It’s no secret that global companies have been building Silicon Valley Innovation Outposts, but as Steve Blank cautions, many companies will find that they will simply get entertainment value in the form of Innovation Theatre instead of tangible benefits.

So for everyone involved in or thinking about global corporate innovation and Silicon Valley Innovation Outposts, below are the top 5 signs of Innovation Theatre with a suggested solution to fix each problem.

5. There is no fast track decision making and/or budgeting process for experiments.

A typical scenario is a large company speaking with a startup and saying all the right things. Then, once it comes time to actually close a pilot deal, the big guns from global headquarters (GHQ) are brought in with the 53 page due diligence questionnaire and the external legal counsel identifies 1,000 and 1 risks which need to be negotiated. Rightfully, the startup is thinking WTF. Big guns make sense when scaling up across your entire company but they are weapons of startup destruction at the pilot stage.

Solution
Create a fast track for pilot deals with startups. You have to go through the corporate process to create the fast track once, either using a pure internal approach or with an external partner. But once you go through this process, then when you engage with startups you can move at something resembling startup speed because the fast track is already in place.

4. You have no dedicated system for keeping track of startup ecosystem interactions and information.

Corporate and startup introductions are frequently made over reply all email chains with random unrelated subject lines like “Re: Running 5 Min Late”. In addition, companies commonly have various employees in different departments writing internal research reports at regular internals that nobody has time to read. That’s not a system, that’s Innovation Theatre.

Solution
You need a dedicated system, and hacking Salesforce for the purpose would most likely make a bad situation worse. There are now dedicated systems just for this, such as Kite, which focus on the needs of corporate innovation. If that feels like too much as a first step, keep it simple with a lightweight funnel tool like Pipedrive which can get you started for the cost of one meeting per month at a trendy coffee shop in SF (disclosure, we are investors in both Kite and Pipedrive because these are real tools solving real problems for real people like you).

3. Your front office team consists of people from a single ethnic group and gender.

Let’s say your front office team consists entirely of white men. This lack of diversity will leave you with a competitive disadvantage when it comes to finding true innovation. Put simply, it’s a dumb business decision. But lack of diversity is not limited to teams of white men. Many companies from other countries also have very homogeneous teams. A team of all Chinese or all Indian or all Japanese men is similarly challenged when it comes to diversity.

Solution
Diverse perspectives give you a competitive business edge. The obvious step is to hire from a more diverse talent pool. But if corporate hiring, budget or cultural hurdles are delaying the process to infinity, then at the very least find some external partners who have a diverse team to fill your gaps.

2. You manage tours of famous places and companies in Silicon Valley.

Even CEOs of global multinationals love selfies at famous places, famous events and especially with famous people. But if top leadership is spending time at tours of Facebook, Google and Apple campuses, unfortunately that’s simply startup tourism. Which came first at Google, world leading innovation or free food? Better not to confuse correlation with causation.

Solution
Spend more time in the trenches talking to actual startups. The reality is that you won’t have enough time to do everything directly yourself because there are simply too many options, so the most effective strategy is to find partners who can help guide you to the relevant startups for your specific needs. Your selfies won’t be famous now, but if you meet the right startups those selfies will be much more valuable in the future. And, more importantly, you’ll be much closer to the edge of innovation.

1. Getting distracted by the surface level Silicon Valley lingo.

The people in Silicon Valley have their own lingo. It starts with their speaking speed: faster than fast. They also randomly sprinkle in words like big data, machine learning and blockchain, which all started with some meaning originally but have become overused buzzwords with the passage of time. Finally, everyone picks up the habit of name dropping and can figure out a pathway of connections to at least someone from the PayPal Mafia. It’s all too easy to get distracted by this lingo and miss out what’s going on underneath the surface. Coffee shop lingo talk without any outcome is an all too common form of Innovation Theatre.

Solution
You need someone either on your team or an external partner who knows how to cut through the bullshit and find the brilliance because Silicon Valley has plenty of both. Someone who can connect you to the right people at the right time and, most importantly, people you can trust.

