Defining your Ideal Customer Profile (ICP)

Many startups aspire to achieve success like Databricks, BEA Systems, or Figma. However, getting there requires a well-planned go-to-market (GTM) strategy.

At Race Capital, we work across a multitude of portfolio companies. One of the first exercises we undertake is creating an ideal customer profile (ICP) with our startups. This helps to create a clear understanding of who your target customer is, because without this knowledge, founders often struggle to achieve product market fit.

In this series, we will cover all of the necessary steps it takes to prepare for GTM. First, in this post, we will guide you through the process of creating an ICP and explain why it’s critical to undertake early on in your startup journey.

What is an ideal customer profile (ICP)?

An ICP is a detailed and specific profile of your startup’s ideal customer. This is the customer who would derive the most value from your product and who would remain a customer for the longest duration. When defining your ICP. The narrower the focus, the better.

An ICP typically includes information on several parameters such as:

• Industry — Which specific verticals does your startup operate in? Are there any verticals it doesn’t engage with?
• Geography — Which specific geographies does your startup target? Are there any it doesn’t target?
• Company Size — What is the target market for your startup in terms of company size? — individuals, startups, SMBs, enterprises?
• Budget — What is the pricing range that your customers are willing to pay for similar products currently in the market?
• Decision Makers — Who makes the buying process for products like yours? (In many cases the buyers and users are not one and the same).
• Buying Process — What does the buying process look like from the company perspective? Can the customer/buyer purchase the product directly (via their credit card)? Or do they have to go through the company process (purchasing, management approval, legal?)
• Pain Points — What are the primary pain points that your customers face today, and how does your product solve them?
• Business Goals — What is the goal your customer is trying to achieve with your product. (increase revenue, decrease cost, add new capabilities, etc.)
• Technology — What other tools, platforms, or infrastructure do your customers currently use that your product must integrate with or replace?

As an example, here’s an ICP document for Race Capital, with our “customers” being the founders we back.

When should you put together an ICP?

Founders should put together their ICP when building the MVP / first version of the product. The reason is that the ICP is not just a sales document; it drives everything in the business, including marketing, product, and engineering.

If you do not know who your customers are, what they care about, their buying process, and their pain points, you cannot effectively build a product, set pricing, or plan marketing on how to reach them.

For instance, a common approach for an infrastructure startup founder would be:

• The founder(s) had a prior pain point that they experienced before and wants to build a startup to address this problem.
• First they start off with building an open source project to test the hypothesis and gain an early community of people who also share this same pain point.
• The open source project attracts an initial install base of users across a horizontal slice of users (individual developers, hobbyists, developers working at startups, developers working at enterprises).
• Once a project develops a small initial community, the founder can analyze all of their initial community members and see if there is enough viability to launch a commercial product on top of the open source base (assuming the developer wants to create a commercial project).
• At this point it’s best to create an ICP and test your assumptions with users to understand if you are targeting the right type of users.

In summary, knowing your customers is critical before embarking on the startup journey, and you must know them better than anyone else out there.

Do’s and Don’ts when putting together an ICP

Do’s

• Be highly specific when defining your ICP. The narrower the focus, the better the chances of creating a successful product (for startups).
• Conduct customer interviews to test your assumptions and gain insights into your target audience.
• Focus on addressing painkiller problems that solve critical customer pain points.
• Gather multiple data points to inform your decision-making process.
• Utilize existing user data to refine your ICP (if you have it).
• Be patient. It can take weeks or months to get solid feedback on your product or potential product offering. It’s a process so be prepared to take your time.
• Continuously update your ICP based on customer feedback and product usage.

Don’ts

• Don’t view your ICP as an exclusionary document. Narrowing down your ideal customer profile merely helps to focus your efforts where it has the best chance of making the most impact.
• Your ICP doesn’t limit your target audience forever. Once you achieve product-market-fit, consider expanding your reach to adjacent customer segments.
• Don’t limit your thinking to the customers *you want*. Identify the customers who are most likely to derive the most value from your product.
• For early stage startups, don’t try to optimize for revenue or pricing. The goal should be correctly defining your ICP, and getting a few early reference customers that fit into your ICP.
• Don’t get discouraged if you don’t have enough data points to create an ICP initially. The process is iterative and will evolve as you learn more about your target audience.

In conclusion, defining your ICP is critical to the success of your startup. It will not only help you understand your customers’ needs and preferences but also enable you to create products and services that resonate with them.

As an early stage VC fund we are always looking for founders with a clear understanding of their target customers and unique technology that solves their problems. Feel free to reach out to me if you fit this profile — chris@race.capital — as I’m always excited to learn about what founders are building.