The North Star Metric is a point of reference, a filter, for new initiative prioritisation, as well as, for long-term strategic planning. If done right, it’s a clear, consistent, and universally understood metric that serves as a beacon for the entire organisation, 5 people to global enterprises, towards its goal. It’s a quantified expression of company’s vision.
How Successful Companies Navigate with Their North Star Metric
Specific North Star Metrics are usually not publicly disclosed or widely discussed. However, one can learn a lot by reading company earnings reports, IPO prospectus or S-1 filings, shareholder notes for when they do acquisitions,investor relations newsletters, watching their leadership team keynotes or listening to podcasts which feature them. Below are a few examples of what “good” and “bad” NSM might look like. Note that the primary differentiation between them is that the “good” ones represent “customer value”, not “business value”.
|North Star Metric (NSM)
|Impact on Business Outcomes
|Examples of Implementation
|Good Example: Daily Active Users (DAU)
|Positive Impact: Increased user engagement leading to more ad impressions and sustained revenue growth.
|Strategies include personalised content, features to boost interaction, and algorithms promoting relevant content.
|Bad Example: Monthly page views
|Negative Impact: May encourage clickbait and low-quality content to drive views without fostering meaningful engagement.
|Relying solely on page views may lead to a decline in the quality of user experience.
|Good Example: Nights booked
|Positive Impact: Successful transactions, recurring bookings, revenue for hosts and increased value for the platform.
|Implementation involves enhancing the user experience, promoting unique accommodations, and building trust within the community.
|Bad Example: Number of listings
|Negative Impact: Quantity over quality, potentially leading to a cluttered platform and reduced user satisfaction.
|Focusing solely on increasing listings may not align with providing a positive user experience and thus long-term growth..
|Good Example: Weekly rides per rider
|Positive Impact: Higher user loyalty, increased revenue and the platform becoming an integral part of users’ travel routines.
|Achieving low waiting times (relies on drivers also having a good experience) and implementing features like great user UX (e.g. clear who is picking you up, where and when), rewards and discounts to encourage frequent usage.
|Bad Example: Total driver sign-ups
|Negative Impact: May lead to oversaturation, lower earnings for individual drivers and reduced overall service quality.
|Prioritising quantity over driver quality could result in a less positive end-user experience.
|Good Example: Weekly active teams
|Positive Impact: Improved team collaboration, higher user engagement, and increased satisfaction with the platform.
|Features like clean UI/UX for top 90%/core team collaboration needs, 3rd party integrations, collaboration tools and user education to enhance team productivity and interaction.
|Bad Example: Total Messages Sent
|Negative Impact: Encourages spam and excessive messaging without fostering meaningful collaboration.
|Focusing solely on message quantity may lead to a decline in the quality of communication.
|Good Example: Time spent listening to streamed content (i.e. music and podcasts)
|Positive Impact: Increased satisfaction and integration part of daily routines, leading to subscription and ad revenue, reflecting the platform’s broad user base and engagement.
|Implementing personalised playlists, algorithm-driven recommendations/discovery.
|Bad Example: Number of subscribers
|Negative Impact: Emphasises short-term engagement without considering the core value that leads to long-term satisfaction.
|Overemphasis on number of subscribers may lead to short-term non-sustainable optimisation techniques (e.g. prominent ad placements), thus compromising the core value of the service, its content quality.
From Strategy to Action – Finding Your North Star Metric
There’s really no globally-agreed set process for crafting a North Star Metric. However, here’s a guiding process that we have seen working well multiple times:
1. Understand Your Business Model
Have a deep understanding of your startup’s business model – this is one of the fundamental steps that we explore at length in our book part of startup lean canvas. Fundamentally, how does your company create, deliver and capture (i.e. generate revenue) value for your customers?
2. Define Core Value Proposition
Clearly define your core value proposition for your customers – this is another one of the fundamental steps that we explore at length in our book part of business-development flywheel. Fundamentally, what are key customer pain points and/or needs and how are you addressing them? Your NSM should ultimately reflect the success of your customers in obtaining this value.
3. Identify Key Customer Actions
Analyse user behaviours and pinpoint key actions that are indicative of customers achieving their goals/success. These actions should be aligned with the core value proposition and reflect the long-term success of your startup.
4. Consider Customer Lifecycle
Analyse customer journey (user’s interactions within your product) and their lifecycle (acquisition → engagement → retention). What are key touchpoints, interactions or stages that are critical to customer satisfaction and retention? Your NSM should reflect the health and success of this entire lifecycle.
5. Evaluate Other Industry Players
Good artists create, great artists steal! Research your competitors. Understand what metrics are commonly used by top startups in your industry. While your NSM should be unique to your business, industry peers can provide valuable insights and a great starting position.
6. Involve Cross-Functional Teams
Include stakeholders from various departments (product, marketing, sales, customer support, etc) in the process. Understand exactly how each team would contribute towards the singular NSM. This ensures that the NSM is aligned with the overall business strategy and that all teams are committed to its success by having a shared responsibility.
7. Define a Hypothesis
Evaluate all ideas for the NSM based on its alignment with your business goals, feasibility of measurement (ideally fully automatic), and relevance to customer success. Prioritise the metric that resonates most with your business objectives and a clear path for all teams to contribute towards it.
8. Iterate Based on Feedback
Be open to iterating on your NSM based on feedback and data. If the initial choice doesn’t yield the expected results or if there are changes in your business environment, be willing to reassess and adjust your NSM accordingly.
9. Document and Communicate
Clearly document your chosen NSM, its definition, and the rationale behind it. Communicate it across the organisation to ensure everyone understands and aligns their efforts with this central metric. Show how each team would influence it directly (from sales to engineering!).
10. Set Targets and Monitor
Once you’re comfortable that the selected NSM represents your business goals as well as customer success, make sure to start thinking about what “good” and “great” looks like. Establish achievable targets (“good”) and stretch goals (“great”) related to your NSM. Continuously monitor and analyse.
11. Periodic Reassessment
Periodically reassess your NSM, especially when there are significant changes in your business environment, market dynamics, or customer behaviours. Ensure that your NSM remains relevant and continues to align with the evolving goals of your startup.
North Star Metric does not Replace good Strategy and Execution
There are strong respected industry voices shouting that “numbers aren’t everything!” or that “it’s not possible to define a business with a single metric!” or that “hyper-focusing on a single metric will result in perverse behaviours (i.e. optimisation of a number rather than what that number was intended to represent)” (source, source, source). We agree that NSM, or any metric for that matter, cannot replace strategy and execution.
Think about NSM as being similar to the OKRs (Objectives and Key Results) approach: there’s one big overlapping company objective, that then each team breaks down and defines their own OKRs, which are also specifically linked to improving the former top company objective. Same with NSM. It’s meant to help in aligning whole-company efforts towards a common goal long-term (time horizon in years, global to the company). Each team can (and should!) have their own KPIs and metrics that matter for that specific product or workstream (time horizon in months, specific to teams (growth, sales, marketing, development etc)). However, just like with OKRs, all of the metrics should have a clearly defined and measurable impact towards the NSM.
After all, what is not measured cannot be improved; and execution without strategy is just wishful thinking.
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