Most common start-up error is to attack a number of segments to see which will work best
No “whole product” is ever delivered to one market
Resources are distributed among too many segments and sales, marketing, development is done poorly
No segment can be dominated fast
Defenses are weak and competitors can breach the segment walls easily
Early adopters/innovators do not mirror the thinking of pragmatists
Beachhead Approach Secures Dominant Segment Position
Focus limited resources to establish leadership in a single segment
Gives strategic sales direction even in the very early market
Leadership in a single segment helps build credibility with
Analysts and media
High tech buyers prefer to buy from segment leaders
Reduces the risk of failure – go find another beach
Much better chance of being first in the “mind”
Moore’s Chasm Model Illustrates Startup Challenge Early Adopters Chasm Pragmatists on Main Street Beachhead Bowling Alley Early Majority Late Majority Laggards Tornado Applies to product categories, NOT to companies Each stage requires a different approach to segmentation
Seven Steps to Successful Segmentation for Startups
Step 1: Determine where you really are within the startup life cycle.
Step 2: Regardless of Step 1, create as broad a definition of an addressable market as possible and then break it down in to all possible sub-segments
Step 3: Create customers profiles for all remaining sub-segments
Step 4: Assess profiles again critical flaws criteria and eliminate those that fail
Step 5: Assess remaining profiles against selection variables continuously until top segment remains
Step 6: Test target segment against SWOT and performance goals
Step 7: If no segment apparent, repeat process
Step 1: Find Where You Are Relative to the Chasm to Determine Segment Strategy Chasm Atomized Segmentation for Innovators Concentrated Segmentation for Beachhead Differentiated Segmentation for Bowling Alley
Sales asking for constant product changes to close deals
Prospective customers fail to understand the product’s “technology” story
Additional early adopter buyers are not coalescing around any particular vertical or horizontal market
Additional financing is often proving difficult to obtain
Often many partners and resellers signed up but little or no results
Product management struggling to identify product roadmap and technology roadmap
Step 2: Define the Total Addressable Market and Then Narrow Down
Brainstorm the possible broad applications for your technology
Build hierarchies for each one until you have multiple “application trees”
Cross-horizontal segments – vertical cuts on horizontal technologies
Suppliers and channels
Think in terms of the buyer, NOT the organization
Layer reasonably but go at least four deep if possible
Some technologies will have many applications: others will have a more limited application scope
Good Segmentation Narrows the Focus and Leverages Resources Anyone Who Needs to Locate Anything that Moves and that is Big Enough to Carry a Receiver and That is Outside for Any Length of Time GPS Segmentation Example Vehicles People Animals Cargo Icebergs Trailers Planes Cars Rail Cars Earth Movers Ships Livestock PressTank Tankers Dry Cargo Reefers Container Freezer Refridge High Perish Low Perish Flowers Produce Meat Indies Carriers Corporates
In most startups, the product is looking for a target segment
Usually begun with a technology bias
Were this not true, far fewer startups would fail
With little useful and specific market data available, turn to building a profile of the potential customer
“informed intuition” rather than “analytical reason”
Be wide and ranging in your approach
Current early adopters, lost deals, profiles in related categories, your own experience, ask friends and family for ideas, brainstorm
Define the Prospect’s Current Problem with These Questions
What problem causes the pain or frustration? Sketch a scenario in which the customer attempts a task and feels pain as a result.
How does the customer try to cope with the problem now?
What is causing the problem? What is interfering with a speedy solution? What goes wrong and why?
How much money is the customer losing, either in additional costs or lost revenue? Quantify the pain.
Who is the individual who feels the pain first and how does it “waterfall” up or down?
Who else feels the pain? The customer’s customers? Suppliers? Partners? Investors?
Profile Example – Pain Scenario Frustration Point Costs Current Solution Stakeholders Cause Pain Solution Fleet mgrs misplace 5% of loaded produce reefers due to admin and driver problems Avg. value of lost or spoiled cargo is $250K -- $12 million total for avg carrier + high ins. rate Insurance pays 75% of value and rest is written off as tax loss Produce distributors; supermarket owners; truck drivers; insurance company; carriers Many trailers being managed at once: Inadequate admin techniques; careless reporting by drivers; late loads Characteristic
Align Your Product to Their Problems With These Questions
Define the customer’s changed situation
How does the customer approach the task differently?
Is the pain removed or is it lessened. For whom?
Are new problems introduced as a result of your solution?
Is your solution better than any other way the customer had of solving the problem? Why?
