Startup Market Segmentation: 5 Steps to Selecting a Target Market

Startup Market Segmentation: 5 Steps to Selecting a Target Market

For startups, breaking your market up into addressable market segments is important. First of all you have limited money and people to execute programs, therefore you have to focus your efforts on the audience that has the highest probability of purchasing. Secondly, focusing on a segment allows you to build early momentum more easily – awareness and word of mouth builds faster across like-minded groups, and success stories resonate well across a segment of similar prospects. A key element of your company’s positioning is “Who are you selling to?”. It sounds like a simple question to answer but often for startups, a sloppy market segmentation is the root of a lot of marketing (and ultimately sales) problems. When I ask the question “What’s your target market?” I often get an overly simplistic answer like, “SMB’s”. That’s just too big to be a practical target market for a startup. You aren’t going to close business with every single SMB this year are you? Of course not. You are going to close business with a certain kind of SMB. A special snowflake sort of SMB that gets what you do, loves what you do, and will pay money for what you do. You’re going to sell those weirdo, magical, unusual SMB’s that are willing to ignore the fact that you’re small and broke and you’ve never really done this before. What makes those people so strange and awesome? The answer to that question is the key to your segmentation. “What are the characteristics of prospects that love my unique stuff the most?” Here are some steps to choosing a good market to target: Really get a...
“My Friends” is not a Market Segment

“My Friends” is not a Market Segment

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...

Should Your Horizonal Startup Focus on a Segment?

Over on Sprouter, I’ve been answering startup marketing questions and I keep getting variations on this one (I’m paraphrasing): We are developing an application similar to Yammer. I’m struggling with defining my target market and positioning because my product can be used by small or large organizations in various industries. Do I need to focus on a niche or not? I know it’s important to go after a specific market segment in the beginning, but I don’t think Yammer did this and they are successful! Market strategy isn’t as transparent as you might think.  Yammer seems like a good example so let’s look at them.  You can see a partial customer list here.  About half of the customers listed are in “Technology” or “Internet”.  There is anther group called “professional services” which includes folks like Deloitte and Edelman who either service tech clients or resell technology. Even some of those listed in other categories I might call Technology as well (For example, I wouldn’t call Pitney Bowes “Manufacturing” per se and Swiftcurrent Strategies is a social media consulting business that happens to focus on “Government”).  It’s possible they didn’t focus on technology as a segment.  Maybe they focused on “folks that understand the value of Twitter” which ended up being a lot of tech and services companies focused on social media.  However it happened, I can see an obvious segmentation there. Regardless of whether other startups are segmenting or not – should yours?  I personally see some obvious benefits to taking a more targeted approach: 1/ If you have sold one deal there you know you can sell another...

Avoiding the Number 1 Startup Marketing Mistake

The past 2 days I’ve answered a bunch of marketing questions from entrepreneurs on Sprouter‘s new Answers forum for startups (more on that later).  There were a few themes that emerged but one really came into focus when I got this question: What is the number 1 startup marketing mistake? My answer?  They try to market to everyone. I understand how startups get there.  There is a sort of straightforward logic that says that the more people that are aware of your product, the more will check it out and ultimately pay you for it.  This would work if your product was suitable for everyone (it isn’t) and you had a marketing budget big enough to reach everybody (you don’t).  The trick to effective marketing is focus your efforts on the segments that are the best fit for your product.  Those segments have the strongest need for your product and the best understanding of the value you offer.  By marketing to everyone, you run the risk that the folks that are the most likely to buy from you either never hear about you or when they do, can’t recognize the great fit your product is for them because it appears to be built for “everyone”. Here are 4 reasons you should focus your marketing efforts on specific segments: Targeted Messaging and Offers are Always More Effective – If you are selling t-shirts for fashion conscious 20-something’s you will probably emphasize the styling.  If your business is selling t-shirts to kids sports teams you might emphasize the durability of the shirt or the low cost.  If you are selling t-shirts...

Crafting Simple Value Statements

Products can be like babies for founders and we all know what babies are like.  When we’re talking about MY baby, I’ve got a lot to say.  Look at her remarkable crawling technique! Her charming smile! And she smells like flowers!  Meanwhile there isn’t much to say about other babies that are just doing regular baby stuff like crawling and smiling and stinking like poop. Much like proud parents, founders often go overboard with messaging by talking a lot about features that are either non-differentiating or irrelevant for their target market.  When working on messaging for startups, it’s often harder to get agreement on what NOT to say than it is to decide what should get talked about. Here’s a strategy for getting to a simple value proposition that I’ve used that seems to work. 1.  List out your target segments and stack rank them.  If you don’t have a released product yet or are in the early stages of getting customer feedback, you won’t know exactly what these are but your research should give you some clues.  Here’s a hint – the whole wide world including people without a computer is not a segment.  I’ve yet to work with a company where we couldn’t identify at least 5 potential target segments that we could stack rank according to which ones we thought we had the best chances with. 2.  List your key differentiated points of value.  This isn’t a feature list.  It’s is a list of unique benefits that your features provide.  Things on this list should look like “Gives network managers better network visibility to stop a...
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