When you’re a relatively young technology company and you’re creating a category that may not be defined that well, your product or service has a ton of new things to offer that may not be recognized by an official definition of a specific solution for the market.
This is typically reflected in Jeffrey Moore’s technology maturity (or adoption) curve most of you are familiar with that recognizes phases of your customers as innovators, early adopters, or maybe in one of the later stages like the early majority, late majority, or maybe even laggards.
And if you think of your B2B SaaS company or technology company going to market in a market that’s in a certain stage of some level of maturity, that’s really important to consider when you think of how to segment your market.
Why do we segment? When we think about our total addressable market or TAM, and which part of that market is ideally serviceable for us, your serviceable addressable market, or SAM, and then what part of the market do I think I can really obtain considering restrictions and resources, what I’ve been able to accomplish so far, etc.
To do this and identify what you’re targeting, and go from 100 to 10 to 1, you need to segment the market.
Back to this model, there are many ways to segment your market and the most common ones are firmographic segmentation (this includes any attribute or property of an organizational entity or company like size, industry, geography, or even what type of technology a company uses). Because all of those things are attributes of what you can find out at an organizational level, this is called firmographic segmentation.
Then, there’s the demographic segmentation model - you look more at the people who work somewhere, within your audience personas, from age to job title to function to background. In the b2b space, it’s less like age and more about what relates to the work they do.
The third type of segmentation, which Harvard calls job-to-be-done, is driven by segmenting what problems someone’s trying to solve, like use-case-based segmentation.
Finally, the last type of segmentation is psychographics. This is segmenting people based on behavior and intention, desires, etc. Maybe they’re memberships of certain clubs or magazines, or things they’ve done when you measure their behavior online, what people react to.
And what I’ve done here is align these 4 segmentation models with the maturity of the market you’re playing in because we’ve found that, especially when you’re a small, new software company, and you’re going through this maturity journey, the segmentation method you use is relatively correlated to where you are in that maturity.
When you think of firmographic segmentation, or going after a certain industry, that’s typically much more appropriate when the maturity of your market is further along this curve. In the laggard or late-majority stage of maturity of a market, there will be certain industries that have a need for certain technology and your solution for regulatory reasons, or because the solution has become something mandatory to use in a certain industry.
If you don’t have that yet, or maybe you’re not that mature, your market still might be mature enough that there are people with certain job titles who need your type of solution. If you’re selling expense management solutions or sales performance management solutions or some kind of monitoring software solution, for all of those, there could be people with job titles that indicate who could buy or interested in your solution.
Demographic segmentation is appropriate when your market isn’t as mature as a firmographic segmentation approach where you can map out what industries need your solution. If you don’t have any of these and the market is still relatively immature in the early majority or early adopters stage, it’s often far more powerful to look at the use cases to see who is actually trying to solve a certain problem that your solution or software solves for.
Regardless of what their title is, if you’re in a less mature market then I’d find people who need your product because they have a certain job to be done. They may have different titles and work in all kinds of industries.
Finally, psychographic segmentation is most useful when your market is really immature and you’re looking for innovators, those who are not going to vote with their wallet, but they’re going to vote with their time. People who want to help you build the product, not necessarily buy your product. You find these people through psychographic segmentation -- using content to see what people react to: are people interested in participating in a beta program, have people shown other signals that they’re early adopters or innovators? And that’s what psychographic profiling can really help people do.
Segmentation is especially helpful when you're going to your TAM to what you really want to focus on.
When the market you're in is relatively immature, there's not a strong correlation between firmographic segmentation and going after certain industries. It’s much easier to find people interested in your solution based on their behaviors, their propensity to use something relatively unproven, or the problem they’re trying to solve.
It’s far less about what industry they’re in or what title they have.