16 Mar How to choose your B2B startup’s point of attack
In a second guest post for Sales Confidence, Ben Wright tells us all we need to know about making markets in the B2B startup world.
In my previous article for Sales Confidence, I talked about the importance of choosing a narrow point of attack when launching your B2B startup. I used the analogy of D-Day, when the Allies launched their recapture of Europe with overwhelming force at the narrowest point of engagement – a tiny strip of the Normandy coast. Then, I brought that analogy into the business arena with the story of Documentum, a US document digitisation company that was drifting into obscurity until it stopped serving all their clients except the regulatory affairs departments of the world’s top 40 pharmaceutical firms. If you haven’t read this article, then I would certainly recommend it, because now, I want to show you how to find your point of attack.
What are you looking for?
Before you go searching for something, it’s advisable to clearly define what you’re actually looking for.
As a B2B startup, you’re looking to identify an initial beachhead market that is big enough to matter, but small enough to win. You need a narrow segment of your overall potential market that you can use as a beachhead to launch future attacks. But what exactly are you looking for? I’ve broken it down into four component parts:
- A single, identifiable, funded economic buyer – you’re looking for a market segment with companies where there is a single person within an organisation who will have the budget and authority to buy the product or service you’re offering.
- A compelling reason to buy – PAIN. You’re looking for a segment of the market that has the most pain and will stop at nothing to find a solution to that pain. Think back to the Documentum story in my previous article. Pharma companies were losing $1 million per day in revenue because of regulatory delays, they had a strong reason to search for a fix. Enter Documentum.
- Deliver a whole product solution – You have the answer to their pain, from top to bottom. You provide the only solution they’ll need (or at least enough of it to make your early adopters happy).
- No entrenched competition – If you find a segment that is already owned by a well-funded competitor with significant market share, look elsewhere for your beachhead market.
If you can’t fulfil all these criteria, you need to look for another market segment to attack, or change your product features until you can.
Now we know what we’re looking for, how can we find it?
If you take every business in the world that could ever use your solution as your starting point, you need to slice and dice until you have a narrow group of companies ready for you to dominate as a B2B startup. There are lots of ways you could segment your market – I’ve chosen three and you should think about what segmentation criteria is uniquely applicable to your company.
1 – Company profile segmentation
Firstly, you must decide what type of company you want to sell to. Size is a great starting point (however you want to measure it, revenue, profit, no of employees etc.).or simplicity, let’s refer to the small, medium and large companies you could sell to as rabbits, deer and elephants. You’ll most likely need a mix of these to be successful and some iteration to work out exactly where your sweet spot is. Targeting each of these animals comes with their own unique advantages and disadvantages.
Rabbits are the smaller companies you could target. Here are some advantages of rabbits:
- Rabbits tend to have shorter sales cycles, you can bring many on board in a shorter time.
- Smaller companies help you get going. You can use them to demonstrate the value you provide, helping you bring more and larger companies on board.
- Rabbits may well be Early Adopters, especially if they’re startups themselves, though make sure they’re well funded if they are!
However, there are disadvantages too:
- Rabbits have smaller budgets, leading to lower MRR (Monthly Recurring Revenue).
- Rabbits may not have the strong brand recognition levels you need to attract other companies to your product.
Your target market may well not be with your rabbits, but having a mix of them in your prospect list can be a good place to start. Look for rabbits that can get up and running quickly, helping you to hone your ROI and demonstrate value (you can always express this value in % terms if volumes are small) as you climb up the value chain.
Also be smart about brand recognition, many smaller companies punch above their weight in this respect – those are the ones you want to look for.
Deer are our mid-sized companies – we all want to bag the elephants, but you can feed your company pretty well with deer (apologies to any vegetarians) as you build your market. When identifying your deer, bear the following in mind:
- Be smart about targeting high-value brands – like with rabbits, some deer-sized brands will punch above their weight within their own sector in terms of brand recognition.
- Qualify for early adopters – there will be variability in early adoption and sales cycles within your deer, so make sure your qualification process is looking out for this.
- Use smaller deer to help you climb up the value chain to the larger companies you want to target
Elephants are the big boys. The largest companies in your target market. There are big advantages to winning deals with elephants:
- Having an elephant’s logo on your site is a game-changer in terms of brand recognition.
- Their MRR alone should be able to sustain your business.
Because of this, there are some problems associated with elephants too.
- Elephants are very hard to win.
- Competition is high. Everyone wants to bring an elephant on board.
- Sales cycles tend to be extremely long, often with interminable, bureaucratic procurement processes.
- Running an elephant’s account requires a level of service that you don’t need for rabbits or deer.
