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Vishwadeep Khatri
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North Star Metric (NSM) is an indicator of an organization's long term growth and hence becomes the most important metric for the entire organization. All initiatives within an organization are taken to improve the North Star Metric.

 

An application-oriented question on the topic along with responses can be seen below. The best answer was provided by Rahul Garg on 23rd May 2021.

 

Applause for all the respondents - Sharmistha Chowdhury, Mahesh Kumar, Ilavarasi P, Rajesh Chakrabarty, Rahul Garg, Suresh Balu, Raghunandan Reddy, Dipankar Acharya, Eka Pillai, Raja Chairmapandi, Suresh Sekar, Pankaj Goswami, Archana Handa, Madhu Rajendran, Rajender Prasad, Dhirendra Singh, Chetna

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Q 367. 'North Star Metric' is a business terminology that is inspired by 'North Star' i.e. the star of the northern hemisphere towards which the axis of the earth points. Explain 'North Star Metric' and how can it help generate long term value for customers?

 

 

Note for website visitors - Two questions are asked every week on this platform. One on Tuesday and the other on Friday.

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A North Star Metric (NSM) is one measure that is most predictive of a company’s success in long term. A Metric would be truly a "North Star" metric if it can encompass these three aspects into it : Lead to revenue, Reflect customer value, and Measure progress. If any metric that ticks well on these three points, and every department contributes to improving it, the company is going to grow in long run. This metric term was coined by start up investor Sean Ellis. 

It is very important to have a North Star Metric so that everyone in a company is aligned towards a ONE common goal and also it helps in reduction of duplication of work in different department due to no clarity about the common goal.

 

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Examples of North Star Metrics from some of the renowned companies:

Airbnb: Number of Nights Booked
Facebook : Daily Active Users
Quora : Number of questions a user answers
WhatsApp : Number of messages a user sends
Spotify : Time spent on Listening
Amazon Number of Purchases per month
Uber : Rides per week

A major reason Myspace (American social networking service) failed and Facebook succeeded is correlated to NSM they focused on. Myspace focused on Registered Users (a vanity metric) as their North Star Metric. At that moment, Facebook focused on Monthly / Daily Active Users as their NSM. This difference in focus finally led Facebook to succeed whereas Myspace failed badly. Social media apps must be aware of the changes in registered user numbers over a period of time. But Myspace failed because Registered Users means that it will show only who have signed up. It doesn’t show if these users are continuing to use their platform (a sign users continuing to receive value from it). Users who don’t get value from a product will stop using it and churn over a period of time. By tracking Monthly Active Users, Facebook could monitor changes in user numbers and see which users are finding the value from using the platform.

 

North Star Metric (NSM) must not be confused with OMTM (One Metric that Matters) in Lean as NSM is the number on which your entire company focuses to achieve long-term growth during a period of several years to infinity in comparison to One Metric That Matters (OMTM) is the number on which one team focuses to achieve rapid growth for a period of 2 to 6 months.

 

How to Select your NSM ?

 

Five points to keep in mind when deciding your North Star Metric:

i) The metric shall indicate what your user experienced the core value of the product
ii) It should reflect user’s engagement and activity level.
iii) It points out to “one thing” that indicates if your business is heading in right direction
iv) Ideally, the metric should be easy to understand and communicate across teams
v) Don’t fall into the trap that you have to have a perfect North Star Metric. What you are trying is to find is a metric that makes the most sense for complete business to focus on. It might take a few iterations as well to get a final NSM

Believe the crux and intent for North Star metric is rightly explained below :

“It is important to keep in mind that NSM is not an end solution in itself. Its a key metric gives focus on growth efforts and can serve as a seed to grow in a company's ecosystem that gives you deep insight into your customer’s behavior and create levers to drive future growth. It leads to understanding your customers and integrating your team on how to better bring value.”

– Andrew Miller

To correctly define your NSM, it requires understanding your customers, including what kind of value they get from your product and how they use your product to get that value. With that information, you can make better product to help customers get the value they’re looking for which will increase customer lifetime value, decrease churn rates, and increase revenue and growth.

How North Star Metric can help generate Long term value for Customer ?

Taking Example here of Airbnb whose North Star Metric is - Number of Nights Booked. So, company would be focusing on it heavily and will be on company's radar on real time / weekly / monthly monitoring and continuous efforts will always be there to improve the performance of this metric. To improve the metric, company must be rolling out frequent customer friendly offers (discounted price), improvement in its current service and hygiene of its current properties, providing superior locations, bundled offers (Meals / Amenities / Facilities / certain nights free if you book for more than say 5 nights), loyalty / membership cards etc.. By focusing on NSM, a company would be always working hard and continuously to get the night booking done (Its NSM) and which will lead better value to customer with better and better services over a period of time at lesser / same price OR more benefits will be passed on to customer even if the company increases the price to stay ahead of competition and maintaining the growth momentum in its business. Also, company would never think of loosing a customer as cost of acquiring a new customer is always quite high (5-10X) than retaining an existing customer.

