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NORTH STAR METRIC

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A north star metric is the primary indicator of success for a company’s product team. It establishes the link between the customer problems that the product team is attempting to solve and the income that the company hopes to make as a result.

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WHAT IS A NORTH STAR METRIC?

The North Star Statistic (NSM) is a metric that a corporation uses to target its growth efforts. This figure best indicates the amount of value your organization provides to its consumers. Furthermore, the North Star Metric directs your company’s long-term growth vs short-term growth.

The following are some well-known North Star Metric examples:

  • Spotify is an abbreviation for ‘Time Spent Listening.’

According to Spotify’s Head of Growth, Mayur Gupta, the North Star Metric is “Time spent listening.”

What makes Spotify’s NSM so special?

It assesses the value that users receive from the platform. If any Pirate Metric rises, the NSM rises as well. There are a few external factors. (They also address the issue of people listening to speakers by refusing to count how many people are listening.) This is outside of their purview.)

  • ‘Number of nights booked’ on Airbnb

“Number of nights booked” is AirBnB’s North Star Metric because it properly blends the value of the booker and the lessor, making it an excellent North Star Metric for a platform.

  • ‘Number of endorsements given’ on LinkedIn

For a long time, LinkedIn’s North Star Metric was “Number of endorsements granted,” since it demonstrated that users built relationships with one another, that users were less inclined to delete their profile (due to its high value), and that recruiters gained greater knowledge from the site.

Unfortunately, it quickly became clear that the recommendations were fabricated and that this NSM would not be useful for a daily active platform. Following the acquisition by Microsoft, LinkedIn elected to follow in the footsteps of Facebook’s NSM and select ‘Monthly Active Users.’

BAD EXAMPLE OF NORTH STAR METRIC

The worst example of a North Star Metric is “Revenue.” Our revenue is the price that our customers pay, and our North Star Metric is the value that they receive in exchange for that price.

The problem of revenue as NSM is that we are more concerned with extracting as much money from our customers as possible in the near term, but a client who feels valued is likely to pay much more in the long run. More sales are just the outcome of a rising North Star Metric.

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WHY IS A NORTH STAR METRIC IMPORTANT?

North Star metrics are used by teams to concentrate everyone in a firm on a single aim. In the last several years, 90% of the world’s data has been generated, and the abundance of analytical capabilities allows any department, team, and even individual contributor to pursue their own metrics. If each team sets its goals differently, they may end up competing and duplicating effort.

Sean Ellis, a startup investor, invented the phrase “North Star metric” with the intention of reducing administration, simplifying meetings, and aligning people behind a single aim of growth. The phrase North Star metric is mainly rhetorical, derived from the popular name for Polaris, the star just above the Earth’s Northern pole. Companies with complicated business models can have numerous North Stars, and each North Star metric is made up of sub-metrics in any case. Any firm that abandons all KPIs in favor of only one, such as recurring revenue, would almost surely fail. Simply said, the North Star metric is an exercise in distilling the whole corporate strategy into words that everyone can remember, comprehend, and use.

The Earth had a different North Star—Thuban—when the Egyptians built the pyramids, but it has since drifted out of alignment, much as Polaris will in time. Companies should feel free to examine their North Star measurements to ensure they are still pointing in the proper direction, and to change them if they are found to be wrong.

BENEFITS OF NORTH STAR METRIC

A North Star metric is intended to serve as a guide. It’s a compass that keeps you focused on your core aim of company development and success based on what makes your consumers the happiest and keeps them coming back for more.

Having a North Star metric, in particular, has the following advantages:

  • Orientation

Although each team will have its own set of sub-goals and metrics to work on, having a North Star measure means that the entire firm will be united around the same objective and will be able to connect their team’s goal to the North Star metric.

  • Accountability

Because it monitors corporate success, a North Star metric may provide everyone in your firm with a bird’s eye view of how the company is performing overall. This, in turn, helps comfort employees who are concerned about the company’s future, improving employee retention and lowering turnover.

  • Customer centricity

Because your North Star Metric is the figure that best reflects the value your company provides to its customers, it keeps you focused on enhancing the customer experience in all ways, which has clear benefits in terms of bottom-line revenue and retention.

