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How Unicorns are Launched: WhatsApp

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July 5, 2023
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3
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In our digital age, WhatsApp has become a household name, revolutionising the way we communicate. But have you ever wondered how this everyday app transformed from a simple idea into a billion-dollar unicorn? In our series "How Unicorns are Launched", we delve into the captivating journey of WhatsApp. We'll explore its early days, its leap of faith from a status sharing app to an international messaging platform, and how it harnessed the power of agile development, lean start-up principles, and rapid MVP launch to achieve phenomenal success. This is more than just a success story – it's a testament to the power of launching early, iterating fast, and finding a product-market fit. So, join us as we unravel the gripping tale of WhatsApp's rise to global dominance.

Background

WhatsApp, one of the most popular instant messaging applications in the world, was founded by Brian Acton and Jan Koum in 2009. With over 2 billion users worldwide, it's a fantastic example of a startup becoming a unicorn – a privately held startup company valued at over $1 billion.

Founders

Whatsapp founders image

Hailing from Ukraine, Jan Koum was an immigrant who possessed deep technical knowledge and exceptional coding skills. From Michigan, Brian Acton was a product tester with a keen eye for design and usability. They crossed paths while working at Yahoo, where their unique skill sets complemented each other perfectly. Koum's prowess in programming paired with Acton's practical insights into product testing created a dynamic duo that was hard to beat. Although they were both highly accomplished in their fields, they shared a mutual dissatisfaction with the pervasive nature of advertising in the tech industry. This shared perspective greatly influenced the core principles of WhatsApp, creating an app that valued user privacy and simplicity above all.

Inspiration

Frustrated with missing calls and messages while at the gym, Koum envisioned an app to show 'statuses' next to individual names in the user's network, hence the name 'WhatsApp'. This idea evolved into the globally-renowned messaging platform we know today.

Whatsapp inspiration image

MVP

Launched in 2009, WhatsApp's MVP was a simple status update application built in a few weeks. Its unique approach was to create a user-friendly, ad-free environment that stood apart from bloated, ad-ridden social networking sites. The MVP was a moderate success, but the founders soon realised the true potential lay in messaging.

Whatsapp original image

Iterations

WhatsApp's growth didn't occur overnight, but was a result of multiple iterations and learning from user feedback.

Pioneering Instant Messaging: A Paradigm Shift

The first major iteration came with the introduction of the messaging feature. Initially, WhatsApp was designed as a status updating tool, but the founders soon recognised the potential for instant messaging. Their hypothesis was simple: users would value a direct, uncluttered channel of communication with their contacts. This pivot towards messaging proved to be a game-changer, significantly increasing user engagement and growth.

Whatsapp on old phone

The Global Address Book: Revolutionizing User Connections

Another key hypothesis was the impact of a global address book. Unlike other messaging apps at the time, WhatsApp automatically connected users with all their phone contacts who were also using the app. This feature was tested and rolled out in late 2009. It was a successful move, as it removed the need for manual friend requests, simplifying the user experience and speeding up the adoption rate.

Real-Time Status Updates: Transforming into a Chat Platform

WhatsApp also hypothesised that a shift to real-time status would increase user engagement. Initially, statuses took some time to update, but with advancements in Apple's push notification technology, they transitioned to real-time status updates in 2009. This enabled users to engage in ongoing conversations, effectively transforming the app into a chat platform. This was a successful iteration that led to a significant increase in daily active users.

The Freemium Flop: Learning from User Preference

A less successful iteration was the brief experiment with a "Freemium" model. The team believed users might be willing to pay $1 for a premium version of the service. However, this led to a slowdown in user acquisition, demonstrating that the app's user base valued the free service. This experiment was quickly discontinued, but it taught the team valuable lessons about their users' preferences.

Through these iterations, WhatsApp learned to focus on simplicity, real-time communication, and user experience, all of which would become key to their eventual success.

Finding Market Fit

WhatsApp raised its Series A funding in April 2011, amassing $8 million at an undisclosed valuation. They found their market fit by catering to the global need for a simple, reliable, and ad-free messaging platform. User base skyrocketed from 200 million in April 2013 to 400 million by December the same year.

Whatsapp market fit image

Now

Today, WhatsApp is valued at around $50 billion, with over 2 billion users globally. Their success story is an inspiration for early-stage startups and testament to the power of launching early, iterating fast, and adapting to user needs. Their focus remains on providing a reliable, user-friendly, and ad-free communication platform.