Finally to Summarize, Revenue is the price that your customer pays however NSM is the value your customer gets in return of that price. So please always keep on maximizing that value over time to get more and more growth in your customer base and which will finally lead to growth in your revenue.

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North Star Metric also abbreviated as NSM helps in ensuring companies focus on their growth in the long term during a period of several years of infinity & that can only change if there has been significant change in Companies Mission & Vision . The same can be better understood with the amount of value that the company brings to its customers ( Might be different factors like Improve Productivity, CSAT, NPS , Simplifying products etc), NSM need to be Time bound, Measurable, & should bring in Value proposed to customers 

 

The main benefits in Long term of North start are as follows

 

1. One Focus One Goal : Entire company has one focus . The different sub teams can have different business metrics to look forward to, however the ultimate focus is One 

2. Clarity & Transparency Everyone can see how well the company is doing.

3. Customer centricity:   Amount of value that the company brings to its customers

 

 

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What is a North Star Metric?
A True North Star metric is one of the measurement that’s tells about company’s long-term success. A good "North Star," metric include three things:  revenue growth,  customer value and measure the progress. If a metric include those three points, and each department contributes to improving it, the company is on the right path.

 

Why is a North Star metric important?

 Main aim for defining true North Metric is to align teams around the singular goal of growth. The name North Star metric taken from the common name for Polaris, the star that lies directly above the Earth’s Northern pole. Companies  can have multiple North Stars, and any given North Star metric is composed of sub-metrics anyway.
Companies should review their North Star metrics at an suitable intervals to make sure they still point the right direction, and align them when they feel appropriate.

 

How a North Star metric works?

For better monitoring a North Star metric is divided  into smaller metrics that drive accountability and ownership at the functional/team level. It is for batter alignment between individual and departmental metric. For example e commerce company with the North Star metric “the number of new customers purchasing each week.” A  sales employee at that company could contribute to that main goal by improving sales in his/her category. 

 

How to find your North Star metric?

To find relevant North Star metric, companies must focus what is truly important to their business. Companies are  succeed and fail for lots of reasons, But pillars to the business that are load-bearing should be identified? If they failed, would destroy the company?  A metric like revenue without satisfying customers will fail in the long run, as will a company that satisfies customers without being profitable. There is no use of such metric that doesn’t measure progress in a way that allows teams to act on its insights and change their behaviors isn’t useful. A North Star metric must reflect all three factors, considering business nature. To find your North Star metric:
1.    Ask, what is essential to the business’ functioning? Prioritize a list.
2.    Ask, which KPIs and metrics measure the top few, key factors?
3.    Ask, which metric captures all of the above?
4.    Build a metric hierarchy, with the North Star metric at company level target


How 'North Star Metric' can help generate long term value for customers?

Main force behind the North Star Metric is that if your company provides more value to your customers, then the growth of your company has to go positive. The logic is that if your customers receive a lot of value, they will stay longer, buy more and refer more friends to your company.

Company will focus more on customer to deliver value, In turn will have more finetuned relations with customers. Company will have KPI which are impacting customers directly for Eg. Order delivery time, Customer satisfaction index , Customer surveys, Product and Service feedback and communication back to customers after improvements. All these healthy activities will improve customer experience. Customers will have long term relation ship with suppliers.

 

The main mission of every org is to deliver value, ideally to a big market, and to capture value back.
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 The more value organization deliver to their customers, the more they will able to collect back. The more value you capture the more revenue you generate, data and other resources you have to invest in delivering yet more value to the market.
To build a healthy value loops around your product you have to  define what value you deliver and what value you want to capture. Then you have to measure both.

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A North Star metric is the one measurement that’s predictive the long term success of the company.  The idea behind the North Star Metric is that if the business brings more value to your clients, then the growth of your business has to go positive.  It also gives the direction to the company’s long-term growth versus short-term growth. It enables the teams to focus more on impact and sustainable, product-led growth.  If your clients receive a lot of value obviously they will stay longer, buy more and provide the reference to their friends to your business. 

Overall North Star Metric defines the relationship between the customer problems which product team is trying to resolve and the revenue that the business aims to generate by doing so

 

To qualify as a “North Star”, the metric must do three things.

