This article talks about the importance of defining an Ideal customer profile in the initial days (when you have none or very few customers) and provides a framework for doing so.
Founders are often tempted to capture as much value (or revenue) as possible from different types of customers. To do this, they often wastefully spend their energies and resources on capturing multiple types/avatars of customers and therefore lose sight of the company’s core value proposition and focus. As a founder, you must identify and focus your energies on the customers who are going to be most successful for you- the ‘Ideal Customers’
First of all, it is important to expand on the term ‘Ideal Customer Profile (ICP)’. An ICP is not the customer that gives the most revenue, it is also not only the customer with the easiest sale potential. An ideal customer is one who is deriving the maximum value from your offering and whom you can serve best (compared to alternatives). This translates to:
- Easier Sale and lower cost of acquisition
- Better retention and higher Lifetime Value
- Customer Advocacy and referrals
You should also not confuse ICP with customer/buyer personas (‘marketing Michelle’ or ‘HR Harvey’). A buyer/user persona comes after you have defined a broader ICP and is used to create messaging that helps you connect best with different personas in that ICP group. An ICP defines Who to sell to, while a persona defines How to convey the value proposition of your offering to this customer.
Your ICP is a clear, common, objective definition of who the ideal buyers and users of your product are. A well-defined ICP lays the groundwork for your positioning, messaging, pricing, GTM, and even product roadmap. Once you have clarity and validation of your ICP, everything else ties into it. An important point to note is that the ICP definition is not stationary, it keeps on evolving along with the organization. As you keep on acquiring and learning about more and more customers, the ICP definition will keep changing and becoming sharper.
Defining the ICP
A good way to define your ICP in the very early days is to look at the broad market that you are trying to solve for and look for a common subset where you believe you are best positioned to serve that customer group. Look at the overall landscape of customers and competitors. You are looking for a large opportunity which primarily can be because of:
- A gap in the market– There is a gap in the market and a large customer segment is underserved.
- Better product/experience– There is an opportunity to serve the customers in a much better way compared to the current alternatives. A low NPS/Retention for the current alternatives points in this direction.
- Opening of the market– There is a latent need in the market or the customer behaviour is changing rapidly for a new offering to come in and disrupt.
You should then speak with your best customers (or do surveys with prospects if the product/service is yet to be launched) and list down their attributes.
For B2C Businesses
For a consumer-focused(B2C) business, the following attributes are a good start
- Age group
- Religion, Race and Ethnicity
- Relationship/Family status
- Psychographic and behavioural traits
- Aspirations and Fears
- Social media behaviour
- Buying behaviour
A few iterations using customer surveys/research will lead you to your ICP.
For B2B Businesses
For B2B businesses, the following attributes are a good start
- Target Company
- Customer base/Business model- For example ‘B2B company serving SMBs and mid-market customers’
- Size- Very Small/Small Medium/Mid Market/Enterprise Businesses
- Maturity/other differentiators- For example, ‘fast-growing startups’ or ‘more than 20 people development team’
- Target Company
- Target customer profile
- Profile- Ex Sales Development Representative/VP Marketing/Engineering Manager
- Key goals of the customer
- What is the core problem?
Put your target group into different segments and think through your value proposition from the perspective of the following parameters. The attractiveness of your solution (compared to the alternatives) for a segment will drive you towards your ICP:
- Problem intensity– The problem you are solving can be severe and (or) frequent. Pain point intensity usually is different in different kinds of companies. It relates strongly to the industry, size, and maturity of the company.
- Awareness and urgency– How aware is the customer of the pain point? Is it a need (urgent) or good to have?
- Ability to pay– Does this customer segment have the ability to pay the right value for your solution? This usually relates to the size and industry of the company.
- Ability to sell and serve efficiently– How efficiently can you acquire customers of one segment? How equipped are you to serve them? Geography and size of the company are the most important variables for this parameter.
- Competition/Advantage over the competition– Are there any other solutions for this customer segment? Is your solution much better than the current competition? Is there a gap/underserved market segment that you can go for? Usually, this parameter relates strongly to size and geography. It is probably the most critical parameter which gives direction to a possible whitespace or possibility of disrupting incumbents.
A few iterations using customer surveys/research will lead you to your ICP. Articulate it very clearly. Try to be as specific as possible and use more nouns/verbs than adjectives.
Example: Hull.io ICP definition- “Post Series-A (scaling) SaaS startups with more than $5 million in annual revenue, who use Salesforce & Redshift.”
After nailing the ICP statement, to plan and sharpen your go-to-market (GTM) strategy, we suggest that you put together the following as well:
- Success metric for the customer– What is the metric that the customer is likely to look at to validate that your solution is proving to be successful? (eg. it can be the lowering of churn or increasing of NPS)
- Success metric for you– What is the metric that you would track to validate that your customer is deriving value from your solution? (eg. it can be the number of emails sent or tickets closed)
- Value Metric– What is the metric/unit that the customer is likely to measure that correlates with the perceived value? (eg. it can be the number of users or GBs of data storage)
- Time to value– How much time does it take for the customer to start realising the value of your solution?
This way, you can approach the problem of defining your ICP, depending on the kind of customer profile and end goals you are targeting.
In part 2, we will talk about steps taken, post defining your ICP.