Making Market Segmentation Work: You’ve Found Your Target Market Segment, Now What?

Marketing consultants can help you find the right target market segment, but you will need to commitment and focus to execute against it.

The OpenView team, as you might have noticed, is unabashedly supportive of the idea that the best ways for expansion stage to grow profitably is to focus on a few target market segments at a time, rather than to go all out across the whole market.

Ever since we put together our thoughts and hosted a seminal Market Segmentation forum last year, we have learned a lot more about the ins and outs of market segmentation research at the expansion stage, mostly through our close collaboration with the portfolio companies on those projects.

One thing that struck me is that while a market segmentation analysis is understandably a complex, time and resource intensive project, it is nowhere as challenging and fraught with complications as actually trying to make the segmentation work in the organization. Even if the whole organization is in agreement on the strategic direction set out by the segment focus, aligning the disparate, loosely coupled resources of a growing organization together toward a very narrow set of goals can prove to be an incredible operational challenge.

Why this is hard

I think the operational challenges associated with executing a target market segment strategy exist not so much because there is not enough buy-in, or that the segmentation strategy is too burdensome. Rather, challenges occur because when a startup tries to execute such a strategy there is a growing tension between the needs for a disciplined, process-driven organization and that of a rapidly growing, wildly innovative and creative core that formed the nucleus in the early days of the startup.

The implementation forces a closer collaboration between sales, marketing, customer service and new product development strategy — while each of these departments would prefer to keep doing what they have been doing, and to pour their energy into growing their own organizations. The tension is an important part of the expansion stage, when the most important thing is to find a growth model and a business structure (organization and people) that can withstand the growing pains such as ones exposed by the market segmentation process.

In this series of blog posts, I will explore systematic ways to plan for a target market segment go-to-market and product development strategy, s0 that the operational challenges can be anticipated and effectively addressed, even before they actually become an issue at all.

Our market segmentation approach requires planning and commitment at 4 levels:

1. Corporate Strategic Goals

• The segmentation focus is a company-wide initiative backed by the corporate team, and all departments are aligned to the same set of the goals.

2. Resources  Allocation and Alignment

• People and Capital Resources will be needed to power the strategy. An expansion stage company obviously does not have the resources to move around the organization, or to rapidly hire people. Thus resources allocation and alignment have to be considered while setting corporate, strategic goals at the previous step.

3. Information Capital, which breaks into two parts

• Market Clarity: The full understanding of all the target participants in the market, starting with the buyers, the end-users, the third party vendors, competitors, sales and marketing channels.
• Execution Support: Information, data and processes that will be supporting the strategies.

4. Methodologies

• Management Processes
• Functional: Sales Methodology,  Marketing tactics and tools, Professional Services organization
• Tools and technologies to support the strategies.

The first step is essential, without which the functional teams (sales, marketing, etc.) will never be able to coordinate with each other while trying to solve the difficult operational challenges.

In my next posts, I will explore more on each of these steps and provide some examples to show how they can be done and ensure that a market segmentation implementation is actually successful.