Beyond Entertainment

When building your Silicon Valley Innovation Outpost, make sure to avoid Innovation Theatre so that you can get tangible benefits. If you want entertainment value, go watch Silicon Valley, the show. It’s cheaper, and funnier.

I was recently in an Uber on the way to the airport when I started chatting my driver up. It turned out he had three similar on-demand kind of jobs—none of which were stable, traditional gigs.

This got me thinking: Many of today’s workers, and the younger ones in particular, are more entrepreneurial than their predecessors—despite the fact that they aren’t necessarily bona fide entrepreneurs.

More than 20 years ago, I landed my first real job: a full-time entry-level position on Wall Street at Fidelity Investments. Remember? Young professionals used to be able to get entry-level jobs at good companies and climb the ladder. But today, those jobs simply don’t exist, as many lower positions are outsourced or automated with technology. The economy has changed and new hires are expected to come to the job and start producing on Day 1. Hard to do with only a university degree.

Altogether, these trends have led to a generational bulge of middle-tier jobs. This area of the workforce is now occupied by people who usually would have moved out of those jobs faster, allowing the younger generation to advance sooner. But now they can’t get move upward at all, since folks in the middle tier stay there forever it seems. As a result, more and more people are leaving the lower rungs of traditional employment and are deciding to take part of the gig economy. That way, they’ll get the requisite experience to hit the ground running on Day 1 should they be offered a regular job by an established company.

How Young Workers Get Ahead in the Gig Economy

Want to land a job at Pixar? You’ll probably have to freelance for a while (think: YouTube design videos). Should you perform well in that role, you might get picked up full-time.

Within the next 5 years, many project as much as 50% of the US workforce will be made up of freelancers. This is both a blessing and a curse of the gig economy—especially as it pertains to younger people just entering the workforce. In the past, even those without a career path would fall into a nice profession simply by following the standard track. But today, you need to be more hustle-oriented and driven to reach just the first rung of many corporate ladders.

To be fair, there are exceptions to the rule. The career paths for lawyers and doctors might be the same due to the advanced education and certification required for those professions—and the free market probably won’t (and shouldn’t) change that. Nobody really wants a doctor who’s pieced together experience by performing operations on a gig-basis, right?

The Disruption of Venture Capital

While the rise of the gig economy has shaken up traditional career paths, it’s also enabled younger workers to make inroads into previously exclusive industries—like venture capital.

It used to be that, to get into VC, you needed an introduction from a family member or friend to land an internship. After that, you’d become an analyst. Do well there, and you’d earn your VC stripes. Then leave and go to a fancy Business School and go to a new VC fund as an associate. The better the MBA, the better associate job you’d get and so on.

That’s not true any longer.

Nowadays, there are several hundred VC firms. And hiring managers there are looking for entrepreneurs or former founders with operating experience. For example at my fund, Fresco Capital, we have three partners and three associates, and I am the only one with an MBA -and that was by accident! 🙂

What the Gig Economy Means for Young Workers

But remember, thanks in large part to the gig economy, there are other ways to meet that entrepreneurial criterion or grab that operating experience that don’t involve b-school.

Just take a look at Elon Musk’s story. When he started out, the serial entrepreneur had his sights set on working at Google. He waited outside the company’s Mountain View campus hoping to talk to people and was eventually rejected. Of course, we know how Musk’s story has turned out. He’s started a bunch of big-time businesses, which just goes to show that there are very non-traditional ways to cut your teeth nowadays.

At first, the gig economy looks scary. There’s no traditional go-to school to attend to land your dream job. But the gig economy does provide a democratization of talent—work is there, so long as you’re willing to hustle. Graduating seniors should consider the gig economy as a viable means for getting those tougher jobs.

The first step to landing your dream job starts with understanding that the economy is changing. The second step? Realizing you need to work harder and harder to beat out the next person.