When trying to bag an elephant, keep these things in mind:
- Are you qualifying hard enough? Larger companies often talk to start-ups as much for market research as for anything else. Qualify hard to determine if your elephant has a specific adoption goal with timeline and budget – otherwise you run the risk of burning resources with meeting after meeting without a defined outcome.
- It’s important early on in a deal to find out what tips a deal into the procurement department and think of creative ways of avoiding this process.
- Can you break the deal into smaller parts to avoid procurement or use the land-and-expand strategy of running a smaller project which you make successful and then use this as a reference case to sell to the rest of the organisation?
- Do you have the capacity to run their account and keep your elephant happy.
Segmenting by company profile will help you determine whether your go-to-market strategy should be led by marketing or sales. Smaller sized deals of low complexity and low value will likely be marketing led. Larger deals of greater complexity with larger companies will need to be sales led. Even if you want to be marketing led in the long term, do you need to do some direct sales initially to gain market traction? if you’re going to be sales led, segment your company profile even further to determine what you can achieve with inside sales vs. field sales.
In the early days, you’ll need a mix of different rabbits, deer and elephants to hit your growth and revenue targets. Constantly review the deals that you’re winning and losing to identify your sweetspot of the ideal intersection of Greatest Pain, Shortest Sales Cycle, Highest Revenue and Greatest Customer Value.
2 – Sector segmentation
Sector segmentation, deciding on who to target based on what industry they operate in, is the next way you can slice and dice your businesses.
For this, you need to make an assessment of what your product or service actually does, what problems it solves, what pain it fixes. Ask yourself, where is the greatest pain that you can solve?
You also need to think about what difference your product will make to your customers’ bottom line. In what sector can you provide the greatest ROI for your customers?
From your side of things, you need to find a sector where there are Early Adopters in the market.
When you’re attempting to dominate a particular sector, you must make sure that your salespeople become experts in that sector. They need to talk with credibility about how your product solves your customers’ pain. Narrowness equals credibility.
Make sure your use cases relate to that particular sector. For example, If you’re selling to retailers, they’ll only care about what work you’ve done in the retail sector. And only really care about what you’ve done with companies they compete with. Narrowing down your focus to allows you to develop and show more expertise in your target market’s sector.
You need to do this even if you have a horizontal product that could work in every sector. Remember, narrowness equals credibility.
3 – Geographical segmentation
Our final segmentation method is by geography, just like the Allied Forces at D-Day. When considering geography, here are some questions you need to consider.
- Where is the greatest pain? – Where is the greatest need for what you’re offering?
- Where are your competitors weakest? – On the other hand, where are they strongest?
- Is it possible to focus on one geography for now? – Is there enough MRR in this territory to grow your business?
Like the Allies, you need to narrow down your geographical reach to ensure maximum impact. Think about your revenue targets and where your customers are in your target sectors. If you’re based in London, do you have enough potential customers in London to hit your immediate revenue target? Or within 2 hours’ travel of London?
If you can narrow down your initial market by geography it’ll make your salespeople more productive and allow them to develop geographical expertise as well as sector expertise. Not to mention, customers and potential customers in the same geography are more likely to know each other, making your customer case studies even more powerful.
Once you dominate one geographical beachhead, you can then expand out to the rest of your market, one beachhead at a time.
How will you choose?
We’ve seen the different ways you can segment to find the narrowest market you can attack with overwhelming force and dominate. Ideally, you would use all three to really zero in on a beachhead market. Mid-sized tech companies in London, for example.
Once you’re successful in this market, you have your beachhead, and it’s time to repeat the process again. You need another narrow focus of attack. Don’t expand your focus too quickly
The best way to start researching your next target, without sacrificing your current one is to use the Horizon methodology – another of Moore’s techniques
Briefly, your current business is Horizon 1, the money machine, cranking away, signing up new customers and making them successful. Nothing should distract you from Horizon 1. Horizon 1 takes up 90%+ of your company.
However, when it’s time to think about tomorrow, gradually divert resources into researching Horizon 2, around 8% into identifying your company’s next area of growth. Be clear, put strict targets that need to be achieved before your move Horizon 2 into the Horizon 1 machine. You can also implement a Horizon 3 – maybe 2% of your company’s resource – investigating growth opportunities even further into the future, such as new products or new countries. Again, however, put strict targets on this before you proceed with heavy resources.
Using the Horizon method means you’re not stuck in one process, even if it’s a successful one. You’re constantly innovating, without undermining today’s revenue.
My final piece of advice is to find your narrow point of attack as early as you can. Even if you feel you don’t have enough data to make the decision, take a risk and make a choice. Every day you delay making a decision gives your competition a chance to steal your market. When, as I mentioned in my previous article, Documentum decided to narrow their focus down to just 40 drug companies’ regulatory departments, it was done quickly and decisively. And the results speak for themselves.
Want to know more? Drop me a line, give me a call, and good luck with your B2B startup.