How to Choose a Customer Segment to Serve
“The way to get startup ideas is not to try to think of startup ideas. It’s to look for problems…” – Paul Graham, Y-Combinator
This quote from Paul Graham illustrates the importance of looking for problems rather than looking for “startup ideas.” An idea may or may not be a solution to a problem. If you identify a problem that a given customer segment has, all you have to do is find solution in order to have a viable startup idea. Identifying a problem may bring bring you closer to a viable business idea than a random idea.
If you don’t know of a problem worth solving, a great way to start is by picking a customer segment to serve. There are many benefits to picking a customer segment you want to serve first and then figuring out what problems they have as opposed to to coming up with a solution idea and then trying to figure out who needs it. This post describes the benefits of starting with a customer segment instead of a startup idea, how to pick a customer segment, and how to get startup ideas by doing customer development interviews with this customer segment.
Why Start with a Customer Segment
Here’s how starting with a customer segment can be an effective way to generate and test ideas and scale a business:
a. Gain Deeper Insights
By focusing your customer development interviews on a certain customer segment, you can gain deeper insights. Your initial idea might be wrong, but if you follow the customer development process correctly, you should be able to learn about what their problems really are and what solutions would be of value to them. Your time will not be lost if you focus on figuring out how you can help a given customer segment rather than just on validating a startup idea.
b. Save Time
Building relationships to test or generate business ideas can be harder than coming up with ideas in the first place. Customer development can take a really long time. Cycling through solution ideas is often faster than finding customers and meeting new people. Switching ideas is much easier when you’re talking to the same people over and over again. Asking someone to answer a quick question through email or to take a quick call is a lot easier than trying to reach them in the first place.
c. Increase Satisfaction
Customer development takes a long time, and building a successful business can take an even longer time. In starting and growing a company, you’ll inevitably be spending a lot of time with customers. If you don’t like the customers you’re spending a lot of time with, you’re probably not going to be very happy. Conversely, if you enjoy them, you will probably feel more impassioned, motivated, and energized. Being more impassioned and energized can lead to higher productivity and effectiveness. It can help you push through those inevitable roadblocks.
How to Choose a Customer Segment
1. Relationships and Access
If you have existing relationships, or at least easy access to your customers, finding people for customer development interviews will be a lot easier. When the time is right, customer acquisition may be a lot easier too. If you don’t have access to the customer segment you want to serve, starting and building your business will take longer because you’re going to have to get access first.
As discussed above, the more you enjoy spending time with your customer segment, the more enjoyment your business will be. I also believe having more passion for what you’re doing will make you more successful.
3. Propensity to Buy
Some customer segments are less likely to adopt new technologies than others. In a business to business situation, some industries are more likely than others to adopt new technologies. Some customer segments have greater budgets than others. Some customer segments take longer to decide and actually purchase than others, which can mean longer sales cycles.
4. Market Size
If your goal is to build a massive company, you’ll want to be in a large market. Consider what your growth goals are to help decide which customer segment to serve. Serving a very niche customer segment might not lead to as large of a business as serving a large customer segment. Examples of large customer segments include small businesses, college students, and parents. Examples of small customer segments include people who own yachts, convenience store owners in a particular town or small suburb, and 100+ year-old men.
Next Steps: Identifying Problems and Unmet Demands
Once you’ve identified a customer segment you want to serve, the next step is to identify problems and unmet demands. To identify problems and unmet demands, you can conduct customer development interviews.
By asking the right customer development questions and listening effectively, you can learn about customer pain points and generate startup ideas to solve those problems. Focus on asking open-ended questions that get the customers talking about their problems as much as possible.
It’s best to conduct customer development interviews in-person. In-person will enable you to get a sense of their emotions (such as how strongly they are affected by the problem), give you the opportunity to ask follow-up questions to learn more, and help you build a relationship with the potential customer.