The North Star Metric
Measuring key metrics is extremely important for any business. So you would naturally conclude from this that most companies must do a reasonably good job of this. And you’d be completely wrong!
In many cases, businesses are failing to understand their own operation, precisely because they’re failing to account for metrics that actually mean something to their business and the way that they operate.
The key conversation in this area is really understanding what you do and do not need.
Unfortunately, this can be quite confusing
and many data-driven businesses actually tie themselves in knots, by acquiring precisely the data that they do not need. The data that tells them nothing of interest or value.
Worse still, tracking the wrong metrics can create questions and cause confusion. Leading businesses to believe that they have captured valuable data, when in reality they have just infused their company with misleading information.
This is why the North Star Metric is so important. The concept of the North Star Metric is quite straightforward – it’s simply a solitary metric that tracks the health of the business as a whole. A fundamental measurement of whether the business is succeeding or failing.
It’s important to note that companies do
n’t need to limit themselves to merely a North Star Metric, they can have other data feeding into it, but creating a North Star Metric is central to measuring business efficiency successfully. At a glance, the North Star Metric tells you immediately whether the business is faring well or poorly.
Where Most People get it Wrong
The most important thing to understand about the North Star Metric is that there isn’t a one-size-fits-all solution. The North Star Metric is different things to different businesses and the metric that a company chooses will be very much dependent on the nature of the business in which they’re operating.
Many companies are aware of the concept of the North Star Metric…yet get it completely wrong! 9 times out of 10 there is a simple reason for this – they choose metrics that simply don’t work.
The North Star Metric is not akin to the sort of basic tracking that has become commonplace. So, for example, companies might track cash flow, revenue, website hits, newsletter sign-ups, and other basic, black-and-white data points.
There is nothing wrong with collecting this information in principle, but in practice these basic metrics often tell you absolutely nothing useful about your business. Let alone should they be the basis for the most critical way of measuring its effectiveness.
For example, it may seem completely logical to take revenue as a key indicator of health in the business. What could be more natural, right? But, in reality, revenue figures can be misleading.
You may have grown revenue, but achieved this only due to a couple of mega-sales that have completely skewed the figures. In reality, you have less sales but more revenue. Can you really expect this process to repeat in the future?
Another commonly used metric would be how many demos of a product were achieved over a certain time period. Again, there are problems with this. Such a metric is very much quantitative data, whereas it’s also important to understand qualitative factors.
Many of your leads could be total nonsense! Monthly growth tells you nothing about the rate of closures. So this can, again, result in some very misleading data that does not help you understand how well your business is doing and how to make it do better.
The key issue to consider with creating a North Star Metric is how people actually use your product. This idea seems blindingly obvious, yet many people and businesses manage to overlook it.
So the first thing to consider is the sort of time period that you’re going to be assessing. This can differ quite significantly depending on the type of business. For most companies, this will be either weekly or monthly.
For example, a company producing technology related to tax returns may even choose to assess this on an annual basis.
One of the best examples of getting this right was implemented by the hugely successful Facebook. The social media site worked out that if a user on the website added 10 friends within a certain period of registering that they would be far more likely to become a long-term user.
So they went about measuring how many people, on a month-by-month basis, have joined and added at least 7 friends in the first 10 days. Facebook calculates that if this number is going up then their business is growing.
A similar approach could be taken while using a daily tool. For example, you could look at how many people have signed up and used your site for 15 consecutive days. Then, you could flesh this out even further and possibly assess how many of the demographics that you’ve identified have implemented at least three features on the site.
Or, if you were looking at it on a monthly basis, then you could assess how many people have logged in for six consecutive months and have sent at least one email each week.
The important thing is to apply the same logic whatever timescale you use and examine issues that actually matter when it comes to sales, engagement and success in your business. To summarize, there are three key things to look at. How is your product used? What are the key behaviors? And how best can you track this?
In order to achieve this in your own business, most companies will require a developer to be involved. However, there are tons of platforms available that can help you initialize a North Star Metric.
Mixpanel and Heap are both excellent packages for product and commercial analysis, with tons of features built in that can be really valuable for your business.
For example, such software makes it possible to insert a tracking tool into your analysis, enabling you to track key metrics that make a big difference to your business.
You can also create segmentation and demographics easily by using these packages. While features such as cohort analysis are also present and correct. Those companies hoping to successfully implement a North Star Metric would certainly be well-advised to check them out.
In conclusion, setting up a North Star Metric should be considered essential for all sales-focused companies.
As it enables you to easily identify how well your business is performing. When allied to further analysis, this simple concept enables companies to identify precisely where they are going wrong, or when things are progressing well and to act accordingly.