- If you are a B2B SaaS founder,
and you've got a product, you've got some revenue,
you might start to ask yourself
some really strategic questions
about how to grow your startup.
You might start to wonder,
do I invest more in marketing?
Do I invest more in sales?
Do I do inside sales reps?
Or do I do field reps?
Do I do commission only reps?
Or do I have some sort of base and target com?
Do I hire SDRs?
Or do I get more demandGen?
Do I have to invest in brand and a community?
Or do I need to just spend more money on ads?
These are all the existential questions
that come up in your mind in executive meetings,
or at night at 2am when you can't sleep.
I've been there and I'm sure you have as well.
Turns out all of these crazy strategic questions
they all become easier to answer
if you ask yourself this one simple question.
Now one simple question is,
which market segment do I wanna serve?
In this video, I'm gonna walk you through
some market segmentation examples.
I'm gonna walk you through a framework that I use
to figure out how to answer
the right market segment to go after
and then make those strategic questions
a lot easier to answer, intro.
(upbeat music)
What's up everybody?
Welcome to Unstoppable.
I'm TK, author of the book,
How to Punch the Sunday Jitters in the Face,
entrepreneur, startup founder and angel investor.
On this channel, I help startup founders
build and execute on an unstoppable strategy,
both for their life and their business.
So I drop a video like this every single Sunday.
So if you're excited dig in to this video
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It's awesome for everybody.
And let's dig in.
Here's the thing, put me in front of any SaaS business
and I will be able to diagnose the shit out of it.
That's one of the things that I just pride myself in
and I just love doing
and whenever I go into any sort of SaaS business,
I use this one framework that I covered in a prior episode
on how I actually diagnose any SaaS business.
I plug in this simple framework
with the five key metrics
that I've tracked for any Saas business,
to understand what's working and what's not.
And I can always come back with three growth ideas
for your startup.
I covered this framework in an earlier episode.
If you missed it, don't worry about it,
I'll link to it below.
You can check it out later.
But the whole idea behind it is
every SaaS business has a flywheel.
And for that flywheel, there are five key components.
It starts with your ICP.
Everything is sensed around your Ideal Customer Profile.
If you don't have an ideal customer profile,
I built a video on how to create one
I'll link to it below.
And then it goes into the five metrics,
out of your ICP, how are you acquiring the customers,
what percentage of them are getting acquired
and what channels that come through?
Are they activating?
What percentage are activating?
How many of them are converting to revenue?
How many of them stick around?
What's the churn rate?
And how many of them refer other people into your ICP?
Which then convert to more acquisition.
When you start to understand these key metrics,
you can start to really visualize
what's working and what's not in any SaaS business.
And then you can start to answer questions around
well, how do we increase acquisition?
Or do we have an activation problem?
Or do we have a conversion problem?
Or maybe we have some sort of problem
with actually driving more growth
through referrals or other channels.
Or maybe we have an ICP problem.
By diagnosing these things,
and I've done this countless times,
I did it in my own company ToutApp,
which a trip from zero to seven million AR.
It was backed by Andreessen Horowitz,
we sold to a market leader called Marketo.
And then worked at Marketo
and worked with similar strategy problems
on hey, how do we actually grow this?
What do we do with our regions?
And even in those cases understanding these metrics
made the world of difference,
to understand which areas do we need to push on.
And this is one thing that was always a common thread,
and that common thread was the market segment to go after.
Every single time,
I really did this analysis
split by the market segment we were serving,
I was able to see which specific segment in the market
was moving faster.
Which specific segment of the market
was getting more acquisition, more activation,
more retention, more referrals than any other segments.
When you start out and you kind of have nothing
I've been there,
you pretty much take any user that you can get,
and you start to get them
across all different market segments.
But over time,
once you have some revenue
and have to make prioritization decision
when you have to figure out whether you
double down on marketing or double down on sales,
whether you hire inside reps or outside reps,
the worst thing you can do
is try to go after all market segments.
And so whenever I try to figure out
how to diagnose a SaaS business,
I first look at these metrics.
And then I look at these metrics
within the context of an actual market segment.
And when I do that,
I'm able to actually come back
with three growth strategies
that you can use in any business
based on specific market segmentation.
So let me walk you through how this whole thing works.
And I'll give you some examples of market segments as well.
So if I look at a typical two by two,
the way I always look at this.
Pretty much any Saas business
is gonna be in one of these segments,
I usually look at market segmentation,
the most important market segmentation
is the type of company
or the type of customer you're selling to.
So you could be selling to just simple consumers.
You could be doing SMB.
You could be doing mid market.
Or you could be doing little enterprise or big enterprise.
Now, I don't know about you,
but when I first started out,
I was like, I just want users,
I want people to use it,
I hopefully want some revenue.
But once you get you to get that going,
you then realize, okay, there's different types of users
and they'll buy at different levels
and have different budgets.
But when you go even deeper,
you start to understand their different segments like this.
There's the consumers,
there's SMB,
there's the mid market,
there's little enterprise
and then there's big enterprise
If you want explicit definitions for each of these,
don't bother, they're different in every company.
