How to find valuable market segmentation
by Joe · 98 things on Twos
- Rarely does a technology articulate a customer need that is so deep a group of people are willing to pay you a meaningful amount of money to solve it
- Often some of the most interesting beachhead markets exist on the fringe of the spectrum
- ===
- Get the right people in the conversation
- Domain experts
- Technologists
- Creative types
- Facilitators
- You're not just making a list of potential markets - you're also selecting and refining your initial team and creating alignment
- Cohesion comes from all the members of the team participating in the formation of your organization and understanding it's direction
- Just knowing the final answer is not as empowering as deeply understanding why the answer was agreed upon
- Disconnect from everything for a full day
- Get a lot of sticky notes [Twos] and encourage participants to jot down ideas as they come up with them and share them.
- Better yet, whiteboards
- Follow the five basic rules...
- Defer judgement
- One conversation at a time
- Stay focused on the topic
- Encourage wild ideas
- Build on the ideas of others
- Appoint a facilitator who will enforce the rules above
- Make sure everyone gets input and avoid dominant personalities controlling the conversation
- Get everyone in the right mood
- The night before (first third)
- The day of
- Explain the key points and reasons for "yes, and..."
- Focus on being specific
- Make sure everyone understands they are brainstorming potential end users
- Don't worry now about who will pay for the product, focus instead on end users who would gain significant value from the product
- Don't discourage any ideas in the first pass
- Just get them out and write them down in a nonjudgemental fashion
- ===
- Determine: Industry or Similar Category // End Users // Use For My Product/Service – How/Why
- Narrow your segments
- The goal is to get a manageable list so that you can do a deeper analysis of a small number of market segments before you choose your Beachhead Market
- 4-10 markets is reasonable
- Before eliminating a market segment, allow time for the group to discuss to ensure the group has all the information before making such a decision.
- This should be a powerful alignment process
- Vote to create a prioritized list
- Targets to consider for my startup
- End user
- Target customer well funded?
- Target customer readily accessible to sales force?
- Target customer's compelling reason to buy?
- Can you deliver a whole product?
- Is there entrenched competition?
- Can you leverage this segment to enter others?
- Consistent with values, passion, goals of team?
- Rank
- You may be tempted to fill in the market segmentation matrix with what you already know
- Gather information by interacting directly with potential customers how they work today and what their pains are
- Don't assume you have the answer for a customer and start advocating your ideas
- Don't get too fixed in their opinion early in the process (ie stubborn)
- You don't have sufficient data at this point to make decisions
- The best way to tackle the matrix is to assign each market segment to a subgroup within the team
- Set a deadline to get a first pass done on the matrix
- Eliminate some markets based on the first pass
- Do not allow individual personalities or debating skills dictate which market is chosed, but rather a systematic analysis
- If someone is getting too emotionally attached to one market, ask them to debate why the team should NOT pursue that market
- Market segmentation matrix
- Market segmentation name
- Carefully name the market segment so it appropriately and precisely captures the group you want and no more; it is okay to be general at first, but you will have to narrow this down in time to make real progress.
- End user
- This is the person who is actually using the product, not the economic buyer or the champion even if you are selling to a company or a general organization, you want to list here the people in that company who will be using your product.
- Task
- What exactly is it that the end users do that you will significantly affect or allow them to do that they could not do before?
- Benefit
- What is the benefit that you believe the end users will get?
- Urgency of need
- What is the level of urgency to solve the problem or capture the new opportunity for the end user?
- Example end users
- Who are examples of end users that you can, have, or will talk to, so as to validate your perceptions of this market segment?
- Lead customers
- Who are the influential customers (i.e., lighthouse customers) where, if they buy the product, others will take note and likely follow?
- Willingness to change
- How conservative is this market segment? How open are they to change? Is there something to force change (e.g., impending crisis)?
- Frequency of buying
- How often do they buy new products? What does their buying cycle look like at a high level?
- Concentration of buyers
- How many different buyers are there in this market segment? Is it a monopoly? Oligopoly (a small number of buyers)? Or many competitive buyers?
- Other relevant market considerations
- High employee turnover, very low margins/commodity, high-growth industry, high virality effect (ie., word of mouth), etc.
- Size of market (# of end users)
- Estimation of the number of end users to a relevant range (10s, 100s, IKs, 10Ks, 100Ks, 1Ms, etc.).
- Est. Value of end user
- A first-pass estimate of the value of each end user
- Competition/alternatives
- What will be your competition from the end users' perspective? Include the "do nothing" option as well as who else would be competitors if the end users analyzed their options.
- Other components needed for a full solution
- The complementary assets that you do not currently have but would need to build or acquire to give the end user a full solution.
- Important partners
- Who are the partners or distributors you will have to work with to fit into the end user's workflow?
- Other relevant personal considerations
- Where the market segment is geographically centered, whether it matches the values of the founding team, existing knowledge and contacts in market, etc.