How to Define a Start-Up North Star Metric That Really Matters

In the early stage of building a startup, there are always too many things to do and not enough people to do them. Deciding what to work on and learning how to prioritise is hard.
In this post, I will share the "North Star Metric" framework to help you find the main metric you should focus on to move your company forward and prioritise better.

Typical Frameworks and Their Shortcomings in Startups

Although there are many frameworks (To-Do Lists, Kanban Boards, KPIs, OKRs, etc.) companies can use to organise and prioritise work, early-stage startup founders often make the mistake of adopting too many of them, making work and coordination harder.

This is how small teams end up having more KPIs and OKRs than they can even track and more departments and sub-departments than total team members. 

You might have felt this way if you ever tried to track such metrics and realised that your metrics are more "guesstimates" than factual data from your business activities.

In summary, you might have too many organisational tools but not too much real progress.

So what should you focus on, then? Keep things simple, define the one North Star Metric that matches the goal you want to achieve at your company's current stage and make sure that everything you and your team are doing every day is directly impacting that metric.

If that's not the case, you are spending time and resources on irrelevant activities that aren't generating any real value.

What is the North Star Metric and How to Find it

First, you need to ask yourself what success means for you, at your current stage and in relation to your business model.

In that sense, your North Star metric should measure the value-adding activities that bring you closer to that success goal. This idea is derived from the management concept known as the Value Chain, introduced by Michael Porter.

So how do you find that North Star Metric?

Finding a North Star Metric According to Your Company's Stage

The main stages of a company are: Pre-product, Building MVP, MVP Launched, Finding Product-Market Fit, and Growth. Your North Star Metric will change depending on which stage you are in. 

• Pre-product: You are doing market research and customer interviews. At this stage, your North Star Metric will be related to the number of user interviews carried out and the customer research done. 

• Building an MVP: You are creating a “Minimum Viable Product” to test user interest and business models with. At this stage, your North Star Metric will be related to how fast you can launch your prototype and the traction you have with your first users.

• MVP Launched: You have launched your MVP and you are testing it with your target users. At this stage, your North Star Metric will be related to the number of target customers that are interacting with your product.

• Finding Product-Market Fit: Product-Market Fit describes the moment when your product satisfies your customer needs and your customers want your product so much that you almost can’t keep up with the demand.
  
  At this stage, you should already have found a sound business model that creates value, delivers it to customers and retains it for you as a company. Your Metric will thus be related to actions that track conversion such as active users, paying customers, delivered services, or screen time, depending on your product or your business model.

• Growth: You have found Product-Market Fit and you are ready to scale your sales, operations, team, and organisation. After reaching Product-Market Fit, your North Star Metric will depend on the value-generating activities identified in your value chain and the conversion of systematically delivering value to customers and capturing value for the company. 

Utilise Your Company’s Value Chain to Define Your North Star Metric After Product-Market Fit

Analysing your company’s value chain helps you find a North Star Metric in relation to all the value-generating activities in your company, usually after the Product-Market Fit stage.

Porter’s Value Chain describes the set of activities that occur in order for a company to create and deliver value to its customers.

With each activity, value is created or transformed and it increases along the value chain.
Ultimately, the value becomes products or services that are delivered to customers as well as the value captured by the company.

Your value chain involves activities from both internal and external stakeholders that belong to different departments or team members.

As your value chain will be specific to your business, you can use this general diagram as a guide to recreate your own.

Once you have diagrammed your value chain in consensus with all your team, you will have a visual representation of how value runs through your company. Ideally, each value-adding activity will have a performance metric and each metric should have one person responsible for it.

How To Select the North Star Metric From The Value Chain?

Remember that the Metric should measure what success means for you and your company, but after the Product-Market Fit stage it should also capture:

1. The value delivered to your customers through your product or service.
2. The value captured by the company: sales and margins. 

Note that the performance of the North Star Metric depends on other value-adding activities too, and in that sense, maximising the value of that metric will require coordination and execution from other value-generating activities and departments within your team.

Here are some examples of the successful technology companies' North Star Metrics within their value chain:

• Airbnb North Star Metric: Booked nights on the platform. 
• Amazon North Star Metric: Total sales on the platform.
• Instagram North Star Metric: Daily active users.
• HubSpot North Star Metric: Paying active companies/users.
• YouTube North Star Metric: Total views in video catalogue.
• Medium North Star Metric: Total users' screen reading time.

Note that the Metric is not always looking to maximise revenue or engagement, but it should measure what the company has defined as its success goal at each stage.

Success changes and it needs to be redefined as the company grows; it should ultimately reflect on the company's mission and vision.

How to use Your North Star Metric to Prioritise and Move Your Company Forward

That seems like a simple process, right? Here comes the catch. The real power of the North Star Metric relies on the fact that, if you objectively define your value chain, you now know which activities create real value and directly impact your Metric.

Usually, this is where most founders, especially in the early stage, make the mistake of allocating their time and resources in the wrong actions. From the thousands of tasks, active projects, and meetings that are taking most of your time, you can define what to do and what to prioritise. Everything else, document it and put it in a backlog to work on later. 

Metrics can be tracked using simple excel sheets, online forms, and connections to databases, or directly built into your product. Ideally, each metric should have a person responsible for its execution and performance towards a common goal.

The North Star Metric is a framework that will help your team be aligned on prioritising and executing activities that generate the most value for your customers and for you as a company.

Keep it simple, clean and easy to track. Your metrics are not estimates, they are measures, you are recording performed activities, not guessing or estimating.

Conclusion

In summary, your North Star Metric depends on what you define as success, which itself depends on your company’s stage and the specifics of your business model. It helps you prioritise the activities that create value, because those are the ones directly impacting the metric.

After Product-Market Fit, the North Star Metric will reflect all your value chain's activities and the transaction of value between the customers (through your product or service) and the company (capturing value through sales or margins).

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