If You Get Nothing Else from This Chapter

Like most things in life, there’s no one right way to do segmentation. You cannot understand the solution to the problem of a particular segment, however, without diving deep. So some prefer to choose one segment at a time, dive deep, and then move on to the next if the first one fails. Others prefer to go less deep across multiple segments until one becomes the leading candidate.

Still others align resources across multiple segments, for example, a 70–20–10 split where 70 percent of your resources are committed to learning deeply about one segment, 20 on a second, and 10 percent as opportunistic. Your choice may depend on resources, if nothing else.

The point isn’t to fill out tons of templates like those included under “Work to Do” at the end of this chapter. The point is to document your assumptions and begin validating (or invalidating) them.

The path toward success begins by nailing the delivery of value to a narrow, well-defined group of people who share a pain or passion and who would look to each other to recommend products or services that address that pain or passion.

This group of customers can be defined by a description of an archetype. The archetype may have multiple use cases, but one is more compelling than the others. The use case represents a goal the customer has, or a desire, or put another way, it represents a job for which the user needs to hire a product.

You hopefully will encounter multiple segments, and you will likely need to focus your energy on one segment in order to nail your value proposition. In time, if successful, you will tackle your other segments too.

Documenting your segment assumptions, even if backed by market research, does not prove your assumptions; rather, it helps you think them through and establish what needs to be tested. Only the market determines the validity of your assumptions. Documenting your assumptions gives you a baseline to measure against when you get out of the building.

Case Study: It’s in the Name

Traditionally, the clothing industry is seasonal. Two to four times a year, large clothing companies release products to the world and maybe, eventually, they make their way online. It’s an old-fashioned industry that moves at old-fashioned speed compared to the ways people interact with companies on the Internet.

That’s not what founder Chris Lindland had in mind for Betabrand, however, an online clothing company. Not an online clothing catalog, mind you, but a clothing company. Chris explains:

“What I figured is that an online clothing company has to abide by the rules of blogs or Twitter, which people expect when interacting with companies online. The idea with Betabrand is we’re going to try to put up products as rapidly as we can.”

Like Eric Ries’s continuous deployment, whereby IMVU deployed changes to their web application 50+ times per day, Betabrand’s aim is to put out a new product every day. They produce only a small batch of a particular product, but enough to come to a decision point:

“If there’s anything that we’ve learned from our customers,” Chris says, “it’s that with the first hundred to two hundred pair sold, we can make minor changes on it to improve it and retest, we can turn it into an entire line, or we can kill it.”

While admitting that they don’t sit down and profile their ideal customers, in the end, they target very distinct segments by finding existing online communities.

“What we do is we look more at products that would appeal to very vocal communities online and then allow those people to chatter about our products and drive traffic to it.

“For example, we make pants for biking to work in. These pants have reflective cuffs and a reflective pack in back that you can pull out that reflects while the person is riding along. There really was no market for ‘biker fashion.’

“There was only practical biking attire that you could find at bike stores. There was no one out there that was selling clothing that fit the biker lifestyle. So I made these pants to appeal to the biker subculture. As it turns out, there’s an enormous number of biking blogs and an enormous amount of people who tweet about anything new in the bike world. We created a product that had a shamefully loyal audience out there. I think what happens is there are these self-appointed bike bloggers of every community and they need content so they all wrote about my ‘bike-to-work pants.’ ”

Sometimes it works, and sometimes it doesn’t.

“One product that we failed with was a collection we created called Harvester. We had been very successful with two products promoting them to the foodie demographic—successful because they were like the bikers. You give them a funny fashion story and every single food blogger will write about it, like our Cornucopia Bag or these pants called Glutton Pants. I was convinced that this was too easy—you just need to make a line of clothing for foodies and they’ll promote it for you. So we went out and tried to make the most crazily hyperorganic locally sourced and dyed products possible. We decided we were going to put them out according to the harvest calendar and get foodies to really care about this. The thing is they just didn’t care at all. The products were overly expensive; they didn’t really have that much of a hook. I thought that the idea that you could put on a garlic shirt that literally came to market the day that garlic came to market would actually be a cool thing and nobody really cared. So we sold through everything but it just didn’t go any further than the initial batch.”

So the question is, how do you create a culture that embraces such experimentation? Chris has the answer to that, too:

“I used to work for a dot-com and it happened to be located near a friend’s newspaper and I would go meet her to get lunch and I was amazed by how boring my workplace was compared to a good old-fashioned newsroom. Everyone was saying that the dot-coms are these hot, exciting, sexy things but it was just a bunch of cubes and people had quiet meetings and it was really just a quiet environment.