What the Gig Economy Means for Employers

If large companies decide to hire kids right out of college simply because of where they went, they’re going to miss out on the best and brightest workers—it’s as simple as that.

More and more young workers are getting their first experience in the freelance economy. If you’re afraid to tap into this pool of talent, it’s only a matter of time before your company will lose all of its competitive advantage.

We’re going through a transitional period in the economy, and the traditional means of getting a job doesn’t apply anymore. The sooner both young professionals and their prospective employers understand this, the better off all parties will be.

What’s going on with smartphones these days?

The smartphone slowdown
It seems like every major player is reducing, and reducing, forecasts.

Here’s the big picture:

Smartphones are effectively ex-growth.

Is mobile dead?
Many people will jump directly to the conclusion that mobile is dead.

But…

MOBILE > smartphones

Mobile is much, much, much bigger than smartphones. More specifically, the value has clearly moved up the stack from the phones themselves to how we use them. The first wave of innovation has been doing things we already do, just better. Want to get a ride from a stranger in a car? It’s an old idea, now much improved.

Forget SoLoMo, just Go
Doing things better was also behind the theme of SoLoMo. Only, up until now, it didn’t really work that well.

And then along came Go, or more specifically Pokémon GO. Running around chasing virtual characters in the real world is not an old pastime. This is totally new (which of course means lots of new problems too).

Pokémon GO has turned your smartphone into a shell. Yes you need the shell, but all of the excitement comes from the ghost in the shell.

Smartphones are shells. And they break easily.

Mobile is the ghost. It lives on.

A lot of startups—even ones with enormous valuations—are really just two-sided marketplaces.

eBay connects buyers and sellers. Uber connects drivers with those who need rides. Airbnb connects homeowners with travelers who need a place to stay. YouTube connects content creators with those looking to be entertained. Dating sites—like OKCupid—connect daters with dates. The list goes on and on.

In each of these two-sided marketplaces, there is supply and demand. There are a finite amount of people selling memorabilia on eBay, a finite amount of drivers on Uber, a finite amount of hosts on Airbnb, a finite amount of (quality) videos on YouTube, and a finite amount of “dateworthy” individuals on dating sites.

When companies are just starting out, there comes a time in every founder’s life when he or she has to ask themselves whether their startup is going to focus primarily on enhancing the supply side of the equation or nurturing the demand side. When I mentor early-stage companies just getting started out, it’s a question I get seemingly every day.

So which is it?

Why You Need to Focus on Supply

There’s only one clear answer to the question: Follow the pattern of the most successful startups, and focus like a laser on supply.

Why? Switching costs, or the costs incurred—money, energy and time—when a supplier or consumer switches platforms.

There are a lot of barriers standing in the way between a seller on eBay and the potential buyer, for example. The seller needs to create an account. Then he or she needs to take pictures of whatever’s for sale. Next, it’s time to create a listing. Finally, the seller needs to cross his or her fingers and hope that a buyer is interested in conducting a transaction with someone who hasn’t been reviewed by peers.

Over time, if the seller conducts successful transactions, his or her rating will go up. All of this, of course, doesn’t happen overnight.

But once a seller commits to establishing a presence on eBay, it’s unlikely he or she will abandon the platform and set up shop elsewhere. The switching costs are too high.

Why You Shouldn’t Focus on Demand

Thanks to technology, the switching costs associated with customers not finding what they want are negligible.

Imagine a customer goes to eBay and finds only one seller offering the item he or she is looking for. Unfortunately, the item appears to be extremely overpriced. To solve the problem, the customer simply needs to click on the search bar of his or her browser and navigate over to Amazon. Should that fail, the person might head to Jet or conduct a simple Google search. They might seek out even other alternatives.

The associated switching costs are infinitesimal. All shoppers need is a few seconds.

