Forget North Star, its now binary star at the least

A North Star Metric (NSM) is a key performance indicator that measures the overall success of a product. It helps in alignment of effort across the organisation, brings a central focus and motivation to the efforts, and acts as a measurable goal for a realistic assessment of performance. However, the concept has some flip side too like loosing sight of the complexities of the business due to oversimplification, and creation of perverse incentives with the tunnel vision focus on one metric alone. All these are inherent flaws when a simple framework is proposed. But the NSM idea got a thumping adoption all across startups that it percolated deeper as separate business functions started having their own NSM baked into the OKRs. Even larger and maturer organisations started adopting NSM. All this was fair and well as long as we understood the challenges of a simple framework. But the last 18 months have changed the entire startup landscape so much that the beloved growth focused NSM has now started to sound like a cautionary tale. Here’s a discussion on what has happened and what’s the alternative.

Product vs Business

Sean Ellis said, “The North Star Metric is the single metric that best captures the core value that your product delivers to customers.” When focusing on the product, this statement makes perfect sense. But as soon as you zoom out, i.e. the founder thinks about building the company she realises that NSM does not capture the reality at all. NSM is partial at best. Business is multidimensional and all dimensions need to progress simultaneously. So does NSM help the founder in building the business? Not at all! A hyper-focus on NSM could lead to multiple blind spots. And missed opportunities.

Past, present and the narrative

Since the financial crisis in 2008, the US economy was being jacked up using zero interest rate policy which ran for almost a decade. For almost 10 years the cost of money was zero, it was easy to raise money. From there came the capital consumptive startups. Growth was the sacred goal and that’s when Sean Ellis said, “Using Your North Star Metric to Drive GROWTH”. Now, the policy has been reversed. The interest rates are rising in response to the inflationary pressures. There are global supply chain issues to deal with and a lot of international uncertainty. Yes, markets like India still have their own growth stories to bet on but the narrative in the startup ecosystem has gone through a radical shift. ‘Whats your unit economics?’, ‘what’s your defensibility (don’t say hyper-growth)’, ‘are you on the trajectory to being profitable?’, ‘can you survive until the next round of funding?’. These tough questions are making survival desperate. On their own, these questions are quite logical but in the context of hyper-growth hangover they seem radical and existentially challenging. The sound advice from the days of easy money is now looking incomplete with the changed narrative.

Evolution of the startup

This point is so deeply intertwined with the previous one that it may be hard to comprehend it in its own merit. Let me try, nevertheless. In India, we have many established names as the stalwarts of startups like Flipkart which has been around for 16 years. Even at such a mature age of business Flipkart had been selling the growth story until it came under the folds of Walmart when profitability became primary. Beyond a certain point a startup has to start making sense as a meaningful sustainable business; the business being ‘making money’. So even if a young startup begins the journey with hypergrowth agenda (with or without easy funding), it still has to graduate to a model where profitability has to come front and centre along with the NSM. Can ‘making money’ be an NSM? NO! We know very well how singular focus on profitability can create perverse incentives.

Alternative to NSM?

Instead of chasing a north star, it might be more meaningful to find a ‘**binary star**’. A binary star is a system of two stars that are bound to each other by their gravitational pull. In this context, the binary star analogy fits perfectly. For every NSM there would be a key cost element to counterbalance like CAC, Churn, Burn, Margin, Returns etc. Having a counterbalance cost has similar advantages to having a North Star. The cost lends a better perspective to the NSM. It helps in identifying the boundaries to pursuing NSM. It aligns the team to focus not only on scaling the product NSM but also building a sensible business around the product. It also helps in avoiding pitfalls or blind spots of singular focus on NSM, adds accountability to the motivation that NSM drives. And lastly, just like NSM makes growth more measurable, the counterbalance cost has to be the numerical flip side of the same coin.

Conclusion

There were times when growth was the solemn virtue of startups. Hypergrowth startups were backed by easy money and became capital consumptive pursuing the growth agenda. But as the overall economic scenario shifts, tighter monetary policy and other international developments become evident, the narrative of the startup world has changed drastically, to the horror of the founders and startup teams. Survival is now desperate. In such times, the solo north start metric to focus on growth is no longer sane advice. A ‘binary star’ system needs to be adopted where the growth metric is counterbalanced by a key cost metric that aligns the startup not just to grow the product but building a profitable and surviving business.