Focus

 

Your entire business has the same focus. At the team level, you still focus on a different number, but the goal is same for everyone.

Clarity

 

Everyone can see at a glimpse how the company is performing.

Customer focus

 

The Business is more concerned with adding value for the client than low-priced value, so automatically make room to be busy with retention.

 

 

Checklist for a good North Star Metric

1.       When your customers reach end result? (equals your client’s ‘success’ moments)

2.       Does this apply to all your customer? (expresses value to the customer)

3.       Measurable? (North Star Metric is measurable)

4.       Best frequency (day/week/month) (North Star Metric is time-bound)

5.       External factor have minimal impact? (North Star Metric is within your control)

6.       North Star Metric growth tied to business – growth? (North Star Metric is a direct reflection of your growth)

7.       Full pirate Funnel impact North Star Metric(North Star Metric has mutual effect on the entire Pirate Funnel)

8.       North Star Metric change frequently (North Star Metric is growing with some frequency)

Some of the Sample for North Star metrics are

·         Amazon : Number of purchase per Month ; 

·         Uber – Rides per week;

·         Spotify =  Time spent listening

·         Airbnb = Number of Nights booked 

·         Facebook = MAU (Monthly Active Users) 

 

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The North Star has always been a source of direction for travelers during the dark night- it always remains still and points towards the north. This celestial design depicts a symbolic beacon of hope and direction for many when there is darkness and many distractions all around. It is a landmark that helps to determine the direction or single path towards a defined purposeful destination.

On similar lines, in the business environment, A North Star Metric (NSM) is the One Single Measurement that most indicatively extrapolates the long term success of the business or Organization. This metric is the one single metric that keeps the top management engaged towards strategic direction for the business/organization.

The said concept that emerged from Silicon Valley is best applied by organizations that believe in investing in long-term sustainable growth. To qualify as a Direction provider –a North Star Metric(NSM), must;

1)      Lead to revenue – Core purpose, but cannot be a North Star Metric by itself, as Revenue is the price that the customer pays for the value it perceives in the product /service, whereas NSM is the value itself

2)      Reflect Customer Value – The value the customer perceives in the product/services, drives their long-term engagement

3)      Be a numerical measure and reflection of progress of the organization – Only that which is measurable can be improved

4)      Indicate the customer’s success or need fulfilment – The customer must come back to you for it for a long term basis

5)      Be time bound- so that you can compare periodically and clearly see if there is growth

6)      Grow Periodically-  growth measured in a fixed frequency provides a trend and enables a feedback mechanism for due analysis and  preventive & corrective action

7)      Be in total control of the organization- There should not be any external influence as it should be ONLY the effect of the bond between the organization and the customer. Thus, any modification in operations is easier and controllable.

8)      Involve all levels of work – everyone (People/department/function) must feel involved and their performance metrics should contribute to the NSM.

The Metric with the above said properties is employed as a focus by an organization for growth. It gives direction to the organization’s long term growth. Most matured organizations draft a NSM, keeping the above pointers in mind. Having said that, an organization or an SBU should ideally have only one NSM so that there is a single focus for all teams within the organization/ SBU.

Some well-known, Global Examples of NSM which are commonly used by us, as customers;

-          Facebook- “Monthly Active Users (MAU)” – A versatile platform like Facebook has a very specific NSM that allows them to check growth on a monthly basis and take corrective measures wherever required, to maintain the growth trends.

-          Amazon- “Number of purchases per month” – Absolute logical NSM covering Customer engagement and revenue

-          LinkedIn – “Monthly Active Users (MAU)” – Similar to Facebook.

-          Uber- “Rides per week” – Being a two sided platform, both the buyers and the sellers must derive value from the platform

-          WhatsApp- “Messages sent” – absolute indicator of usage and value received by user

All the above mentioned successful organizations have great customer base and is only growing because of their focus on their well thought of NSM. They have laid down the foundation for the belief on how and why the NSM helps to generate long term value for customers.

-          Enables to draft a North Star Strategy (NSS)– It is basically a way in which the organization is focussed on the NSM in all its strategic planning. The NSS quantifies the value that is provided to the customers. This helps in aligning all teams in the organization, as well as all other stakeholders and the use of all strategic assets

-          Customer Focus – The organization is committed to add value for the customer and hence all processes and activities across the organization are intended for customer retention.

-          Focus Across the Organization- When all performance metrics at the different levels of the organisation are linked to the NSM, the Top-Down and Bottom-Up approach both work together efficiently and effectively. Fantastic grounds for Kaizen and continuous improvement. Benefits of business excellence is experienced by all stakeholders.

