Is your target market small enough?

It’s not a question that comes naturally to many CEOs or, let’s be honest, to most investors. Here’s the problem: for growth phase companies, all other things being equal, the probability of your success is inversely proportional to the size of the market you have chosen to target. At any given point in time, as far as sales and marketing effectiveness is concerned, small target markets are better than large ones.

The only appropriate answer to the often-heard question “how hard can it be to win just a 1% share of that huge market?” is that it is inevitably far, far harder that you might ever imagine, and likely to be a horrid waste of time and money to boot. Better to chose a market you could dominate, and expand from there once you’ve succeeded.

Populations are not markets

Most growth phase companies would describe their goal as becoming a (or even better, the) market leader. But first you have to decide which market you are aiming to lead. Here’s where the problem often starts, and where vendors often confuse populations with markets. Populations are formed of all the organisations in a given space, however you define that space (sector, size, location, etc.).

But markets are something different. Markets are best defined as:

• A common set of existing or prospective customers
• With a common set of issues they need to address
• That could be satisfied by a common set of potential solutions
• And who reference each other when making buying decisions

All four factors have to be in play. If they don’t share some important common characteristics, they aren’t a market. If they don’t have a common set of issues, they aren’t a market. If the issues can’t be addressed by a common set of solutions, they aren’t a market. And - this is the aspect that is so often ignored - if they aren’t willing to reference each other when making buying decisions, they aren’t a market.

The importance of a compelling theme

There’s one more factor: homogenous markets of like minded buyers are far more likely to respond to a single compelling theme, if well chosen and effectively delivered. Having a single compelling theme drives incredible efficiencies in the sales and marketing process. It’s far easier to target, attract, engage and convert more of the right sort of prospects with a single compelling theme.

It’s also (and this is equally important) far easier to qualify out the “prospects” who are never likely to buy anything, never likely to buy from you, or never likely to be profitable even if you win their business - and to do so early on in the process, before you’ve wasted a significant amount of resource.

Intelligent market segmentation

So what’s the secret to intelligent market segmentation? First, you must identify a critically important issue that you have the potential to solve better than any other option. Then you need to establish an ideal customer profile that describes the common characteristics of the organisations that your offering is most likely to appeal to.

It’s vital that you don’t restrict your thinking to demographic factors like size, sector or location. These have far less bearing on buying decisions than:

• Structural factors - such as how are they organised, what systems they already have in place, and the presence of competitors
• Behavioural factors - such as how they make decisions, where they sit on the adoption curve, and their position in their markets
• Situational factors - such as key changes in legislation, regulation or the competitive landscape, as well as internal changes to their organisation

The presence of common structural, behavioural and situation factors can give powerful clues as to whether they are likely to act as a market, and to see each other as natural references when making buying decisions.

Then you need to identify a powerful theme that connects their critical issues with your key capabilities and showcases how your approach is different - and prove how it is far more likely to enable them to achieve their desired results. Before you claim to be better, you must first show how and why you are different.

The look of a leader

It’s exactly this approach that has allowed promising up-and-coming companies to develop a buzz and aura that - at first - far outweighs their physical presence and highlights them as the company to watch. Assuming effective sales and marketing execution (and a product that actually works), it’s usually not long before their market share starts to catch up with their already established thought leadership.

Thought-leadership driven success in a well-chosen initial core market inevitably creates a springboard to enter adjacent markets, and identifying and moving into the most attractive adjacencies (and getting the timing right) is a key factor in maintaining momentum.

Get out of that big pond

But you’ll never get the chance to create that momentum in the first place if you persist in behaving like a small, insignificant fish in an overwhelmingly large pond. You’ll either get eaten or be forced to hide amongst the weeds on the margins.

Take a careful look at the “markets” you are currently targeting. Are they really cohesive markets, or simply populations? Are you really thought leading them? Do others see you as the company to watch? And if not, how could you redefine your market focus in a way that could give you a genuine opportunity to lead it?

Executive Workshop in London

By the way, this article was inspired by one of my most influential mentors, Richard Currier, once described as "the go to guy for fixing revenue growth in Silicon Valley". I'll be contributing to his executive workshop in London on 20th September for UK-based CEOs and Sales and Marketing Directors of growth-phase B2B technology companies. We’ll be developing many of the themes from this article. You can find out more here.