Modern Approaches to Creating Product Requirements and Choosing North Star Metrics

Aviral Vaid

Hatched by Aviral Vaid

Aug 16, 2023

5 min read

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Modern Approaches to Creating Product Requirements and Choosing North Star Metrics

Introduction:

In today's fast-paced business landscape, creating effective product requirements and identifying the right North Star Metrics are crucial for the success of any product or company. In this article, we will explore modern ways to create Product Requirements Documents (PRDs) and guide you through the process of choosing your North Star Metric.

Creating Product Requirements Documents (PRDs):

When creating a PRD, it is essential to include key elements that provide a comprehensive understanding of the product's core features. Here are the elements that should be included in a pragmatic user story:

1. Core User Story:

The user story should clearly define the target user and their desired action. For example, "As an admin user, I can X so that..."

2. Essential Functional Details:

Summarize the core functional details in bullet points to keep it concise and easily understandable.

3. Scenarios:

Include information about different scenarios and how to handle them. While it's not necessary to cover every possible scenario, smart engineers should work with you to find pragmatic solutions as they build the product.

4. Link to Designs:

Ideally, provide detailed designs that align with the desired functionality. However, it is common to iterate and tweak designs throughout the development process.

5. Link to Epic or Labels:

Provide broader context by linking the user story to the larger picture, such as the product's epic or relevant labels.

6. Comments or Questions:

Use the comments space to document important decisions or clarify any questions. These comments will be valuable references in the future to understand why certain decisions were made.

Choosing Your North Star Metric:

A North Star Metric (NSM) is a key performance indicator that reflects the core value your product delivers to users. There are six categories of NSMs to consider:

1. Revenue:

This metric focuses on the amount of money generated by your product. It is the primary focus for approximately 50% of companies.

2. Customer Growth:

This metric measures the number of users who are paying for your product. Around 35% of companies prioritize this metric.

3. Consumption Growth:

This metric goes beyond mere site visits and measures the intensity of usage of your product. Approximately 30% of companies emphasize this metric.

4. Engagement Growth:

This metric measures the number of active users in your product. Around 30% of companies prioritize engagement as their NSM.

5. Growth Efficiency:

This metric assesses the efficiency of your spending versus revenue generation. Approximately 10% of companies focus on this metric.

6. User Experience:

This metric evaluates how enjoyable and user-friendly your product is. It is the NSM for approximately 10% of companies.

Refining Your Ideal NSM:

Choosing the right NSM depends on various factors, such as your business model, product growth, and usage patterns. Different types of companies tend to prioritize specific NSMs:

1. Marketplaces and Platforms:

Consumption growth is the most common NSM for marketplaces and platforms. This metric is driven by users sharing content, which helps drive the growth flywheel.

2. Paid-Growth Driven Businesses:

Companies that rely on paid growth often prioritize growth efficiency as their NSM. This metric ensures that the money spent on acquiring customers is used effectively.

3. Freemium Team-Based B2B Products:

Engagement and/or customer growth are the typical NSMs for these products. Emphasizing engagement helps foster a loyal user base, while customer growth indicates expansion and success.

4. UGC Subscription-Based Products:

Consumption is the primary NSM for user-generated content subscription-based products. The focus is on ensuring users consume and engage with the content regularly.

5. Ad-Driven Businesses:

Engagement is the most common NSM for ad-driven companies. This metric indicates how active users are in the product, which is valuable for advertisers.

6. Consumer Subscription Products:

Engagement or customer growth are often the NSMs for consumer subscription products. These metrics reflect how users interact with the product and the growth of the customer base.

Aligning NSMs with User Needs:

An alternative approach to choosing your NSM is to consider the jobs your users hire your product to do. The NSM should measure what matters most in fulfilling those jobs for your customers.

Avoiding Singular Focus on Revenue:

While revenue is a vital aspect of any business, focusing solely on revenue growth as the NSM can lead to suboptimal decisions. It is crucial to inspire the team and align their efforts with a metric that resonates with the product's mission.

Three Actionable Advice:

1. Calibrate Input Metrics:

Break down your NSM into its component parts and identify the key input metrics that contribute to it. By focusing on these granular metrics, you can develop concrete ideas and align teams around specific goals.

2. Prioritize Product-Market Fit:

In the early stages of a company, before achieving product-market fit, the primary aim should be answering the question, "Am I building something people want?" This focus ensures that your product aligns with customer needs and desires.

3. Iterate and Refine:

As you progress in your product development journey, regularly review and refine your PRDs and NSMs. Embrace an iterative approach that allows for continuous improvement based on user feedback and market trends.

Conclusion:

Creating effective PRDs and choosing the right NSM are essential steps in building successful products. By incorporating the elements of a pragmatic user story and aligning your NSM with user needs, you can drive growth and deliver value to your customers. Remember to calibrate your input metrics, prioritize product-market fit, and continuously iterate and refine your approach. With these actionable steps, you can set your product on the path to success.

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