“My Friends” is not a Market Segment

Here’s the scenario. You have a startup that offers a cool new online service. You release it and put the word out to all of your friends. “Hey, do me a favor and please sign up for my new service!” Loads of them do. “Amazing,” you think to yourself, “I’ve got traction!!”

Not so fast bub.

What happens next? You’ve targeted all of the friends you have. Who do you target next? You have no clue because you haven’t focused on a market segment, just a (somewhat) random group of people.

Traction Needs to be Traction in a Market

Not all traction is created equal. In fact, I would argue that you need to have traction in a market segment (or segments) in order for it to be meaningful. And by meaningful I mean the kind of traction that gives you an indication that you can scale and a path to doing that.

What is a Market Segment?

A market segment has 2 key attributes:

Identifiable – I can describe the segment in such a way that it can be specifically targeted. This can be demographics (new mothers under the age of 30 in New York) or role driven (IT managers working at companies with less than 500 employees) or company-oriented (Canadian retail banks with branch offices in different provinces) or even environment driven (companies with large Oracle data warehouses in North America). The more specific this is the easier it is to identify the folks and target them.

Common set of needs – This is the need or problem that your solution solves. Examples would be: a need to share photos with family members; a need to store large amounts of data for analysis as cheaply as possible without investing in training; a need to share data across branch office using the existing bank infrastructure; a need to provide better end user response times so that the sales force can close deals faster and reduce customer wait times. You get the idea.

Coming back to “Your Friends” as a potential segment. They meet the “identifiable” requirement – you know who your friends are. They may even fit into a demographic – 20-something, university educated social media users for example. If I just think about segmentation that way, they would certainly look like a segment.

But unfortunately they are not because of the second requirement. Do they have a common set of needs? You might argue that they do but you certainly won’t know it because you convinced them to sign up for your service. “Doing you a favor” might actually be the need you are meeting and unfortunately they are the only segment in the world with that need. Getting traction in solving the “Doing you a favor” problem does not scale. Once you have signed up as many of your friends as you can, you don’t have any indication of who to target next.

Wait, My Friends Do Have a Common Set of Needs! I’m Good, Right?

What if you could pick a sub-section of your friends that had a common set of needs? Would that be a segment? Now you’re getting warmer.

So you go back to your pals that signed up and asked them – “tell me the truth guys, why did you sign up?” Throw out the ones that said they did it because you asked them to. Then have a conversation with the rest about why they did. What are the patterns? Do those patterns start to look like a segment? For example – your friends with kids signed up because they wanted to do X or your gamer friends thought your product could help them do Y. Then of course you have to go target that segment and see if folks in it that aren’t your friends are willing to sign up too. If they do, chances are you have a market segment you can target. Now you know what to do next. You go out and target more folks in that segment. When you think you’ve tapped that segment out, you target an adjacent segment that is similar.

That’s sort of a B2C example but this applies to B2B in the same way. If you sell a service for IT managers and manage to sign up a couple of IT managers that happen to be your pals, that’s great. But sign up a few that aren’t your pals, and suddenly your business just got a whole lot more real.

The common thread here is that you don’t really know what you have until you move beyond your pals.

Growth moves through segments. You get traction in one segment and then you branch out to adjacent segments. If you don’t target a segment (or worse, decide your segment is “everyone”) you may get traction but you won’t necessarily understand why and you won’t know what to do next.

 

 

44 thoughts on ““My Friends” is not a Market Segment”

  1. April,

    Great post, and an all too common trap. I think of a scene in some future movie, where a bunch of washed up marketers grumble about how their ‘it’ product seemed so hot, but came unraveled in the real world. (harken back to the Alec Baldwin session in “Glengarry Glen Ross” for my motivation)

    It is that sense of common needs you mention in the second criteria. I prefer to think of it as a community. I.e. IT managers at Financial institutions is a pretty specific clique that has specialized needs, and can be addressed as a community.

    In my prior life, I did instrumentation and it is (once you get your head out of the weeds) to figure out your segments. Your industrial types belong to organization A, the academics all go to Y conference etc.

