Finding Your North Star Metric (Examples from the Best SaaS Companies)

Summary

In this insightful video by Dan Martell, he delves into the concept of the North Star Metric, a critical benchmark for SaaS companies that signifies the primary value delivered by the business to its customers. Dan shares his personal experiences with finding this metric in his company, discusses the origins of the term with Sean Ellis, and outlines the importance of identifying and focusing on this key metric. He uses examples from top companies like Airbnb, Facebook, and Salesforce to illustrate how the right North Star Metric can drive growth and ensure both customer and company success. The video also offers a glimpse into Dan’s Precision Scorecard, a tool designed to help teams focus on and achieve their business goals. Dan's engaging narrative coupled with practical advice aims to empower businesses to find their unique North Star Metric and steer their success.

Highlights

• Dan Martell discusses the importance of the North Star Metric and its role in company success 🌟.
• Examples like Airbnb and Facebook provide a roadmap for finding your own North Star Metric 🗺️.
• The video's engaging approach offers practical insights and strategies for businesses 📈.
• The Precision Scorecard helps teams move their North Star Metric in the right direction 📋.
• Inspirational closing challenge to surpass business limitations and grow 🌟.

Key Takeaways

• The North Star Metric is pivotal for aligning a company's value with its growth strategy 🌟.
• Identifying the right North Star Metric involves understanding your business model and customer value 🕵️‍♂️.
• Examples from top companies show diverse approaches to defining a North Star Metric 📊.
• The Precision Scorecard is a useful tool for tracking and achieving company goals 🚀.
• Focus plays an essential role in driving company success by prioritizing a single leading indicator 🔍.

Overview

In this valuable video, Dan Martell explores the concept of the North Star Metric, detailing its significance in aligning a company’s provided value with its growth objectives. Sharing insights from his personal entrepreneurial journey alongside notable examples from top SaaS companies, Dan emphasizes the importance of this singular metric in maintaining focus and driving success.

Dan elaborates on key elements essential to discovering an effective North Star Metric, highlighting the need for creativity and context-specific understanding. By drawing examples from trailblazers like Airbnb, Facebook, and Salesforce, Dan illustrates how different metrics represent unique value propositions while contributing to overarching business growth.

Towards the video’s conclusion, Dan presents the Precision Scorecard, a tool that aids companies in tracking their progress and achieving set goals. This detailed explanation, filled with motivational anecdotes, aims to inspire viewers to refine their business strategies by concentrating efforts on measurable, impactful outcomes.

Chapters

• 00:00 - 00:30: Introduction to North Star Metric Dan Martell introduces the concept of a North Star Metric, aimed at guiding SaaS companies towards significant growth. He plans to break down what a North Star Metric is, provide examples from successful SaaS companies, and help listeners identify their own. Additionally, he mentions a resource called the Precision Scorecard Playbook, which integrates with the North Star Metric to ensure accountability and progress within a team.
• 00:30 - 01:00: Origin of North Star Metric In this chapter, the origin of the North Star Metric is explored. The strategy was introduced by Sean Ellis, the creator of the term GrowthHackers. Ellis popularized the concept through a framework called High Tempo Testing. The chapter discusses the significance of this strategy by reflecting on the narrator's experience while building their company, Clarity, which received 1.6 million in funding.
• 01:00 - 01:30: Applying North Star Metric The chapter "Applying North Star Metric" discusses challenges in finding a rhythm in product development, monetization, and growth. The narrator shares an experience of a conversation with Sean before a significant event, highlighting the struggle to determine the focus in building a marketplace.
• 01:30 - 02:00: Focusing on the Right Metric In this chapter titled 'Focusing on the Right Metric,' the speaker discusses the challenges of running a marketplace, which is compared to 'having twins at the same time.' An advisor emphasizes the importance of identifying a 'North Star Metric'—a key performance indicator that signifies added value for customers and growth for the business. Following this advice, the team conducts a strategic planning session, brainstorming various options, and ultimately decides on using 'EDS' (Expert-Driven Sign-ups) as their North Star Metric. This metric aligns with their goal of ensuring value and growth.
• 02:00 - 02:30: Four Key Focus Areas for North Star Metric The chapter discusses the strategic approach taken to drive growth in sign-ups for a platform. The team realized they couldn't rely on paid acquisition due to the commission structure in the marketplace. Therefore, they developed strategies to encourage experts to promote their profiles, similar to how Airbnb encourages hosts to market their listings. By focusing intensely on this metric and continuously improving through bi-weekly sprints, they successfully initiated a growth flywheel.
• 02:30 - 03:30: Examples of North Star Metrics This chapter discusses the concept of North Star Metrics, which are crucial for focusing efforts in a business. The author mentions the importance of having one main metric to concentrate on, as it guides the team despite numerous experiments. The chapter outlines four areas to consider when identifying a North Star Metric. The key notion is that this metric should indicate that both customers and the business are receiving value and it often acts as a leading indicator.
• 03:30 - 04:00: Defining Your North Star Metric In the chapter "Defining Your North Star Metric," the focus is on identifying a specific activity within your product that indicates customer value, which in turn should translate into revenue growth. This metric is personalized to the business and serves as a guiding principle or "North Star," reflecting the health and success of the company's strategies. The chapter also introduces the concept of 'games' in business, suggesting that every company is engaged in one of three types of strategic 'games,' such as the 'intention game,' although the names and details of the other games are not specified in the provided text.
• 04:00 - 05:00: The Formula for Success The chapter titled 'The Formula for Success' discusses different business models and their focuses. It breaks down companies into three main types based on their operational focus: attention, transaction, and productivity. Businesses like Facebook or Netflix are categorized under attention due to their engagement focus. E-commerce companies like Amazon and Shopify are described as transactional businesses. Lastly, productivity-centered companies, generally seen in the SaaS sector, include Trello, Asana, Salesforce, Slack, and Dropbox, focusing on enhancing or streamlining productivity for users.
• 05:00 - 06:00: North Star Metric in Different Industries This chapter discusses the concept of a North Star Metric in various industries, emphasizing its importance in tracking productivity and success. The speaker introduces the idea by asking businesses to determine their specific sector or "game." For instance, SaaS companies focus on productivity. The chapter provides the example of Airbnb, whose North Star Metric is 'nights booked.' This metric represents a key performance indicator that drives both user engagement and business growth within the marketplace model.
• 06:00 - 07:00: Recap and Conclusion In the chapter titled 'Recap and Conclusion', the discussion revolves around various metrics and indicators of success for different platforms. It highlights the importance of the number of nights booked for accommodations as a measure of supply availability and user demand matching. The chapter moves on to analyze Facebook's daily active users as a key performance indicator, emphasizing the role of user engagement and feature additions in enhancing user activity, which directly impacts advertising revenue. Kora is also mentioned, though without further context in the provided transcript. The chapter underscores the intricate connection between user engagement metrics and the platforms' monetization strategies.