How does your solution remove the pain?
How much money will the customer gain as result of your solution, either as cost savings or increased revenues?
Can you determine a time frame for payback?
Profile Example – Solution Scenario Frustration point Costs Stakeholders Cause Pain Solution Fleet mgrs misplace 5% of loaded produce reefers due to admin and driver problems every year Avg. value of lost or spoiled cargo is $250K -- $12 million total for avg carrier + high ins. rate Insurance pays 75% of value and rest is written off as tax loss Produce distributors; supermarket owners; truck drivers; insurance company; carriers Many trailers being managed at once: Inadequate admin techniques; careless reporting by drivers; late loads By using GPS, fleet mgrs can locate trailers before cargo spoils Cost for avg carrier including services is $3 million, providing customer payback in one quarter and savings of $10.5 M/yr Problem is solved easily Current solution Distributors incented to use GPS-able carriers; driver morale improves; insurance easier and cheaper to get; insurance push? Root causes difficult to eradicate cause based on human error: GPS-enabling solves problem faster and cheaper than changing behaviours Characteristic
Does the segment have a ‘target customer’ who has buying power?
Is there a single person who feels the most pain?
Is that pain tied to revenue loss or additional costs?
Does the buyer have a budget for the “whole” product?
Is the financial pain felt by someone with buying authority?
Trying to fix bad segmentation with smart selling doesn’t work
Lots of effort spent identifying and winning sponsors and champions
Endlessly long sales cycle
Uncommitted management ready to cut projects on a whim
Binary Answers to Critical Flaw Criteria Criteria Yes No Reason Segment: Produce Reefer Location for Carrier Companies Compelling reason to buy √ 5% of trailers misplaced, 3% stolen Carrier liable for both, loss per avg. $275K/yr; customers punish carriers with high loss Deliver whole product √ Make entire receiver; partnership with mounting and antenn partners; have installation partners Buyer with economic power √ Risk managers and CFO feel greatest financial pain; drivers docked for misplacement No competition Cell-based communications services provide GPS within acceptable margin of error where service available √
Does the segment have identified buyers who have a history of innovation and early adoption?
Have they deployed their early buys or kept them in the lab?
Do they have the support of their organizations?
Have they a history of championing early technologies publicly?
Is there one or two organizations that feel the pain more acutely?
Will they participate in the design, development, test process?
Are they open to an over-time payment model?
Do they have credibility among potential investors?
Are There Adjacent Segments That You Can Jump To?
Beachhead segment is the “head pin” in the bowling alley
What close segments are a natural segue? Refer back to the application trees.
Are they likely to still be available?
At what point can you begin to attack the next segment?
Are there enough close segments to achieve breakeven and profitability over time?
Step 5: Rate Remaining Segments According to Variables
Rank each variable on a scale of one to five
Rank all segments and eliminate weakest 50%
Use totals as an overall indication
Weight variables according to your flexibility or ability to change your situation
e.g. software has much more flexibility on pricing
e.g. no existing channels but ability to establish the right partnerships
e.g. offered technology will increase segment stability
Repeat ranking exercise until top one or two segments revealed
Ranking Example Segment: Produce Reefer Location for Carrier Companies Criteria Rank Weight Reason 2 Channels Price Final Segment Size Innovators 5 4 No established price, dev is capitalized, direct sales, 90% software margin, 1 year runway 4 3 4 Preferred direct model, upfront cost high, greater risk, no proliferation, total control 3 2 3 2 4 3 Segment size large to achieve 50% penetration and domination; no ability to change; potential to narrow segment Trucking industry conservative; satellite technology accepted; 2 known innovative risk managers Totals 11 14 14
Position is the single attribute that your customers will identify you and your products by
Brand is the psychological contract between you and the buyer that you will always deliver the expected attribute in return for the expected price.
