Your choice of initial target market should be the culmination of all the work you have done so far to create the product or service you are delivering.
If you are uncertain which way to head, review the decisions you have made to this point and ask yourself what they tell you about your customer and your business.
If you don’t know why you made the decisions that have led you to where you are now use tools like Empathy Maps, Value Propositions and Business Models to find out.
If you are still not clear who you are selling to then you may have missed a critical step in the creation of your business. Create a Go-To-Market strategy that helps you see the wood for the trees.
The answer lies in what is missing
Recently I’ve had several start-ups ask me about how to decide which of several markets they should target with their new product or service. I will admit to being slightly at sea when responding to this question initially. It’s not something I’ve thought about directly before, which made me think that I should write a blog post about it. Here it is.
Deciding on your market definition is the first stage in creating a Go-To-Market (GTM) strategy. Like many things business-related, defining your market and creating your GTM strategy are not linear processes. If you are having trouble defining your market it can help to consider your overall GTM strategy and work out the best approach from there.
What is a go-to-market strategy?
A go-to-market strategy generally includes a business plan that outlines how Marketing, Sales, Customer Success, Product Engineering, and product teams intend to work together to ensure growth and measure the success of your product. Typically, a GTM strategy asks a handful of questions; these questions are then answered differently depending on the growth tactic your business is implementing. Molly Stovold, Build a Product That Sells Itself With Product-Led Growth
In simple terms, a go-to-market strategy is the mechanism you use to bring a product or service to the market.
There are many sources of wisdom when it comes to creating a GTM strategy. They largely agree on the essential elements of such a strategy, which are:
- Market definition: Who are you targeting when selling your product or service (this is the question that initiated this blog post)
- Target audience: Which particular customers are you focusing on within your chosen market?
- Distribution model: How do you propose to deliver your product or service to your chosen customer?
- Messaging and positioning: What is the story that is selling value to your customers and how does it differ from the competition?
- Price: How much are you going to charge and what is the cost of providing your product or service?
I was pondering these elements and wondering why it was that the start-ups I was speaking to were having such difficulty deciding which market to target. They are all headed by intelligent and motivated people, so how had they got to this point without knowing who they were selling to?
In each case, the start-ups in question already had a product ready to sell. They just weren’t sure who to sell it to first. It made me think that the answer lay not in what they had done so far, but in what they may have failed to do. In other words, the reason for being in the position they were in is down to what is missing from the picture.
How have you got to this point in your development without knowing who you are selling to?
This thought was rapidly followed by another:
If you’re not sure who you are selling to, how do you know that you are solving a real problem?
It’s all about the Customer…
For each of the start-ups I spoke to about market definition the problem they faced appeared to be an over-abundance of choice. There were so many possible customer segments they could target that it was impossible for them to choose the best one as a starting point.
My first response to this problem relates to the second ingredient of a GTM strategy as outlined above, the target audience. I found myself thinking:
Who did you have in mind when you were defining an initial problem to be solved?
All right, let’s start at the beginning. Hopefully you created a persona and an empathy map for each of your customers while you were investigating the problem, before you started creating your solution. If not, see my blog post on how to create your persona.
Create as many personas/empathy maps as you have paying customer types. What are the job titles associated with your personas and do these give you any clues as to the size of the business you are selling to?
Ask yourself “how many of this type of person exist?”. You don’t need an exact number (and you’re unlikely to get one), but probably have a gut feel for whether there are 1, 10, 100 or 1,000,000 of them. Work in orders of magnitude.
When discussing customer types I find it useful to think of them in the following terms:
- Rabbits - These are small customers, usually individuals. Each of them only pays a very small amount (typically less than £50, and often less than £10 per purchase) and you will need hundreds of thousands, or even millions of them to make sufficient revenue for your business to be viable.
- Deer - These are medium-sized customers, usually SMEs. They pay a moderate amount per purchase (more than £50, often hundreds or thousands of pounds per purchase) and you will need tens or hundreds of them to be a viable business
- Elephants - These are the biggest customers you can get. You only need a handful of them because each is paying a significant amount (multiple hundreds of thousands of pounds) per purchase.
Each of the customer types, rabbits, deer and elephants, will require significantly different techniques to reach them and will place different demands upon your organisation to serve them effectively.
If you have several different customer types, and you have completed value propositions for each customer, which type offers the greatest return to the customer for the least effort on your part? Have you identified a niche? If not, why not. What is stopping you from recognising your ideal customer? Remember that if you try to sell to everyone you may end up selling to no-one!
Have you clearly defined the value that you’re giving to these individuals? How much value are you giving? Is it a small amount or is it a lot, because that’s going to determine how much they are likely to pay for it, which is also a good indicator of the kind of market you should be aiming for - rabbits, deer or elephants.
…Well it’s mostly about the customer, but it’s also about you
If you already have a product and the customer questions I outlined above still don’t tell you which market to target initially then try looking at yourself and your capabilities as a business to define your market.
I’ve written before about how to validate your business idea with both individual and business customers. If you haven’t reached out to your potential customer market so far then the recommendations in these posts may help you identify your ideal target.
While you are doing or reveiwing your customer validation you can also assess the team you have. Do you have the necessary capabilities to reach your potential target market, and if not how much will it cost and how long will it take to expand your team to fill the gaps?
