Last week, I shared seven questions to help startups with their customer segmentation strategy. As you’ve probably realized by now, even your initial market can be further segmented into even smaller markets. Generally speaking, this is actually a good thing.
Don’t worry too much about whether or not you’ve picked too small of a market – in my experience, entrepreneurs usually try to focus on too big of a market. You want to choose a market where you have a high chance of dominating it quickly; a narrow, concentrated market is the best way to do so.
So how do you know if your customer segmentation strategy is targeted enough? Here are three conditions from Geoffrey Moore’s Inside the Tornado:
The customers within the market all buy similar products
The customers within the market have a similar sales cycle and expect products to provide value in similar ways. Your salespeople can shift from selling to one customer to selling to a different customer and still be very productive with little or no loss of productivity
There is “word of mouth” between customers in the market, meaning they can serve as compelling and high-value references for each other in making purchases. For example, they may belong to the same professional organizations or operate in the same region. If you find a potential market opportunity where the customers do not talk to each other, you will find it difficult for your startup to gain traction.
These three criteria essentially mean you will get efficiencies of scale in the market. If your initial customer segmentation strategy doesn’t meet the criteria, it’s time to go back to the drawing board.
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