How to Select Target Markets for B2B Tech Companies
An important part of any go-to-market plan is identifying a narrowly defined target market. It should be big enough that the market potential is sufficient to pursue but narrow enough that it is clear what market the company is focusing on and… what markets the company is not targeting. This is especially true for smaller companies. With limited resources, you can not afford to be pursuing multiple target markets simultaneously.
Her is why:
I have seen this scenario play out at startups and medium-sized software companies many times.
Let's say, the total available market for your product or service is estimated at $150M. You have chosen to target a sub-segment of that market that has a potential size of $50M. Your star salesman stumbles on a hot opportunity in an adjacent market for $150K. The customer has a budget. They have an urgent need. The product is an 80% fit for their requirements. There is just 20% that doesn’t work for this customer and they would need 5 new features and some customization to make the product a perfect fit. Most small companies make the mistake of pursuing this opportunity.
This is a visual representation of the situation:
Total Available Market = $150M
The laundry list of excuses I have heard as to why a company will pursue this new one-off opportunity outside their target market include:
1. This could be a beachhead into a new market – Maybe. But what about the main target market? Are you ready to abandon the prime target market that is estimated to be $50M?
2. We need to make payroll –this will help close a sale today but it will hurt in the long term because every minute that is spent delivering to this customer and modifying the roadmap to accommodate this $150K customer is taking away from building out the product to meet the needs of the $50M market.
At a minimum, a target market should contain these 4 dimensions -
1. Geography – in what countries or regions are you going to sell your product?
2. Type of companies – are you focusing on small, medium or large companies? This could be based on the number of employees or sales.
3. Buyers – who are you targeting inside the company as the buyer of your product? Are your selling to IT, Marketing, Sales, Accounting or a different department?
4. Industry –Automotive, government, banks, telcos etc…
Your target market should be spelled out as specifically as possible. If your product can be used in many different ways then spelling out the use cases would also be helpful. How are the customers you are targeting going to use your product?
Best in class B2B tech companies clearly document their target market with as much detail as possible.
This should be communicated across the company. Ideally, the compensation plan for salespeople should specify what target markets they will receive credit for selling to. Comp plans that are vague (territory = North East USA) reward the wrong behavior.
With a clearly defined target market:
Marketing will know what keywords to use on the website, what trade shows to attend and where to spend the their limited marketing and advertising budget.
Sales will know who to target and where to focus their energy prospecting.
Research & Development will know who they are building the product for and how the product is going to be used so they can develop test cases.
A detailed and properly defined target market allows a B2B tech company to operate with laser focus. It also empowers the company to stop pursuing one-off opportunities and learn to say “no”. Keep your eye on the prize!
About the Author: Bryan Socransky is the Principal Consultant of Disruptive Consulting Group. Bryan's experience spans over 25 years in some of the most competitive B2B sectors including enterprise software and SaaS. Now he is applying this experience to help small and medium-sized B2B tech companies grow. http://disruptiveconsultinggroup.com/