Finding Your North Star Metric (Examples from the Best SaaS Companies) Transcription

• 00:00 - 00:30 - Hey there, I'm Dan Martell. Serial entrepreneur, investor, and creator of SaaS Academy. In this episode, I'm gonna teach you how to find your North Star Metric. I'm gonna deconstruct it, explain it, share some of the top SaaS companies, examples and help you figure it out be sure to stay to the end where I'm gonna share with you an exclusive resource called the Precision Scorecard. So what you do is you take your North Star Metric and you stick it into Precision Scorecard Playbook, to hold your whole team accountable, to moving it up into the right, Let's get it. (drum beats playing)
• 00:30 - 01:00 So I first learned this strategy from my buddy, Sean Ellis. Sean is the creator of the term GrowthHackers, and created the concept of The North Star Metric. He made it popular through a framework, he teaches called the High Tempo Testing. Now, why do I think it's so powerful, when I was building my company, Clarity, the team and I, we had raised 1.6 million in funding.
• 01:00 - 01:30 We were struggling to find a rhythm, from a product development point of view, from a monetization point of view, from a growth point of view. And I remember calling Sean, I was down in LA, about to go on "This Week In Startups" with Jason Calacanis, if you haven't seen, that's a very old episode. But was about to go on to talk about our previous acquisition Flowtown, I remember I was standing in the parking lot, Renee was there, my wife fiance at the time, and I was talking to Sean and I was like, "dude, I'm trying to figure out, like, what do we focus on? We're building a marketplace..."
• 01:30 - 02:00 If you've ever done a marketplace, It's crazy. It's like having twins at the same time. And, he explained to me, he says, "dude, you need to figure out what your North Star Metric is. You need to figure out the metric that you know, that if you move up and make better, that your customers are getting value and the businesses is getting value." So I went back to the team, sat down, did a strategy planning session, whiteboarded a bunch of different options, and for us we came up with a metric called EDS Expert-Driven Sign-ups. Why?
• 02:00 - 02:30 Why did we go through that framework? Here's the deal. We knew we need to drive growth in sign-ups, but we couldn't do it through paid acquisition because of the percentage we were taking in the marketplace, didn't support paid channels. So, what we decided is to try to figure out strategies that would get the experts when they signed up, to promote their own profile, no different than Airbnb would do for like people that had listings. And we literally just focus on that number. And every week, every two weeks sprint we just get better at it and better at it and better, and then that's when the flywheel started to take off,
• 02:30 - 03:00 and the amount of experiments that we went through was crazy but the part that made it easy is that we had that one metric to focus on. So I want to share with you kind of like four areas to look at, to figure out your North Star Metric today. So number one, what's the Definition of a North Star Metric? Here's the way I think about it. It is a number that tells you that not only your customers are getting value, but the business is getting value. And it is usually a leading indicator
• 03:00 - 03:30 to kind of revenue growth. So it's some kind of activity that's happening in your product, that's specific to you, that tells you that the customers are getting value and you should derive value through the form of revenue, if it's working out. Okay, so that's the definition for me of a North Star Metric. Number two, Focus on the game. So there's three games. And when I say games, it's kind of like every business has a different game they're playing. They're either playing one of these three, they're playing an intention game.
• 03:30 - 04:00 So this would be like a Facebook or Netflix or attention. They're a transactional game. So this is like an Amazon or some kind of e-commerce company like Shopify, on the transaction side, Shopify is probably not the best idea, but you get the picture. So it's kind of like transactional commerce. And then third would be on productivity. The productivity game is most software as a service company, SaaS company. So this is like Trello, Asana, Salesforce, et cetera. You get the picture, Slack, Dropbox,
• 04:00 - 04:30 anything that is around productivity. First, you need to figure out what game you're playing in. So if you're watching this, you're a software as a service company, a SaaS company, you are focused on productivity. Number three, Examples. I wanna share a few examples to get you thinking through how this works. So number one, Airbnb. Their North Star Metric is nights booked. Why? Because as a marketplace, and that's why I focus on Expert-Driven Signups. If people are booking nights at Airbnb, their host and the people searching for places to stay
