Let me jump straight to it: Happy customers love to talk and will do your marketing for you. It’s as simple as that. You just need to find those key customers in the early days of building your business and let them do the work.
How? If you forget about the total addressable market and focus on the smaller customer segment that your product is perfect for today, and then map your go to market to that group, you’ll be able to focus your product development, marketing and sales efforts to get those early customers on board and raving about your product. Then you can easily expand into adjacent markets, to eventually go after your broader TAM, systematically. Let me explain.
Many of you are probably familiar with the Law of Diffusion of Innovations – a theory that seeks to explain how, why, and at what rate new ideas and technology spread, which was popularized by Everett Rogers in the 60s. According to Rogers, there are five categories of adopters – innovators, early adopters, early majority, late majority, and laggards – that make up any given market, large or small. The criterion for the adopter categorization is innovativeness, defined as the degree to which an individual adopts a new idea, or in this case technology.
What’s important about this theory is that it predicts if we can get our Innovators and Early Adopters on board – an estimated 16% of our target market – then we'll reach the tipping point or the time when our product or service becomes industry standard and viral adoption is triggered in the market.
So when we are first going to market, we just need to focus on the Innovators and Early Adopters. This is great news because not only are they more likely to take a chance on our unproven product, but they are typically flatter organizations – meaning faster sales cycles – and typically faster growing companies, so everyone is paying attention to what they are doing. They will be the ones that you point to when the Early Majority asks who else is using your product, garnering instant social proof to drive adoption.
It’s common for entrepreneurs to talk about their target market as their total addressable market (TAM). TAM represents the revenue opportunity available for a product or service. Investors use TAM as a quick metric to understand the underlying potential of a given investment opportunity. Depending on the market, these numbers can be very big, very sexy, and very exciting. They show the long-term potential market opportunity that your startup can tap into. However, that doesn’t mean you should go after the entire TAM from day 1. If you focus on trying to address every customer’s need, you won’t get very far. It’s simply too big of a group to have effective positioning, marketing and sales, let alone product.
Instead, focus on a smaller segment, or a beachhead market, and you’ll get to that 16% tipping point within that segment faster. Here’s why:
It really depends on your customer size. If you’re looking to target Enterprise customers – i.e. six figure contract values and a sales cycle between 6 and 18 months, you’ll want to focus on 50-100 customers at the most. You’ll have roughly 10-20 buyers involved at each customer, likely multiple departments, plus lower level stakeholders and knowledge workers using the product, so there are a lot of people to align for each sale. Therefore, start small here and use a focused direct sales approach, supported by account-based marketing.
If you’re targeting mid-market customers, at around $60k per deal, then your customer set will be slightly bigger, somewhere around 250 customers. Here you’re usually selling into one department and have an avg of 5 stakeholders involved in a deal. You’ll still want a direct sales approach in the early days, but building awareness and educating your potential buyers through marketing activities is important for scalability and to reduce your customer acquisition costs later.
SMBs are typically lower value sales and therefore you’ll want a larger customer set of around 1,000-2,500 folks. So for this group, you’ll need to pinpoint a smaller, primary segment to go after first through a marketing heavy, self sign-up approach and likely integrating into other platform’s marketplaces and building partnerships for distribution.
In order to reach the early adopters first, you’ll need to define and then target your ideal customer profile. Below are some of the question you can ask yourself to define your ICP:
This is not a comprehensive list and there may be other criteria that define your ICP, but being able to define who is and isn’t your ICP is a critical step in developing your go-to-market. This might seem granular, and it might create an initial segment that has 1-2 use cases, but this is a good thing. Focus is your friend. Being able to define which companies fit your ICP is key to identifying a target list of companies to go after. From there, you can identify the right people in the organization to go after. This enables you to hone your positioning, marketing, and product development activities to drive demand, which makes sales a lot easier!