NORTH STAR VERSUS THE ONE METRIC THAT MATTERS

North Star Metric (NSM) is the number on which our entire firm is focused in order to achieve long-term growth over a number of years to infinity.

One Metric That Matters (OMTM) is the number on which one team concentrates for a period of 2 to 6 months in order to achieve quick development.

A North Star metric should not be confused with “The One Metric That Matters”, a notion from the book Lean Analytics. A North Star measure serves as a long-term guidance, whereas the OMTM is for individual teams and projects over a given time period (two to six months).

However, employing OMTMs may be useful for keeping projects on track, and OMTMs can fit perfectly into North Star measurements and help to strengthen the North Star metric by speeding short-term objectives and success.

CAN COMPANIES AIM FOR MORE THAN ONE NORTH STAR METRIC?

Typically, businesses have only one North Star metric. A single north star, on the other hand, might be constraining, especially if your firm has many primary products with distinct aims, such as a music streaming service seeking both more music subscribers and paid podcasts. As a result, we prefer the softer framing of a “focus measure” that works in tandem with other key performance indicators (KPIs).

HOW A NORTH STAR METRIC WORKS?

A North Star measure is broken down into smaller indicators that create responsibility and ownership at the individual level in everyday use. Many of these sub-metrics are team-specific and actionable, allowing individual contributors to see a direct link between their daily responsibilities and the North Star.

Consider an e-commerce corporation whose North Star statistic is “the amount of new consumers purchasing each week.” A goods buyer at that firm may help the parent aim by growing sales in their category, whilst a web developer could help by decreasing page load time. Both contribute, albeit in different ways. North Star measurements must also represent the customer journey and assess the success of users’ experiences. In the case of an e-commerce business, measuring purchases indicates that buyers have completed their journey, and improving pieces of the journey – discovery, browsing and checkout – speed customers along and drive more revenue.

HOW TO FIND NORTH STAR METRIC FOR OUR PRODUCT?

Companies must determine what is genuinely crucial to the business in order to determine their North Star metric. Companies are complicated, and they thrive and fail for a variety of reasons. But what are the business’s load-bearing pillars, as an architect could say, that would wreck the firm if they feel alone (i.e., they’re “too large to fail”)?

Making customers happy, producing profit, and assessing progress toward those goals are cornerstones for many teams. A measure that just earns money while failing to please consumers will fail in the long term, as will a company that satisfies customers while failing to make money. A metric that does not evaluate progress in a way that allows teams to act on their insights and modify their habits is also ineffective. A North Star metric must take into account all three elements and be customized to each firm. Methods for determining a North Star metric include:

  • “What is critical to the operation of the business?” Make a list of priorities.
  • “What key performance indicators and metrics assess the top few, critical factors?”
  • “What metric encompasses all of the above?”
  • Create a metric hierarchy, with the North Star measure at the top.

North Star metrics, like seeds, require healthy soil to develop. Companies that choose a North Star must have the appropriate culture and infrastructure. Without cross-silo relationships and a willingness to prioritize the company’s good over the team’s good, some employees may reject the North Star metric, especially if they must significantly change their behavior or, like many sales teams, their compensation structure presents a conflict of interest.

MEASURING PROGRESS AGAINST NORTH STAR METRIC OVER TIME

Companies must also have the necessary analytics tools in place to track their progress toward their North Star metric and sub-metrics. Companies can’t know if they’re succeeding or failing unless they have easy-to-access statistics that teams can utilize on the fly.

Most teams believe that product analytics (or user analytics) are essential for assessing their North Star metric. Most analytics tools, especially free ones, do not collect user-level data provided by product analytics. User analytics, in particular, can:

  • Track individual users across many platforms.
  • Make reports and dashboards.
  • Machine learning may be used to discover abnormalities in data.
  • Provide a user-friendly interface so that the entire team can access insights.

With strong analytics, each team can readily understand how their individual metrics fit into their company’s North Star metric and whether they need to be course-correct to better support the North Star metric.

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