North Star Metric (NSM)
North Star Metric: this article explains the North Star Metric in a practical way. After reading the article, you will understand the basis of this powerful marketing Growth Hack tool.
What is the North Star Metric?
Organisations use the North Star Metric as a focus point for growth. This important metric represents the value that an organisation can offer its customers.
The North Star Metric was named after the North Star. For thousands of years, this star has offered people guidance and has helped them navigate home.
It is not the brightest star in the sky. The North Star Metric can therefore not be the only metric used to precisely estimate the health and growth of a company. What the metric can do, is offer direction for growth both in the short and long term.
After hearing a company’s North Star Metric, the buying, customer, user or interested party needs to understand the metric instantly, and be able to place it in the right context. It is often not a large or remarkable number, such as the total amount of Facebook members or Twitter accounts.
A thousand new members per day is also not a North Star Metric. These numbers indicate very little about a company’s growth direction on the long term. Even the total of daily active users of Facebook is not a good North Star Metric, even though this is often used as an example of proper use of the NSM.
Where did the North Star Metric originate?
The North Star Metric originated in the first decade of the twenty-first century amongst Silicon Valley companies.
These companies expanded rapidly and used the metric to focus on generating sustainable growth instead of rapid but superficial growth. The North Star Metric is the only metric that accurately expresses the core values of a company to consumers.
What does the North Star Metric mean for my organisation?
The identifying of, and acting upon a North Star Metric can mean the difference between a company that grows successfully or a company that slowly deteriorates due to losing focus. By identifying the metric, the customer can be heard better.
Investor Buckley Barlow once said that the lack of a good NSM was the reason for MySpace’s failure. They used a so called idle metric: the number of registered users. Facebook also focused on an idle metric, the total number of active monthly users. But Facebook succeeded nonetheless. This example shows that a company can still succeed, even without a good NSM.
Famous North Star Metric examples
A good NSM is aligned to the value a company offers. It is key that this metric comes as close to the impact of business processes as possible. That means that the total of registered users is not good Key Performance Indicator (KPI).
These numbers don’t say anything about the value a company offers to consumers. Various examples of organisations that supposedly use a good NSM are circulating the internet.
The problem is however that these examples do not seem to meet the definition of the NSM. Many users are missing the core foundation of NSM: the core value for customers.
Listed below are a few examples of companies that use a North Star Metric (NSM). Per example it is explained whether or not the KPI matches the basic principles of NSM.
Airbnb
The company Airbnb uses Nights Booked as their North Star Metric. Based on the previous information, we can conclude this is an idle metric. Nights Booked shows the demand for overnight stays, but says little about the value that Airbnb offers consumers. Yet it is an insightful metric that both represents the value of the renter and the letter.
A more logical NSM would be the percentage of bookings where both renter and letter give each other a perfect feedback score.
Facebook uses Daily Active Users, or Monthly Active Users as NSM. This metric shows how many users are active per day on the platform. This metric also does not fit the basic principles of the NSM, but is still more important than the total amount of registered users. This is one of the reasons Facebook did succeed and MySpace did not.
Amazon
Amazon uses the ‘amount of purchases per month’ as NSM. This is a logical choice for an E-commerce company, and comparable to Facebook’s total of monthly active users.
How can I identify my North Star Metric (NSM)?
Correctly identifying the NSM demands a proper overview of the values customers receive from products and services. In order to be able to shape this insight, customer surveys are necessary.
How are active customers handling the product / service? After this question has been answered, it can be determined which statistic expresses this value most concisely. This statistic becomes the North Star Metric of the organisation.
Identifying the only and right NSM is difficult and can often not be done in one attempt. This is not an issue. It is possible multiple statistics need to be selected in an attempt to figure out which one is most suitable. There are roughly five points an organisation needs to take into account when selecting and identifying the North Star Metric. These are presented in the checklist below.
North Star Metric (NSM) Checklist
- The metric needs to indicate which core value the consumer experiences from the product or service.
- The metric needs to show the involvement of the user with the product or service.
- In the most ideal scenario the NSM is the only metric to indicate a company is on the right path.
- The NSM needs to be easily understandable.
- Try not to get obsessed with finding the one perfect NSM. It can take a few iterations to find the right one.
Is there more than the North Star Metric?
As discussed, an NSM is ideal. However it is possible that it is difficult for all departments to positively influence that one statistic. There is no harm in using multiple Key Performance Indicators (KPI), however these then do not meet the requirements for the North Star Metric anymore. The collectively chosen KPIs represent the end result of collective effort in the workplace.
Identifying and choosing the North Star Metric does not mean other statistics should be forgotten. It only enables a company to realise growth by having everybody in the company focus on the real value produced for customers.
Pitfalls of North Star Metric
A simple, single metric as a foundation for focus seems great, but in reality it is not as healthy as people think. Naturally, successful companies combine the NSM with other important indicators, but when a company changes its focus based on the NSM, a few undesirable consequences can occur.
