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North Star Metrics for Startups Explained

What is a North Star Metric?

A North Star Metric (NSM) is a startup metric that a company can use to focus on for their long term growth. To qualify as a “North Star”, a metric must do three things: bring in revenue, reflect customer value, and determine progress.

This article discusses the importance of the NSM, its benefits, and the process to find your own NSM.

Why is the NSM important?

The term “North Star Metric” was coined by startup investor Sean Ellis, with the intention of reducing administration, simplifying meetings, and aligning teams around the singular goal to grow as a company.

Companies with a complex business model can have an NSM that is composed of sub-metrics. Put simply, the NSM is an exercise to simplify the overall company strategy into terms that everyone can remember, understand, and apply.

The NSM for an organization does not change unless the value proposition of the company changes.

What is the difference between NSM and OMTM?

One Metric That Matters (OMTM) is a metric that is ideal for fixing a short term goal and focusing on achieving it. On the other hand, NSM is a metric that is intended to achieve a long term goal.

How does NSM work?

In regular day to day business, the NSM is further broken down into sub-metrics that drive accountability and ownership at the individual levels. These sub-metrics can be team specific and actionable so that each contributor can have a clear goal in mind to achieve his or her own targets while staying focused on the company’s goal or the North Star!

For example, consider a coffee shop with the NSM number of new customers visiting per week. The marketing team can work on the sub-metric number of areas in the city covered for advertising per day, the team serving coffee can focus on the sub-metric number of Cappuccino (or the stores best) coffees served per day, and the team at the counter receiving orders could focus on the sub-metric number of orders serviced for Cappuccino (or the stores best) coffees per day.

In this way, each team contributes to bringing in new customers, retaining existing customers, and driving up the value of the coffee shop.

For more information on startup metrics for success, read this article.

How do you find your NSM?

Startups can be complex, and the reasons for their success or failure could be many. Each organization must first decide on what is crucial for their business. A company that is focused on profits alone without satisfying customers, especially those who participated in crowdfunding campaigns, will lead to a fall.

Also, a metric that does not measure progress to help individual teams to propel themselves towards growth, is not of much use.

An NSM should bring in revenue, enhance customer satisfaction, and propel growth. To find your NSM, you need to identify:

  • Essential factors for the functioning of your business. Create a priority list.
  • Metrics to measure the factors listed in your priority list.
  • Metric hierarchy(sub-metrics) that contribute and lead to the building of the NSM.

A successful NSM depends on healthy and co-operative teams who are willing to change their strategy for the benefit of the business. In addition, the right analytical tools are required to measure the progress of the sub-metrics that compose the NSM.

Few key criteria that the NSM must satisfy to be a good and effective measure for the success of the business include:

  1. Does your NSM offer value to the customer? In the example of the coffee shop NSM, if the team serving coffee do not achieve their goal of serving good coffee to the customers, even though the marketing team reaches out to new customers, old customers may not return to the cafe, thus reducing the metric of the coffee serving team. This would affect the overall NSM of the company.
  2. Is your NSM measurable? For example, customer satisfaction or work pressure is not measurable. What can be measured is the number of customers serviced per day, or the number of customers returning to the store, or the number of productive work hours of an employee.
  3. Is your NSM time-bound? A good NSM should be bound by time. It should have a time limit of hours, days, weeks, months, or years. A time-bound metric makes progress measurable.
  4. Are you able to control your NSM? Your NSM should be under your control. External factors should not influence the growth of your NSM.
  5. Is your NSM reflective of your growth? An increase in your NSM should reflect the growth in your business. It should not be a false number that gives you a wrong picture of the company’s growth.
  6. Is your NSM growing periodically? The metric should show an increase at regular frequencies. The frequency of growth should not be too long as then it would be too late to work on the needed behavior change to aid growth.
  7. Does your NSM have a positive influence on the entire organization? A good NSM is one that has a positive influence on everyone in the organization. Everyone must feel involved and important in making the NSM grow.

Examples of NSM adopted by well-known startups

Source: Growwithward

Conclusion

Having an achievable, measurable, and effective NSM is critical to the health of an organization, especially in these times of ruthless competition. You must take every decision with the NSM as the core objective, to propel organizational growth and be the company of utmost value to your customers.

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