Also called: Critical Success Factor (CSF) and Leading Indicator
Relevant metrics: Conversion Rate, Retention Rate, Customer Lifetime Value, Average Revenue Per User, and Net Promoter Score
What is the Northstar Metric?
The Northstar framework tries to capture the essence of a product’s value to its users into a single, pivotal metric, aptly termed the “North Star Metric”.
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
Around this guiding metric is a constellation of key inputs, each contributing to the formulation of the North Star Metric. These crucial factors lie within the direct sphere of influence of product teams, and their day-to-day endeavors can shape them.
The Tri-fold Purpose of the North Star Framework
This blend of a central metric and its contributing inputs serves a trifold mission within any organization:
- It helps accelerate informed but decentralized decision-making
- It helps team align and communication
- It enables teams to focus on creating impact and creating sustainable product-led growth.
Where did Northstar Metric come from?
The North Star Metric and the North Star Framework are concepts that are largely attributed to Silicon Valley and the growth-hacking movement. While it’s challenging to pinpoint a singular point of origination, several industry leaders and companies played influential roles in its popularization.
- Sean Ellis, CEO of GrowthHackers, is often recognized as a key figure in establishing the concept of a North Star Metric. Ellis, who was the first marketer at Dropbox, LogMeIn, and Eventbrite, and coined the term “growth hacking,” has written extensively about the North Star Metric. He advocates for the use of a single, guiding metric that encapsulates the core value that a company’s product delivers to its customers.
- John Cutler, a former product evangelist at Amplitude, a product analytics company, further developed the concept into the North Star Framework. The idea is that this framework can serve as a tool to align a team or company around driving the key measures of the business model.
The idea was popularized by companies like Facebook and Uber, which both shared that they had a single metric they focused on above all else (daily active users and weekly rides, respectively). It was this focus that helped them to align their teams and drive growth.
It’s important to note that while the North Star Metric and Framework are powerful tools, they are part of a broader toolkit used in product-led growth strategies. They provide strategic focus and alignment, but they should be used in conjunction with other metrics and frameworks to provide a holistic view of the business.
The structure of the North Star Framework
When fused together, the metric and inputs construct a simple, branched framework. This structure encapsulates assumptions, beliefs, and causal relationships, standing as a scaffold for understanding the dynamics of your product.
Once fashioned and field-tested, this framework morphs into a mathematical expression. It becomes an equation that summarizes the traits of your product and company, serving as a blueprint for your growth strategy. A mental model of your product.
1. The North Star Metric
The North Star Framework’s core is its namesake metric. This singular, vital measure - whether a rate, count, or ratio - summarizes your product strategy into a single metric. Serving as a guiding beacon, this metric connects customer problems that your product aims to solve to the sustainable, long-term business outcomes you aspire to achieve.
For instance, in the pre-streaming era of 2005, Netflix’s product team instituted a North Star Metric revolving around customer engagement with their DVD service. They determined the percentage of customers adding three or more DVDs to their queue during their first interaction with the service as their guiding metric. This key statistic embodied Netflix’s strategic differentiation, where elevating this metric would consequently enhance customer value, retention, and ultimately, subscription revenue.
The Singular Nature of the North Star
A key characteristic of the North Star Framework is its singular focus with its North Star Metric. Having said that, larger enterprises spanning multiple divisions, distinct product development departments, and diverse customer bases – could possibly have different North Star Metrics, each with their unique sets of inputs.
However, when a team is contributing to a single profit and loss (P&L) statement, steered by a unified product development department, and is responsible for a single product or a suite of products serving one customer base, they should strongly contemplate adopting a unified single North Star. This North Star would then embody one principal metric and its corresponding inputs. A single product leader should not be piloting more than one North Star.
2. Results and Value
The North Star Metric is a leading indicator of sustainable business results and customer value. Observing shifts in this metric – ideally improvements – you can expect your business outcomes to change accordingly.
The inputs revolving around the metric are just important as the Northstar metric itself. These comprise a small set (3-5) of influential, complementary factors that you believe most directly impact the North Star Metric, and can be molded by your product offerings.
These inputs can differ considerably depending on the industry, business model, and the product’s unique attributes. The crux lies in pinpointing the critical factors that augment your North Star Metric. We perceive this metric as a function of key inputs that are both illustrative and actionable.
Example of North Star Metric inputs
Let us take LinkedIn as an example – a platform that connects professionals around the world. Its North Star Metric could be considered as “Monthly Active Users” (MAUs), which shows how many people are consistently finding value on the platform on a monthly basis.
To increase MAUs, LinkedIn could identify the following inputs:
- New User Sign-Ups: This is the rate at which new users are joining the platform. If this rate increases, it’s likely that the number of MAUs will also increase.
- User Retention Rate: This is the rate at which existing users keep returning to the platform. If LinkedIn can increase this rate, it could lead to an increase in MAUs.
- Connections per User: This is the average number of connections each user has. The more connections a user has, the more likely they are to engage with the platform and thus increase the MAUs.
- Job Postings: The number of job postings on LinkedIn can directly affect the number of active users. The more job opportunities available, the more likely users are to use the platform regularly.
- Content Interactions: This could be measured by likes, shares, and comments on articles and posts. High-quality, engaging content can increase user interactions and bring them back to the platform more frequently.
By focusing on these key inputs, LinkedIn could potentially increase its MAUs, driving growth and increasing the value users get from their platform. It’s important to note that these inputs are hypothetical and would need to be validated with data to ensure they have the expected impact on the North Star Metric.
4. The Work: Bridging Strategy and Execution
The North Star Metric and its inputs should be tied to the tasks that constitute “the work”. These include research, design, software development, refactoring, prototyping, testing, and more.
Regardless of how your team works, the work you undertake should align with the strategy that your North Star guides. It’s the North Star that ensures the work you do is not just busywork, but meaningful steps towards achieving your strategic objectives.
Embracing the Product-Led Philosophy
The North Star Framework finds its true potential in organizations that strive to become more product-led.
Product-led organizations are convinced that their most reliable route to sustainable growth lies in discerning opportunities to resolve customer issues and meeting those opportunities with their products. They fine-tune team structures, funding cycles, communication channels, and other processes to cement the success of their products.
To rid any ambiguity, terming an organization “product-led” does not imply its leadership lies with the “product management” department or, in short, “product.” Being product-led is about being steered by the potential of products and the teams behind them – as opposed to being steered by the sales department (sales-led growth).
Are you truly following a Northstar Metric?
Choosing the right North Star Metric is a nuanced task, requiring careful consideration of several aspects. We’ve compiled a comprehensive checklist to guide you through this selection process, ensuring your chosen North Star Metric truly illustrates the path to sustainable growth and success.
The north star…
- Expresses value. A North Star Metric that is worth its weight will embody the value customers derive from your product. It’s essential to tether your North Star Metric to customer value to avoid steering your business down an undesirable path. Metrics such as “Daily Active Users” or “Registered Users” can be misleading as they fail to shed light on what your customers truly value.
- Is a reflection of Product Vision and Strategy. Your North Star Metric serves as a mirror to the strategy of your business and product. Examine your chosen North Star Metric and see if it resonates with your product strategy and vision. A robust North Star will enable you to comprehend your company’s product strategy and your product’s vision at a high level.
- Is a leading indicator. Metrics can either provide a post-mortem of business performance or foretell future prospects. The latter, known as leading indicators, are what your North Star Metric should ideally be. Metrics like “Monthly Revenue” or “Average Revenue per User (ARPU)” are lagging indicators as they narrate the past rather than forecast the future. Your North Star Metric should ideally predict medium to long-term sustainable growth. For instance, if you’re operating a subscription-based product, annual revenue from subscribers might seem like a crucial metric, but it’s a lagging indicator. Instead, you could identify traits that correlate with a user likely to renew their subscription and frame your North Star around that.
- Is actionable (and influencable). Your North Star should be a metric you genuinely believe you can influence and act upon. It shouldn’t merely reflect broader market trends or real-world realities that would exist regardless of your product’s existence.
- Can be easily understood. Your North Star should not be so convoluted or abstract that it can’t be easily explained to non-technical people or expressed in straightforward language. A simple litmus test: Can you explain your North Star to someone who knows your business but lacks deep technical knowledge?
- Quantifiable (and Measurable). If you can’t configure your products and processes to collect data needed to track and communicate the North Star Metric, it doesn’t qualify as a suitable metric, even if it seems like a strong indicator of customer value. However, beware of the pitfall of believing that your North Star must be something measurable with your current data and tools.
- Is not a Vanity Metric. Beware of metrics that boost your team’s morale or paint a rosy picture of your market in the short term, but offer little insight into your product’s long-term success. These so-called vanity metrics should not be chosen as your North Star Metric.
Benefits of Implementing a Northstar Metric
- Increased Focus. A Northstar Metric helps to focus the team on the most important metric that drives the business. This helps to ensure that all efforts are directed towards achieving the desired outcome.
- Improved Efficiency. By focusing on the most important metric, teams can be more efficient in their efforts and can avoid wasting time and resources on activities that don’t contribute to the desired outcome.
- Improved Visibility. A Northstar Metric provides a clear and visible goal for the team to strive for. This helps to ensure that everyone is on the same page and working towards the same goal.
- Improved Communication. A Northstar Metric helps to ensure that everyone is communicating effectively and that everyone is aware of the progress being made towards the desired outcome.
- Improved Decision Making. A Northstar Metric helps to ensure that decisions are made based on the most important metric and that the team is making decisions that are in line with the desired outcome.
