Unveiling the North Star Metric and Building a Sustainable Growth Model

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Jun 30, 2023
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Unveiling the North Star Metric and Building a Sustainable Growth Model
Introduction:
In today's competitive landscape, businesses are constantly seeking ways to optimize their strategies and accelerate growth. One powerful approach that companies like Airbnb, Miro, Netflix, Tinder, and Spotify have adopted is focusing on a North Star Metric. This metric serves as a compass, guiding decision-making and driving long-term success by identifying the core driver behind a purchase or usage. By honing in on this metric, companies can gain a competitive edge and unlock untapped opportunities. In this article, we will explore the concept of the North Star Metric, its various categories, and how it can be integrated into a comprehensive growth model.
The North Star Metric:
The North Star Metric is the key performance indicator that, when increased, has the greatest potential to accelerate a business's flywheel. It serves as a guiding light for teams, ensuring a laser focus on the metric that truly matters. However, it is important to strike a balance. While maintaining focus on a single metric is crucial, teams must also remain open to new opportunities and avoid falling into the trap of short-term thinking and sacrificing user experience.
Categories of North Star Metrics:
Broadly, there are six categories of North Star Metrics, each catering to different types of businesses. These categories include Revenue, Customer Growth, Consumption Growth, Engagement Growth, Growth Efficiency, and User Experience. Understanding which category aligns best with a company's goals and target audience is essential in choosing the right North Star Metric.
Marketplaces and Platforms:
For marketplaces and platforms, the most common North Star Metric is Consumption Growth. This metric measures the level of activity within the platform, focusing on actions such as messages sent or content created. By driving consumption, these businesses can create a positive feedback loop, where increased activity leads to more users sharing content and attracting new users.
Freemium Team-Based B2B Products:
In the case of freemium team-based B2B products, the North Star Metric often revolves around Engagement and/or Customer Growth. These products aim to foster collaboration and usage among teams, making engagement a crucial factor. By focusing on increasing engagement and acquiring new customers, these businesses can build a strong user base and drive sustainable growth.
UGC Subscription-Based Products:
UGC subscription-based products, which rely on user-generated content, often prioritize Consumption as their North Star Metric. Unlike engagement, consumption refers to more active actions, such as creating videos or posting content. By encouraging users to actively contribute and share content, these businesses can stimulate growth and create a thriving community.
Ad-Driven Businesses:
For ad-driven businesses like Facebook, Snap, and Pinterest, the North Star Metric centers around Engagement. These platforms aim to become daily habits for users, ensuring consistent engagement and maximizing ad impressions. Facebook and Snap target Daily Active Users (DAU), recognizing the daily nature of social media usage. On the other hand, Pinterest looks at Weekly Active Users (WAU), acknowledging that its users may not require daily interaction.
Consumer Subscription Products:
Consumer subscription products often prioritize Engagement or Customer Growth as their North Star Metric. These products aim to create a loyal user base by providing a compelling user experience and continuously engaging customers. By focusing on increasing engagement or acquiring new customers, these businesses can ensure long-term success.
Products That Differentiate on Experience:
For products that differentiate based on user experience, the North Star Metric revolves around User Experience itself. These businesses prioritize creating a seamless and delightful experience for users. By relentlessly focusing on improving user experience, these companies can create a competitive advantage and drive customer loyalty.
Choosing the Right North Star Metric:
When selecting a North Star Metric, it is essential to consider the core purpose of the product and understand the problem it solves for users. By aligning the metric with the product's purpose, businesses can ensure that their growth strategy remains cohesive and effective. It is also crucial to avoid prematurely focusing on revenue goals, as this can lead to suboptimal decisions and hinder long-term success.
Actionable Advice:
- 1. Start by focusing on cohort retention: In the early stages of a company, the primary aim should be to determine if the product is meeting users' needs. By focusing on cohort retention, businesses can gauge if enough people are sticking around after using the product, which is a strong indicator of its value and potential for growth.
- 2. Break down the North Star Metric: Once the North Star Metric is established, it is important to break it down into its component parts. Identify the key metrics that contribute to the North Star Metric and prioritize investing in those areas. By understanding the inputs that drive the output, businesses can develop targeted strategies and initiatives.
- 3. Understand the user journey: To build a comprehensive growth model, it is crucial to map out the user journey and identify the key steps or skills users need to understand to fully utilize the product. By guiding users through these steps and continuously improving the onboarding process, businesses can drive adoption and increase the likelihood of users reaching the North Star Metric.
Conclusion:
Choosing the right North Star Metric and building a sustainable growth model is vital for the long-term success of any business. By aligning the metric with the product's purpose, breaking it down into its component parts, and understanding the user journey, businesses can develop effective strategies and drive growth. Remember, the North Star Metric should serve as a guiding light, leading the way to success while keeping the user experience at the forefront.
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