The North Star Metric: Your Startup’s Growth Engine

Modern product growth strategy revolves more and more around the North Star Metric these days. But why? Companies in the past, and many of them still, resemble a “too many captains, no shared compass’ situation. Traditional sales-led organizations have been operating as follows:

• The measure of success has been the revenue, not the value delivered or usage.
• Teams existed in their own “KPI kingdom”: Sales worked for closed deals, Marketing measured by generated leads, Product team evaluated by the number of shipped features; Support assessed by the speed of resolving tickets and their numbers; and Ops appraised based on their uptime. 

The result? Companies focused on generating more and more revenue, but not necessarily on building a sustainable product. This approach often leads to short-term wins concealing long-term issues. Also, products will bloat with features, and inconsistencies will push customers away.

Product-led growth and the North Star Metric have come onto the scene to align efforts and stop this chaos. They represent a new attitude: success comes from growth driven by product, delivering more and more value to users. And the North Star Metric measures exactly this – the core product value. 

Why North Star Metric (NSM) Matters?

Brian Balfour, previously VP of Growth at HubSpot, says: 

“Revenue can hide what is going on under the hood with product usage, and shield you from signals about your product’s health over the longer term. You may earn a month or a year’s worth of revenue from a paying subscriber, but if that person isn’t using the product, they will churn when that month or year is up.”

Without the NSM, teams will be setting priorities based on their department’s objectives rather than a common goal:

• Marketing would generate leads, but their quality would vary from month to month. After all, they have to deliver the numbers, and every month the bar is usually set higher.
• Sales would close deals. However, under pressure from low-cost competitors, it can often lead to over-discounting or over-promising. 
• The Product team would push features that may not necessarily add to the product’s value. There is a well-known anti-pattern turning development teams into feature factories. Sales might approach and say, “We can sell to Customer X if you do feature Y”. And there is a general feel that if the product team does not ship a certain number of features, it looks like they don’t do anything. 

Result: Product’s features bloat, sales are pushed forward mainly by adding headcount to the team, and churn cycles grow. These are the most common outcomes. Even though everyone is working really hard, but in their own direction. Long-term success is eroded due to internal pressures, a focus on vanity metrics, or the pursuit of short-term wins. 

North Star Metric does not remove individual team goals, but it unites and balances them. Let’s see how.

SaaS Tool Example: Revenues-Focused VS NSM-Led

So, imagine a collaborative project management SaaS tool. In a sales-led startup, the core KPIs are derived from one major metric – Revenues:

Now, refocusing on the product – a tool for teams to work actively together on projects and introducing the NSM metric. Instead of focusing on revenues, NSM is the Number of Active Projects with at least 2 contributors per week. 

With NSM, the quality of a SaaS startup’s growth is markedly different. 

• Marketing is now not about the vanity metrics, but real product usage. So, instead of raw leads, marketing is focusing on activating users in teams. This shifts their team’s product growth strategy: more educational content, ads that showcase two or more people collaborating, in-product nudges, guided collaborative in-product experiences, etc. 
• Similarly, with Support, instead of simply minimizing support times, the agents can now be trained to push feature adoption. After all, talking to a support agent is yet another engagement touchpoint with product-growth opportunities. 

All in all, NSM within the product growth strategy makes sure that every team pulls its weight in growing the product value. 

North Star Metric in Practice

Theoretically and ideally, the North Star Metric reflects product value and helps a startup

“cut through the noise and focus on what truly matters – delivering sustainable, long-term value to users.”

In practice, however:

• Some companies just pick one of the regular metrics, which is the input to revenue, and that resonates with value to some extent. 
• Others take a multi-metric approach, defining a constellation of North Star Metrics. 
• Others go ‘textbook’ like the example above – # of Weekly Active Collaborative Projects – and devise a truly unique metric to reflect the company’s mission, and it will be a unique single-metric approach. 

But, ultimately, any of these approaches is better than exclusively focusing on revenue and having teams’ KPIs in silos. Here are some real-world examples below.

Real-World Examples

Actionable North Star Metric: Spotify Case Study

Ideally, the NSM should reflect the usage of the product in terms of value creation, but it should not be revenue. One of the metrics Spotify uses is Time Spent Listening, and it has an extra one for its other business line – podcasts. 

Why is Time Spent Listening a better metric than Revenue? 

1. Revenue does not reflect the usage. A person can pay for the service but not use it.
2. Once this non-listening but paying user churns, there is no chance of bringing them back. 

In contrast, Time Spent Listening is an actionable metric. The graph below, by Brian Balfour, shows two major value-increasing actions that drive the Time Spent Listening:

• Bringing users back to the app more often.
• Lengthening their sessions.

Then, there are also multiple ways to drive those actions. Seeing as how it is connected to the product value, Time Spent Listening is a true NSM metric. It captures both retention and engagement. In addition, to capture monetization, the company measures the number of subscribers. 

