The Guiding Light of Business Success: Understanding North Star Metrics

If you have ever wondered how businesses such as Spotify or Facebook maintain their focus amidst the chaos of numerous goals and continuously achieve growth, the answer lies in their utilisation of the North Star Metric (NSM). The NSM is a crucial metric that acts as a beacon, guiding a company's decisions by illustrating how effectively it is providing value to its customers. To better comprehend this idea, let's delve deeper into the essence of the NSM, and examine how it has played a vital role in the triumph of many thriving companies.

What is a North Star Metric?

The North Star Metric (NSM) is like the most important score in the game for your business. It's one special number that shows how well your company's product is helping its customers. If your NSM goes up (which is what you want!), it means your business is doing well.

Imagine your favorite game is football, and the main target is to score more goals than the other team. In the same way, in business, your NSM is the "goal" you need to score. It's what your company pays the most attention to, to win in its field.

For instance, Facebook may count how many people log in and use their website every day. Why? Because Facebook is made for people to meet and share photos and posts. The more people use it daily, the better Facebook is doing its job.

Or let's look at Airbnb. They might count how many nights guests book because their mission is to help people find places to stay. The more nights people book, the better Airbnb is doing its work.

Similarly, Spotify uses the North Star Metric "Time spent Listening" to measure user engagement and optimize its platform to increase the amount of time users spend listening to music and podcasts.

The concept of the North Star Metric came into being during the early 2000s, largely within the fast-growing companies of Silicon Valley. 

These businesses utilised this key metric to prioritise sustainable growth over short-term, surface-level expansion. The North Star Metric stands out as the sole measure that effectively encapsulates a company's core values to its customers. 

The need for a well-defined North Star Metric is underscored in this context — it serves to cut through the clutter and direct everyone's focus towards the main objective. Nevertheless, it's vital to pick the right metric as the guiding star, as it's quite easy to mistakenly hone in on the incorrect one.

The Power of the North Star Metric

In simple terms, the North Star Metric is a company's scoreboard. It's the main number they want to increase because it shows they're delivering great value to their customers.

It's like a compass, keeping the company on track and pointing the way to growth. But it's not the only measure of success - businesses need to keep an eye on other key numbers too.

But whether it's the number of daily users, nights booked, or hours of music listened, the North Star Metric helps businesses like Facebook, Airbnb, and Spotify stay focused on what matters most - delivering great value to the customers.

Why does a North Star Metric matter?

The primary purpose of an NSM is to align stakeholders, simplify targets and efforts, and drive sustainable growth. It ensures that all teams work in harmony and set their goals in a way that contributes to moving the NSM in the right direction. Here are three main reasons why North Star Metrics are essential:

  • Aligns Business and Customers’ Success: A North Star Metric gives the entire company a central goal to focus on. Instead of getting lost in team-specific goals, everyone needs to be able to answer: How does our work impact the North Star Metric?
  • Org-level Focus: There's always a lot a company could focus on. Usually, the problem is prioritizing what's most important now. An NSM gives the entire company a clear direction to place its focus.
  • Transparency about What’s Important: A North Star Metric also makes it clear to everyone how the company is performing overall. It can assist the different teams in stepping back from the specifics and seeing the wider picture.

How to set the North Star Metric? 

The North Star Framework is a model for managing products by identifying a single, crucial metric (the North Star Metric) that captures the core value that your product delivers to its customers. In addition to the metric, the North Star Framework includes a set of key inputs that collectively act as factors that produce the metric. Product teams can directly influence these inputs with their day-to-day work.

This combination of this metric and inputs serves three critical purposes in any company:

  • Prioritise and Accelerate Informed Decision-making: The NSM helps prioritise and accelerate informed but decentralised decision-making.
  • Align and Communicate: It helps teams align and communicate.
  • Focus on Impact and Sustainable Growth: It enables teams to focus on impact and sustainable, product-led growth.

The Role of Input Metrics

Just as the North Star guides sailors, input metrics guide the NSM. These are a small set (3–5) of influential, complementary factors that teams believe most directly impact the North Star Metric. These are L1 metrics (L0 being NSM) set by individual teams to measure their efforts and success, ensuring they directly contribute to driving the NSM in the right direction.

Examples of North Star Metrics

Different companies, each with their unique value propositions and business models, will have different North Star Metrics. Let's look at some examples from well-known companies:

  • Netflix: Netflix's product vision is to "Entertain the world". Hence, their North Star Metric is "Median view hours per month." As an entertainment streaming platform, Netflix's goal is to maximise the time users spend watching their content.
  • Spotify: Spotify, a market leader in music streaming apps, has won over music enthusiasts with its user experience, recommendations, and offerings. Their North Star Metric is "Time spent Listening". Ultimately, Spotify wants its users to spend as much time as possible listening to its application.
  • Airbnb: From Homestays to Experiences — Airbnb has positioned itself as a formidable competitor for all hotel booking companies combined. Their North Star Metric is "Number of nights booked," which collectively indicates whether users are satisfied with the experiences provided by Airbnb.
  • Uber: Uber aims to provide value to both sides of the platform — riders and drivers. The NSM for Uber is "Rides completed per week". This metric could lead to optimizing the number of transactions and speed, as part of their overall strategy.

In conclusion, the North Star Metric is more than just a measure of success; it's a strategic tool that aligns your entire company around delivering value to your customers. By identifying and focusing on your NSM, you can navigate your way to sustainable growth and success. So, find your North Star, and let it guide you on your journey to business success.


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