-          Clarity – Every stakeholder understands how the organization and their effort & performance stands at a single glance

 

The crux of the concept is that if the organization consistently provides more value to the customer, the growth of the company is guaranteed ,as then, the customer will be loyal and buy more and refer the organization’s product or services which enables business growth. Given that the NSM is a direct indication of the focus on providing value to the customer, the growth of business is directly proportional to the growth of the NSM

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North Star Metric is a Key Metric that a Company uses to measure their Growth. This Metric is closely related to the Companies Long Term and Short-Term Strategy. This Metric also help to identify how much benefit it will bring to the End Customers. 

 

Few Examples of North Star Metrics are like:

·       Spotify “Time spent in Listening”

·       Airbnb “Number of days/nights booked”

·       Facebook “Number of active users”  

·       Uber “Number of Rides per Month”

·       Amazon “Number of Purchase per Month”

 

The Key rationale behind North Star Metric is to how to create more Value to End Customers so that they use the Companies Product or Services, the more they use better the Revenue or Sales to the Company in turn it will increase their Profits and Market Share.

 

As companies focus on North Star Metrics and to achieve that they need to focus on creating Long term value to the Customers and rather than getting higher revenue in the short Term.

 

In Practice, North star Metrics is broken down into smaller Metrics to drive accountability and ownership at individual level. For Example: In Ecommerce Company the Delivery boy will contribute to the Metric by delivering the Product on time.  Likewise, in a Software/Application development Company, the Web developer will contribute by reducing the Page Load Time so that the Customers will results Faster.  Overall, as the Companies focus on improving the North Star Metrics in turn this will help in creating more Value to the Customer.

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North star metric is a single metric that is a core value that your product or services delivered to the customers. North Start Metric (NSM) helps businesses to head in the right direction for both short and long term.

 

NSM is a metric which entire organization focuses for years to gain success in the business. Since NSM is a single metric, it becomes very important to select the right metric which enables value to the business and users. If you have not identified the proper NSM, you will end up misleading your focus with actual and may put an end to your business.

 

So, creating right NSM and aligning it to your business processes metrics for each vertical in the organization helps to move in the direction. This metric should be aligned with the value delivered to the customers.

 

In this dynamic world of business and its competition in the market, customer always has an option for his need and with his experience and value for the money he always turns to be loyal with the business.

This gives an edge to the businesses to deliver more value to retain the customers for long term and it benefits customer with attractive offers from the businesses.

 

Customer will be leading to enjoy most of the benefits since companies are trying to retain the customers delivering value continuously and making his experience better and better. To put into a nutshell, customer gets maximum benefits when business focus to deliver more value.

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The North Star Metric has come from Silicon Valley companies and focusses towards generating long-term retained customer growth.

 

It is the single metric that best captures the core value that an organization's product or service delivers to customers.

 

The criteria for a metric to be North Star are : 
a) It must lead to revenue
b) It must reflect customer value
c) And it must measure progress

 

Examples of North Star Metrics from familiar companies:

  • Airbnb: Nights Booked
  • Facebook: Daily Active Users
  • Quora: Number of questions a user answers
  • WhatsApp: Number of messages a user sends

 

Correctly identifying the North Star Metric requires the organization to understand what exact value customers get from your product and how they get it. To do this, one must examine how loyal customers engage with and use the product/service. There may be more than one metric that works, but organization has to boil it down to a single NSM

 

How does it help generate long term value for customers : 

 

  1. It helps to have single focus of the organization by coordinating siloed teams to work together by providing a single metric that focuses them around a common goal.
  2. It gives the organization clarity and alignment on what the product team needs to be targetting for and what can be traded off.
  3. It communicates the organizations’ impact and progress to the rest of the company – resulting in more support and faster implementation of strategic product initiatives.
  4. It makes the company more concerned with adding value for the customer, leading to customer loyalty and retention
  5. And most importantly, it holds the organization accountable to an outcome.
     
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North star metric is  the goal post towards which the whole organisation would strive to reach with full focus . This focus can be seen in  a consolidated aerial view where all the departments and assignments are done with this as a theme . While all departments would be focusing on OMTM which is mostly assignment or project based and also a short term objective . The progress that is happening on North star metric is visible to all in real time basis or made to be visible so that quick corrective actions and preventive actions can be taken if there is even slightest deviation . Another important aspect of NSM is that it drives the organisation on along term basis for many years and at times even decades together . It will be advisable to keep this NSM as the top most agenda or goal in any system oriented approach or any continual improvement process the organisation is working on .  

