Straight from Silicon Valley, the North Star Metric is particularly used by start-ups and companies offering digital products. Sean Ellis, considered the founder of the Growth Hacking movement and a major contributor to the popularization of the concept, puts it this way: “The North Star Metric is the metric that best represents the value delivered to your customers. Maximizing your efforts to develop this metric is essential to generating sustainable growth across your entire customer base.”
The North Star Metric is the single metric that best captures the core value that your product delivers to customers. Optimizing your efforts to grow this metric is key to driving sustainable growth across your full customer base.
Sean Ellis
What is the North Star Metric ?
Like the North Star that guides navigators, your North Star Metric guides the actions of all your company’s departments towards a single goal.
This indicator, also known by its acronym NSM, reflects your company’s long-term vision, by measuring the value your products or services bring to the customer. Because the North Star should not be about you, but about the value your products or services bring to your customers.
With it, you can measure the performance of your product or service in the marketplace. With it, you’ll know :
- What are the priorities for your long-term growth?
- How to optimize your processes?
- What strategic decisions should be taken based on data analysis and interpretation?
- Where to focus your marketing?
I really like Product Designer Jeff Zych’s vision:
Good North Stars distill complex concepts to their essence, and get people excited about the future they’re building towards
Jeff Zych
Famous North Star Metric exemples
To better understand the notion of North Star Metric, nothing better than to look at those used by various large companies.
One of the best-known examples is AirBnb. The booking platform’s North Star is the number of nights booked. This single indicator combines several data points:
- this KPI measures the number of hosts who make their accommodation available (more accommodations, more possible overnight stays) ;
- it measures the number of guests and length of stay;
- it is directly linked to the company’s long-term growth.
Let’s take a look at the LinkedIn case. I like this example because it shows us that a North Star Metric can evolve and be improved. Before its acquisition by Microsoft, LinkedIn’s North Star was the number of recommendations given between users. As the number of recommendations increased, so did the value of users’ profiles. They were therefore less likely to delete the profile. This also facilitated the work of recruiters, who could get a better overview of candidates. And thus, encouraged their use of the platform.
Then LinkedIn changed its North Star to the one used by Facebook: the number of active users. We’ve all witnessed the evolution of LinkedIn over the last few years, as it has become a social network in its own right, and a space of choice for BtoB business (you can find me there here). More active users also means more opportunities to increase user time, sell premium subscriptions and advertising space.
Why you should choose a North Star Metric
The North Star Metric is a key element in your company’s long-term growth.
First of all, the NSM gives your entire company the same direction, whatever the department. From production to marketing to customer care, all your teams know what the #1 objective is.
You gain clarity and focus, while enhancing the customer experience, because, properly chosen, your North Star Metric puts your users at the heart of your success.
In addition to giving your company direction, the NSM is a performance indicator. It’s quantifiable and measurable: number of active users, overnight stays, purchases or time spent.
I’d go even further. The North Star Metric allows you to move away from vanity metrics and towards what really matters to your business. Vanity metrics are often linked to an obsession: growing your business. But, as Seth Godin so aptly put it, the goal of your business should always be to be better, not bigger.
The rest follows. At a time when growth hacking is almost all we talk about, we tend to forget this. But for many start-ups, rapid growth is followed by rapid collapse, because the foundations aren’t strong enough to support that growth.
With the North Star Metric, you determine the right course to follow. Ultimately, the NSM is the mother KPI, from which the other indicators to be monitored derive.
Most companies can define their NSM based on a combination of their business model, product experience and stage of growth. But the challenge is making sure you’re betting on the right horse(s) at the right time.
Jack Chen, pour Forbes
4 steps to use the North Star Metric approach
1 – Identify the right metric
Which of the dozens of KPIs to track for your business will become the north of your compass? Identifying the right metric can seem complex. Here are a few questions to ask yourself:
- In their purchasing or usage journey, what are your customers’ moments of success?
- At what point do you consider the customer to be acquired and on the road to retention?
- Does the metric concern all your customers?
- How many times a month can your customers perform this action?
- Is it measurable?
- Is it directly linked to your company’s growth?
2 – Define a time frame
To be able to track your performance, you need to define a time limit: usually per day, per week or per month. Indeed, if you take the total figure, you can’t properly measure your progress.
Hence LinkedIn’s and Facebook’s choice to opt for the number of active users per month. In this way, the two networks can compare month-on-month, look at trends over a full year, anticipate the coming year on these measurements, and so on.
3 – Gather the right people
The North Star Metric concerns everyone in your company. However, to define your North Star Metric, I advise you to collaborate only with the teams directly concerned:
- design ;
- Engineering ;
- Product Manager.
Then you can share your vision with the rest of your teams. And get everyone on board.
4 – Align your vision, your growth, and your North Star
Obviously, your North Star Metric must be directly linked to your company’s vision. For example, Facebook teams are excellent at correlating their NSM, the number of monthly active users, with their vision: bringing the world closer together.
To fully engage your teams, it’s essential not to just chase a new metric. It’s about creating a story and a vision of why you do what you do, as an integral part of your branding.
Remember, your NSM must also reflect your growth. While a company’s ultimate goal is not always to grow, but to become better, growth remains essential to the sustainability of your business. In other words, give yourself the means to play the long game.
Mistakes to avoid when setting up a North Star Metric
Too many companies don’t know how to choose the right North Star Metric. Getting it wrong sends all your teams in the wrong direction. So, what are the most common mistakes to avoid?
The #1 mistake managers make is choosing their sales figures as their NSM. I understand that this seems logical: after all, company revenues are directly linked to products and growth. But the North Star Metric is the value your product brings to your customers. Your revenue is the added value for you. Not to your customers.
What’s more, your revenues can increase without being part of a long-term strategy. Let’s say you increase the price of your products, without increasing their value. If you already have a good reputation, your sales will quickly increase. But you’re not encouraging customer loyalty. Your customers won’t come back. Your sales may rise suddenly, then stagnate, and finally fall back.
Not taking external factors into account is also nonsense. Your North Star Metric is influenced by the world around you, by the news and by external events.
Take the Covid period: it impacted AirBnb’s NSM. While growth in the number of overnight stays had been steadily moving in a positive direction since its creation in 2008, by 2020 this figure had dropped below 200 million, only to rise back above 300 million by 2021, when the restrictions were mostly lifted.
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As always, analyzing without implementing the necessary changes is pointless. Use the data collected. The rule is: identify, apply and change.
Last but not least, it’s vital to know and understand your customers inside out, so as to be able to set up a relevant North Star. For this, customer interviews are your best ally!
Wrap-up
Choosing the right North Star Metric is an essential step in supporting your company’s long-term growth. In short, think first about the value your product or service adds to your customers. Then, figure out how to correlate that value to your business growth. Finally, define how you can measure this value, in a quantifiable metric.
Crédits photo :
Création Midjourney – prompt/a photo of night sky with a lot of shining star and the North Star shining brighter on a warm night
Création Midjourney – prompt/a team of people with one young man and three middle age women working all together in front of a white board in a open office – we are seeing them from the back, writing down ideas on the board – thinking of the same idea and getting excited about it – using brown, yellow and forest green color, in a retro but minimalist painting style
Graphiques : créations Canva
