A company’s go-to-market strategy is flawed from the start if defining the target market was step one. If the target market is not clearly defined (based on use cases), and there is no compelling messaging, companies will struggle with execution, resulting in high turnover, low close ratios and finger pointing between sales, marketing and development.
Many organizations glaze over defining the target market after they gain internal funding or raise money externally. Unfortunately, the definition of the target market that is typically performed to gain funding is really focused on getting an audience excited about the size of the opportunity. In many organizations, the market sizing exercise is a stand alone exercise that is not integrated into the go to market strategy and does not serve to guide sales, marketing and development. Defining the target market and documenting the corresponding use cases are critical for an organization to create value drivers and unique selling propositions for the persona’s involved in the purchase process. Market sizing is the tip of the iceberg and a critical component in any go-to-market strategy that sets the first domino in motion and will serve to document use cases, value drivers and differentiators.
Determining the size of the market opportunity means different things to different people. For start-ups, the focus tends to be on documenting the largest market possible so a tremendous upside exists for investors. Often times, the same is true inside an enterprise. Inside an enterprise, the goal is to obtain resources to pursue a perceived market opportunity and bigger is often time perceived to be better. Unfortunately, both of these scenarios tend to reflect more fiction rather than reality.
Defining the Target Market – What is Useful Market Sizing?
Defining the target market is a useful exercise should include at least three market cuts:
Total Market – Refers to everything in a specific market. It could include the number of people, number of companies, volume of sales or whatever. Typically, this is a superset of the market opportunity that the organization pursues knowing that not everyone in this definition would ever buy.
Served Market – This is a cut of the total market that has a need for an organization’s solution and a business problem for which that solution would provide value.
Target Market – This is the specific segment that the organization’s resources are targeted at to acquire and retain customers – i.e. those prospects that have the highest propensity to purchase today.
Each market then has to be adjusted for relevant use cases and the technology adoption curve to create realistic market size and market penetration estimates.
Ideally, the definition of the target market was documented in the market backgrounder before the development resources were allocated, and tweaks were incorporated as the solution was readied for market. Unfortunately, that is not the case the vast majority of the time. More often than not a development project is started based on a piece of cool technology, a customer requested it or it was determined that “we could do that if we throw some services and development resources at it.” Again, starting with a market, moving to a segment and focusing on a use case is something that needs to be done early and revisited often to remain relevant and provide value.
There are usually hundreds of companies in the target market that your organization competes in and they are all communicating the same thing or something similar–in your company’s mind or in the mind of the customer. Many times this is because the company does not know who it is or what it sells, so they become everything to everyone–we sell Lego’s. While building something and figuring out at a later date what to do with it has worked for Facebook and a few other companies, it is the exception and not the rule. When identifying the target market it should start very simplistically by asking and answering some fundamental questions:
- What business problem do we solve?
- Who do we solve it for?
- How much economic impact or value does it have?
- Why do we do it better than anyone else?
Defining the Target Market – The Importance of Use Case Specificity
It’s important to be as specific as possible with the use case as it becomes the blueprint for sales, marketing and development and the entire organization as the go to market strategy is executed and refined. Also, it is imperative to remember that the use cases are living documents, and not a “one-and-dones.” Specifically, sales and marketing need a “sketch’ or persona of the buyers that can be documented and incorporated into the sales and marketing fiber in order to identify and surface opportunities with both a high propensity to purchase and the ability for sales to close them quickly. Sales and marketing will be the conduits for information from the market back to the organization to add new use cases, tweak existing ones or to end of life those that have become table-stakes, are too expensive to yield profitability, or do not create value in the customer’s mind.
For example, a macro market might consist of marketing technology which includes: Email Optimization, Integrated Marketing Management, Marketing Modeling, DB Marketing, Email Service Providers, Sales Automation, Visualization, Sales & marketing BI, Marketing Automation, Data Warehousing, Marketing Data, Social Marketing Management, Social Publishing Platforms and Social Promotional Platforms. Sometimes companies say they have some basic functionality in many of the market segments and as a result the focus should be on all of the submarkets they touch. Many times this is the case and it is a recipe for disaster as:
- Most organizations do not have the resources to adequately fund all of the development required
- There may not be strong subject matter expertise in-house
- The sale team may not be able to cover all of the markets
- The messaging will be broad and thin to “include everything”
- It is probably impossible for the marketing team to cover all of these segments and provide the demand creation and demand management necessary to build a sales pipeline of qualified opportunity
- The sales enablement team will most likely be unable to provide all of the sales tools and training required for a sales rep to be effective in all markets identified
- The core market may be less interested with your organization as your focus broadens and it is perceived that solution is not now best of breed
The focused company will put all the wood behind the arrow by locking in on the segment representing their “sweet spot”—the segment best aligned for their solution to provide business value for a specific use case. The value has to be clear and compelling while driving action for those involved in the purchase process. In addition, buyers must believe the solution provides clear and unique differentiation from alternatives. Realistically, it is more than likely no one company can claim to be the “Marketing Technology” company – most likely no one company provides value as well as unique differentiation for all of the sub-markets within the Marketing Technology market. It is more likely that several very strong players exist within each market — and some may have expanded into several of these markets. To gain the most traction, it is important to choose the market segment that has a specific use that yields tremendous economic value to the organization when your solution is applied to that business problem. Then, after successful market penetration within that segment, choose to expand into new use cases within that segment or move to expand into new verticals or markets.
Here’s how to successfully size a market. When defining the target market, start with the available market, narrow it down to the served market, laser in on a market segment and then, to simplify the process, choose one specific use case in one vertical. Once the team agrees on the specific use case that answers the four questions in a compelling manner, it is time for the litmus test—differentiation. For the use case in question, the team should identify the top ten things required to execute against the specific use case. Next, add columns for one’s company and the top three competitors sales will likely face. Then, rank how well each competitor and one’s solution scores for each requirement. Finally, rank how important each requirement is to the customer. This is an iterative process and will require several cycles to identify a core use case that one’s company does well, is of value to customers and that no competitor can do it as well.
The goal is to build a managed and repeatable model to evaluate use cases when defining the target market. Identifying the specific use case is difficult to do but much more difficult and expensive to figure out through trial and error in the marketplace—i.e. burning marketing sales cycles, wasting marketing dollars and firing and hiring executives in an attempt to fix the problem. A best practice approach is to start with the tightest use case definition possible and expand it in a controlled manner. If one is in multiple verticals, pick the strongest vertical for that use case and start there since one can always expand later. Since it is difficult, reduce the number of variables to simplify the process.
Defining the Target Market – Issues that May Arise
Below are a couple of issues that may come up when trying to identify the use case, and beware that these issues have the potential to paralyze the group:
The sales pipeline has all this opportunity in it today and these customers want X, Y and Z, and we have been pitching….
The short answer is that the company is facing an issue (usually falling short of the number) in the marketplace and change is required. The only way to improve the current state is to change and change is not easy, it scares a lot of people while others will fight to retain control but it is the path to the next plateau. The definition of insanity is to do the same thing over and over again expecting different results. So, in a pragmatic and rational approach, some questions should be addressed when this concern is voiced (usually by a lone wolf or a sniper):
- Do the sales opportunities fit the use case?
- At what stage in the sales cycle are the specific deals forecast?
- Have they been validated through the sales management chain?
- What has been the close ratio to date for deals?
- What has been the cost of sale?
- Are new customers profitable?
- Have recent deals required a good deal of professional services?
- Have recent deals strained development resources?
- Have recent deals been successful and referenceable?
From a sales perspective, sometimes it is appropriate to have a hard line approach and move the organization forward “cold turkey”–if the deal fits you can commit, otherwise it’s out. Other times organizations will grandfather in specific deals with a clear set of conditions and will establish a firm timeline (transition over one or two quarters). It’s important to clearly state that these “exception deals” WILL NOT be supported by any significant allocation of services or development resources. Remember, there is a scarce set of resources and every time there is a request outside of the focus area it is a dilution on the available resources and the probability of a successful transformation decreases.
The Solution “Does not do That”
If there really is no use case where the solution’s differentiation is unique, step one is probably to replace all or part of the management team. There really is no way an intelligent and effective management team could allow a solution to be built that does not have a market – i.e. at least one use case providing a revenue stream to support the organization’s growth objectives. If there is no compelling use case, the organization has to go back to square one and identify a vision, develop strategies, build a structure and, in particular, onboard a competent staff before it can effectively move forward.
Many times tactical details and one-off situations will be raised will raised as there is a tendency to try and break the use case. Don’t fall into the trap of allowing participants to play “stump the use case” by trying to conceive any scenario that the solution could not fulfill. Questions should be raised and addressed, but in an pragmatic, objective and orderly fashion not based on verbal exchange.
An assessment, internal and external, of the use cases identified should be conducted. The assessment of each of the use cases proposed should be in the context of the importance or value to the users would value and how each competitor stacks up against each criteria. It’s critical to focus on the buyer and understanding the purchase process as value drivers will have to be constructed that resonate with these audiences. Using the Capability Maturity Model is a good framework to evaluate current state, desired state, gap, requirements for incremental change, timing and cost. Those things that are highly valued and that you do well are an obvious choice but not the only choice. Note, there HAS TO BE some unique differentiation or you will experience long sales cycles that will result in no decision or losing to a competitor. And, the long-term strategy may require investments to displace a competitor or leapfrog the market and the required investments may be to build, partner and or acquire technology.
Remember, the solution is always in a state of advancement, or should be, and the solution delivery timeline should include enhancements monthly or weekly. Google seems to issue releases daily. Couple that with the length of a sales cycle and the time required to get a customer implemented or up and running and that window is usually measured in months, at least for complex B2B sales. In short, there should be a use case in the universe that supports the organization’s growth objective with either the current offering or the current offering plus what can be built with the pad of the sales cycle and delivery schedule. The use case should help steer the solution roadmap to an even stronger differentiated position and enable the organization to expand the market or move into new markets over time.
Defining the Target Market – Summary
Defining the target market is a requirement for an effective go-to-market strategy. In addition, there must be a compelling use case, there is significant economic value delivered by the solution and that there is unique differentiation. When the team is identifying the use case, and particularly the differentiation, many opportunities will arise for solution enhancement. These opportunities need to be ranked and prioritized to drive the product roadmap and to build and maintain a competitive solution. However, they must be interpreted and managed through the use case and market lens. As mentioned earlier, a market backgrounder should have driven the development process, and now the use case will drive and provide focus for development as well as sales and marketing. It’s also important to note that the organization does not have to go it alone. The use case sits inside a vertical and there should be an eco-system of internal and external resources around the use case. Owning the use case is step one and then expanding it to related workflows is step two. The important thing to keep in mind is that an organization can develop the solution by itself, partner with a company that does it well or acquire a company that does it well—i.e. their people, technology or both.