How to Find Your Best Customers with a Market Segmentation Analysis

B2B entrepreneur and investor Jason Lemkin says that there are 4 stages to a business:

  1. First customers: when you’re looking for Product-Market fit;
  2. Under $1M: when it’s not really repeatable, but you have revenue coming in;
  3. Over $2M: when the engine is starting to work and you can start spending;
  4. Over $10M: when you’ve sortof made it.

Easy, right?

I love these simplifications. Maybe it’s that easy if you’ve done it many times before (Jason has!), but to most entrepreneurs it won’t be easy.

The people you’ll need to engage with or sell to will be completely different in these 4 phases. In fact, the early adopter market – the people you should be targeting at the start – just won’t allow you to reach $10M in annual revenue.

That’s why Crossing the Chasm is a much better way to look at what needs to get done.

Crossing the Chasm built on the work of Everett Rogers, an assistant professor of rural sociology and the author of Diffusion of Innovations.

Diffusion of Innovations is the book that introduced the 5 types of adopters and coined the term ‘early adopter’ to identify a company’s early customers. It’s one of the all-time best innovation books.

The Adoption Curve – A Useful Framework for Market Segmentation Analysis

The Adoption Curve – A Useful Framework for Market Segmentation Analysis

This is the model Geoffrey Moore expanded on in Crossing the Chasm (1991). It’s a vital part of Lean B2B and any market segmentation process.

Why Crossing the Chasm Matters for Market Segmentation Analysis

The core theory behind Crossing the Chasm is that customers in any given market belong to one of five groups: Innovators, Early Adopters, Early Majority, Late Majority and Laggards, and that the way you sell to these groups of customers needs to reflect the stage of adoption of your technology.

Moore covers at length the importance of finding a beachhead — a first customer segment — to get a foothold in the market. This refers to the D-Day invasion of Normandy during World War II and is of the utmost importance for startups at various stages of their growth curves:

  • For entrepreneurs with a product looking for the right customer segment: That’s when you have a solution looking for a problem – or the segment with the biggest pain. It’s challenging, but if the technology is valuable, you can find a market. That was our challenge at HireVoice, the startup that led me to write Lean B2B.
  • Entrepreneurs with an established customer base, looking to double-down on growth: That’s why I was hired at LANDR Audio. The company had almost 250k users when I joined. Some users saw value, and some didn’t. We had to do a full market segmentation analysis to find a beachhead market and scale beyond the early adopter segment.
  • For entrepreneurs selling to early adopters looking to Cross the Chasm: That’s the initial Chasm Crossing. It’s the challenge we faced when I joined Psykler, a relationship profiling tool used during complex sales processes.

Running a Market Segmentation Analysis at Psykler

When I started at Psykler, the company already had customers in pharmaceuticals, aviation and consulting. Product usage was low, and we clearly didn’t have product-market fit.

I sat down with the founder and we identified the 4 or 5 verticals where we felt Psykler could add the most value (pharma, enterprise software, consulting, integrators).

We did a short series of customer interviews that led to the realization that slow-moving industries like healthcare, telecommunications, education and defense are notoriously hard to sell into.

Sales required strategic preparation. For this reason, teams had to run account development meetings where Psykler could be really useful.

When customers were selling to large companies, there were many buyers, it forced complex sales and team selling.

In the service industry, long-term relationships and customer upsell are key. The sales team can get great rewards if they understand the entire organization they’re selling in.

We also realized that companies selling strategic IT services like Business Intelligence and Security are forced to sell high, to CIOs, CTOs and VPs of Technology.

For them, there was a high cost of failure if those meetings didn’t go well.

Psykler – After our Market Segmentation Analysis

Psykler – After our Market Segmentation Analysis

Based on all the validation we did, we realized that Psykler, in its current form, was best-suited for consulting firms in the security industry.

As we refined our pitch and understanding of the segment, the product really started to click with early adopters.

From there, we could refine the product and marketing to meet the needs of our newfound beachhead market.

How to Run Your Own Market Segmentation Analysis

To find success with your market segmentation analysis, you have to get out of the building and talk to prospects and customers.

