North Star metric: the secret to a successful business

A North Star metric is an instrument of evaluation for a business that assesses its success. It helps companies to gear into a rapid growth mode. The North Star metric focuses on three core things: 

  1. Customer value
  2. Generating more revenue
  3. Measurement and improvement

An effective North Star metric helps companies achieve these three critical purposes:

  • It helps your organization clarify its priorities.
  • Secondly, it communicates your impact and progress to everyone else in the company, resulting in more significant support and acceleration of strategic initiatives.
  • Most importantly, it makes the entire company accountable for its results.

If you're running a business, this guide provides you with everything you need to know about North Star metric.

Here's what you will learn:

  • How a North Star works
  • The importance of a North Star metric
  • Benefits of a unique North Star metrics
  • How to know a North Star metric
  • 7 good examples of the North Star metric

How does the North Star metric work? 

A North Star metric is usually broken down into smaller metrics to drive individual accountability and ownership. Many of these sub-metrics are team-specific, and individual contributors can use them to connect their daily activities to the North Star.

If an e-commerce company's North Star metric is "the number of new customers buying each week," a merchandiser may contribute to that goal by increasing sales in their category. On the other hand, a web designer may help by reducing page load times.

They both make a difference but in different ways. North Star metric must reflect the customer journey and measure the success of user journeys. Tracking purchases for an e-commerce company indicates that customers have completed their journey, which improves the experience of browsing, discovering products, and completing purchases.

How to find the best North Star metric for your company?

New businesses often make a mistake by focusing more on revenue instead of providing value to customers. They don't get past the surface level of their services and products and fail to achieve long-term business growth.

North Star metric helps startups to dig deep enough to understand the customer value they provide through their services and products.

You can select the best North Star metric for your company once you know the type of your company and the niche you work in. Keeping financial metrics in mind would be best before selecting the best North Star metric.

However, before determining the North Star metric for your company, you should focus on improving your product/services that reflect customer value. Remember, your North Star metric should measure your company's progress, reflect customer value, and lead to revenue.

The importance of a North Star metric

Why is the North Star metric important?

North Star metric helps teams focus their efforts on achieving a single goal. If each group has different goals, they may compete with one another, resulting in duplication of efforts.

The phrase "North Star metric" is mostly rhetorical. Sean Ellis coined the term "North Star metric" to reduce administrative overhead, simplify meetings, and assist teams in focusing on a single company's goal. Companies with complex business structures can have multiple North Stars, and each North Star can be made up of sub-metrics.

A company should also focus on sub-metrics such as customer value and product growth. The NSM assists businesses in simplifying their overall business strategy by breaking it down into easy terms for everyone to remember, understand, apply, and measure.

Changing the metrics shouldn't be difficult for companies. They can change their North Star metric according to the needs of their companies to ensure that they are progressing in the right direction.

Benefits of a North Star metric

A North Star metric framework should serve as a guideline. It's a guide that keeps you focused on your primary goal of growing your business and succeeding based on what makes your customers happy and keeps them coming back for more. A right North Star metric provides the following benefits:

Alignment

North Star metric assists businesses in aligning their goals across the entire organization. It helps companies and organizations focus on achieving a shared goal instead of chasing different goals simultaneously. Such focused utilization of teamwork toward a shared goal results in growth efficiency and success.

Transparency

A North Star metric provides transparency of the process because it measures company progress and can provide everyone in your organization with a bird's eye view of how the company is doing. This, in turn, can help to alleviate employees' concerns about the company's future, thereby improving employee retention and lowering employee turnover.

Customer focus

Because your North Star metric is the number that best represents the actual value your company provides to its customers, it keeps you focused on improving customer experiences in all possible ways, which has obvious benefits for solidifying your customer base and retention.

You can also think of it as a "glue" or "string" that connects all the disparate "goals" and "metrics" from different teams into a singular focus that propels your company going forward.

