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!

3 Reasons Why B2B SaaS Companies Fail to Scale Past Early Adopters

There are countless reasons why B2B SaaS companies fail to scale.

According to CB Insights’ analysis of 269 startup post-mortems, the top reasons for startup failure are lack of market demand, competition, team, cashflow, and pricing:

3 Reasons Why B2B SaaS Companies Fail to Scale Past Early Adopters – Top 5 Reasons for Failure
CB Insights – Top 5 Reasons for Startup Failure

With this post, I wanted to highlight the 3 main reasons for failure when it comes to scaling a B2B software-as-a-service company:

1. B2B SaaS Companies Mistake Early Adopters for a Market

The classic mistake is to confuse a few early adopters with an actual market. Not being able to replicate early successes leads to growth and sales slowing down.

Early adopters leave as quickly as they arrive. They can leave you with a ruined startup if you don’t make a push for the early majority.

At LANDR, where I used to work, I dug into the profiles of the company’s early early adopters – the first power users. I was hoping to do customer interviews with them.

Turns out that, 2 years in the life of the company, less than 20% of the early adopters were still using the product. The others had moved on to other products or opportunities.

As a market segment, early adopters aren’t particularly known for their loyalty.

2. They Try to Scale Too Quickly

Premature scaling is one of the most consistent predictors of startup failure. As a founder, it’s something to fear.

Startup Genome says premature scaling happens when entrepreneurs “focus on one dimension of the business and advance it out of sync with the rest of the operation.”

It can be:

Hiring too fast:

Virtual assistant startup Zirtual hired almost 500 employees over the course of a couple of years. Their cashflow wasn’t calculated properly. They let go of 400 employees overnight via email. The next week, they got acquired by Startups.co for, probably, dimes on the dollar.

Hiring too fast is one of the biggest killers of startups raising money.

Focusing too heavily on early adopters:

Learning Management startup RateMySpeech invested heavily in a product that only appealed to 5 percent of their initial target market. In other words, they built it for outliers.

Lack of demand caused the end of their business.

Spending too much cash:

With raising money comes the pressure to spend money. And demonstrate progress to investors at all cost.

With sufficient cash, you can always get more users or customers. It doesn’t mean that this approach will be “scalable” though. Churn often kills B2B SaaS companies when they have bad retention metrics (See: How to Run Customer Exit Surveys to Improve Product Retention).

3. They Don’t Really Have Product-Market Fit

You’re taking a huge risk if you decide to scale-up without proven Product-Market fit. There’s no guarantee that a market for your product exists. Even if it does, it might not be able to sustain your business.

Without Product-Market fit, major investments in marketing, sales and customer success are premature.

No amount of sales and marketing savvy can sustainably sell a product nobody needs.

When problems appear, it’ll be impossible to determine whether your business is stagnating because of inefficient growth strategies, or because your product doesn’t have full product-market fit.

Y Combinator CEO Sam Altman says: “Hiring before product/market fit slows you down. Hiring after it speeds you up. Until you get product/market fit, you want to a) live as long as possible and b) iterate as quickly as possible.”

Lean Startups don’t try to scale their businesses until they have product-market fit. You need a car to put gas in the tank!

Product-Market fit is a per segment / per product thing. It constantly needs to be improved.

Make sure you avoid these 3 mistakes. If you’re not sure you have full Product-Market fit, check out the Lean B2B book; it helped thousands of startups on their way to product-market fit.

When’s the Best Time for My Company to Enter a New Market Segment?

You chose a beachhead market. Aligned internal stakeholders. Repositioned the business and external messaging. Wrote amazing case studies. Tightened your product-market fit. Switched to a proactive growth model. And business is booming.

Don’t stop.

It takes discipline to expand gradually.

Now, there’s 2 things that’ll need to happen:

  1. When the timing’s right, you’ll transition your messaging to cater to late majority customers.
  2. When your business is solid enough, you’ll expand into adjacent market segments.
The Adoption Curve & New Market Segment Expansion
The Adoption Curve – Transition to The Late Majority

Looking for New Market Segments

It’s a good time to revisit the customers you contacted before, but that didn’t purchase.

Has the tide changed?

The late majority – or conservatives – is the last significant market segment in the adoption curve. Like early adopters, they’re stubborn in their resistance to the early majority.

The late majority only buys when a product has become standard. In other words, they follow the early majority.

That’s why they’re a great gauge of whether or not you’re dominating your beachhead market.

