How to Define Your Target Market
In a recent post on investment pitfalls, we touched on two areas where B2B tech startups often fail to execute. One is their inability to successfully recruit their first Sales hire, the second is an inability to properly define their target market. This post provides insights on how to avoid execution issues arising from poor (or no) target market definition.
Let’s start with why a B2B tech startup should define its target market.
Our target market at The Right Five is B2B tech founders looking to hire their first salesperson. We provide a proprietary sales recruitment technology that automates the assessment of candidates and brings you Pathfinders, the type of salesperson proven to thrive in bootstrapped startups.
Could that recruitment technology be used in similarly placed B2C companies? Yes. Could it be used in larger organisations who are maybe looking to launch a new product/division and need to hire a salesperson to lead the charge? Again, yes.
So why do we restrict the market we go after (to bootstrapped B2B tech)? Because we, like you, have limited resources (both headcount and financial) and we want to focus those limited resources on the market we best address. That’s our proactive approach to spending our marketing dollars. As we grow we’ll address other markets, leveraging the success we’ve had in our initial target market. It’s what Geoffrey Moore (of ‘Crossing the Chasm’ fame) referred to as the bowling ‘ten-pin’ approach. Knock the first one down and the others will follow.
From a reactive standpoint, if we’re approached by a B2C company looking to make their first Sales hire, then we’ll deal with it on a case-by-case basis, but we’re not going to let that reactive enquiry deflect us from our initial target market strategy.
Soundbite of the day comes courtesy of Scott Martineau at Keap, “if you target everybody, you target nobody”.
In your case, what’s that target market that you serve best? Identify that and focus your resources there. Here are some thoughts on the rationale behind identifying your target market. I’ll use my previous ‘CEO of a text analytics startup’ experience as a supporting case study.
We’re assuming here that you’re at the stage where you have some founder-led sales wins and you’re considering making that first Sales hire.
Do your existing customers collect around a specific market segment, location, functional group (e.g. customer service or sales etc.)?
If yes, is that a good target market? Is it easy to sell to? Does it fit your product today? Are your existing customers happy with what you have delivered?
If you can keep answering “yes” then you may be on to something. If you’ve got “no”s in there then move on, look for something else.
In my own text analytics case study example there were lots of university customers, and some public sector when I took over as CEO. For a startup expecting to ramp very quickly these sectors looked to me as either small ticket sales or a very long sales cycle, or both. They weren’t going to work.
So I sat down and created a matrix of potential sectors/functional groups/broad uses. The product was excellent (but generic) text analytics software that could be used in a zillion different ways in any sector you can think of. Plus, social media was in its infancy (2007) so Twitter analysis (e.g. for customer sentiment) was an option too.
As you’re doubtless thinking of rapid growth, your Pathfinder salesperson is going to have to think about how you’re going to achieve that Are you going to sell direct, or OEM your technology (embed it in someone else’s solution and have them indirectly sell it), or are you going to sell through partners (either resellers or referral partners)? Which plays best to your technology? Can you already see your ideal partner out there? If so, what market are they in? Can you target that market directly and create a splash as a way of accelerating partnership discussions?
In our text analytics example, I’d honed in on customer insight as a great target area across multiple industries. Our product was excellent at extracting actionable insights from a mass of data with little to no setup effort, introduced no bias, and worked extremely quickly in multiple languages. At the time (and probably still the case today) market research firms were trying to survey their clients’ customers with pre-set responses (i.e. bias) to questions. Why do you love/hate us, is it A, B, C or X, Y, Z. Not much use when the answer is not listed. Equally, providers of Net Promoter Score (NPS) solutions had their magic score for ‘what’ customers thought but not ‘why’ – they had little capability to analyse the mass of open ended responses to “why did you score us that way?”.
That defined our target market and even the partner companies who could take our SaaS solution to market through their own products/channels. We became ‘the why, not just the what’ company.
A further consideration for your target market is – does it already exist or are you going to have to create it? Are you entering a me-too market where you have some differentiators but there’s an almighty gorilla already in place? That’s tough. So is creating a totally new market, but focus helps.
Imagine you have a CRM solution that’s super easy to use and has some limited (but useful) add-on capabilities for marketing automation (or social media management, or all of it). Do you target broad CRM and run into Salesforce and Dynamics? Or go after ‘small businesses’ maybe? That’s still a gigantic market segment. How are you going to address it? Niche, niche, niche down.
A few final points, somewhat inter-related.
- Treat your first target market as the lead skittle in ten-pin bowling. Knock that one down and others will follow. You’re not committing to one target market forever. If you have tech that’s broadly applicable you can go after other markets with the success of the first under your belt.
- Treat your available market as infinite. Meaning, there are many fish in the sea. If your first discussions are not going as planned (“if only it did this, or that”) don’t throw everything up in the air and start doing dev work based on limited feedback. There will be others out there that ‘get it’, you just need to find them.
- Play to what your product is really good at. If I made one slight mistake in the go-to-market of our text analytics case, it was adapting the tool output (results reporting) to what my left-brained NPS partner wanted. The existing output was brilliant for right-brained people, but he “couldn’t read the tea-leaves”. I could, and there were millions of other right-brained people who could have too. Focus on what your product’s good at!
Hopefully some of those pointers on identifying your target market are useful to you. Comments are always welcome and, if you have questions, feel free to ask via the comments.
If you need help ensuring you get your first Sales hire right, we are The Right Five. We deliver five Pathfinder candidates to you so that you can select the right one for you. For more information, please leave your e-mail address in the form in the left hand column.