The North Star metric focuses on providing the best value to your customers by making their lives easier. The more the users get the value, the longer they stay with your company. They even become your ambassadors and recommend your services to others. This customer value metric helps keep the customers satisfied and valued.

What is a "good" North Star metric

A good NSM must meet the following requirements:

A good North Star metric equals the success moment of your client to your company's progress.

Your NSM works correctly when the customers get the desired results from your product/service. It means that your customers get the desired from your services. For example, in the success moment of a customer when they are heard, entertained, or engaged on social media by getting likes and comments on their posts.

A unique North Star metric provides the best customer experience by measuring your products' value.

A good North Star metric expresses value.

Your North Star metric offers more value to your customers. For example, 'the number of orders placed' is far too focused on marketing efforts rather than customer satisfaction. An NSM will ensure that you keep a close eye on your Pirate Metrics/AARRs, such as retention and referrals, rather than just marketing KPIs.

Adding value doesn't mean that your customer places an order alone but also expresses satisfaction with the delivery of the product. If you focus on just one metric (placing an order) and neglect another (customer satisfaction). This trend will only hurt your company's growth.

When you focus on both metrics (package delivery plus customer satisfaction), you add value to your customers.

A North Star metric is measurable.

You can't measure the satisfaction of your customers, but you can measure the number of times a specific action is performed, the number of times something is seen, or the number of times you save people.

A good North Star metric is time-bound

You should limit the duration of your metrics. In addition, measure a good metric over a specific period, such as an hour, day, week, or month to measure your future growth strategy.

You want to see your progress over time. For instance, "the number of people you assist" or "the total number of trees you plant" would demonstrate this. This month can now be compared to the previous month and year. Furthermore, I would advise against using a year to measure your progress because you want to measure your progress regularly. The North Star metric helps you a great deal to measure progress daily.

A good North Star metric should be within your control

Your NSM should be under your direct control. Your NSM should be unaffected by other external factors.

For example, "the number of five-star trips per month" for a travel organization is terrible because, as a travel company, you have little control over external factors such as weather, flight delays, or local people's mood.

A good North Star metric should reflect your growth

Your North Star metrics directly reflect the health of your business. Expanding your NSM means expanding your business regardless of how you look at it.

Therefore, your NSM should not show a false figure or a vanity metric that you hide through excuses. If your NSM metric number shows an increase and you know that your customers have shown dissatisfaction or the turnover is not good, then you haven't used a good metric (or you've just been unlucky).

For example, 'the number of reports downloaded each week' is a risky NSM because a customer may have had to download ten reports because the first nine failed.

This is an example of a non-statistical measure (NSM) that considers that people only download a report once and do not have to return it to get it again.

A good North Star metric should have a mutual effect on the entire company

A good NSM is dependent on everyone working in the organization because everyone can influence it. Therefore, everyone must feel invested in the growth goal. Similarly, your North Star metric also affects every component of your company.

It means that f your AAARRR (Awareness, Acquisition, Activation, Retention, Referral, Revenue) metrics show improvement, your North Star metric should also show good results.

For example, suppose your North Star metric delivery service delivers a specific number of packages that increase your brand awareness and boost your referrals. In that case, your North Star metric should show a boost in the metrics.

A good North Star metric grows with feedback frequency

Ideally, your North Star metric shows growth weekly and even daily, and the instant feedback helps you follow the right track to success. You can get this instant feedback by providing your customer with quick promotion activity that can perform on a daily or weekly basis or even monthly to help you know how your metrics are growing.

If you provide offer these promotion activities to your customers on a yearly basis, it will take too long to determine whether you are on the right track.

A good North Star metric aligns to value.

Your NSM should be based on truly understanding what actions provide value to the customer. This means that 'Daily Active Users' or 'Registered Users' are poor success indicators. It would be advantageous if you could get close to the point of impact.

They don't tell you what product features are most important to your customers and daily active visitors. You're passing up a huge opportunity to make your team more visible.