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North Star Metric

In Business, the North Star Metric was developed to give businesses an outstanding focus on a particular assigned objective.

Enterprises using North Star Metric (NMS) as a focus for their growth. The North Star Metric originally started from Silicon Valley companies with rapid growth. It supports the teams to explore beyond the surface-level growth and focus on long-term customer and product growth. 

A North Star metric is broken down into smaller metrics that drive responsibility and ownership at the individual level. Most of these sub divided metrics are team-specific and actionable, so individual contributors can identify the connection between their daily duties and the North Star

Three factors of North Star Metric is

  • Customer Value Addition
  • Progress Measurement
  • Drive Revenue to the business

North Star Metric Benefits:

The following will indicate that how is the North Star Metrics is helping the business growth,

 

Focused on Single Objective: The entire company is focused on one Objective. The numbers and tasks can be changed from department to department, but the north star metric is the single aspect to focus.

 

Simplified Strategy: It streamlines and make easy the overall company strategy into actions that everyone can understand, remember, Focus, and execute.

 

Enhanced Customer Value: Adding value to the customer is one of the important factors in North Star Metrics. As a result, it improves customer engagement, customer experience and customer satisfaction.

 

Steps for North Star Metric Selection:

The future success must be indicated by good north star metric and every product should have a north star metric. While the other KPI like monthly revenue indicates what happened in the past rather than predicting future revenue.

 

Close to the customer’s success moments: A good North Star Metric is always close to the moment when the customer gets the planned result from your product.

 

Adds value to your customers: The North Star Metrics not only gives the profit for the company; it should be adding value to your customers.

Measurable: North Star Metrics should be measurable one and it relevant the objective.

 

Time-bound: North Star Metrics should be measured in a specified period, which can be an hour, day, week, or month.

 

Not influenced by external factors: North Star Metrics should be influenced by the customers and it should not influence by any other external factors.

 

Reflect your growth: North Star Metrics and business growth should be directly proportional i.e. if the North Star Metrics is increases, business growth also increases.

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North Star Metric:

 

A North Star Metric is necessary if you want to reach the maximum growth potential. To grow long term, the company will need to evolve a long-term growth strategy.

Identifying the North Star Metric can be the difference between fetching a great company or one that is on its way out. Pinpoint it also helps to understand the customers and product better.

 

A North Star Metric helps the company in several ways:

  • Focus: Entire company should have the same focus. At the team level, still focus on a different number, but finally everyone has the same goal. 
  • Clarity: Everyone can look briefly how well the organization is doing.
  • Customer focus: The organization is more concerned with adding value to the customer than dispossess value, so it automatically makes space to be busy with retention.

The result will be that the business will grow much more systematic because it has more focus and that focus is also attentive on long-term growth.

 

Few Checklist for a good North Star Metric

A good North Star Metric meets these below criteria, otherwise it can go wrong quickly:

  1. Client’s ‘success’ moments - If you do it correct; your North Star Metric is close to the minute the customer gets its deliberate result from your product/service/software.
  2. Expresses value to the customer - A good North Star Metric guarantees that you also every time keep an eye on all your divergent metrics, such as retention and referral, and not just on your marketing KPIs.
  3. Metric is measurable - so ‘contentment or ‘degree of unburdening’ is not measurable, then what can be measured, for example, the number of times a definite action is carried out, the number of times a definite part is visible or the time you have rescue people.
  4. Metric is time-bound - You measure a good NSM based on a unquestionable period, such as hour, day, week or month. You want to perceive clearly that you increase in size over time
  5. Metric is within your control - Your NSM should be a number that is not really being determined by other external factors other than your customers, because it must only give back the bond between you and your customers.
  6. Direct reflection of your growth - However, you look at it, if your NSM grows, which means that your business grows as well. It should therefore not be a conceit metric or false figure.
  7. Mutual effect on the entire pirate funnel -  A good NSM is a number that everyone in your company can control, no matter what stage of the Pirate Funnel they are working on. All must feel involved in this growth goal. On the other side, growth of the NSM should also have an effect on the separate components in order to be a good NSM.
  8. Growing with some frequency - to get immediate feedback. If your NSM consists of a promotion that each customer only executes once a year, it will take excessively long before you know whether you are on the correct track. Preferably, your NSM grows every day or week, so it should be an action that every customer should perform about four times a month
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A North Star metric is the one measurement that is predictive of a company's long-term goals. 
To be qualified as a "North Star," a metric must have three points:
1. Lead to revenue
2. Reflect customer value
3. Measure progress

It brings absolute focus on one goal of a company that drives sustainable long-term growth.

