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The challenges of running a business

Running a business has always been a challenge and especially today with all the possibilities and challenges that globalisation creates. Businesses can run 24/7, 365 days a year so having real time or near real time data helps in decision making, but the number of different metrics available can make it difficult to decide what to optimise for. Should it be revenue? Repeat business? Time spent of Site? Facebook Likes?

Optimising for some KPIs may have little to no impact on the success of the business. Sometimes different departments within a company may choose different KPIs to optimise for, but these departmental KPIs could negatively impact other departments. Simplifying metrics and creating an overarching metric not only makes decision making easier, it also help focus a company in a single direction.  This is where the idea of a North Star Metric comes in.

 

Product Core Value and an ‘a-ha’ moment

An ‘a-ha’ moment is a moment of sudden realization, inspiration, insight or comprehension, when something was unclear or uncertain becomes clear, we call that an ‘a-ha’ moment.  For example, when a customer realizes that your product resolves a problem that they are facing they have an ‘a-ha’ moment, they see can see how the core value of a product helps resolve their problem.

To illustrate with an example let’s take a look at Instagram.

Once the founders identified Burbn/Instagram would be all about photographs, they removed all other functions in the app. Photo and photo sharing became the core value of the product. Instagram launched and within a few hours became the number app in the app store.

Imagine for example Instagram after becoming the number one photo app focused on generating revenue rather than optimising and improving its core product, would it still exist today? This is where the idea of a North Star Metric comes in; it focuses a company to optimise their core value over any other priority. Businesses which optimise for their core value have great customer engagement, lower acquisition costs, higher retention rates and stronger referral rates.

 

What is a North Star Metric?

The North Star also known as Polaris sits almost directly about the North Pole. It isn’t the brightest star but before we had GPS or even road signs, the North Pole would be a reliable indicator of where North is, and once you know where North is you can calculate where South, East and West. Sailors or travellers once they located the North Star in the sky that could reach their destination safety.

The North Star Metric is a concept that has emerged from companies from Silicon Valley who invested in long term sustainable growth by creating and optimising that ‘a-ha’ moment with their customers. The North Star Metric is a single metric that focuses on the product’s core value. It defines the relationship between the customer problems that the product team is trying to solve (the ‘a-ha’ moment) and then the revenue that the business aims to generate by doing so. It has helped teams move beyond focusing on surface-level growth to long term customer growth as everyone and everything is focused on a single metric.

A North Star Metric may not be the flashiest number, nor is it a vanity metric, such as Facebook likes or Twitter followers. Getting one hundred new Twitter followers doesn’t equal growth. Likewise, focusing all your effort on a free trial signup, will not provide insight whether those people will actually use your product, or whether they’ll stick around when the free trial period has ended. North Star Metric is a leading (not lagging) indicator of a future business outcome that your company cares about.

 

What do you need a North Star Metric?

The North Star Metric provide three essential benefits.

  • It provides the company and its staff clarity and alignment on what needs to be optimised and what can be left alone.
  • It communicates in a simple single metric the progress of the product to the whole company.
  • It holds the company accountable to an outcome.

 

A north star metric should consist of 2 parts:

  • A statement of your product vision
  • A metric that serves as a key measure of your current product strategy.

 

Examples of North Star Metrics

 

Before we provide some guidance on how to define your own North Star Metrics I believe it would be beneficial to provide examples of different North Star Metrics.

Amplitude on their blog in an article called Product North Star Metric define their vision, their Key metric and North Star Metrics.

 

Airbnb

Core value: Connecting people who need a place with people who can host.

North Star Metric: Nights Booked.

 

Facebook

Core value: Build Social Value

North Star Metric: Daily Active Users.

 

Quora

Core value: Facilitate the sharing of knowledge in the world.

North Star Metric = Number of questions answered.

 

Amazon

Core value: Online shopping made easy.

North Star Metric = Sales

 

Medium

Core Value: Where people share ideas and stories.

North Star Metric: Total Time Reading.

 

Other examples of North Star Metrics include a real estate agent: number of open houses, restaurant: average meal check size, or a car salesman with number of test drives per day.

 

How do you define your own North Star Metric?

“Your product north star should be specific to your product and what your customers value.” Amplitude

To understand what your North Star Metric should be, look at how your product adds value to your customers. The data could be qualitative or quantitively. What is the one thing that they would miss the most if the product no longer existed?

Product Manager for Growth at GrowthHackers Hila Qu gives five points to keep in mind when selecting your North Star Metric:

  1. The metric should be used to measure if a user has experienced the core value of your product.
  2. It should reflect user’s engagement and activity level. The more they are engaged the higher the value, and vice versa.
  3. It is the single metric needed to indicate that the business is heading in the right direction.
  4. The metric should be easy to understand.
  5. It may not be possible to have the perfect North Star Metric. What you are trying is to find here is a metric that makes the most sense for the entire business to focus on. It might take a few iterations to finally find the right one.

Areas of the business that can help define what the North Star Metric could be, can come from the customers, the customer service team, the sales teams, analytics, marketing material or even a competitor.

When looking for a North Star Metric it should be the focal point of the business, a statement of your product vision, a persistent metric for real growth opposite to a vanity metric.