One of the first blog posts that Boris shared with me when I was starting out is “Don’t forget your logged out users” by Fred Wilson. Fred notes that with many social platforms, a huge number of their regular users don’t actually login because they are able to derive value from their services on a “logged out basis”. As a result, he advises entrepreneurs to build services for those users that lead to more engagement, ultimately motivating them to log in.
But what happens once someone logs in?
Fred describes the general 100/10/1 rule as applied to social platforms, where 1% of users will create content, 10% will engage with it, and 100% will consume it once they are logged in. This thinking inspired me to come up with a framework for a user engagement pyramid that I have been encouraging our portfolio founders to create for themselves.
Too often, we are presented with a collection of acronyms: LTV, CAC, ARPU, MRR, GMV, etc. While these metrics provide a high-level view of the business, we know that they are vanity measures, symptomatic of what is going on behind the scenes. Instead, I like focusing on the core factors that drive the KPIs above.
Take a few seconds to think about it. What is the most important number to your business? What is the user activity or behaviour that you consider to be a measure of your success?
What is the user engagement pyramid?
You can create one in two steps:
- At the top, place the activity that you determine to be a sign of someone who is most engaged with your product. Typically, this is the factor driving your most important metrics.
- Next, consider all the other activities that someone can do, and place them in decreasing order from what is the hardest / has the most friction for someone to do / requires the most energy, to what is easiest.
For example, if we were to take a social network like Facebook or Twitter, we might end up with something that looks like the diagram below (n.b. I’ve tried to present this in the most generic way possible). Social networks know that “user-generated content is king”: the most active users (creators) who post status updates, photos, or links are going to drive others to come to the platform time and time again. They also understand that creators continue to be inspired when they are recognized for their contributions via shares, comments, favourites, etc., for their posts. Given this positive feedback loop, it becomes clear that the goal of these social networks is to move a logged in user up the pyramid.
How is this beneficial?
An engagement pyramid grounds your business metrics in something real. It drives home your ultimate user engagement and helps you develop the right processes to get there. By creating one, you can:
- Determine whether the data you’re collecting is the data you actually need (i.e. a good sanity check).
- Learn what your users are doing and what it means to be engaged. This helps you differentiate between user types, instead of simply grouping all DAUs and MAUs together as “logged in”.
- See which activities are correlated with the highest level of engagement and then focus your efforts on getting those activities to happen. Note that not every user has to do every action (i.e. a user doesn’t need to comment on someone’s post in order to post their own content).
- Rally your team, and agree on and align to your mission. This is a great team-building exercise to make sure everyone is on the same page.
Keep in mind this engagement framework can also apply to marketplaces and SaaS companies. For marketplaces, you will probably have two pyramids – one for the buyer and one for the seller – and for SaaS, the pyramid likely maps closely to the sales funnel. In all cases, the idea is to come up with the right framework to quantitatively analyze your user data effectively and efficiently.
I’d love to hear your thoughts and experiences on creating your own engagement pyramid. Feel free to share in the comments below.