From Fuzzy to Focused: Mastering Your Ideal Customer Profile (ICP) to scale successfully beyond Product-Market Fit

One main reason SaaS companies struggle to scale from €1M to €10M ARR is entirely preventable. And yet, it happens time and time again. The culprit? Not saying no. When companies skip defining whom they’re building for—and whom they aren’t—they end up stretching themselves too thin, chasing every opportunity, and losing focus.

I’m referring to a company’s Ideal Customer Profile (ICP). Nothing new, nothing novel, and yet too often not well implemented. Without a clearly defined ICP, companies who are already navigating the controlled chaos of scaling risk increasing the chaos beyond manageable levels: misaligned teams, churn, and eventually slowing growth.

Look, I get it. In my former life as a marketing leader, I’ve felt the challenge saying no to that large, inbound prospect that’s ready to buy… because it would require tweaking the product roadmap. And I’ve seen incredible teams put out fires post-signing on deals that maybe they shouldn’t have accepted. And now as an investor, it can be disappointing when you speak to a potentially very interesting investment opportunity – great metrics, differentiated product, attractive market – yet realise that they cannot describe their ideal customer well. It’s not disappointing because it’s a tick box question, but because it makes it harder to believe management can align its resources in a single direction to successfully scale to €10m ARR and beyond. And what could have become a truly great company will likely become merely a  good company.

Faced with two companies approaching Series A or B, where one understands why it’s growing well, who its best-fit customers are, and how it can continue on the same trajectory, notwithstanding the bumps that invariably arise on the scaling path. The other is growing equally explosively, but without that understanding. Out of these, the former is a far better bet to back.

Luckily for companies looking to fundraise, it’s not a yes or no question. Supporting companies to take their ICP from good to great is one of the things we get to do as investors. Spoiler alert: Oxx’s portfolio companies continue to refine their positioning. Markets shift, companies scale, products are built out and target customers are redefined. Companies internationalise and by definition tackle new customer types. This is not a static exercise, but one that requires consistent attention to ensure relevance.

In this article I go into how to take an ICP from good to great. Starting from where traditional ICP advice ends and delving into how an ICP shifts as companies scale, what really belongs in an ICP beyond firmographic data, and a data-driven process to follow to improve an ICP.

Why traditional advice falls short

Where Traditional Advice Falls Short

Here’s the thing: the usual investor advice—“find a focus”—isn’t wrong, but it’s simplistic. When? How? Who? For what purpose? Moreover, the declaration “find a focus” needs further nuance. Different stages of growth demand different approaches to ICP. Very early-stage companies need to experiment. And later-stage companies may earn the right to start exploring adding additional customer segments. Some specific SaaS Go-To-Market motions have further nuance built in.

Second, ICPs are too often described only in firmographic terms: industry, geography, size. After all, that’s typically the only data available outside-in when building lead target lists. This creates definitions that are both insufficiently precise and partially misleading to truly describing the customers most likely to purchase and use the product. The factors that should really matter are those that drive urgency. Why is a particular prospect more likely to want to solve this problem yesterday than others?

The ICP Bowtie Framework

The ICP Bowtie is a more useful framework to think about this.

Imagine the horizontal axis is the company getting more and more mature. The left side of the bowtie is a pre-Product Market Fit company. In the middle, a company passes through the Product-Market Fit gauntlet. And on the right, a company has passed the Product-Market Fit gauntlet and is approaching Go-To-Market Fit.

Let’s layer on customers. In an ideal world, this is what the ICP journey looks like:

In the pre-Product-Market Fit phase, you’re experimenting. You have a great product and you’re figuring out who needs it the most. You’re talking to tons of different customers. You’re acquiring customers in lots of different segments. Customers are very heterogenous. And in the post-PMF phase, you need to completely flip this around and go after a single, strong ICP with a scalable GTM motion. You’ve figured out who needs your product the most, so all others are extraneous to the central purpose of scaling.

Only once your team has proven they can predictably find and land this ICP is it time to start considering if there’s capacity to layer on a second segment – likely one to two years later. What does reality look like?

Three Levels of ICP Precision

The Bad: There are companies without a focus: “we sell to all companies with 1000 to 10000 employees.” Including it for completeness sake, but it’s very rare.

The Average: “we target X and Y and Z.” What’s more common is that companies say “we sell to this financial services and healthcare” ” or “we sell to both SMB and MM and enterprise clients within this industry.” There’s a lack of prioritization of which segment has the best potential, which means a lack of an ability to drive meaningful prioritization decisions at a company.

The better: Many very good companies have a defined ICP, but it’s still a bit vague. “We sell to CFOs at companies in professional services in DACH and France with $50 to $500m in revenue” A lot to like… but it still describes a pretty broad group of companies who might be quite different on the inside. One $400m revenue company might be completely uninteresting but a $40m revenue could be a great fit. 

Earning the right to add more: Generally, if a team proves a scaleable GTM with one ICP, it can be time to add a second. Often the mistake is taking this on too early before the engineering resources or sales enablement resources are truly able to take on the additional load.