“Then you’d go over to a newsroom and people would be swearing at each other and it was just kind of chaos all day long because there was a deadline and in most dot-coms there aren’t deadlines. So I said, ’All right, well what we’re going to do is we are going to have deadlines. We’re going to have two releases a week and it’s going to be these grand, creative performances whenever they go out.’ The result of that has been it’s a very exciting workplace because everyone from our engineers to our production people gets involved in these events each week. They are incredibly exciting because you have a hunch that a product will be popular and you get to find out within 24 hours whether you’re right or not. That’s what makes that environment work. We have pitch sessions every week. It’s like a writer’s room for a TV show where you’re just pitching ideas and now and then you have hits. So everyone’s always submitting ideas. It really is an idea factory.”

One Final Analogy

As we’ve discussed, attracting the wrong customer at best causes confusion and at worst wreaks havoc. Early on in your startup, you have to choose whom to let in.

Pretend you are a bouncer. You’re working at a nightclub in Manhattan that is having an exclusive party. You understand well the style of person you want to attend. You can recognize potential party guests based on how they talk, walk, groom, dress, and spend. You know what their explicit (and, more importantly, implicit!) expectations are of what makes a great party: what sort of music should be playing (Thievery Corporation), who is playing it (local DJ), and how loud the music should be (very). You know that they like certain types of high-end cocktails (lavender jalapeno elderflower fizzes) and how they don’t drink domestic beers (you couldn’t give away Budweiser if you tried).

You know that they intuitively dress to look good in your dark nightclub environs, which include furniture and lighting all in line with your patrons’ unspoken expectations.

As a bouncer, you have a great responsibility. Not only do you need to admit the party guests who will have a great time in your club, but you need to keep people out—the sort of people who have different expectations of what makes for a good party: people whose musical, sartorial, and culinary tastes lie elsewhere.

Inherently, this is patronizing. You, as the bouncer, will be making decisions on behalf of potential patrons who may want to get into your club, but don’t realize they aren’t a good fit, hence will probably not enjoy themselves and probably won’t spend money. These people like cheap domestic beers (Pabst Blue Ribbon), and complain loudly and bitingly at drinking $14 lavender jalapeno elderflower fizzes, ruining the vibe for everyone else. With their vociferous complaints, they occupy a disproportionate amount of your staff’s time as they make suggestions for features (playing the hit song “1901” by Phoenix) that you, your staff, and your passionate customers will never agree to. To add insult to injury, they don’t spend any money.

The problem isn’t these people. The problem is that you let them in. The fit between them and your club is wrong. Hence, you need to be vigilant. They like to go to well-lit hipster clubs that play French alt-rock music so they can enjoy their retro-Americana beers like Pabst Blue Ribbon or Yuengling. They have a certain sense of ironic humor that isn’t shared with your customers. It would be a waste of their time and money if you let them into your club.

In a club, the problem likely fixes itself quickly. The hipsters leave. Often in the startup world, however, entrepreneurs will be quick to be all things to all people, and in doing so, they are without a solid identity or value proposition.

Work to Do

1. Create a market segment. When thinking about your customers, don’t start with “Everyone who” or “Anyone who.” Answer these four questions:

a. What is the pain or passion? Ask yourself, “Why do they have this problem?” to get deep. This should not be a shallow response.

b. What impact will solving the problem or exciting the passion have on the customer? If the impact is small, you don’t have a market; you must find a deeper pain. How does your product change the customer’s life?

c. Where do the customers hang out? If you wanted to find them online, where would you browse? Which forum? Which blogs? What Twitter hashtag? Where would you find them offline? What stores? What meetings? What events?

d. Who influences them? Which blogger? What personality? A specific author or celebrity? A spouse or partner? Parents?

2. Create a persona for the ideal customer. Who would be the most passionate about your product? Provide as much detail as possible. If you were to go where they hang out, you should be able to recognize them when you see them. It’s all right if the description is a stereotype or even a caricature at this stage. It doesn’t matter if you’re unsure. Take a stab.

3. Create several more segments and personas for different use cases.

4. Create an antisegment. One who appears at first glance to be an ideal customer but will never buy. Why won’t they buy? How does that help refine your ideal customer?

5. Create a segment matrix. Choose the most important characteristics with which to evaluate the segments.

Notes

1. http://sethgodin.typepad.com/seths_blog/2009/11/choose-your-customers-choose-your-future.html.

2. Alexander Osterwalder, Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. (Hoboken, NJ: John Wiley & Sons, 2010).

3. Marc Andreessen blog, blog.pmarca.com.

4. http://hbswk.hbs.edu/item/5170.html.

5. In “New Criteria for Market Segmentation,” Harvard Business Review (March 1964), Daniel Yankelovich asserted, “Traditional demographic traits such as age, sex, education levels, and income no longer said enough to serve as a basis for marketing strategy. Nondemographic traits such as values, tastes, and preferences were more likely to influence consumers’ purchases than their demographic traits were.” http://hbr.org/2006/02/rediscovering-market-segmentation/ar/1.

6. Alan Cooper, The Inmates Are Running the Asylum: Why High Tech Products Drive Us Crazy and How to Restore the Sanity, 2nd ed., Kindle Locations 2250–2251 (Pearson Education, 2004).

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