Are your customer segments 5-star?
How to know a "good" segment when you see one
In the previous post, I asserted that product differentiation only makes sense in the context of a given customer segment, and suggested framing customer segments into “TBD” buckets: Targets, Beneficiaries, and Distractions.
Ideally, you want each of your Target segments to be a “5-star segment.” But how do you know a good target when you see one?
To assess this, ask yourself five questions about each of your candidate Target segments:1
Do they share needs? This is by far the most important criterion. If customers don't share needs—and other key constraints, e.g. regulatory requirements—then you cannot build one single product for all of them. You'll constantly be pulled into building custom solutions or adaptations. The grey area between built-once-sold-many product and custom solutions is a difficult place to live. This is how "frankenproducts" happen.
Can you find them? Could you come up with a list of identifiable attributes or criteria by which a sales rep or marketer could target them?
Can you reach them? You may be able to see who they are, but if you can't get to them, it's not much use. You'll revisit GTM channels in the next section.
Can you win with them? Do you have any shot at building a product that is truly compelling to them and winning there, or are they completely satisfied with the status quo?
Are they worth winning? If you did win with those customers, would it make sense for the business and be worth it? There's no point in winning a segment that doesn't help your business.
For each "yes" above, award the potential target segment one star. Then rank the segments based on how many stars they have.
If a segment has all five, you’re really onto something! This is likely a terrific segment to target. With 5-star segments, you have a real shot at building a product that will crush it with a group of people and they'll be stoked to pay you. And you won't end up with a frankenproduct or in the endless hell of supporting custom, one-off solutions.
Based on the analysis above, choose and prioritize your segments into the three categories of Targets, Beneficiaries, and Distractions.
This is often easiest to do in a spreadsheet, so you can look at and compare all the candidate segments in one place. Mine looks like this:
Aim to have 1-3 ranked Targets, a short list of Beneficiaries, and a longer list of Distractions.
This list has evolved through practice from segmentation ideas in the books The Mom Test, Running Lean, and The Lean Entrepreneur.