Staying On the Right Path

Someone holding a compass against a landscape

Today we’ll cover an advanced topic that falls into the realm of product leadership and it’s about how to choose the north star of your company or product department (if you’re working in a big company).

The north star of a company is the KPI which reflects best whether the company is delivering on its vision. It should encapsulate the delivered value, the progress on the product strategy and the overall ‘health’ of the business.

There are plenty of articles and posts about the north star over the web. Usually, most of these articles are quite shallow and basic, but I was actually able to find a quality coverage of the topic by Amplitude. You can find it here.

To be honest, this article is well written and comprehensive – so I don’t think I can add much in terms of what is the north star and what it should encapsulate. You should definitely read it!

I believe my added value here can be (as always) to draw a practical approach as for how to find the best KPI that fits your company, or your product.

Now, let me start with the sad news – it’s very probable that choosing the north star of your company is not up to you, especially if you are a mid-level product leader (e.g. – a director of product, product lead or head of product). Even if you are a VP product or CPO – then you are probably not the sole decision maker on that matter and you’ll have to get the buy-in of the CEO (at least) before determining what should be the north star KPI or your company.

That being said, the good news is that if you are determined and willing to do your homework – then most chances you can affect and even be part of the decision making process that will shape and make adjustments to the north star KPI.

 

Why is it important to have a north star?

I suggest you read my post about the product spheres of responsibilities (here), but in short, without it it’d be challenging to craft a solid product strategy and therefore also a product roadmap.

The emphasis here is on the ‘solid’ because I’ve witnessed several times how product departments are coming up with strategies and roadmaps with a lack of a well defined north star. It works for a while, but then it breaks, because the people in charge have decided to change again the metric everyone should focus on. Once the top metric is changed – it’s very probable that your strategy and roadmap no longer make much sense.

Hence, the main value of having a north star is alignment & focus across the board as to how everything needs to be prioritized. The side effect is efficiency. Frequent changes to the north star will therefore result in frequent loss of focus and the result of that are incoherent products.

 

Do most companies have a well defined north star?

From my experience – no. At least not a ‘well defined’ one (we’ll discuss in a second what it means).

As much as it’s shocking – most companies I’ve seen didn’t take the time to stop and define their north star properly. Why? I don’t know. Lack of product development knowledge. Lack of discipline. Whatever.

You may argue that since most companies don’t have one and many of them are successful – then it’s not really needed. I’d answer that when the need (the pain) you are addressing is very big and you are addressing it even moderately well – then it may be good enough for the time being, and it can compensate for a lack of proper product development. Therefore, with a lack of north star you may grow slower than you could have, you are probably less efficient than you could have and your company defenses are less formidable than they could have been. But it may be good enough for now.

Things will quickly break down though when you’ll start facing a competition who are addressing the same pain and they have properly defined their north star. You’ll suddenly be facing a fast-pacing competition and you’ll start losing market share. I’ve seen this happening as well.

So your company may feel everything is going well even with a lack of a north star – but it could just be very temporary.

Also – what’s your definition of ‘successful’? Many businesses generate several millions of dollars per year. Do you consider this successful? When I’m talking about successful companies I’m talking about more than $100M annual revenues. So when you’ll ask whether successful companies under this definition have a well defined north star then the answer is more likely yes (see Uber, Facebook, Monday.com and other unicorns which were willing to share their north star KPIs).

 

What should be my company/business unit/product department north star?

Whether it was defined and declared already or not – it’s your job to question what was defined, or to come up with one if it’s not. 

As the article I linked above states – a well defined north star KPI should reflect 3 things:

  1. The amount of value you deliver to your customers/users
  2. Your progress according to your product strategy
  3. A leading indicator for future revenues

Hence, if the north star you have (or the one you came up with) is defined in a way when it’s growing then:

  1. Your business grows with the right type of customers
  2. Your bottom line revenues grow as well
  3. You are outpacing your competition to become more dominant in the market

 

If not all of the 3 above are necessarily happening when your north star metric is growing – then probably you need to put some more thinking into it and fine tune it.

 

Tips for finding the right metric to focus on

  1. A north star which is based on revenues is most likely wrong. Why? Because it teaches everyone to favor short term revenues at the expense of market growth. For example – focusing on how you can optimize the deal size and thus putting the team to develop more sellable features at the expense of growth features. While doing so – you risk losing the market. It’d be better to grow the revenues by growing your market share.
  2. A good north star metric requires embedding some ‘growth’ element in it. This may sound obvious, but I’ve seen north stars which are focusing purely on engagement (such as CTR). Although it measures satisfaction – perfecting this metric doesn’t mean your business is growing.
  3. A good north star metric should encompass some ‘satisfaction’ element. This will be our indication for the value we are delivering to our customers
  4. Try to frame it within a week – it’s usually the right balance between being distracted by daily anomalies and weekends to longer periods where it’d be hard for you to respond fast to negative trends.