Nowadays, every company needs to know what its customers are demanding and their trends on satisfaction.
So by using North Star Metric a company will be laser-focused on its customer demands, what values are they creating for customers.
And by outlining the North Star Metric clearly the customer value created is instantly visible and decisions can be made accordingly, and it will not only benefit the company's overall growth but also will add long-term value for its customers.

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A North Star Metric is the one that best exhibits your company's objective. The correct North Star Metric can ensure supportable long haul development. It implies that the NSM is a key achievement indicator of your company's success.

 

The NSM ought to infer three significant outcomes:

 

- pace of get back to demonstrate how much an organization will grow in terms of revenue and customer base;

- demonstrate ability to generate customer value;

- quantifiability of all performance outcomes.

 

If you develop the correct North Star metric, you'll lead to increased revenue for your organization. You'll see your product or service's worth valued by clients and steer your effort into right direction. With this metric, your organization will understand what enhancements should be carried out and what they will mean for future development.

 

 

What is the need of such a metric in business environment?

The North Star metric:

 

- helps teams identify what should be done to improve the NSM performance, and prioritize / de-prioritize effort investment accordingly;

- helps see the organization improvement digitized and speed up new product or service developments;

- allows you to see the specific results of the work done.

 

 

Can a North Star Metric change with time?

The answer is both Yes and No.   The NSM can surely evolve over a longer period of time.  However, if NSM goes through too many changes in a short period, it simply indicates two possibilities: (a) Either the NSM is not correctly defined; or (b) Organization's vision and objectives are not clear

 

How to identify right North Star Metric?

Before we plunge into searching for the North Star, we should put any misinformation to rest.  Key things to do for defining right NSM are:

 

- Define what's key in your business, what is the genuine client esteem, what creates income and decides your advancement to track down your North Star.

- Focusing on one major target you foster a reasonable system to see unmistakably where you ought to go.

 

Developing KPIs to measure NSM correctly

At the point when you know your North Star Metric, different performance numbers will help you develop NSM. Key Performance Indicators (KPIs) at that point become possibly the most important factor. These noteworthy metrics are numbers that assist you with addressing the inquiries concerning the eventual fate of your business. They have a few prerequisites: KPIs ought to be explicit, quantifiable, practical, significant, and time-bound.

 

 

So, North Star Metric can clearly serve as a measure of company's ability to deliver on the objectives defined in-line with their vision and mission to deliver customer value.  A clearly defined NSM not just help align entire organization to a common goal, but helps in growing customer experience and organization as a whole.

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What is North Star Metric?

The North Star Metric (NSM) is basically the one metric that matters as it best captures the core value your product delivers to customers. Improving NSM by focusing and optimizing organization-wide efforts is the key to ensuring sustainable growth in your company over long term.NSM can be considered as a defining point when measuring how well the problems are solved and the organization’s ability to generate business. NSM usually includes a vision statement along with a metric which is key to measure successTo summarize, an NSM represents your current strategy at its core, measures when the customer gets value from the product and is the leading indicator for future business outcomes which are critical to the organization.

Why use North Start Metric (NSM)?

NSM holds the organization accountable for the specific outcome. For example, in case of a product-based company NSM provides clarity and helps in focusing on the main goals, ensuring the product team agrees on what features needs to stay, which can be dropped or can be optimised. It helps in ensuring the teams focus and reach easy agreement. Parallelly, the NSM lets you track the progress of your service/product and the goals in a way that the rest of your company can understand.

How it generates long term value for customers

As NSM should connect to the value that you bring to the customers, it should be a metric that directly connects to the customer value or the “Aaha” moment for the customer and refers the initial interactions the organisation would have had with them which would resulted in their satisfaction making them to come back to use the services/products and also resulted in they recommending you.Primarily the metrics can be either Breadth, Frequency, Depth and Efficiency, explained below with an example from the perspective of an online shopping organization:

·         Breadth - number of new and returning users

·         Frequency - number of monthly orders per-user

·         Depth - number of items per order

·         Efficiency – the percent of orders delivered on time

By focusing on the NSM and monitoring it, the Organization focuses on continuously improving the metric which ultimately ensures that the Customer experience is enhanced considerably and over the long run they benefit by getting better service/product from the organization. For example, if the NSM is efficiency for an online shopping site, then their focus on delivery orders on time result in customers enjoying a trouble-free delivery experience.

