Market – Who do we sell to?

Market defines the scope of a company’s potential customer base ensuring the products and services we produce meet the needs of a concise group. It systematically narrows down from the Total Addressable Market (TAM) to a set of Target Segments that we will focus on for a given period, typically annually.   When there is a single target segment we think of that as an Ideal Customer Profile (ICP) - the most valuable and winnable customers.  When you have multiple different areas of the market where you think you can win we refer to those as Target Segments.   This structured approach ensures that growth strategies are data-driven, resource allocation is efficient, and go-to-market efforts are concentrated on the highest-value opportunities, maximizing the company’s ability to scale effectively.

For B2B companies the definition of markets or market segments is provide via a few, basic firmographic details:

  • Industry - The industry or industries the prospective customers operate in
  • Size - The size in terms of employee count of the prospective customers
  • Geography - The countries, states or territories or areas the prospective customer operates in or is headquartered in
  • Technographic - The technologies the company has deployed that indicate that may be a good fit for our solution.

Target Segments or Ideal Customer Profile

On a day-to-day basis our primary focus is going to be on Target Segments or, in the singular, The Ideal Customer Profile (ICP).   These define areas of the market that our company is currently targeting who are likely to benefit the most from our product or service and are most likely to purchase it.  We recommend reviewing and updating Target Segments on an annual basis.  More frequently and you typically won't have long enough to "see" if the segment is well defined.   Less frequently and you're likely to be "off" market.

Your list of Target Segments must STRONGLY govern marketing and sales efforts.   If a marketing campaign is focused on a segment outside of a Target Segment, by definition, it's targeted at a group that's not the most likely to convert.  Accordingly: it is a waste of resources.   If a sales reps is targeting prospects outside of Target Segments they're making two mistakes.  First, their operating without marketing support.  Second, their spending time on customers we've deemed unlikely to buy.  Use Target Segments and ICP to stay focused on customers that matter the most. Use it to draw a clear boundary dividing accounts that make sense from accounts that are a distraction.

Note: As you grow you’ll move from a single ICP to multiple target customers segments with the potential for different selling and servicing motion in these segments.   To keep things simple just think of “segmentation” as the process of going from one ICP you serve to more than one.

Market Development Process

  1. Research and Data Gathering: Analyze your current customer base and market. Identify common attributes of your best customers (the ones who get the most value from your solution and are most profitable). Group customers by characteristics like industry, size, geography and technology use and separately use case, or pain points. Supplement this with market research on which segment has the greatest need and market opportunity for your solution.
  2. Validate: Validate the ICP by reviewing it with the sales/CS team and perhaps talking to a few customers. Once confirmed, use it to focus marketing campaigns and sales outreach. Update internal training so that everyone from product to customer success knows who the primary target is. Revisit the ICP periodically as the market or product evolves.

But What About TAM and SAM?

First some quick definitions:

  • Total Addressable Market (TAM) represents the entire pool of potential customers who could theoretically benefit from your product or service if a company were able to achieve 100% market share. For B2B companies, this is generally defined by the set of relevant industries and company sizes for your solution with a global geographic size. For consumer-facing offerings, it may encompass broader demographic and psychographic categories. The TAM is not necessarily the market a business will serve right away but serves as an overarching view of the maximum market potential.
  • Service Addressable Market (SAM) is a more focused portion of the Total Addressable Market that a company can realistically capture with its current resources, capabilities, and distribution channels. While the TAM is a theoretical maximum, the SAM narrows down who the company can actually serve given practical considerations like technology infrastructure, geographical reach, and alignment between product features and market needs.

There's also about twenty different variations on those and slices of different market definitions.  The only thing that I care about here is that your TAM needs to be at least 100x larger than your target segments and preferably more like 1000x.   That means two things:

  1. Our potential is large - If the company is successful it can keep growing organically in its current market for a long period of time.
  2. Our current focus is narrow - We're focusing on a narrow enough set of target segments that we have a potential to actual stand out for competing solutions and gain traction.

Outside of that, sure, a large TAM is a requirement for investment.   And, yes, you need a slide in your investor deck to validate that the market, as a whole, is big enough to support a large company.  That noted if you've spent the time and down the research to create an amazing product and reason for purchase (and therefor change) in you target segments you'll probably be able to scale that out.   Conversely if you haven't created that reason in a small market you'll never do it in a larger one.