In the early stages of my Product Manager career, I faced a difficult problem: determining North Star Metrics for the product. During the product discovery and product orientation phase, I first came into contact with North Star Metrics theory and its framework. To be honest, I perceived that NSMs are a very vague, unsuitable, and formulaic approach to shaping the product’s value. You can define those metrics as any key indicators that you want to measure or put at the core of your product. I stand at a crossroads with hesitation and complexity when condensing all ideas of product features into just one final index, communicating and connecting the index with teams to understand the same direction, and finally measuring product value following the market and customer needs.
You might wonder what my pimples have anything to do with the North Star Metrics? Hang on tight as we journey through my worries and how I might have overly worried for no objective reasons.
I will share my feelings and why I feel it is important after having put it into practice quite a few times.
Predicting product success with North Star Metric
A Beacon for Early Product Success
The reality is that a software product is considered successful when it creates business results, if and only when end users are willing to pay for the value it brings. However, until the product is launched on the market, it takes time to wait for the business results to be able to acknowledge whether the product is successful or not. Then find out the remaining problems to improve and continue to wait for the market’s reaction, then return to identify the next issues that need to be addressed. In the worst case, it can lead to removing the product if it doesn’t fit market needs. This process is a continuous loop, with long waiting times and a lack of guidance to make the right decisions when improving the product.
To address this challenge, North Star Metrics and its input metrics have emerged as a savior with a set of indicators that help signal early product success before the market’s response. In essence, It provides guidance to help teams make the right and timely decisions and gain the upper hand on the product’s journey to conquer the market.
A Catalyst for Growth and Success
Take the example of Netflix (source), a giant in movie streaming services. In the early days of business, Netflix was a traditional retailer of the DVD distribution model, their target was the DVD renewal rate. And Netflix’s first-month renewal rate was 88%. We all know if renewal rates increase, revenue will definitely increase.
After learning about Customer data, the product team believes that the renewal rate is a lagging metric because it is difficult to affect. They need to look for a leading metric to easily impact and measure it. A change in the leading metric will lead to an increase in the renewal rate. The leading metric that Netflix defined is “the percentage of customers who put three or more DVDs in their queue during their first session of the service”. Because if a customer has multiple movies waiting in the queue, that customer is less likely to cancel the service. From here, Netflix has an instruction to make the service very simple to encourage customers to order many DVDs in the queue.
Through the process of working with that guideline, Netflix’s North Star Metric increased from 60% to 90%, the first-month renewal rate was followed by 2% growth, and revenue of course also increased significantly. At present, their NSM has been changed into Watching time to adapt to the current service offering on their streaming platform. So thanks to the North Star Metric, Netflix can make the right decisions to prototype, improve product features, simplify the user experience, and become one of the most famous companies.
You can see more in this article with many good examples of NSM of large businesses, and how it greatly impacts their product strategy.
Implications when defining NSM ineffectively in practice.
If NSMs have such strategic significance, why did I feel that it was so time-consuming and so vague in the early stages of the product discovery?
Indeed, I made many mistakes when defining NSM related to misunderstandings about the principles of the North Star framework. People often make these common mistakes when using NSM:
Lack of Clarity:
Sometimes, people poorly define NSMs or don’t clearly understand them. There is no clear calculation formula, leading to the inability to measure the effective ratio of product value. When people don’t understand what they’re working towards, it’s hard for them to see the relevance of their efforts.
Complexity:
NSMs can sometimes be overly complex or abstract, making them difficult to measure or track effectively. If a metric is too complex, it’s hard for team members to grasp its significance or know how to contribute to its improvement.
Disconnect from Daily Work:
If the NSM feels disconnected from the day-to-day tasks and responsibilities of team members, it can seem irrelevant or unimportant. Employees need to see how their daily efforts contribute to the larger goal reflected in the NSM.
