WHEN YOU CAN’T TARGET EVERYBODY: Define Your Target Market.
HERE'S THE PROBLEM
Market. Customer. Client. Target customer. Target market. We've all heard these terms. And entrepreneurs throw them around like they all mean the same thing. They don't. And confusing them can create a lot of problems in your business.
Because when you don't know exactly who you're trying to serve, you start chasing everybody you think might possibly buy from you. And when you chase everybody, you don't just confuse the market….you confuse your entire business.
LET'S PUT THIS ON THE MAP
This is best identified and solved during the “Build the Engine” phase of your Entrepreneurial Journey. So, before you build the organization, and before you worry about scaling, even before you start hiring a bunch of people, you need to build an economic engine that works. And one of the first questions that engine has to answer is, “Who are we choosing to serve?” That is what we are trying to figure out when we talk about our target market?
MAKE IT SIMPLE
Let’s clean up some of these words. A “market” is the larger group of people or businesses that have a need for what you sell. If you're an HVAC company, your market might include homeowners, restaurants, hospitals, schools, office buildings and factories, basically anybody who needs heating, cooling or refrigeration services. But that's a huge group of very different customers.
A “target market” is the specific group within that larger market that you've deliberately chosen to focus your business on. Maybe our HVAC company decides “we are going to focus on independent restaurants in Middle Tennessee”. That's a target market.
Now you'll also hear people use terms like target customer, ideal customer, ideal customer profile, or buyer persona. Those terms don't mean exactly the same thing everywhere they're used. For our purposes, when I say “target customer”, I'm talking about the kind of customer within that target market that we're particularly well built to serve.
Maybe for this company it's, “Multi-location independent restaurant operators where equipment failure can quickly become an expensive operational problem”. Now we're getting much more specific.
By definition a “customer” is simply someone who actually buys from you. And a “client” is really a type of customer and we tend to use that word when there's an ongoing professional or service relationship. But here's the distinction I really want you to remember: A customer is someone who buys from you, but your target market is who you've chosen to build your economic engine around. Those are not always the same thing. You can take money from someone without deciding to build your business around more people like them. Your target market is a choice you make and it's not automatically everybody who could give you money.
HERE'S WHERE IT HURTS
This is where entrepreneurs get themselves in trouble. They see opportunity everywhere and think to themselves, "We could sell to restaurants." "We could also sell to hospitals." "Actually, homeowners need this too." "Wait, what about schools?"
And none of those opportunities are inevitably bad. You can absolutely choose to serve multiple target markets. But you need to understand what comes with that choice because those markets may have different problems. They may value different things. They may buy differently. They may require different products or services. They may respond to different marketing. They may require different sales processes, pricing, people, systems and customer experiences.
And every difference creates complexity and complexity requires resources in the form of more people, more money, more systems, more attention, and usually, especially in an entrepreneurial business, more of you.
So, what looked like more opportunity can also create more complexity. And that, in itself, may not be wrong for you or your business. But it better be intentional. Because you may be asking one economic engine to successfully serve several very different target markets.
And if those markets require fundamentally different ways of creating, delivering and capturing value, you may unintentionally be building multiple, and sometimes misaligned, economic engines at the same time.
That might not be fatal. But it's usually expensive. More people. More processes. More systems. More management. More capital. More complexity. And all of that can erode what might otherwise be remarkable margins.
PUT IT IN CONTEXT
Let's stay with our HVAC company. Technically, almost everybody with a building could be part of its market. But suppose this company chooses independent restaurants in Middle Tennessee. Now we know who we're talking about. Let's go one level deeper.
Their ideal or target customer might be, “Multi-location independent restaurant operators where equipment failure can quickly cost thousands of dollars in lost product and lost sales”. Now we can ask a much better question, What do these specific customers actually value?
Maybe it's not the cheapest HVAC repair. Maybe it's speed. Maybe it's reliability. Maybe it's preventative maintenance. Maybe it's answering the phone at 9:00 on a Saturday night. Maybe it's getting their walk-in cooler running before they lose $15,000 worth of food.
And now watch what starts happening to the business. Once we've chosen who we want to serve, we have a greater opportunity to understand what those customers actually value, and those two things together begin shaping our value proposition.
It’s more than just simply asking “Who are we serving, and what matters enough to them that they'll choose us?” We have to decide of all the “competitive attributes” the target customer values which one(s) are we going to compete on? And those choices determine what our company needs to be exceptionally good at and develop into our “core competencies”. And it’s those core competencies that help determine the people, processes and technology we need in order to consistently deliver that value.
And finally, we still have to answer the question, “can we make money doing it?” And all of that is the foundation of our economic engine – How well can we “create” value for the customer? How consistently can we “deliver” that value? And can the business “capture” enough of that value to be profitable?
So, choosing your target market isn't just a marketing decision. It begins shaping the entire economic engine.
HERE'S THE PAIN TEST
Look at the customers you're currently serving and ask yourself, “Are these really one target market or am I trying to serve several?” And don't stop at what they look like.
Ask:
· Do they have the same problem?
· Do they value the same things?
· Do they buy for the same reasons?
· Can I reach them through the same marketing?
· Can I sell to them using the same sales process?
· Can I deliver what they value using essentially the same core competencies, people, processes and technology?
· And can we make money serving them?
If the answers are mostly yes, you may have different kinds of customers being served by essentially the same economic engine. But if the answers are dramatically different, recognize what you're asking your business to do. You may be adding significant complexity. And in extreme cases, you may effectively be operating multiple economic engines. Again, That's not necessarily wrong. Just make sure it's a choice. Not something that happened because you couldn't say no to anybody willing to give you money.
THE MOVE FORWARD
You don't have to sell to everyone who could buy from you. And having a target market doesn't mean you're forbidden from selling to anyone outside of it. It means you've made a decision about who you're primarily building the business to serve. Because clarity about “who” makes it easier to understand “what” they value.
Understanding what they value helps you determine what your business needs to be great at. That determines how you need to deliver it. And ultimately, you’ll need to determine whether you can capture enough of that value to build a profitable business.
That's how you build an economic engine intentionally instead of accidentally. And that's how you move the business forward. One target market at a time.