B2B SaaS Marketing Snacks Podcast - Kalungi

BSMS 14: How big (or small) should your niche be?

Mike Northfield
Dec 29, 2020 7:02:26 PM

 

Going after the promise of a large market is a common mistake. By defining your Ideal Customer Profile, you can focus down from the Total Addressable Market to your Serviceable Addressable Market and finally to your Obtainable Addressable Market where you'll encounter a higher win-rate due to specialization.

In this episode we talk about the niche concept, the TAM SAM SOM methodology with its filters and signals, and how it integrates with the ICP in B2B settings.

Episode transcript

Mike:

Okay, Stijn. Here's another one. So, a lot of times when we work with our clients, a lot of CEOs and founders want to go really big with their campaigns. They want to take a certain portion of the market and say, if we can only get this percentage of it, then we'll be fine. Obviously, we've seen that there can be a ton of value in going super targeted because it lets you get really specific with prospecting the right accounts, messaging and marketing your product for a very particular problem and use case. All of that starts to bring up some questions. So, when you talk about niching down, how small should your niche be? How do you even get started? How do you decide which accounts are going to be your ideal ones? Or your ICP, your ideal customer profile?

Stijn:

This is a great question. I think nailing a niche is easier said than done. It starts with understanding, what do you mean when you say that, niche? I've heard people say niche and niche, but I think it's niche.

An ICP, an ideal customer profile, implies that you have found a type of customer that will allow you to service them really well, to provide them a value proposition that they will get extremely excited about, that fits their needs, that will make them jumping up and down to want to pay you for that, and of course, they will tell others about it. They will become what's called engaged advocates, they will use it, they will like using it and they will tell others about it. That's an ideal customer profile.

To get to your niche and the right size of your niche for you to nail, as a company, as a startup, as a fast growing company, if you want to expand your reach, your markets, the right way to think about is to make your niche as small as you need it to be for the first customers to start telling you, hey, this is exactly what I needed. This is something that, hey, why didn't nobody else do this? You have the perfect thing for my problem, right? That is really what you target for.

And you have to make it almost as small until someone would say that you're doing something that only you can do. You're the best at it, right? You have to then, basically, be comfortable that nobody can service this customer, that fits in that niche that you have defined, better than you do. You can give them exactly what they need and they will tell you, hey, that was a great idea. You're exactly what I needed.

So, that's sort of, I think ... Until you get to that point, where you can answer the question, we're doing something that only we can do for this type of customer, for this type of ideal customer profile, until you've reached that point, you should make your niche smaller. You should say, hey, maybe we don't service all the countries in the world, we service only this country, or only this language, or only this size of customer, or only customers who have this specific problem, or only customers who look like this, who have this type of profile, we use this type of technology, right? There are all these sort of attributes or segmentation criteria that you can use to constantly prune your niche until it gets to that point that you are the only one, or at least the best from the options they have, to serve their needs.

But then, how do you make it big enough to be worth it, right? That's also important, right? You have to... When you really commit to this and you're going to be the best to serve as this part of the market, it has to be worth that too, right? You have to be able to build a viable business. I think that's actually often not that big of a problem, once you have... Even if it's an audience of one, right? If you have found that one customer for whom you've built something, that is exactly what they need, it serves the needs, the things they've voiced that their wants are. It helps them get rid of a big pain point or solve a headache. You will probably be able to find more people that look like them or customers who look like that ideal customer profile.

Even if you have to expand it a little bit, if you found one customer that has a really specific problem, and they're in a really specific industry and then some part of the world, and you solve that problem for them really, really well, moving out of that small niche of one customer to add maybe customers in another geography is not that hard, right? That's the easy part actually. Let me give you an example. Let's say you walk in a mall, a big typical US mall, you would have the big department stores like Nordstrom, Macy's, et cetera. They would basically have everything, right? Every type of clothing, all type of assessors, I felt off, they have home products, but let's say you have a twin daughter, a pair that you need to get clothes for them, daughters in their teenage years and they're twins.

So, you're walking down the mall and of course you can go to Nordstrom or Macy's and J. C. Penney's, and you can probably find clothing for them. But what if you walk by to a store that says, hey, this is a store for teenage age girls, and even it says, teenage twin girls, right? And that's actually you, right? That's exactly the audience that you represent. You probably will walk into that store before you walk into Nordstrom, right? Because, you're more likely to find exactly what you need there. They will have from every piece of clothing they will have two, right? They will only have clothing for the age group that you're looking for, they only have clothing for girls, so it will make your life so much easier to find exactly what you need. You will probably, when you're part of a club of parents who also have teenage twin girls or twins, you probably tell them about it.

