How to Evaluate and Find the Best Customer Segment for your Startup

How to Evaluate and Find the Best Customer Segments for your Startup
© Control Alt Deceit: A Game of Lies, Betrayal and Questionable Business Strategies

Great. Your product could be useful to different customer segments. Pharma, legal, marketing, construction… How do you go about selecting which one to focus on?

First thing first, you need to create an hypothesis profile for whom you want to target.

Have your company ever sold to businesses in those market segments? Are there specific users or customers you could refer to to get started?

You need to understand the pains and benefits your solution could have for these customer segments. You’ll conduct customer interviews to gather enough information to make your decision.

You’ll create basic personas – archetypes representing certain types of users or customers – for the prospects you need to recruit for the interviews.

If you’ve never sold to these markets, don’t worry, we’ll use assumptions to get the ball rolling.

Defining Your Customer Segments

For each segment you’re exploring, ask yourself:

  • Who would be the buyer?
  • What would be their typical job title?
  • What interest groups do they share?
  • Which associations or trade groups are they members of?
  • What are their professional goals?
  • How big are the businesses they work for?
  • Which industry or niche are they serving?
  • Which blogs, industry publications or websites are they following?
  • Where are they located?
  • Why would they buy your solution? What makes your offer compelling?
  • What are they currently doing to solve the pain your product is solving?

You don’t have to go too deep here. You’re merely looking for a frame to guide your recruitment for the interviews.

You want to know:

  • Who your solution is for
  • What their typical role is
  • Why they would buy a solution like yours
  • Where you can find them

With qualified prospects, good credibility and the right email script, you can expect a 10 to 20% contact-to-interview success rate.

Because we’re only trying to speak to 5 people per segment, we’ll contact 50 contacts per segment. All in different organizations.

If you look for more, you may accidentally find yourself lowering your recruitment standards.

When targeting companies under 100 people, it’s often best to start with the CEO.

When targeting companies between 100 and 200 employees, VP or director level in the appropriate department is a good place to start.

If you’re targeting larger enterprise companies, you can find the right roles to target using a neat trick on LinkedIn.

How to Recruit Within Different Customer Segments

Once you’ve identified the right people via LinkedIn, Twitter, industry directories or any other relevant platform, you can use tools like Hunter.io, DiscoverOrg or LinkedIn Sales Navigator to find the right contacts.

I personally like to use a widget called Clearbit Connect to build contact lists. It allows you to quickly understand the company structure and find email addresses. It’s also free under 100 contacts per month.

From there, you’ll draft a simple, straightforward email asking for a 15 to 20 minutes call or meeting. You won’t need much more.

The email script below should help you get started. Remember to adapt and personalize it for every contact, not just the name!

Subject: {International growth}

Hi {Max},

I enjoyed {your 2-part series on employee retention. I had tried to find a job with startups in Hong Kong when I was living there and I know it’s not easy}.

I’m contacting you because I have a software company trying to {improve how businesses expand internationally}.

I’m not looking to sell anything, but since you have so much expertise with {international growth}, I’d love to get your input to make sure we don’t build the wrong thing.

Can I schedule a quick call with you next week? {Monday or Tuesday} perhaps?

Let me know, thank you.

{Etienne}

 

Sending one-to-one emails is time-consuming. You can use tools like MailChimp or Streak to send bulk personalized emails.

If – after sending the emails – you don’t hear back within a couple days, followup. I like to followup every 2 business days, but it’s really up to you.

Don’t take silence as rejection. Prospects are busy; they take vacations. You might have to followup 7 times to get an interview, but chances are, you’ll get 5 interviews before that.

How to Conduct Problem Interviews

From there, your goal is to have educated discussions with the prospects.

You want to figure out:

  1. Whether the problem your product solves exists within their organization, whether they’re actively trying to solve it, and how much pain is caused by the absence of your solution.
  2. If the company has budget and typically buys solutions like yours.
  3. What kind of impact (or ROI) solving this problem could have on their business.

Key questions will be:

How much is this problem costing you?

AND

Within the organization, who is responsible for [ the problem ]?

If it’s them, jackpot! If it’s ‘no one’, the problem either doesn’t exist or it’s just not a priority at the moment.

If they say ‘someone else’, take note, and consider you might have to change the role you’re targeting within these organizations.

You can get started using my latest customer interview script below:

Get Started Fast – Download my Latest B2B Customer Interview Script for Free

Make sure you ‘own it‘, and adapt it to your solution and target segments.

If you don’t, you’ll just be collecting wrong data points.

As you conduct interviews, make sure you establish common ground with prospects and open the door for a follow up call. You don’t want this to be the end of the relationship.

You’ll want to steer clear from:

  • Confirmation biases: the tendency to interpret information in a way that confirms your preconceptions. In other words, wanting to confirm that this segment is a good fit for your product.
  • Interviewer biases: The tendency to frame customer development questions in a way that suggests an answer. For example, do you think Google is the most innovative company in the world?
  • Response bias: Making the prospect feel pressured to share a certain point of view or idea.