In summary, WhatsApp's journey from a simple status update app to a global messaging giant shows the power of lean startup principles, agile product management, and quick MVP development. It underscores the importance of launching early, iterating fast, and the need for software and web development to be customer-centric. Ultimately, WhatsApp's success hinged on finding their product market fit and adapting to the changing market dynamics.

Whatsapp through the years image

1 - Prioritise new features / Address User Drop-Off

When you're running a SaaS company, deciding which features to roll out next can make or break your product's appeal. Additionally, understanding why users leave your SaaS platform can be as important as attracting them in the first place. By keeping an eye on KPIs like Churn Rate and Engagement Rate, you gain invaluable insights into what keeps users satisfied and what might be pushing them away. Let's look into some crucial KPIs which can guide you in making well-informed decisions about your next big feature update:

1. Feature Conversion Funnel:

This KPI measures how effectively users move from initial engagement to full use of a feature. It helps SaaS companies identify where users drop off, guiding improvements to enhance feature adoption and prioritising development efforts.

You can use the following formula to calculate this KPI:

Formula for calculating the conversion rate from Stage A to Stage B, defined as the number of users moving from Stage A to Stage B divided by the total users as Stage A.

2. User Engagement Rate:

For SaaS companies, engagement rate measures how actively users are interacting with the application. High engagement rates are often indicative of a valuable and sticky product, reducing the likelihood of user drop-off.

The calculation for this KPI can be done using this formula:

Formula for calculating user retention of a feature, based on the ratio of users still engaged with the feature after a specific period.

3. Customer Satisfaction:

This KPI measures how satisfied customers are with a product or feature, typically through surveys. High satisfaction rates correlate with lower churn and higher loyalty, making it essential for evaluating user experience and identifying areas for improvement in SaaS offerings.

The calculation for this KPI can be done using this formula:

Calculation of Net Promoter Score, subtracting the percentage of detractors from the percentage of promoters among surveyed customers.

2 - Accelerate User Growth

Growing a user base is one of the most exciting challenges in the SaaS world. It's not just about bringing in new sign-ups but ensuring they stick around and find real value in your product. We'll delve into effective SaaS KPIs like Monthly Active Users and the Growth Rate of New Signups that can help you craft strategies to not only attract more users but also engage them deeply:

1. Customer Acquisition Cost (CAC)

The CAC is a crucial KPI for SaaS companies, as it quantifies the cost involved in acquiring new customers. Understanding this metric is essential for evaluating the effectiveness of your marketing strategies and ensuring sustainable growth by maintaining a balance between expenditure and incoming revenue.

To find this KPI, use this formula:

Calculation of Customer Acquisition Cost, total marketing expenses divided by the number of new customers acquired.

2. Growth Rate of New Signups

This KPI tracks the percentage increase in user signups over a given period. It's particularly useful for SaaS businesses to monitor momentum in market penetration and user interest, helping to direct marketing efforts and product development.

This formula is used to calculate the KPI:

Calculation of Customer Acquisition Cost, total marketing expenses divided by the number of new customers acquired.

3. Monthly Active Users (MAU)

In the SaaS world, the MAU KPI measures the number of unique users who interact with your software within a month. This metric is vital as it indicates the active reach of your product and helps gauge the overall stickiness and appeal of your platform.

The following formula can be used to calculate this KPI:

Formula showing how to calculate Monthly Active Users, counting unique users engaging with the service within a month.

3 - Provide Product Metrics to Investors

Communicating effectively with investors is crucial for any SaaS business. Clear and precise metrics like Monthly Recurring Revenue (MRR) and Churn Rate not only showcase the financial health of your company but also reassure investors about the scalability and stability of your business model. Let's walk through the vital KPIs that paint a transparent picture of your SaaS company's performance for its stakeholders:

1. Monthly Recurring Revenue (MRR)

MRR is a key financial metric for any SaaS business, reflecting the total predictable revenue generated from customers every month. It's essential for investors as it provides a clear picture of the company’s financial health and growth potential.

Here’s the formula to calculate this KPI:

Formula for Monthly Recurring Revenue, summing up all recurring revenue generated by customers each month.

2. Churn Rate

Churn rate is an indispensable KPI for SaaS companies, indicating the percentage of customers who discontinue their subscriptions within a specific period. A lower churn rate suggests a higher customer satisfaction and product-market fit, which is critical for long-term success.

This is the formula for calculating the KPI:

Formula for calculating churn rate, represented as the percentage of customers lost over a specific time frame.

