How to Find Your Ideal Customer
One of the most critical aspects of finding product/market fit in the earliest stages of a startup is identifying and targeting your ideal customer. I find though that many startups don't give this task as much attention as it deserves. Sure, coming up with an initial hypothesis of a high level ideal customer description is easy. But the challenge often is that these descriptions are not nearly as specific and narrow as they need to be to be actionable for the business. Equally concerning is that the rigor leveraged to ensure that the initial target audience hypothesis is truly ideal and validated is often lacking.
On the other hand, in the search for product/market fit, I've seen successful teams find it not only by pivoting and adjusting the value proposition they deliver on, but also simply by pivoting their target audience to a more ideal customer who better resonates with the value position they've already delivered against, further justifying the importance of getting your target customer segment just right.
Given this, I wanted to share a set of strategies that can be leveraged to help guide the process of finding your ideal customer segment.
Generating Candidate Customers
The first step in this process is simply generating candidate customer segments. The two high level approaches to consider is an inward look at your existing customers and an outward look across the broad industry.
Your Existing Customers
At the earliest stages, generating candidate customer segments from your existing customers is a trivial task as the customers you have is still fairly limited. However as your customer base grows and your direct interaction with each and every customer decreases, this can become a daunting task. In this case, here are several techniques you can leverage to generate existing customer candidates:
1. Analyze available customer registration data to understand customer attributes, like geo, company, title, age, gender, and more
2. Leverage analytics tool's demographic segmentation capabilities. For example, Google Analytics can tell you aggregate visitor locations, languages, browsers, mobile devices, age, gender, source keywords, and more.
3. Survey your customers with a tool like SurveyMonkey specifically soliciting details on their demographics, role, company, title, primary use case, and more
4. Leverage FullContact, Clearbit, Pipl, ZoomInfo, or other people data APIs to get name, company, title, age, gender, social profiles, and more based on registered email addresses
5. Leverage MaxMind's IP Address database to determine the companies that are most frequently using your service
6. Interview sales reps, account managers, customer service reps, or other teams that are working directly with customers to understand existing customer attributes
At the earliest stages your existing customers from which to draw insights from may be limited. In this case, focusing on a broader market exercise can be more fruitful in generating meaningful candidate customer segments. A few techniques you can leverage to do so include:
1. Reach out to industry experts to understand their perspective on target customers for your solution
2. Analyze competitor websites, marketing materials, customer forums, and more to determine who is leveraging their solutions
3. Conduct potential customer interviews with those leveraging existing industry solutions
Determining Segmentation Attributes
The next step is determining the most meaningful attributes by which you can segment and cluster your candidate customers. There is no single set of attributes that are universally applicable here because it depends largely on your specific industry, customer base, and solution category. So this task involves really digging into your candidate customers, determining points of commonality as well as important differences, and bubbling up the most meaningful bifurcating attributes.
Some of the most common segmentation attributes include:
1. Use case: the specific use case for which they derive value from your product or service
2. Role: the role or department in which they fall within the organization adopting your solution
3. Demographics: typical demographic attributes include age, gender, race, income level, education level, marital status, and more
4. Firmographics: specific attributes of the company that you are targeting, including industry, employee size, department size, business model (B2B vs B2C), and more
5. Psychographics: are there specific psychographic attributes of potential customers, including things like willingness to try new solutions, personality characteristics, personal goals, and more
Evaluating the Attractiveness of Each Segment
The final step is to evaluate the attractiveness of each of your determined customer segments based on attributes that you've developed. Again, the attractiveness of the customer segment will largely be business specific and need to align well with your overall business strategy. That being said, the following are typical evaluation criteria that are going to be relevant for most businesses:
1. Segment size: what is the total addressable market size for this segment. Is the segment large enough to enable you to build a meaningful business against it?
2. Resonance with value proposition: how well does the existing value proposition resonate with this audience?
3. Willingness to pay: can you effectively monetize against this audience based on evidence of their willingness to pay, available budget, derived value, etc?
4. Strongest delivered value: which customer segment is the most engaged and the happiest with your solution?
5. Acquisition strategy: can you effectively and affordably reach this target customer segment via your available marketing channels?
6. Strategic fit: does this audience fit the overall strategic vision for the company, especially in light of where you ultimately want to expand into in future products and services?
As you start to build up an existing customer base, you can start directly measuring the attractiveness of given customer segments empirically through a variety of means, including:
1. Studying product engagement rates on a per customer segment basis to determine the customers with the deepest repeated engagement with your product
2. Analyzing monetization and churn metrics on a per customer segment basis to determine the most profitable segments
3. Analyzing sales funnel conversion rates on a per customer segment basis to quantitatively understand the resonance of the value proposition across segments
4. Conducting NPS surveys to understand customer satisfaction as well as word-of-mouth virality on a per customer basis
Finding the Bullseye
Ultimately the final determination involves both art and science: while the rigor can give you a great set of candidates customer segments, there is no strict formula you can apply to determine the best ones. That's where the art of coalescing these signals to determine the most attractive segments as well as the ones that fit most with the strategic direction of the organization comes in.
At the same time it's important to remember that rarely does this exercise result in the determination being that you're going to focus exclusively on one customer at the cost of every other. In reality it looks far more like an exercise in determining the bullseye: the ideal customer for which you'll dedicate the majority of your resources addressing, though certainly continuing to grow close adjacencies, and potentially even continuing to support existing legacy customers.
How to Leverage Your Ideal Customer Segment
Once you've determined a hypothesis for your ideal customer segment and validated it, then comes the important task of operationalizing this customer segment within the organization.
Your segmentation should really be at the heart of the majority of your go-forward company initiatives. Here's just a few that could be meaningfully improved with a tight ideal customer definition:
1. Product roadmap: Ideally your product roadmap items are influenced by the most pressing needs of your ideal customer
2. Marketing: Your go-to-market activities, including customer acquisition strategies, should all be in the pursuit of attracting your ideal customer and building their awareness, interest, desired actions. Similarly, your messaging and positioning should be determined and tested with the ideal customer in mind.
3. Sales: Territory planning should begin with the ideal customer attributes, including buyer persona, appropriate firmographics, and others to determine who are the most attractive prospects the sales team should be spending their time with
4. Partnerships: You should determine the tools and services your ideal customers are already using to find partnership opportunities that can help solidify and expand your relationship with your ideal customer segment.
I hope this provides an approach you can leverage to improve your understanding of your ideal customer and bring you another step closer to finding product/market fit.
Enjoyed this essay?
Get my weekly essays on product management & entrepreneurship delivered to your inbox.
Aug 24, 2015