Conclusion

To conclude, the NSM is the most important metric for an organization. It is a priority above all other goals, giving the entire organization a common objective to work towards and helps in reducing disagreements and confusion. NSM ideally focuses on the exact moment of the process which adds value to the customers and that convinces them to continue working with the organization. In the long run, the NSM enables the Organization to perform better and deliver to the customers and for Customer it ensures that there is constant improvement in the user experience and standard of the service/product.

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What is a North Star metric?
One of the metrics that has paid dividends for many companies in recent years, North Star Metric, is a measurement that is most predictive for a company’s success in long-term.
3 things to qualify for a North Star Metric :
i) lead to revenue,
ii) reflect customer value,
iii) measure progress.

When a metric hits these three points, while each department contributes improvement towards it, the organization's growth is sustainable.
 
The importance of a North Star Metric 
North Star Metrics is to get everyone in the company to focus on 1 goal.
90%  of the data in the world,  was created in just the past few years, which allows each team, each department,  and each contributor to focus on their own metrics.
If every team defines their goals differently, they will work against each other and in many cases efforts are duplicated.
When investor Sean Ellis of GrowthHackers, created the term “North Star Metric,” his intention was to reduce administration, simplify meetings, and align teams surrounding the single goal for growth.
The term North Star Metric - drawn from the name for Polaris, which is the star situated directly above  Earth’s Northern pole.
Complex business models companies may have multiple North Stars.
Most companies  would certainly fail if they are in favor of just one, such as recurring revenue, instead of foreseeing all metrics.
The North Star Metric is an exercise of simplifying overall strategy of the company into terms where everyone are able to  understand, remember and apply.
North Star Metric's intention is to serve as guide for long-term.
Companies are free to reevaluate their North Star Metrics to ensure they point in the right direction. Amendment should be done as and  when they prove flawed.
 
How North Star Metric works
For daily use, at the individual level, North Star Metric should be broken down into smaller metrics which drives ownership and also accountability. Most of the sub-metrics are actionable and team-specific. By doing so, individual contributors will draw clear connection between the North Star and their daily duties.
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North Star metric helps companies to predict company’s future growth using 3 steps process revenue growth, review of customer value and periodic reviews & measure.

Since north star focus on long-term goal and keep motivating leader to improve the product, intern providing greater value to customer in future.

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What is North Star:

North Star, also known as Polaris or Pole star is the brightest star of the constellation Ursa Minor.

What is the North Star Metric?

The North star metrics is the one which best demonstrates a company’s product value to its customers. The right North star guarantees a sustainable long-term growth. This means that North Star metrics is a key success indicator of a product team. A North Star Metrics should qualify below three major parameters:

1)     Lead to revenue

2)     Reflect Customer Value, and

3)     Measure progress

If a metric hits these three parameters & every department contributes to improving it, the company will grow sustainably.

If the focus is to grow the right North Star metric the company’s income will grow. This metric will help to know that what improvements need to be taken and how they will impact their future growth.

Organizations have a defined mission to meet a particular need and deliver a differentiated value to its customers, better than their competitors. The North Star Metric tracks the tangible assessment of success or failure of the product, revealing what is working in favor and what’s not.

In summary, a North Star metric should measure exactly when the customer gets value from the product, represent your overall current product strategy and be a leading indicator for future business outcomes that are critical to one’s company

Quoting an example for reference:

An e-commerce company could have a North Star metric of the number of orders placed for Mobile devices and delivered. Instead of tracking only the count of orders, the metric should also track value in the form of customer experience & positive feedback/review of the product & its usage on the app.

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Origin: Startup investor Sean Ellis coined the term “North Star metric”. Sean intended it to reduce administration, simplify meetings, and align teams around the singular goal of growth. The term North Star metric is drawn from the common name for Polaris, the star that lies directly above the Earth’s Northern pole. It is mostly rhetorical. 

 

Meaning: A North Star metric is the one measurement that’s most predictive of a company’s long-term success. To qualify as a "North Star," a metric must reflect three factors tailored to each business-

  • Lead to revenue,
  • Reflect customer value, and
  • Measure progress.

If a metric hits above three points, and every department contributes to improving it, the company will grow sustainably. 

Companies should feel equally free to reevaluate their North Star metrics to make sure they still point the right direction, and amend them when they prove flawed (Real life example is what LinkedIn did- LinkedIn’s initial NSM was the number of endorsements given because it was a relationship-building factor between the users. But endorsements were found to be falsified and they changed their NSM to monthly active users (MAU).

North Star metric is intended as a long-term guide and not to be confused with One Metric That Matter (OMTM). 

