Finding Your Company’s North Star Metric (NSM)

Staying focused on what truly matters in your business can be a challenge. That’s where the North Star Metric (NSM) comes in. This is a powerful concept that helps companies align their efforts around a single, customer-centric goal. 

But what exactly is an NSM, and how does it fit into the broader context of creating Minimum Valuable Experiences (MVEs) for your customers?

What is a North Star Metric?

At its core, an NSM is the single most important metric that reflects the value your company provides to its customers. It’s not just another vanity metric or a short-term target, but a guiding light that keeps your entire organization focused on delivering meaningful, long-term value. 

Here are some examples of NSM for popular companies:

By identifying and tracking your NSM, you can ensure that every decision you make, from product development to marketing to customer service, is ultimately driving toward your organization’s goals.

In this article, we’ll walk you through a step-by-step process for identifying your company’s NSM. Whether you’re a startup founder, a company executive, or a business student, this article will show you how to align your team around a shared vision of customer success.

Step 1: Identify Your Company’s Core Value Proposition

The first step in identifying your North Star Metric is to clearly define your company’s core value proposition. 

In simple terms, a value proposition is a statement that explains how your product or service solves your customers’ problems or improves their lives. 

It’s the primary reason why people choose to do business with you over your competitors.

To identify your core value proposition, ask yourself these questions:

1. What is the primary benefit or value you offer to your customers?
2. What sets you apart from your competitors?

For example, 

• Slack’s core value proposition might be “a communication platform that streamlines team collaboration and boosts productivity”. 
• Airbnb’s could be “a trusted marketplace for unique, authentic travel experiences”. 
• Amazon’s might be “the most convenient and reliable online shopping destination with a vast selection of products”.

Once you’ve identified your core value proposition, it’s important to ensure that your NSM aligns with it. After all, if your North Star doesn’t reflect the primary value you offer to your customers, you risk optimizing for the wrong things and losing sight of what truly matters.

Step 2: Brainstorm Metrics That Reflect Your Core Value

With your core value proposition in hand, the next step is to brainstorm a list of metrics that could potentially reflect this value. 

These metrics should give you a clear picture of how well you’re delivering on your promise to customers and how much value they’re getting from your product or service.

When brainstorming metrics, it’s helpful to consider both lagging indicators (outputs) and leading indicators (inputs). 

Lagging indicators are typically the end results you’re trying to achieve, such as revenue, customer satisfaction, or market share. 

Leading indicators, on the other hand, are the actions or behaviors that drive those end results, such as website traffic, user engagement, or customer acquisition rates.

To generate potential NSM candidates, try using various brainstorming techniques like

1. Mind mapping: you can use this free mind-mapping tool for this exercise, 
2. Brainwriting: this is where you and your team dedicate a few minutes, without talking, to write down ideas about potential NSMs. Here’s a good guide on how to approach this exercise.
3. SCAMPER: This stands for Substitute, Combine, Adapt, Modify, Put to another use, Eliminate, and Reverse. It’s a creative brainstorming technique. You can learn more about it here. 

Start with your core value proposition at the center, and then branch out into different categories of metrics that relate to that value. 

For example, if your core value is ‘a communication platform that streamlines team collaboration’, you might brainstorm metrics related to message volume, active users, time saved, or projects completed.

Here are some further examples of metrics that align with different core value propositions:

• Duolingo (a language learning app): Daily active users completing lessons
• Spotify (a music streaming service): Total minutes of music streamed per user
• Uber (a ride-hailing service): Completed rides per active driver
• Truepill (an API-first healthcare platform): Number of prescriptions filled through partner applications

Remember, the goal at this stage is to generate a wide range of potential metrics, not to pick the perfect one just yet. The more options you have on the table, the better equipped you’ll be to choose the right NSM for your business.

Step 3: Assess the Actionability and Measurability of Each Metric

Once you have a list of potential NSMs, the next step is to evaluate each one based on two key criteria: actionability and measurability.

Actionability refers to your ability to directly influence the metric through your business activities. In other words, can you take specific, concrete steps to move the needle on this metric? 

If a metric is too broad, too vague, or too far removed from your day-to-day operations, it may not be a good candidate for your NSM.

Measurability, on the other hand, refers to your ability to accurately track and quantify the metric over time. Is the data readily available, reliable, and consistent? Can you set clear targets and benchmarks for this metric? 

If a metric is too difficult or expensive to measure, or if it’s prone to errors or inconsistencies, it may not be the right choice for your NSM.

To assess the actionability and measurability of each potential NSM, ask yourself:

1. Can you directly influence the metric through your business activities?
2. Can you accurately measure and track the metric over time?

One effective technique for evaluating actionability and measurability is to use a scoring system. For each metric, assign a score from 1 to 5 for both criteria, with 5 being the most actionable or measurable. Then, add up the scores to get a total rating for each metric. 

The metrics with the highest total scores are likely to be your strongest candidates for an NSM.