If teams do not directly connect customer value to the metrics that drive their business, they risk leading their company astray.

A good North Star is a leading indicator of success

One critical aspect of this metric is that it should be a leading indicator of future success. Lagging indicators, such as month-over-month revenue or ARPU, do not indicate product impact early.

Instead of telling you what has already happened, they predict what will happen. The higher your ad revenue and market cap metric, the more future impact it can have.

In summary, a good North Star has ten attributes:

  • It measures the moment when a customer finds value in a product.
  • It represents the core part of your current product strategy.
  • It is a leading (or leading) indicator of a future outcome that your company cares deeply about.
  • A good North Star metric expresses customer value by measuring customer satisfaction.
  • You can't measure the customer's satisfaction, but the number of times an action is performed or part of your services is seen.
  • A good North Star metric is time-bound and can be measured on a certain period, such as a month, week, or day.
  • You control your North Star metric shouldn't be a number influenced by outside forces.
  • The growth of your business model is directly proportional to the growth of your North Star metrics. If your NSM grows, your business should also grow. If it doesn't, it means you have bad luck.
  • Your North Star metric and everyone working in your company depend on each other for mutual growth.
  • A good frequency of instant feedback gives rise to your North Star metric and helps you understand whether you are on the right track.

Seven good examples of a North Star metric

Here's some information to get you started quickly. I've selected a few examples below that may inspire you to develop your own North Star metrics.

Facebook's NSM

Facebook's NSM is frequently perplexing. Mark Zuckerberg has used Monthly Active Users (MAUs) as a North Star metric since the beginning. This was due to Facebook's versatility, which prevented them from being more specific about their NSM.

People frequently mistakenly assume that Facebook's North Star metrics are "7 friends in ten days": this is their "aha moment." This is the point at which free users recognize the added value of the service and are likely to remain a customer for an extended time. 

Spotify's NSM

According to Mayur Gupta, Head of Global Growth, Spotify's North Star metric is "time spent listening."

What makes Spotify's NSM so effective?

It assesses the value that customers derive from the platform.

If any Pirate Metric rises, the NSM will rise as well.

Spotify provides more value to its customers and arranges paid podcasts to solve their problems on a premium level and increase customer interactions.

They address the issue of people using speakerphones by refusing to count how many people they speak to. (This is outside of their sphere of influence.)

Strava's NSM

Similarly, as a saas company, you look into Strava's North Star metric examples.

LinkedIn's NSM

LinkedIn's North Star metric was "Number of endorsements received" for a while because it showed that users built relationships, making them less likely to cancel their profiles. The platform provided recruiters with more information.

It quickly became clear that the endorsements were phony and that this NSM would not be of assistance with a daily active social media platform. Following Facebook's takeover, LinkedIn chose to use the number of monthly active users (NSM) as an example.

Amazon's NSM

Amazon uses the "Number of purchases made per month" as its North Star metric. This is a logical choice for an eCommerce North Star metric.

Slack's NSM

The North Star metrics from Slack are "number of messages sent" or "daily active users (DAU)," but no definitive answer is available online.

DAUs seem more appropriate for a messaging app than MAUs because the goal isn't necessarily for people to send as many messages as possible but rather for them to send them as efficiently. This may result in fewer messages being sent.

Hubspot's NSM

Kieran Flanagan, HubSpot's Vice President of Growth, told Intercom that HubSpot's North Star metric was "the number of weekly active user accounts." Because HubSpot is more concerned with teams than individuals.

Whatsapp's NSM

WhatsApp's North Star metric is the "number of messages sent." It shows the floor directly based on usage and includes the number of active users.

Conclusion

Most businesses should have only one North Star metric. On the other hand, having a single North Star can be limiting, especially if your company has multiple products with different goals, such as a music streaming service looking to attract more music/podcast listeners,

So, your company should focus on using multiple North Star metrics and their sub-metrics to measure customer value, represent product strategy, and show a leading indicator of revenue.

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