Okay. Your business is growing at 10-20 percent per year. While this may be extremely impressive for a billion-dollar business like Amazon, this isn't enough for most small businesses. Not even close. Successful, high-growth companies typically have a triple-digit growth rate. So, how can your business grow 200 percent -- or even 500 percent -- next year?
A common problem for young companies is the inability to understand the specific needs of prospective clients and partners. This leads to unfocused go-to-market strategies. Ultimately, many companies are unable to efficiently allocate human and capital resources towards rapid expansion.
The key to achieving explosive growth is to implement a specific market segmentation early. Market segmentation, in case you're unfamiliar with the term, is the process of dividing a market into clearly identifiable customer groups.
Doing this well and early will lead to increased conversions, improved financials, and faster product iterations. At my previous company (a ticketing app for event organizers), this strategy allowed us to grow 800 percent per year for three years in a row, acquiring more than 28,000 customers globally.
Market segmentation is a fairly simple concept but it requires discipline and iteration. The first step is to divide a broad target market into discrete subsets of individual consumers or businesses that have common needs and interests. The second step is to design and implement strategies to target them.
There are three main approaches to market segmentation. The first is firmographic segmentation, the simplest approach. It classifies targets based on publicly-available characteristics, such as industry and company size.
The second, needs-based segmentation, is based on differentiated needs that customers express for a specific product or service.
And finally, value-based segmentation differentiates customers by the value they derive from the company's product or service. This type of segmentation enables companies to identify prospects that will generate the most long-term profit.
For most growth-stage companies, value-based segmentation tends to be the most valuable and practical approach, as it helps companies focus on their most profitable segments. It also best positions them to craft successful channel strategies to convert each segment.
Conducting a value-based segmentation can be divided into four main steps:
1. Establish a clear, value-based hypotheses that will guide the segmentation.
Hypotheses should be clear, logical, testable, and useful, and formed around customer characteristics or factors that allow your company to clearly separate current customers into distinct value-based segments.
For example, large online e-commerce platforms use your technology because you help them reduce fraud. Or, smaller e-commerce and SaaS businesses use your promotional tools to increase traffic to their sites.
2. Generate customer data and insights.
A list of accounts must be developed to use as a data set. Built from a customer relationship management or billing database, the list needs to be comprehensive and include all customers with the exception of test and proof of concept accounts.
In addition, accounts that are outliers, too recent, too old, or too small (in terms of revenue or organization size) should not be included as they may erroneously influence your analysis. The overall goal here is to determine basic criteria that create fences between customer groups.
3. Analyze data and group customers into "ideal customer profiles."
Try defining each profile with segment-specific characteristics. For example: marketplaces that use our platform and have high web traffic, significant funding ($5 million to $50 million), and use Stripe as their payment processor.
4. Evaluate the attractiveness of each segment.
A formula or set of weighted criteria must be developed to measure the attractiveness of each micro-segment. Considerations include:
- Current size of segment, in terms of economic value.
- Customer quality.
- Ease of outreach to the segment.
- Potential of the segment for future growth or expansion.
- Fit into current business model and need for any significant changes within the business.
- Sales cycle length.
Such a formula creates an objective measure that can consistently be used to compare and prioritize micro-segments.
Typically, the final choice of micro-segments is quite obvious. However, as markets and competitors change, it is important to continue refining each segment and identifying additional ones to ensure your company focuses on the most attractive markets.
