“My Friends” is not a Market Segment

06/07/2011

Here’s the scenario. You have a startup that offers a cool new online service. You release it and put the word out to all of your friends. “Hey, do me a favor and please sign up for my new service!” Loads of them do. “Amazing,” you think to yourself, “I’ve got traction!!”

Not so fast bub.

What happens next? You’ve targeted all of the friends you have. Who do you target next? You have no clue because you haven’t focused on a market segment, just a (somewhat) random group of people.

Traction Needs to be Traction in a Market

Not all traction is created equal. In fact, I would argue that you need to have traction in a market segment (or segments) in order for it to be meaningful. And by meaningful I mean the kind of traction that gives you an indication that you can scale and a path to doing that.

What is a Market Segment?

A market segment has 2 key attributes:

Identifiable – I can describe the segment in such a way that it can be specifically targeted. This can be demographics (new mothers under the age of 30 in New York) or role driven (IT managers working at companies with less than 500 employees) or company-oriented (Canadian retail banks with branch offices in different provinces) or even environment driven (companies with large Oracle data warehouses in North America). The more specific this is the easier it is to identify the folks and target them.

Common set of needs – This is the need or problem that your solution solves. Examples would be: a need to share photos with family members; a need to store large amounts of data for analysis as cheaply as possible without investing in training; a need to share data across branch office using the existing bank infrastructure; a need to provide better end user response times so that the sales force can close deals faster and reduce customer wait times. You get the idea.

Coming back to “Your Friends” as a potential segment. They meet the “identifiable” requirement – you know who your friends are. They may even fit into a demographic – 20-something, university educated social media users for example. If I just think about segmentation that way, they would certainly look like a segment.

But unfortunately they are not because of the second requirement. Do they have a common set of needs? You might argue that they do but you certainly won’t know it because you convinced them to sign up for your service. “Doing you a favor” might actually be the need you are meeting and unfortunately they are the only segment in the world with that need. Getting traction in solving the “Doing you a favor” problem does not scale. Once you have signed up as many of your friends as you can, you don’t have any indication of who to target next.

Wait, My Friends Do Have a Common Set of Needs! I’m Good, Right?

What if you could pick a sub-section of your friends that had a common set of needs? Would that be a segment? Now you’re getting warmer.

So you go back to your pals that signed up and asked them – “tell me the truth guys, why did you sign up?” Throw out the ones that said they did it because you asked them to. Then have a conversation with the rest about why they did. What are the patterns? Do those patterns start to look like a segment? For example – your friends with kids signed up because they wanted to do X or your gamer friends thought your product could help them do Y. Then of course you have to go target that segment and see if folks in it that aren’t your friends are willing to sign up too. If they do, chances are you have a market segment you can target. Now you know what to do next. You go out and target more folks in that segment. When you think you’ve tapped that segment out, you target an adjacent segment that is similar.

That’s sort of a B2C example but this applies to B2B in the same way. If you sell a service for IT managers and manage to sign up a couple of IT managers that happen to be your pals, that’s great. But sign up a few that aren’t your pals, and suddenly your business just got a whole lot more real.

The common thread here is that you don’t really know what you have until you move beyond your pals.

Growth moves through segments. You get traction in one segment and then you branch out to adjacent segments. If you don’t target a segment (or worse, decide your segment is “everyone”) you may get traction but you won’t necessarily understand why and you won’t know what to do next.