Learn about the importance of customer segmentation as you scale your SaaS startup. Understand how it creates a better go-to-market strategy and helps your team focus.
When scaling your startup. One of the most important things you can do is focus on your go to market strategy. There's three components of go to market.
One is who you're targeting. Early on, you're probably reaching lots of different people, lots of different customers, because you're just trying to get traction in the market and you have traction now, and you're trying to scale, but we need to look at who we're targeting again, combined with what we're offering, the product we're offering, and also how we're delivering.
How we're acquiring channels, how we're selling also, how we're, how we're delivering those three components make up, go to market strategy. We're going to focus on the who and the what, which are the two primary components of go-to market strategy. That ends up being the market is the who and the, what we're offering - what we're delivering is the product. And as we try to go to market, and you're trying to go from a small slice of the market, trying to penetrate and go deeper into this market and really become well-known and do really well. The challenge is that the market isn't that simple. Innately, you know this, it's not just a market, we visualize it like this.
There's actually a lot of different customers, different customer contexts. And you know, this. Your salespeople are talking to different types of people. You're hearing different requests from different types of people. Some people are really, you know, excited about your product and really finding a lot of success with your product. They're doing really well. They're referring it to other people, and those are like your champions. Those are your ambassadors in green here, right. And you also have those customers that try it and they just fall off right away and they just try it and leave. You have really poor engagement, a lot of fall off, a lot of churn and you have other customers that, you know, want it to work, but they're really frustrated and they don't know what to do.
They're stuck. They're not getting to success, in red here. Right. And so, the reason why they're having a different experience is because they're actually coming from different contexts. If they were coming from the same context, they would have that same trajectory. They would accomplish and get the, get to green, right.
Get to success. But they're going in a different direction or they're coming from a different starting point. And so we have to realize that we really have different types of customers, different customer contexts. And we think about. It's not just us pushing the product out into the market. It's actually the market pushing back on us, on the product.
The customers that are really happy are pushing us in one direction and asking for certain features. And they want to pull us in one direction, other customers that are falling off, we're trying to save them and figure out why and add different features. And they're asking for different things.
You know, I would use it if you did this, if you had this feature. And there's customers that are frustrated and angry and they're pushing you in different directions. And they're not all asking for the same thing. So what do we do? How do we handle this? You know, your team's getting pulled in all these different directions.
And you're trying to serve different customers who are asking for different things and you can't do it all. It will stretch you and your team to a breaking point. You're going to stretch your product apart. If you try to do too much, or if you try to cram all these features in here, some features are just, aren't going to make sense to some people or just navigation leads.
What do I do here? What is this thing? It's losing its centricity of something, right? Because everyone's asking for different things. That pressure on your team is normal at this phase, but it's a by-product and it's a symptom of poor go-to market strategy. It's a symptom of trying to serve different customer segments at the same time.
It's really important, then, that we focus, not just on the product and the features we build and handling, you know, prioritization. It's actually much more important and much more critical to focus on customer segmentation and getting this right. Now, each of these customer segments actually have different value, you know, contract value. They have different sizes. There's more of some than others. Some are more approachable or more willing to purchase than others.
We're going to talk about total available market right now. Each of these customer segments actually have different sizes, right? What if the customers you're targeting right now that are having a really high success rate with your product.
What if it's actually a small niche and it's not actually going to get you to your growth goals? Maybe you shouldn't actually be focusing on the customers that you're serving well now. Maybe instead you should be focusing on customers that are struggling in some way. But it really is determined by the size of the segment and a whole bunch of other variables, which we're going to talk about in a minute. It might also mean that you stop selling to some customers that aren't happy with your product, right? Selecting which customer segment you go after is going to have a huge impact on you. It's going to make everything easier for your sales team, for your marketing, for your positioning, for your messaging, for your designers, for your development team. If you can figure out how do we set up a good go-to market strategy?
So, how do you prioritize these customer segments? One of the ways we suggest approaching this is through total available market.
Now the way to do this is actually look at all the current customers you have now, everyone who's ever been in your sales pipeline and start to group them and theme them together. There's different ways to do this, but you want to be grouping them by use case. You want to be, make sure that they have the same actual needs that have the same actual desires and the same actual desired outcomes for your product. That gives you your market segments. If this is a B2B example from there, you could actually go and do market analysis to see, hey, how many companies are in this segment? And what's our likelihood to close, right? How attainable is that actual market segment?
That'll give you a TAM for a total available company, but then you want to actually multiply it by your average contract value in that space. And that's going to give you something really, really great. Not only is it going to give you dollars per market segment, but then you can also compare and contrast market segments against each other based on how big that market actually is.
So in this case, we have basically half the number of people, that are doing really, really well. That segment might be a great place to start. It might also mean that's not going to get us to our growth goals, maybe we'll prioritize and shift into this larger segment that we're actually not serving well right now, but we want to move into. The next thing to look at is beyond just market size - to pulp these other variables, because it's not just about market size. It's also about, hey, how well does your product fit the needs of that market segment? It's also, what's their propensity to spend, what's their budget? What's the market concentration, right? Maybe if there's just a few companies, then we have really high revenue concentration, and that could be a risk to the business.
What access do we have in the market? What channels are, who do we know in there? And overall, how attractive is this segment? You start to put this matrix together, not just market size, but market size and these other variables on our likelihood to win. And then you can come up with a really, solid way to prioritize which customer segments to go after.
Then pull them into something that we call the beachhead strategy. Now the beachhead strategy allows you to focus on one customer segment first. Again, that's so important because if we don't do that, your product is going to be pulled in all these different directions. There's going to be a lot of tension and your sales team selling to all these different people. The value prop is different. The pricing might even be different.
You know it's going really well, when you have one focus when your positioning is solid and when your product team is aligned with one real strong customer segment that you can win.
Once you've accomplished that, and made that attack, and that beachhead really, really strong. Then you can always expand and penetrate in different ways, right? Hey, these other segments are great follow-on. I'm not saying that you, you stop, you only do this, this market segment, but you want to start here in something that you can really win at and then domino effect, right?