Choosing Your North Star Metric: A Guide to Strategic Growth

Choosing Your North Star Metric: A Guide to Strategic Growth

In the realm of business growth and strategy, one concept that has gained significant traction is the North Star Metric (NSM). The NSM is a singular, overarching metric that serves as a guiding light for companies, helping them track progress, make informed decisions, and align their teams towards a common objective. However, with the multitude of metrics available, choosing the right NSM can be a daunting task. In this article, we will explore the different categories of NSMs and provide actionable advice on how to refine your ideal NSM.

There are six categories of North Star Metrics: revenue, customer growth, consumption growth, engagement growth, growth efficiency, and user experience. Each category represents a different aspect of a company's growth and success. Revenue focuses on the amount of money being generated, making it the primary NSM for approximately 50% of companies. Customer growth, on the other hand, measures the number of users who are paying, making it the focus of around 35% of companies. Consumption growth represents the intensity of product usage beyond mere site visits and is the NSM for about 30% of companies. Engagement growth measures the number of active users in a product and is the focus for approximately 30% of companies. Growth efficiency tracks the efficiency of spending versus revenue generation and is the NSM for around 10% of companies. Lastly, user experience measures how enjoyable and easy-to-use customers find the product experience and is the NSM for approximately 10% of companies.

However, choosing the right NSM for your company depends heavily on your business model, how your product grows, and how it is used. Different types of companies tend to gravitate towards specific NSMs. For marketplaces and platforms, consumption growth is the most common NSM. This is because consumption is more likely to result in users sharing the content, thus driving the growth flywheel. Paid-growth driven businesses, on the other hand, focus on growth efficiency as their primary NSM. Freemium team-based B2B products often prioritize engagement and/or customer growth. UGC subscription-based products typically choose consumption as their NSM. Ad-driven businesses find engagement to be the most relevant NSM. Lastly, consumer subscription products commonly focus on either engagement or customer growth.

Notably, companies with multiple products or multiple goals often have multiple NSMs. For example, Spotify, which has both a subscription business (music) and an ad-based business (podcasts), focuses on engagement, customer growth, and consumption. Shopify, on the other hand, prioritizes growing customers (active merchants) rather than consumption due to its subscription fee structure.

When choosing your NSM, it can be beneficial to consider the jobs your users hire your product to do. The NSM should measure what matters most when fulfilling the job to be done for the customer or user. Focusing solely on revenue goals too early can lead to suboptimal decisions and uninspiring team goals. It is important to remember that people often join companies to accomplish a specific mission, and revenue growth alone may not align with that mission. Instead, companies that have multiple NSMs often include a metric for quality or consider different goals for different products.

To effectively utilize your NSM, it is crucial to calibrate the input metrics that contribute to it. Once you have identified your NSM, break it down into its component parts and determine which metrics to invest in as inputs. By focusing on actionable input metrics, you can generate concrete ideas and align your teams around them as goals. This approach allows for a more granular understanding of how to move the needle on your NSM and drive growth.

In a recent product insights report, three key takeaways shed light on the importance of autonomy in product teams. The report found that the more full-time employees a company has, the less likely product team members are to have a strong understanding of the product vision. This highlights the need for visibility into high-level objectives and goals to ensure alignment and clarity within the team. Granting autonomy to product teams not only motivates them but also has a positive impact on the business. Teams with high autonomy are nearly five times more likely to say they are engaged at work compared to teams with low autonomy.

In conclusion, choosing the right North Star Metric is crucial for strategic growth and success. By understanding the different categories of NSMs and considering your business model, product growth, and user needs, you can refine your ideal NSM. Remember to focus on actionable input metrics and grant autonomy to your product teams to drive engagement and alignment. By doing so, you can navigate the complex landscape of metrics and guide your company towards its North Star.