Market Research

Market Segmentation: How to Laser Focus on Your Target Segment

November 19, 2013

Your SaaS business is on a roll. You’ve acquired a number of early users, your churn is relatively low, and you’ve identified a host of new market opportunities that could lead to high growth. Time to step on the gas, right? Sure, if you know your target market segments. If you don’t, you may want to hit the brakes.

When software-as-a-service (SaaS) companies enter the expansion stage, they’re often eager to begin attacking new markets as quickly as possible. After all, time is of the essence, and the last thing most founders want is to miss the boat on potentially lucrative (and profitable) growth opportunities.

I can’t say I blame founders for feeling that way, but stepping on the gas before where exactly you want to go is very often a disastrous approach to growth.

Sure, you could stumble upon a virtual gold mine of prospective customers who perfectly align with your product’s unique value proposition. But you could also run headlong into a series of dead ends, ultimately costing you precious resources and undermining your ability to drive long-term success. Is the risk of the latter really worth the possibility of the former?

Truthfully, understanding your target market segments is critical as you begin to accelerate growth. If you lack it, you’re essentially gambling on your future. If you have it, you will find it much easier to identify the specific users, user ecosystems, buyers, competitors, influencers, and sales and marketing channels that give you the best chance of success.

Who Are You Really Targeting?

To achieve true segment focus, SaaS companies must be able to identify and define the total market they plan to attack, and then hone in on the segments within that market to identify the ones that best fit their growth strategy.

To do that, you must be able to answer a series of key questions, including:

  • Who are the current customers that make up your market?
  • Who are the future customers in that market that align with your product offering?
  • Do you want more customers like them and are those customers profitable?
  • What are the distinct segments in the market and how big is each segment (i.e., number of prospects, market value, and revenue expectation)?
  • What is the growth rate of each segment and how much will it cost you to target each one?
  • What are the major trends in each segment that make it attractive?
  • Which characteristics (company size, revenue size, IT budget size, geographic location, business model, current needs or pain points) define the buyers in each segment and how do those characteristics align with your product offering and value proposition?
  • Why (based on the criteria above) is a particular segment a good fit for your business?

Answering those questions should help you boil down your target market to the customer segments that make the most sense for you to target. But your work isn’t done after doing that. From there, you need to take a deeper dive into the users, competitors, and buyers that make up those segments, and explore the sales and marketing channels, buyer influencers, and communication channels that will help you engage prospects in each segment.

Ultimately, doing all of that will give you stronger market clarity, and you can use that to pinpoint the target market segments that give you the best chance to fuel sustainable growth.

Founder & Partner

As the founder of OpenView, Scott focuses on distinctive business models and products that uniquely address a meaningful market pain point. This includes a broad interest in application and infrastructure companies, and businesses that are addressing the next generation of technology, including SaaS, cloud computing, mobile platforms, storage, networking, IT tools, and development tools.