Startup School: Seven Questions to Help Startups Successfully Segment Their Customers

Tom Education, Startup School

One of the most common challenges I see with new entrepreneurs is their inability to correctly define an initial market entry point for their business. More often than not, they’ll exclaim excitedly, “My market is everyone – why would anyone pass up such a genius product/service?!” While that may or may not be true, trying to develop strategies based on a large, un-segmented market is near impossible, particularly for a new business.

There are many ways you can approach your customer segmentation strategy; from information about customer lifestyle, activities, interests and personality characteristics (psychographics) to the more common: age, gender, income, and occupation (demographics). However, answering these seven questions can really help your customer segmentation strategy take off:

1) Is the customer well funded?

If your customer doesn’t have enough money to buy your product or service, you’ll have a hard time providing positive cash flow and thus a hard time sustaining your business.

2) Is the target customer readily accessible to your sales force?

Since your product will likely undergo many iterations quickly in the beginning, it’s important that customers are dealing directly with you and not a third-party vendor.

3) Does the target customer have a compelling reason to buy?

Make sure your product/service actually solves a problem the target customer is having. Most of the time “newness” is not enough to carry your business to dominating the market segment.

4) Can you deliver a whole product?

A minimum viable product is great, but pieces of it here and there are not.

5) Is there entrenched competition that could block you?

You’ll always have a competitor somewhere, but what’s important here is how strong they are in your customer’s eyes and how motivated they are to oppose your business relationships.

6) If you win this segment, can you leverage it to win other segments?

As you start to drill down your markets, you’ll end up with a handful that are worth pursuing. A way to determine the best one to start with is how easily it can lead to the other markets you’ve defined.

7) Is the market consistent with the values, passions, and goals of your company?

If your goal is to build a company and sell it as quickly as possible, your customers might be a lot different than if you’re trying to build a private empire. Make sure your founders’ personal ideals are aligned with the market you’re going after. It’ll keep everyone motivated and your message will sound that much more authentic.


About Tom

Tom is a co-founder of The Center for New Enterprise Opportunity (NEO Center) - a small business incubator in Lansing. He believes that by helping entrepreneurs be more successful through education and investment, we enrich both the market itself and our community as a whole. You can follow him @TomforLansing

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