Here are a few examples of metrics that pass the actionability and measurability test:

• An e-commerce company: Average order value (highly actionable through pricing, product bundling, and upselling; easily measurable through transaction data)
• A SaaS company: Monthly recurring revenue (highly actionable through pricing, packaging, and retention efforts; easily measurable through billing data)
• A media company: Time spent per user (highly actionable through content quality, user experience, and personalization; easily measurable through web analytics tools)

On the flip side, here are some examples of metrics that fail the test:

• A restaurant chain: Customer happiness (difficult to directly influence and measure)
• A consulting firm: Industry thought leadership (vague and difficult to quantify)
• A nonprofit organization: World peace (not directly actionable through the organization’s activities)

By carefully assessing the actionability and measurability of each potential NSM, you can narrow down your list to a handful of strong contenders that are both impactful and feasible to track over time.

Step 4: Select the Metric That Best Aligns With Your Goals

At this point, you should have a shortlist of actionable, measurable metrics that reflect your company’s core value proposition. The final step is to select the one metric that best aligns with your long-term goals.

To select the best NSM from your shortlist, consider the following criteria:

1. Alignment with core value proposition: Does the metric directly reflect the primary benefit or value you offer to your customers?
2. Reflection of customer value: Does the metric capture the actual value your customers are getting from your product or service, not just their usage or engagement?
3. Actionability and measurability: Is the metric both directly influenceable and easily quantifiable, as determined in the previous step?

One powerful way to evaluate potential NSMs is to look at case studies of companies that have successfully identified and implemented their own North Star Metrics. For example:

• Airbnb’s NSM is “Nights Booked,” which directly reflects its core value proposition of providing unique, authentic travel experiences. By focusing on this metric, Airbnb has been able to optimize its platform for both hosts and guests, driving tremendous growth and customer satisfaction.
• Facebook’s NSM is “Daily Active Users,” which captures the value it provides to users in terms of connecting with friends and family, staying informed, and entertaining themselves. By relentlessly optimizing for this metric, Facebook has become one of the most powerful and influential companies in the world.
• Slack’s NSM is “Messages Sent,” which reflects its core value of streamlining team communication and collaboration. By focusing on driving more messages within its platform, Slack has been able to continuously improve its product and expand its user base, becoming an essential tool for teams of all sizes.

As you evaluate your own potential NSMs, ask yourself: Which metric best captures the essence of the value we provide to our customers?

Step 5: Communicate the NSM to All Stakeholders and Align KPIs

Now that you’ve identified your company’s North Star Metric, you need to communicate it clearly to all stakeholders and align your other key performance indicators (KPIs) around it.

Communicate North Star Metric

First and foremost, it’s crucial to get buy-in from your entire organization. Everyone from the C-suite to the front lines needs to understand what the NSM is, why it matters, and how their individual roles contribute to driving it forward. 

This alignment is essential for ensuring that everyone is rowing in the same direction.

To communicate the NSM effectively, you can:

• Hold company-wide meetings to introduce the NSM and explain its significance. Use storytelling and examples to make it relatable and memorable.
• Incorporate the NSM into your internal communications, such as emails, newsletters, and intranet content. (and don’t forget to regularly update employees on progress and celebrate milestones along the way).
• Make the NSM a key part of your external communications, such as your website, investor relations materials, and press releases.

Align NSM to KPIs

Communication is just the first step. To truly operationalize your NSM, you need to align your other KPIs and metrics around it. This means translating the high-level NSM into more specific, actionable targets for each team and individual.

For example, if your NSM is ‘Daily Active Users’, your product team’s KPIs might include user retention rate, feature adoption rate, and user feedback scores. Your marketing team’s KPIs might include cost per acquisition, conversion rate, and brand awareness. 

By cascading the NSM down into more granular metrics, you can ensure that everyone is working towards the same ultimate goal, even as they focus on their specific areas of responsibility.

Here are a few examples of companies that have successfully aligned their KPIs around their NSM:

• Airbnb: In addition to tracking “Nights Booked,” Airbnb also measures host retention rate, guest satisfaction score, and booking value per night. These KPIs help the company optimize for both supply (hosts) and demand (guests), ultimately driving more bookings overall.
• Duolingo: In addition to tracking “Daily Active Users,” Duolingo also measures lesson completion rate, streak count (number of consecutive days of app usage), and language proficiency scores. These KPIs help the company keep learners engaged and motivated over time.
• Hubspot: In addition to tracking “Monthly Recurring Revenue,” Hubspot also measures customer acquisition cost, customer lifetime value, and net promoter score. These KPIs help the company balance growth with profitability and customer satisfaction.

By aligning your KPIs with your NSM, you create a powerful feedback loop that keeps your entire organization focused on delivering value to customers. 

As you track and report on these metrics, you’ll gain invaluable insights into what’s working, what’s not, and where you need to double down or course-correct. Over time, this data-driven approach will help you continuously optimize your product and stay ahead of the curve.

Conclusion

Identifying your company’s North Star Metric is a critical step in aligning your organization around a shared vision of success. By focusing on the single most important measure, you can cut through the noise and stay laser-focused on what truly matters.

Identifying your NSM is just the beginning, however. The real magic happens when you start using it to guide your day-to-day operations and decision-making. So, keep your NSM front and center in every meeting, every report, and every strategy session.