Once you’ve defined the criteria you think make up your ideal customer profile, you need to confirm it. Here are the barometers to double check a segment before you focus all your time, attention, and energy there:
If you’re targeting C-level executives at F1000 companies, you’ll need to have a network or way in because it can be difficult to get these people’s attention.
Different market segments will experience the pain points your product solves for in different ways. Make sure you’re focused on the group where your solution is a need-to-have versus a nice-to-have.
It is very hard to drive urgency and timelines for a sale without a qualifying event.
Let’s take Datch, a Forum Ventures portfolio company, as an example of determining what group of buyers to focus on. Datch is a voice assistant for factories. The founder, Mark Fosdike, came from the manufacturing industry and understood the problem his product solved for this group of customers first hand. Naturally, he chose to focus on a segment in this group for his initial customer segment - automotive OEMs (think car manufacturers like GM, Nissan, VW). He was using an automated Linkedin messaging tool that would personalize a message to potential customers when he requested to connect. Then based on who accepted the add, would set up a qualifying call. He had a high response rate for an initial qualifying call. This segment clearly had the pain point his product solved for. However, the buyers in the OEM factories were so busy, it took 6 weeks to schedule a follow up. Mark decided to try a few adjacent industries who experienced similar pain points, using the same strategy, and found that sales to OEM Suppliers were moving much faster. He shifted his outreach to focus on the Tier 1 Suppliers, instead of the OEMs themselves and his pipeline grew 30% week over week. Just three weeks after the pivot he closed two accounts. The problem here, with the OEMs, was access – they had pain and had the money – but Mark couldn’t get in front of buyers frequently enough to drive urgency and run a sales process. He knew the problem existed for the industry because he’d worked in it for years, so he made a small pivot to an adjacent segment and the product took off.
It’s time to map your go-to-market to drive demand.
There is a saying that it takes 10 customers to get to 100. This is because each customer is a use case and proof point for more customers. Therefore, focus on the potential customers that you know will be a proof point for the greatest number of customers in your target segment.
A quick tip here, these aren’t necessarily enterprise customers. The strongest influencers are usually the companies that enterprise organizations are afraid of and small companies want to be. They are the fast growing players in the segment changing the way things are done. They’re likely to be Innovators and Early Adopters – it takes a certain knowledge of a market and comfort with risk to move that quickly. They may have just raised a large venture round or announced winning a big customer over the incumbents. An influencer could also be a person. They could be the keynote talking about something innovative at a conference, have a surprisingly large social following or someone who just left a large company for a startup. Influencers are the companies and decision makers that people are watching.
Win the influencers, win the segment!
Once you have your initial segment, and you’ve gone to market with them, you can pick a complementary or adjacent segment to focus on next. There will always be one of these for each use case. For example, if your segment is city-based, choose the next city with similar problems. If it’s tech based, pick a new technology to integrate with and that will open up a new segment. If it’s size, maybe it’s time to move upmarket and grow with your customers. If you’re focused on athletic clothing brands, maybe go into athletic footwear. Your next use case should easily translate from your first one. Usually adjacent markets watch and learn from each other as well.
To summarize, before you can go to market, you need to figure out a focused, primary market to go after. From there, you’ll be able to build your target list, understand the people and organizations to approach, how to talk to them (i.e. how to position your product to address their needs), and where to talk to them (i.e. the channels you use to reach them). In other words, your entire go-to-market gets easier! And then once you’ve converted that first 16%, you have your customer evangelists who will tip the scale and the rest will follow.
Whitney has helped startups grow for 15+ years and is considered an expert in entrepreneurial selling and building early-stage sales teams. She is General Partner at Forum Ventures and the creator of The Sales Method, a systematic process to help startups identify their target markets, launch products to market and scale sales quickly and successfully. Prior to developing The Sales Method and joining Forum Ventures, Whitney helped four companies earn a place on the Inc 5000 Fastest Growing Companies list including LoopNet, Joby, Meltwater, and SpringAhead.