Remember that the larger the organisation, the more people will be involved in the decision to purchase. Harvard Business School estimates that, with respect to B2B sales, there are an average of 6.8 people involved in the purchase process. You can find definitions of these customer types in this blog post. You are going to have to identify the goals and pain points of each of these individuals in order to sell it to all of them.
The point is that it is much harder to sell to a business than to an individual, and the larger the business the more people will potentially be involved in the decision. Do you have the time and or resources to find out who all of those people are and to engage with them?
How much money do you have to spend acquiring customers and what can you afford to buy? Remember that rabbits, deer, and elephants require different strategies and a different marketing techniques to reach them.
Going for rabbits means that you’re going to have to do a lot of online marketing, and that may not be as cheap as you think. In fact, it can turn out to be very expensive, especially if you don’t have much marketing experience and have to spend time refining your message so that it lands.
If this is the case, consider hiring a marketing manager or outsourcing your marketing message to an expert. At the very least, engage with a copywriter. A copywriter is likely to ask you all sorts of really awkward questions that you may not have asked yourself, or may find too hard to deal with by yourself.
In order to write the copy that you need to sell your product or service, they’re going to have to know who you’re selling it to, and why, and what the advantage is to the customer. They’re also likely to have more experience than you in the different methods, difficulties and costs of reaching that particular type of audience. Don’t feel you have to do it all yourself.
Remember that the smaller your target customer the easier it is for them to make a buying decision. The converse of that, of course, is that the more people are involved in the decision, the more valuable it is likely to be. Because of this, it will also take much longer to land an elephant than any other type of customer. Can you afford the 6-12 month lead time it will take to land a deal?
Elephants require a whole extra level of work to deer or rabbits. Chances are that in order to reach elephants you will need a high-flying sales team and bucket-loads of credibility in your chosen field. That sales team is going to be expensive. What credibility do you have in your target market? Can you get reference customers? Can you got testimonials? What you can achieve with the money and resources at your disposal?
Do you currently have any customers at all, and if so what sort of customers are they? What can you do to enhance your customer machine to get repeat business? If you’re not happy with your current customer segments, ask yourself, why not? What is wrong? If you’re not earning enough revenue should you be charging more? Can your chosen customers afford to pay what you need for what you’ve built, assuming that they have the problem that you’re trying to solve?
All of these questions relate to positioning and price, but what about messaging?
What have you got to say for yourself?
What’s your story? How can you persuade your chosen customer segments that they should purchase a product or service from you? The more personalised you can make your offering, the more likely it is to land. Can you do that on a large scale? Does that limit the size of the audience that you can realistically reach out to and connect with?
Whoever you’re targeting you need to devise a campaign strategy. You’re going to waste a lot of time and money if you start marketing yourself to any particular group without any idea of what your market strategy is, or what you’re trying to achieve through the marketing process.
Ask yourself “why am I selling to this particular group?”. One of the obvious answers is going to be “because I need to generate revenue”. So then the next question that immediately follows that is “how much revenue do you expect to generate from this market?”.
How much do you think you’re going to make, and by when? What are the markers in the sand that tell you whether your strategy is working, or if you’re targeting the wrong customer? There must be reasons other than revenue for why you are going for a particular customer. Maybe they’re the only people who receive value from your product or service.
Remember that the key to this is the value that you are adding to your customers; how much, to whom and how easily they recognise it.
How can you explain the value to them in a way that makes sense and encourages them want to buy from you? But maybe you have other requirements from your campaign, maybe you want a blue chip recommendation. Maybe you want repeat business. Maybe you just want immediate revenue.
If you already have customers and you’re still worried about your market segment, ask yourself what it is about your current customers that is not answering the question that you set yourself when you acquired them. What can you do to change that, if anything? If you don’t have customers already then do you have a list of prospects? If you don’t have a list of prospects, make one.
Now, think of who your ideal customers might be. Take a look at people who were already paying to solve the problem, either by buying an inferior product or service or in some other way. Perhaps they’re developing a solution internally.
Try reaching out to the potential customers on your prospect list. Are you getting a response? Is your message landing with any of them? What do they have in common, if anything? What are your realistic chances of obtaining that particular customer? If you don’t know, build an experiment to find out.
Who’s on your side?
Finally, Take a look at your business model (you do have a business model, right?). This should be sending loud messages as to the type of target market that is right for you.
What routes to market have you identified, and are they suitable for your target market? What partners do you have and how can they help you reach your market? What key resources are in place and which are missing?
How long is it going to take you to get the missing pieces? What can you do with what you have? Which market can you obtain 80% of for 20% of effort?
I realise that I have asked a lot of questions in this post and provided very few answers. This is because creating a GTM strategy and choosing your target market is not a ‘one size fits all’ operation.
Only you can decide what is right. If you’re having trouble deciding, ask yourself some of the questions I’ve asked here. The beauty of this is that, if you’ve done your homework, the answers should be clear from what you have done so far.
If that still doesn’t give you the answer you may have to consider going back to the beginning and starting again. I know this isn’t what you want to hear, but if you aren’t taking decisions based on evidence what are you basing them on?