UNDERSTAND WHAT YOU MEASURE IS WHAT YOU VALUE. BUT SUPPOSE YOU DON’T KNOW WHAT’S VALUABLE; WHAT DO YOU MEASURE?
TABLE OF CONTENTS
Data is relevant, but numbers alone don’t mean anything.
Two out of ten. What does that mean?
Two out of ten times you get in your car, you have an accident. Those aren’t good odds.
Two out of ten times you play the lottery, you’ll win. Those odds look optimized.
I have worked with many great startup companies and organizations, all looking for the perfect sales strategy to help them make a splash on the market.
Do you know my answer? The most effective strategy to give your startup sales team is a singular, bold North Star Metric (NSM).
But let’s go one step further – the most effective North Star Metric can’t be measured because, rest assured, it’s unlikely other competitors are looking at it.
START-UPS & NORTH STAR METRICS: THE PROBLEM
You make educated decisions by understanding the risk and the return relative to the baseline.
But understand: relativity, risks, and subsequent gains are based on baselines. Baselines you establish after you’ve spent a certain time measuring something.
Let me outline the main problems with North Star Metrics:
- Suppose you’re measuring the wrong things.
- Suppose your initial numbers were flawed.
- Suppose what your measuring isn’t the most critical factor in the sales team’s success.
Let me give you a poor North Star Metric example:
Imagine your startup company is optimizing for several opportunities to increase your close rates.
In theory, that should lead to greater revenue.
However, what if an increase in the average deal value reduces the close rate?
The results. You’ll optimize for the wrong thing and likely never capitalize on your true market potential. Certain situations and clients have a greater appetite for more extensive service offerings.
Could that revenue amount potentially eclipse the revenue from clients at a lower rate?
These are the types of questions you should be asking yourself before you set your KPIs and goals.
One of the ways to avoid these pitfalls is to know your real North Star metric.
WHAT IS A GOOD NORTH STAR METRIC?
A North Star metric measures growth within the organization, providing a startup organization clarity and a tangible growth strategy.
A North Star Metric should:
- Measure the total value customers get from your product or service you deliver
- Have precise alignment with the company’s long-term vision & core value
- Assesses company performance objectively
Think about your North Star Metric is the top-tier metric that aligns with your long-term vision with your startup. Ultimately, it is the key metric you want to optimize to give you a competitive edge in the market.
It is also your leading indicator of progress made by your organization, reinforcing accountability and transparent outcomes for the entire team.
Some organizations will have a singular north star metric, while other large companies with one-to-three key product parameters have multiple.
Think about your North Star Metric is the top-tier metric that aligns with your long-term vision with your startup. Ultimately, it is the key metric you want to optimize to give you a competitive edge in the market.
However, like with all things, there are trade-offs.
A single North Star metric framework can provide your organization with complete focus and clarity.
The critical thing to ensure is that you are measuring something with value and not purely for the sake of measuring.
North Star metrics are also an effective strategy for aligning all teams, including sales teams, around a singular focus. It is supported by your sales culture and measured with analytics tools to guide the way.
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Common North Star Metric Examples
Industry
- Weekly customers completing their first order
- Value of daily purchases
- Customer lifetime value (CLV)
Consumer Tech
- Daily active users (DAU) over Monthly active users (MAU)
- Messages sent per day
- Retention percentage
B2b saas
- Free users/Trial accounts with 3+ users in the first week
- Year-two retention percentage
- Monthly-recurring revenue (MRR)
media
- Signups and retention
- Daily active visitors
- Total read time
- Total watch time
fintech
- Total assets under management
- Daily active user
Avoid “Vanity Metrics”
Whatever you do, don’t fall for vanity metrics.
You may have heard the word “vanity metrics.” Vanity numbers maybe like:
- Total page views
- Total new signups
- Total paid users
- Total registered users
Companies often succumb to measuring these numbers because they often appear impressive and make it appear you are achieving something.
The reality is they often do not indicate the unique value delivered to customers and, even with context, do not provide you with clarity or focus.
For example, measuring new customers or new users doesn’t consider new users churn, which is an essential context that impacts the value of that single metric.
Another example includes measuring the number of registered users, but those users are not always active users, which doesn’t provide you with actual engagement numbers.
What about revenue as a North Star Metric?
I hear that Cash is king all the time, but “Revenue” is a poor North Star Metric.
Using revenue as a single metric or your North Star metric can lead to short-term growth but detract from long-term value and progress.
Now am I saying revenue is not important? No.
Currently, several big brands have optimized for revenue to drive North Star metrics. A few examples include ARR and GMV are simply generating new revenue, while Airbnb focuses on revenue-generating.
Remember, revenue is the price customers pay, but your North Star metric is the customer value they get for that price.
I have seen the damage a revenue-based North Star metric can have on a company’s business model, and worst the exact moment customers realize it too.
Most companies with a revenue North Star metric-based model risk prioritizing extracting as much money as possible from customers in the short term instead of determining the actual value to the customer that justifies investing more with you in the long term.
Remember, revenue is the price customers pay, but your North Star Metric is the customer value they get for that price.
Look at it this way; more revenue results from finding the best North Star Metric and optimizing it for growth.
It’s all about establishing an emotional connection between the entire company and your clients and customers. This will give you a substantial gap between you and your competitors – and doing it as quickly as possible.
