How to choose the right market for your startup (with examples)
“I’ve got so many potential markets I can sell to, which one should I focus on?”
I’ve lost count of the number of times I’ve been asked this question. I’ll speak with founders who have a vision for their product, but, when it comes to the details of how they’ll execute this and build a repeatable business model... well, that’s where it can get a little murky.
So, I got to thinking: is building a product that can be marketed and used by multiple markets a good thing?
(Types away my Mac/typewriter in a Carrie Bradshaw fashion).
Too many options actually work against you at the beginning.
Telling an investor that your product can be bought and used by 100 billion users may sound like a “safe bet” but, it’s a massive red flag.
When I worked in-house, I worked on a product that could be sold to a whole bunch of segments. It was an online learning product which we felt was a good fit for those enabling the development of young people in the workplace. Think of courses on professional etiquette, running meetings, presenting; those kinds of topics.
At face value, this could present a massive market opportunity. Think about it. We could have served those providing direct support, with an emphasis on “retention”:
- education - think universities and how they support graduate schemes;
- employability support providers - think about engagement in the workplace schemes;
- HR - consider ways to support new recruits in the workplace and retain existing team members;
- learning and development - those looking to upskill their people.
We could have served those interested in using our product as an acquisition play. For example:
- recruitment - job boards, you could use our product to attract graduates to vacancies;
- finance - you could use it as a membership perk;
- content providers - to attract new members to their platform (e.g. LinkedIn Learning);
- professional qualifications - you could use it to attract new sign-ups to your CIPD, CIM etc.
There were many applications we could have pursued.
But which were most likely to buy from us?
Which was going to be a joy to serve?
Which did we want to keep renewing?
In this edition, I’m going to share with you some of the steps we took to identify the right market for us to focus on and how we eventually landed our first handful of customers. This post is all about focus and priorities - whether you’re a marketer or a founder.
A quick side note… this wasn’t a painless experience. Far from it. You can celebrate all the small wins in the world and embrace all the “pivots” but some days it’s tough to navigate this experience.
Finding the right target market - the mistakes we made at the beginning.
Let’s jump in with where it went wrong and took a little longer than it should have.
In the pursuit of traction, we attempted to get a foot in the door in many markets. We didn’t really understand the startup marketing basics. These markets were pretty damn different. We had discovery and validation activities firing off in many directions - there was no real repeatability embedded in.
Don’t get me wrong, this was important to understand who got the most value from the product (and was willing to pay for it), but did we spend too much time working out which market would “click” first? Yes, I think so.
We also made the fatal mistake of using and relying on buyer personas in the early days. Buyer personas are great if you have the answer to why someone would buy your product. But, if you’ve not got to the root cause of why someone wants to switch products, you’re wasting your time and your cash. And maybe your investors' cash.
Digging into our ideal market
It wasn’t until we really turned the dial-up on our customer research that we found that the biggest potential for us was to sell to the private sector (obvs) and to functions including HR, recruitment, graduate support, and L+D.
These all seemed to be a good fit; they told us they care about people.
Let’s be fair though, this is still SUPER general. Not all HR people are the same. Not all L&D teams “got” the value of us. And to determine the difference and the best bet, we had to go further than treating our potential market as a homogenous group.
If a “market” is best described as a broad group of people who operate in the context of your product.
And a “customer” is the person/group of individuals most likely to buy. The ideal client profile (ICP) is where you need to really focus your efforts.
Creating our Startup’s Ideal Client Profile
An ICP is the buyer who pays the most to get the job done the best. In other words, it’s the part of your market who is likely to benefit most from your product and who’ll pay in such a way that you can - in theory - build a repeatable sales and marketing process from it.
To create our ICP we needed to focus more than saying we were going to sell to HR people or L&D professionals. Who, for the record, are very different people.
We needed something a lot more robust than a list of targeting attributes. We needed evidence to show our investors that people were prepared to stop what they were using and switch to our solution. We needed to show how we were going to bring in sales by finding the segment of the market with the shortest sales cycle.
We started with the market size, think of this as the TAM, SAM, SOM model. And looked at the markets our best fit competitors were already operating. Below is a framework to demonstrate or, if you want more info check out the startup founder’s guide to validating an idea.
How to use the TAM, SAM, SOM model and dig into and segment your audience. Beach head framework based on Hendrikse.
Next up, the demographics.
For us, we drilled into the market, job titles and functions and location.
So far, this is all great for targeting but it doesn’t unlock why someone would choose us and how to land that first sale. It’s not information that you could, would or should present to a board advisor. They’d see straight through you. At this point, we had our eyes on the HR/People/L&D functions, but this still was way too broad.
We then ramped it up. Whilst undergoing customer development activities, we delved into things like:
What our ideal client was currently using - aka our competitor(s)
The workflow our product would complement/replace.
Understanding who our startup’s true competitor was key to us unlocking revenue.
If you’ve only got 3 months’ cash in the bank, you need to focus on who has the shortest sales cycle. This doesn’t always mean you’re going to be working with the perfect customer of course, but it’s a compromise we had to make. (Hint: your competitors aren’t who you think they are).
The workflow or ecosystem was also a really interesting area to delve into. There’s nothing better than going to a client’s office and seeing how they use your system. You get a feel for what tools it needs to integrate with, which tools give them the headaches, and how much time they even get to use your product.
This is all great stuff to use in your campaigns and messaging; to show customers you “see them”.
After this work, we felt there were three clear audiences that we could pursue. This meant be found ourselves at that all-important question - which should we focus on? Below gives you an indication of some of the answers we collected from our research.
Our ICP and important ranking criteria
The ranking section at the bottom helped us to understand who truly had a problem we could solve with the current iteration of our product.
The People/Culture teams in the market made sense for us. The reason for this was simple. They had a clear need for our solution - they weren’t fans of our competitor in this space, they didn’t have a platform, and the version of the platform we were able to offer provided “just” the right experience and reporting they needed to perform their jobs.
The signs that showed us we’d chosen to focus on the right market:
As we learned more about our ideal customer, who was likely to buy or not buy, we were getting closer to landing our first handful of proper customers.
These were some early indications that our work was paying off.
Commitment. There was no point in signing people up for large annual contracts, the product wasn’t developed enough. But, paid pilots provided a great insight into who truly was happy to throw cash at solving their problem. A clear sign of early validation.
People voted with their time. That person who was happy to jump on a call to let us walk them through the next iteration signalled to us that we were fixing a problem worth solving.
People wanted to help us, it wasn’t a challenge getting people to talk to us. Once we’d dug into the market we felt made most sense, we identified “influencers” - those with a platform and real experience who’d be willing to take part in interviews and introduce us to others.
What happened next
Well, I’m pleased to say that we began to land our first handful of pilot customers. Those who were patient with us and were happy to help us learn. Did we stay within this target market? Well, no. But this activity got us through the next 12 months and planted the seeds for the acquisition of the company.
What I did learn, however, was that acquisition is one thing, but if you’re an early-stage startup, the next and important step that follows this is how to drive product adoption. I’ll talk about that next time.