Examples of Startups Targeting Supply

Need a little more convincing on the virtues of focusing on the supply side of your platform? Consider these three cases:

• Airbnb works super hard to get its hosts online. It provides free professional photographers to help make listings beautiful. The company also provides helpful advice (e.g., provide soap!) that hosts can leverage to increase the chances their guests have enjoyable stays. This handholding helps bring hosts into the Airbnb family. Which is a good thing, considering how boring the site would be if it only had three hosts (i.e., three suppliers) in each city.

• YouTube helps content providers produce better videos. The site offers a ton of free tools, including digital studios, editing support, and analytics. It also offers revenue sharing. Altogether, these perks translate into the reality that there are practically countless users uploading infinite hours of footage to the site. Not only can you make better videos, you can make money.

• Ashley Madison, the online dating site that encourages infidelity, infamously went as far as creating fake supply to encourage users to engage with the platform—something that was uncovered when the company’s private data was posted online. According to its own statistics, Ashley Madison had 31 million male users and 5.5 million female users. Turns out up to 95% of those female users weren’t real, but the site’s owners had to figure out how to keep the male users coming back.

If you build it, they (customers) will come—assuming there’s enough supply of whatever it happens to be. By focusing on the supply side of the equation, it becomes that much easier for your startup to reach the next level.

As I write this, I am sitting in a hotel in Moscow, Russia. I was recently invited to speak at an event called Startup Village, a 15,000 person strong summit encouraging tech and entrepreneurship in Russia. The organizing team at the Skolkovo Foundation reached out to me several months ago offering to fly me to Russia to give a keynote speech about our global investment approach at Fresco Capital. What can I say, I’m a curious character and have the tendency to say “Yes!” to new and strange experiences, so… here I am.

Now, as I sit here alone and slightly intimidated in a new, strange city I never even knew how to imagine, I thought it would be a good moment to reflect on why and how I ended up here. While that’s a fun personal exercise, the point is really for you, Dear Reader, to understand exactly what is the point of venturing out of your comfort zone. Why take a global approach if your market is right in your own backyard? Whether it’s for your life, for building your startup, or for your investment strategy — what are the reasons why taking a global strategy is worth the trouble?

By way of background, let me tell you a little about Fresco Capital, the global, early stage venture fund where I am a Managing Partner. We are different from other VC firms in that our core focus is helping companies expand globally. All of our partners have built cross-border businesses. We have all lived in different parts of the world. We have ventured far away from what we know, both personally and professionally.

We know first hand why it makes sense to take a global approach. We also know how fucking hard it is. Moving beyond where you came from takes a lot of guts, perseverance, and help. So, that’s exactly what we do. We invest in companies and help them expand globally.

In order to do that, our team is global at its core. We have team members in Silicon Valley, in Oakland, California, in Dubai, Hong Kong, Singapore, and I am based in Tokyo, Japan. We have more than 45 portfolio companies in California, Canada, Utah, New York, Texas, London, Barcelona, Estonia, Hong Kong, Shanghai, and Manila. Over the past few years, I have been lucky enough to spend time with startups and looking at companies across the United States, South America, India, Asia, and New Zealand. And now, Russia apparently!

I guess I feel a bit egotistical telling you all this, because frankly, I never thought I’d ever be qualified to be talking about international opportunities. In fact, who I am and where I came from is actually the opposite of global.

Yep, I’m from a boring (sorry Mom and Dad, but it’s true), suburban town in Illinois. Below, you will find a picture of me playing with corn, because the area where I grew up used to be farmland. I went to a big, public high school. The same one that my parents went to. And even some of their parents went there too! When we went on family vacations, we loaded up our car and drove out West to Colorado, Wyoming, and Montana. Don’t get me wrong, I had a wonderful upbringing for which I am eternally grateful — but my point is that it was very American, and not very global at all.

Why then? Why go through all the trouble of not only building a global business myself, but now raising a global venture fund, from LPs all around the world, that specifically invests in businesses and helps them expand globally? Lucky for me, the number one thing I’ve learned is being “global” is not about where you’re from. It’s not even about where you’ve been. It’s about how you think, and what you do about it.

