In my last post I said I was going to talk next about how to get
started with a decent segmentation.  In my practical experience the
whole reason you want to have a few target segments is so you can build company expertise around a particular business problem in a particular market.  This understanding helps you satisfy those customers better, make decisions about the product direction, focus your marketing spend and helps your service and support people meet the needs of those customers better.

There are lots of ways to do segmentation but I am going to point out two key principles that have always lead to success in my experience:

1.  Well defined segments include both a
business problem and a vertical
(or in certain cases, a horizontal).
For example instead of saying that you are focused on the dreaded
“Financial Services” (which is so broad it can be ignored), you have
segments that look more like “retail banks that want to improve
customer retention” or “credit card companies that want to reduce their
amount of fraud”.  I am not against horizontal segments but it’s harder
to have one that is specific enough to be actionable.  For example, if
you say you are targeting “Small Businesses that need accounting
software”, it’s going to be hard for you to focus your marketing spend
unless you can put a bit more detail around which small businesses you
want to go after.

2.  Your product was designed with a
segment in mind – pick that one.
This might sound silly but I’ve seen
companies that have target segments where they actually have no
customers nor expertise/experience.  It’s pretty hard to figure out the
customer pains of a market you know nothing about.  Sometimes a startup
will have a product that was built for a particular segment but then
won’t want to say they are focused on that segment because it’s too
small.  That may be but if you can get a few deals under your belt in
that small segment, why wouldn’t you go after those first?  The
experience you get closing those deals will help you figure out what
customers really value about your solution and point you to the
bigger segments to go after.  It’s always easier to close the first few
customers by concentrating on what you know.

In my next post I am going to talk about some common complaints that startups have about sticking to a segmentation and what to do when that happens.

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