3. Lifetime Value (LTV)

LTV measures the total revenue a SaaS company can expect from a single customer throughout their relationship. This KPI is crucial for understanding how much a company should invest in acquiring customers and for determining the profitability of long-term business strategies.

Use this formula to find the KPI:

Equation for calculating customer lifetime value, which estimates the total revenue a business can expect from a single customer.

4 - Optimise Revenue Generation / Monetisation

Turning your SaaS platform into a robust revenue-generating machine requires more than just great software; it needs a smart monetisation strategy. By focusing on KPIs like Average Revenue Per User (ARPU) and Conversion Rates from Free to Paid, you can really dial in on what makes your users upgrade and how to boost your overall profitability. Let’s break down these KPIs and explore how you can use them to fine-tune your monetisation efforts for maximum impact:

1. Average Revenue Per User (ARPU)

ARPU is a critical financial KPI for SaaS businesses, measuring the revenue generated per user. It helps in assessing the revenue impact of different operational strategies and in fine-tuning pricing models.

Here's the formula you need to calculate this KPI:

Formula to calculate Average Revenue Per User, total revenue divided by the number of users.

2. Conversion Rate from Free to Paid

This metric tracks the percentage of users converting from free trial versions to paid subscriptions. For SaaS companies, a higher conversion rate indicates effective monetisation strategies and a compelling value proposition.

The following formula can be used to calculate this KPI:

Graph showing the conversion rate from free to paid users, calculated as the ratio of users who upgrade to a paid version.

3. Revenue Growth Rate

The revenue growth rate is an essential KPI for SaaS businesses, showcasing the rate at which the company's revenue is expanding. This KPI is vital for investors and stakeholders to assess the overall business growth and scaling capacity.

You can find this KPI using this formula:

Formula for calculating revenue growth rate, expressed as the percentage increase in revenue from one period to the next.

5 - Improve Business Resource Allocation and Strategy

Ensuring sustainable business growth and operational efficiency is paramount for any SaaS business. Key performance indicators (KPIs), such as the LTV:CAC ratio, provide a clear picture into the returns generated and optimal resource distribution. Let's dive into the KPIs that will help you strategically allocate resources, adjust marketing strategies, and effectively balance customer acquisition with retention:

1. Customer Lifetime Value to Customer Acquisition Cost Ratio (LTV:CAC)

The LTV:CAC ratio is a vital KPI in the SaaS industry, providing insight into the relationship between the lifetime value of a customer and the cost to acquire them. A healthy ratio indicates that a company is spending efficiently on customer acquisition while maximising revenue from each customer. The bigger the multiple, the more budget you can put into growing a team and customer growth.

To find the KPI, apply the following formula:

Formula showing the ratio of Lifetime Value (LTV) to Customer Acquisition Cost (CAC), a key indicator of the profitability of acquiring new customers.

2. Customer Acquisition Cost Payback Period

The Customer Acquisition Cost (CAC) Payback Period is a critical metric for SaaS businesses. It measures how long it takes to recover the costs of acquiring new customers, helping companies evaluate the efficiency of their marketing and sales efforts. A shorter payback period means a quicker return on investment, guiding better financial and strategic decisions.

This formula will help you calculate the KPI:

Formula to determine the payback period for customer acquisition costs, calculated by dividing CAC by monthly profits from a customer.

3. Market Penetration Rate

The Market Penetration Rate is essential for understanding a SaaS company's market impact. It measures the percentage of the total addressable market that the company has captured. This metric helps assess competitive position and growth opportunities, indicating how well the product is adopted in the market.

Use this method to calculate the KPI:

Formula for market penetration rate, shown as the percentage of potential customers in a market who are actual customers.

In wrapping up, it's clear that understanding and using KPIs effectively is vital for any SaaS business that wants to grow and thrive. By focusing on key metrics like Customer Acquisition Cost (CAC), Annual Recurring Revenue (ARR), and Lifetime Value (LTV), you can get a clear picture of how your business is doing and where you need to go. These KPIs aren't just numbers—they're powerful tools that help you and your team make smart decisions and reach your goals. By tracking the top three KPIs for each of your business objectives, you'll keep your SaaS company agile, competitive, and on the right track for growth.

Next Steps

If you're curious about how we apply these principles in real-world scenarios, we invite you to explore our projects. Visit Thought and Function Projects to see how we put theory into action and drive success in SaaS through strategic use of KPIs.