What Startups Can Learn from Netflix’s North Star Journey?

Netflix’s rise from a DVD rental service to a global streaming giant is nothing short of remarkable. One of the key strategies behind their success is their disciplined use of the North Star Metric—a guiding metric that helped them focus on what truly matters to their business and their customers. For entrepreneurs and product managers in startups, there are invaluable lessons to be learned from Netflix’s North Star journey. Here’s how you can apply these lessons to drive growth and success in your own startup.

Lesson 1: Define a North Star Metric that Reflects Long-Term Success

• Netflix’s Example: In its early days, Netflix identified retention as a critical metric for long-term success. However, instead of focusing directly on retention—a lagging indicator—they chose a leading indicator: the percentage of new members who added at least three DVDs to their queue during their first session. This metric was a strong predictor of customer retention.
• Takeaway for Startups: Your North Star Metric should be a leading indicator of long-term success, not just a reflection of past performance. Focus on metrics that directly correlate with the value your customers derive from your product, which in turn will drive sustainable growth.
  • Example: If you run a SaaS business, instead of focusing solely on revenue (a lagging indicator), consider a metric like “number of users who complete a key task within their first session,” which could predict long-term user engagement and retention.

Lesson 2: Start with a Specific, Actionable Metric

• Netflix’s Example: Netflix’s choice of “percentage of new members who add at least three DVDs to their queue in their first session” was specific, actionable, and directly influenced by their team’s work. By focusing on this metric, Netflix could take concrete steps to improve user experience and retention.
• Takeaway for Startups: Choose a North Star Metric that is specific and actionable. This allows your team to clearly understand what they need to do to move the metric and make an impact.
  • Example: For an e-commerce platform, a specific metric like “average number of items added to the cart by new users in their first session” is more actionable and insightful than a broader metric like “total number of new users.”

Lesson 3: Use the North Star Metric to Drive Product Innovation

• Netflix’s Example: Netflix didn’t just track their North Star Metric—they used it to drive innovation. They focused on making it easier for users to add DVDs to their queue by simplifying the user interface and recommending relevant titles. This focus on enhancing the product experience helped improve the North Star Metric and, ultimately, customer retention.
• Takeaway for Startups: Let your North Star Metric guide your product development and innovation efforts. Continuously iterate on your product to enhance the user experience in ways that drive your metric.
  • Example: If your North Star Metric is “monthly active users who engage with three or more features,” focus on improving those features and making them more accessible to drive higher engagement.

Lesson 4: Regularly Reassess and Adapt Your North Star Metric

• Netflix’s Example: As Netflix evolved from a DVD rental service to a streaming platform, their North Star Metric also needed to evolve. They shifted their focus to metrics that better reflected the streaming business, such as hours watched per subscriber.
• Takeaway for Startups: Your North Star Metric should evolve as your business grows and changes. Regularly reassess whether your current metric still aligns with your strategic goals and the value you deliver to customers.
  • Example: A startup focused on user acquisition might initially prioritize a metric like “new sign-ups per month,” but as the business matures, it might shift focus to “customer lifetime value” or “monthly recurring revenue.”

Lesson 5: Communicate the Importance of the North Star Metric Across the Organization

• Netflix’s Example: Netflix’s leadership ensured that the entire organization was aligned around their North Star Metric. By clearly communicating the importance of this metric, they created a shared understanding and focus across all teams.
• Takeaway for Startups: Ensure that everyone in your startup understands and buys into the North Star Metric. Regularly communicate its importance and how each team’s work contributes to moving the metric.
  • Example: Hold regular all-hands meetings or workshops to discuss progress on the North Star Metric and encourage teams to share how their work is impacting it.

Lesson 6: Balance Short-Term Wins with Long-Term Goals

• Netflix’s Example: While Netflix focused on their North Star Metric, they also balanced this with a long-term vision for where they wanted to take the company. This allowed them to make strategic decisions that paid off over time, such as their shift from DVDs to streaming.
• Takeaway for Startups: While it’s important to focus on moving your North Star Metric, don’t lose sight of your long-term strategic goals. Ensure that your short-term actions are aligned with where you want to take your business in the future.
  • Example: If your North Star Metric is “weekly active users,” also consider how your current strategies will impact long-term goals like market expansion or new product development.

Lesson 7: Celebrate Milestones and Learnings

• Netflix’s Example: Netflix’s team didn’t just set the North Star Metric and forget about it—they celebrated improvements and used the metric as a learning tool to further refine their strategies.
• Takeaway for Startups: Celebrate progress on your North Star Metric to keep your team motivated and focused. Use milestones as opportunities to reflect on what’s working and what could be improved.
  • Example: When your team hits a significant milestone, such as a 10% increase in your North Star Metric, take time to celebrate the achievement and discuss the lessons learned that can be applied moving forward.

Conclusion

Netflix’s journey with their North Star Metric offers valuable lessons for startups looking to drive sustainable growth. By defining a specific, actionable metric, aligning product development with this metric, and continuously adapting as the business evolves, startups can create a clear path to success. Remember, the North Star Metric is not just a number—it’s a strategic tool that, when used effectively, can guide your startup to achieve long-term goals and deliver lasting value to your customers.