Their primary objective is to avoid risk and “don’t screw anything up.” It’s your “no one ever got fired for buying IBM” type of customers.

They want to see proof before deciding to use a product. They’ll put off using it until it’s really easy to adopt.

They might know of your company or have become aware of it through their early majority contacts, but they’re quite different from them.

At this point, you’ll definitely know of a few prospects that seemed like perfect fits as customers, but were just not ready.

Revisit those organizations:

Have they become familiar with your product? Do they know of other organizations using your technology? Has the problem evolved? Is the timing better? Can you provide sufficient proof to de-risk implementation?

You’re looking for your tipping point, when – based on word of mouth and market share – your niche market segment dominance becomes inevitable.

When’s the Right Time to Enter a New Market Segment

More specifically, you want to consider expanding into new market segments when:

  • You’ve captured the largest market share within your beachhead – Are you at 30, 40 or 50% market share? Don’t stop until you dominate the market.
  • All prospects have at least heard of your product – Do you have good brand awareness? Can you do a market survey to find out?
  • You’ve already taken away the best opportunities – the most profitable, the fastest growing, the best customers. You want to make this an un-assailable position. Let competitors fight for scraps.
  • You have resources that can be freed up without reducing your grip on the market – You can service the late majority while expanding into new market segments.
  • You have the cashflow to build other salesforce, support teams and marketing pipelines.

When the momentum from capturing market share in your beachhead is felt, you can leverage it to expand into new market segments.

Expand gradually, and takeover more market opportunities.

More on New Market Segment Entry

How to Truly Own Your Beachhead Market in B2B

How to Truly Own Your Beachhead Market in B2B
© Control Alt Deceit: A Game of Lies, Betrayal and Questionable Business Strategies

In B2B, you need to change your mindset to truly dominate your beachhead market.

Your marketing, your distribution, your whole product, your focus — everything has to change.

Your value proposition has to change from ‘look at all the great things that can happen with our product’ to ‘here are the specific problems we can solve’.

It’s a very different game.

You need your one sentence benefit; it has to be crystal-clear.

As entrepreneur and author Tim Ferriss says, “People can dislike you or your business but they should never misunderstand you.”

You only get one shot at positioning per prospect. Your positioning should answer: How do we help customers like them. What’s so great about it? And so what?

It’s essential.

The great thing is that once your message is consistent and targeted, it becomes a lot more impactful.

Once you’re able to take on your prospects’ perspective, wants and challenges, you can speak to their reality.

At LANDR, where I used to work, it was not uncommon to see the performance of messages and landing pages double when switching from generic messaging – speaking to all customer types – to speaking to a targeted audience.

You can do the same.

At this point – and based on your new positioning – you’ll want to do a complete rework of your website, your sales collaterals, your ads, your landing pages, your social media accounts, your whitepapers, your testimonies, your client lists and case studies.

In all likelihood, you’ll need to go a lot further than that.

How to Find Candidates for Case Studies in Your Beachhead Market

Case studies are an essential currency in B2B. Along with in-person events, they’re often cited as the most effective B2B marketing tactics.

They’re good for quickly building credibility and giving you an edge over competitors, which is just what you need.

To find the right case study candidates, you should look for:

  • Customers with good product knowledge – They’ve used your product for a long time or use it extensively;
  • Clients that achieved exceptional results – They got a significant return on their investment using your product;
  • Customers with recognizable names – And here, it’s not names that are recognizable to you, it’s names your ideal customers would recognize. Who do they respect?
  • Customers that came to you after working with a competitor can also be good candidates; they’ll help highlight your competitive advantages and the ease of switching from another vendor.

Case studies are usually best included in contracts. Melanie Crissey, product marketer at FullStory, recommends working case study discounts into renewals, not new contracts, because when you sell a deal, you can’t know with certainty that the product will work for the customer.

Once you’ve identified a few candidates, you’ll want to reach out, find common ground and interview them. You can use this case study question list to make sure you’re asking the right questions:

How to Write Case Studies for Your Beachhead Market

A reasonable length for a case study is around 500 words. You want to make sure your case study has a logical flow and tells the story from start to finish.

A great case study allows someone to really get to know the customer.

You’ll want to:

  1. Explain the problem
  2. Introduce the company/product
  3. Describe how the challenge was overcome, and
  4. Sum it up, giving it a happy ending

You’ll include real numbers, talk about the specific strategy and quote your customer in their own words to make the case study relatable.