From Good to Great: beyond firmographic data

One main ICP nuance: focus is context dependent on a company’s maturity level. The second main ICP nuance: this is about a lot more than just industry or employee size ranges. Of course industry, buyer persona, geography and revenue range still matter and they’re still at the core of most ICPs. Yet, the more insightful factors go far beyond this:

• What does the tech stack look like at top customers?
  Is your ideal customer moving from a greenfield, best-of-breed, or all-in-one approach? Does your software replace certain existing solutions more than others and why? Is your software better suited for a particular existing tech stack than another due to the integrations already in place? Does this particular software sector have vendors that offer partially overlapping sets of features; which existing vendors does yours complement well?
• Which department owns the problem at this particular company?
  Some areas might be owned by finance in one company, operations in a second, or data in a third. Some areas might be decentralized in some companies and centralized in others. Sometimes departments are staffed by generalists, and sometimes they’re split into specialists. Does this department have a budget that can accommodate your solution?
• What is the ideal culture to sell into?
  Startups fit well with customers that can take decisions in a timely manner, but beyond that – does your product fit in an ROI-driven culture? A company that takes visionary bets? Is your team better able to navigate multi-stakeholder companies than competitors? Is your ideal customer more or less digitally savvy than the others in their industry?
• What type of products does the ideal customer offer?
  Does a single product or service dominate, or are the product lines heterogenous? Are the products commoditized or differentiated? Does the company have a goal to produce the products or services faster, with higher quality, with better reliability, etc.? 
• What financial situation and goals does the company have?
  Is the focus on growth or profitability? Is it a high margin or low margin business? What financial goals have they stated to shareholders?
• What data will your software be able to access?
  Many software solutions are dependent on importing or integrating with existing customer data; if the data is scattered, incomplete, or inaccurate, or difficult to access they may not be a great fit.
• Does the company purchase new software directly or indirectly?
  Does the company prefer purchasing software directly or via managed service providers? Does the company work with systems integrators who are your actual clients? 

Use the below graphic as a bit of a cheat-sheet of what you need to think about as you go about defining your ICP.

The firmographic qualities often correlate with the non-firmographic qualities, but it’s these more subtle qualitative dimensions that actually create the similarities in pain point and urgency which characterizes your ideal customer. Think of the firmographic qualities as the shorthand to help your marketing and outbound teams sniff out companies that are then likely to fit the qualitative dimensions.

The end goal of mapping your ICP is not coming up with a checklist of criteria, but defining which characteristics of a potential customer are likely to make them a great customer. Which characteristics increase the urgency and acuteness with which they feel the problem, making them buy your product?

The 3-Step Process to Define Your ICP

Step 1: Analyze the data

Internal and external data offer a treasure trove of information with which to refine an ICP. If the data is not available, it likely means that your company is still in the pre-PMF phase of development and can build hypotheses on potential ICPs but isn’t yet in the “focus” stage. Congratulations, you still get to experiment with new types of customers.

The general method to analyse the internal data is grouping your customers, prospects, leads or users in Group A and Group B:  those that fulfil a particular hypothesised ICP dimension, and those that do not. You then compare whether the two groups differ in outcome variable- be it conversion rate, sales cycle length, renewal rate, churn or expansion. If they do, it’s likely to be an ICP criteria.

• Customer data: Label each customer according to hypothesised ICP criteria. Analyse cohorts of customer data and analyse which type of customer is the likeliest to churn, renew or expand. Tip: download the Oxx SaaS metrics template to make this analysis easier.
• Sales CRM: Label each sales lead with hypothesized ICP criteria from the stage at which it can be determined. (Note: some will only be available at a certain stage in the funnel). This may involve starting to track criteria that were not historically tracked, in which case you will be able to analyze the resulting outcomes after a sales cycle length has passed. Measure your groups against conversion and length in each step of the sales process.
  • Analyse this by deal value rather than deal volume. For example, small leads will likely move quicker through the funnel but larger leads generate larger ACVs and have better unit economics.
• Marketing: Which segments deliver the highest ROI on campaigns? Are there potential good-fit segments that the marketing team hasn’t targeted and therefore has no customer or CRM data? Here, running a low cost experiment could be a way to test ICP fit from this segment.
• Product: Where is usage strongest, and why? Looking at volume and frequency of key actions in the product to determine whether certain customers use certain features much more than others. Limit the analysis to a handful of variables that the team knows correlate well with high perceived value.
• Market: Are there segments without much competition? External market data is valuable as well.
  • Assess the number of customers available in various ICP definitions. If a category appears highly attractive but is quite small, assess whether it’s worth targeting this customer group. Perhaps so if it can act as a springboard to a very similar adjacent customer segment. Perhaps not if reasonable pipeline assumptions suggest it will limit company growth.
  • Assess the competitive intensity in different market segments. It may be worth it to initially target a smaller, less competitive segment while maturing the product.

Step 2: Define the ICP

It’s highly unlikely the data analysis will produce a perfect answer! Look for general patterns:

• Which customers retain and expand the most?
• Where are your sales cycles shortest or conversions the highest?
• Are there red flags, like churn risks, tied to certain segments?

If you’re struggling to make a decision, it might be a sign you’re not truly post-PMF yet.

You can test it as you iterate. To get started, test describing your ICP. See the box below for an example – you might not need all the criteria, but you’ll quickly realise if your work has resulted in a sharp enough description!

Actionable benefits

A crisp ICP makes a nice slide for an investor deck, but that’s definitely not the point! Here’s some actionable uses of an ICP:

• Optimise digital marketing spend.
• Help SDRs filter leads more effectively.
• Align product roadmaps to high-value customer needs.
• Prioritise accounts in customer success

There’s always more to say about ICP, because its value cannot be overstated. If you have any thoughts or comments, do get in touch. If you’re interested in more tools on how to navigate the Go-to-Market Fit stage, I recommend diving into our Go-to-Market Fit Toolkit, with more resources and insights to help you on your way.