what is a north star?

In ancient times, sailors used the North Star (known as Polaris) as a guiding light to navigate through treacherous waters. Now, I'm no sailor, but I am an experienced engineering leader, building products that are used by many. These products are always filled with treacherous waters - big business goals, tight deadlines, competing priorities, known unknowns (the unanswered questions we are aware of), and unknown unknowns (the questions we are not aware of, and thus, not sure we have an answer for them). How does this concept apply in software?

The answer - metrics! Rather, picking a measurable outcome that helps teams balance all of these things and make sure they are building toward something valuable.

defining the north star metric

A north star metric is a measure that helps teams understand that their work is directionally impacting the business in the right way. It is not a perfect metric, nor is it meant to be. It is meant to provide your team with a way to have an answer to questions of how valuable its investments are. This metric will also help the team figure out how to sequence and prioritize its investments, especially if you're considering them by their urgency along with its business impact. Over time, this metric should be a key part of establishing a good experimentation process, where you're crafting hypotheses based on how a particular project may impact this measure (and thus, the business).

a good north star shines bright as Polaris

Let's discuss some of the components of what makes for a good north star metric. In general, there are some core attributes to having a good north star metric.

1. It should be clear, and clearly communicated. A measure that is easy to understand and communicate to stakeholders, no matter how technical (or not) they are.
2. It should be measurable. It needs to be quantifiable, allowing you to track progress and make data-driven decisions.
3. It should be relevant to the business goals. This measure has to be aligned, either directly or directionally, with the organization's overall strategy and goals. A metric targeting or reflecting an impact to revenue would be more relevant as a north star metric of a team that works on features that are accountable for subscriptions.
4. It should reflect impact to the business goals. This metric should encompass show how you're driving business outcomes that matter (e.g., improving revenue, lowering operational costs, etc).

Here are some examples of a north star metric that a team might establish:

1. Customer acquisition rate: If you're on a growth team, your mission is to grow your user base. Tracking new users or customers acquired through your application, boosted by your experiments, is a great way to directionally show the impact of your work on your business goals.
2. User retention rate: Monitoring how well you're retaining existing customers or users can be a strong indicator for how the team's work is helping the company retain it's recurring revenue through the features you own.
3. Average order value: Measuring the average value of each transaction or purchase made through your platform, which could have a strong correlation with your overall revenue (depending on the business model).
4. Mean time to Recovery (MttR): An industry standard DORA metric, which measures the time it takes diagnose an issue in the software, decide the best course of action, apply the fix, and restore the service to full functionality, thereby making a full recovery. MttR may be found among a team's health north star metric, for how well they build and operate the software they own.

data types and data sources for creating and measuring a north star

To formulate a north star metric, you should start with answering some questions about the ways your team impacts the business:

1. Team mission: Does your team have a clear mission statement? Does it understand why it exists? Does it know what outcomes it is expected to drive, and why that matters to the business?
2. Areas of ownership: What areas of the product does your team own? Is there a clear part of the user experience that you can map your impact to?
3. Hypothesis on impact: Do you have a hypothesis on how the areas you own correlate to the business goals?

These questions matter a great deal. You wouldn't want to measure a user acquisition metric as a team if your work doesn't affect user signup rates or onboarding metrics. While not an exhaustive list, these questions should give you an idea of what data your team needs in order to understand its impact. The data will come from many sources, including:

1. Customer feedback: Surveys, reviews, and ratings provide insight into customer needs and expectations. If you're measuring satisfaction, you're going to be looking toward this data.
2. Usage patterns: Analyze how users interact with your application or software (e.g., feature adoption rates).
3. Business metrics: Your team may look to revenue, profitability, and other financial indicators to understand the organization's overall performance, and see where your work may be related.
4. Competitor analysis: Research industry benchmarks and competitor performance to identify areas for improvement that may matter for your business.

tools for measuring your north star metric

To measure your north star metric, you'll need data from various sources. Here are some useful tools to get you started:

1. Analytics software: Track user behavior, conversion rates, and other key metrics for your website or application. This is usually found in tools like Google Analytics, Plausible, or other tracking systems.
2. Customer relationship management (CRM) software: Using tools like Salesforce or HubSpot to track customer interactions, sales performance, and marketing effectiveness.
3. Product analytics tools: Tools like Mixpanel, Amplitude, or Pendo help you analyze user behavior, retention, and conversion rates within your product.
4. Survey and feedback tools: Use of features like surveys, ratings, and feedback forms to collect customer thoughts and opinions about their experience.
5. Places where data lives: Databases that store the data of these applications will contain a lot of relevant data of how your users experience your product. However, you probably don't want to explore that data on the production environment itself. You may hear of terms like data warehouse, data lakes, data pipelines, and data aggregation. These terms point how data can exist in different data stores (data lake for raw data, data warehouse for structured data), transported from one datastore to another (data pipelines), processed and summarized (data aggregation).
6. Data visualization tools: Tools like Tableau, Power BI, or D3.js help you create interactive dashboards to track your north star metric's performance.
7. Observability tools: Using frameworks like OpenTelemetry, engineers can instrument their code and capture metrics, logs, or traces of actions that took place in the application. Platforms like Honeycomb allow you to ingest this data for querying and visualization, with features like Service Level Objectives (SLOs).

how does a north star help communicate the business impact?

Here are a few ways a good north star helps everyone understand your impact.

1. Define, and distribute, the targeted impact and rationale. Make sure everyone is clear about why this metric matters, and that it aligns with the business impact expected of your team.
2. Set and share targeted goals. Establish specific, measurable targets for your north star metric (e.g., "Increase customer acquisition rate by 20% within the next quarter"). Make them part of your periodic goal system (be that OKRs, or some other form).
3. Track and report progress. Monitor your team's performance against these targets using data visualization tools or dashboards. Score these within your frameworks for establishing and communicating goals.
4. Adjust your strategy, refine your approach. Use the data and measurements of your progress, and its impact to the business, to adjust the product or engineering strategy.
5. Communicate insights. Share findings with stakeholders and peers, providing a clear understanding of how your team's efforts are contributing to overall business success. Use these insights to calibrate your understanding of how impactful this metric is.

Establishing a north star metric enables teams to stay focused, prioritize effectively, and ensure they are driving meaningful business outcomes. Remember to keep your metric clear, measurable, relevant, and impactful – and always be willing to adjust and refine as needed. With the right guiding light, you'll navigate the complexities of software development with ease.