Dropbox Case: Product Growth Strategy

So far, we’ve established that:

• NSM aligns team efforts to drive the product value.
• NSM makes it clear which actions increase it.

Another powerful effect of NSM within the product growth strategy is how NSMs help build viral growth loops. Dropbox is one of the prime examples of that. According to a growth expert from Amplitude, Miro, Dropbox, and SurveyMoney, Elena Verna:

“Look at the history of Product-led Growth and you’ll see Dropbox’s influence everywhere. Any article or analysis explaining the PLG movement features them-they were so foundational to concepts like viral marketing that even the Wikipedia article for K-factor mentions them by name.”

Dropbox: Viral Growth Loop

Dropbox’s North Star Metric is Teams Using Dropbox, according to Finmark. This metric further aligns metrics across departments, divisions, and the marketing funnel. For instance, Dropbox’s viral growth loop looks as follows:

• Action 1 – A new user gets an invitation from the other user to access the document. This focuses on connecting multiple users rather than an individual storage solution.
• Action 2 – A share trigger: the user is invited to share their own document with 1+ people. 
• Action 3 – Users enter people to share the doc with. Dropbox’s primary method is email. However, Dropbox is now integrated into many apps used by teams: Slack, Microsoft Teams, a variety of CRM tools, and so on. 
• Action 4 – Invitation delivery: email remains the primary means of the growth mechanism, even if further sharing migrates to other apps.
• Action 5 – CTR – an invited person must open an email.

• According to the GRM Institute, this vital growth loop is responsible for 65% of Dropbox’s new signups. 
• Another 35% of daily sign-ups come from the referral program: inviting a person is incentivized with extra space. When the incentivized growth loop was just introduced, it grew the user base from 100K users to 4 million in a little over a year. 

The overarching point is that both loops align with the NSM – Teams Using Dropbox.

How to Choose the North Star Metric: A Step-by-Step Guide

Previously, we mentioned that the NSM should reflect retention, engagement, and monetization, and be closely tied to the product value. Still, there is a lot of variability in how companies choose this metric. Some guides suggest grounding this metric in the company’s mission, while others offer a revenue-linked solution. 

Taking a more pragmatic approach, we’ll provide a guide to base this metric on a set of financial metrics. In terms of startup software development, you would be determining your NSM when your startup nailed its product-market fit and defined its revenue model. After all, with NSM’s ability to engineer growth loops within the product growth strategy, it often comes as a driver of the scaling phase. 

For almost all startups, key success metrics are:

• Churn rate is the proxy for retention.
• Customer lifetime value (LTV) or average revenue per customer (ARPU) is the proxy for monetization.
• Engagement is proxied by a behavioral metric, so it would depend on measuring either feature adoption, session length, etc.

Step 1 – User Success/Aha! Moment

Answer the question about your product: when does the customer ultimately experience full value? In terms of financial metrics:

Which user action increases LTV/ARPU and lowers churn rates?

In consumer apps like Airbnb or Uber, it would be when the customer successfully books a stay or a ride. However, in the SaaS world, it is getting a bit more complicated. After all, the value depends on cumulative team effort and collaboration. So, in this case, it is best to focus on meaningful team action. 

Step 2 – Measurability of User Success Moment

A previously identified customer success moment should be meaningfully measurable. For instance, simply counting DAU per se would not be exactly right. In 2024, Instagram announced a shift from DAU to views. Why? This more closely reflects the reach of the platform and the way Instagram manages to hold users’ attention. If you connect it to financial metrics, views would impact LTV and churn rates much stronger than a mere fact of opening the app (DAU).

Step 3 – Add a Time Frame

A perfect NSM is time-bound. Not simply views, but views per day. You’d like to connect the metric to the frequency of usage. But you also need to determine which frequency lowers churn rates and increases LTV. 

Step 4 – Make it Actionable

Salesforce does not track closed deals even though it is a CRM for the sales process. It cannot impact the client’s ability to close the deals. But Salesforce can impact the usage of its platform. So, its NSM is the sales opportunity reaching Stage 2 and qualifying as a lead. So, make sure that your startup focuses on the metric that they can impact – an actionable metric.

Step 5 – An Indicator of Growth

While the NSM might not be the exact input to the startup’s revenue, it should be the most significant lever. For instance, Peloton’s subscription is its revenue model, but a person gets unlimited access to workouts. So, simply a paying user may churn tomorrow if they do not complete workouts. As such, workouts are the predictor of long-term paying users and a growth-driving NSM metric. 

Key Points

An ideal NSM captures three vital aspects of the product value:

• Retention;
• Engagement;
• monetization.

When it is not possible to capture all of that with one metric, the recommended approach is to have two or three NSMs. 

In addition to aligning team efforts and driving the product value, NSM is instrumental in creating viral growth loops. 

The NSM metric should reflect the customer’s AHA moment, be measurable, time-bound, actionable, and growth-driving.

FAQ: The North Star Metric: Your Startup’s Growth Engine