Facebook's secret to success: How to break through the siege with the right growth indicators?

“North Star Metric”, also known as “OMTM”, is one metric that matters.

It is called the North Star Indicator because once this indicator is established, it will be like the North Star, shining high in the sky, guiding the entire company to move in the same direction.

1. Why is the North Star Metric so important?

Finding the company's North Star indicator is the first and most important step in achieving growth. Why do you say that?

First, growth involves all aspects of a company's operations . Without clear indicators to guide you, it is easy to try to do too much and fail to effectively focus on the key points.

Second, when a company reaches a certain size, a common goal can help align the team in the same direction and clarify task priorities.

Third, setting an indicator can greatly improve the ability to take action. As YC co-founder Paul Graham said: Once you choose your goal, there is only one thing you can do: work hard to achieve that goal. Through this goal, you can understand the company's situation, launch various projects and experiments in a targeted manner, and then observe whether they are effective.

2. How these two Silicon Valley companies chose their North Star indicators

If the above statement still seems too boring to you, let’s listen to two stories about the North Star Indicator.

1. Pied Piper in the American TV series Silicon Valley

The recently popular HBO American TV series, Silicon Valley, has just been released for three seasons and has already captured the hearts of many horse workers and non-horse workers. Many of my programmer friends are following the series, and their unanimous evaluation is that it is very realistic, almost too realistic: from the exaggerated culture within a large search engine company, to the various weird venture capitalists , to Pied Piper's stumbling growth from a programmer Richard's amateur project into an independent company, going through the whole process of raising funds, burning money, being on the verge of bankruptcy several times, and then surviving from the brink of death, it can be called a vivid and gorgeous Silicon Valley reality show.

Figure 1: Poster for the first season of Silicon Valley

In the penultimate episode of Season 3, while investors and company employees excitedly held a party to celebrate Pied Piper's major milestone of 500,000 installed users, the company's CEO Richard was in a huge panic. Why? Because among these 500,000 installation users, only 19,000, or less than 4%, are daily active users (DAU). There is no need to explain the number of installations. The average daily active users (DAU) here refer to users who log in to the Pied Piper platform at least once a day. It is good to have more users downloading, but many of them are due to the publicity, media coverage and brand effect of the recent launch. The high download and low active user ratio just shows that there are still huge problems with the product. In the following episodes, Richard and his team embarked on a long journey to find ways to increase DAU, trying every possible means, even at one point buying clicks from a shell company in India.

Figure 2: The gap between installation volume and DAU

Richard has the aura of a protagonist, and Piped Piper is likely to turn danger into safety. In the real world, if you choose the wrong metric as your company’s North Star and you don’t know it, you’re putting your company in a very dangerous position.

2. How Facebook broke through MySpace

Long before Facebook was founded, MySpace was the leader in American social networks. MySpace has a long history, a large number of users, and is backed by its major financial sponsor, News Corporation. From any perspective, it should have been able to easily crush Facebook, which was founded by a few college dropouts, but in the end it was defeated miserably. There are certainly more than one reason, but there is an interesting difference: MySpace's main operating indicator is the number of registered users, while Facebook, under Mark's guidance, used the number of monthly active users as the main indicator for external reporting and internal operations in its early days.

Figure 3: MySpace vs. Facebook

You may have heard of so-called vanity metrics. We cannot say that the number of registered users is a completely vanity metric, but it does have a "vanity" element to it. How to say it? If Myspace claims to have 1 million registered users, how many of them registered 5 years ago, how many have never visited the site again after registration, how many have become zombie users after trying it a few times, and how many are still using it but only come online once every six months? One million registered users may look good to investors and sound good to employees, but in the company's internal operations, it may also cause MySpace to misjudge the situation, go in the wrong direction, and miss the point, ultimately losing the battle with Facebook.

Figure 4: Facebook breaks through MySpace

In contrast, the change from "number of users" to "number of monthly active users" seems to be just three more words, but it ensures that any decision within Facebook is directed at real and sustained growth in active users. What I admire most about Mark Zuckburg is that he not only uses monthly active users as the internal North Star indicator, but also insists on reporting the same indicator externally to ensure that the company's operating strategy is always honestly responsible for user value, rather than pursuing simple and crude short-term growth. You should know that this is not easy to do. Many companies now still choose to disclose a watered-down "semi-vanity indicator" to investors in order to make the numbers look good.

Indicators are never just indicators; they represent management’s understanding of the relationship between user value and company success, and they also guide every grassroots employee’s decision-making and execution in their daily work. The difference between being on the right track and being off track may only be a North Star indicator.

How to find the North Star indicator

Let me tell you about my own experience. I recently joined a personal finance app company, where I was mainly responsible for user retention. The first thing I did after joining the company was not to start growth experiments with great fanfare. Instead, I conducted a series of data analyses and internal discussions. Ultimately, my first suggestion was to stop using the company's existing retention indicator and switch to a new indicator. After gaining the approval of the entire team, I began growth experiments on the new indicator. Through the two stories above, I think it is not difficult for you to understand why I take this as the first step.

1. Six criteria for measuring the North Star indicator

So, how do you find a suitable North Star Indicator?

First of all, I would like to state that this process is not something that can be achieved overnight and may require multiple attempts and revisions. Before you begin, write down some of the indicators you have in mind and ask yourself the following questions, which may help you find a general direction:

1. What is the core value of your product? This metric lets you know if your users are experiencing this value?

For example, my company is currently developing an investment app, so the core value of users is investment, so this North Star Metric should be related to investment;

2. Can this indicator reflect the user’s level of activity?

In the example above, Myspace's "number of registered users" does not reflect the user's activity level;

3. If this indicator improves, does it mean that your entire company is developing in a positive direction?

For example, for Uber, if it only uses the number of registered drivers as the North Star indicator, it obviously ignores the passenger aspect. Therefore, Uber’s North Star Metric should reflect the supply and demand balance of drivers and passengers, so “total number of rides” is a more appropriate metric.

4. Is this metric easy to understand and communicate to your entire team?

Generally speaking, it is recommended to choose an absolute number as the North Star Metric, rather than a ratio or percentage: for example, "total number of orders" is easier to understand than "the percentage of orders with a value of more than 100 yuan."

5. Is this indicator a leading indicator or a lagging indicator?

For example, SaaS companies like to use revenue as their North Star metric, which is not a bad metric, but it is a lagging indicator. Some users may have stopped using the service for several months but are still paying monthly fees. In this case, "monthly active users" may be a better leading indicator.

6. Is this an actionable indicator?

Simply put, if you can't do anything about an indicator, it doesn't exist to you.

2. 3 cases to clarify the North Star indicator

A few examples of North Star Metrics:

Figure 5: North Star Indicator Example

(III) Continuous optimization in business practice

Finally, don’t demand perfection and don’t try to achieve everything in one go. Finding the North Star indicator is not a math problem with a single solution. Many indicators are correlated, and there is no essential difference which one you choose.

Figure 6: Continuously monitor the North Star metric through data analysis tools

Use data analysis tools, such as Mixpanel abroad and GrowingIO in China, to continuously monitor your North Star Metrics and continuously optimize them in business practices. Your goal is to find a focus that is best suited for your team at this stage so that everyone can work together in the same direction in their daily work.

After all, any methodology is intended to help you achieve your goals better. Whether it is the North Star or the South Star, as long as it can guide us to the end, it is a good star.

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