Back

MAY 3, 2022

5 min read

The North Star Metric: A Product Tale

The importance and the challenges for companies to define a path towards product-led sustainable business results and customer value.

In the Oscar-nominated film “Don’t Look Up”, Dr. Randall Mindy and Michigan State student Kate Dibiasky rush out of the Oval Office, hands on their heads, because nobody, not even the President of the United States, will believe what they have just discovered. Based on their orbital calculations, a comet is headed towards Earth and there is an almost 100% chance of wiping out humanity.

All they were asking for was for people to look up to the sky and realise the actual size of the threat. Similarly, back in the 2010s, Sean Ellis and the growth hacking movement started asking companies to raise their eyes to the sky. There was no gigantic comet or asteroid headed towards Earth, however there was something else that they were missing out on too often - the brightest, most inspiring star in the constellation, the North Star.

From ancient times, stars have guided mankind and, certainly, companies are no different to that. They also need stars to chase in order to move forward and, more importantly, to ensure they are doing so in the right direction. Extrapolating this to the business world, Sean Ellis came up with a highly invigorating term, the North Star Metric (NMS), that refers to a single, crucial metric that, in his own words, “best captures the core value that a product delivers to [its] customers”. In this article, we will briefly discuss this term and what it takes for a company to define it.

What is a North Star Metric?

According to the “North Star Playbook” by Amplitude, at its finest, a NSM must represent a company’s product vision and strategy and is “a leading indicator of sustainable business results and customer value”. In spite of being product-centred, a NMS must transcend the product sphere to encompass the broader business and capture, from as many perspectives as possible, the value that the most loyal customers get from using a product.

However, such a metric needs to be a lot more than just that. According to Amplitude’s framework, a NSM needs to be:

  • Actionable
  • Measurable
  • Significant - in the sense that it should lead to meaningful and valuable changes
  • Eminently future oriented

For instance, have you ever wondered what’s the most important metric to companies such as Spotify, Airbnb, Netflix, or Tinder? Straightforwardly, some may think of net revenue, whilst others may think of net user base growth or even the birth (or divorce) rates. However, in NSM terms and according to Lenny Rachitsky, the most accurate, integral metrics to monitor sustainable long-term growth could be, respectively, the time spent listening to music by subscribers, the number of nights booked, the median view hours per month, or the percentage of premium users.

Although it might look simple at first, the truth is that a solid NSM is, in turn, composed of a number of input metrics. Going back to Spotify’s NSM, the Amplitude’s Playbook breaks it down into three input metrics:

  • user base breadth;
  • depth of engagement;
  • and frequency of engagement.

These in turn, are made up of several more specific, real-life measurements, such as the number of premium subscriptions, the average number of hours per session, or the number of sessions per week that actually help track company-wide progress on the ultimate one.

How do we define a NSM?

As you can imagine, defining a NSM is not an easy task. The first, most essential step, would be having a clear understanding of a company’s product vision or strategy. That is an indispensable step before thinking of any factor able to capture our progress towards any leading metric. If we look up to the stars for guidance, we need to know in which direction we are headed. Arbolus’ product vision is to help all businesses access and digest knowledge to make fast and informed decisions, while Netflix’s is to become the best global entertainment distribution service and Uber’s is to make transportation reliable everywhere for everyone. Of course, each of these companies’ NSM should be fully aligned with their product vision.

The second, crucial step would be to get the input metrics right. Such smaller, more sensitive factors are just as important as the NSM itself - in the former Amplitude product manager Dana Levine’s words, “a good North Star Metric is the result of a combination of things that a team can do something about”. Rethinking, reassessing, and playing around with such factors is sometimes the best way to identify the suitable metrics - put simply, anything that a team does that positively impacts the NMS is a potential candidate for becoming an input metric.

‍Why is it important?

A product-led company without a product strategy would be like a person sitting in the middle of the most arid desert on an awfully cloudy night. If that same company had such a strategy, that poor, thirsty person would count on the encouraging fact that there is an oasis close by. However, if that company had not only the strategy but a NSM and its inputs too, that person would be happily walking towards a wonderful, starlit oasis.

Indeed, the path towards defining a NSM is arduous, however once achieved, it heavily contributes to making things easier within a company. It sets a single common goal for everyone, it helps make sure that everyone pushes in the same direction. And, in Sean Ellis’ words, “optimising your efforts to grow this metric is key to driving sustainable growth across your full customer base” .

Moreover, setting a NSM brings some potentially terrific collateral effects. If understood and shared by everyone at a company, such a metric helps build and foster a company-wide culture of decentralised yet well-grounded decision-making. In a way, it can turn a firm into a whole value creation system that is fully aligned under a single, central metric.

And, after that, what’s next?

Having a NSM in place does not mean that the job is done. What it actually entails, is to constantly revisit, reassess, and rethink it as, sadly, stars (and product strategies) die too. In fact, Netflix’s initial strategy was to get big on DVD. Nevertheless, the more imbued everybody is with a collaborative value creation spirit, the easier it is to choose another star to follow.

All in all, it doesn’t take too much time to lay down and marvel at the beauty of the stars. If you pay close attention and are lucky enough, you may find a guiding North Star much larger than the comet Dr. Randall Mindy and Kate Dibiasky were desperately asking to raise our eyes toward.

Eduard Gallart

Born and raised in Barcelona, Edu joined Arbolus in July 2021 as an International Business Graduate. Currently working as a Senior Project Associate, he helps serve our US-based consultants. In his spare time, you will most likely find him on a basketball court, either as a player or as a coach.

View on LinkedIn

About Arbolus

Arbolus is a knowledge-sharing platform investors and consultants use to collect more insights from the best experts, in less time.

Get in touch to find out more

Share

Request a demo

Case study

1 min read

Delivering Unmatched Results for Application Security Testing Survey

Discover how by leveraging our extensive network of IT and Cybersecurity professionals, we...

Case study

2 min read

Delivering 4x the expected respondents for a niche B2B survey

Discover how a Big 4 Consulting client exceeded their niche B2B survey goals within 5 days,...

Case study

2 min read

Exceeding survey expectations with 59% market share

Learn how a global consulting firm exceeded survey goals in Clinical Behaviour Analysis within 24...

Webinars

5 min read

The Art of the Exit in PE: Key Insights from the Webinar

Last week saw our most recent webinar – The Art of the Exit in PE: Navigating Timing, Strategies,...