifies / RU . 
to friend discovers pin existi...
Virtuous loops are really hard to
create — most products don’t have
them (though many try). 

greylockpartners.
G EVE RNOTE”

- As strong as Evernote is on
Level 1 and Level 2, it falls
short on Level 3.

- Evernote’s product is much
...
‘ rm

- Tinder has some

virtuous loops.  E. g, a
match sends a
notification to a user, 
which re-engages them. 

- But th...
Virtuous loops propel a company
forward. 

greylockpartners.
IQ Medium

Self- Level 3
perpetuating Medium continues to move
up the pyramid. 
Retaining users
Growing engaged users

 

...
The Most Important
Thing To Measure
We’ve talked about Over time,  investors
three things:  want to see: 

1. Growing Engaged Users —> Growth,  New users
cont...
The Ultimate Metric:  Cohort performance

Number of weekly

The dearest Way users completing the

to understand a core act...
Cohorts show: 

Growth —> Size of each cohort

Engagement —> Ratio of users performing
the core action

Retention —* Cohor...
There are different ways to visualize cohorts: 

 

232th:  ; a_
ii 2  
Triangle Heat Charts Line graphs

Maps

greylockpa...
If you track cohorts,  you will be
in good shape to demonstrate
your engagement hierarchy to
investors. 

greylockpartners.
Tavel’s Hierarchy of Engagement

The Goal
B $]; B+ An enduring,  multi-billion dollar company. 
uslness
Level 3
self" .  A...
Engagement is the fuel powering
most of the enduring,  $1B+ non-
transactional consumer companies. 

greylockpartners.
Thank you. 

Follow Greylock:  Contact me: 

(O) www. grey| ock. com Sarah Tavel

IQ medium. com/ @GreylockVC E stavel re ...
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Virtuous loops propel a company The Hierarchy of Engagement

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Virtuous loops propel a company
forward.

greylockpartners.

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