picking the right Market and customer segment is probably the most critical ingredient to building a large successful business.

1. Defining
your MarketChoose the right peak before you
start climbing the mountain
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2. Contents
Intro
Why really focus on this?
How big can this be?
Market segementation
Bootstrap vs VC money?
Don’t start from PRODUCT
Doing the 0-2M$ journey right
Problem spaces that are usually
low hanging fruits to attack
How to select your first few
customers? $0-100K
Business Model Thinking - $2M - 4M ARR
TAM Segmentation
1
2
3
4
6
8
10
12
14
16
18

3. INTRO
If there's one message I took away from this
session by Shekhar, it was the message that
picking the right Market and customer segment is
probably the most critical ingredient to building a
large successful business.
It's not a new message for me since this was also
my learning from my last start-up journey-that the
Market trumps all else! But it was a high reinforce-
ment as I set out to build my second venture.
Personally, if I don't find the momentum or have
doubts over the market segment and size at any
point, I'd not think twice to spend time validating
again, and pivot if I don't have a conviction on the
Market.
Co-Founder at Rocketlane
@srikrishnang
Srikrishnan Ganesan

4. Why really
focus on
this?
As second-time founders, you probably learnt a
lot in your previous journey — building a team,
building product, GTM (go-to-market) motions,
etc. If you have a good grip on hiring and under-
standing your strengths and weaknesses, chanc-
es are you will be able to build a complementary
team that can develop your product and takes it
to Market. So the real risk, in fact, is in selecting
the right problem space and market segment,
and not execution.
So why waste your best years chasing the wrong
Market? The only consolation for a first-time
founder is that even if they picked the wrong
Market, the journey of starting up in itself proba-
bly has enough learning to offer. But the second
time can't be about just the learning again-it
should be to succeed. Or at least increase your
probability of success.

5. Building conviction on not just your idea, but also the
market potential, is challenging, and yet crucial for
any early-stage start-up. "How big can this be?" is a
question you should have a good answer to before
committing 7 to 10 years of your life to the idea.
I've seen many start-ups struggle with setting
themselves down a path and then being unsure of
whether to continue down that path or pivot. It's
harder to give up on something, and you start wishing
for the Market to grow or accelerate. This may even
lead to founding teams having rifts amongst each
other. When they don't have the same conviction and
When my friend Aravind Gopalan said he
attended a session by Shekhar on market
segmentation, I was curious and asked
him to share his notes from the call.
Here's an expanded version of the notes:
NOTES FROM THE SESSION
How
big a
business
can
you
build ?
world views, it can lead to one believing in the
Market's potential, and the other starts thinking it is
'too small a market,' etc.
So let's do our groundwork and build conviction
together as a team.

6. Choosing the right market segment is pretty much the key to
setting yourself up for growth. You don't get this right; most other
things may not matter.
Choosing the right market is the most critical thing to get right
early.
Market
Segmentation
YOUR FOUNDATION FOR GROWTH

7. What does
Product Market Fit
look like today?
If you do enough groundwork and maintain a very
disciplined, consistent approach to your GTM and product
development, you can achieve PMF even when you get to
your first 100K / 200K of ARR. However, in most cases, PMF
happens only by the time you reach 2M$ of ARR.
That's a good benchmark to use. By then you have
established repeatable GTM motions to acquire a certain
kind of customer, and the ability to retain and deliver value
to that customer. You can potentially scale this to $4M and
then to $8M and $16 in the following years-that's what
good growth looks.

8. Boot Strap
VC Money
You always have a decision to make-do
you want to raise VC money, or
bootstrap to build the business?
Here's how you can think about it:
- If the market segment you choose is
a niche area and does not have a
strong momentum already, then
bootstrap. This business is not suitable
yet for VC. Focus on profitability. So,
you need to acquire customers who
can become profitable for you within
three months.
- If the market segment is already huge
vs
and has good momentum or
competitors that are growing fast, then
go the VC route. The focus, in this case,
is on growing fast and keeping the CAC
in check-your customers should be
sticking with you, and payback should
happen in under 12 months. You can
then spend money to grow
aggressively.
You can also bootstrap initially and
then decide to raise money when you
feel the market size has increased, and
it is time to scale fast.

