Startups must have a North Star metric: Here’s how to choose yours

By Ksenia Novikova, head of operations at F1V

Having a North Star metric is the basic hygiene of a startup’s operations. No wonder that big-name companies such as Airbnb, Uber, Facebook, and Netflix use it.

While assisting over 30 of our portfolio startups, I’ve realized that every company should choose their North Star when they at least have an MVP. This metric helps calibrate big company goals and a product strategy. It sets a focus for the whole team and helps align its departments. Investors look at it, too.

Highlight up to 10 of your company’s key product metrics. For mobile apps, for example, these can be the number of app downloads, CAC, DAU/MAU, LTV, and conversion rate from downloads to active users.

Once you have 10, narrow them down to three. Among the three, choose the leading metric or the one that incorporates others. For apps, teams often set LTV as North Star because it represents the total revenue a customer is expected to bring to the business.

One North Star or a few? I think one is better. In the book “Scaling lean: Mastering the Key Metrics for Startup Growth,” Ash Maurya wrote that virtual networking platform IMVU once experienced revenue dip while scaling because its team’s attention was scattered over various metrics. After they focused on one company-wide North Star, their revenue rebounded.

Our portfolio startup, Competera, monitors the price acceptance rate as a North Star for its AI-based pricing platform. For another product, providing competitive data for retailers, it tracks the number of delivered data points. The startup's North Stars remain constant.

AllRight, an online platform for kids to learn English, changes their North Star once every quarter or half a year — but it’s always one metric at a particular period. They’ve had lead-to-payment conversion, trial-to-payment conversion, monthly student retention rate, and others as North Stars. Since 2022, setting this metric has helped them improve teamwork and triple ROI in 2 years.

How to understand if your North Star is right? When it grows, your business grows too.

There’s no one recipe for identifying a North Star, however, so I’d advise startups to consider these three criteria.

Driving revenue. A North Star directly impacts a company’s financials: As this metric improves, revenue grows. But sticking to revenue as your North Star isn’t the best option because it's rather an indicator showing the outcomes of a company’s activities.

Also, revenue can dip or rise due to external factors: seasonality of a particular business, situation on the market, fraud (especially in fintech), or changes in interest rates. But does it usually mean that the product has become worse or better? No.

Reflecting value for a customer. A North Star should mirror the essence of your product for a customer. If users are happy with it, the metric grows. For instance, Airbnb’s main value for both a host and a traveler is booking. The company’s North Star is the number of bookings made by customers per week.

Demonstrating progress. A North Star must be measurable and trackable over time (once a week/month/quarter, or half a year). You should be able to measure it every time you make a report.

When a startup selects its North Star using these criteria, it becomes the primary reference point for decision-making and the "source of truth" showing if the business is moving in the right direction.

Liliia Lutsenko, the product analytics advisor for F1V’s portfolio, recommends tracking your North Stars only with internal data tools because they provide 100% accuracy. Read about the types of product analytics tools in her article.

In this article, I've used some of the insights from Liliia Lutsenko's webinar on product analytics.

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