Engineering the sales machine – creating customer segments

Once you fully understand what your customers are trying to achieve, as explained in this post, you will be equipped to group them into segments. Clearly defined, well-understood segments will help you to get your product / market fit right and to design an effective sales machine.

Segmenting your customer base involves grouping them according to the problems they are trying to solve. These “jobs-to-be-done” are the core reasons various groups will buy your product. 

Bear in mind as you go through the process that you will have to choose which segments you will serve and which you will avoid. That distinction may change over time but, at any given point in your startup / scale-up journey, it is important to know who you are not serving so you don’t waste time and resources targeting those that are least likely to buy. 

For your company to grow quickly you will need to deploy limited resources across a manageable number of segments – possibly even a single one. Being disciplined in this way will allow you to maximise the impact of your investments:

• Product development can be aligned on features that offer the most value to target segments, rather than effort being diluted to build ‘one-offs’ that only a few customers will use
• Marketing and Sales teams will be more effective thanks to clear positioning and messaging. This is important when you are building those teams out and need to get employees building pipeline and closing deals quickly 
• Customer Success and Support gain a better understanding of the customer when the customer base is relatively homogenous. At Aconex, that knowledge-of-customer informed product decisions and our sales approach and we would have lost many of those insights if our target market had been made up of too many customer types. 

Target segments should always be identified in reference to the competitive landscape. A sizable segment in a large geographic market may seem attractive on paper, but may be highly competitive. Can you be sure your unique strengths will play well there? Smaller segments are often underserved and may be more receptive to your USP, but can still represent a significant opportunity for a scaling business. 

In his book Crossing the Chasm, Geoffrey Moore illustrates how choosing the right target market can help businesses cross that ‘chasm’ between their early adopters and a larger, mainstream market. He recommends that innovators focus on a single vertical where they can solve a critical problem, and then leverage this success by moving through adjacent verticals (where customer references are still relevant). 

The analogy he uses is a bowling alley, with each vertical a pin to be knocked over. Only when sufficient pins are down (say, 3 or4) should the business make the significant jump to a horizontal strategy. 

Well-chosen customer segments can be a powerful driver of startup growth. Here are some tips on getting it right: 

• The customers should have similar (ideally identical) needs
• They should be similar types of business, in terms of size, region, business model and customer base
• Your product must have distinct benefits that meet the needs of the segment
• Your business model and product must offer clear advantages to buyers when compared to your competition, existing solutions or substitute products.  

Your initial segment will provide an initial beachhead for launch, will act as a strong defensible moat, and can then provide the platform to dominate adjacent segments, leading to sustainable long-term growth.

Too many different customers

One of the brakes on rapidly scaling your company can be the temptation to serve everyone who buys your product. Having too diverse a customer base makes it hard to target product development, sales, marketing and account management, and customer support in a way that benefits customers most. 

We faced that challenge at Aconex and, to be honest, we never fully resolved it. We served too many customer types across our industry – project owners, contractors, subcontractors, and consultants. Like unmaking an omelette,  it’s a situation that can be impossible to unwind once you get there. 

While there were many common needs across our customers, they had different ‘jobs-to-be-done’:

• Bechtel – then the largest privately owned contractor in the world – had little in common with a mid-size builder in Brisbane
• The infrastructure sector operated very differently to commercial construction
• Different parts of the world favoured different contractual arrangements, which ultimately determined how projects were managed. 

As we grew, we became adept at navigating these challenges. We were able to hire sales and implementation staff with depth of experience in each segment; we tailored our value proposition by customer type, while trying not to stretch it too much; and we invested in multilingual marketing, product platform and support materials. All of this supported further growth once we hit a certain size. But there is no doubt that avoiding such complexity in the early years would have allowed accelerated scaling. 

I don’t think our experience was unique, though, and can represent a common trap when building a business from Australia. The small market here often obliges startups to serve multiple customer types at once. In larger markets like the US, startups can more easily serve a single segment to begin with and grow for some time before needing to expand to, in Moore’s analogy, knock down the next pins. (Read more about the Aconex entry to the US market here).

Revisit customer segments as you scale

Decisions you make on segmentation and market focus may be absolutely correct at one point in your scale-up journey, but no longer so later on. So it’s important to revisit your segments regularly as you learn more about your customers (and as other factors like technology and the competitive landscape change).

You will have the advantage, unavailable to others, of knowing your customers intimately. Interrogate the data to understand what customer types are most ready to buy, and to come back for more modules or services once they have. What segment is easiest to serve and support? Is there a group that uses that product in a unique way that gives you an advantage over your competitors? These are the people you need more of.   

Conversely, look out for customers that fall short on criteria like these. To scale rapidly, you need to be prepared to fire customers that are uneconomic to serve or have future product expectations that don’t align with your roadmap.

By now we have distilled down our customers’ jobs-to-be-done and looked at grouping them into addressable segments. In the next post I’ll talk about using those segments as a basis for positioning and pricing decisions. 

For more on customer segmentation, this guide from Boston-based OpenView is a worthwhile read.