How Successful Companies Identify Their Customers
We’re living in an economic boom. It’s a time when unicorns are no longer mythical creatures but exciting, growing, successful companies. As any successful founder will tell you, it’s not just about a great idea and great technology. Getting to market and identifying your key customer segment are just as critical in ensuring both technical and business success. So how do you get started? Here are five steps to identify the right customer segment for selling your offering.
Step 1: Focus Your Sales Efforts for Success
To get your business going, focus on identifying a base of customers who are most likely to buy your app — that’s your target audience. Learn about their characteristics and business challenges. If you take this approach, you’ll likely have a:
- Higher lead-to-close ratio
- Shorter sales cycle
- Greater number of wins with accompanying success stories
- Passionate, engaged base of customer advocates
Why does this approach work? It provides direction to your entire team, particularly your sales team. It also helps you make the best use of the people and resources available to your business.
This approach is common. Steve Blank’s customer development model from his book Four Steps to Epiphany advocates a similar process.
Step 2: Identify Your Total Addressable Market and Available Market
Identifying your target audience starts with determining your total addressable market, or TAM. If, theoretically, you sell to every potential customer, the amount of money you make is your TAM. As you determine your TAM, start to analyze potential customers. You might discover that your TAM is too small due to the addressable market size. Better to find that out now rather than after you’ve built your product.
How much of the TAM can you capture given other competitors in your space? That’s your available market. Determine what companies exist and how many customers they serve. Also think creatively. You’re not only competing against existing competitors but also against any other tools that prevent a customer from buying your app.
As you research your available market, capture information about your competitors to use in the final stage of identifying your target market. Some attributes apply to all competitive analysis, such as share of market, product price, and market segment.
Step 3: Identify Your Target Market
Now it’s time to hone your market further and differentiate your offering from competitors.
- Competitor Attributes. Use the data gathered in determining your available market to focus your product and your sales. What can you offer that isn’t covered by a competitor?
- Customer Pain Points. Gather customer pain points by talking with potential customers. Learn about the processes they use, what is most challenging about those processes, and what they consider critical. Also, listen for comments that provide insight into your competitors. Consider asking some customers to be beta testers. Give them early access to your app, and use them as advisors as you build your product.
- Business Cycles. Your budget and the constraints of your business also determine your target market. For example, if you’re on a shoestring budget, you need to sell your app quickly so target customers with a short purchasing cycle. And make sure to revisit and continually optimize your proposed sales cycle. The key is developing a viable sales cycle that works with your customer segment to accurately forecast sales revenue. As with all the choices you are making, weigh the benefits and risks based on your budget and timing.
Step 4: Segment Your Customers
Now that you’ve identified your target market, it’s time to review the size of that market. A large target market is appealing to investors and provides good opportunity for growth in the future, but makes it difficult for your sales team to focus their efforts. It’s important to balance your marker size with an effective sales strategy. If your target market is too large, consider segmenting by region, industry, company size, or other attributes that are important to your business.
Step 5: Define Your Customer Persona
You’ve done the hard part — you’ve identified a particular market segment to focus on. Now you want a rich portrait of the typical customer, which helps all your teams make decisions critical to business success. Build customer personas to align your entire company around a shared goal.
Remember, the goal is to focus your energy and resources to give you a foundation in the market. You use the work we’ve done here when you create a business plan and a go-to-market strategy.