(2019-07-01) Gilad The Three True North Metrics That Your Product And Business Need

Itamar Gilad: The Three True-North Metrics that Your Product and Business Need. In practice companies struggle with settling for just one top KPI, and with good reason. The terms are not very clear either — North Star Metric, One Metric, top business KPI — are these all the same? Are they different?

At its heart, the core mission of every org is to deliver customer value, ideally to a big market, and to capture value back.

To build a virtuous value loops around your product have to first define what value you deliver and what value you wish to capture. Then you have to measure both.

All companies measure captured value — these are the familiar Key Performance Indicators (KPIs): Revenue, Net Income, Paying Customers, Active users, etc.. While it’s tempting to try to grow all at the same time, smart leaders know this will create suboptimal results. They therefore pick just one KPI that is most reflective of the company’s current business objective.

But captured value is only half of the value loop, and arguably not the most important half. Delivering high value is not just a matter of altruism, it’s genuinely the best thing you can do for you business.

Smart companies understand this and optimize for value-to-customer — they continuously measure and set goals for the amount of value they deliver. This is the job of the North Star Metric (NSM).

Growth guru, Sean Ellis, defines the north star metric as the “aggregate value that people get from you product, … your value footprint”. We’re looking for a number that will sum up the value across your entire market and grow “up-and-to-right” over time.

we can see four cases as shown in the diagram below.

Most people first heard of the One Metric That Matters (OMTM) through Alistair Croll and Benjamin Yoskovitz excellent book “Lean Analytics — Use Data to Build a Better Startup Faster”. Croll and Yoskovitz define the OMTM as the “one number that you’re completely focused on above anything else at your current stage”, and that “answers the most important question you have”. Some people (me included) assumed this to be the same as the north star metric, and started using the terms interchangeably, but actually often that’s not the case. The OMTM isn’t about measuring value delivered or captured, it’s about finding a key metric that enable both to grow.

The OMTM brings focus to your tactical execution, while the NSM and top KPI set the strategic goals.

The case we wish to avoid is that of low alignment between the two metrics. Imagine a company developing a successful freemium messaging product, that sets the NSM to be number of sent messages. However the company is setting its sights on selling to Fortune 500 companies and hence the top business KPI is number of enterprise customers

WhatsApp users come for free, rich, secure messaging. Each message sent is therefore an increment of value. If the total number of messages is growing, this is most likely a positive sign that the company is accomplishing its mission. Similarly, every minute of video watched on YouTube is a net positive

eBay and Airbnb are two-sided marketplaces, and therefore their north star metrics are about connecting supply with demand and facilitating transactions

Alignment between your top metrics is something you need to build into your product and business model. A good way to test this is to decompose the North Star Metric and top business KPI into their supporting metrics trees and check how much overlap there is.

The north star metric and top business KPI are usually too high-level, and dependent on too many factors to influence directly. The OMTM is designed to be actionable.

Example: while decomposing the metrics trees below the NSM (orange), and the top business KPI (blue), we see there is some overlap (green) — both rely on number of active customers.