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March 9, 2014

Customer Segments For Startups

by StartupRunner

Many startup companies have technologies that interest several different customer segments.  Because startups have limited resources, each company needs to prioritize which customer segments to target with their technology and marketing efforts.

Why customer segments for startups are essential? Great input from the article, How to Get Startup Ideas by Interviewing Customers.

1.  On most business model canvases the customer problems and the customer segment realms usually drive the rest of the development of the canvas. Understanding your customer segments helps as you seek to really hone in on the most specific customer problems to address. The key is to narrow the characteristics of the prototypical customer. The goal is to define early adopters/customer segments, not a mainstream customer. 2.  Building relationships to test startup ideas can be as hard as generating ideas.  Cycling through solution ideas is faster than finding customers and meeting new people. When you do developing while focusing on a certain customer segment, you increase your chances of eventually being able to find something that works. 3. Customer development takes a long time and building a successful business can take a really long time.  In growing a company you will inevitably be spending a lot of time with your customers. If you enjoy the time spent with the customer segment you choose, you will probably feel more impassioned and energized. How and where to find customer segments for your startup ? Some other factors to consider when deciding which customers you want to target.  From How to Get Startup Ideas by Interviewing Customers 1. Relationships and access  If you have existing relationships, or at least access, with your customers, finding people for customer development interviews will be a lot easier. 2. Passion  The more you enjoy spending time with your customer segments/target customers, the more enjoyable your business will be. 3. Propensity to buy  Some customer segments are less likely to adopt new technologies than others. Some customer segments have higher budgets than others. 4. Market opportunity  If you goal is to build a massive company, you’ll want to be in a large market. Consider what your growth goals are to help decide which market to serve. 5. A Day In The Life Summary  One way start-ups can begin the process of identifying the target customer is through a qualitative process called a ”day-in-the-life summary” for a potential customer.  It describes conditions before and after a target customer purchases your product. “Before” describes the key issues/problems/pain faced by a possible end-user of your product.  “After” focuses on the change in effectiveness of the end-user after purchasing and using your product. This change must affect the economic buyer’s main concern, which is normally associated with achieving one or more of the buyer’s strategic objectives. Defining a target customer is the first step in the market segmentation process that divides the market for your products according to similarities between customer segment subgroups.
Segment Customers Choose target segments Develop a value proposition for each segement Determine profit potential
Select a segmentation method based on underlying issues:
​• Demographics
• Value
• Behavioral
• Attitudinal
• Needs-based
Choose target segments based on:
• Their attractiveness
• Company ability to serve them in a differentiated way
Design a value proposition based on customer needs:
​• Each segment requires its own value proposition
 Determine the revenue and cost impact of offering the value proposition to the target segments
How to Segment Customers: 10 Easy Steps is a great article for a step by step process to develop your customer segments. Once you develop your customer segments you need to build a process for testing them allowing you hone in on who your primary customer segment is. The most effective way to do this is through Value Propositions. To learn how to create killer Value Propositions click here.

 Beginning with the customer segments of the realm your startup will solve, can be a highly effective way to start a business. Customer development is commonly used to test startup ideas, but it can also be used to generate startup ideas.”  From Mike Fishbein

 Online Resources for Customer Segments for Startups 

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