North Star Value Scoring — How to ensure user centricity and profitability

“Great ideas can come from anywhere in the organization”¹

Users of your product or members of your team, who are close to the problem usually have the best idea how to solve it. Therefore many organizations adapted lean startup principles and launch their minimum viable product as fast as possible into the market. From that point on, a continuous improvement cycle can be established: build, measure, learn, repeat. The product owner and product teams who have established the required feedback loops and customer analytics are confronted with many ideas within a lifecycle of a product. For going live, the ideas have to be integrated into the product backlog. A good product backlog has to be ordered by priority. But, how to set the right priority?

A short answer could be: The product owner decides on the ranking!

If you follow this principle, you leave aside the opportunity to empower your team bringing in their expertise. On the other hand long debates about the right priority are reducing the speed of decision which is required for keeping up agility, i.e. the capability to adapt to change.

This article describes an effective and easy method how to take more data-driven decisions, involve your experts, keep user demand and profitability in focus and is still fast at the same time: North Star Value Scoring.

How does it work?

1. Identify your North Star metric

Good and efficient decisions require clarity about decision criteria. Too many criteria are also slowing down the speed of decisions. Silicon Valley ventures use North Star metrics, i.e. one metric representing the business objective. To drive product development these metrics should be intuitive and actionable. Here are some examples:

• AirBnb uses “# nights booked” as this is the metric most important to their business model
• Facebook uses “Monthly Active Users” since user engagement is key for a social platform
• Amazon uses “number of purchases” as this drives their profitability
• Uber uses “rides per week” as a good representation for utilization

The business case is a good source to identify the North Star metric of your venture. Identify what is driving your business model.

2. Enrich your North Star metric

In a data-driven organization, it is important to have the right metrics to create the right product. The North Star metric examples above are intuitive and a good representation of the related demand for the product. However they do not measure the value to the customer, nor the quality of the service.²

In order to optimize towards both value to venture and value to customer, it needs an additional metric representing the customer demand. A well-established approach how to measure the quality of a service is the Net Promoter Score. However if your value proposition is speed of delivery, you might want to use “delivery duration” as a metric. This depends on the value proposition you are selling to your users.

3. Evaluate the Value for each of your ideas

Now, you have a North Start metric representing the Value to Venture (see 1.) and the Value to Customer (see 2.). For each of your product ideas you can now evaluate Value to Venture and Value to Customer. This is the step where the expertise of the product team can be involved. Your team should answer two questions:

1. How much impact will this idea have on the North Star metric of Value to Venture?
2. How much impact will it have on my metric for Value to Customer?

In order to get a harmonized scale, I recommend to answer these questions in a scale e.g. from 0 to 10. Agile estimation methods like Planning Poker, Bucket- or Magic Estimation can help to facilitate the discussion. The outcome is a value matrix which is very helpful to get an overview of your ideas and their impact.

4. Calculate the Value Score

The matrix is nice and provides a good overview. However, your agile team requires a product backlog which is forced ranked. If you used a harmonized scale as recommended in Step 3, it is easy to calculate the value average across both dimensions.

In many cases the Value to Venture is a growth metric and the Value to Customer a metric representing quality. Depending on the stage your product is in, you might want to focus more on growth or on quality. This can be addressed by applying a weighted average:

Value Score = VtV Weight * Value to Venture Score + VtC Weight * Value to Customer Score

5. What about complexity?

For product development you still have to rank all ideas and requirements in your product backlog. One way is strictly ranking by the calculated value score. Probably you might wonder why effort or complexity have not been considered so far. This is actually on purpose, as Value should be the guiding prioritization criteria. Product backlogs which are ranked by complexity lead to the fact that your team is stucked in implementing quick wins and does not find time to implement the real game changers.

However as a final step you might want to identify some quick wins by taking complexity into account and making some exceptional adjustments.

An example:

A new social app picked the North Star metric Daily Active User for Value to Venture and the Net Promoter Score as North Star metric for Value to Customer. A marketer handed in the idea to extend the app with the functionality to recommend the app to a friend via email, messenger or other channels. This idea surely has a higher impact on Daily Active Users than on the Net Promoter Score. Let’s say the result of the evaluation is an 8 for Value to Venture and a 3 for Value to Customer. If the app has already a good number of users and focus more on quality / customer retention the Value to Venture Weight might be 0,3 and a 0,7 as a weight for Value to Customer. The Value Score is:

0,3*8 + 0,7*3 = 4,5

Conclusion

North Star metrics can help to ensure user centricity and profitability. When integrated in an value based backlog prioritization process it can guide the product teams to take the right decisions. Try it out and let me know what your experiences are.

References

[1]: Mark Buchan. (2020). Nine Principles of agile leadership http://www.theagileleader.co.uk/blog/the-nine-principles-of-agile-leadership/

[2]: LinkedIn Research. (2017). A Hybrid Approach to Developing Product North Star Metrics http://papers.www2017.com.au.s3-website-ap-southeast-2.amazonaws.com/companion/p617.pdf