Picking the right Northstar Metric and how to avoid a disaster

👋 Hey, it’s Sundar! Thanks for reading experiMENTAL: my newsletter on the CRAZY stories & lessons from 13+ years in growth (5 at Uber) and 18+ months as a solopreneur.

In this week’s newsletter, you’ll learn:

• why a North Star metric is necessary to scale company growth fast

• what Uber used as its North Star to create the fastest growing startup of the 2010s

• how to pick your North Star metric to align your team in the right direction

The definition of a North Star metric

North Star is not a tech term. It refers to a star in our sky that stays in the same spot and was a way to help sailors and navigators know where true North is.

Businesses adopted it creating something called a North Star metric.

A North Star metric is a SINGULAR measurement that’s the best predictor of your company’s long-term success.

Think of it as a compass for your teams to rally around and use as a guiding light when making decisions.

The importance of having a North Star metric

A North Star metric helps avoid the mistake of thinking rowing fast = rowing together.

The cartoon below is a great example 😀.

A North Star metric clearly articulates the value of your team’s work.

It tells your team how to measure success but also what to keep in mind when they’re thinking about what to build.

Most importantly, it puts your customer at the forefront of decisions.

For any business, the single best strategic thing you can do is to pick a North Star metric.

Examples of North Star metrics

A couple things to notice:

• They are similar to each other

• North Star metric is never revenue

• They represent what the company is known for

Let’s dig into 2 examples:

Uber

Uber had a vision to make “transportation that is as reliable as running water”.

Let’s ignore how stupid the phrasing is especially given that running water isn’t always reliable.

But the company manifested that into being obsessed with looking at Rides per week.

Product, marketing, operations, and growth teams were obsessed with activating more users and onboarding more drivers with a singular mission of getting more trips.

Why did we pick that?

1. Trips are an easy metric to track if things go wrong

2. It represents value to the entire marketplace

3. More trips means better network effects

4. More trips means more revenue

Spotify

Spotify as a subscription business has a different business model than Uber.

So, why doesn’t Spotify use subscriptions as it’s North Star metric ?

Why does it use Time Spent Listening?

1. Time Spent Listening is a leading indicator

2. It represents value to the customer

3. It represents growth and retention

4. It represents revenue

Spotify knows that it builds stickiness by having more people listen to more music on its platform.

If a user stops listening to music on Spotify, they’ll eventually cancel their subscription.

It also takes the guess work away from making decisions.

“This product rollout dropped Time Spent Listening”

“Um, probably not a good idea to roll it out then”

Done. Easy.

Now, the hard part. How do you pick your company’s North Star metric?

How to pick your North Star metric

To qualify as a North Star a metric must do three things (in order of importance):

1. Represent customer value

2. End up in revenue

3. Reflect growth

The good news is picking a North Star is easier than you think.

Take a step back.

Close your eyes.

Ask: ”How do my customers get value from our product?”

Let’s call this your Ideal Customer Action.

That’s likely your North Star metric.

However, there are some nuances based on your business model:

Ecomm / D2C is the most straight forward. Purchases are the Ideal Customer Action.

Subscription is a bit more tricky. You have to dig a bit deeper on how to define what the Ideal Customer Action is.

Let’s look at two customers on Netflix and their behaviors:

Should Netflix pick Titles consumed or Minutes watched as their North Star?

”How do my customers get value from our product?”

They watch more Netflix.

That’s why Netflix chooses Time spent watching.

1. Represent customer value ✅

2. End up in revenue ✅

3. Reflect growth ✅

Marketplaces should choose where supply and demand meet.

For AirBNB, that’s when a guest books a trip with a host.

But, AirBNB has an extra element similar to Netflix. It’s not just number of trips booked but also the length of trips.

”How do my customers get value from our product?”

They book more nights on AirBNB.

That’s why AirBNB chooses Booked Nights and not Trips Booked.

Social Networks give value (and get revenue) from people staying active on their platforms.

Here’s how Snapchat defines Active:

Pretty vague.

However, there are often 2 types of users: Content creators and content consumers.

”How do my customers get value from our product?”

For both segments, you'll want to set your North Star as “Active” but you may have to define “Active” differently for both.

This way you can design products and experiences that get both segments coming back on the platform getting value and ultimately being active.

That’s it for this week. I hope you now know a bit more about:

• what a North Star Metric is

• what other companies use

• how you can define yours

I also run workshops on how to pick your North Star and set OKRs. Set up time with me if this is something you’re looking for help with.

Happy North Star metric hunting!

Thoughts? Questions? Feedback? Let me know!