Here are the TOP 5 REASONS why you should be thinking and investing globally, no matter where you are from.

What are the largest companies in the world? In fact, the largest companies are global. They are selling internationally because no mater where you live, even if you live in China, I 100% guarantee you that there are more people in the world outside of your country than there are in it. Apple now derives 25% of it revenue from China, +170% growth over the past 3 years. Facebook is seeng its fastest user growth in Asia. Amazon. Uber. Airbnb. All worth billions and billions of dollars and all have expanded globally to fuel their continued growth.

Bonus Reason: Meeting different types of people, being exposed to different ideas, opportunities, and challenges, opens your mind to things you never thought possible. I don’t know about you, but I’m in this whole technology and startup thing to change the world. It so happens the world is a pretty big place, so it’s a damn good time to get started exploring it.

Our firm name Fresco Capital is inspired by the timeless fresco paintings of masters like Leonardo da Vinci.

You may wonder “how can there be such a thing as Leonardo da Vinci venture capital and startup lessons?” as he lived hundreds of years before our modern startup ecosystem.

Yet Leonardo da Vinci left us a record of his observations and opinions in amazing notebooks. Many of his attitudes and habits are explored in How to Think Like Leonardo da Vinci. Here are five Leonardo da Vinci venture capital and startup lessons:

1. Curiosita: insatiably curious approach to life.
Curiosity beats raw intellect for anything related to startups because you need to keep asking questions. Once you assume that you know all the answers, the company is probably going to fail. On a related note, it’s hard to be curious about something when purely motivated by money. It’s much easier when you are driven for the sake of learning and money is the by-product.

2. Dimonstratzione: commitment to test knowledge through experience.
Learning through books and from others is helpful but there is no substitute for learning through experience. The scientific method of formulating a hypothesis and then testing it is extremely valuable during this process. Also, the experience of surviving and growing through the failures of experiential learning leaves scar tissue, which makes you stronger in the future. Of course, it doesn’t always feel good at the time.

3. Sfumato: willingness to embrace ambiguity, paradox, and uncertainty.
Startups are defined by ambiguity, paradox and uncertainty. There is never enough data or evidence to make any important decision obviously clear except in hindsight. Every choice has both pros and cons. Most of the time, the only choice is to move ahead into the unknown while maintaining an open mind about feedback just in case you need to change course quickly.

4. Arte/Scienza: balance between science and art, logic and imagination.
Some people get obsessed about the technology in startups. In the process they forget about people and emotions. True success requires a blend of science and art, and this is especially true in the early stages of building a company. To build something with global scale, a basic human emotion needs to be satisfied at some point in the value chain, even if it can be described by cold, hard logic.

5. Connessione: recognition and appreciation for the connectedness of all things and phenomena.
Nothing exists in isolation. Decisions, actions and results always have context. Startups by definition have limited resources and so it is especially important for them to leverage the surrounding ecosystem and do more with less. As part of that, systems thinking has to include a strong appreciation of time, including when to move quickly and when to be patient.

There are many modern theories about venture capital and startups but the reality is that the core principles for success have been around for centuries. These Leonardo da Vinci venture capital and startups lessons illustrate that he would fit right into the current global startup ecosystem.

Photo credit: Luc Viatour

Planners from all over the world try to replicate the success of Silicon Valley with varying levels of success. Everyone from New York City (Silicon Alley) to London (Silicon Roundabout) to Hong Kong (Silicon Harbour) to Moscow (Skolkovo) has mimicked Silicon Valley in an attempt to build their own version of the lucrative startup hub.

The problem is that Silicon Valley has unique features that have allowed the region to become the world’s center of gravity for innovation. Simply copying the things that allowed Silicon Valley to become such a success won’t work, as some regions have already discovered. The tech hubs need to play to their strengths and evolve in their own unique ways.

