I think most start-up execs don’t really believe in segmentation.
Sure, if I ask for their segmentation they dutifully blow the dust off
a fairly nice looking slide that shows what markets they are
targeting.  Then I look at the customer list and the two things don’t
line up whatsoever.  The execs know they’re supposed to have a
segmentation that describes their target markets but they don’t
actually believe that following that segmentation is going make them as much money as they will if they ignore it.  Then it becomes kind of a chicken and egg thing.  Execs don’t
believe that the segmentation is important so no time is spent on it
and it ends up being either too broad, too ill-defined or both.  Then
because the segmentation is so weak, it doesn’t get used to drive
marketing/sales/product strategy and basically becomes completely ignored
unless some pesky investor asks for it.  Who wants to follow a crappy segmentation?  I sure as heck don’t.

The fact of the matter is though that for the vast majority of companies, there is no way they can meet the needs of a very broad market right out of the gate.  In order to be successful they need to narrowly define the business problem they solve which includes defining who has that problem.  I will get more into what I think a decent segmentation looks like in my next post but here are a few signs that you might have a problem with the segmentation you have today.

3 Signs that your Segmentation Might Suck:

  1. Your target market is “Financial Services”. I see this one a lot.
    Do you know how massive Financial Services is?  It’s huge.  In fact it
    accounts for about 50% of all IT spending world-wide.  When people say
    that they usually include Insurance, Retail Banking, Investment
    Banking, Asset Management, etc, etc.  Do you really think that a
    teller’s problems are anything like an Investment banker’s problems at
    the moment?  Better yet are the companies that say “We only have 3
    segments: Financial services, Manufacturing and Retail!”  Fantastic.
    We’ve established that you aren’t selling to your immediate family (oh
    wait, I could probably call that retail), but otherwise we are good to
    go!
  2. The majority of your revenue comes from outside your chosen segments
    – This is like your friend that says she reads Philip Roth but her
    bookshelf is full of Harry Potter books.  Your friends will still think
    you’re cool if you sell to the Transportation vertical (as long as
    you’re sized your market properly) and what’s more if you really *are* selling there wouldn’t it make sense to say so in your marketing materials?  Wouldn’t it make sense for your product plans to line up with what Transportation customers want rather than building something for a vertical you have never actually sold into?  It would!  Unless of course your
    revenue comes from every vertical under the sun which brings me to the
    next point….
  3. There is no discernible pattern to the companies you get your
    revenue from
    – Sometimes this is due to the segmentation including 14
    verticals (including financial services) but generally this simply due
    to a “take your victim as you find them” (as one sales exec I worked
    with called it) sales strategy where any revenue is good revenue,
    segmentation be damned!  I could go on and on about why this might be a
    good short-term strategy (and frankly, might even be the best one in
    some cases) but longer term it is going to cause you heaps of problems
    both in terms of an undifferentiated product strategy and direction, paper-thin marketing spend across segments,
    lousy customer service and support because your staff can’t be an expert at everything, and most importantly, revenue growth as your competitors become experts in slices of your market while you are left being kinda, sorta, but not really, good at everything.

My next post I will talk about some simple ways to get your
segmentation started without having to go back and get your PhD in
Marketing (even though I can’t imagine *anything* more fun than getting
a PhD in marketing, except maybe pouring hot sauce into my eyes) and how to spiff up what you already have so you aren’t starting from scratch.