How to find the True North of your product
An introduction to product strategy with North Star metrics
Fifteen years ago, Netflix wasn’t the media giant it is today. High-speed streaming technology wasn’t yet widely available, and Netflix still was battling traditional video retailers to satisfy the movie-watching public through its innovative distribution model of DVDs mailed to consumers.
At the time, retention was a challenge for Netflix. Notably, the first month retention for new members, during their critical free trial period, was 88%, which meant that 12% of members were abandoning the service after just one month. There was plenty of room to improve retention of new members, and improving it could significantly affect Netflix’s business performance.
Gibson Biddle, then the VP of Product at Netflix, knew that improving retention would require patience, and he realized that retention was a lagging indicator, not a leading indicator. He needed to identify a leading indicator metric that his team could directly influence. He needed a North Star.
So Gibson and his team dug into their data and customer patterns and discovered a characteristic that proved to be a leading indicator of retention for new members: the number of DVDs in a new member’s queue. They learned that if a customer had multiple movies waiting in their queue, that customer had become a more engaged user of the service and was thus far less likely to unsubscribe. So they chose to focus their product work on a very specific metric: the percentage of members who added at least three DVDs to their queue in their first session with the service.
“At Netflix, we knew that improving retention was the critical metric to improve—it would improve both customer and shareholder value. But retention is very hard to move and A/B tests for retention require lots of time to see a meaningful difference,” said Gibson. “So we developed more sensitive proxy metrics. Our ‘Percentage of new members who add at least three titles to their queue during their very first session with the service’ is a good example.”
At the time, only 60% of Netflix’s customers had three or more DVDs in their queue during the first month, which left a large portion of customers for Gibson and his team to focus on. They honed in on ways to make their product work increase the percentage of customers who put three or more DVDs in their queue, and most of their work focused on making the service simpler.
With their North Star, the Netflix team was able to prototype and deliver a number of innovative product features and user experience improvements.
That single metric, the percentage of new members with at least three DVDs in their queue, became their obsession, their North Star. They were able to prototype and deliver a number of innovative product features and user experience improvements that both simplified and encouraged users to build their queues.
Over time, Netflix increased this North Star Metric from 60% to 90%, where 90% of customers had at least three DVDs in queue. And this directly influenced first month retention. According to Gibson, an improvement of just two percentage points in first month retention (from 88% to 90%) had a significant influence on Netflix’s business results and profitability. Netflix has been able to repeat this approach with other key strategies, including their streaming service.
Credits - Amplitude
The Product North Star is easily the most compelling yet misunderstood and misapplied product strategy framework out there today. Many product teams either don’t define them or even if they do, they misinterpret or misuse them, leading to unintended consequences for their product.
In this article, we will dive deep into this subject. Specifically, we’ll cover -
What is North Star metrics
Characteristics of North Star metrics
Examples for North Star metrics
How to define a North Star metric
Critique of North Star metrics
What is North Star Metric
A north star metric is the key measure of success for the product team in a company. It defines the relationship between the customer problems that the product team is trying to solve and the revenue that the business aims to generate by doing so.
- Sandhya Hegde, Amplitude
The North Star metric or Product North Star is usually a single metric that acts as a leading indicator for business success. It’s the one actionable, measurable, and understandable metric that captures customers' value as well as reflects companies vision and strategy. It drives product teams towards a common goal.
The North Star metric serves various critical purposes in any company:
It helps in prioritization and accelerates informed but decentralized decision-making.
It gives transparency and alignment on what the product team will strive to achieve.
It helps product teams to focus on impact and sustainable product-led growth.
It promotes the product team’s accountability towards an outcome.
Characteristics of North Star metrics
Some of the key characteristics of a north star metric are as follows -
It expresses customer value. We can see what matters the most to the customer.
It represents vision and strategy. It reflects the company’s vision and strategy for the product.
It’s a leading indicator of success. It predicts future results rather than indicating past results.
It’s actionable. We can take action to move it.
It’s understandable. It’s framed in everyday language that non-technical partners can understand.
It’s measurable. We can tweak our products to track the North Star metric.
It’s not a vanity metric. When it changes, we can be confident that the change is meaningful and valuable, rather than something that doesn’t predict long-term success—even if it makes the team feel good about itself.
Examples of North Star metrics
At CAST, the customer value we want to drive is - “Visibility into the true health of software and actionable insights than help them improve the health of the software.” In terms of strategy, engagement has been our primary focus for the last couple of years.
Thus, our metric “No of violations fixed/ Total No of violations reported for every scan”(in percentage) gives us the ability to see how we are adding value to our customers by providing them insights that drive them to improve the health of their software. This represents customer engagement, and this also acts as the leading indicator of our ability to retain and expand accounts over time.
Below is another example of North Star for a grocery ordering and delivery app. It depicts the relationship between various product initiatives and Noth Star metric through different input metrics.
Credits - Amplitude
Check out this article for some real-world examples of the North Star metric.
How to define your Product North Star
The North Star framework helps in defining the North Star metric. Typically, the North Star framework consists of four key components -
The work
A North Star metric should always be connected to the tasks that product teams execute, such as product initiatives, software development, prototyping, testing, etc. Irrespective of how your team operates, the work should align with the strategy that’s guided by the North Star.
The input metrics
The inputs are just as essential as the metric. These are a small set (3-5) of influential, complementary determinants that most directly affect the North Star Metric and can be influenced through the product offerings.
The North Star metric
The center of the North Star Framework is the North Star Metric, a single critical, measurable, actionable, understandable metric that renders your product vision and strategy. This metric is a leading indicator that defines the association between the customer problems that the product team is trying to solve and sustainable long-term business results.
Mid/Long term business result
Last but not least, it is the end result, the lagging indicator that the business is striving for. Ideally, we should see an improvement in mid/long-term business results as we improve the North Star metric.
Credits - Amplitude
Critique of North Star metrics
Even though North Star has gained its popularity among many industry practitioners, a few believe that defining “one metric that matters” is nothing but an oversimplification. Proponents of this theory argue that a single metric can only capture one dimension of a business and cannot cater to all complexities of a large business. They suggest, in such cases, building multiple metrics or constellation of metrics instead of defining one so that each of them can cover a unique dimension of a large complex business.
Read more on this thought here.
Credits - reforge.com
Conclusion
We covered one of the most extensively used product strategy frameworks - the North Star metric. Even though it’s widely used in the industry, there are still misconceptions and misuse around it. Indeed, it guides the product teams towards a common goal, helps communicate within the organizations and reflects a company's vision and strategy. However, some argue that they face difficulties defining one metric that captures all the dimensions of a business. A good suggestion, in this case, is to build a constellation of metrics or multiple North Star metrics, each catering to a single and unique dimension of a business. Whatever be the case, the North Star has proved its worth in shaping product strategy for many product leaders and organizations to date, and hopefully, it will continue to serve for many days to come.
Sincerely,
Arkapravo
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