Silicon Valley’s Recipe for Success

It’s easy to see why governments want to create their own version of Silicon Valley when looking at the valuations the California region is blessed with. There are now at least 74 startups there valued at more $1 billion each. The total value of these so-called “unicorns” is $273 billion.

The reasons for Silicon Valley’s success are many and most of them can’t be easily copied. Geographically, the region is perfectly located near San Jose, San Francisco, and Oakland. Historically, Silicon Valley has experienced decades of success with well-established companies like Google, Facebook, Apple, Fairchild Semiconductors, Intel, Tesla, and other esteemed companies.

In Silicon Valley, everyone knows somebody who has gotten rich off of stock options they think they’re smarter than…which in turn propels them to take a risk at a startup. Perhaps most important for the region’s growth is this competitive and creative culture that continues to allow so many companies to thrive. Not to mention, an endless supply of elite students from Stanford and Berkeley graduate (and dropout) each year to create the next crop of potential tech giants right in the Valley.

But this formula can’t be bottled upon and shoehorned in anywhere. The wealthy people in San Francisco might work at Google and the likes, yet in Hong Kong and New York, the upper class tend to come from finance, and in Los Angeles it’s Hollywood—hopefully you get the idea. This still doesn’t stop governments and business people from trying to replicate Silicon Valley without taking culture and demographics into account.

Being Unique: Playing to Your Region’s Strengths

Every would-be tech hub has its own unique characteristics and features that need to be taken advantage of. If you go to a Starbucks in Los Angeles, you’re likely to bump into a celebrity or similar entertainment personas. For Hong Kong or New York City, odds are high that you’ll fall into a conversation around recent market performance and SEC developments.

Playing to a specific region’s strengths helps lead to success. Modeling a hub exactly from Silicon Valley in areas that don’t carry the same characteristics becomes a major disadvantage. New York, Hong Kong, and London are better suited to be fintech startup hub than Silicon Valley. Los Angeles is better suited to be an entertainment startup hub than Silicon Valley. Playing to those unique strengths make more sense than trying to replicate Silicon Valley.

Fostering Growth

Government benefits are a welcome way to help foster startups, yet they’re only the baseline and not the endgame. All those helpful benefits (friendly tax policies, real estate deals, subsidies, incubators, etc) only go so far. The barriers of entry to create a tech innovation center in the vein of Silicon Valley are so high that these benefits are simply the table stakes. A bigger, greater hook is needed for regions to succeed.

Regions need to embrace what makes them unique and build off of that. With everyone trying to copy Silicon Valley, there’s plenty of room for new players with their own strengths. Any place that simply tries to do exactly what Silicon Valley is doing will pale in comparison to the original.

During the snowstorm of January 2016, travel basically stopped from airports in places on the East Coast of the US like New York City. People couldn’t get out.

And even when the weather cleared up, the travel problems continued. Imagine your chances of getting out from an airport on time when more than 3,900 flights are canceled in one day. You have as much chance of flying on an airplane as a flying on a snowflake in this kind of situation.

Similarly, there has been a lot of talk about a startup winter during in 2016. The consequences don’t look great for everyone involved. Especially people waiting for startup exits.

The last plane just departed
Did startups and investors miss getting the last seats on the startup exits airplane out of startupland? During 1Q2016, we witnessed the IPO of SecureWorks, which is a tech company though not exactly a classic venture backed startup. This promptly resulted in zero excitement during the aftermarket.

If there are no new tech companies going public for IPOs, what other modes of exits exist? The traditional US tech giants are slowing down their M&A activities. The trend at Google is well known while many others are being distracted by activist investors to pursue more share buybacks. Of course Facebook is always a wild card but that’s a pretty short list.

So it seems like both the IPO and tech M&A exit airplanes really have left the airport and everyone still waiting is stuck. That’s terrible news for startups and investors.

Forget about flying
Would other types of exits be possible? As a very rough proxy of how important tech companies are, the sector breakdown of the S&P500 Index shows that tech is the largest sector at about 20% of the total index.