 

Concrete examples

With the above in mind – let’s take some concrete examples:

An ad-network business

Let’s say you are the CPO of an ad-network and you’re tasked with defining the north star of your company. As you may know – an ad network mediates between advertisers, who represent the demand side, to various ad-slots which are available in multiple digital assets (such as news sites), which represent the supply side.

Since we know that we need to include in our north star something that represents growth – the first question you should ask yourself is what does ‘growth’ mean to your business? Growth for an ad network means growing either the demand or supply sides, but ideally it’d be both, because otherwise you’ll either run into too many ads where there is nowhere to display them, or too many ad-slots which can’t be filled (because there are not enough available advertisers).

To me it sounds like ‘filled ad-slots’ is a nice metric to begin with. Because if it grows it means that both the demand and supply sides are growing as well.

The second question you need to ask yourself is what represents ‘satisfaction’ of your customers?

For the demand side – it’s reaching the right audience. E.g. – clicks on ads.

For the supply side – it’s getting maximum $$$ for each ad placement.

 

Now, this is getting tricky. Encompassing both growth and satisfaction in a single metric, when we have two types of customers can be very tricky.

Sometimes, as you’ll discover – a single metric is just too hard to come by and you’ll need to settle for two. 

If you are an ad network, or any other marketplace business in this context – then your company is probably already split to two business units, and each may have its own different top KPIs – so it will make things much easier.

 

However, I do want to pick up the challenge here and try to come up with a single metric that encompasses everything. Since I’m thinking as I’m writing I could have missed something, but I think that something in the spirit of the following could be what we’re looking for:

The weekly number of ad clicks with a CPC (cost per click) higher than X cents

Let’s analyze it for a second:

  1. Ad clicks measures the growth of both sides of the marketplace
  2. Ad clicks also measures the satisfaction of the demand side
  3. The floor on the CPC measures the satisfaction of the supply side
  4. The growth of this metric also means growth in revenues for us

 

Thus – if this metric is growing it means we are delivering value to both sides of the marketplace while getting more market share.

The main drawback I see here is that it may turn out to be quite challenging to constantly increase this metric, as the CPC floor requirement may turn out to be quite challenging. Oh well… 

 

A cybersecurity company

Let’s say your company is in the field of cyber security and specifically with the mission of preventing network penetrations of hackers into organizations. This is a B2B business.

 

Growth – clearly growing the number of customers is growing the business. But is it enough?

 

Satisfaction (value delivered) – at first you might wanna say that each time we prevented an attacker from penetrating the network the customer will be satisfied. True… but what if no one attempted to attack the network at all for quite some time?

I think the satisfaction here is mainly driven by the ‘sense of security’ that your customers are feeling. The fact that no hackers have penetrated your customers’ network is therefore the main driver for satisfaction here, rather than the number of actual prevented attempts.

 

Let’s try to combine the two within a weekly time frame. How about:

The weekly number of customers with zero penetrations

Growing this metric means your business is growing and the satisfaction is maintained. It also means revenues are growing as well.

 

Spotify

You are the CPO of Spotify. Congrats and well deserved 🙂

What’s your north star?

 

This is tricky as there are so many metrics that are available to Spotify. 

Let’s try to do our best.

Spotify is also a marketplace. A marketplace of listeners and creators. 

 

Growth – the demand (the consumers, the listeners) grows when more users are added to the service. However, not all users are the same from Spotify’s perspective. You have the ‘free plan’ users and you have the ‘premium’ ones. I will make an assumption here that Spotify mainly cares about the growth of its premium users (this is based on common sense plus stuff I read in the past). 

The supply grows when more artists add new songs and podcasts to the product. 

 

Satisfaction – for the demand – when they can find and listen to their favorite artists. For the supply – when their content is being discovered and consumed.

 

Again – a tricky marketplace. What should be the north star?

 

When it comes to growth – what is more important? Adding new users or adding more artists?

I think adding more users is the critical growth vector as the number of artists does not necessarily reflect on their quality (not all artists were born the same…). I don’t mean the growth of artists is not important, but as long as the users are satisfied and find things they want to listen to – I believe it’s less critical to grow the number of artists.

Hence, if we take the following metric:

Time spent listening in a week by premium users

 

It may be good enough for our cause. Not so?

The bigger this metric is – it means the satisfaction is growing as well. As for the number of users – you could argue that more time spent listening doesn’t necessarily mean the number of users is growing, and you are probably right. However, I think it’s a fair assumption to have that there is a limit to how much time a single user can spend listening in a week. Hence, the growth of this metric also reflects on the growth of users, though it’s not a 1:1 mapping.

Revenues should grow as well with the growth of premium users.

 

This is what I came with in just a few minutes. I guess that if you are the person in charge you’ll probably devote days, if not weeks, before you finalize this metric – so it certainly can be fine tuned further.

 

The goal here was to provide you with the guidelines as for how to start thinking about the north star. I believe you have enough food for thought for now, but I’d certainly be happy to hear in the comments if you think my suggestions can further be improved.

That wraps up the post for today.

If you found this post/series useful – let me know in the comments. If you think others can benefit from it – feel free to share it with them.

 

Thank you, and until next time 🙂

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