The size of the market you are targeting is critical to the growth rate that it will ultimately sustain. The larger the market you target, the faster you can grow if, and this is a big if, you can steal market share from the current incumbents. Smaller markets can look more attractive because they have fewer and less established competitors. But a small market can limit your growth even if you become the dominant player in it. As part of the series, 5 Reasons Your Company is Not Growing Faster, this blog will help you to evaluate your options for busting thru the limitations of a small market to come up with the best plan to accelerate company growth.
Segment Your Target Market
When evaluating the size and attractiveness of your target market, the first thing to realize is that markets are not uniform in their characteristics. Each large market is made up of segments and sub-segments, and each has different characteristics that may or may not determine how they buy products. Each market segment has different problems, needs and priorities that they want to address. In the B2B world, typical market segments are the company’s industry (retail, technology, financial services, etc.), company size (SMB, Mid-Market, Large Enterprise), technology adoption bias (early adopter, late majority etc.), and geography (US, EMEA, APAC) to name a few big segments. Companies can also be segmented by other attributes including organization structure and business strategies that pertain to your product areas. Are they strategic in your area, just want to be operationally effective, or a complete newbie just getting started.
Just because companies fall into different segments, does not mean they need a different product. The key is to find a wide swath of segments that all need the same product in spite of their differences: that’s how you grow fast.
To figure this out, conduct a market segmentation analysis to study the market and identify the different segments and their key characteristics that make them good targets, or bad. Also if they are not good targets at this time, understand what it would take from a product, service or GTM investment to make them a good target. Estimate the size of each segment and approximate the growth rates over the next several years to understand where the best opportunity resides for your company. Focus on the largest, fastest growing, most easily accessible segment to spur fast growth. Ideally, this analysis is performed by someone outside the company, like an independent consultant or analyst with no biases or preconceived ideas.
Bigger is Better
Understand which segments you are getting traction in and why these customers are buying your product. Also understand how much they will buy, i.e. can they become big accounts or will they stay small accounts? Obviously big accounts are much more desirable and easier to scale than small accounts. Many large tech companies have built billion dollar revenue streams by selling to Fortune 500 companies, and for good reason. They have large budgets, financial stability and numerous divisions that can turn an initial seed deal into a much larger revenue stream. Also many are global enterprises and can help to jump-start operations in other geographies.
Historically, the SMB has been a very difficult market to scale to a large size. The economics of the SMB are challenging – smaller sized deals with very little upside, higher churn, higher company instability due to acquisition or insolvency, combined with high customer acquisition cost. The SMB is difficult, but not impossible, and many companies start there and then move up-market to more lucrative territory.
No Market Until Its Time
Markets are not static and change over time. Every large market started out small at some point. Some will grow to become very large, only to shrink later as the needs of the customers change. Timing this growth spurt right is one key to growing fast. Ideally, you get to the market early enough so there is enough business there to sustain your rapid growth, but not so early that you are doing too much pioneering work because no one is ready to buy your product. On the other hand, if you get to a market too late, the market may be larger and more developed but there will likely be established competitors in the space already. This will make it more difficult to compete initially, but it is not the end of the world as being first or early does not mean you’ll own the market forever. Google was not the first search engine. Facebook was not the first social network. And Apple didn’t make the first mobile phone. All came later to the market and were able to ultimately dominate their markets with superior products and go-to-market strategies. Understand where your market is on its growth trajectory, and if it will be able to sustain your growth ambitions. If not, you may need to look for another way to accelerate growth while your target market develops.
Expanding your Market Reach
If you find that the market segments that you currently address are not large enough to sustain your desired growth rate, you’ll need to expand your reach to more markets. There are many ways to do this, and all growing companies have to do some of these at some point to keep growing. Here are some of the GTM strategies to evaluate:
New Product Category. Expand your reach to more of the market by expanding your product strategy to address a new product category. Ideally, expand to a complimentary segment where you can sell to the same type of customers with the same GTM team. The closer it is to your current offerings, the higher your chance of success. This should help with your acquisition of new customers and may allow you to sell more products to the same customers you already have as well. Selling more to current customers should be an easier sale than to new customers and will grow bigger faster because initial sales into an account are typically smaller than follow-on upsells to an existing customer. An example of this is Salesforce.com, which started out as a CRM system, but over time has added new product categories including Marketing, Service, Collaboration, Social and Development solutions.
New Company Size Segment. Target a new company size segment. In other words, if you sell to the mid-market, develop a solution for the enterprise. Or if you are focused on the SMB, develop a solution for the mid-market. Keep in mind that these different company size segments have very different expectations of product quality, reliability and customer service. And it will likely take a different GTM strategy to reach a different market. But you can leverage awareness and market presence in one segment to launch into another. Most SaaS companies started to sell in the SMB where small subscriptions could be sold quickly and inexpensively, then moved up market to the Mid-Market and Enterprise. Taleo was one of the only SaaS companies that started by targeting the largest enterprise companies in the world for its recruiting solution, then moved down market to the mid-market and ultimately the SMB as well. Either way you go, up-market or down-market, can be an effective strategy to drive more growth.
New Geography. Expand your geographic reach into new and untapped territories, either domestically or internationally. Keep in mind the different cultures and competitive landscapes of each new geographic to see if the market can be penetrated. Also localization can be a necessary investment to enter international markets in many cases.
New Channels. New distribution channels are another way to expand the reach of your product into new territories or market segments that you haven’t been able to tap. This can take the form of OEM partners who will embed or integrate your solution into theirs. Or it can be distribution partners focused on specific verticals or geographies. Or it can also be an ecosystem around your solution that has the twin benefits of expanding the utility of your solution while at the same time further entrenching it into a customer’s operations. Salesforce.com has done an excellent job as a CRM but also has fostered such a large ecosystem of tangential solutions that they would be difficult to replace with an alternative CRM solution.
Acquisition. Any of the four options above can be achieved thru a strategy of acquiring new product capabilities, channels capability or geographic presence.
Also the growth options above are not mutually exclusive. You can do any combination that you think will have impact on your growth. In fact, at Taleo, we did all the above to drive revenue from $100M to $300M within a few years.