There are some broadly accepted ones,
but they tend to differ.
And they get negotiated over time
in each and every company.
So I would say Google it and just start somewhere,
and you'll tweak it over time.
Now, here's the thing.
Here's where the pitfall happens.
When you start the SaaS business,
you start with a wide range of users
across all of these different segments.
As you start to grow,
there's always this one segment that just works better.
I don't know why this just happens to be true
for most SaaS businesses,
they tend to do a little bit better in a certain segment,
you always have the company that does better in mid market
and you have the company that does better in enterprise.
Sometimes it has to do with the DNA of the founder.
Sometimes it has to do with the DNA of the investor,
but it just pans out that way.
There might be exceptions,
like you might say, well TK Dropbox
well I would say box,
Dropbox did SMB and mid and box did enterprise
little enterprise and big enterprise.
When I say Zoom, they do everything.
Well, let's be clear.
Zoom probably does SMB, consumer and mid
and starting to go into enterprise,
but GoToMeeting and Citrix and all those guys
have had the large enterprise locked down for a while.
So you start to see with any SaaS business,
they're always segment into a specific segment
and they optimize for that.
Now, why is this important?
I began this video around well,
look, do I go invest more in marketing?
Do I do sales?
Do I do demandGen?
Do i do brand?
How do I do all these things?
The real answer is all those questions
become easier to answer.
When you pick a segment.
When you pick a segment,
there's a natural poll
on whether you're gonna be a company
that is marketing driven,
or sales driven.
And, yes, both departments will exist.
There's very few companies with no marketing team
or no sales team, when they're in B2B SaaS,
and they're really killing it.
But, there's always gonna be this natural inclination,
this natural poll for your company.
And your job is to figure out
these core metrics that exist,
this funnel, this flywheel that exists
based on these segments,
you wanna understand
which segment are you doing the best in?
Which segment is your flywheel the fastest?
Cause once you do that,
then you can start to make decisions
on what you do with sales,
what you do with marketing
and how you actually grow your startup.
This is how I come back
with these three amazing growth strategies.
Cause I basically look at the numbers,
and I look at the segmentation.
And I look at the macro trends.
And I start to understand,
look, here's how you actually need to shift
your go to market strategy.
Now how does that work?
Well, turns out there's a pretty easy way,
it's actually like pretty straightforward.
There's basically a pretty clear line from here to here,
which means that when you are very consumer oriented
when targeting the consumers,
you're gonna have to be
very, very, very, very marketing driven,
cause consumers are only gonna spend a certain amount
on every piece of software.
But when you're actually going into the big enterprise
because they're so big and complicated,
their sales processes are heavier
and they're buying more,
doing multi year deals,
you are going to be a lot more sales driven.
So the first thing you need to do
is pick which marketing segment
you actually wanna focus on.
And once you do that,
you're gonna figure out what your mix is gonna be
in terms of your go to market strategy
between marketing driven versus sales driven.
Let's do the easy one.
I'll walk you through some examples here.
Let's just do, you're focused on SMB to consumer, right?
If you pick that marketing segment,
it means that you kinda gonna be more marketing driven.
What does that mean?
Well, it means that you're gonna have to
invest a lot in brand,
you're gonna have to invest a lot on demandGen.
But more than that,
it's gonna actually permeate your product strategy,
you're gonna have to invest a lot
on a self service business.
This means that because the ticket size,
the amount people will pay for your software,
this low end of the market, is so small
and because the mortality rate of SMEs
are gonna be so high
because the churn might actually be a lot higher,
you want a very, very efficient sales process.
And the only way you can get a super efficient sales process
is if you take the humans out.
You take the humans out,
that means it needs to be a self service business.
And you need to have brand recognition
where people really recognize your brand,
and then are automatically going through your funnels
to actually sign up for your product
in the Self Service mode,
and then convert to revenue.
This will only work,
now let's say you put an actual inside salesperson
that you pay 120K a year,
for $9 a month consumer SaaS product,
that'll never work, you can't pay anybody.
So you start to understand where
in the simple case in this end of the example,
you're gonna have a very marketing driven startup.
Now let's see the other example, the other extreme.
The other extreme is
you have something for the big enterprise.
Alright, there's a startup founder
in our Unstoppable startup accelerator,
he is building something for the deep enterprise.
Like I'm talking like deep enterprise.
He builds software
that automates orchestration and software deployments
for data centers for a specific type of the data center.
This is like large companies and very specific markets
and he automates this and this is giant orchestration layer.
And his story is he used to be someone
that got hired to build these out
for hundreds of thousand dollars.
And now he's created a platform around it.
So he's in our accelerator,
and he's in the big enterprise.
This means that he's gonna be incredibly sales driven.
When you are incredibly sales driven,
it means a couple of things.
You're probably gonna need an enterprise rep,
in this case, he is the enterprise rep.
You're probably gonna have to invest
not as much on demandGen,
but really on brand.
You really have to elevate that brand
and build the trust and the credibility.
What this also means
is that his product does not need to be self service.
