- Geekmaster
- 2022-02-20 09:55:36
- 19 minute(s)
North Star Metric: A Growth Hacking Way to Find Your True North
The North Star Metric was invented in business to give companies a singular emphasis on a single target. Everyone should still measure progress by whether or not they are progressing the organization using this metric instead of being distracted by day-to-day matters or individual projects. In growth hacking, the North Star Metric is usually the ultimate reason why people do what they do. What keeps them motivated even when it’s hard and what provides them with satisfaction when they’re performing well.
A North Star Metric is essential if you want to reach your maximum growth potential. To grow long term, you as a company will need to develop a long-term growth strategy.
The product north star is easily the most powerful and misunderstood product strategy framework in use today. More product teams are dealing with the consequences of not defining it at all or defining it the wrong way and leading their team down an unintended path. A north star metric is the key measure of success for the product team in a company. It defines the relationship between the customer problems that the product team is trying to solve and the revenue that the business aims to generate by doing so.
Your North Star Metric should be at the center of your growth strategy.
Growth Hacking often consists of rapid growth spikes, while it is of course much more important that you know how to retain customers in the long term, get ambassadors and turn your marketing into a well-oiled machine. The idea behind the North Star Metric is that if your company brings more value to your customers, then the growth of your company has to go positive. The assumption is that if your customers receive a lot of value, they will stay longer, buy more and refer more friends to your company.
Here’s how to create a powerful North Star Metric so that it serves as the guiding light to growing your business, no matter how neck-deep or in-the-weeds or up-to-your-eyes-in-alligators you get.
This article is a deep dive on the North Star Metric. We hope it serves as a guide to why this metric matters, how to interpret it, and how to use it to drive the long-term product plan and development for product leaders and managers around the globe.
What Is a North Star Metric?
The idea behind the North Star Metric is that if your company brings more value to your customers, then the growth of your company has to go positive. The assumption is that if your customers receive a lot of value, they will stay longer, buy more and refer more friends to your company. So your business grows in every respect if your North Star Metric also grows.
If you ended up here, chances are you already have a (vague) idea of what a North Star Metric is.
We think the name really says it all: it’s the one, ultimate metric that clearly defines the overall performance of a company. This number is the best reflection of the value delivered by your company. You could see it as the most important key performance indicator (KPI); the primary difference is that KPI’s are used to measure how effective you are at achieving your business objectives, while metrics describe the status of business processes.
If you’ve set your North Star metric and it’s increasing over time but your revenue isn’t, something’s not right.
You’ve probably chosen something that is not relevant to your actual growth. In other words, you’ve chosen a vanity metric. You may have also chosen something that in itself is a sign of success but has no relation to growth. For example, Slack’s 2,000 messages were validated by the fact that after this number, gaining loyal customers was bound to happen. So, while revenue itself is not a North Star metric, a well-set North Star metric can have a positive effect on growth.
Someone has saidWhen you’re dehydrated, you won’t stop until you find water to quench your thirst.
You’ll have that unwavering commitment to finding something to drink, even if you’re in the middle of a dessert. And when you feel as strongly about a goal or a mission in life, you’ll have the same unshakable belief that you’ll find a way to accomplish it. Some call it your “why”, others say it’s your North Star. In business, the North Star is usually the ultimate reason why people do what they do. What keeps them motivated even when it’s hard and what provides them with satisfaction when they’re performing well.
At its core, the North Star Metric is a management strategy.
One of the biggest problems with growing a company is coordinating dozens, if not hundreds, of employees to work together towards a common goal. Oftentimes you’ll find that the more employees a business has the more difficult it is to get everyone on the same page. It’s designed to give everyone within the company a singular goal, and align them to a singular direction that they can follow. This is the key to long-term and sustainable growth.
What are The Benefits of a North Star Metric?
A North Star Metric helps your company in a number of ways. First and foremost, the entire company is focused on one goal. The numbers and tasks can be different for each department, but the north star metric is the single aspect for everyone to focus. At the team level, you still focus on a different number, but ultimately everyone has the same goal.
Your North Star metric should be something everyone in your company can use.
For example, your design team can use the North Star metric to create a more user-friendly product. The development team can use it as guidance to create an app that loads faster. The marketing team can use it to create better ads and campaigns. The bottom line is: Ensure that your metric enables everyone to do their part to work on improving it and that they understand what needs to be done.
A North Star Metric helps you determine whether you’re on the right track at any given moment.
Whether you’re creating a strategy or evaluating your performance, you can assess all your other metrics and goals based on your North Star, and take actionable steps to ensure your priorities are aligned. Clearly defined North Star metrics give you laser-sharp focus on your goals. Based on your key KPI, you will identify your lower-level metrics that will be assigned other teams and individuals so everyone within the company can do their part to contribute to your North Star.