Position Locates Your Product in the Customer’s Mind
Marketing is a battle of perceptions, not products
What the customer thinks is the only reality that matters
Superior technology alone will not win
Positioning determines how your customers perceive you in relation to your competitors
Good positioning focuses on one key attribute that is important to your target segment
Think of positioning as placing your product on a two-dimensional plan in relation to your competitors
Positioning is Placing Yourself in the Customers’ Mind Mercedes + Lincoln + Cadillac + Volvo + Porsche + Lexus + Nissan + Honda + Acura + BMW + Saab + Toyota + Chevrolet + Dodge + Ford + Plymouth + Hyundai + Chrysler + Buick + Sporty Conservative Low Cost Affordable Expensive High End
Branding is the Consistent Expression of Your Position
Branding is NOT just colours, logos and taglines
Good branding is ensuring that everything that the customer experiences about your product is consistent with the position
Delivery system and sales approach
Advertising and marcomm messaging
Product functionality and specifications
Good branding also creates a look for your product that is immediately identifiable and immediately evokes the position (values and attributes) that you claim
A startup has a much better chance of success if it focuses on a single, unserved segment that they can dominate fast
The right target segment is the one that gives you the best chance to dominate given available resources
The right target segment delivers clear customer wants and needs
Step 2: Define the Prospect’s Important Needs – Do Research
What is the target customer’s main problem?
What are the two or three most important benefits that the target customer will seek from your solution?
How much money is the customer losing, either in additional costs or lost revenue? Quantify the pain
How important is cost relative to all other attributes?
How much of the prospect’s personal reputation and feelings are tied up in the problem and its solution?
Are you solving a problem that is on their priority list?
Step 3: Establish Ability to Satisfy Attributes – Can You Walk the Talk?
Examine your own ability to satisfy various key attributes.
Price vs. quality/functionality
Ability to innovate quickly
Customer service provisioning
Distribution and delivery systems
Choice and selection
Current position or brand identity
Determine what attributes you have strong capabilities in
Determine your strength in the key attributes that you identified within the target segment
Step 4: Understand the Position that Your Competitors Occupy
You have competitors. If you think you don’t, you’re not thinking broadly enough
Competitors can come from any quarter
Home Depot is fighting Black and Decker’s decision to sell directly on the Internet
Sealy was taken over by an alliance of powerful licensees
Pubs who run microbreweries compete directly with the big brands that they distribute
Big brand foods must compete directly with their distributor’s label, President’s Choice
IBM was Microsoft’s major customer. ‘nuff said. Works both ways!
The problem you’re solving is not on my top 100-list so come back in 5 years
It’s Not About Where to Compete: It’s About HOW to Compete
Phenomenon occurs in companies and industries called isomorphism in which competitors execute the same strategies at the same time
All roll out the same products at the same time
All use the same type of messages and focus on the same attributes
No one is first in the mind, no one promotes the product category
The market is confused and locked in fear
Map competitors in their relative positions to
Look for gaps in positioning among potential competitors
Understand relative market share to assess probable winners and losers
Avoid isomorphism, the tendency for competitors to act together
Profile Current Attributes and Competitors Competitive Choices Key Attributes Yes Yes Yes Yes Yes Yes Yes Newco Using GPS No Yes Yes No Yes No No Current truck satellite comms No No Yes Yes No No No Landline Phone in No No Yes Yes No No Yes Cell phones Three-month ROI Fixed Cost Technical Reliability Single Supplier Crossborder Ease Customer Access Ease of Use
Overlay Defendability of Attributes Against Competitors For One Year Competitive Choices Key Attributes YES NO Yes Yes NO YES YES Newco Using Mobile Satellite No Yes Yes No Yes No No Current truck satellite comms No No Yes Yes No No No Landline Phone in No No Yes Yes No No Yes Cell phones Three-month ROI Fixed Cost Technical Reliability Single Supplier Crossborder Ease Customer Access Ease of Use
Map Each Attribute by Relative Competitive Strength and Importance Least Important Most Important Attribute Ease of Use Cust. Access Crossborder Single supply Reliability Fixed cost 3-mnth ROI 10 N N N N N N N C C C C C C C L L L L L L L S S S S S S S Worst 1 2 3 5 4 6 7 8 9 Competitive Rating Best 0 6 5 10 7 8 9 2 3 4 1
Choose a Name and Logo That Matches Your Position
Your startup name and logo must
Focus on your product
Evoke your category and your benefit
Be simple, memorable and have good “decay” properties
Elicit a mental image or emotion
Have obvious meaning (e.g. avoid acronyms and meaningless groups of letters)
Have an available URL if possible
Be legally available
Avoid being cute, cool, clever or punny
Select a Name and Logo Carefully and Use Help Attributes Associations for Ease of Use Micro Mini Tiny Ant Seed Mighty Mite Small unit/ Unobtrusive Ease Peace Breathing Heartbeat No driver intervention Dependable Bee Wolf Sun Ant Fire Systems Osmosis John Henry Always working -- reliable Auto Automatic Always No action required Latin/Greco roots Qualities Natural Enviro. Objects Characters