How to hone in on your target market segment to avoid the startup graveyard 

Dear Founder,


Many startup founders begin their journey with optimism, fuelled by positive feedback from friends and family.

And then, in the comfort of this supportive feedback, founders go on to use this feedback to make key decisions in their solution design and product build.

And herein lies the challenge.

Recognising that these well-meaning supporters may not represent your ideal customer. 

In fact, it’s a big mistake to assume this supportive circle can substitute for a genuine market need. 

This mistake is a critical part of the extremely high startup failure rates. 

What you need to do instead is to find your part of the market where your real customers are. 

These are the ones with an urgent problem – what we call a “pants on fire” problem they desperately want solved – and they’re willing to pay for it. 

These are the only people whose opinion really matters.

Now, this is only part of the market – not a broad section of the market.

This is known as a niche market.

And identifying and understanding your niche market is more than just good practice; it’s a survival strategy for startups. 

This leads us to the second challenge we see founders struggle with all the time.  

It’s identifying this niche market segment.   

There are lots of ways of going about identifying and defining market segments. 

A common mistake is to define a market segment solely based on broad demographic characteristics, or firmographic characteristics (which are company-related demographics). 

This generally results in a large market – the opposite of a niche market.

The problem with a market that’s too large or broad is that you cannot satisfy everyone’s needs. 

When you think about it, this makes sense. 

Realistically, how can you create a product in such a broad market that everyone will fall in love with?

Even creating a solution that’s compelling enough for people to make the effort of switching from what they’re currently using, over to your solution.

If they don’t like it enough, they simply won’t move to your product. 

And the end result is your product not getting market traction. 

In the book Zero to One, highly successful entrepreneur, Peter Thiel, talks about this important paradigm.

Essentially, the rule of thumb is, don’t bother creating a solution (product) unless you can create a solution that’s 10 times better than what’s already available. 

This helps you avoid the trap of trying to appeal to everybody and ending up appealing to nobody.  

 

So, what’s the best way to identify niche markets? 



The answer lies in more deeply understanding the target customer.

To look beyond the demographics and firmographics.

Also, identifying specific problems that the customer has, rather than focusing on their generic problems. 

Airbnb got this right when they targeted people looking for affordable, unique lodging options during crowded events — a niche market with a clear and specific problem. 

Conversely, countless startups have faltered by trying to be all things to all people, like the now-defunct Juicero, whose overly complex and expensive solution to juice-making failed to resonate with a broad market. 


So, how do you find your target niche market segment? 

Niche markets and specific problems are both often hidden in plain sight.

They come to light when you unpack exactly what the customer’s situation is – when you look at their “jobs-to-be-done.” 

This concept involves understanding the specific tasks your customers need to accomplish and the pains associated with current solutions.


Let’s look at this step by step:


STEP 1: You’ll need to perform market research, talk to customers in your market.  

Your objective is to be able to map out the tasks (steps) they take, from their perspective (not your assumed view).  

This is the customer’s jobs-to-be-done. 

Also include their current solutions for each task, plus their challenges.

During this step, it’s super important to uncover the contextual details around the specific tasks.  

The nuances are what you want to hone in on here. For example: 

1.    Where are they at the time (of doing that task or step)? 

 Why?

2.    Was there another objective they were also doing at the same time? (Are they trying to multi-task at that time?)

 Why?

3.    How are they feeling during that task? 

 Why? 

4.    Is it the same every single time (for all of the above)? 

 If not, why not?


(Asking “Why?” often helps to elicit more context.)
 


It’s the context that’s crucial to uncover specific problems. 

It’s also in this contextual detail that you discover characteristics that can uniquely define your market segment – your niche segment. 

 

STEP 2: Using these nuanced characteristics, you then want to categorise your market into segments – each segment sharing the same characteristics.

These become your market segment options. 

 

STEP 3: Next you’ll determine which segment has the most potential to focus on – by performing market segment analysis. 

This will become your target niche segment. 

Also known as your “beachhead” segment. 

The remaining market segment options will also potentially be used for your go-to-market strategy – after reaching Product-Market Fit with your first target market segment.

 

STEP 4: Now, for transparency, discovering your niche market segment is rarely straightforward. 

It often requires multiple iterations.  

 

As you talk to more customers in your market to check for patterns and trends in that market, you’ll likely uncover new information about them that’s relevant to their pains and their situation. 

This new information is then taken into consideration for your segment definitions. 

This results in you tweaking your segment definitions with this new, better understanding of the customers.  

You’ll also potentially find new categories within your segment(s), or sometimes categories within categories.  

This process is called segmentation and sub-segmentation, and it’s instrumental to the success of finding your niche segment. 

Skipping this process results in poor quality segment choices at the start of your startup journey. 

This leads to vastly reduced chances of finding a specific problem to solve for that customer base, one that you need to solve with a 10x solution for. 

And this is why it’s a leading cause of the extremely high startup failure rates. 

 

So, in conclusion, identifying your target market segment is a fundamental step that cannot be overlooked. 

By focusing on the customer jobs-to-be-done and understanding the specific challenges your customers face, and the context, you’ll reduce your chances of ending up in the startup graveyard. 

If you’re a founder and need some help identifying your niche target market segment, fill out this short questionnaire to tell us about your situation, and we’ll get in touch with your next steps.






Jump Ahead!

Kirk.

leapsheep.com 

 

Whenever you’re ready, here’s how we can help you.

If you’ve got a startup idea, or you’ve already embarked on your journey – you might be facing one or both of these situations.

1. You’re struggling while going it alone, unsure of who to turn to for advice.  

2. You’re wading in the muddy waters of some not-so-great advice, wondering how to move out of that situation and into better guidance.

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