Now, getting case studies won’t always be an option. Some clients – even real early advocates – are limited in what they can say or share publicly.

In those scenarios, you can negotiate to use the company name and logo on your website, write a short testimony, publish a joint press release about the deal, write a blog post or technical paper about the experience, get the customer to take occasional calls from prospects or do a joint presentation at a conference.

There’s many ways to get creative here.

But even after having created compelling case studies, you’ll want to go deeper:

How to Truly Own Your Beachhead Market in B2B

You lose a lot of time learning a domain which isn’t yours. You’ll have a hard time being as credible as an expert from the market with established contacts.

As a founder, you should always think: Who in the industry already has the knowledge we seek? And, who can I recruit as partner, advisor or employee to gain that credibility?

Those people can be:

Advisors – People with influence or working for influential companies in your beachhead market OR market experts with the right connections.

When we were targeting our security beachhead market at Psykler, the name of a certain security specialist kept popping up.

It was clear that a lot of our prospects looked up to this person and that he had a lot of influence on the market we were targeting.

We invested a lot of effort in convincing that influencer to join us as an advisor. We made some headway, but it was still a work in progress when Psykler ran out of money.

Experts and salespeople selling or working in your beachhead market – There’s most likely people already selling to your prospects or working in other capacities to service those customers.

They already know what’s sellable; they know the levers and pain points. Chances are, they also have connections. They’re the people you want to hire to speed up market dominance.

Other companies selling in your market – You may be the first with this solution in the beachhead market, but there’s certainly other companies servicing the same customers. Get close to these companies.

They can help open doors, provide insights and, maybe, even partner up to help you capture market shares.

Finding Watering Holes in Your Beachhead Market

To integrate even deeper, you’ll want to discover the watering holes and go where the customers are. Where do prospects gather for pleasure or for work?

It can be a conference, tradeshow, seminar, restaurant, bar, hotel or professional association networking event.

Swedish data visualization startup Spotfire even set up their company’s sales office in the same building as the two restaurants where their targets – energy industry executives – met for lunch and drinks.

You need to go to the places where your target customers already are and piggy-back on those places to attract them.

Events and conferences are fast-tracks to communities / target markets. What events do your prospects value? Where do they go to learn?

Box CEO Aaron Levie jokingly says that every B2B company has a conference and that your company isn’t serious if it doesn’t have one. ;-)

That’s because it works. You want to build the community between customers; be the place where they want to be and learn.

Figure out what interests they share and how they buy.

You need to adapt to that reality.

It’s a lot of effort, but the more deeply you integrate in the market, the more your beachhead will pull you towards the things that truly matter.

How to Find Business Opportunities by Analyzing B2B SaaS Pricing Pages

A lot can be learned by studying B2B SaaS pricing pages.

Once you’ve honed in on a market, you can find business opportunities by analyzing the technology landscape, looking at what business customers are already buying.

You can speed up product-market validation by identifying gaps in the product offerings on the market and capitalizing on those opportunities. This is what this post is all about.

What You Can Learn by Analyzing B2B SaaS Pricing Pages

B2B SaaS pricing models are usually representations of the company’s business model.

The features, plans, price points and omissions all say something about the way the business delivers value to its customers. In other words, every line in a pricing table is intended to get a certain reaction from prospective customers.

By going through different pricing pages in the market you’re targeting, you can learn about:

  • The features that are most-valued by customers;
  • The “whole product”, or the features that customers expect;
  • Customer segments and the functionalities they value and pay for;
  • Typical engagement length and churn rates.

How to Analyze B2B SaaS Pricing Pages

You’ll need 3 things to successfully analyze pricing pages in your market:

  1. A clear definition of your vision: When you know what you’re trying to achieve it’s easier to define competitors and solutions worth including in your analysis;
  2. A list of the players in the space: You can find B2B SaaS products competing in your space (or related spaces) using Google or by querying sites like AngelList and Crunchbase;
  3. An idea of which businesses are successfully selling in the space: For this analysis, it’s best to focus on businesses generating actual money. You can use directory sites like Capterra, G2Crowd or GetApp to get a feel for a business’s customer base. Alternatively, some businesses might have published revenue numbers you can use.

Select the 10 to 12 most relevant products’ pricing pages. For each of these pages, we’ll look at value metrics, expected features, plan differentiations, add-ons and price points. It’s all below.

How to Find the Value Metric in a Pricing Table

A value metric is the main reason why customers buy a subscription (e.g. number of users). It’s also often the reason (e.g. ‘we need more user accounts’) why they upgrade to a higher-priced plan.