Through using a North Star Metric, you can easily measure and assess your customer value.
One of the best ways to do so is to measure the time your customers spend engaged with your product or service. If this number is high, you will know that you’ve been able to deliver the true value of your business via your product or service. Adding value to the customer is one of the crucial factors in North Star Metrics. As a result, it improves customer engagement and customer experience. The company that has defined a NSM is more concerned with adding value for the customer than depriving value, so you automatically make room to be busy with retention.
NSM simplifies the overall company strategy into actions that everyone can understand, remember, and execute.
Since North Star Metric is the only metric that every team focuses on, they can see how well the company is doing. It also gives your organization clarity and alignment on what the product team needs to optimize and what can be traded off. It makes it clear at a glance how the company is faring and it enables teams to be held properly accountable for the outcomes they achieve. Last but not least, it communicates the product organizations’ impact and progress to the rest of the company — resulting in more support and acceleration of strategic product initiatives.
How to Pick Your North Star Metric?
A good North Star Metric must indicate future success, and every product should have a North Star Metric. While the other key metrics like monthly revenue gives you an insight into what happened in the past rather than predicting future revenue. It must be close to the customer’s success moments: A good NSM is always close to the moment when the customer gets the intended result from your product. For Airbnb, the NSM is the number of nights booked, close to the ease of trip booking or booking facility in general (customer’s intended result moment).
Your North Star Metric has to be measurable and time-bound.
Degree of customer satisfaction is not a measurable metric. What is, however, is the amount a certain action is undertaken. Time is also an important requirement since you will have to compare periods in time to see whether you grew or not. Don’t make these periods too long though or you won’t be able to respond to change quickly enough. Most companies compare their NSM with the previous period every month.
No two businesses are the same, which is why the North Star Metric can vary wildly between different organizations.
However, there is a process that everyone can use to determine their business’s North Star Metric. Firstly, you have to determine what the core value of your product is. Avoid vanity metrics like the number of followers you might have on social media, or how many people sign up to your service. Vanity metrics don’t tell you whether or not people actually like your service or product over a period of time, only that they were momentarily interested. More than simply asking yourself how to gain a new user, customers, or clients.
You NSM should only be influenced by your customers and no other external factors.
For example, in the tourism industry, the weather, flight delays, or the local people act as external factors. These factors can influence the customer travel experience and hence the star rating they leave for the entire trip. Thus, the number of 5-star ratings per month is not a good NSM for the tourism industry. Your North Star Metric is within your control. Your NSM must be a number that is not really being influenced by other external factors besides your customers, because it should only reflect the bond between you and your customers.
Last but not least, it should reflect your growth.
Your NSM should be directly proportional to your business growth i.e. if the NSM is increasing (positive), your business should grow too, there cannot be an excuse for that. For example, suppose the product or service is related to the reports generation and download. In this case, the NSM should be the number of reports downloaded by unique customers instead of the total downloads. Because the total number of downloads can also include scenarios where the customers generated and downloaded the reports multiple times (reason being that the service did not work as expected for the first time).
What's The difference between NSM and OMTM?
OMTM stands for One Metric That Matters. Is the NSM a same thing as an OMTM? The North Star Metric is shared by the whole organization and is the common thread that drives every effort. It is the point to which all the energy is directed. The One Metric That Matters, on the other hand, are different for every phase of the funnel and they work in function of the NSM. They are what each team has to focus on in order to realize growth over a limited period of time (usually a few months).
To keep it short, hierarchically speaking, the OMTMs work for the NSM.
Concluding, departments seek the One Metric That Matters for processes they think are able to improve the North Star Metric the most in a given period. OMTMs should be chosen on the basis of how best your team can contribute towards the North Star Metric at this time. Companies should only have more than one NSM when they have multiple different product offerings, providing totally different solutions and value to users.
Businesses should feel free to reevaluate their OMTM and amend them if they prove flawed when helpful.
The core difference between the definition of North Star Metric and One Metric That Matters is that North Star Metric is the quintessential driving force in your company. It helps you gain more overall value over a more extended period — to infinity. Whereas One Metric That Matters (OMTM) is your company’s chosen goal or objective and for a shorter period. During this 2 to 6 month period, teams are encouraged to concentrate on achieving that OMTM to achieve long term growth for your startup.
The North Star Metric measures how your business growth is tracked in the long term.
The One Metric That Matters, on the other hand, is more project-based and relatively short-term. It’s meant to help you get an overview of essential data that can be analyzed over time to lead you to make the best decisions about what areas to focus on. OMTM is a need of the hour metric that fixes pressing issues today. NSM is the aspirational metric that can be achieved only when your product/service resonates with your target audience.
Here is a good example. If you are Manchester United and you want to win the premier league, your NSM is the Premier League trophy.