That still leaves 80%. Traditional non-tech companies are clearly big, but are they interested? They’re not flashy, so think of them as trains. Yes, they are increasingly getting involved in startup ecosystems, including M&A exits. Most of these are smaller deals which work very well for capital efficient startups. So that may not leave much space to cram many unicorns inside. But there are also larger outliers, like Monsanto buying Climate Corp or GM buying Cruise.

There are obviously differences between planes and trains. So before running to catch a train, it’s worth understanding what you’re getting into. But at the very least there’s an alternative way to get an exit. For some startups, the train may actually be the better choice.

There’s no way on earth we’re going to get out of here tonight
Beyond trains, is everyone else simply stuck with no hope? Sticking with the airport analogy, there’s another entire building which most people haven’t noticed.

It’s called the international terminal.

The international terminal is gigantic and has umpteen airplanes, plus high-speed trains too, with heaps of seats looking for passengers. Companies from China are leading in activity and the momentum shows no sign of slowing. Importantly, it’s not just China – cross-border M&A is a global trend.

Why is this happening now? These global companies are just starting to feel the potential opportunities, and more importantly risks, of tech innovation. For people living and working around the Silicon Valley tech sector, the mantra of software eating the world is old news. But for companies on the outside looking in, the impact is just starting to be realized.

So whether it’s late or early depends on your relative position. If you’re trying to catch a domestic airplane for a startup exit, it may be too late. Instead, check out the train schedule. Even better, head over to the international terminal where the planes and trains still have plenty of seats available.

Just in case, make sure to keep an eye on international weather conditions.

You need more than hope and good intentions if your startup relies on viral growth. You need data and metrics to drive decision making.

Going viral isn’t an exact science, but data plays an important role in gauging how successful your customer acquisition efforts will be. Focus on the virality coefficient before all other metrics. It shows the impact of each product choice on growth. The formula, developed by David Skok, illustrates how each new feature impacts your customer base.

Virality-dependent businesses need to craft their strategy, and every decision they make, around the virality coefficient to be successful..

Otherwise, you’ll sound like these businesses.

(Not) Finding Growth

A number of companies have pitched me by saying they will “go viral” and attract users when it’s obvious that they have no believable plans to make it a reality. Many don’t even have share buttons on their apps!

One company made it so difficult to share their app with others that I never used it again. That’s a virality coefficient of -1. Clearly, their focus wandered.

Let me explain what that means.

The Virality Coefficient Explained

There are four variables used to determine the virality coefficient:

• Initial customers (custs)
• Number of invites sent out (i)
• The Conversation rate of customers (conv%)
• The number of days it takes to complete a full Viral Cycle (ct)

Combine these factors to calculate it using this spreadsheet.

Virality in Action

Let’s say you have ten users and send them ten invites each (100 total invites). With a 20% conversion rate, you’ll finish with a total of 30 customers after the first campaign. Using the sheet I linked to previously, that gives you a virality coefficient of two. Invites * the conversion rate or rather 100 * .2 = 2.

For the next campaign, send out 10 invites to the 20 new users (200 total invites). Assuming there’s no churn or change in the virality coefficient, a 20% conversion rate will bring in 40 new users for a total of 70 users.

Look at the below chart to see just how much of impact each campaign can have. Due to its compounding effects, even small changes in your virality coefficient will have massive impacts on your business.

There needs to be a coefficient of at least one for there to be growth. Anything less means you’re churning customers.

Crafting a Plan

To determine which feature to develop in your product backlog, sort the features based on the predicted increase in the virality coefficient. The backlog should look something like this chart.

You need a virality business plan to map out exactly how you’re going to acquire new customers. The plan should determine what features to prioritize, what incentives there are for users to share, and what level of engagement you want to focus on. Don’t forget to determine which promotion channels to use too.

Determining what makes user acquisition work might seem like an art, but using the virality coefficient can change that. Use your data to drive the decision-making process. Even a small increase could mean (hundreds of) thousands of new customers over time.