Develop/prioritize customer segments
- Updated on 23 Jan 2020
Develop your customer segments
Start your market segmentation by brainstorming a wide array of market opportunities. Include even the “crazy ideas” that you think are longshots, because they are helpful in expanding the boundaries of possibilities to where some of the most interesting opportunities might exist.
Once you have identified numerous potential end users and applications for your idea or tech- nology. Your next task is to list the top 6–12 particularly interesting market opportunities, where a market opportunity consists of a specific end user and one or a handful of applications.
- Is the target customer well-funded? If the customer does not have money, the market is not attractive because it will not be sustainable and provide positive cash flow for the new venture to grow.
- Is the target customer readily accessible to your sales force? You want to deal directly with customers when starting out, rather than rely on third parties to market and sell your product, because your product will go through iterations of improvement very rapidly, and direct customer feedback is an essential part of that process.
- Does the target customer have a compelling reason to buy? Would the customer buy your product instead of another similar solution? Or, is the customer content with whatever solu- tion is already being used?
- Can you today, with the help of partners, deliver a whole product? The example here that I often use in class is that no one wants to buy a new alternator and install it in their car, even if the alternator is much better than what they currently have. They want to buy a car.
- Is there entrenched competition that could block you? How strong are those competitors, from the customer’s viewpoint (not your viewpoint or from a technical standpoint)? Can the competition block you from starting a business relationship with a customer? And how do you stand out from what your customer perceives as alternatives?
- If you win this segment, can you leverage it to enter additional segments? If you dominate this market opportunity, are there adjacent opportunities where you can sell your product with only slight modifications to your product or your sales strategy?
- Is the market consistent with the values, passions, and goals of the founding team? You want to make sure that the founders’ personal goals do not take a back seat to the other criteria pre- sented here.
Example of market segmentation in a real company
Now that you understand how to get started with market segmentation, watch the two-part example to understand how it looks like in the context of a real company:
The Sensable Market Segmentation Chart
When you're done doing your market segmentation you should end up with something that looks like this:
Prioritize your customer segments
When you have identified several interesting customer segments, the problem becomes "which one should I go after first?". Below is a simple framework to help decide which one(s) to focus on first.
What is the SCALE framework?
The SCALE framework consists of 5 key criteria to help evaluate the interest of a segment:
- S = Size: How big ****is the segment?
- C = Currency: How big are their pockets?
- A = Access: How quick can you access them in person/on the phone?
- L = Love: How passionate are you about solving for their problems?
- E = Early Adopters: How badly does this segment want a solution to their problem?
Not every criterion is equally interesting to all of us. But each criterion helps us think about the potential of a market segment from a different perspective. The score is interesting, but it is the structured thinking part that is the important part.
No one wants to solve for a market that has no decent market size. A small market won't make viable sense. Would you rather deliver a solution that solves a problem for 100 people or one that solves a problem for 1000 people?
If we solve a problem for someone, we sure hope that the problem is enough of a pain that someone can pay for it. Not every great business requires people with big pockets, which in this case businesses will typically serve the masses to make up for small margins.
When in the early stages of a product, we want to make sure that we can easily access people that we want to validate with. It is critical to get infront of those customers early on and speak with them face to face - if not - at minimum by phone. This is why is it important to evaluate segments by our ability to access them (either through our own network, means of physical location and online reach). The sooner we can get a hold of a segment, the faster we can learn from them. Learning that we have invalidated something is better than taking 10x longer to learn if we have validated something.
We stand a much higher chance of succeeding in a business if we relate with the people we are solving for. If we dont than we have a harder time empathizing and inspiring to solve and build solutions that cater to their needs.
If we have multiple segments that we think may have a similar problems, than we have to make an assumption on who we think has the biggest pain. The ones with the biggest pain are the ones who are likely actively looking for solutions. If that's the case, then that makes them ones who are most likely to adopt our solution first.
One legend to allow you to score using SCALE
Choose 3-5 segments and score each according to the legend at the bottom of each column.
Give a "1" if there are 1000's of them in the geographic area,
Give a "2" if there are 100,000's of them
Give a "3" if there are 1,000,000's of them
Give a "1" if they have very little money
Give a "2" if they have some money
Give a "3" if they have a lot of money
Give a "1" if you can access them in a matter of weeks
Give a "2" if you can access them in a matter of days
Give a "3" if you can access them in a matter of hours
Give a "1" if you do not relate to them at all
Give a "2" if you can relate to them in some way
Give a "3" if you can really relate to them in many ways
Give a "1" if you think they can live without having their problem solved
Give a "2" if you think they have some level of pain enough to need a solution
Give a "3" if you think they are actively searching for a solution and would need a solution
After you give a score for each, make sure to multiply the columns for a particular segment and then identify the segment with the highest score. Again, the score is interesting, but it is the structured thinking part that is the important part.
Once you know which customer segment your want to prioritize and better understand, it is time to get out of the building and start interviewing people who are part of that customer segment.