I’m creating the Find Your Target Market video course to help answer one of the most common questions I get from entrepreneurs: how do I find the right customers for my product?
As a founder in the early days, you take what you can get.
Maybe the businesses you serve don’t look like the businesses you want to serve. Maybe the people that get the most value from your product are not the ones you expected. All and all, the early days are often more about survival than programmatic growth.
But when it comes to Crossing the Chasm and taking your business to the next level, your approach has to change. Organic growth no longer cuts it.
Crossing the Chasm for SaaS Startups
The first step to crossing the Chasm for SaaS businesses is to realize where your business currently stands. Is your product offering mostly appealing to early adopters (more on them here)?
Crossing the Chasm for SaaS Businesses
If so, you have to understand that early adopters represent, at most, 16% of the market.
By delaying honing in on a target market and crossing the Chasm, you’re effectively limiting the size of your market (even though it might feel like you’re doing the exact opposite).
That’s why growth slows down; what used to work eventually stops working. Your real market lays across the Chasm.
At this point, your future customers are either unaware of their problem, or they’ve just not started to look for a solution.
They have the dollars – the early majority represents 34% of the market – but they’re looking for a risk-less investment. Can your business provide that?
To cross the Chasm in SaaS, you have to find your niche – your beachhead – that initial customer segment and product differentiation combination that enables you to beat more established, mature competitors with a (potentially) more basic solution.
How to Find your Best Customers
The challenge – and where a lot of entrepreneurs struggle – is in figuring out whether you’re already targeting the right customers or whether your best target market has yet to be found.
Signs that you’re targeting the right customers include:
- They look like the people you’re trying to target.
- They open your emails, texts and answer your phone calls.
- They’re willing to help.
- They’re not waiting for the ‘next feature’ to start using your product.
- They would be disappointed if they could no longer use your product.
- They don’t need to be tricked into buying.
- They’re not on the verge of cancelling their accounts.
- They purchase for the right reasons.
- Some of them have become advocates for your business.
Now, you might only have a few of those (hint: you can find more) or don’t have any (hint: you can find some). Already, you want to figure out whether you need to look inward or outward to find your target market.
What Makes a Great Customer?
- They’re ready.
- They’re willing.
- They’re able.
- They can be made successful.
- It’s cost-effective to acquire them.
- There’s ascension potential.
- There’s the potential for advocacy.
There’s two ways of approaching finding your beachhead.
- If you know which customers are happiest, most engaged or get the most outcome out of your product, you can decide to zoom in and double down on that customer segment.
- If you don’t think you’ve found those customers or you’re not sure they’re the best fit for your growth strategy, you can decide to zoom out and do what’s called a customer segment pivot.
To avoid leaving money on the table and missing on bigger opportunities, I recommend looking both inward and outward.
How to Analyze your Current Customers
To find your best customers from your customer base, you’ll codify your definition of what a great customer is and segment your customer base using that definition.
You want to create 3 different buckets:
- Your best customers – The first percent atop your ranking.
- The next best – Customers ranked within the first 2 to 10%.
- Your worst customers – the last 10% at the bottom of your list.
The top percent represents your “fans”; it’s the customers who are most likely to become advocates for your business.
The next 10% gives you a good comparison point. It can help reveal some of the low hanging fruits for your business.
The last 10% – and this one is optional – helps you define who you shouldn’t be targeting (in other words, they’re your anti-personas).
Speaking with the top two tiers, you’ll want to understand the value they get from using your product to better define your ideal customer target.
Armed with this information, you can start exploring other segments to expand your analysis.
How to Evaluate Potential Customer Segments
- Is it large enough?
- Can you access it easily?
- Do you have a compelling value proposition?
- Do you already have the whole product?
- Are there competitors?
- Can you leverage a leadership position?
- Does it align with your team or your personal interests?
Those are 7 criteria, but I could have easily added another 10.
You’ll want to do what we call a multi-criteria analysis – comparing the different segments against criteria you’ve selected.
Once you’ve identified 3 or 4 segments you’d like to explore, you’ll organize short series of 5 interviews.
With these customer interviews, you’ll want to figure out:
- If the problem solved by your product exists in the target organization? How painful the problem really is? And whether they’re actively trying to solve the problem?
- If the company has budget? And if it’s the type of solution they could buy?
- What kind of impact solving this problem could have on their business?
You can use the Lean B2B methodology to conduct customer interviews and validate market fit within those customer segments.
With all the information collected, you’ll be able to make an informed decision in selecting your beachhead market. Beware though, selecting your company’s initial beachhead market can make or break your business.
How to Make Your Business Look the Part
Limiting the size of your total addressable market is counter-intuitive, but a niche market is the key to the mass market.
Once you’ve made the decision to focus on a market, you’ll want to refocus your business to truly dominate the market. This means:
- Aligning internal and external messaging to make it clear that you’re intent on winning this market.
- Switching to pro-active growth strategies to acquire as many businesses as possible within your target market.
- Crafting case studies in the very niche you’re targeting to convince the early majority that your solution can best meet their needs.
Crossing the Chasm for SaaS Businesses is Challenging
You chose a beachhead. Aligned internal stakeholders. Repositioned the business and external messaging. Wrote amazing case studies. Tightened your market fit. Switched to a proactive growth model. And business is booming.
It takes discipline to expand gradually.
When the timing’s right – and you’ve captured the largest market share within your beachhead – you’ll expand into adjacent market segments.
At that point, you’ll truly know that your business has crossed the Chasm.
We cover this material and much much more in the Find Your Target Market video course (coming later this Spring). Sign up to get notified.
⚡⚡ Enjoyed this content? I go into way more detail on this subject in Lean B2B. It covers the ins and outs of finding traction in the market for B2B products. Check it out »
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