Do you know your NSM?

A few months ago I was asked by investment expert from Silicon Valley ‘What is the Photolemur’s North Star Metric?’ — New Monthly Users was my answer. After that, I’ve understood that it was the wrong answer, wrong NPS.

I’ve created this article for two reasons.

First — to make the shortcut for my team at Photolemur for understanding the NSM. Second — to have all critical information about NSM in one short article for my personal use. 
If you get value from it, give me a sign.

What is NSM?

The North Star Metric is the single metric that best captures the core value that your product delivers to customers.

Why is it valuable?

Optimizing your efforts to grow this metric is key to driving sustainable growth across your full customer base.
When growth is broken down to actual value delivered to customers, it becomes clear that this is not just a marketing responsibility.
No matter what your NSM is, it becomes a reference point by which all your significant decisions are made.

Is NSM the new Marketing Metric?

NO! NSM is a FULL Company metric.

Most teams within an organization play some role in delivering value to customers. Sales and marketing attract new customers into the funnel, but the product and customer support teams play a crucial role in ensuring prospects, and the customer can experience the core value of a product.

How to find NSM of any organization?

To uncover your North Star Metric you must understand the value your most loyal customers get from using your product.

How NOT to define NSM?

No great company has registrations, app downloads, or even total users as their NSM, as the whole point of it is to cut through the sea of metrics — those vain and otherwise — to arrive at the one that provides the most value to users, and in turn, the company.

Why is NSM important for the WHOLE Company?

By leveraging the NSM as a kind of decision framework, your overall company will grow, assuming you chose it correctly
NSM creates focus you would not have in chasing multiple metrics. Jumping between different activities (to serve one metric or another) is known as task-switching, and there is lost time and productivity with each transition, as the founder needs to orient him- or herself to the rules and requirements of the particular job at hand. 
The North Star metric gives you a direction that is in line with the value you offer to your customers. That direction is the single largest driver of sustainable long-term growth — and is inevitably linked to your customers’ engagement with your product. The key steps of that engagement help your team build your growth model.

What about other metrics in the Company (aka KPI’s)?

The metric should hold inherent value and be able to tell you how to optimize your product and create more value for your users. You should also source information from all your teams and conduct in-depth analyses to define your key metric. It should point your company in the right direction for long-term healthy growth, be able to bring the entire company to focus on this direction and make sense for all teams.

Once you pin down your North Star metric, you can create a mechanism around it that can help you drive growth. To build your growth model, you should look into the variables that define your metric. Those variables are steps along the consumer journey, like new users, engagement and retention. Mapping them and creating a comprehensive model of their relationships can help you understand their interactions and grow your key metric.

Examples of Wrong NSM’s

Growth advisor and investor Buckley Barlow believes a major reason Myspace failed and Facebook succeeded has to do with the NSM they focused on. Myspace focused on Registered Users — a vanity metric — as their NSM. At the time, Facebook focused on Monthly Active Users as their NSM. The different focus led Facebook to succeed where Myspace failed.

Inbound leads are typically not a good North Star Metric. It’s more likely to be a lever for moving the NSM. And there are even variables to that lever. There is the number of inbound leads and the quality of inbound leads. The North Star Metric should reflect actual value created for customers and that generally happens with the engagement with the product.

Good Examples of NSM

The best NSMs should prompt you to balance focus on bringing in more new users and driving more usage from existing users.

At Sprout, an HR-tech company, NSM is the customer satisfaction score.

For publishing platform Medium, it’s total time a user spends reading.

For Q&A platform Quora, it’s the number of questions answered.

For Airbnb, it’s the number of nights booked.

For Facebook, it is “daily active users (DAU).

For WhatsApp, it’s the number of messages a user sends.

For Setapp, it’s monthly revenue per vendor.

Amplitude: Weekly Querying Users (WQUs — the number of customers who get value at least once a week.)

Sources that I used for creating this article: