Target customer segment for a startup: This is one of the most valuable steps to take in the startup journey. I love this feeling when we realise that the idea we have solves a pain point of more than one person – i.e the beauty of scale. There’s something magical about this feeling because it tells you that you’re not alone in this problem. Not only do other people face this problem but they are willing to pay for it too. In this article, we’ll try and answer the question – How do I identify my target customer segment for my startup?
Now, this is precisely why an investor will be interested in you because the idea at this stage translates from a small business, small idea into a potential startup which can have scale. If the scale is bigger, then all the more reason for more investors to be excited about the idea and before you know, you’re in business. It sounds fantastic, doesn’t it?
Let’s delve a bit deeper into identifying the target customer segment for your startup. This target segment not only defines the commercial model but also has a very strong say in what your product will be about.
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How to identify target customer segment for a startup?
Let’s start with the main question about identifying the target customer segment for a startup. For a founder, the most common route is to go by their own experience and identify if there’s a similar customer profile out there. The ideal scenario is when you’ve faced a problem that you want to solve and realise that the same problem bothers a certain profile or persona of people. That’s your ideal target customer segment when you have the startup idea. Then you go through the process of vetting whether this can be expanded further to justify a startup approach vs a small business approach.
Defining the problem statement
Whether you’re writing your business plan or a pitch deck – the first thing to work on is the problem statement. Unless you have a clearly articulated problem statement, it is very difficult to get the idea out of the ground. Most people make the mistake of starting with a solution just because they can think of it. As much as the solution state is important – the problem statement is more important.
If I had an hour to solve a problem, I’d spend 55 minutes thinking about the problem and 5 minutes thinking about solutions
— Albert Einstein
It is not just about solving a problem but ensuring that you’re solving the right problem. For a startup – this is crucial because it is a question of life and death. It will decide whether your startup will exist or not.
Identifying the ideal customer for target customer segment
In the past, this used to be about creating the demographic, identifying details of persona, their job profiles etc. Although some of it has changed, the principles remain the same. One of the most underrated skills for a startup founder is the intimate knowledge of a customer. If you’re able to convert that knowledge and create the definition of an ideal customer, this creates a significant edge for you to create the business plan. (Defining an ICP)
Find as much information as you can about this persona. I love the use of the jobs to be done approach because it has a beautiful way of capturing the primary challenges of an ideal customer along with their emotional and social facets. These can be extremely powerful in defining your customer.
Get closer than ever to your customers. So close that you tell them what they need well before they realise it themselves
— Steve Jobs
Numbers and data to support target customer segment
This is the final point I want to make about the target customer segment in a startup. For an investor, everything is about their return on investment. If you have many customers, it ticks the box for the most investors because it creates a potential for high return – thus ensuring that you have the right ingredients for a startup and a potential exponential return for their risk. Also note how important it will be to have the right target segment that you can approach pricing accordingly.
Without data, you’re just another person with an opinion — W. Edwards Deming
If you can find any data possible to support the ideal customer profile, the number of primary customers of a similar nature. While doing so – also identify the numbers of secondary customers who can be converted into primary. A well-researched data into your target customer profile can serve you immensely while trying to ask for funds from investors.
Hope this provides a steer to think about identifying the target customer segment in your startup. These are my top 3 tips – but I’m sure there are plenty more. But I will restrict myself to these 3 so that the article doesn’t become too boring and long. Please drop in any questions and comments, I’d love to keep the discussion going.