    I can’t count how many times someone in my sphere of influence has invited me to sign up for something, or try some new piece of social media, but most of them are not sticky (i.e. formspring. I just don’t get it, perhaps I am too old).

    1. This was inspired by a conversation with a friend of mine who is a founder that was saying that too often she hears VC’s encouraging their startups to simply “register as many people as possible.” While I understand that for many of these services there is a law of large numbers working, I really don’t see how you get traction without focusing on a segment or two at a time and then working your way out from that. Signing up everyone you know doesn’t really tell you where to focus your efforts once you have asked everyone you can think of.
      I totally agree with your term “community” and I think that’s how ideas and products spread – through those communities. I would just caution that you need to verify that the definition of that community includes a common need, otherwise it’s just a group (like your friends).
      April

      1. April, Geoff,

        The community will take life if the segment truly does have common unmet needs.

        There’s two approaches that you hint at: the law of large numbers and highly targeted. Both have merits and drawbacks.

        With large numbers, the hope/expectation is that if enough people sign up, those with truly common needs will connect and build traction. This will work for something with a broad appeal but it’s more often for folks who don’t know who will really get the value from it or specifically what the value is. While there *seems* to be more irrationality in VCs these days, especially those that recommend this approach, I don’t think companies can truly afford it anymore. Too much risk and feels like a product that is not launch-ready.

        The targeted approach means you know up front what the value is to that segment. (You did small-scale validation beforehand, didn’t you?) It takes longer and requires more personal nurturing to reach critical mass but each and every member of the community is there for a real reason.

        Great post again.

        1. Hey Tim,
          That’s a great point about in the “law of large numbers” approach you are essentially hoping that your market will figure it out for you. When that happens, that’s great but I think it’s much rarer that people think.
          Thanks
          April

  2. April, I agree. I am always evaluating new B2C and B2B cloud offerings, often while in preview. Many request your email (or connect with Facebook / Twitter). I understand lowering the barriers, but I believe many could choose 3 – 4 segmenting questions so that they could release those previewing seats based upon a potential user’s segment. This then allows evaluation of behavior based upon adding a new segment. It significantly reduces the cost of gathering quali-quant data and allows teams to make an informed pivot.

    1. Thanks for the comment.
      You know, that’s an interesting point and I think the answer is tricky. I really do believe that you need to make it as easy as possible to sign up and even a couple of questions might have a negative effect on that. For that reason I would be hesitant to do it. On the other hand I don’t think it’s possible to be successful unless you have a deep understanding of what your best segments are and how you describe them. If in the preview stage you don’t have a good idea of what the segments might be you are going to have to figure it out after the fact by having conversations with folks or attempting to survey them. If you do have an idea of what your key segments are (because you did this homework before the preview) I would not hesitate to try to weed out folks that clearly aren’t in your target to make your preview more focused and relevant.
      The other way to tackle this is to just say straight out who your product is for and let folks self-select whether to sign up or not.
      April

  3. Hi April. What do you think about segmenting by “jobs to be done” instead of demographics or needs? I’m sure you’ve seen the Clayton Christensen “milkshake marketing” analysis. Or do you see needs as equivalent to “jobs to be done”?

    1. Hi Olaf,
      In general I see needs as equivalent to “jobs to be done.” I always found the wording of that a bit awkward but I get that “needs” isn’t always the right word either. Needs always felt more natural to me when you get talking about things like “make sure I don’t get fired” or “show my friends how cool I am.” But we are talking about the same thing for sure.
      April

  4. Such a timely post for me! I keep getting requests from friends and family to “like” their employers FB pages. Not only do I think it’s odd b/c I’m not their target market. But I get kind of annoyed b/c I see “liking” something as a personal endorsement. And why would I endorse a business I’ve never worked with or know nothing about?

    1. Exactly! Sometimes I think the numbers game of social media is completely moronic. It isn’t that hard to puff those numbers up but what does that actually get you? And as you say, you risk annoying the folks that you are chasing that aren’t in your segment. It’s not a way to build a community.
      April

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