Nailing the North Star Metric | Jacqueline Samira (Founder and CEO of Howdy.com)
Author: Vedant Nair
This week, we had the opportunity to chat with Jacqueline Samira, the Founder and CEO of Howdy.com. Howdy is a talent management platform that connects American companies to technical personnel from Latin America. This helps companies build faster by hiring vetted engineers at a moment’s notice. Howdy is backed by YC and Greycroft, and raised in 2023 at a valuation of $100 Million.
In this week’s episode, Jacqueline puts on a masterclass on how she scaled her company from bootstrapped to venture-backed. She discusses hiring, product distribution, north-star metrics, and so much more. For any aspiring founder, Jacqueline’s story is one to remember.
Listen now on Apple, Spotify, and YouTube.
In today’s blog, we’ll discuss why a North Star Metric is crucial to a startup’s success. We’ll also give some practical advice to ensure that you’re choosing the right metric to supercharge your growth.
North Star Metrics:
At an early-stage startup, there’s only one word that everyone cares about, growth. However, agreeing on what growth means isn’t cut and dry. These teams must juggle key performance indicators in product, engineering, sales, and marketing, leaving them to make tough decisions about what metrics actually measure success.
A North Star Metric (NSM) takes the guesswork out of growth.
The NSM serves as a guiding metric that drives decision-making across the organization, with decisions in smaller functions such as marketing or engineering made in efforts to move the NSM forward. This creates alignment throughout the organization as individual teams work towards a shared objective. By focusing on the NSM, teams can ensure that their actions and decisions are aligned with the business's overall mission and ultimately contribute to its success. This creates a more efficient decision-making process and reduces the risk of conflicting priorities, enabling the organization to work cohesively towards its goals.
Let’s take a concrete example of this. Apple Music has SO many different teams working on its product. Without an NSM, it’s easy for these teams to get disorganized and prioritize other things. Should they focus on retention? Or user growth? Or conversion from free to paid? There’s a myriad of things that they COULD put their attention to. And at a base level, each product function accomplishes vastly different things. So how can they stay organized? With A North Star Metric.
Now, the Apple Music team has aligned around a single goal. Their North Star Metric is “time spent listening to music.” Now, product teams can create a roadmap that prioritizes inputs around the NSM. And even better - success for new features is measured by how well they drive input metrics that drive the NSM. If a team is trying to improve the Playlist features function, they don’t have to measure outcomes from a complicated derivative of revenue or retention. Instead, they see if the changes they made increased “user session time,” which increases “total time spent listening to music.” From the entire organization down to the unit level, decision-making and outcome tracking have become beautifully simple.
Crafting Your NSM:
Making a powerful NSM can be difficult. Let’s talk about some important things to consider. Each consideration will be accompanied by examples from successful startups who’ve executed thanks (in part) to their NSM. They’ll also include insights from our journey at Clips AI to provide more color.
1: Aligned with Value to Customers (AKA Usage)
The NSM should align with the value your product or service delivers to customers. Take a second to empathize with your users. What tasks do they seek to accomplish? What do they characterize as success with your product? Your NSM should track that measure of customer success. This ensures that the product features you add are positive, contributing factors to the success your customer enjoys. And as a business, your only job is to ensure your customers have success, so this is your golden ticket!
Example (Duolingo): Let's take the example of Duolingo, a language-learning startup that provides a gamified app for learning languages. Duolingo's NSM could be "daily active users" (DAUs) on their platform. This metric reflects the value that Duolingo delivers to its users in terms of language proficiency and skill-building.
By tracking DAUs, Duolingo can focus on features that encourage users to spend more time on the platform and engage with the language learning content. For example, they introduced features like streaks, badges, and daily goals that encourage users to practice their language skills every day. They also provide social features that allow users to compete with friends and interact with other learners.
By increasing the number of daily active users, Duolingo is delivering more value to its users and increasing the likelihood that they will continue to use the app and improve their language skills.
The CAI Story: Our platform allows users to automatically turn long videos like podcasts into social media clips. We knew that our users used our software to create these clips. Therefore, our NSM became the number of clips exported. As a product team, we had to implement features that made the generated clips better, made the editing easier, and the entire process faster. This would ensure that users created more clips. Using our NSM to guide our thinking made it surprisingly easy to develop our product roadmap.
