Welcome to Oxx's Go-To-Market FAQ column! We got a lot of great feedback from the after the release of our Go-To-Market Fit Toolkit this summer. But also a lot of follow-up questions. One toolkit, no matter how detailed, can't answer them all!
Enter the Go-To-Market FAQ column, where on a regular cadence I'll dive into a particular Go-To-Market question that I've recently received. Additionally, I'll answer each question from both an operator lens and an investor lens, as you need both to scale your company well!
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Today's question: I have multiple customer segments, how do I know if we’re targeting too many?
From the operator lens
It’s not about the number of customer segments, it’s about seeing that regardless of target customer profile definitons, the full company moves in a single direction. Teams autonomously prioritize their activities towards the most valuable long-term potential customers.
What happens if there’s too many segments
Three, four or more different target customer segments implies marketing spend diluted across different messaging frameworks, commercial teams maintaining different sales playbooks, and product teams prioritizing multiple disparate needs. Teams create multiple versions of collateral, messaging frameworks, FAQs etc. The complexity of repetitive processes increases, slowing down individuals. For example, new joiners must be trained on multiple customer segments. Product managers must analyze the impact of product changes on multiple target segments, etc.
This affects the strategic roadmap. What major features should we build and launch? Whom should we hire? What messaging framework should we roll out? It also affects day-to-day operations. How do SDRs prioritize target lists to contact? How do product teams weigh what to fit into the next sprint? How does an AE disqualify a target from the pipeline?
To determine where there's too many segments, ask the question “are we limiting speed of execution?”
(And if there’s more than two distinct targets, there's probably too many)
When it’s ok to break the rule
Sounds obvious so far.
But in reality, there's often that one lucrative deal in the pipeline. That deal is hard to turn away because it's not "on-target." In some cases, this can be justified. One very large customer contract can significantly impact cashflow and extend runway. But that tantalizing contract could also be a large distraction. New questions for the customer success team, different commercial contract terms, and custom product development requests. It's generally better to accept that such product roadmap tugs are custom work rather than framing the sale as a budding expansion into a new customer segment. Charge for the custom development time, ensure the customer will be highly profitable, and reduce the distraction until there's time to proactively target this segment.
From the investor lens
SaaS investors appear obsessed with asking the question “what’s your Ideal Customer Profile (ICP)?” It’s an obvious question. Knowing the customer base is a good way to understand a business.
There's more to it than that.
Why a well-articulated target customer matters
Evaluating how well a CEO and the rest of the team can articulate a target customer segment signals a company is ready for go-to-market fit because it allows a company to test hypotheses of how to make commercial investments. Not all of these experiments will work out - achieving go-to-market fit is a process - and that's expected. However, the experiments that work further refines the target customer profile and associated go-to-market investment hypotheses.
Why investors worry if there is no target customer
If no clear articulation is present, the investor worries that the team doesn't know how to allocate investments. Rapid, undirected investments often create a highly unproductive cost base.
Without a sharp focus, companies can often achieve rapid revenue growth in the short term, but often slow down in the long term. Some reasons are related to team productivity (see above). Competition is generally another drive. Over time competitors improve offerings. A company that initially won accounts across a wide range of segments may eventually have too little product differentiation in each and insufficient product development resources to defend each.
Focus on one target customer, with variations
A single target customer profile, allowing for variations, is usually the most that companies under $3-5m ARR can effectively support. The common variations include international expansion - product and collateral need localization - and long-tail and enterprise segments that often arise with companies who move up-market as the product gains depth and enterprise functionality.
What's not true is that the target customer profiles must be defined by geography, industry, or company size. That's a default from classic enterprise SaaS, but not so for PLG or inbound-led motions.
How to find your target customer segment in a data-driven way
How do you find out which of your target segments is the right one? Cohort analysis and conversion funnel analysis. We'll be sharing a helpful how-to guide for each in the next few months. If you're interested in being the first to know about the releases, subscribe below!