You can start by listing the 4 or 5 verticals where you feel that your business can provide the most value. Do a quick series of 3 to 5 customer interviews in each of these verticals, listening for signals of pains your product could alleviate. Focus on the segments with the most pain and keep interviewing organizations until you find the best market segment for your product.

It’s an iterative process well worth the investment (Marketo spent a year going through a similar process!), so keep learning, and keep refining your market hypotheses!

How to Run Customer Exit Surveys to Improve Product Retention

No matter how great your product is, it is very likely that 40-60% of your free trial users never see the product a second time.Samuel Hulick, Author of ‘The Elements of User Onboarding’

Whether you’ve found product-market fit or not, your business will be confronted daily with:

  • Visitors coming to your site and leaving;
  • Users signing up for your product without using it;
  • Paying customers churning.

Although these 3 situations are completely different, they have one thing in common: they’re great opportunities to learn how to improve your product and tighten your product-market fit.

For this post, we’ll focus on customer churn (e.g. churners), but learning from all 3 situations is essential to make your business grow.

Why Customer Exit Surveys Matter

There are countless reasons why visitors cancel their subscriptions.

Maybe…

  • They found another product that better matches their needs;
  • They’re only using a fifth of your product functionalities;
  • Your product is slow and buggy;
  • Your support can’t answer their questions;
  • Their business has cashflow problems and no longer can afford the subscription;
  • Your user or economic buyer has left the organization;
  • The credit card associated with their account expired;
  • Your product has become too expensive;
  • Etc.

These situations can be handled differently, yet they all lead to churn.

Sometimes your product is at fault, and sometimes there’s nothing you could have possibly done to prevent the cancellation.

Customer exit surveys help you gain valuable insights into how well your product meets the goals and requirements of your customers; they help you prevent future cancellations.

How to Recruit Participants for Customer Exit Surveys

It’s notoriously hard to recruit customer exit survey participants.

Because they’ve already expressed dissatisfaction with your product (they left!), a lot of churners won’t want to engage further with your team. Chances are, the participants you’ll get will be either early adopters or the angry-type. It’s something to keep in mind when analyzing survey data.

The best time to ask churners to take your survey is at the time of cancellation – when they’re still thinking about your product – as part of your downgrade flow or via email.

You’ll get the best response rate by asking the following question during the downgrade flow:

“What’s the single biggest reason for you cancelling?”

  • [  ]  I don’t understand how to use your product
  • [  ]  It’s too expensive
  • [  ]  I found another product that I like better
  • [  ]  I don’t use it enough
  • [  ]  Some features I need are missing

If email is the best option for you, you’ll want to contact churners right after cancellation with a low-friction exit survey.

Some businesses incentivize their churners with gift cards (e.g. Amazon gift cards) to increase the number of responses they get, but this is often unnecessary, and can lead to biases in data collection.

How to Analyze Customer Exit Surveys

Once you know why your customers are leaving, it’s not hard to realize that some cancellations could have been prevented.

However, to truly understand what the data means for your product, you have to segment responses using key criteria:

  • Subscription plans (e.g. Basic vs Pro, Monthly vs Yearly);
  • Personas;
  • Product engagement;
  • Subscription length (First month vs Second year);
  • Feature set used;
  • Etc.

There are usually patterns to be found, but they won’t be apparent without segmentation.

These patterns will help refine your customer success, onboarding, pricing, product, etc.

Customer Exit Survey Interviews

To dig deeper into these patterns, I recommend conducting Jobs to Be Done interviews.

Contrary to customer discovery interviews, Jobs to Be Done interviews focus on a single story. In this case, it’s the story of what led your users to stop using your product and start using another. Because of this, these interviews are often call “Switch” interviews.

Here are a few customer exit survey questions I like to use in these interviews:

SAMPLE QUESTIONS WHAT IT TELLS YOU
  • Why did you initially sign up for [PRODUCT]? Did you evaluate other tools?
  • What was your previous experience with [SOLUTION SPACE]?
These questions help you understand your customer’s expectations coming in, and what convinced them to give your product a try. They help you understand whether the customer was a good prospect to begin with.
  • What were you using [PRODUCT] for? How often were you using it?
  • When was the first time you had the first thought that maybe [PRODUCT] wasn’t going to work? Or realized that you weren’t using it?
These questions help you understand the Job they were hiring your product for, and what sparked their cancellation.
  • What happened the last time that you used [PRODUCT] for [JOB TO BE DONE]?
  • What happened the first time you had [JOB TO BE DONE] that you didn’t use [PRODUCT] for?
  • Why did you cancel the day that you cancelled? Why that day, and not the day before or after?
  • What are you using now? How do you feel it compares to [PRODUCT]?
  • What happened the day you started to move to the new [PRODUCT]? Why did you start that day and not after?