How to Evaluate Customer Segments

After doing 5 interviews in each segment, do you feel the need to dig deeper or speak to different stakeholders?

You don’t want to go too far, but if you need to dig deeper, do another series of 5 interviews with the new role or segment.

The information collected should help you select the right beachhead or target market for your business.

It might feel like a lot of work, but once you’ve mastered the basics, you can run through this process in just a couple of weeks.

More on Customer Segments

Why Your Fear of Committing to Niche Markets Will Kill Your Startup

Niche Markets Win Mass Markets for Startups
© Control Alt Deceit: A Game of Lies, Betrayal and Questionable Business Strategies

I get it.

Limiting the size of your market is counter-intuitive.

You started with a grand vision. You know how big your business can be. Going niche feels boring. It takes you away from the epic vision.

By going niche, you’re excluding desirable clients that your product could help.

It’s difficult to be “certain” that your niche is the right niche. There’s this nagging feeling that your product probably isn’t ‘exactly right’ for this group. It’s best to keep your options open, right?

Fear of Commitment & Niche Markets

In research published in the book Predictably Irrational, author Dan Ariely found that when people are given multiple paths to potential success, they try to retain all the paths open as long as possible. They do this even if selecting a specific path would guarantee more success…

Now, if you have investors – or if you’re looking for some – you’ll feel like they always want you to think bigger and widen your market.

To invest, they’ll want to see potential revenues over $100M in a market worth more than $10Bs to have confidence that your company can reach a $1B+ valuation.

It’s hard for them to extrapolate growth from one small-ish niche to multiple market segments.

They might think your idea is too small and you’re not worth their time.

You might hear things like:

  • “You’re thinking too small”, or
  • “Your market isn’t big enough”, or
  • “It might make sense at Series A or B, but not early on…” In other words, when the opportunity has been de-risked, or
  • “We only fund ambitious entrepreneurs who want to change the world”.

But… you want to change the world…

Steer clear from outside pressures. Your goal is to build a successful business, nothing else.

A Niche Market is the Key to the Mass Market.

As Y Combinator CEO Sam Altman says, you’re better of building something that a few people love than something a lot of people like. It’s a lot easier to expand from something that a lot of people love.

The benefits of leverage and focus far outweigh the challenge of grappling with what’s often a more competitive field of players chasing a bigger opportunity.

When you move from selling to everyone to selling to a well-defined market or vertical, it feels like you’re facing a tremendous loss of potential. You wonder if your niche is large enough to support your growth.

But here’s the thing, when you make the decision to sell to everyone because you’re too scared to sell to just a few people, you end up wasting resources, branding your company as generic, neglecting efficiency, losing out to competition, and failing.

With niche markets, you get to efficiently market, sell and create tremendous value from limited resources. Focus is key.

As MIT Entrepreneurship Centre founder Ken Morse says, de-selecting markets is as important as selecting them carefully.

Opportunities #2, #3 and #4 on your list will probably still be there when you’re ready to expand; you’ll just be in a better position to capitalize on them.

The Atlassian Story

Take Atlassian for example

Atlassian was founded in Sydney in 2002.

They started by targeting developers in software and technical teams with their project and issue tracker tool Jira. Their vision was huge… They wanted to target the Fortune 500,000… A very large market.

They felt like developers were a great beachhead market because they’re often early adopters of products, and they become invested in finding useful technology.

After developers, Atlassian targeted IT, since they were the people deciding which internal communication tools were being used in the organization.

By focusing on building a product that teams could get started using in minutes at an affordable price, they built a lot of customer love and loyalty and were able to expand into nearly every business team inside a company.

In the founders’ words, their target customer base was always evolving.

Now, some 15-16 years later, their biggest customers are businesses like Cisco, Twitter and Verizon.

With customers in more than 160 countries, sales over $1.6 billion and 2,500 employees, they did pretty good for themselves…

Niche Markets Win

It’s not because your company starts small – or smaller – that it can’t grow big.

As The Innovator’s Dilemma Author Clay Christensen says: “Disruptive technologies are typically first commercialized in emerging or insignificant markets.”

Don’t fear commitment. It’s only the beginning of your story.

More on Niche Markets

How to Find B2B Business Ideas in Your Workplace

I often meet aspiring entrepreneurs working for a company looking for the right idea in order to launch their business.

What they don’t know, is that they’re probably already aware of the problem their startup should be solving; they just haven’t figured it out.

The experience and expertise you have is a great starting point to help identify market opportunities.

To find ideas, you need to find problems. And problems are everywhere in your workplace.

Here’s a little framework I’ve used to make the good ideas come out:

Starting today, every time you begin a sentence with:

  • Why can’t this…
  • How come this won’t…
  • Couldn’t this…
  • If only this…
  • Or any variation of this.

