Growing a business, let alone running one, is a daunting task. It’s a complex ballet made up of a variety of moving parts, all of them competing for your attention and demanding priority.
Like the seafarers of old, a growing business needs to know what signs are worth paying attention to in order to make sure they’re always moving in the right direction. Otherwise, you’re just lost at sea.
Which is exactly why your business needs to have a North Star Metric (NSM).
An incredibly powerful concept developed by growth hacker and marketing wunderkind Sean Ellis, the North Star Metric concept has taken the startup world by storm. With businesses everywhere using it to make sure that they’re always growing in the right direction.
In order to properly apply it to your business, and ensure that it grows as fast as possible, here’s what you need to know...
What is a North Star Metric?
One of the biggest problems with growing a company is coordinating dozens, if not hundreds, of employees to work together towards a common goal. Oftentimes you’ll find that the more employees a business has the more difficult it is to get everyone on the same page.
At its core, the North Star Metric is a management strategy.
It’s designed to give everyone within the company a singular goal, and align them to a singular direction that they can follow.
This is the key to long-term and sustainable growth.
The way the North Star Metric works is to determine the single most important metric to your company’s growth. Every tactic or strategy you develop should, therefore, be designed to improve your North Star Metric.
For example, at Walmart, everyone understood that their North Star Metric was the number of purchases a single customer made. It’s important to note that Walmart wasn’t looking at the overall cost value of the purchase, but literally the number of items a customer bought. They understood that with their business model, as a wholesale retail store, this was the best way to gauge whether or not customers were appreciating the core value they offered.
Therefore it was everyone’s job at Walmart to find ways they could increase the number of purchases a customer made. This involved tactics such as placing physical ads of similar products in order to cross-sell, offering larger-than-average shopping carts in order to encourage more purchases, and making one of their main marketing messages about how people could “buy more, pay less” at Walmart.
No matter what your North Star Metric might be, it’s the one thing that you can weigh every decision against in order to measure growth.
What’s YOUR North Star Metric?
No two businesses are the same, which is why the North Star Metric can vary wildly between different organizations. However, there is a process that everyone can use to determine their business’s North Star Metric.
Firstly, you have to determine what the core value of your product is.
Avoid vanity metrics like the number of followers you might have on social media, or how many people sign up to your service. Vanity metrics don’t tell you whether or not people actually like your service or product over a period of time, only that they were momentarily interested.
More than simply asking yourself how to gain a new user, customers, or clients.
Ask yourself “What keeps my customers coming back?”
Once you’ve figured that out it’s time to quantify that value into a single metric.
For popular messaging app WhatsApp they determined their North Star Metric to be the amount of time a user would “Send” a message. While other metrics like knowing how many times a user checks their messages in a day, or the total amount of users you have, are important none of those metrics actually tell you if a user is actually using the app. It doesn’t matter if you have a thousand sign-ups a day if none of them are sticking around.
On the other hand, at Medium their North Star Metric was the amount of time a user spends reading, after determining that their core value was delivering interesting content to a user on a regular basis.
Whether you’re a tech company with hundreds of thousands of users, or an agency with only a handful of clients, no matter what your business model is or what industry you’re in. In order to truly grow you have to look beyond vanity metrics and truly understand what it is about your business that makes you special, what it is that keeps customers and clients coming back, and what value your most loyal customers get from using your product or service.
How to Follow Your North Star Metric
Once you’ve figured out what your North Star Metric is it’s time to actually put it to use.
The first thing you need to do is make it clear to every employee you have what your North Star Metric is. Keep in mind that the most important thing about your North Star Metric is its ability to have everyone working together by providing them with a clearly defined goal.
From then on everyone’s job is to come up with and implement ideas that would move the needle of the North Star Metric.
For example, McKinsey & Company studied a large European utility company and found that their North Star Metric was based around their customer's satisfaction levels. This was after the realization that one of their unique selling points to customers was their ability to provide excellent customer service.
In order to accurately measure the experience of each customer, they broke down their customer journey to a granular level. Every time a customer reached a certain stage, depending on their actions, they would receive a score to indicate their satisfaction level. In the end, each individual score was added together to create an aggregate overall score for customer satisfaction.
Image via McKinsey & Company
Once they broke down their customer journey to a micro level, the utility company was then able to understand which touchpoints in the customer journey actually mattered.
Using their unique North Star Metric as a guide they were able to understand which subsequent metrics and KPIs actually mattered to their customer’s happiness, which allowed them to align their entire team to develop strategies and tactics specifically designed to improve their overall North Star Metric, and therefore the experience of each customer.
Every business’ North Star Metric can differ, but it will always boil down to being able to track your business’s value. Depending on your organization that can mean tracking the amount of time spent in your store, or how often customers refer you to their friends.
Take some time with the rest of your management team to figure out what your company’s North Star Metric may be. You might only have one, or you might have three! Once you know what it is you’ll be able to bring your whole team together and drastically explode your growth.