Wanted to start off this week with a huge shout-out to the Denver, Colorado, customer success community.
The topic was Scaling Customer Success.
IT purse strings continue to tighten in B2B tech, requiring us to closely manage costs. As a result, there is a groundswell of interest from success leaders looking to streamline how they deliver customer outcomes.
We've developed a distinct perspective on Scaled Customer Success, and we're offering 45-minute private executive briefings–delivered by yours truly–for leadership teams looking to adopt these strategies and tactics.
In the briefing, I'll share what we've learned over the past 18 months about 1) rethinking the customer engagement model, 2) specializing teams, and 3) operationalizing processes.
Interested in learning more? Click below:
Now, to this week's topic: The North Star Metric, and why every subscription company needs one.
"What gets measured gets managed"
- Peter Drucker
If you believe customer success is a mission-critical outcome for growing a subscription business, we must measure it.
And if you also believe–as I do–that every department has a role in delivering customer success, then we need to align everyone to it.
There are plenty of well-defined financial metrics out there to help us understand our businesses. Gross retention, net retention, bookings, gross margin, and EBITDA are just a few of the important ones that every SaaS company should pay attention to.
But most "customer success" metrics have a fatal flaw: they don't tell us whether the customer is succeeding.
Fortunately, there's a solution.
Enter the North Star Metric.
A North Star Metric is a simple measure that identifies the value a company delivers to its customers. It defines the relationship between customer pain points and how the business profits from resolving them.
Here's a timely example of a North Star Metric I found reading Klaviyo's S-1 filing (page 1, "selected defined terms") just this past week:
We define Klaviyo Attributed Value, or KAV, as the amount of revenue our customers generated through orders placed by consumers within a specified period of time after a message is sent using our platform, which in the case of email is five days from when the message is sent, and in the case of SMS is twenty-four hours from when the message is sent.
Klaviyo invented a metric called Klaviyo Attributed Value ("KAV"). It's so important to the business that they took care to outline it on the first page of its public filing documentation with the SEC.
I believe every company needs a North Star metric. Here's why...
First, the North Star metric aligns the business. Functional teams have their own discrete goals. Every team believes they are working to drive the business forward, but is everyone rowing in the same direction?
We all know that metrics are a proxy for what's happening in the real world. And that one team's goals can wind up at odds with those of other teams.
The North Star metric trumps all internal KPIs and metrics. Once defined, the CEO and leadership team should challenge every functional team and individual to align their efforts.
This is how companies can move toward a customer-centric culture and away from "lip service."
Second, the North Star metric provides a standard for benchmarking. The North Star metric applies to every customer at the highest level. With a single definition of success, we can show each customer where they stand relative to their best-performing peers.
During my years in SaaS, customers' desire to understand how they rank among their peers only seems to have grown. Customers assume they will see benchmarks in EBRs and regular health assessments. They are quite dissatisfied when these benchmarks are not available.
(I believe this is because most SaaS products provide second or third-order benefits. That is, they make us faster and more efficient at our jobs versus having a profound and direct impact on increasing revenue or decreasing costs. Given the indirect impact, ROI is difficult to measure. But positive peer benchmarks are can be an acceptable proxy for value).
Finally, a North Star metric is the basis for a long-term vision.
I once worked for a company whose vision was to become a $1 billion business by [a specific date].
Not only is this an uninspiring vision (a.k.a, "let's just grow more"), but it has nothing to do with customers, and we can't rally all of our stakeholders around it.
For example, Klaviyo could set its sights on creating $100B of Klaviyo Attributed Value by 2030 (note, I'm making this up on behalf of Klaviyo to demonstrate the point).
A good North Star Metric is something that customers, employees, partners, and shareholders can all buy into.
As we learned from Drucker, what gets measured gets managed. Companies that are truly customer-centric report on customer outcomes right alongside their most important business KPIs. They know that customer value delivered ultimately determines the value they receive in return.
What's your North Star Metric? If you have a good one from your current or past company, feel free to reply to this email (email@example.com) and share it with me. I'd love to hear some examples from your experience.
Until next week...