Write down the problem that follows. If nothing else, this will make you aware of the opportunities around you.

Here’s an example from my past work to get you started:

Problem
Sending one-question surveys via email is painful.

Once your list starts to grow, take a few minutes to score each problem on the following:

  • How painful is the problem? – Is this an Hair-on-Fire problem or a Nice-to-Have?
  • How many people experience this problem?Are you the only person impacted or are all team members feeling the pain?
  • How much would a solution reduce the pain? – Would it be a 5% improvement or a 10X impact on the entire organization?
  • Is status quo an option? – Can the organization live with the pain caused by this problem?
  • Would my boss allow the purchase of this solution? – Would there be budget available if I were to solve this problem?

Your ranking could look something like this:

Problem Pain People Impact Status Quo Budget
Sending one-question surveys via email is painful. Low 1 to 5 Low Yes No

Problems worth solving are typically invisible from the outside. By being stationed in the organization in a position to observe the way people work around problems, you get privileged access to create new business opportunities.

If you can find a problem that checks all the boxes, you might be able to turn a job into a B2B business opportunity.

Best of all, if you end up solving your own problem, you’ll have unique insights into the problem and possibly be passionate about solving it.

Try this out for a few weeks and see what comes of it. If you’re feeling wild, you can decide to include problems shared by other team members as well.

This will give you a broader view of the full problem set.

Enjoy!

Why B2B Startups Should Target SMBs First, Not Big Enterprises

Through Lean B2B: Build Products Businesses Want, I get to talk with a lot of smart and ambitious founders.

They’ve either begun by building a MVP or by doing customer discovery within their relevant network, and because their end-game is enterprise, the opportunity only seems to make sense to large organizations or they’re hoping to gain legitimacy with key lighthouse customers, they decide to go enterprise-first.

Although large companies like Taleo and Vontu have been built enterprise first, my advice to founders is always to start smaller by targeting small and medium businesses.

Here’s why:

  1. The learning cost is higher: In the enterprise, there’s more steps just to be able to have meaningful discussions: you need to get through the door, understand the buyer groups, the decision-making process, the industry and build an early adopter network.
  2. You front-load risk: Investors–especially in B2B–don’t typically want to fund customer development. It’s likely that everything you do prior to landing your first few customers will be pre-funding, on your own dime.
  3. You need a longer runway: The longer the sales cycle, the longer it will take to land your first customers, and the more cash you’ll need to tough it out. To survive, you want to reduce the time it takes to get early sales as much as possible.
  4. It’s harder to gain momentum: As a B2B founder, your chance of success is related to the proximity you’re able to have with your early adopters and your ability to react/adapt to their feedback. It’s much harder to get fast feedback loops going in the enterprise where stakeholder groups are larger.
  5. You’ll likely have to build too much: As Atlassian Head of Design Karen Cross said, in enterprise, it’s often about designing for the 100%. Without understanding the whole product, you won’t get customers to truly buy in.

Going enterprise-first is just riskier; it takes longer to build a base of revenue and get the metrics you need to raise funding. In most cases, it’s enterprise or bust.

At the time when I joined Psykler, they had a working product, several mid-to-large businesses in the pipeline, and the basis for a customer development panel. We had 10 months of runway and were committed to enterprise-first–as the software needed large sales teams to truly be valuable.

Screenshot of the Psykler Complex Sales Dashboard

The Psykler Complex Sales Dashboard

We had to retain our early customers, reach product-market fit and raise capital just to survive.

As fast as we thought we could get there, we needed a significant acceleration event to succeed.

In the end, it didn’t happen and we ran out of cash.

To go enterprise-first, you need sufficient runway to reach product-market fit, get early sales and raise money. If you don’t, your startup is probably already dead… and you just don’t know it.

Selling to small businesses is a great way to start a business. You can go up-market anytime the business has been validated.

Why the Problem Lean Startups Choose to Solve Can Make or Break their Business

It’s hard to get honest feedback. Hearing, “It’s interesting” is not really validating a product. There’s a scale of comments with or without value. Entrepreneurs need to judge if the feedback is valuable and stay skeptical.Pete Koomen, Optimizely Co-Founder and CEO

Choosing a problem to solve is one of the most vital decisions lean startups will make.

If you choose a weak problem, you’ll quickly find out when you try to sell, but unfortunately, the difference between an average and a significant problem is much harder to make out.

You might be able to build a successful business solving a lesser problem for your prospects, never quite realizing the amount of money you’re leaving on the table.

Prioritizing problems is an essential exercise. In the end, you might decide to pass up on a significant problem for lack of passion or interest, but at least you will have chosen a problem in full awareness.

Business Problem for Lean Startups in B2B

Beyond scoring problems, there is no magic formula to help you select the problems your company wishes to solve.

You need to draw a line in the sand and decide which problems to address. Be mindful that intuition, passion and the entrepreneur fit should also play a role. Your team is a critical part of your business’s success.