It’s the “one metric that matters.”
Your sole focus. Your priority. Your key to growth. Of course, I’m talking about your north star metric.
“The North Star Metric is the single metric that best captures the core value that your product delivers to customers,” writes Sean Ellis in the GrowthHackers blog. “Optimizing your efforts to grow this metric is key to driving sustainable growth across your full customer base. When it’s thrown around in stories about “Facebook’s aha moment” and touted as the key to focus, it’s easy to put a lot of stake into that one number. But is it really best to have only one metric that matters?
Yes, a growing startup needs to rein in their focus to avoid losing momentum and taking wrong turns. But there’s a fine line between focus and tunnel vision, and a north star metric seems to fall right on the border. That level of focus has obviously helped startups in the past, but with certain situations and goals. But it doesn’t necessarily mean that ignoring most of your data will yield major business growth. Most “growth” strategies tend to focus primarily on acquisition. Price Intelligently found that only 10% of growth blog posts focuses on retention, and the 12k research firm’s Index tool shows that the tech media is currently seven times more likely to run articles mentioning acquisition compared to articles mentioning retention.
And as we all already know, rallying around sales in a way that doesn’t take retention into account is a recipe for disaster.
So identifying the wrong single metric for optimization can clearly lead you astray, because narrowing your focus too much can hamper efforts to attract prospects who are less likely to churn and to improve your customer experience so that those you do attract stick around. Why not cover your bets with a little diversity?
Let’s take an even closer look at why you need more than one metric to matter for a retention-focused growth plan.
North Star Metrics Are Too Wide
North star metrics usually focus only on the big picture. Check out these popular examples:
- Monthly recurring revenue
- Weekly active users
- Time spent in app
It’s a great way to almost summarize the business, but since the number is influenced by so many different factors and areas, north star metrics can’t help you to identify where exactly you’re winning and what you need to do to improve. Focusing only on the big picture is useful in some scenarios, but if you’re going to drive sustainable, real growth, you’re going to need to break things down further to more specific business functions and each one’s primary KPIs. For example, with a north star focus on revenue, it’s still important to look at where that revenue’s coming from: new user activation, reorders, change in average customer size, etc. Without breaking down and tracking those metrics, it can be difficult to identify opportunities for improvement.
This was one of the biggest problems leading to Homejoy’s demise in 2015. Because they focused on revenue and growth at the expense of retention, the home cleaning gig marketplace reportedly saw only about 15% to 20% repeat bookings while its competitors managed to almost double that.
Coupon promotions on deal sites attracted customers who would never be interested in paying full price once their introductory deals ended, with these deals driving to 75% of the company’s new clients. While the math was clearly unsustainable, Homejoy expanded into dozens of new territory markets each month during one key stretch. Getting more specific with your goals and breaking them down further can also make it easier to lead your team towards reaching them. Planning and project management is easier to determine for a focused goal, but when you’re just working towards something like “increase revenue,” the best plan becomes murkier and leads to mistakes like Homejoy’s.
One Metric Can’t Tell the Whole Story
Because a north star metric takes so much into account, over-reliance on it can cause you to misinterpret the health of your business. Just because your north star metric is on track doesn’t mean there aren’t big problems on the horizon – or already impacting your company. Those problems can simply be hidden or overshadowed by other factors that influence the NSM. Homejoy’s north star metric may have been improving with revenue coming in, but the company model wasn’t sustainable. The increasing revenue and new user acquisition covered up issues with usage and retention. Not only does the NSM paint an unclear picture of the more specific metrics it summarizes, it also doesn’t take into account how other, seemingly related and out-of-focus areas of the business can directly impact things longer term.
Many business’ goals and models simply can’t be boiled down to one number. As former Pinterest growth lead Casey Winters points out, Pinterest is a complex ecosystem with a marketplace component. There are essentially three stakeholder types – media creators, curators and consumers – who all need to succeed for the ecosystem to come together, and the company wisely eventually gave up on finding a north star metric to represent that.
Instead of looking for one metric to summarize the growth and success of your business and ignoring the different connections and relationships that comprise it, you want to understand the ins and outs of your important success metrics. Or, in Winters’s words, “You want everyone focused on understanding how different elements work together in this ecosystem. The one key metric can make you think that is not important.”
You Can Miss Warning Signs
Finally, as demonstrated above, too much focus on one north star at the expense of other areas of your business can make you miss warning signs of serious business strains. Either you don’t see a smaller pattern taking shape within the metrics that influence your main priority, or you have blinders on to other areas of the business in serious operational or financial danger. Some of the easiest warning signs to miss are around retention, especially given how easy it is to ignore longer term strategies like this when too focused on growth.
For example, if you’re focused on sales, revenue, and acquisition, you might neglect the health of your customer support. As you continue to grow without addressing existing customer satisfaction, your customer support processes, how long it takes to solve customer inquiries, and other issues, they’ll only be further exacerbated by a continuous stream of new users.
In a case like this, you may not notice the bottleneck forming until it’s backed up far enough to impact your north star metric. However, by tracking multiple touchpoints throughout the customer journey and measuring multiple indicators of success, you can have real focus on delivering on your promise to customers instead of hitting a certain number. Yes, it is important to know an overall growth metric and define your priorities in measuring success, but that shouldn’t mean ignoring others. When you follow the numbers that have the strongest relationships with your end goal, instead of the end goal alone, you can better understand and optimize towards it. That way you can fix any problems before they make a bigger impact, and you can double down on the tactics you see working well.
Prioritize Without Tunnel Vision
There’s nothing wrong with choosing a metric as your most important priority, but doing so while oversimplifying the state of your business or ignoring other areas doesn’t work. Instead of being guided by the improvement of a single number, sustainable growth and retaining users lies in gaining a full understanding of that metric. That means taking off the blinders and looking around to learn its relationship with other parts of your business.