Challenges of Implementing a Northstar Metric
- Establishing the right metric. Choosing the right Northstar metric can be a challenge, as it needs to be a metric that accurately reflects the success of the business. It should be a metric that is easy to measure and track, and that is meaningful to the business.
- Aligning the metric with the business goals. The Northstar metric should be aligned with the business goals, so that it can be used to measure progress towards those goals. This requires careful consideration of the goals and objectives of the business, and how the metric can be used to measure progress towards them.
- Ensuring the metric is actionable. The Northstar metric should be actionable, so that it can be used to inform decisions and strategies. This requires careful consideration of how the metric can be used to inform decisions and strategies, and how it can be used to measure progress.
- Measuring the metric accurately. The Northstar metric should be measured accurately, so that it can be used to inform decisions and strategies. This requires careful consideration of how the metric can be measured, and how it can be tracked over time.
- Communicating the metric to stakeholders. The Northstar metric should be communicated to stakeholders, so that they can understand its importance and use it to inform decisions and strategies. This requires careful consideration of how the metric can be communicated, and how it can be used to inform decisions and strategies.
Facebook’s North Star metric is “daily active users” (DAUs). This metric is a reflection of how engaging and valuable users find Facebook’s platform on a daily basis. All of Facebook’s major strategies and initiatives are centered around driving this metric up. This is why they focus so much on creating engaging content, improving the user interface, and integrating more features into their platform.
Airbnb focuses on “nights booked”. This metric is crucial to their business model since it directly reflects how many people are using their service to find accommodation. Everything Airbnb does, from improving the user experience of their website to expanding into new markets, is aimed at increasing this number.
Slack’s key metric is “daily active users”. The more people that use Slack daily, the more valuable their product becomes. They focus on improving usability and adding features that encourage daily use, like integrations with other workplace tools.
Netflix’s North Star metric is “hours watched”. This is a reflection of how engaging their content is and how much value their subscribers are getting from their service. This is why they invest so much in producing high-quality original content and improving their recommendation algorithms.
Uber’s North Star metric is “rides”. Every strategy and initiative in Uber is designed to increase the number of rides people take using the app. This is why they’re constantly exploring new markets, refining their app to make it more user-friendly, and even venturing into food delivery and freight services.
Spotify’s North Star metric is “time spent listening”. This is a clear indicator of how much value their users are getting from their service. To drive this metric up, they focus on personalizing playlists and curating high-quality audio content.
What is the purpose of the Northstar Metric?
Hint The purpose of the Northstar Metric is to provide a single, unified metric that can be used to measure the success of a product or service.
What is the expected outcome of using the Northstar Metric?
Hint The expected outcome of using the Northstar Metric is to provide a clear and concise measure of success that can be used to inform decision-making and track progress.
How will the Northstar Metric be measured?
Hint The Northstar Metric will be measured by collecting data from various sources and analyzing it to determine the metric's value.
What data sources will be used to measure the Northstar Metric?
Hint Data sources used to measure the Northstar Metric may include customer surveys, usage data, financial data, and other relevant sources.
How will the Northstar Metric be used to inform decisionmaking?
Hint The Northstar Metric will be used to inform decision-making by providing a clear and concise measure of success that can be used to guide product and service development.
How will the Northstar Metric be communicated to stakeholders?
Hint The Northstar Metric will be communicated to stakeholders through reports, presentations, and other forms of communication.
How will the Northstar Metric be monitored and updated?
Hint The Northstar Metric will be monitored and updated regularly to ensure accuracy and relevance.
What other metrics will be used in conjunction with the Northstar Metric?
Hint Other metrics that may be used in conjunction with the Northstar Metric include customer satisfaction, usage data, financial data, and other relevant metrics.
How will the Northstar Metric be used to track progress?
Hint The Northstar Metric will be used to track progress by comparing the current value of the metric to previous values and to goals.
What are the potential risks associated with using the Northstar Metric?
Hint Potential risks associated with using the Northstar Metric include relying too heavily on the metric to inform decision-making, not collecting enough data to accurately measure the metric, and not communicating the metric effectively to stakeholders.
- Hacking Growth: How Today's FastestGrowing Companies Drive Breakout Success by Sean Ellis (2017)
- Outliers: The Story of Success by Malcolm Gladwell (2008)
- Good to Great: Why Some Companies Make the Leap... and Others Don't by Jim Collins (2001)
- The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail by Clayton M. Christensen (1997)
- The Effective Executive: The Definitive Guide to Getting the Right Things Done by Peter F. Drucker (1967)
- Leading the Revolution: How to Thrive in Turbulent Times by Making Innovation a Way of Life by Gary Hamel (2000)
- DiWhat is a North Star Metric? by Sean Ellis
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