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A Quest for Accurate North Star Metrics
How the MLS enables companies like Opendoor to measure their performance with extreme accuracy
In his renowned post, Lenny Rachitsky highlights six types of North Star Metrics businesses use to measure success: revenue, customer growth, consumption growth, engagement growth, growth efficiency, and user experience. But, comparing these metrics accurately to market competitors is often difficult.
Take Airbnb and Uber, for instance. They measure success by nights booked and rides taken, but determining the total numbers for the entire market is challenging. These metrics are suitable for early stages, but as your market matures, it becomes harder to gauge actual performance. Some marketplaces do allow for remarkably accurate measurements of revenue, market share, competitor's market share, and total addressable market (TAM).
The Power of Real Estate Data
One example is the trillion-dollar residential real estate industry. The Multiple Listing Service (MLS) plays a vital role in providing accurate data. It's a centralized database for agents and companies to share property sale information. By accessing every MLS in the USA, companies like Zillow, Redfin, and similar marketplaces can get a complete picture of past sales and open homes on the market, allowing them to measure market share with high precision.
Opendoor's Approach to North Star Metrics
Before joining Meter, I led the growth team at Opendoor. If you're not familiar, Opendoor streamlines the process of selling your home directly to the company in just a few minutes, eliminating the need for showings or open houses. The company has since expanded its services to include home buying, mortgages, and title assistance. Using MLS data, we could track every home sold in a given market, to whom it was sold, and consequently measure our market share every day in every market with exact accuracy.
Initially, our core metric was "offers sent", which refers to the number of offers sellers received from us. However, in 2021, we updated our North Star Metric to "True seller coverage" We calculated the metric for every market as follows:
We also tracked a sister metric called "True seller conversion” defined as:
Aligning Teams and Making Informed Decisions
An objective North Star Metric simplified aligning our growth, marketing, pricing, and local operations teams. We used it to identify city performance, lead quality per channel, and funnel drop-off points for each home. This enabled us to test hypotheses and make improvements relatively quickly.
We frequently utilized this metric to make informed decisions. For instance, on all landing pages, our focus was on obtaining the customer's home address rather than their email. Why? Acquiring the home address enabled us to monitor that property's progress on the MLS. This way, even without the customer's personal information, we could track the conversion funnel from the address entered to the offer received (and beyond). We experimented with capturing email addresses, but data showed higher conversion rates with home addresses. Capturing home addresses also allowed us to engage customers through direct mail.
We also utilized this metric to measure our competitors' performance in the same markets. We could assess the number of homes they were buying each month and compare our market share. We could compare offers and learn from our mistakes. We could also see new markets that they were entering and how they were performing.
The Surprising Connection Between MLS and Blockchain
Remarkably, the blockchain shares a unique commonality with the MLS in terms of data accuracy for market share. Owing to its decentralized nature, every blockchain transaction is recorded on a transparent, public database, ensuring accuracy and reliability. This allows companies within the blockchain ecosystem, like Coinbase, to accurately measure their market share and total addressable market (TAM), such as their market share in Ethereum transactions.
It's important to note that for both industries, a negligible number of transactions occur off the books, but this does not significantly impact the reliability of their respective North Star Metrics.
Refining Your North Star Metric
Selecting a North Star Metric from the six categories Lenny outlined is a suitable approach during the early stages of your business. As your business grows, refining your North Star Metric becomes essential. Exploring industry-specific data sources and using data aggregation tools can help improve the accuracy of your North Star Metric.
Thank you for reading, and if you have other examples of objectively true North Star Metrics, please share your thoughts in the comments below!