Let’s look at how we can define the OMTMs. We may assign the team of goalkeepers and the defenders the OMTM as to concede less than 30 goals over the course of the season. Similarly, for attackers, it is to score at least 90 goals. Here is another way of defining OMTMs. In a line of 6 fixtures where you might be facing the top 4 sides, you might set an OMTM of getting at least 14 points of the possible 18. And when you face the lowest ranked sides, you might set yourself the OMTM of getting all the 18 points.
Good Examples of North Star Metrics
Choosing the right NSM is important, otherwise, the company will set off on a different path. To help clarify how NSM is different from other metrics and the KPIs tracked in the company, let’s go through some of them. So, here are a few examples of North Star Metrics for a few of the large and well-known companies. This list might inspire you to identify your actual North Star Metric.
Facebook’s North Star Metric is often confused.
Right from the start, Mark Zuckerberg has used “Monthly Active Users” (MAU) as a North Star Metric. The reason for this is that Facebook is such a versatile platform that it was very difficult for them to be more specific about their North Star Metric. People are often mistaken about this: Facebook’s North Star Metric is not “7 friends in 10 days”: that’s their “Aha!-moment”. This is the moment when a user sees the added value of a platform and the chance is therefore very high that someone will remain a customer for a long time.
LinkedIn’s North Star Metric was formerly “Number of endorsements given.”
It proved that users were building relationships with one another, which meant they weren’t as likely to delete or abandon their old profiles. Because “Number of endorsements” held so much value. It also proved valuable for recruiters because they received more insight into a person’s reputation through the platform. Unfortunately, they soon discovered that the endorsements garnered for the LinkedIn platform were fabricated, and this NSM would not drive growth as they had anticipated. Eventually, after the takeover by Microsoft, LinkedIn chose to use Facebook’s NSM as an example and started using ‘monthly active users. (MAU)’ as their North Star Metric.
Uber’s North Star Metric is “Rides per week”, as this corresponds to the NSM of Airbnb.
This multi-sided platform results in increased transactions for both parties. In the case of Uber, it’s between riders and drivers. Both riders and drivers receive value from their NSM. Here the driver is getting paid. The rider gets to their destination. In fact, Uber has two types of users: its drivers and its riders. The North Star Metric for Uber is the amount of money their drivers are making, and the number of rides their riders are taking. These measurements will give you key insights into the user experience. If the product is not valued, the numerical value will be on the low end. Everyone at Uber knows what they are working towards – more rides for passengers and greater income for drivers.
Netflix’s North Star Metric is “watch time” and reflects their focus on depth of engagement.
This can be a valid choice if the current business situation requires to increase the engagement of their customers. Spotify and Duolingo go one step further by setting additional secondary NSMs that include users being active and allow for tracking of their user base growth. Then, Netflix decided to change it to “% of new users who add at least three titles to their queue during their very first session with the service.” In my opinion, this is one of the best customer-centric North Star Metric. Using this metric, Netflix’s team delivered a unique customer experience followed by the best product out there in the market.
Wrapping Up
While the North Star metric can be incredibly valuable to any company, don’t be discouraged if you can’t set it quickly. It requires a profound knowledge of your target market and product, as well as how your customers interact with your product. As your product grows, so will your understanding of your customer journey, and you will be able to set a better, more valuable North Star metric.
A good North Star Metric will help you keep the horizon level as you start executing your plans for business growth.
It keeps people on the same page and sets the single most important accountability standard, so stakeholders feel that their vision is being heard and participants can’t hide behind vanity metrics. Whether there’s only one or you define a number of metrics crucial to your business and strategic priorities, your North Star is what leads the way in every sense.
Aligning your strategy around your North Star will help you accelerate your growth, sharpen your focus by tracking the metrics that really matter, and work hard to provide an outstanding customer experience.
Think about your purpose, motivation, and goals — what kind of results do you want your customers to achieve by using your product or service? This will point you in the right direction when defining your North Star Metric, so you can align your company priorities around it and keep growing. Some of the most successful Silicon Valley companies put North Star Metrics at the heart of their business model. And now you can too!
Every business’ North Star Metric can differ, but it will always boil down to being able to track your business’s value.
Depending on your organization that can mean tracking the amount of time spent in your store, or how often customers refer you to their friends. Take some time with the rest of your management team to figure out what your company’s North Star Metric may be. You might only have one, or you might have three! Once you know what it is you’ll be able to bring your whole team together and drastically explode your growth.
I hope that you have a good foundation of how to find your North Star Metric and that you understand the importance of it.
What are you waiting for? Do the exercise to lock your North Star Metric and then see the wonders! Also, feel free to load comment sections with your questions and feedback, I will be happy to address them.
Geeknack's Picks
