Today’s post is a 5 minute read.
In Product Management, and more so when you grow into leadership, you ponder a lot about strategy and execution in tandem. For me personally, the three questions that keep me on my toes are:
Do we know where we want to go? [Strategy]
Do we have what it takes to go there? [People, Infra and Processes]
Are we doing what we’re saying? [Gaps in execution]
But, one thing that ties them all together is the North Star Metric. There is a lot of content out there that talks about rules on how to write North Star Metric, what are the conditions for it to be relevant, and so on. But it is probably as useful as the articles on how to write a user story.
Where is the deep thinking? One must wonder.
In today’s newsletter you learn how to think strategically about north star metric (NSM) and how to setup you organization for success.
This is not your step-by-step guide on how to setup north star metrics, you can Google that.
But how do you make your north star metrics stand out?
What fundamentally unique questions you should ask?
Hopefully after reading this, you go from thinking about it just as an important metric to a do-or-die success criteria for the organization.
For those of you who already have a NSM in the organization, you can utilize today’s post to test it, question it or simply validate it.
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The Contrarian Question Approach
Peter Thiel in his book ‘Zero to One’’ asked a contrarian question
"What important truth do very few people agree with you on?"
The question aims to discover more creative minds who know something about the market and customers that many others do not. It is a way to identify potential innovators and is a good way to understand groundbreaking products or strategies.
The question challenges conventional wisdom, and pushes individuals to think beyond commonly acceptable truths.
This way of thinking can also help you decide metrics and goals for the organization. Instead of following standard industry KPIs, consider what unconventional metric might truly capture your product's unique value proposition.
Here’s my version, i.e the contrarian question to ask when setting up North Star Metric:
"What widely held belief about measuring success in our industry might be wrong?"
Let us learn about this in practice.
When Spotify was growing, there were some widely held beliefs in the streaming industry at the time:
Focus on Subscriber Numbers: Many competitors prioritized the number of subscribers or daily active users as their primary metrics. These metrics, while important, do not directly measure the depth of user engagement or satisfaction.
Revenue-Centric Metrics: Other companies might have focused on revenue-related metrics, such as average revenue per user (ARPU). While revenue is critical, it is a lagging indicator that follows user engagement and satisfaction.
Spotify challenged the conventional focus on subscriber counts and revenue metrics. They identified that:
Engagement is Key: The true measure of success is not just how many users you have, but how deeply they engage with your service.
Value Over Volume: Providing a high-quality, engaging experience can be more valuable than simply increasing user numbers or short-term revenue.
Rather, Spotify went with "time spent listening" as its North Star Metric. Spotify realized early that the true measure of success is not just how many users you have, but how deeply they engage with your service.
Source of Image
Providing a high-quality, engaging experience can be more valuable than simply increasing user numbers or short-term revenue. Other reasons:
Measures Customer Value: This metric directly reflects the value users derive from Spotify. The more time users spend listening, the more they are enjoying and engaging with the platform.
Encourages Engagement: By focusing on listening time, Spotify encourages strategies that enhance user engagement, such as personalized playlists, high-quality content, and seamless user experience.
Predicts Retention and Growth: High engagement often leads to better user retention and organic growth, as satisfied users are more likely to continue using the service and recommend it to others.
Aligns with Business Goals: Increased listening time can lead to higher ad revenues (for free users) and better retention of premium subscribers, aligning with Spotify's business objectives.
The 10 to 100 years approach
Although, many organizations react to what’s changing around them in the market, what is competitor doing and may become too reactive, Amazon’s approach has been contrary.
Jeff Bezos posed an important question:
What will not change in 100 years?
Bezos believes that by concentrating on enduring customer needs, Amazon can build a sustainable and resilient business.
This approach is encapsulated in his famous "Day 1" mentality.
For example, Bezos argues that customers will always want lower prices, faster delivery, and a wider selection of products.
These needs are unlikely to change over time, making them a stable foundation for Amazon's strategy.
Finding these enduring truths is often hard, but is key job of the leadership.
Of-course, 100 years here only intends to say that it should stay true for as long as possible, and not exactly 100 years. 40-50 years also does the job and for some companies, even finding metrics that will stay true for 10 years also makes sense. Long-term is relative depending on company’s stage and situation.
This approach also helps in finding your North Star Metric.
The NSM should be based on fundamental aspects of the business that are unlikely to change in the near future. This ensures that the metric remains relevant and continues to guide the company’s strategy effectively over time.
When I was at Booking.com, we were using ‘Number of booked accommodations ‘(Net after cancellations) as the North Star Metric’’ and they still do track it as primary metric for all company experiments.
Similarly, Airbnb’s north star metric is ‘number of nights booked’.
Do you think North Star Metric of Booking.com and Airbnb would change in 5 years? 10 years? and what about 100 years?
While Spotify took more of the ‘‘contrarian question approach’', Booking.com and Airbnb took more of the ‘10 to 100 years approach’.
So, what’s the sauce?
When thinking about your long-term startegy and your North Star Metric, don’t just go for the usual hygiene checks.
Okay let me just lay them down here, so you know what hygiene checks are:
Leads to revenue: The NSM should be a variable that directly feeds into revenue growth, even if it's not revenue itself.
Reflects customer value: It must indicate the value customers receive from your product or service. An increase in the metric should signify that customers are getting more value.
Measures progress: The NSM should be easily measurable and its growth should reflect general company progress.
Aligns with core value proposition: The metric should spring directly from the unique value your company offers to customers.
Drives the business flywheel: It should be the metric that, if increased, would most accelerate your business' growth.
But ask two fundamentally strategic and existential questions:
"What widely held belief about measuring success in our industry might be wrong?"
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What will not change in 100 years?