Listed below are a few pitfalls associated with an incorrect use of the North Star Metric.
Backing the wrong horse
Selecting a single metric in order to give a company focus can be risky if the wrong metric is selected. It is an important metric because it represents both how the company is performing, as well as its future perspectives. There are multiple companies that made the mistake of positioning themselves in a way to later on discover their underlying hypotheses or data was wrong.
By choosing an NSM aimed at sales figures, it can easily be overlooked that not all sales traffic is the same. Besides, a market landscape can quickly change. This makes an NSM aimed at sales less relevant, or even completely useless.
Tunnel vision
A good North Star Metric stimulates employees to improve this. Even though it is the intention of the project, an NSM can also start a domino effect of bad behaviour. A side-effect of a single goal or metric is tunnel vision.
When the increasing of the number of registered members is the only statistic used for focus, some employees will forget about other important things such as expiration or user time. Instead of focusing on a good user experience or overall value, these companies only care about new subscriptions.
This inevitably leads to the waste of resources and effort on activities that do not help the company to achieve a sustainable growth.
Innovation limitations
Statistics, by definition, are based on the future. Even though these statistics can lead to many new ideas and solutions, it removes the focus on creatively thinking about the future.
NSM simply discourages trying anything that possibly negatively influences the NSM. By shifting all the focus to a specific area, chances are missed when it comes to innovation, expansion and differentiation. These matters do not directly contribute to improvements of the NSM.
What is One Metric That Matters (OMTM)?
There are a few very important differences between the North Star Metric and the One Metric That Matters (OMTM).
The North Star Metric is the statistic on which an entire organisation focuses during a period of several years, in order to realise long term growth.
The One Metric That Matters (OMTM) is the statistic a team focuses on during a period of 2 to 6 months, in order to realise rapid growth. This results in a few very important differences.
Different stakeholders
The NSM is meant to be used by all the stakeholders within a company: from the employees in the marketing department, to the employees working in sales, and from management to the investors.
The One Metric That Matters (OMTM) is mainly meant to be used by a single team consisting of a maximum of six people, in order to accomplish short term results.
Different timespan
The North Star Metric is chosen when a growth strategy will be developed that will not be adjusted in the near future, unless the offer to the customers changes.
NSM expresses the value for customers, and that only changes when a company changes its mission/vision. One Metric That Matters on the other hand, changes for a period up to six months. During those months, most of the company’s attention is needed for this single metric.
North Star Metric (NSM) Summary
The North Star Metric (NSM) is a single statistic that is selected to measure the value that an organisation offers her customers.
The use of the NSM is not a guarantee for success, but as the North Star helps people navigate, the NSM provides an organisation with a sense of direction for growth in both the short and long term. The concept of NSM was first introduced by Silicon Valley companies.
The North Star Metric (NSM)-choices made by famous companies do not seem to meet the definition. An example is Airbnb. They have selected the metric Booked Nights. This seems to be an idle statistic, a reflection of the demand for overnight stays.
But, at the same time, the value of the letters is also incorporated, because from a booked night, both renter and letter profit.
Other companies such as Facebook have selected the metric ‘Daily Active Users’. This metric is more insightful than the NSM of the failed MySpace.
They used the total of registered users as the most important statistic. This says nothing about the value for the customer, nor about the value for MySpace itself.
Selecting the right North Star Metric (NSM) can sometimes be complex. There are a few tips everybody should consider whilst selecting the right metric.
The metric, for instance, needs to indicate which core value the consumer experiences. The metric also needs to show the involvement of the user with the product or company.
In the most ideal scenario the NSM is the only metric to indicate a company is on the right path. When done right, the NSM should be easy to understand by everybody. It is the most core expression of the produced value as possible.
Now it’s Your Turn
What do you think? Do you recognise the explanation of the North Star Metric? Does your company use the North Star Metric? Or have you, as an entrepreneur, defined the only right metric to measure the value you offer your customers? What is, in your experience, important in identifying the right metric? Do you know any examples of companies that use the right NSM? Do you have any tips or comments?
Share your experience and knowledge in the comments box below.
More information
- Ackerman, J. L. (2018). Client Satisfaction: The Only Metric Worth Measuring. The CPA Journal, 88(7), 74-74.
- Beatty, R. W., Huselid, M. A., & Schneier, C. E. (2003). New HR Metrics: Scoring on the Business Scorecard. Organizational Dynamics, 32(2), 107-121.
- Ellis, S. (2017). What is a North Star Metric.
- Bose, R. (2004). Knowledge management metrics. Industrial management & data systems.
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Ben Janse
Ben Janse is a young professional working at ToolsHero as Content Manager. He is also an International Business student at Rotterdam Business School where he focusses on analyzing and developing management models. Thanks to his theoretical and practical knowledge, he knows how to distinguish main- and side issues and to make the essence of each article clearly visible.