• 04:30 - 05:00 are meeting each other. So that means if that number's nights booked every night goes up, it means that the supply is available and the people are finding that supply. Facebook, daily active users. Okay. So on a daily basis, what percent of their customer base were active. So if they add a new feature, it's all about increasing the activation, and getting them back or getting them more engaged, et cetera. So daily active users for Facebook 'cause they monetize through ads. The other one would be Kora.
• 05:00 - 05:30 Kora is the number of questions answered by users. So the number of questions, users answer. So that is their North Star Metric. Slate, which is a content site, is total number of engaged time or total engaged time. That tells them that people are consuming and they can monetize through ads. Salesforce, average record created per account. They wanna make sure that people are using the product, so creating a record in the system
• 05:30 - 06:00 from the accounts they have. So what percent of the... Or how many records are being created per account. And Adobe, which sells Cloud software, they would just do the number of engaged cloud subscription. So how many people are active or engage as a subscription owner. And that's like at a high level really easy for you to figure out. It's what's the thing that you know your successful customers are achieving within your product, and you wanna look at it as a percent of your instal base typically,
• 06:00 - 06:30 so that you can figure out if that number's going up into the right. And that's why it's a North Star Metric. It is that focus of everybody being able to move it forward. That's another aspect of North Star Metric, is can everybody in the company influence that number? If the answer is yes, it's a good one. But let's dive into the formula specifically. Number four, The Formula. So the formula for the North Star Metric is a few things. Number one is, is your customer getting value?
• 06:30 - 07:00 If I measure this, does it tell me that my customer is getting value. So that's the first place I would start to look. Within that, I wanna know that it's a leading indicator to revenue. So if I measure this, are people that do this behaviour, this data point I'm going to measure, will it lead to revenue? And number three, is it specific to my business? That's why it requires some level of creativity, to customise your North Star Metric. 'cause you can't just swipe somebody else's, 'cause it doesn't give the full picture of your specific product.
• 07:00 - 07:30 So those are the three things I would ask you. Is it something that measures value that your customers getting it? Is it a leading indicator to revenue? And is it specific to your product? So ratios, metrics, et cetera, are great North Star Metrics. For example, give you a great example from my friend, Evan, who works in ahhhh he leads the service and parts department at the local Volkswagen dealership. And one of their North Star Metrics is called the absorption rate. And absorption rate is the percent of overhead covered by parts and services.
• 07:30 - 08:00 Meaning that if they have a $10 million overhead, to run their Volkswagen dealership, what percent is it a 100%, 80%, 110%? Of the revenue from service and parts alone covers the overhead of the building. That's just their North Star Metrics. So everybody focuses on ensuring that that is at least a hundred percent, hundred and twenty is like really good I guess. But that is an example of something very specific to their industry that they can measure. So you're gonna need to figure it out for yourself.
• 08:00 - 08:30 So quick recap, four things. Number one, the definition of North Star Metric. Number two, the Games focus on the game that you're playing. Number three, Examples and number four, Formula. As I mentioned the beginning of this episode, I wanna share with you an exclusive resource called the Precision Scorecard. It's the framework I use to grow all of my companies, to keep everybody focused, measure the weekly activity to the monthly, to the quarterly, to the annual, to make sure that we hit our goals,
• 08:30 - 09:00 no excuses, red, green, or yellow. It's a very simple framework you can click the link to download not only the five strategies that implement it, but I even give you the template, so that you can literally look at the six core functions of a software company, and implement the Precision Scorecard for your business. So click the link below to grab your copy. And if you liked this video, be sure to smash the subscribe button, like the video, and if there's anybody that you care about, you think it could serve, feel free to share it with them directly. And as per usual, I wanna challenge you,
• 09:00 - 09:30 live a bigger life and a bigger business, and I'll see you next Monday. ♪ What's up with my audio testing, sweet sweetness. ♪