Alex Schultz (Facebook VP of Growth) explains how to estimate reasonable retention targets for startups. He uses a physics anecdote (Jeffrey Taylor using dimensional reasoning on a 1950 Trinity bomb photo) to motivate dimensional/ballpark estimation. He shows how to estimate retention by comparing a product's active-user counts to addressable population sizes (e.g., Internet users, smartphone owners, country populations) and cites examples: Facebook ~1.3B active users vs ~2B internet users; WhatsApp ~600M users; verticals differ — e-commerce may thrive with ~20–30% monthly active retention, while social products need much higher initial retention (around ~80%) to become massive.
Questions this video answers
About 2 billion (speaker gives 2.3–2.4B then settles on ~2B)
About 1.3 billion active users
About 600 million active users
Around 20–30% monthly active retention
Around 80% retained among early users
Chapters
So the next obvious question that people ask over and over and over again is, okay, what does good retention look like? Sure, I can have 5% retention, but I'm guessing that Facebook had better than that. So that's not going to be a successful business. And I get really pissed off when people ask me that question, because I think you can figure it out. And I love this story. And this is like my one gratuitous story that I love that I'm throwing in here. So the rest of it may not be as gratuitous, but this is a picture that was published in Life magazine in 1950 of one of the Trinity nuclear bomb tests. And there's a guy, Jeffrey Taylor. Who's heard of Jeffrey Taylor? Awesome. Yes, someone's heard of him. Jeffrey Taylor was a British physicist who ended up actually winning the Nobel Prize. And he was able to figure out from looking at this picture what the power of the atomic bomb was. The US Atomic bomb and Russians were publishing similar pictures just using dimensional reasoning. And dimensional reasoning is I think one of the best skills that I learned during my time studying physics back in the uk and what dimensional reasoning is, is you look at the dimensions that are involved in a problem. So you want to figure out energy. Newtons, Meters. Newtons are kilograms. Meters, seconds to minus two. So you've got kilograms, meters squared, seconds to minus two. And then you try and figure out how you can get each of those numbers from what data you have. So the mass is the volume of this sphere. So that's a meter cubed you throw in there. So you've got meters to the five over seconds to the minus two. And he was able to use that to just figure out what the power of this atomic bomb was, what the ratios of the power were between the Russian and US atomic bomb, and essentially reveal one of the top secrets that existed in the world at that time. That's a hard problem. Figuring out what Facebook's retention rate is is not a hard problem. How many people are there on the Internet, give or take? Someone throw something out? 2.4 billion, 2.3 billion, something like that. Right. Okay. Facebook's banned in China. So what now? About 2 billion. 2 billion. So 2 billion people on the Internet. Facebook, in our last earnings call, said something around 1.3 billion in terms of number of active users. You can divide those numbers by each other and, yeah, that won't give you the right answer. Of course it's not going to give you the right answer, but it's going to give you close enough to a ballpark figure of what the retention rate looks like for Facebook. If we've signed everyone on the Internet up, and then you will know it's higher than that. Similarly, if you look at WhatsApp, they've announced 600 million active users. How many people have smartphones? You can figure out that number. That number's out and knocking around. It can give you an idea of how many users there are. Amazon has had a pop at signing up almost everyone in the United States. You know how many people are online in the US and you've got a good idea of how many customers Amazon are from the numbers they throw out. Different verticals need different terminal retention rates for them to have successful businesses. If you're in E commerce and you're retaining on a monthly active basis like 20, 30% of your users, you're probably going to do pretty well. If you're in social media and your first batch of people signing up to your product are not like 80% retained, you're not going to have a massive social media site. And so it really depends on the vertical you're in, what the retention rates are. What you need to do is have the tools to think about who out there is comparable and, and how you can look at it and say, am I anywhere close to what real success looks like in this vertical?