9. In a new category, the size of the market segment again matters. If it is
small and you can build it under the radar, then you bootstrap. If you see
others enter the category and get funded, then VC money will flow into
the category and makes sense for you to raise also.
It's tough to determine the size of the Market in a very early stage blue
ocean idea. You need the imagination to see if this can grow into a large
SAM (serviceable available Market) if it clicks. In an existing space, a red
ocean idea, it's much easier to figure out the TAM. Spends are standard;
you can see how much other companies are doing, what's the
momentum like, etc.
What if it's a
new category?
If your company can get to 50M$ revenue, then it makes sense for a VC
to invest. Else you will get stuck at series A or series B.
If the Market is less than 500M$, then it's tough to see a company
getting to 50M$ revenue. Only if the TAM is 500M$ to 1B$, then there's
a chance you can get to 50M$. Say ten years down the road-making the
company 250M$ to 500M$ in value by capturing 5% to 10% of the
market share. So work out the math for your TAM.
The category and market segment is often what makes the difference
between companies that scale and those that don't scale.
IF YOU WANT TO RAISE MONEY,
WHAT DOES A VC LOOK AT?
VCs invest in companies only when they feel "if this works, it can be big!".
In SaaS, if you build a 75% gross margin business in SaaS, at 100M$
ARR, you make 75M$.
In B2C, if you build a 1B$ GMV with 10% gross margin, you make 100M$.

10. Remember, don't start with “product”. Don't even start building the
product before you figure out the rest of it. Pick the right peak, and
then start climbing.
First figure out the market, and the customer in that market that you
are targeting. What's the segment of customers there that matters
to you
You next figure out how to market to those customers or generate
demand, which will then translate to sales
Once you've spent enough time on the first 2, you figure out the
right product for this segment, and work on your product marketing
activities and building the product
Lastly, figure out the funding needed to go after this problem
1
2
3
4
Dont start from product

11. MARKET CUSTOMER SEGMENTATION
MARKETINGSALESG2M
PRODUCT
MARKETING
FUNDING
PRODUCT CUSTOMER
SUCCESS
Things to
get right
1
Not the first step
2
3
4
4
DON'T START BUILDING THE PRODUCT AND THEN REALISE
(A) THE MARKET IS SMALL, OR
(B) YOU CAN'T REACH THE CUSTOMER EFFICIENTLY
(EFFICIENT - MEANING THERE'S AN ECONOMICALLY VIABLE
WAY TO REACH THESE CUSTOMERS)
!

12. $0-2M journey
UNIFORMITY
Pick a customer segment that has "uniformity." Uniformity brings repeatability.
Customers should be similar in most ways. Parameters look the same; the
buying behaviors are the same. The same pain points and problems should
resonate with all of them. Their thinking and decision making should be similar.
Uniformity helps you form the ideal customer profile. We should be able to build
the ICP before we make the product. After talking to 10 customers with a
DOING THE
Picking the right customer segment within the Market is essential; to be able to
set yourself up for the scaling well beyond the initial success you may have. If
you don't focus on picking a segment carefully, you may get traction, but you
won't find the right repeatable motions you need, to grow fast and to accelerate
your business.
Here are excellent characteristics to look for in a market segment:
$
PICK YOOUR CUSTOMER SUCH THAT
(A) THEY ARE UNIFORM - LOOKS, BEHAVES, RESONATES ALIKE.
(B) LOTS OF THEM - $10M ARR |$100M TAM. LOTS OF UPSIDE IN
(C) THEY ARE REACHABLE - CAC THOUGHTS

