Alignment is essential for any organization and a challenge that many grapple with regularly. Ensuring everyone is striving toward the same strategic goals while still working and thinking independently isn’t easy, particularly when the organization is broken out into separate teams.
How can specialization and product-level focus marry up with the overlying objectives the company has defined and is measuring itself against? For some leaders, they’ve adopted the concept of a lone North Star Metric to drive the organization and measure progress. But can there truly be a one-size-fits-all number to assess a company’s progress and success?
What is a north star metric?
For thousands of years, the North Star has been an invaluable tool for navigation. Sitting directly above the North Pole, an entire hemisphere of travelers could rely on it to get their perspective and stay on course for their ultimate destination.
In business, the North Star Metric was coined to give organizations a singular focus on a particular goal. Instead of being distracted by day-to-day matters or individual projects, everyone can always define success by whether or not they are advancing the company using this metric.
“The North Star Metric (NSM) is the single metric that best captures the core value that your product delivers to customers. Optimizing your efforts to grow this metric is key to driving sustainable growth across your full customer base,” says Sean Ellis of GrowthHackers. “Airbnb’s North Star Metric is nights booked. This captures value delivered to both guests and hosts. Facebook’s NSM is Daily Active Users (DAU). With more users on the Facebook platform the team is able to optimize everyone’s feed to deliver more value to users.”
Note that even though both Airbnb and Facebook generate revenue, how much money they make isn’t the North Star Metric they’re using. This is because revenue often isn’t particularly telling for what lies ahead for a company, plus it can be easily gamed for a short-term boost with long-term negative consequences.
“Sometimes it is more beneficial to pick a non-revenue leading indicator, for example, for a SaaS business, a user can be still paying money, but already stopped using the product,” says Hila Qu of Acorns. “In such cases, use “weekly active user” rather than MRR (monthly recurring revenue) as your guiding metric will make sure you always focus on user engagement, which is one step ahead of revenue.”
For companies more focused on growth and the customer value proposition, the North Star Metric typically attempts to distill customer value down to a single, measurable number. For example, Amplitude’s North Star Metric attempts to see how many users are realizing true value from their product on a frequent basis.
“The customer value we want to drive is ‘easily answering questions on what drives behavior and powering a better customer experience’. Since we are currently in rapid growth mode, our metric of Weekly Querying Users (WQUs) reflects breadth-i.e., the number of customers who get value at least once a week,” says Amplitude’s Sandhya Hegde. “This is a leading indicator of our ability to retain and expand accounts over time.”
With a North Star Metric available as a consistent measure of progress, every activity can be judged based on whether or not it is advancing this metric. If a project, feature or initiative doesn’t improve that metric, then its value must be questioned and it could potentially be scuttled for its lack of relevance.
Three pitfalls of being too focused on your north star metric
Singular focus sounds good, but in reality it may not be as healthy for a company in actual practice as some thought leaders might think. When everyone is concentrating on moving the needle for one specific metric, some unintentional consequences can occur.
Betting on the wrong horse
Selecting and settling on a single metric to drive an entire company’s activities is inherently risky if you don’t pick the right one. There’s a lot riding on a North Star Metric, since it should not only indicate how the company is performing right now, but it should also forecast the company’s future prospects… and there are plenty of companies that thought they were positioning themselves for greatness only to discover their underlying hypothesis was incorrect.
How confident is the leadership team that they can identify a single metric truly representative of future success? Today, many companies are (rightly) focused on growth and the metrics related to their sales funnel.
But assuming more traffic will equal more conversions or more trials will lead to more sales assumes that all traffic is the same and all trial participants are just as likely to make a purchase. Making a North Star Metric focused on the sales funnel can overlook that fact that all traffic is not created equal and once you get people to try your product they better actually have a good experience.
Additionally, the market landscape can shift dramatically and quickly, which might make a North Star Metric less relevant or even counterproductive. And if compensation and incentives are tied to a deprecated North Star Metric, a company may have a more difficult time adjusting employee behavior.
Gaming the north star metric system
Whether or not compensation is directly tied to a particular metric, once a North Star Metric is designated and emphasized, every employee will do what they can to improve it. While that’s obviously the whole point of creating one, it also can create a knock-on effect of bad behavior for some team members.
