Why Your Business Needs a North Star Metric to Succeed (And How to Choose One)
Are you a results-driven leader? You might be missing the point.
In my last post, I went hard on the importance of data culture, and I'm not about to let up now. Let's face it, if you want your company to succeed in today's digital landscape, you need to get serious about metrics. It's not just about measuring performance, it's about choosing the right north star to guide your business towards greatness.
Why you’re lost without a North Star
Ah, metrics. The lifeblood of every business. And as your team grows, keeping everyone focused on the same goal becomes about as easy as herding cats. That's where your North Star metric comes in. It's your guiding light, your pole star, your compass - all rolled into one. But let's be clear, choosing the right North Star metric can make or break your business. No pressure, right? As a leader, it's your job to choose wisely and commit to that single metric. It’s important to note that these are not set in stone and can change over the years as the business priority changes.
But don't be fooled, choosing the right North Star metric isn't easy. It requires commitment and foresight from leadership. When I joined Amazon in 2018, leadership made a strategic decision to focus on speed, and our North Star metric became the (equivalent of) median time to fulfil an order. This decision implied compromises, extra costs for Amazon, and potential pressure on vendors. But leadership had the stones to make a call and commit to a single metric. This allowed the entire supply-chain department, from interns to senior executives, to align on a common goal.
But here's the thing: if you're only looking at one number to make all your decisions, you're setting yourself up for failure. Support metrics are crucial to ensure that the business doesn't suffer unintended consequences. At Amazon, cost was a huge support metric for our speed-focused North Star. Without it, we could have easily optimized solely for speed, at the expense of our bottom line. Take cost, for example. If you're optimizing solely for speed, you might as well hire F1 drivers to deliver packages in Ferraris. Not that I wouldn't mind that, but you get the point. You need to anticipate the pressures your business will face if you focus only on your North Star, and keep those support metrics in check.
During my time at Amazon, I developed a Machine Learning model that optimized warehouse inventory by transferring units based on customer proximity. Although this optimization did not directly impact our North Star metric, it reduced transfers by 30% compared to the previous method. At first glance, this project may have seemed like a failure, but it was actually a smart business decision considering the cost-cutting metric. By improving a support metric without any negative impact on the North Star, we were able to reduce costs.
Note here that if costs were of no concern, this project would have been a failure. It might seem absurd to read but there are plenty of startups flush with VC money where cutting on costs is just not a priority.
And finally, different departments within a corporation should have different North Star metrics. Amazon Kindle and Amazon Supply Chain shouldn't be chasing the same North Star. It's important to choose metrics that align with the specific goals and challenges of each department.
Having a clearly defined North Star metric is crucial for driving data culture, but it's not a silver bullet. Leaders must choose wisely, and support metrics must be in place to ensure unintended consequences are avoided.
Input vs Output
Output metrics are for amateurs: real pros focus on inputs.
Metrics are everywhere. In business, we use them to track progress, set goals, and measure success. But not all metrics are created equal. In the previous section, we talked about the importance of choosing the right North Star metric to guide your business. But what about all the other metrics that you track? Are they all equally important? Spoiler alert: they're not. In fact, focusing too much on output metrics can be dangerous. In this section, we'll explore why measuring inputs can be more important than measuring outputs.
Not all metrics were created equal. There are those that you want to see rise and those you actually control. The trick is knowing the difference and understanding what levers you have at your disposal. At the end of the day, it's all about input vs. output metrics. Your input metrics are the canaries in the coal mine, the early warning signs of what's to come in your output metrics.
Let’s take this newsletter as a basic example.
My vision might be “Play a key role in unlocking business value by simplifying Analytics to Business Leaders” (yeah yeah, it’s a work in progress…)
My north star might then be the number of people that read my newsletter every month.
So what are my input metrics? What are the things that I can control?
What are my output metrics?
If my Email Open Rate is low, maybe I need a more catchy title. Maybe I need to send it on weekends, or on weekdays. Or maybe I’m sending too many emails and I’m spamming folks.
Not many Social media likes? Maybe I need to up my social media game. Get a social media manager, post more pictures of my cat (and get a cat). More social media should translate to more reach which should see more people reading the newsletter.
Note here. I don’t have a direct control on my output metrics. But I have indirect control, and in theory, input metrics should be linked to output metrics. It’s easy to see that if I post more on social media, I’ll get more likes. But maybe we should focus more on number of likes per post? As you can tell, this is where nuance comes into play. And you get this right by honing in on your vision, and focusing on strategy.
The Takeaway
A North Star metric is critical for every business, as it helps everyone focus on the same goal. However, it's important to choose the right metric and commit to it fully. When choosing your North Star, ensure that you have support metrics in place to avoid unintended consequences. Additionally, input metrics are just as important as output metrics, as they give you a leading indicator of your North Star metric. As a leader, it's your job to identify the right input metrics to drive the outputs that matter. Remember, metrics are the lifeblood of your business, but not all metrics are created equal. Choose your North Star wisely and focus on the inputs that matter most.
Stay tuned for my next newsletter where I'll share valuable insights on how to set up an analytics team for success. Subscribe now to make sure you don't miss out.
Cheers to a brighter future,
Rémi
p.s. Feel free to reply to this email, I monitor it daily. Or hit me up on LinkedIn. Alternatively, feel free to leave a comment and start a discussion!