The low-down Hide
In the teachings of Sean Ellis, if something you’re doing isn’t important for your North Star Metric, you “probably shouldn’t be doing it.”
Say what you will about growth hacking, but as one of the movement’s pioneers, Ellis’ insights can be applied in valuable ways. A North Star Metric (NSM) can be used to instil focus, clarity, and unity in startups, bolster brand values, and make sure every team member is aligned and accountable in the process.
Old school management might view an NSM as a vanity goal, choosing instead to focus on revenue, customer acquisition, or good old fashioned customer service. After all, the most successful companies like Amazon and Alphabet are built on these relentless pursuits, right?
You might be surprised to learn their unifying metric is not simply growth at all costs. An NSM is highly strategic and unique to the business. Here’s how you can find yours.
Know your constellations
There are six categories of North Star Metric:
Revenue (e.g. Annual Recurring Revenue) – the amount of money being generated. Often the most widely used metric for success.
Customer growth (e.g. paid users) – the number of paying users which often correlates to revenue.
Consumption growth (e.g. number of nights booked) – the purchase volume your product is getting per user.
Engagement growth (e.g. Monthly Active Users) – the number of users active on your platform within a given time frame.
Growth efficiency (e.g. Customer Lifetime Value to Customer Acquisition Cost ratio) – the efficiency at which you spend vs. make money.
User experience (e.g. Net Promoter Score) – a measure of how enjoyable and/or easy to use customers find your product experience.
To give a couple of examples: you might think AirBnB would be totally fee-focused, but they oriented their NSM on total nights booked. This ensured customers were regularly booking through AirBnB for their accommodation as opposed to using it for the odd night only, or as layover accommodation. To work towards the metric, AirBnB worked to make the experience seamless for longer bookings.
Amazon, contrary to common rhetoric, has always been highly strategic, focusing on getting those monthly purchases up not just across the board but per user. It focuses on making its business sticky for its customers (with the most obvious strategy being Amazon Prime delivery), increasing return purchases and taking market share from its competitors.
How to calculate your North Star Metric
There are generally 8 steps or criteria you need to go through to figure out your NSM.
The first two steps consider what your customer’s own success metrics are. For Instagram, it could be the moment someone feels like they’ve been heard (likes, shares or comments), or for Airbnb, it could be how easy it was for a user to book an apartment. Remember, your success should equal your customer’s own success. Secondly, the metric should be applicable to all customers, not just one subset.
The third step is to consider the measurability of the metric. Having clear metrics that can be calculated, such as when a user has taken a specific action, is better than having arbitrary metrics.
The fourth step is identifying how often you’ll calculate this metric. This could range from days to months.
The fifth step is to pick a metric that isn’t influenced by external factors – such as bad weather if you’re a travel company.
The sixth step is to focus on a metric that is an actual reflection of growth for your company that isn’t a ‘vanity’ one. The last two steps involve choosing a metric that everyone in the company can help influence and finally one that you can get frequent feedback from.
How far should you follow your Star?
Although identifying your NSM is essential to your company’s growth, latching onto it can be dangerous in certain situations. Some scenarios include betting on the wrong metric, trying to game your own metric, or limiting innovation within your business by sticking to an old NSM.
In the words of Coffee and Junk founder Abhishek Chakraborty:
All metrics of evaluation are bound to be abused. Goodhart’s law states that when a feature of the economy is picked as an indicator of the performance, then it inexorably ceases to function as that indicator because people start to game it.
Constant evaluation of why you chose a metric can help you keep purpose.
With macro environments constantly changing and innovations popping in and out of the market, business goals will switch over time, and so will your NSM. Adaptability will ensure your North Star not only stays relevant but also adheres to what business outcomes you want to drive.
The majority of companies will typically have one North Star. But if your startup has multiple core products that service different types of customers or goals (e.g. B2B vs B2C), it might be valuable to align a metric to each business outcome you have with each product.
Having a North Star Metric is the opposite of “don’t get too focused on one thing”. The point is to focus on one thing so much that you deliver it at a world-class level.