The first potential negative side effect of a lone measurable target is tunnel vision. For example, if the only metric that matters is increasing signups, then some people will forget about churn or frequency of usage or length of stay. The company said “it’s all about signups” so UX staff will optimize the signup process over and over while marketing spends all of its energy driving traffic to signup pages. Instead of concentrating on a fantastic user experience and overall value, it becomes all about the signup.
While that certainly isn’t ideal, those employees are still playing by the rules. But for some, they may take things to the next level.
“All metrics of evaluation are bound to be abused,” says Abhishek Chakraborty of Coffee & Junk. “Goodhart’s law states that when a feature of the economy is picked as an indicator of the performance, then it inexorably ceases to function as that indicator because people start to game it.”
This can inevitably lead to a lot of wasted effort and resources on activities that—despite improving the North Star Metric—don’t really help the company grow and advance.
“When you don’t properly qualify metrics people will turn them into a game,” says Kerry Jones on Hacker Noon. “You tell them you need more Instagram followers and they buy a bunch of followers, possibly truly believing that it will lead to real followers.”
By its very definition, North Star Metrics are based on the past. The leadership team looked at various metrics, identified which one was most beneficial and decreed everyone should concentrate on THAT.
While this may inspire tons of ideas and improvements to impact that particular metric, it removes any energy and creative thinking from other areas of the company. Instead of always being on the lookout for opportunities while tinkering and testing various features and enhancements, it disincentivizes anyone from trying out anything that might negatively impact the North Star Metric.
By pulling all of the creativity in the company into one specific area, there are also bound to be missed opportunities for innovation, expansion and bullwarking against the competition because those things don’t contribute to bettering the North Star Metric. Instead of helping the company flourish long-term, the company sacrifices innovation for a short-term pop.
Don’t settle on a single star
Despite its drawbacks, the North Star Metric concept is still fundamentally a good idea; teams should have a metric they can look to for inspiration and to track progress. However, one metric to rule them all seldom makes sense for an entire company, and those that do are likely so vague they lose their value.
Instead, each specific team (or potentially team member) could have their own metric (or set of KPIs) to concentrate on. Why give each team their own measuring stick?
Translating a company-wide North Star Metric into action items for an individual team can be tricky. If registrations are the metric, how is customer service supposed to help? If the goal is increasing time spent on the site, how is accounts payable supposed to improve that?
Specific to product teams, if the company is large enough to have multiple teams or product lines, their focus areas may also not directly line up with supporting the North Star Metric. Giving each team their own, personalized goals won’t force them into unnatural behaviors and properly rewards them for doing the job they’re supposed to be doing.
Not every team is supposed to be focused on the here-and-now; there are plenty of groups that might have longer-term objectives which simply can’t be measured against a universal North Star Metric. With more specific metrics, one team can focus on growing the current user base, another can concentrate on improving the customer experience and a third can look at driving revenue.
These are all objectives the company should have in mind, but no single metric can capture their entirety. Companies can also dedicate some teams to long-range projects that don’t have an immediate payoff—such as scaling up infrastructure for increased capacity or developing new product features—to ensure innovation still occurs while large swaths of the company are focused on immediate growth.
An additional benefit to having multiple measurable goals in use throughout the organization is that even if one of those North Star Metrics ends up being an incorrect choice, the entire company didn’t waste time chasing it. Just like an investor doesn’t put all their money into a single stock, a management team doesn’t have to bet the entire future of the company on one thing.
Maybe net new users wasn’t the end-all, be-all metric the management team thought it was. This way at least some of the organization was focused on curtailing churn and increasing ARPU while others wasted time on efforts that didn’t pan out.
Common vision, differentiated objectives
The lesson from this post isn’t that metrics, goals or focus areas are bad. On the contrary, they’re all essential for a company to grow and properly motivate employees. But conflating a company’s vision statement with a metric is seldom a good move.
An inspiring mission statement serves many great purposes, from telling your story to the public to informing workers about what they’re striving to achieve. But when Warby Parker says their mission is “To offer designer eyewear at a revolutionary price, while leading the way for socially conscious businesses,” that doesn’t automatically translate into a measurable goal for the customer service team. Even if the eyewear company declared the corresponding North Star Metric is an average cost per pair to decrease 10% annually, how does that change how a store associate handles a customer interaction or influences a marketer when they’re crafting ad copy?
By selecting individualized metrics with goals each team can actually impact, North Star Metrics still have a potential role in focusing the organization. But multiple metrics—dare we say, a constellation of them—may be even more effective in encouraging behavior and output truly beneficial to the cause.