Startup Community: Why every startup should have a North Star Metric
It’s not the sexiest topic, but it is nevertheless super important … we need to talk about metrics and KPIs for startups.
We need to address how you can drive sustainable growth with a North Star Metric (NSM).
Let’s begin, shall we!
By now, you might be thinking: “Thomas, what the bleep is a North Star Metric … and why are you talking about astronomy?” Good question.
The NSM is a powerful concept that has emerged from Silicon Valley in recent years after being popularisied by Sean Ellis, the founder of Growth Hackers.
It helps startups move beyond the many surface-level ‘vanity’ growth metrics and focuses on generating long-term retained customer growth from one single metric.
The NSM is the single metric that best captures the core value that your product delivers to customers.
Optimising your efforts to grow this metric will be key to driving sustainable growth across your customer base. Don’t forget about ‘the classics’ such as CAC, LTV and Churn etc, which are all great KPIs to measure and work with. But please, make sure you focus on the NSM.
Finding the right one
So here is what you must do. To uncover your NSM, you must understand the value your most loyal customers get from using your product. Then you should try to quantify this value in a single metric. No-one said it was going to be easy, and you may find there is more than one metric that works. However, you should try to boil it down to a single NSM.
For example, Airbnb’s NSM is ‘the number of nights booked’. Why? Because this captures the value delivered to both guests and hosts.
While Facebook’s NSM is ‘the number of daily active users’. Why? Because with more users on the Facebook platform, more content is produced and the team is able to optimise everyone’s feed to deliver more value to users.
Notice how both NSMs will also impact the customer and revenue growth for these businesses. Yours should as well.
It is one thing to find your NSM, it’s another thing to actually apply it to your daily operations.
Once you understand your NSM, it’s important to document the variables that work together to move this metric. These variables generally include parts of the customer life-cycle, such as new user sign-ups, new user activations and improving engagement/retention of existing users.
By understanding the relationship of these interdependent variables and your current conversion rates, you’ll gain insights into potential high leverage opportunities for growing your NSM.
Your NSM will be a critical part of aligning your team to drive sustainable growth.
However you need a system − a process that you are committed to. Make sure you document your experiments, learnings and results as you start focusing on the NSM − and the variables that help to move it.
Create an online document, share it with your team members and have weekly or bi-weekly growth meetings. And stay focused and stay committed!