You say, Hey, I found this store that really caters to our needs. That's kind of what you want to do, and it doesn't mean that if you're the store owner, that at some point, once you're successful and you're very busy, you serve as all these teenage twin girls, that you don't expand, maybe also in teenage boys, twin boys. Right? But, you can stick maybe with the twin category, or you become a teenage clothing store. All up you start being okay, maybe with selling one pair of clothes at the time, instead of two, that's fine, right? But, you started with that niche, because you can actually really stand out. You can find that audience, that niche that is really going to tell others about it and allows you to then scale from there. That's sort of how I think about creating a niche, Mike.

Then when you scale this sort of B2B, the terminology we often use is, sort of go from your total addressable market, right? All the people, all the customers in the world who could potentially benefit from what you do. And then often that's called the category that you're in. Then you have something called the serviceable addressable market, the SAM, which is not necessarily that big, right? It depends a little bit on your reach as a company, is your value prop going to fit everybody's needs? What part of the market can you actually service. If you only have a presence in North America, you're not going to be able to service a customer in Vietnam very well, right? Maybe because of language barriers or local regulatory needs, et cetera, you don't have a team on the ground. So your total addressable market might include Vietnam, your serviceable addressable market probably does not, right? Your serviceable addressable market also doesn't include every size of customer. Maybe, you can service the ones under a thousand employees very well, but when they're 300,000 employees, maybe that doesn't work for you. So, that's how you go from the total addressable market to the serviceable addressable market, which is really, what you do by filtering all the top parts of the market out that you just cannot service very well, right? Or service at all. So, that's how you get to the serviceable addressable market. A lot of our clients have done that. A lot of companies out there do this pretty well, but then you have to make the hard step, to go from serviceable addressable market to filter it down to the serviceable and obtainable addressable market, which is being just realistic with yourself, that your team, the resources you have, the time that you have, is not going to allow you to address the complete serviceable part of the market.

There's only a smaller part of that market that you can realistically obtain, that's basically restricted by resource. You may not have a large enough team to sell everywhere or to call up everybody in the serviceable addressable market, or you don't have time, right? You need to execute your plan on the next quarter and you cannot go after every type of industry. So, going from your serviceable addressable market that you in theory could service to this part of the market that's obtainable. That's another way to think about nailing your niche, defining the niche, the part of the market that you can realistically focus on as part of this TAM, SAM, SOM exercise, that to go from SAM to SOM, we often use either, also filters if you have a clear sort of restriction in what you can do, you can for example not serve more than a certain amount of customers, then you can build a filter that says we are only going to target customers of a certain size. And that will be a nice way to limit the niche. The market that you will focus on.

Or we typically use signals. Signals allow you to not maybe filter out certain customers or prospects, but be very articulate, very thoughtful about how you would prioritize the type of prospects you can go after.

Signals will tell you, out of these 10 customers that are a good fit, these four of those are actually a better fit because they're showing this type of behavior, they're using this other technology, they have told us something online about themselves that indicates that they're hiring a certain type of people, or they're in the new for short and reason, right? And tells us that there's just a big, extra fit, that tells us they're worthy to go after, there's just a better, maybe there's a compelling event that happened that makes them an ideal customer more than the other parts of the market that you could service if you would have to, that's sort of connecting the nailing the niche topic to TAM SAM SOM analysis when you go into B2B.

Mike:

I think sometimes when we say let's go smaller and focus on a more dialed in group of users, it can be kind of scary because some people come back and they say, we're cutting off a huge chunk of the market and saying no to them. When in reality what you're doing instead, if you really own it, you're making yourself stronger for the people that are in the niche that you're choosing to service. So going back to your example Stijn, with the twins clothing store, instead of going to Nordstrom, people with twins might come to you because you know twins, that is your life, that's your product, and you know everything about it, and you're an expert there, right? So, maybe you have content around how to dress your twins, so their clothes complement each other, but they don't match in a tacky way.

Maybe there's a twin's, I'm using software terminology, user group, but it would be like a parenting group for parents with twins, and it teaches parents... It allows them to come together and kind of share their stories, and if you build this community around people who have twins, there's all these things that you can do to go deep and become a serious expert in a particular space for a certain group of people. So, when you choose to say no to a segment of the market, you're really saying yes, in a really big way to this other group within that market. So people who are in that ICP will look to you as an expert over someone else that doesn't necessarily speak their language. So you've built this loyalty that you would never have the chance to build otherwise. In other words, niching down makes it so people buy from you because you're an expert in their space.

And you're an expert in their space because customers like them buy from you. So, it becomes this flywheel where you really start to own a niche. I really love this topic and I feel like it might constitute another episode maybe where we do a deep dive on how to characterize and document your own ICP. Maybe like a step-by-step of the things to consider and how you can use it to support your ABM, your account-based marketing and your inbound efforts. Maybe, the next couple of episodes, hope this is helpful. One more time. I'm going to shout it out because we're getting there. We've got a few more reviews on Apple podcasts. If you are getting value from this, we would love it so much, if you could leave a review from us or leave a review for us, sorry. And yeah, give us some feedback, what do you like? What do you want to hear more of? And maybe send us your questions and yeah. Thank you so much for spending your time with us, and we will see you really soon.


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