Below is Lenny Rachitsky's framework for setting goals in organizations and choosing a North Star Metric to track goals.
Goals are how we accomplish our strategy
- Mission: What are you trying to achieve?
- Vision: What does the world look like when you achieve it?
- Strategy: How do you plan to get there?
- Goals: Metrics that let us know when we're there
- Roadmap: When we aim to hit those metrics, and what we'll do next
Unwrapping the silver burrito
We all picture our favorite burrito when we see a plump, foil-wrapped burrito on a Chipotle billboard. Without clear goals, we all picture achieving our own personal goals when we see a project.
Goals help teams "unwrap the silver burrito" and make sure everyone is seeing how a project contributes to the same goal when we look at a project.
What makes a good goal?
- Simple: Obvious what it means and how it's measured.
- Concrete: Obvious if it's been achieved or not.
- Worthwhile: Achieving it matters to the business.
- Quick feedback loop: Changes in the product can quickly be seen in the metric.
1. Choose your North Star Metric (NSM)
Which metric, if it were to increase today, would most accelerate my business’ flywheel?
Six categories of NSM
Revenue
- e.g. ARR, GMV
- Amount of money being generated
- 50% of companies
- Pitfalls: Spiky so hard to operationalize, can lead to bad decision making (being afraid to lower pricing in the short term), can be uninspiring to team.
Customer growth
- e.g. paid users, marketshare
- Number of paying users
- 35% of companies
- Also common among freemium B2B and consumer subscription
Consumption growth
- e.g. messages sent, nights booked
- The intensity of usage of your product
- 30% of companies
- Common among marketplaces and platforms, since they make money from usage (Airbnb, Uber, Cameo)
- Common among user-generated content subscription-based products (Twitch, Loom)
- Sharing and consumption drives growth flywheel
Engagement growth
- e.g. MAU, DAU
- Number of active users
- 30% of companies
- Common among freemium team-based B2B products, since they hook free users who invite their peers (Asana, Slack, Dropbox)
- Common among consumer subscription products since if users are engaged, they'll upgrade to paid
- Common among ad-driven businesses since they make money via engagement (Facebook, Pinterest, Snap)
Growth efficiency
- e.g. LTV/CAC, margins
- The efficiency of spending vs. making money
- 10% of companies
- Common among paid-growth driven businesses, either ones that ship physical products (margins) or that invest their budget into performance marketing
User experience
- e.g. NPS
- The measure of how enjoyable and easy to use customers find the product experience, overall
- 10% of companies
- Common among products that differentiate on experience like Superman, Robinhood
2. Determine your levers
These are your growth model. They add up to 100% of what drives the business.
- Airbnb: Site visits, conversion, cancellation rate (demand side). There's still more on the supply side.
3. Find the bottleneck metric
Ask yourself: what’s the one thing that, if moved, would unlock the most growth?
Find the best concrete metric to track that lever.
4. What does that metric needs to be at such that you're on track for long-term success?
5. Determine what impact your team can realistically deliver with current resources
6. Check: Is your goal video-game hard? Is it concrete?
Should be hard enough to motivate you to continue, not so hard that you give up. Like a video game level.
Concreteness check:
What would be true in the world if you succeeded? What qualitative signals would you like to see
7. Put it on a dashboard
8. Set a cadence for checking on metric with team
9. Revisit the goal often
Ask yourself: Is it still the thing most crucial for long term success? Is my team actually able to move the goal towards completion?
See "Setting Goals" and "Choosing your North Star Metric" by Lenny Rachitsky for the complete posts, all credit for this content goes to author of those posts.