Identifying ideal customers

We are now at that stage where we need to define, primarily for ourselves, who our target customer is. The question is how deep, and along what axes, we go

We are now at that stage of company development where need to figure out what precise set of customers we need to target with our product. While we have developed some frameworks on this in the last couple of weeks, and we continue to talk to prospective customers, we are not fully there yet.

What makes it more challenging for us is that the product, the way we have defined it so far, can pretty much serve anyone (well not anyone, but it’s a broad enough segment). While that might be good from a product (and market size) perspective, it isn’t from a marketing perspective - we need to narrow down on who to sell to so that we can make a focussed effort of selling to this particular cohort.

As part this process, we have also been doing some research on how others have narrowed down on who to target. In this context, we found an interesting blogpost this week that talks about how to go about this process.

How to identify your ideal customer profile (ICP)

Having given it some 2-3 reads, I have a few pertinent observations. And some of them are at odds with what some people who I’ve been meeting as part of work have been telling me.

Demographic versus behavioural segmentation

The blogpost (I’ve only read the free portion) gives a good summary of how some companies arrived at their ideal customer profiles (this is a piece of jargon I’ve learnt to use in the last month or so).

Source: Lenny’s Newsletter

What strikes me by looking at this is that all the segments have been made behaviourally. Very little sector or geography among these segmentation axes. Instead, the axes of segmentation have been chosen in line with the selling company’s product.

This makes perfect sense to me (I’ve generally been a big fan of behavioural, rather than demographic, segmentation), except that everyone I’ve been speaking to asks me “what sector we are targeting”. We have come up with an early version of ideal customer profile (doesn’t mention any sectors), and when I’ve mentioned it in some of the conversations, the counterparties have been unimpressed - because we don’t have a sector mentioned.

What large companies have done

In the midst of all the talk on how to identify the “ICP” (ideal customer profile - putting this here because while I might have internalised this jargon, you may not have), there is this section saying “don’t worry if you haven’t figured out your ICP”!

And you look at the quotes there, and the company that you see there is Databricks! The post quotes Ali Ghodsi (CEO of Databricks) as saying:

”We worked with all kinds of different companies. We worked with a hospital that was using this stuff, and they were doing genomic stuff. We worked with folks that were using us to determine earthquake magnitudes using Twitter. These are completely different customers and different user profiles. So, no, we didn’t have an ideal customer profile.”

Canva - another phenomenally successful company that has been profiled in the article - is quoted as saying that they didn’t figure out their ICP until six months into building.

Is this obsession with ICPs a modern thing (both Databricks and Canva are a decade old)? Or is it that because a lot of founders stress on this, the question naturally gets asked to those who don’t?

Summarising

Now I’m fully onboard that I need a narrow segment to target - that will both define how we precisely design our product, and the channels and strategies that we will use to sell (we sure don’t want to “spray and pray”). What I’m not sure of, however, is how specific I need to go, and on what axes.

For example, apart from the possibility of selling through industry events, I’m not sure if a company’s sector is a good way to define who to sell to (in classic segmentation terms, variability within a sector might be far more than variability across sectors).

I’d like to segment a company’s size based on the amount of data it generates each day, and that may not fit a neat classical segment in terms of a company’s size (usually measured either in terms of number of employees or revenues).

And so on and so forth. And given that we plan to raise external funding very soon, it is not enough to have a story that just convinces us - others need to be convinced by the story as well. And that, I guess, means we need to follow set norms than being too inventive.