The Future of Choosing Your North Star Metric and the Rise of Vertical Social Networks

The Future of Choosing Your North Star Metric and the Rise of Vertical Social Networks

In today's competitive business landscape, companies like Airbnb, Miro, Netflix, Tinder, and Spotify have discovered the power of choosing a North Star Metric. This metric serves as the guiding light, the core focus, that drives their decision-making and optimization efforts. Surprisingly, many of these successful companies purposely avoid concentrating on revenue as their North Star Metric. Instead, they identify the driver behind a given purchase or usage and optimize for that in a way that their competitors can't or won't.

So, what exactly is a North Star Metric? It's the one metric that, if it were to increase today, would most accelerate a business's flywheel. It's the metric that has the most significant impact on growth and success. However, maintaining a laser focus on a single metric for too long can be detrimental. Teams risk falling into the trap of short-term thinking, missing new opportunities, and sacrificing the user experience.

To choose the right North Star Metric, businesses need to consider their specific goals and objectives. There are six common categories of North Star Metrics:

1. Revenue: This includes metrics like Annual Recurring Revenue (ARR) and Gross Merchandise Value (GMV). While revenue is crucial for most businesses, focusing on it too early can lead to suboptimal decisions.

2. Customer Growth: This metric focuses on the number of paid users and the growth of the customer base. It measures the success of acquiring new customers and expanding the user base.

3. Consumption Growth: This metric tracks the growth of usage or consumption, such as the number of messages sent on a communication platform. It emphasizes the active engagement of users.

4. Engagement Growth: This metric measures the growth of Monthly Active Users (MAU) or Daily Active Users (DAU). It reflects the level of engagement and retention of users on a platform.

5. Growth Efficiency: This metric evaluates the efficiency of growth by looking at metrics like Lifetime Value to Customer Acquisition Cost (LTV/CAC) ratio and profit margins. It focuses on optimizing the economics of growth.

6. User Experience: This metric gauges the user experience and satisfaction, often measured by metrics like Net Promoter Score (NPS). It emphasizes creating a delightful and seamless user experience.

Different types of businesses have varying North Star Metrics that align with their goals and business models. For example:

• Marketplaces and platforms often prioritize consumption growth, as their success relies on users actively using and engaging with the platform's offerings.

• Freemium team-based B2B products focus on engagement and customer growth. Their success hinges on getting teams to adopt and actively use the product.

• UGC (User-Generated Content) subscription-based products emphasize consumption. The more users actively create and share content, the more the platform's growth flywheel is fueled.

• Ad-driven businesses, like Facebook and Snapchat, prioritize engagement as their North Star Metric. Daily Active Users (DAU) is a crucial metric for these platforms.

• Consumer subscription products may focus on either engagement or customer growth, depending on their specific goals.

• Products that differentiate on experience make user experience their North Star Metric. They aim to provide a superior and delightful user experience to attract and retain customers.

Choosing the right North Star Metric is a critical decision for any business. One approach is to ask, "What jobs are our users hiring our product to do?" By understanding the core value that users seek from the product, businesses can align their North Star Metric with their users' needs and desires.

Having a single North Star Metric often leads to a more cohesive planning and decision-making strategy across the company. However, once the North Star Metric is determined, it's essential to break it down into its component parts and identify the input metrics that contribute to its growth. By focusing on these input metrics, businesses can drive the desired outcome and optimize their efforts.

Now, let's shift our focus to the rise of vertical social networks. In today's digital landscape, users are growing fatigued with the traditional swiping and liking of static content. They crave more curated and meaningful connections and digital experiences based on their online and offline interests. This demand has paved the way for the emergence of vertical social networks.

Vertical social networks are platforms that cater to specific interests, hobbies, or industries. They enable users to share content that they can't post elsewhere, creating niche communities and fostering deeper connections. Even if a platform isn't the first or only place to post a certain type of content, it can win by providing the best tools and features for that specific vertical.

For example, platforms like LinkedIn, Clubhouse, and Quora target specific professional interests and offer unique features that enhance users' status within their existing networks. This incentive to build a following, either personally or professionally, attracts users to these new networks.

Vertical social networks also benefit from being a "system of record" for users. They hold important data related to users' profiles and interactions within the community. This encourages frequent engagement and makes it harder for users to churn, as they would lose their valuable data and connections.

Additionally, new devices and advancements in technology create opportunities for vertical social networks. These devices expand the amount of time and the ways in which users can be "present" on social products. They also enable new types of content and experiences, which can be the catalyst for launching a new social network.

Snap's success can be attributed, in part, to its use of AR filters, which enabled new types of content and engagement beyond its initial user base of high school students. Similarly, YouTube's vast range of content presents an opportunity for vertical social networks to "unbundle" and build products with killer features for specific categories.

In conclusion, choosing the right North Star Metric is crucial for driving growth and success in business. By identifying the metric that has the most significant impact on your business's flywheel, you can align your efforts and make informed decisions. Additionally, the rise of vertical social networks presents a unique opportunity for entrepreneurs and innovators. By catering to specific interests and providing differentiated experiences, these networks can capture the attention and engagement of users seeking more curated and meaningful connections.

Actionable advice:

1. Understand your users' needs and desires: To choose the right North Star Metric, ask yourself what jobs your users are hiring your product to do. By aligning your metric with your users' core value, you can drive growth and satisfaction.

2. Focus on cohort retention: In the early stages of building a company, cohort retention should be a primary focus. If you can't get people to stick around and continue using your product, other metrics won't matter in the end.

3. Embrace vertical-focused platforms: Consider the opportunities presented by vertical social networks. Explore ways to cater to specific interests, hobbies, or industries by providing unique tools and features that enhance users' experiences and connections.

By incorporating these actionable advice and understanding the importance of choosing the right North Star Metric and embracing the potential of vertical social networks, businesses can position themselves for growth and success in the ever-evolving digital landscape.