Lack of Actionability:
NSMs should not only reflect the overarching goal but also be an action plan. If the metric doesn’t provide clear guidance on what actions need to be taken to improve it, it can feel like an arbitrary number rather than a meaningful target.
Focus too much on revenue:
NSM is often defined as an index that calculates monthly revenue or the value of product sales per package on the market. If so, it is just a lagging indicator that allows measuring past results. We cannot stay ahead of trends and create value for the future with this leading metric. Lagging metrics like revenue will not be pulled up accordingly.
Resistance to Change:
Sometimes, NSMs can be seen as a top-down imposition rather than something the team collectively contributes to. In such cases, there may be resistance or skepticism towards the metric, leading to a perception of it being vague or useless.
Providing a North Star Metric that is too general will lead to the definition of product strategy, vision, and customer value becoming vague, unrealistic, and potentially leading to product failure right from the early stages.
Therefore, choosing a suitable NSM for a software product requires careful investment of time and effort. You should not do it haphazardly because it will consume more of your time and money when the product is formed.
Criteria to determine a good NSM for your product
These are key points that I feel are extremely crucial to understand and consider in the process of identifying NSM with the team about any technology product.
1. Determine which of 3 games your product is in Transaction, Attention, or Productivity
By answering the question: “Which game is your business playing?” It will help you easily define your North Star (Source).
- “The Attention Game
Fist how much time are your customers willing to spend on your product?
- The Transaction Game
Second how many transactions do your customers make in your product?
- The Productivity Game
Last how efficiently and effectively can a person complete their work?”
2. Give your NSM a name and a definition
To easily name and connect it with your daily contributions to improving your NSM, give it a name and a clear definition.
“The name of your North Star Metric should be engaging and descriptive, something pithy and punchy that inspires the organization. The definition should be precise and clear, explaining exactly how you’ll measure it.” (source).
3. Give your NSM a clear formula for how to achieve it
“To determine your metric and Inputs, think conceptually about your North Star as a formula or equation.”(Source).
For example, your software product serves an online food store. NSM is equivalent to the average order value, which is calculated by summing up the total amount paid for each order in a month. So the calculation formula will be:
Monthly Revenue /Number of Orders = Average Order Value
4. And finally, test your NSM with the Checklists below
North Star Checklist (Source)
- “It expresses value. We can see why it matters to customers.
- It represents vision and strategy. Our company has incorporated its product and business strategy into it.
- It’s a leading indicator of success. It predicts future results, rather than reflecting past results
- It’s actionable. We can take action to influence it.
- It’s understandable. We have framed it in plain language so that non-technical partners can understand.
- It’s measurable. We can instrument our products to track it.
- It’s not a vanity metric. When it changes we can be confident that the change is meaningful and valuable, rather than being something that doesn’t actually predict long-term success—even if it makes the team feel good about itself.”
Moreover, there are many steps to take that can help you determine the strategic North Star for your product. We can refer to the North Star Playbook as guidance to help us clearly understand and shape the NSM for the product to avoid making mistakes as I did. Of course, I’m still learning every day to perfect my ability to determine North Star Metrics for different customer products, and so should you.
Conclusion
Your north star metric is like the compass or GPS. It will guide you and your teams towards a predefined destination and keep you focused on what matters most. By aligning teams, informing decisions, driving innovation, and prioritizing customer value, NSMs serve as indispensable tools for navigating the complex and ever-evolving landscape of the digital era.
Before you find a “key” product-market fit, your sole goal should be to answer two questions:
- Am I building something people (market) want?
- Does it really offer an effective solution to solve the problem the users are facing?
Instead of focusing only on revenue.
References
- North Star Playbook: https://amplitude.com/books/north-star
- How to define your NSM: https://www.mindtheproduct.com/how-to-identify-your-north-star-metric/
- NSM in Product Development
- Netflix Case Study: Netflix’s Metrics
- Planio: https://plan.io/blog/north-star-metrics/
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