How to define the first market segment for your product

Jamie Sunderland
Jan 31, 2018 · 3 min read

Startups and new products have limited resources so the use of cash, time and team has to be focused. Whilst you want to be in a big market, it’s impossible to be big from day one. You need to know where to start, where you can compete, win customers and grow into the bigger market.

Defining a very clear market segment for your product is key to its early success. Facebook started for Harvard College before moving to other colleges and now the world. Amazon began selling books and evolved into selling everything from dog food to web services. Paypal found a niche for power sellers on eBay and then grew into a payment gateway for everyone who pays or gets paid. Etc.

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There’s a range of ways to carry out market segmentation but it shouldn’t be over-researched and analysed in the first instance. Treat it as a work in progress, as you learn more about your product and customers in the market, it can be fine-tuned later. Again, the main purpose is to focus the limited resources you have at this stage.

We’ve brought together this simple template in a Google doc to help define your first market segment.

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1. Define the markets qualities

The first section helps to add more detail about the qualities of the market segment. It’s based on the Disciplined Entrepreneurship book by Bill Aulet and uses the following criteria.

Is the target customer well-funded? Are they already spending money on a solution? Look for an existing spend nearby otherwise, it can be a hard sell or money has to be made indirectly (e.g. Adverts).

Is the target customer readily accessible to your salesforce? Can you knock on their door or reach them by email? Some may straddle a B2B and B2C offering, try to focus one first.

Does the target customer have a compelling reason to buy? Is the struggle they have big and frequent enough? You should be able to add sufficient value to the market.

Can you deliver the whole product to the target customer? Does it match with their expectations of the value proposition? Be careful not to over promise and under deliver here.

How deeply rooted in are the competition? What are the current habits and switching costs customers have? Go after a segment that is ignored and unattractive to larger competitors.

How easily can your product move in other segments from here? What leverage do you have on selling to more customers? Don’t get trapped in a restricting and self-serving niche.

Is the market consistent with the values, passions and goals of the team? How does your team feel about all of the above? It has to excite you and get you out of bed in the morning.

2. Summarise your segment

The second section in the template helps you summarise your answers and write a specific statement about your positioning. It’s based on Crossing the Chasm book by Geoffrey Moore (Another recommended read)

For target customers
Who are dissatisfied/enjoy existing product/solution
Our product is name of product
That provides value proposition
Unlike competing products and companies
We can provide complete product

Before you access the template, you’ll be asked to enter your email address. This isn’t a spamming technique — we want to be able to contact you to provide as much support we can. Got more questions or thoughts on this approach? Comment below or drop us a message on hello@neu.studio

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