“How’s the company doing?”

Now imagine you have to give a quick honest answer to this question to an important figure within or outside the organization.

“We are doing good (or bad, or ok).”

Dumb answer.

“We are doing good. Our revenue has doubled since last year and so has our number of daily active users.”

That’s more like it.

The good, the bad, or the ok should always be put in context and accompanied by supporting metrics. Two in particular. And these two should show different faces of the same coin that, aligned, incorporate everything else. 

I’ve seen many leaders focusing on trying to grow all the companies’ metrics at once. This most likely will lead to misalignment between stakeholders, confusion, lack of motivation and eventually suboptimal outcomes.

Take revenue from the above example and think about how did it end up in the company’s pockets. It’s simple. It was in your customers’ pockets, you gave them something that solved one of their problems, now it’s in your pocket. Overall, revenue defines the value that you are capturing from the market.

It is a KPI – Key Performance Indicator. Its buddies are Net Income, Profitability, and others. It usually relates with money and vanity. The bigger, the better. 

As a product manager, you should always inquire what is the most important KPI of the company given its current objectives.

That leads us to the second metric from the above example – “Daily active users”. 

If revenue represents the value that you collect from the market then you’re obviously giving something to it (well, unless you are Wall Street). The more value you give, the more daily active users you have.

This is called a North Star Metric and for good reasons. It aligns the team towards a unified direction and gives it something to refer to whenever decisions have to be taken.

“Let’s build this feature!”

“But does it align with our North Star?”

Many companies have incorporated this already:

• WhatsApp -Messages sent;
• YouTube – Minutes watched;
• eBay – Gross merchandise volume;
• Airbnb – Nights booked;
• Facebook – Daily active users;
• HubSpot CRM – Weekly active teams;

Ideally, both metrics are used together and aligned. The daily active users will usually provide the company with more revenue. If not, it is advisable to change the metrics on which the company should focus.

Let’s say that the main KPI is “profitability” and the NSM is “nights booked”.

“Let’s build this!”

“Ok, but how do we build in order to improve the number of nights booked but not affect profitability?”

As you can see in the example above, focusing on just one side of the value loop could be misleading, especially if the two main metrics are not aligned.

Questions to ask

• What is the most important KPI that reflects the captured value?
• What is our North Star Metric? or 
• What is the metric that reflects all the given value (non-revenue) and that incorporates everything else?

Why is this important?

It’s not just CEOs and investors that need these two metrics. Your team, manager, and stakeholders would benefit it from them too, as would you. Too many products and companies have sailed blissfully into failure, simply because they were unable to track the bigger picture clearly.

Now taking the two in consideration imagine the power of the next statement in aligning the team:

“Our goal is to achieve sales revenue of €150M by end of 2020 and get to 100,000 daily active users.”