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tech follow The North Star Chad Pytel, Founder and CEO of Thoughtbot.co.uk If you’re getting a constant number of new customers every month, you’re in trouble, because that means your growth rate is decreasing. It is difficult to prioritise between product and growth. Should we write a new feature or remove one? Fix that bug, improve the UI, or optimise our funnel? Maybe write a blog post for a lead nurturing campaign? The North Star has been used for navigation since Late Antiquity. And using it as a metaphor, we can guide startups by answering a simple question: How many people are getting authentic value from our product? Authentic value. We’re not measuring vanity metrics such as page views, sessions, followers, or users. The moment when a user gets authentic value. Example North Star metric Thoughtbot’s mission is to create better products. We believe keeping code in a consistent style helps create better products. Our product Hound (houndci.com) does that job by reviewing GitHub pull requests for style violations. The moment Hound reviews code is called a “build.” That is the moment a user gets authentic value. It is the moment the product’s job is done. So Hound’s North Star metric is the number of teams with builds. How to calculate it We’ve often calculated the North Star metric using our application’s SQL database. In the case of Hound, aggregating our ‘build’ data into weeks and restricting the time window to the previous quarter, including the week in progress. Paul Graham has written that Y Combinator startups should grow by 7% per week: “When I first meet founders and ask what their growth rate is, sometimes they tell me “we get about a hundred new customers a month.” That’s not a rate. What matters is not the absolute number of new customers, but the ratio of new customers to existing ones. If you’re really getting a constant number of new customers every month, you’re in trouble, because that means your growth rate is decreasing.” It’s necessary to calculate both absolute numbers, and growth rate to understand the product’s health. We want to know Hound that currently has “266 teams with builds per week”, and is growing at “9% per week” (the average of the trailing quarter, excluding the current week). Visualising the data We can use Heroku Dataclips’ CSV export and Google Spreadsheets to get our data into Google Spreadsheets, where we can chart it and analyse it. We calculate new teams by subtracting the retained teams from the total teams. The “Goals” section is calculated by multiplying last week’s teams by 1.07 (a 7% growth rate). The “Current” section is calculated by dividing this week’s teams by their corresponding goals. Data generates the necessary questions The bottom chart and our current progress toward our goals helps us make decisions about whether to focus on customer acquisition (marketing) or customer retention (product). The data is telling us that retention is good but acquisition is not. Our North Star metric asks us “which customer acquisition channels are working best?” and “is it an awareness problem or an activation problem?” Compare the Hound chart to another product’s chart (Pic. 1) In this example, the data is telling us that we’re still making something people want, but not yet ready for marketing. 30
tech Pic.1 Pic.2 Crowdfunder and JCDecaux launch a search for Britain’s 100 hottest tech startups to accelerate their growth curve Would your business like an opportunity to win a bespoke outdoor poster campaign, raise additional funds and access a raft of marketing support? Prioritising work by answering the questions This leads us to look deeper into our data in places such as funnels, in search of customers getting blocked. Here’s Hound’s activation funnel (Pic.2) While both steps could be improved, it’s more likely that improving the first step would result in a bigger improvement of our North Star; teams with builds. Numbers identify the “what.” Our team identifies the “why.” We can critique the current home page for ways to improve the UI. We may want to change the call to action from “Sign in with GitHub” to “Add Hound to your GitHub repo” or some other copy. Design an experiment, instrument, implement, observe We now have ideas for changes to make. In this example, the changes are to the product, but our process could have as easily led us to make changes to our marketing. The product changes are only one part of the growth experiment. We also need to define how we will know if the changes are successful. Changing the Call to Action should improve our conversion rate. After we feel good about our conversion rates, we may turn our attention away from product, toward marketing such as prioritizing customer acquisition. Once we begin looking at the North Star metric on a daily and weekly basis, we’ve given ourselves a guiding mechanism for the focus of our time. The UK’s No1 crowdfunding platform Crowdfunder and JCDecaux, the UK’s leading Outdoor Advertising company, have partnered to help rapidly scale up 100 start-ups across Britain. For startup businesses who fund their media budgets on Crowdfunder, Nurture will provide a marketing and design mentoring service and match funding enabling them to potentially double the value of their campaign. The “Grow” campaign which targets start-up and SMEs – kicks off with an outdoor advertising campaign which rolls out this week, designed to encourage UK start-ups and SMEs to register their interest at www.crowdfunder.co.uk/grow, as well as highlight the power of outdoor advertising campaigns to the start-up market. For further information please contact: Dawn Bebe Director, Crowdfunder.co.uk 07831790416 31
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