These questions help you understand whether the customers are actually better off with a different solution. It also gives you good insights into the actual switch.

Note: if they’re not using a replacement product or just not using anything, it might mean that they perceived your product as a nice-to-have.

  • What would it take for you to reconsider subscribing to [PRODUCT]?
  • How much do you feel [PRODUCT] improves [JOB TO BE DONE]?
  • What is the biggest benefit of [PRODUCT]?
Bonus questions: These questions can help you evaluate the perception of value and benefits of your product.

To make sure you capture valid information, you’ll want to brush up on the code of conduct for customer interviews.

A Customer Exit Survey Template

There are several customer exit survey examples available online. To help you get started capturing cancellation reasons and Jobs to Be Done, we made our customer exit survey script available:

Get Started Fast – Download my Customer Exit Interview Template for Free

More on Customer Exit Surveys

How to Get Customer Interviews with Cold Emails

You managed to find early adopters for your startup, now what?

You can use the good ol’ telephone to reach out, connect via InMail (LinkedIn), direct messages (Twitter) or through Quora’s messaging system, but chances are, email will be your best bet.

Depending on how much research you do, the quality of your email template and the industry you target, you may be able to convert as many as 30% of your cold emails into interviews. To help you achieve those results, I created the following guide.

Here’s How I Get Customer Interviews with Cold Emails:

Step 1: Get their Email Addresses

Gone are the days trying to guess email patterns on Google. With dozens of tools at your disposal, finding email addresses shouldn’t be a challenge anymore.

Among the tools available, I strongly recommend Clearbit Connect. Not only is it a nice alternative to LinkedIn, it’s fast, accurate (97% accuracy according to YesWare research), and gives you 100 free credits per email account. Think about that last point a bit. ;-)

Here’s how I use Clearbit Connect to find email addresses:

Step 2: Research the Prospects

This is where you’ll spend most of your time.

You need to personalize your emails in order to establish rapport. To do that, you’ll have to spend time researching prospects one by one. You can’t skip this step; it’s what separates your emails from the spammers’.

At a minimum, you’ll want to add the prospect’s first name and make it visible from the ledger (see image below).

Get Customer Interviews with Cold Emails - Email Ledgers

You’ll also want to add a personal note showing that you’ve done your research. Here are a few things you can comment on ranked by the order of what seems to work best:

  1. Personal success (job promotion, award, achievement, etc)
  2. Company news (related to them, their work function or a significant company achievement)
  3. A shared experience, acquaintance, hobby or interest (ideally, not something about work)
  4. Recent posts (on LinkedIn, Medium or on their blog)
  5. Recent LinkedIn or Twitter updates

You can decide to add more personalization, but don’t overdo it. According to research by the team at Growbots, personalization follows a law of diminishing return. In other words, adding more personalization doesn’t necessarily increase response rate; it can actually make your emails feel creepy.

Once you’ve found your style, you can decide to outsource some of the research to workers on Upwork or Fiverr.

Step 3: Write the Email

Nailing the email script makes a huge difference in your response rate. You have to be humble and remember that you need their help. To be successful, keep in mind:

  • It’s about them – You need to speak to their ego and make them feel smart and esteemed. It’s about their expertise and interests and it’s on their terms. Use compliments. Make the interaction as positive as possible.
  • Their time is important – It has to sound like it’s a short meeting. Twenty minutes is all you need. Any longer than that and you’re wasting their time.
  • You’re not selling – You have to build a relationship before you attempt to sell anything. Be informal, helpful and easy-going. Formal emails create doubts in the prospect’s mind.
  • It’s got to connect – The more certainty you have that the problem is – or was at some point – on their radar, the more likely you are to get a reply. You want to give them a reason why spending 20 minutes with you will be worth their time. It has to feel like you’re going to be of value to them.