13. SIZE OF THE SEGMENT
You need to have enough customers to go after, in the segment that looks uniform.
If you have a 1B$ TAM with uniform customers, that's like striking gold. However,
it's hard to come by. Usually, you should be able to get to 10M$ | 100M$ TAM in
that stable base. Then expand to more segments.
The upside is another factor. Can you develop the use cases you are solving for the
same set of customers and sell them adjacent products? If you can sell more
products to the same uniform customers, that's great too!
ARE THEY REACHABLE?
HOW TO CALCULATE TAM?
You should be able to reach these customers efficiently, which means the cost of
acquiring the customers should be 2–3 months of revenue if bootstrapped and
less than 12 months if VC backed. There should be a way to reach them at a larger
scale, too-since you would want to accelerate the rate of acquiring customers.
Also, factor in your business model. For example, does the lack of a middleman in
your model (who takes a percentage of revenue), affect your decision in
outspending competition that is paying the middleman to reach more customers?
If everyone knew about your product, how many people are there who can buy it?
Use the right market segment you have chosen to determine the TAM (Total
Addressable Market)
HOW DO YOU SEE IF THE CUSTOMERS
ARE REACHABLE AT SCALE?
Reachability at scale is not easy to figure out. Your business model is factored.
hypothesis, refining the hypothesis, and then going back to the next ten
customers, we can ensure that we get uniformity. Uniformity is essential to build a
repeatable process, which is again necessary to be able to scale.
If you take VC money, make a product and business, get to $2M, and then find that
the customers are of different kinds, & in different places, etc., you won't have the
repeatability. So, you will be stuck and won't be able to scale. Non-Uniformity is
fine if you are bootstrapping, but if the idea is to scale, then first focus on
repeatability and finding the uniformity.
Of course, if you are bootstrapping, this doesn't matter-just collect all the money
you can, focus on profitability and getting referenceable customers.
$
$
$
$

14. Problem spaces that are usually low
hanging fruits to attack

15. ON-PREM TO CLOUD TRANSITION
EXISTING FUNCTIONS FOR A NEW MEDIUM
CUSTOMER BEHAVIOUR CHANGE
NEW NEEDS FROM CLOUD USAGE
POORLY EXECUTED LARGE COMPANIES
For example, Zenoti and Carestack built cloud solutions for Spas & dentist
clinics, respectively, and could easily capture Market from large on-premise
players
As you set out to build a venture, here are some ways to think about new ideas
that may be low hanging fruit:
Ex: "Mobile." Uber, Swiggy, etc. are all great examples for enabling a use case
on mobile. On the B2B front, Clevertap can be a good example-they allow push
notification based engagement solutions for mobile apps
Customer Behaviour is about the spotting of a wave early. Ex: Zomentum
identified a wave first where software resellers were starting to look for
solutions to manage their cloud / SaaS sales. The software sellers were
previously selling on-prem software and needed something built for the SaaS
world.
With the growth in cloud and SaaS, the need for subscription billing
management was growing. Chargebee bet on the SaaS wave by offering this,
so SaaS tools could build their billing and invoicing with ease.
ANSR can be an example here. Global Fortune 500 companies wanted to
in-source technology work and have their R&D teams set up in India and
Europe. They couldn't rely on traditional models of hiring and did not want to
outsource to the regular IT shops. ANSR helps them set up their GIC units
globally, including the initial staffing.
VERTICALIZATION OF LARGE MARKETS
Veeva is a great example-taking a very large market-like CRM and building
something specifically for the pharmaceutical industry, they made a large
business out of it.

16. $0-100K
How to select your
first few customers?

17. From your uniform segment chosen, you still want to identify the right companies
to "build alongside" for any new product. You want to pick customers who are
already thinking about the problem, and also ones that are mature and
reference-able for you to unlock future growth.
Co-creation is a process of working closely with a customer to define the product
capabilities, build and show it to them, collect feedback, and iterate again. You'd
usually want to work with a set of 5 customers for B2B, and maybe a close group
of 100 for B2C.
Getting the right reference-able customers also brings in a trust factor
when you want to grow to a larger base.
Ensure you pick customers who are "alike". More success happens usually
when you work with customers.
Pick customers who are open to taking risks, trying new solutions
For Blue Ocean, find and iterate with a few customers, figure out all their use
cases entirely, and build a complete solution for them.
For Red Ocean ideas, enter sideways. They don't depend on you but will use you
as complementary to a solution they use already. Find a small use case to solve,
and with a high polish for that use case, you should optimize for not being reject-
ed. And, build trust elements using advisors & customer commitments.
How do you get a customer champion aligned with you? If your product can have
an impact and show them in good light, it's great. They may get a promotion, or
look cool in front of the company, or save a lot of money for the company, that's
great. Make it such that it's zero or low risk for the person making the decision.
Pilot it in one store, roll out in one geo or department, etc.