Now, you might be thinking – how do you measure north stars based on an emotional connection?
Keep reading –I am getting to it.
WHY YOUR STARTUP NEEDS A GOOD NORTH STAR METRIC?
A startup without the north star metric is performing blind.
Remember; a north star metric provides your entire team with a laser focus on your organization’s long-term goals.
As your sales team focuses on one metric, your salespeople can view it differently. It leads back to ensuring accountability and transparency within the organization eliminating external focus or white noise that changes direction.
So, imagine if your founding team had such focus from the early stages.
Therefore, early-stage startups should include North Star metrics in the foundational plans.
North stars metrics benefits
A north star metric helps your company in several ways:
- Organization Focus: Align teams under the same goals while focusing on different numbers to get you in the right direction.
- Organization Clarity: Everyone can see how well the company is doing at a glance.
- Customer focus: It redirects the company’s focus on the actual value for the customer, which inadvertently promotes a customer retention focus.
WHY IS THE RIGHT NORTH STAR METRIC UNMEASURABLE?
Differentiation is critical for early-stage startups or startup organizations ready to take the next step. You need to create the widest gap between your organization and your competitors.
To create the gap, you need to find value in the unmeasurable: a truly unique north star metric.
My logic is that nobody else is measuring it if it can’t be measured.
And, if it can’t be measured, it’s unlikely other competitors are looking at that as a north star metric.
That’s your competitive edge.
These unmeasurable north star metrics may measure emotional connection.
Or maybe something else.
But one thing is clear; unique North Star metrics that are unmeasurable will fundamentally separate you from the competition – if it could be measured, everyone else would already be using it.
Most organizations have a very linear approach to problem-solving.
Previous solutions inspire future solutions.
This creates a very derivative and unimaginative strategy.
Companies play it safe because they have a framework for measuring progress.
But like I said, true separation comes from doing something truly different.
The organizations courageous enough to make north star decisions outside of their own domain experience, irrespective of what data scientists tell us are the ones who will make the best strides forward.
So they fall back on metrics already used, already measured.
Things that cannot be genuinely measured are the most valuable because your competitors are afraid of investing in something they cannot tangibly track.
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FINDING YOUR “UNMEASURED” NORTH STAR
Decide what you’re organization needs for growth.
Remember: North star metrics measures growth.
So, ask yourself:
- What do you want? (More clients, revenue, etc. – prioritize a list)
- What is at the heart of your company’s mission?
- What do your customers value?
- How can you give it to them?
- What is essential to the business’ functioning? Prioritize a list.
3 Unique Ways to One North Star
Once you understand, the next stage is determining three unique ways to get to that North Star metric.
You’ll need to forecast multiple scenarios and optimize for different outcomes.
Forecasting for multiple scenarios allows you to ascertain which ones have the highest likelihood of maximizing your North Star metric.
Now understand this. Simply forecasting multiple scenarios will not unearth all the nuance.
Data will always tell you something. It’s up to you to understand whether that’s right or wrong and in what context.
Domain experience is going to affect your benchmarks.
But one thing is clear; unique North Star metrics that are unmeasurable will fundamentally separate you from the competition – if it could be measured, everyone else would already be using it.
Consider this:
What if your initial batch of results were too low?
Suppose your control group was wildly unprepared and had a terrible performance.
You wouldn’t know that because the data doesn’t prove they were terrible.
Now, your baseline numbers are reflective of that poor performance.
And you’ll only ever look to optimize that. You’ve pigeonholed yourself with data constraints.
You will optimize from the wrong place.
So, what do I do?
When I speak with a salesperson, they have a 90% close rate.
My initial reaction is that it’s too high.
I’m going to look at how many prospects they’ve disqualified.
When close rates are that high, you don’t have enough opportunities and aren’t utilizing the right tools.
In the other scenario, a salesperson tells me they have a 2% close rate, my initial thought is to look at their line of communication with prospects.
Let me give you some advice: trying to be all things to everybody results in a serious waste of time.
I would look to determine the genuine value prop and the individual buyers.
Remember, true separation comes from doing something truly different.
FINAL THOUGHTS
When your startup organization grows, you have to play to win. Playing to win as the sales leader or Founder means thinking up creative solutions.
The organizations courageous enough to make North Star decisions outside of their own domain experience, irrespective of what data scientists tell us are the ones who will make the best strides forward.
Actual change comes from anticipating your market needs before the data supports them.
Do you know how to find creative solutions to these issues in future growth?
Let me be clear, if the solution were in front of you, you would have solved it already.
It’s likely something that you cannot solve without support and help.
Rose Garden Consulting is solutions-focused, so if you want me and my team to ignite your revenue, we will do so with our Team Assessment and Sales Accelerator Process.
About the author:
Ali Mirza is the Founder & CEO of Rose Garden, a national sales consulting organization, and featured in Forbes, Inc, Business Insider, The Huffington Post, Business Rockstars, and The Wall Street Journal.
Ali is a highly sought-after public speaker presenting at multiple national conferences on innovative ways to accomplish transformational growth on your sales team.
Rose Garden provides unparalleled support and guidance to growth-minded founders via sales strategy differentiation, world-class sales culture creation, and exclusive playbooks, processes, and scripts to position them for limitless growth.
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