2: Leading Indicator of Revenue
Usage is great, as long as that usage increases revenue. Your NSM should be the leading indicator for your revenue growth. Look towards your business model or pricing structure and answer the question- how do we make money? Your NSM should track the action that is the bridge between your product and its monetary value.
It’s important to note that the NSM should NOT be a measure of revenue or profitability itself. This can lead to making product decisions that are focused on slashing costs or extracting unfair value from users. This can lead to misalignment between users and the company which eventually makes users churn off.
Example (Airbnb) : In 2014, Airbnb reported 17 million nights booked, up from just 1 million in 2009. As the company continued to focus on its NSM of bookings, this number continued to grow rapidly. By 2019, Airbnb reported over 1 billion nights booked, a significant increase from just a few years prior.
This growth in bookings also had a direct impact on Airbnb's profitability. In 2019, the company reported revenue of $4.8 billion, up from $2.6 billion in 2017. This increase in revenue was driven largely by the growth in bookings and the company's ability to leverage data to optimize its business.
Overall, Airbnb's use of the bookings metric as its NSM has been a key factor in the company's success, helping to drive growth in both bookings and profitability over the years.
The CAI Story: Our values were so baked into the NSM, that we changed our pricing model to be tiered based on the number of clips exported. We wanted to align our incentives with the value our users were getting. This made our NSM a direct indicator of how our revenue was growing. From there, it made it easy to judge our success: as our product was performing well, so was our business.
3: Needs to Allow for Growth/Upside
The NSM should be a metric that provides opportunities for continued growth and upside potential. It shouldn’t be a percentage-based metric that fails to reflect the overall health and potential of the business. In early-stage startups, your valuation is much more dependent on your ability to grow than your current performance. This makes it doubly important to be able to track this growth in your metrics.
Metrics such as retention rates or Net Promoter Score may be useful but do not necessarily indicate opportunities for continued growth and upside potential. A more appropriate NSM would have the potential to provide insights into areas where the business can grow and expand and allow for continued optimization and improvement over time.
Example (Uber): For example, for a ride-sharing platform like Uber, "rides completed" is an appropriate NSM as it reflects the value Uber delivers to its users regarding transportation convenience and accessibility. By tracking this metric, Uber can identify opportunities for growth in new markets and increase its user base. Additionally, by focusing on features that drive the number of rides completed, such as efficient routing and improved driver matching algorithms, Uber can increase its overall efficiency and improve the customer experience, leading to increases in downstream metrics like retention rates and revenue growth.
The CAI Story: Initially, we were sold on retention as our core metric. We cared so much about the customer experience that we figured if none of our users ever left, it was an indicator that we had built a great product. This was until our mentor, Jacqueline, pointed out a glaring error: if all we did was retain 100% of a 10-customer cohort, our metrics would tell us we were doing phenomenally. In reality, we’d be a failing business that never grew. Clips exported as our NSM ensured that we could track growth in total users and usage per user.
4: Aligned with Mission and Values
Great businesses are built on the backs of founders who are deeply passionate about their problem space. They’re seeking to do good for the world and have aligned their NSM to sit at the intersection of their product’s “net good” and usage.
Example (Headspace): For a mindfulness and meditation app like Headspace, the NSM might be "daily meditation minutes." This metric aligns with Headspace's mission of helping people live happier, healthier lives.
The CAI Story: We built this product because we’re both creators and consumers of podcasts. Part of our mission is to help amplify the voices of the creators and businesses doing good for the world by delivering great content. By helping people export more clips, we help them increase their reach on social media.
In Conclusion:
An appropriate analogy for a startup without an NSM is a chicken running around with its head cut off: directionless, frenzied, and facing imminent death. In this blog, we’ve talked about why an NSM is so important, and what essential pieces to consider when implementing one.
But if you don’t remember anything from this blog, remember this. Your NSM should be:
1: Aligned with Value to Customers (AKA Usage)
2: Leading Indicator of Revenue
3: Needs to Allow for Growth/Upside
4: Aligned with Mission and Values
To my fellow founders, it’s time to rally the troops and whiteboard up your NSM. Happy Building!