18. $2M>$4M ARR
Business Model Thinking

19. For B2B companies, when you get to 2M$, understand how it went from 1M$ to
2M$. What was the gross expansion, churn, and new ARR added? The most
important thing for B2B is that net expansion = gross expansion-churn
This is what creates big companies. Without that net expansion, getting to a
larger scale is very, very hard. When you do something like a "site license," and
customers don't have to pay per employee, then this expansion is hard. As the
customer grows or use cases grow, you need to make more money. For example,
Chargebee and stripe make more money when their customers grow. Similar to
e-commerce logistics companies. Slack, zoom, etc., have a great expansion, and
it shows in how they are valued.
you sold the product earlier than when you
were able to deliver value
there's no moat and they switched to a
better new product in a commodity market
The customer went out of business, or any
reason not in your control at all. This is
common in SMB business
REGRETTABLE
CHURN
NON REGRETTABLE
CHURN

20. TAM Segmentation
by region & size

21. Do your segmentation
based on ARPU buckets as well.
Bootstrapped businesses needn't care about ARPU (Average Revenue Per Unit)
segmentation. Go for larger customer sizes where it is possible since profitabili-
ty is what matters.
For scale, pay careful attention to which ARPU (Average Revenue Per Unit)
segments you are prioritizing-since every aspect-GTM, business model,
expansion, all vary based on where your sweet spots are. Even your positioning,
lead gen, conversion, retention & development can all be different per ARPU
segment.
Doing these thought exercises before you get into scale-up mode helps you
figure out where you want to operate and increases your chance of success.
Look at your TAM segmentation region-wise, and also by small, medium, or large
customers to figure out which Market to focus.
You can do this based on your analysis of where you are growing/winning,
combined with what the market size looks like in that region, for that size of the
customer.
For example: If you are not winning in Germany, Spain, France, UK, and Italy, you
probably shouldn't be focusing on Europe. Or, if you succeed in the US, it is 40%
of the market, you can focus just on the US.
Before entering a new region, ensure you see yourself getting to 5M-10M ARR in
that region and only then commit to a market-not based on just getting one
customer in the area. Unless you are bootstrapping, in which case just take all the
money that comes your way. Look at your SEO cost, CAC per region, the growth
you see per area, and then look at expanding.

22. WHAT YOU WANT
TO FOCUS
ON?
GROWTH
EACH YEAR
2X
DOMAIN
SEGMENTATION
LARGE TAM
CAC
UNDER
CONTROL
GOOD EXPANSION
LOW CHURN GOOD GROWTH
REGION FOCUS

23. You can succeed with a decidedly horizontal play across domains if your lead
generation is inbound-content-based, SEO based, etc. So you are just fulfilling a
need.
If you don't have inbound leads, then even if your product can serve many
domains, it makes sense to focus on only one or two domains. For outbound,
reference ability works best, and if you are referencing customers from the same
domain, it is the easiest way to gain credibility and get a conversation going. So
pick one or two domains where you also know there are enough customers, and
focus on that for outbound.
You can choose an area that's large and comfortable for you. It may be only API
companies, or companies running only on a particular cloud infra provider, or
companies in manufacturing, or digital agencies, or new age start-ups. When you
mention one customer you got, the next ones should feel excited to work with you;
based on them knowing they are similar in many ways.
When you get to 3–5M$, you can look at picking the next domain. You'd already
have some customers you have from other domains, so start looking at their
characteristics. Based on the characteristics, you can decide which domain to
choose next. Growth is one metric to optimize for early on
Lastly, focusing on all of the factors above is what leads to substantial
growth each year. So, selecting the right market segment and doing your
groundwork is crucial for increasing the odds in your favor, and setting
yourself up to scaling your business fast.
So pick the right market and start climbing your mountain :)
-
SRIKRISHNAN
GANESAN

24. #LearnWithAccel
Insights