Choosing Your North Star Metric and Going from PM to PM Leader: A Comprehensive Guide

Choosing Your North Star Metric and Going from PM to PM Leader: A Comprehensive Guide

Introduction:

Choosing the right North Star Metric (NSM) is crucial for the success of any business. It helps define the focus and direction of the company, driving growth and ensuring long-term sustainability. In this article, we will explore the different categories of NSMs and how they align with various business models. Additionally, we will discuss practical tips for transitioning from a product manager to a product leader, emphasizing the core skills necessary for success.

Understanding North Star Metrics:

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 the business and requires careful consideration based on the business model, product growth, and usage.

1. Revenue:

Revenue-based NSMs, such as Annual Recurring Revenue (ARR) or Gross Merchandise Value (GMV), focus on the amount of money being generated. Approximately 50% of companies prioritize revenue as their NSM. However, solely focusing on revenue goals may lead to suboptimal decisions and uninspiring goals for the team.

2. Customer Growth:

Customer Growth NSMs, like paid users or market share, measure the number of users who are paying for the product. Around 35% of companies prioritize customer growth. This metric is valuable for marketplaces, platforms, and freemium team-based B2B products.

3. Consumption Growth:

Consumption Growth NSMs, such as messages sent or nights booked, measure the intensity of product usage beyond just visiting the site. Approximately 30% of companies focus on consumption growth. This metric is particularly important for UGC subscription-based products.

4. Engagement Growth:

Engagement Growth NSMs, including Monthly Active Users (MAU) or Daily Active Users (DAU), measure the number of active users within the product. About 30% of companies prioritize engagement growth. Ad-driven businesses and consumer subscription products often focus on this metric.

5. Growth Efficiency:

Growth Efficiency NSMs, like Lifetime Value to Customer Acquisition Cost (LTV/CAC) or margins, measure the efficiency of spending versus revenue generation. Approximately 10% of companies prioritize growth efficiency. This metric is important for optimizing profitability.

6. User Experience:

User Experience NSMs, such as Net Promoter Score (NPS), measure customer satisfaction and ease of product usage. Approximately 10% of companies prioritize user experience. This metric is important for overall product success and customer retention.

Choosing the Right NSM:

The selection of the ideal NSM depends on the type of company and its specific goals. Marketplaces and platforms often prioritize consumption growth, while paid-growth driven businesses focus on growth efficiency. Freemium team-based B2B products typically prioritize engagement and/or customer growth. UGC subscription-based products prioritize consumption, and ad-driven businesses prioritize engagement. Consumer subscription products often prioritize engagement or customer growth.

Unique Insight:

Companies with multiple NSMs often do so to account for quality metrics or when they have multiple products with different goals. Spotify, for example, focuses on engagement, customer growth, and consumption for its subscription music and paid podcast businesses. This approach recognizes the importance of tracking high-value paid users and aligning metrics with specific product offerings.

Actionable Advice:

• 1. Consider the jobs your users hire your product to do: Align your NSM with the core purpose and value your product provides to customers. This ensures that the metric measures what matters most in fulfilling the customer's needs.

• 2. Calibrate input metrics to align with the NSM: Break down the NSM into its component parts and identify the key metrics that drive it. Invest in these input metrics to achieve the desired outcome. Concrete ideas and goals can be developed by aligning teams around these input metrics.

• 3. Prioritize product editing, strategic thinking, and influential communication: When transitioning from a product manager to a product leader, focus on developing these core skills. Effective editing involves asking critical questions, strategic thinking enables long-term planning, and influential communication drives collaboration and alignment within the organization.

Conclusion:

Choosing the right North Star Metric is essential for the success of any business. By understanding the different categories of NSMs and aligning them with the specific goals and business model, companies can drive growth and ensure long-term sustainability. Additionally, transitioning from a product manager to a product leader requires the development of core skills such as product editing, strategic thinking, and influential communication. By incorporating these actionable tips, aspiring product leaders can navigate their career trajectory and make a meaningful impact in their organizations.