Finding the Right North Star Metric
When I interviewed Ed Baker at the 2017 GrowthHackers Conference, he explained that he gained a deep appreciation of the North Star Metric (NSM) concept when he was leading Facebook’s international growth team. At Facebook, their NSM was Daily Active Users (DAUs). Team members were encouraged to “constantly check themselves to connect everything they were doing back to moving the NSM.” If it wasn’t important for the NSM, “they probably shouldn’t have been doing it.” Ed explained that the NSM was a powerful way to keep the Facebook team aligned around driving sustainable growth. And that they set specific six-month goals for the metric.
So it’s not surprising that when Ed left Facebook to join Uber as its initial VP of Growth, the first thing he did was meet with Travis Kalanick, the CEO, to decide on a North Star Metric. They considered something like “monthly active riders” but realized that as a two-sided marketplace, it would only give them part of the growth picture. So instead, they decided on “weekly trips” as their NSM. This would reflect the growth of both riders and drivers.
This conversation in 2017 reinforced my view that the North Star Metric is probably the most powerful concept for driving sustainable growth. And since that time I’ve helped countless companies figure out their NSM in my growth workshops.
Start by Understanding How Customers Get Value
The first thing I always want to do is understand how customers get value from the product. And not just any customers, but instead the “must have” customers who say they would be “very disappointed” if they could no longer use the product. Your goal is to expand this “must have value” across your existing and new customers. Your North Star Metric is how you quantify expansion of this value.
If you don’t have customers that consider your product a “must have”, then you shouldn’t be trying to grow and should instead focus on getting to product/market fit. But for now, let’s assume that you have product/market fit.
Should be Possible to Grow NSM “Up and to the Right” Over Time
A good rule of thumb is to choose a metric that can be “up and to the right” over a long period of time. So something like “30-day retention rate” doesn’t really work because the maximum you could reach is 100%. This is why “Daily Active Users” is an example of a better NSM for consumer products like Facebook or online games.
Consider the Downsides of a Metric
Think through some scenarios where growing the metric could lead the team to behave in ways that are against the long term interest of the business. For example, if you made your NSM “average monthly revenue per customer,” then the fastest way to grow this number would be to eliminate all customers that have a relatively low value — even if they are profitable customers. This would likely reduce your overall customer and revenue growth rate. “Average monthly revenue per customer” would also violate the “up and to the right” principle mentioned in the previous section.
Another poor metric would be something like “monthly app downloads.” This is a vanity metric because it’s possible to drive millions of downloads that never actually use your product. It’s much better to choose something that reflects real user engagement like “weekly rides” or DAUs.
Keep it Simple
Remember that the point of the NSM is to align everyone on your team to work together to grow it. So it’s important that it is simple enough for everyone to understand it and recall it. If it is a complex formula, there is a good chance that people will be confused by it and stop thinking about it.
I’ve been in workshops where an executive leader insists that everyone knows and understands their NSM. When I ask the group what they think it is, the exec is surprised that only a small fraction of team members know it. When this happens, it’s almost always because the metric was overly complex. So keep your metric simple.
Why Not Just Focus on Revenue Growth?
Revenue growth is very important, so this is a natural question that many people ask (especially CEOs). The challenge is that if revenue growth outpaces growth in the aggregate value that your product delivers to customers, it will not be sustainable. Revenue growth will eventually stall and start to decline. But if we can continue to grow aggregate value delivered to customers over time, then it becomes possible to sustainably grow revenue. Of course, CEOs will want to track both numbers because sustainable revenue and profit growth tends to be the metric by which they are judged by their investors and board members.
Finally, the North Star Metric becomes particularly powerful if the team associates it to the overall company mission. Facebook does an excellent job of connecting their NSM (Daily Active Users) to their mission of “bringing the world closer together.” An article in Fortune Magazine once suggested that “Zuckerberg is mind-numbingly efficient about slipping the statement into everyday conversation.” If the team has an emotional connection to the mission and considers the NSM the scorecard for achieving that mission, you will unleash a powerful force of sustainable growth.
Want to learn more? Join me and many other growth experts at the 2019 GrowthHackers Conference in San Francisco on May 7th.