It just doesn't.
It means that it needs to be non self service.
In fact, it's better that way.
Cause what you really want
is to kind of have a proper presentation
or proper solution that you present to the user,
do a trial with them,
do a pilot with them.
Because then you can kinda control the process
and really drive that deal
and drive all the complicated aspects of it.
And guess what?
His deal sizes are probably gonna be six figures plus,
and because of that,
you can put a lot more effort.
This means that he'll probably need
a sales engineer down the line,
he'll probably need an SDR down the line.
And they'll probably be like 500k plus deals
in terms of average contract value.
That's the other end of the spectrum.
Now, here's the thing,
these are easy.
If you are going for a really low end offering
with really small customers
then you wanna be marketing driven.
If you're going after the deep enterprise,
you wanna be really sales driven.
A lot of startups that I talk to
actually go after the mid market.
Why do they go after the mid market?
Because they're small companies,
often they're venture backed
and they are early adopters.
Mid market companies tend to be early adopters.
And they fall right over here, right?
So that's mid market.
And mid market is the toughest,
because you kind of need
an even blend of marketing and sales.
What this means is that
you're probably gonna need a brand,
you're probably gonna need demandGen.
You're probably gonna need inside sales.
And you're probably gonna need some SDRs,
and you're probably gonna need some sort of a trial product
which the salesperson can control.
Now this is where what I call the death trap of SaaS.
The death trap of SaaS is the mid market.
The mid market is super, super exciting and alluring
cause you're like, oh, like our deal sizes
could be probably around 20-80K, right?
20-80K in ACV but in order to service this market
and it's big enough,
so you wanna go after it.
In order to service this,
you actually need an even amount of marketing and sales
for a lot smaller deal sizes.
And a lot of times these mid market companies actually die.
Their churn rates, they're actually very flaky.
they'll often wanna go into a new platform every year,
they'll have a lot of turnover on people and leadership.
So constantly switch SaaS solutions.
So on one hand, they're early adopters.
And the deal sizes are alluring at 20-80K.
But on the other hand,
you kind of really need a load up your go to market.
This is where a lot of SaaS companies struggle
and go to die,
because they tried to do all these things
for not a great segment of the market.
And so whenever I'm working with SaaS founders,
I always try to get to understand
well, is there a lower end in the market,
that you can go after
that actually helps you drive
for a more efficient sales and marketing process,
which will essentially be lower cost,
so you can de-risk yourself?
Or is there a mark put end of the market
that is also an early adopter,
but you don't have to do all the marketing
and all the sales,
but you can actually go after even larger deal sizes?
150 k plus.
And that's your little enterprise.
Hopefully you're starting to see
with all these little nuances
when you start to really hone in on your market segment,
all these strategic questions
becomes easier and easier and easier to answer.
And you're also hopefully starting to see
that there's certain natural things
that you'll gravitate towards
like early adopters in the mid market
that can actually mean death for your startup.
These are the nuances that you wanna think about
when you start to think about the most important thing
that you can answer for your startup scaling strategy,
which is which market segment you wanna go after.
If you're starting to see the power in this
I want you to go ahead and hit me with a yes
in the comments below.
I also want you to link me to the startup you're working on
that way I can click on it and check it out.
And we can connect more.
Tell me about what startup you're working on.
Tell me what segment you're going after.
And tell me about the go to market strategy
you're thinking about.
You can also email me at tk@getunstoppable.com
and I'm happy to talk more about it.
So now you know how you can actually identify
the market segmentation of your startup,
you can start to look at the flywheel
and the core metrics that govern your startup
to understand which market segment is doing better.
And based on that,
you can start to actually make better decisions
about how to build a go to market strategy.
And also, more importantly,
you can start to avoid some of the pitfalls.
Now look, building out a market segment analysis
and really understanding what's moving,
it's just a part of your go to market strategy.
It's just a part of driving to that product market fit
to get to that promised land
to get to the next stage of growth
to get to the next stage of funding or profitability.
This is why I created
my unstoppable product market fit guide.
My product market fit guide goes through my exact process.
That I go through to understand
how to drive to that next stage of growth.
How to drive to that product market fit
how to navigate that Shawshank crawl
into product market fit and then promised land.
So be sure to follow that guide.
You can follow the link below.
It's a free download and gives you everything that I know
and more about how to actually
create that go to market strategy for your startup.
Alright, I've gone forever on this video,
I'm gonna wrap now if you enjoyed this video,
please smash that like button
it helps us out, it would mean the world to our team.
Be sure to comment below
with further questions and thoughts that you have.
How are you thinking about your market strategy,
How are you thinking about market segmentation?
Your go to market strategy,
and also just link me to your startup.
I wanna check it out.
I wanna get to know you better.
Remember, I drop a video like this every single Sunday
to help you create and execute on an unstoppable strategy
for your life and your startup.
So be sure hit that subscribe button and the bell icon.
And lastly, remember, everyone needs a strategy to win,
when you are with us,
yours is gonna be unstoppable.
I'm TK and I'll see you next Sunday.