In the context of a multi-axis pricing model (e.g. number of users and features), it tends to be the main axis along which customers make purchase decisions.

As an example, project management tool Wrike (below) has both feature and seat differentiations for each of its plans:

B2B SaaS Pricing Pages – Wrike Pricing Page
Wrike’s Pricing Page

To find the value metric, look for the main benefit that fluctuates in either quantity or quality from one plan to the next.

Knowing what the value metric is tells you what businesses expect to pay for (e.g. users), and how they evaluate purchase decisions for this type of software.

How to Define “the Whole Product” with B2B SaaS Pricing Models

Typically, the common functionalities across the different pricing plans are part of the whole product – the things that must be put in place just so your startup can be considered a valid vendor by your prospects.

B2B SaaS Pricing Pages – Wistia's Standard Features
Wistia – Standard Features

Those features are important enough to be listed, because they have an impact on the buying decision, but they’re not strong enough to get customers to upgrade to a more expensive subscription.

You’ll probably have to build all of these features just to be able to compete with the specific product.

How to Analyze Plan Breakdown

A well-designed pricing page helps prospects quickly self-qualify:

B2B SaaS Pricing Pages – Leadpages Upgrade Path
Leadpages – Upgrade Path

A well-designed pricing page also makes it easy to understand the transition from plan to plan, by making the differentiating features and benefits crystal clear.

For the above example (Leadpages), a company would upgrade from Standard to Pro for:

  • Unlimited A/B Split Testing;
  • Online Sales and Payments;
  • SMS Campaigns;
  • Email Support.

They would also upgrade from Pro to Advanced for:

  • Advanced Integrations;
  • More SMS Campaigns;
  • Priority Support.

SMS campaigns seem to be a distinctive feature (possibly the value metric) that helps move customers from one plan to the next. For larger organizations, deeper integrations, advanced support and personal customer success drive upgrades.

Plan differentiations give good insights as to what different types of organizations and buyers value.

Are There Add-ons?

According to ChartMogul, roughly 20% of B2B SaaS businesses sell unbundled add-ons on top of their pricing plans.

B2B SaaS Pricing Pages – MailChimp Add-On Feature
MailChimp – Example of an Add-on Feature

Add-ons are features or feature groups that may only be valuable to a subset of the customer base. Those customers are generally willing to pay a premium for theses features.

These features hint at the existence of a sub-segment within the business’s core market. They’re opportunities to build niche products.

How to Analyze the Business Model

In SaaS, price sets perception. If the product is expensive, it may appear premium. If the product is inexpensive, it may attract a large number of smaller customers.

By displaying monthly prices first, the price point looks lower. By defaulting to annual plans, the price point looks higher. This can be a form of pre-qualification.

On top of the additional cashflow, annual plans help lessen the impact of churn or cancellations. Businesses heavily promoting Annual or Quarterly plans often do so to reduce a high churn rate.

The price points and plans most highly recommended say a lot about what a business’s ideal customer profile is.

B2B SaaS Pricing Pages – Survey Monkey's Default Yearly Plan
Survey Monkey – Annual Subscription by Default

Bonus Tip: Revisit Past Versions of B2B SaaS Pricing Pages

You can use Wayback Machine to revisit past iterations of pricing tables. This will allow you to see what businesses have learned about their business models.

  • If a feature was free and it’s now included in a paid plan, it usually means that it was driving upgrades;
  • If something was part of a paid plan, but it’s now available for free, it often means that it was a strong incentive to get prospects to sign up.

This information is valuable and can be used to define a good product positioning.

How to Find Business Opportunities from B2B SaaS Pricing Models

Once you’ve analyzed the different pricing pages in your market, you can start thinking about how to compete with the established players.

To overcome the status quo coefficient and get businesses to adopt a new technology product, you need to find an area where you can be 10x better than the known alternatives.

To find those opportunities, ask yourself:

  • Are there ways to deliver significantly more value along a similar value metric?
  • Can you offer the value metric for free (or at a discounted rate) and bring forth a new value?
  • Can you turn an add-on feature into a standalone product for a niche market?
  • Are there ways to offer more value by creating a product focused on the specific needs of a sub-segment?
  • Can you turn a differentiating feature into a core part of your business?

There are a lot of ways to position your product by focusing on a niche and emphasizing different value drivers.

Understanding what businesses pay for helps you focus on proven value propositions to speed up your product-market validation.