To start, use a broadly defined problem. A looser problem in the subject line and in the email copy has a higher likelihood of getting people excited. Prospects will build their own perceptions of the problem and invent the product in their minds.

Here’s a sample script I’ve used before:

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

Keep it short. Make it easy to respond to.

Step 4: Send the Emails

You can decide to send all emails manually, but that’s a lot of work, and it’s not very value-added work (you have better things to do!). In the past, I’ve used Mailchimp, but without a paid subscription, it’s very hard to send truly plain emails.

I discovered Streak through Alex Berman, who knows a lot more about cold emailing than I do.

Basically, Streak is a CRM that sits inside Gmail. It allows you to send mass personalized emails, manage pipelines, track replies, send followups and schedule email delivery from your inbox.

Here’s how I use it to send emails:

Before hitting send, I recommend setting up a new email account. Some of your emails might get marked as spam. The last thing you want is to have your main email account in the spam folder. It happened to me before, and it can be quite painful.

Schedule your emails carefully. Ask yourself: where are my prospects located? At what time do they get up? Go to work? When are they likely to have time to look at my email?

Start slow, don’t send too many emails (you need time to reply), make revisions to your script, and followup.

Getting customer interviews with cold emails is a learning process. Start from the top and practice.

More on Cold Emails:

When to Stop Interviewing Prospects in B2B Customer Development

In B2B customer development, Problem interviews are about emerging patterns, not numbers. You should go through problem interviews until opportunities start to appear and you stop learning, not until you’ve interviewed a certain number of prospects.

Sometimes, with a varied set of profiles it can take up to 40 interviews before seeing any patterns emerge. Other times, when the profiles are very similar, it takes only 12. In general, plan for 20 to 30 problem interviews per segment.

Don’t rush the interview process. You’re doing yourself a disfavour if you’re not being honest with yourself. Collect more data than needed and wait for the patterns to emerge.

As you share back the information collected with the members of your team, it’s normal to have the urge to jump to conclusions and start thinking about solutions. Resist the temptation and take a step back. Be sure to put time between data collection and data analysis.

You’re looking for the bigger picture and the underlying trends. This might mean only listening to some of your prospects.

As an early assessment, ask yourself:

  • Did you take a step forward?
  • Did you learn?
  • Did you enjoy spending time with the people you met?
  • Would you like to work with those people again? (if you’re successful, you may be working with those customers day in day out for the next five, ten or 20 years)
  • Were there noticeable differences in the profiles of your prospects?
  • Do you feel like you can help those prospects?
  • Were you able to speak with decision-makers?

Now, if you’ve collected enough data through interviews, take a day off and let the information sink in.

How to Make the Most of B2B Customer Discovery Problem Interviews

If you don’t want to lose a ton of money and time, your ideas should be guilty until proven innocent.Trevor Owens, Lean Startup Machine CEO

You were able to schedule meetings with early adopters all through next week; great opportunity to start selling, right?

The worst thing you can do with problem interviews is to try to sell. You don’t know what your prospects want, you have no idea what the solution could be, and you don’t even know if the people you’re meeting are people you would like to sell to. You have to find a jury and a problem to tackle before thinking about sales.

Setting the right context to the interview is paramount.

If the meeting is too much about sales, then you’re really narrowing the conversation by asking prospects to react to a solution to a problem. The meeting is no longer around finding the best opportunity possible for your startup, it’s about convincing the prospect that your value proposition makes sense.

You don’t learn through sales calls, it’s not customer validation.Jason Cohen, WPEngine Founder

If the meeting is too much about the product, then the prospect is completely separated from their job and the context becomes the product. The meeting is no longer about whether that prospect is considering solving that problem, it’s about helping you add features to a product for someone else.

To be successful, you have to shift the context to learning. In a learning context, the customer does most of the talking and you don’t have to know all the answers. You’re not trying to knock down the barriers; you’re trying to find out what they are in the first place.

The early adopter must remember the meeting as a validation meeting, not a sales pitch. In the first few meetings you shouldn’t mention your solution. You’re there to talk about their problems, not your solution.