Having worked with numerous top level companies over the past two decades and having interviewed multiple high level professionals Matt Lerner has gleaned one major thing – it’s chaos up there.
As companies grow and more people come in and new teams develop it’s very easy for the business and it’s founders to be pulled this way and that over what they should be prioritising, what the core measure of success should be. You might have a legal team who’s concerned about crossing a line, or the engineering team trying to support a new implementation and carry on their roadmap, or a compliance team who want you to comply.
In most cases companies will try to do a little bit of everything. This, Matt says, is the wrong decision. 90% of your results will come from 10% of your ideas. Most ideas you have won’t make an impact. Therefore progress is about deciding what not to do.
The CEO needs to create a system that aligns different parts of the company and allows them to get on with what they need to do. Essentially creating a universal reward system that isn’t just revenue. The reward system should always focus on the customer following this system:
Work → customer value → revenue
And the reason we should put customer value in is because as Warren Buffet’s business partner Charlie Munger (who runs investment fund Berkshire Hathaway) says, “Show me incentives and I’ll show you the outcome”. In other words if you have the intention of improving something for a customer, most likely it’ll be popular and it’ll make you money. This is where your North Star Metric comes in.
The North Star Metric (NSM)
The North Star Metric is the idea that you have one single metric that measures the value brought to the customer. In order to find what that value is you can follow Clay Christensen’s Jobs To Be Done theoretic framework:
You deliver value to customers when you help them make progress in their lives.
What measurable behaviour is the closest proxy for that value delivery?
If customers loved your product how would they naturally behave?
An example of this might be TikTok where as a company you can’t measure the amount of dopamine being released in people’s heads, so instead you measure how long people keep scrolling on the platform for.
The North Star needs to be:
Represent the whole funnel
Not change often (at most every few years)
Everyone can work to this number
To get the entire company involved, don’t just tell people what it is, ask them how it connects to the wider business and to their part of the business. Asking gets them actively thinking about it and how it’s relevant to them.
You then have key drivers. Key drivers are the customer behaviours that you push each day to maximise the North Star Metric. If you think about the KRs in OKRs, these stand for Key Result, so in order to achieve the Key Result, you need the Key Driver that’s going to get you there (you can see how these metrics will feed into your wider objectives). In picking these behaviours think about:
How you track controllable behaviours
Select 1-3 that you’ll measure
Start with first order drivers and work backwards
Often it’s a rate, like signup rate, activation rate
Revisit the behaviours every 3 months
Each one should have an owner and target to make sure they get used.
Then think about which of these metrics, if improved, makes the whole system run faster? Find out which it is and focus on improving that to the greatest extent. After all the best results come from the lack of different things you focus on, the 10% of ideas you have. This is known as your rate limiting step.
Once you’ve hashed this all out it’ll be time to bring this to the company. To get everyone on board you’ll need to:
Explain it to everyone
Ask each person to show how their work connects to the NSM
Assign each key driver to a single individual
Prioritise the resources you have on that top rate limiting step
Set quarterly OKRs
Pursue your North Star relentlessly using experiment driven sprints.
Revisit your model quarterly to reconsider your rate limiting step and key drivers