What Is Your Startup’s North Star Metric?


Jack Chen, CEO & Co-Founder SWIDIA.

In our data-driven world, companies are constantly tracking a range of metrics such as views, conversion rate, user acquisition rate, etc. Some metrics matter more to a business than others. Thus, founders and CEOs need consider identifying the one or few metrics that truly matter for the long-term growth of their companies. Many successful product-led companies use a powerful framework known as the North Star Metric (NSM).

‘Model startups’ like Airbnb and Uber are typically brought up as winning case studies of this framework. While the North Star Metric framework has shown to be effective, it is important not to neglect user experience, new opportunities and long-term thinking.

What is the North Star Metric?

The North Star Metric is a company-wide guiding metric that every team in a company drives growth toward. The priorities of each team are aligned around the NSM. Choosing a single point of focus means everyone’s energy and resources are invested in driving toward that one metric. It has its merits of unified planning and measurable impact. This is why deciding on the right NSM and clearly communicating across the team is crucial for companies to reach their maximum growth potential. Without a defined NSM, companies may lead their team to an unintended path.

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How to define your NSM?

Most companies can define their NSM based on a combination of their business model, product experience and stage of growth. But the challenge is making sure you’re betting on the right horse(s) at the right time.

In general, NSM can be grouped into six categories: revenue (e.g., GMV), customer growth (e.g., number of paid users), consumption growth (e.g., message sent), engagement growth (e.g., MAU), growth efficiency (e.g., CAC) and user experience (e.g., NPS).

At the end of the day, most companies’ goal is to be profitable. However, it does not mean revenue should always be your NSM. In fact, some companies avoid revenue as their NSM and for good reasons. In some companies, revenue is dependent on factors out of their control and it is not operational. Furthermore, a NSM centered around revenue may be uninspiring to the team.

For example, Airbnb’s revenue is dependent on currency exchange rates and host price decisions. Therefore, Airbnb avoids using revenue as their NSM but focuses on the number of nights booked. This is a good NSM because it takes into account both sides of the market–the booker and the lessor. It also reflects the team’s effort more directly than revenue. Other examples of NSM of well-known companies include Spotify, which focuses on time spent listening, and Uber, which focuses on number of rides per week.

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Should you have more than one NSM?

If your company is in its earlier stage, I think it is best to focus on one metric in which everyone doubles down their efforts on to drive noticeable business growth. This is an example of the classic 80/20 rule. If I’m Cameo at Series A, I would be pumping all my efforts into GMV.

As your startup scales, it’s worth considering the trade-offs of focusing on a single metric. Some questions to reflect on: Is the market demand shifting? Are there new tailwinds that threaten defensibility? Is my team over-rotating on one aspect of the business and constraining growth? Do I have new goals?

Most importantly, as the team scales, different departments will have focus areas that do not always align with inputs that drove the original NSM. A proposition for later-stage startups is to have teams focus on actions across three pillars to achieve meaningful outputs that feed the NSM: business model (user or customer growth/revenue), product experience (variations of user retention & engagement) and stage growth (experiments that provide leading indicators for business pivots/expansions opportunities). This will prevent unnatural behaviors and reward your team for focusing on their strengths. It makes work relevant for everyone and hedges risk in case of over-rotation.

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Overall, focusing on one core metric is still fundamentally the right idea. Everyone on your team can look in one direction for motivation and overall progress. However, when it comes to the day-to-day input and outputs across different teams, this seldom will move the needle. Choose wisely and be crystal clear about your NSM. But also be ready to adjust your NSM as your company scales and evolves.


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