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Continuing with “You’re a Product Manager” series, this week I want to talk about a product’s North Star.

Let us assume you are an experienced product manager or product designer. You are doing everything you can: researching your market, making your business case, understanding the market fit, working towards outcomes rather than output, etc. etc. Despite all positives and product-led approach, there is a struggle to put these great concepts into action. Why? Because the moment you take stride, something changes.

Your organization, marketing, sales, product team are all talking past each other. This does not mean you have a bad team, or you are a bad product manager. It is not the lack of good ideas or experiences that are not reaping results. Regardless of having smart people who bring topics for discussions, talk strategy and priorities and are persuasive, your product can fail if it lacks the NORTH STAR.

The reason your product is failing is because your team is speaking three different languages:

1. The language of the customer (needs, experiences, delight)
2. The language of the product (features, workflows, priorities)
3. The language of the business (vision, differentiation, revenue, growth)

If you or your team is facing a similar issue, I would ask you to take a pause.

What you need is a framework that ties everyone and all languages together. And that framework is your North Star.

In simple terms, the North Star is a leading indicator that acts as a connective tissue between the product and boarder business.

Identifying the north star metric can be the difference between an ordinary product and a great product that understands the customer needs. Before I provide some real-life examples of how companies have succeeded with North Star Metric (NSM), let us further understand NSM and how to create one. Sean Ellis, the author of “Hacking Growth”, describes NSM as a single metric that best captures the core value that your product delivers to customers.

Just to add to this definition, NSM should also have the following characteristics:

• It should help teams prioritize and accelerate informed decision making
• It should help teams align and communicate
• It should help teams to focus on impact and sustainable, product-led growth

NSM is a single critical rate, count, or ratio that represents your product strategy.

This metric should define the relationship between business growth and customer problems that your product is trying to solve. One suggestion that product gurus give is that your product should only have one North Star Metric. For example, Airbnb’s NSM is “Nights Booked” (Quality Metrics). This captures value delivered to both guests and hosts. Facebook’s NSM is “Daily Active Users” (Count Metrics). With more users on the Facebook platform, the team is able to optimize the feeds to deliver more user value.

Later in the blog I have defined the difference between count and quality metrics of North Star measurement.

In summary, a good north star metric should have the following attributes:

North Star Checklist

1. Expresses value – Helps you understand why your product matters to your customers. When you fail to connect on customer value the business/product can go down the wrong path. Remember the Facebook vs Myspace example cited above.
   
2. Represents vision and strategy – North star should represent your business strategy and product. It should reflect the vision and mission of the product.

“Each strategy we had at Netflix—from our personalization strategy to our theory that a simpler experience would improve retention—had a very specific metric that helped us to evaluate if the strategy was valid or not. If the strategy moved the metric, we knew we were on the right path. If we failed to move the metric, we moved on to the next idea. Identifying these metrics took a lot of the politics and ambiguity out of which strategies were succeeding or not.”

– Gibson Biddle, former VP of Product at Netflix.

• A leading indicator of success – A business has lagging (which tells what has already happened to the business in the past) and leading (that predict what will happen to the business in future) indicators. The north start should always be a leading indicator.
  
• Actionable – Your North Star should be something you believe you can influence or do something about. For example, a team building an HR app to improve company’s employee experience and retention might consider “Customers’ Lifelong Employees” an aspirational North Star Metric, but broader trends in the economy and labor market will make it difficult for the team to influence this metric.
  
• Measurable – Your North Star framework should allow you to collect data to track and communicate the NSM. The variables that impact your business should be measurable to allow you to gain insights into potential high leverage opportunities for growing your business.
  
• The metric should be easy to understand and communicate across teams.

Count vs Quality Metrics

Earlier, I gave you two examples of NSM used by two of the biggest corporations in the modern world. Airbnb uses a quality-driven metric system for its NSM – “Nights booked” whereas Facebook uses a count driven metric system – “Daily active users”.

Count Metrics: If your organization uses some kind of user engagement metrics like active users, page views, or time spent on the website, then you are following the count metrics approach. As mentioned before, Facebook uses monthly active users as a way to measure user engagement. Engagement metrics are easy to track and provide a good baseline of overall performance but fail to provide quality of user experience or business objectives. For this reason, they are often referred to as “Vanity Metrics”.

Growth advisor and investor Buckley Barlow believes a major reason Myspace failed and Facebook succeeded has to do with the NSM they focused on. Myspace focused on Registered Users—a vanity metric—as their NSM. At the same time, Facebook focused on Monthly Active Users as their NSM. This difference of focus led Facebook to succeed where Myspace failed. Social media apps should be aware of the changes in registered user numbers.

But Myspace failed because Registered Users only shows who has signed up. It doesn’t show if users are continuing to use the platform (a sign they are continuing to receive value from it). Users who don’t get value from a product will stop using it and churn. By tracking Monthly Active Users, Facebook could monitor changes in user numbers and see which users found value from using the platform.

Quality Metrics: When the construct to be measured is more complex or subjective, simple aggregation (e.g. count, ratio) of user actions may be insufficient

A delivery app had considered potential North Star Metrics like “People Opening the App,” “Scheduled Deliveries,” or “Early Deliveries.” But there was a problem. These metrics masked the real drivers of retention and customer lifetime value (LTV). However, the team behind the delivery app conducted research with customers which concluded that valued deliveries were neither early nor late. Instead, these transactions simply had no issues—what the team ultimately called “Happy Deliveries.”

Another example could be the web search community that wants to measure search success or searcher’s satisfaction. Neither of these could be quantitatively defined. To better predict search success, you need to use a combination of signals such as result clicks, dwell time, or query information. After that, identify the signals that can predict true north star success measure. Then apply a tool such as machine learning to select the most predictive features and develop them.

To conclude this debate of count vs quality matrix, researchers and experts are leaning more in the direction of a quality matrix as a true measure of NSM. NSM should be characterized by a leading indicator of business growth. Count metrics more than often are lagging indicators that only tell you what happened in the past. For example, if you are running a subscription-based product, you might consider annual revenue from subscribers to be a key metric, but it is a lagging indicator. Instead, a subscription-based business should identify characteristics that correlate with a user who is likely to renew her subscription, and then build a North Star around that.

 Here are some examples of North Star Metrics from familiar companies:

1. Airbnb: Nights Booked
2. Facebook: Daily Active Users
3. Quora: Number of questions a user answers
4. WhatsApp: Number of messages a user sends
5. Slate: Total Engaged Time

As Product Managers, we find ourselves in situations where we might have to compromise speed, quality, or cost. North star is one thing that will prevent you from compromising on the vision of your product. Once you understand your NSM its important to note the variables that work together to move these metrics. By understanding the relationship of these interdependent variables, you will be able to find opportunities to grow your NSM. Your NSM is a critical part of aligning your team to drive rapid and sustainable growth.

More to come in “You’re a Product Manager” series. Please share your experiences while creating product north star. Next week, I will talk about OKR’s (Objective Key Results) – the life and blood of product management.