North Star Myth Busting

By:

Dan Formanek

The concept of a North Star metric has remained popular for quite some time, and for good reason. That said, there are plenty of ways to be led astray if it is approached in the wrong way.

A North Star metric is intended to be a key measure of success. Its value comes from aligning everyone to work towards a common goal.At its best, it helps provide focus and leads people to make better decisions.

Myth: We must identify only one North Star metric.

There can and often should be more than one defining metric.It’s tempting, given the onslaught of available data, to search for what is useful versus what is a distraction. However, the idea of the “one metric that matters” is unrealistic, in that no one metric sufficiently defines success.

By way of example, we could invest all our resources into building the best product, and reach a price point where nobody buys, or sell it at a loss and go bankrupt. Likewise, we could control our costs so dramatically that there’s no staff to build or sell products. This also illustrates the interdependency of various metrics. We need balance. You might expect that as your price increases you’ll have fewer buyers and vice versa. To Address the potential for imbalance, metrics should be viewed in combination to see correlation.

Additional risks of having only one metric are if it’s not really the right success metric (including due to changes in the market), if it makes people think too narrowly, or if it seems disconnected from what a team does.

If the customers and their problems and corresponding solutions differ, that’s an indicator that different North Star metrics would be appropriate.

Myth: Our North Star metric should measure business value(e.g., revenue).

Both growing and established businesses are often focused on revenue growth, so it might seem that this would be an appropriate North Star Metric. Even better would be profit, since it takes costs into account, and ultimately organizations need enough revenue to cover costs.

There are two challenges here. The first is that there are lots of directions that teams can go to achieve those measures, which can lead to disjointed and inefficient or even contradictory activities across the organization.

The second challenge is that these business measures are a lagging indicator of our efforts. The actions that determine the end result happen upstream, so measuring the downstream impact requires waiting until a problem is full-blown.

North Star metrics instead should be linked to value provided to the customer. If the customer is gaining value, the business value will materialize. To identify where the customer gains value, picture the customer journey and where the product adds value or solves a problem for the customer. Those key moments are appropriate North Star metrics.

  • Metrics are most effective if they are focused on outcomes rather than activity. For example, it's not necessarily important how many hours a team spent on building a feature or product. What is far more important is how big of an impact they are having on the business through that effort.
  • Many people would have a hard time saying that you shouldn’t look at the effectiveness and efficiency of team member activities. Just Remember that value to the user is the most important metric, and we generally wouldn’t want a focus on efficiency to reduce our ability to deliver value to the customer.
  • At the end of the day if the team is producing a lot but not making an impact on the end metrics that matter for the business then that is a poor use of resources—a waste of money.
  • Focus on outcomes not activity

Myth: Our North Star metric never needs to change.

We know that customer needs shift over time. Competitive Offerings can also change customer expectations, such that what was once a unique problem solver is now a table stakes commodity.

At a younger organization, the North Star metric should be evaluated as often as quarterly, and at a more established organization it should be evaluated at least annually. That’s not to say that changes should happen that frequently. Rather, it ensures that the metrics are still the one that matter. It also provides an opportunity to make sure it remains top of mind as well as a chance to monitor progress.

Myth: We don’t need to measure anything other than our North Star.

Even if we have a small handful of North Star metrics, it’s important to break it down further—without losing sight of the value to the customer. We want to understand and influence the actions that lead up to our North Star metrics.

Going back to the suggested approach of envisioning the customer journey, isolate the steps that the user needs to take before each item. While they aren’t North Star metrics, they are the things that will enable or prevent affecting those metrics.

These metrics tied to user activity typically serve as leading indicators that sound an alarm if a there will be an impact to laterstage achievement.

In addition, these nested metrics can drive ownership and accountability at the team and individual levels while contributing to desired business outcomes. Teams can conduct experiments to test hypotheses about improvements to the user experience. Repeatedly measuring and improving each of those steps leads to more customers experiencing more value.

How to move forward

The vision we’ve established, like the North Star Polaris,is not easy to get to but is easy to find. Continual measured improvements can help us determine if we’re having an impact on delivering on the vision, solong as those metrics are oriented toward customer value.

Typically there will be one North Star metric for every customer segment that is addressing the same set of problems through the same set of solutions. It should be revisited periodically and evolve as needed.Valuable outcomes for the customer guide us to the next level of metrics, which of monitored regularly can serve as leading indicators of success or early warnings of potential issues.

North Star metrics, when combined with a hierarchy of supporting metrics, are an effective way to align an organization on strategic vision and goals that deliver value for customers. Together they provide a framework for decision-making, experimentation and tracking progress.

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