 

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Identification and requirement to measure North Star Metric: A North Star metric must reflect all three factors, tailored to each business. To find North Star metric, companies need to - 

  1. Ask, what is essential to the business’ functioning? Prioritize the list.
  2. Ask, what Key performance indicators and metrics measure the top few, key factors?
  3. Ask, what metric encapsulates all of the above?
  4. Keep the North Star metric on top of the pyramid (in metric hierarchy)

Companies that select a North Star need the culture that is flexible and right infrastructure. Most teams find user analytics vital to measuring their North Star metric. 

 

Generating Long Term Customer Value: The North Star Metric is the single metric that best captures the core value that products delivers to Customers. It helps generate value to Customers by-

  1. Being close to the customer’s success moments: A good North Star Metric is always close to the moment when the customer gets the intended result from the product. Example, For Airbnb, the North Star Metric is the number of nights booked, close to the ease of trip booking or booking facility in general (customer’s intended result moment).
  2. Adding value to customers: The North Star Metric should not be just for the company profit; it should add value to the customers. Example, if the North Star Metric is the number of orders made, it means you are not focusing on the quality of service. Hence, the number of orders delivered without complaints would be a better North Star Metric than just the number of orders made. The satisfied customers will always refer your product or service to their friends resulting in the company’s long-term growth.
  3. Measurable: Continuing with the above example, companies cannot measure ‘satisfaction’ in general. Thus, companies will have to figure out a way to measure quality. Reduced number of complaints against X orders or the number of orders delivered before the anticipated time can be considered measurable North Star Metric.
  4. Time-bound: North Star Metric should be measurable based on a certain period, which can be an hour, day, week, or month to help you in clearly seeing the growth over time. Example, the number of orders delivered without customer dis-satisfaction in a week metric helps compare against the previous weeks’ data. Without the week parameter, the comparison factor would be missing from the above North Star Metric. Companies should never take the year as a period because you should see growth data regularly. Ideally, your NSM should grow every day or week.
  5. Not influenced by external factors (except Customers): North Star Metric should only be influenced by  customers and no other external factors.  Example, in the tourism industry, the weather, flight delays, or the local people act as external factors. Thus, the number of 5-star ratings per month is not a good North Star Metric for the tourism industry.
  6. Reflect your growth: North Star Metric should be directly proportional to your business growth i.e. if the Metric is increasing (positive),  business should grow too, there cannot be an excuse for that. Example, suppose the product or service is related to the reports generation and download. In this case, the North Star Metric should be the number of reports downloaded by unique customers instead of the total downloads. Because the total number of downloads can also include scenarios where the customers generated and downloaded the reports multiple times (reason being that the service did not work as expected for the first time).

Few other examples of North Star Metrics generating Customer value-

 

  • Quora north star metric is the number of questions answered, which is aligned with their mission of being a knowledge-sharing platform.
  • Spotify’s NSM is the time spent listening on the platform. This NSM measures the value that customers get from the platform

In the nutshell, North Star Metric gives businesses a singular focus on a single objective. Instead of being distracted by everyday matters or individual tasks, everyone can always evaluate success by whether or not they are advancing the organisation using this metric.

 

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Every organization or even individual has multitude of goals to measure their success.   While every goal is important but achieving all of them may not be possible and may not have bandwidth to focus on all of them.  In such situation it becomes imperative for the organization to be focused on one goal(which encapsulates smaller ones in it) which considers realized value to the customer and measure of success is called as North Star Metric and all other goals aligned as the sub metric. 

Why north star metric is important:

  • Imagine if each team/department/function in the organization defines goals differently, they will end up  work against each other and duplicate effort.
  • It simplifies the goal and its measurement for everyone in the organization and their is alignment between the teams.

How to identify North Star Metric:

  • Companies need to decided what is essential and critical for the business
  • You can only improve what you measure hence it is very important to know and measure all KPI and metrics for the business.  All which is essential and critical in first bullet should be measurable
  • Look for broad themes and bucket them to see which metric encapsulates most of them.
  • Do a prioritization of metric while looking at the key goals for the business to shortlist north star metric

 

How can it help generate long term value for customers?

Without a north star metric all you have is cocktail of KPI's and every KPI has equal weightage irrespective of their criticality.  North star help focusing on key goal for any organization which is revenue and customer value it generates to be relevant, sustainable and long term in the market.  Product and service delivered are dependent on many factors but we fail if our north star metric doesn't connect directly to the customer value.  A true north star metric is created from a good understanding of what leads to value delivery to customer.  Revenue and profit are important as growth indicator but what my customer wants from my product and if that is not met then Revenue and Growth will start fizzling out as customer will move away as due to poor focus on value delivered.

 

  

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