Choose a Target Market Before Your Customer List Does

Picture a leadership meeting at a midsize firm. Someone puts the customer list on the screen and says the plan is simple: find more like these. Nobody asks how those customers got there. Most guides on how to choose a target market skip that question too. They have you list demographics, size the segment and go after the biggest one.

Choosing a market is a trade-off between growth and profit, and which side wins depends on what leadership wants. So before the room argues over which market to pursue, sort the customers the company picked from the ones it drifted into.

The five steps below are built for the person who has to make the call.

Today's customer list is a record of past choices, many of them unplanned

Start with the customers you already have. List every one, and next to each, write how it arrived. Some came through a referral or the founder's network. Others were early deals the company took because it needed the revenue to survive.

Then mark each customer as chosen or accidental. Be strict. A customer is chosen only if someone decided, ahead of time, that this kind of buyer was worth pursuing. The accidental column may well turn out to be the longer one.

Staying close to the customers you already have is a trap well-run companies fall into, too. Writing in Harvard Business Review, Joseph Bower and Clayton Christensen said that leading companies succumb to "one of the most popular, and valuable, management dogmas; they stay close to their customers."

Listening to current customers is good practice, and it keeps you inside the market you happened into.

OpenDNS, which started out as a free service paid for by ads, is a case of a company that drifted. Its founder, David Ulevitch, told the audience at a SaaStr conference that his team was "building great products maybe for the wrong market."

Target market vs target audience: mixing them up keeps your marketing on current customers

Your target market is who you sell to. Your target audience is who your marketing reaches. The two drift apart easily, and the gap matters.

If your marketing is aimed at whoever responds to it today, it will keep reaching the customers you already have.

In B2B, the way to find your target audience is to choose the market first, then work out who inside those companies your marketing has to reach.

When more than one person signs off on a purchase, map the buying committee behind each deal and build personas from real buyers in that market once the market is set.

Then hold that audience up against the chosen-or-accidental list you made at the start: if your marketing mostly reaches people like the accidental customers, it will keep bringing in more of them.

Leadership's goal decides the right market, so write it down first

Before you compare a single market, write down what leadership wants: growth or profit, and on what timeline. One sentence is enough, as long as everyone at the table agrees to it.

This step does more work than it looks. Firms can look at the same set of markets and rightly pick different ones, depending on whether they need profit soon or are willing to spend for growth. A market that's wrong for a firm chasing profit can be exactly right for one chasing growth.

Watch for the story the company has been telling investors. Once a market has been in the investor deck for a while, it gets hard to walk away from. Leaders who dread what a new market would ask of them tend to stop looking at one closely.

Name that story openly as a constraint on the decision, where everyone can see it. Then judge the market on its own facts.

Candidate markets only compare fairly on the same facts

Pick two to four candidate markets. Your current market is one of them, and it gets no special treatment.

For each, gather the same facts:

Fact	What to record
Deal size	The typical size of a deal
Sales cycle	How long a sale usually takes
Number of buyers	How many companies could realistically buy
Where you already win	Win rate and margin, if you've sold there
Cost to reach	What it takes to get in front of these buyers

Use the same columns for every market. The moment one candidate is judged on its potential and another on its track record, the answer is settled before you begin.

Add one more check to the "where you already win" row: which existing customers would miss you most. If you want a fuller way to find the buyers who fit best, start from who actually buys from you today.

Moving to a new market costs more than it looks, so test it cheaply first

Once a market stands out, count what moving would cost. Name what would change in the product, the sales process, the messaging and the team. Then name what the company would stop doing, because a move into a new market usually means walking away from part of the old one.

OpenDNS made a move like this, and its founder was open about what it took. It found one of the world's largest oil and gas companies using its free service with 100,000 people.

When the team ran the numbers, Ulevitch said, "we were making $1.87 on ads from them." He called that moment "the beginning of the enterprise business."

The move worked, and it was expensive. "We ended up having to transition out most of the team," he said. Of about 25 people, roughly three made it from the consumer business to the enterprise one. Afterwards, he reported, average deal size rose almost tenfold over eight quarters, and growth averaged 20% a quarter.

Those figures are self-reported by Ulevitch in a 2015 conference talk, published in January 2016, and the growth numbers are his own and unaudited.

You don't have to make a bet that size blind.

Before committing, test the new market cheaply: hold a handful of conversations with buyers there, or run one small campaign aimed at them. A test tells you whether buyers there want what you sell. The cost to your team still has to come from the count above.

A cheap test also answers the dread that keeps leaders from looking closely at a new market. It turns a vague worry about what the move would involve into a few answers you can weigh.

A narrower market won't make you stand out if competitors there sound the same

Niching down is often the right call. A narrower market makes marketing and sales more efficient, because you know exactly who you're talking to. People resist it mostly because they're chasing the size of the total market.

But narrowing has a limit. Competitors in a small market tend to say the same things as each other, just as they do in a large one. A tighter target won't fix a market where every vendor has converged on the same pitch.

So before you commit, read what the competitors in your chosen market already say on their homepages and in their sales materials.

If they all make the same promise, entering with that promise puts you in a crowd of lookalikes. Choose a market where you have something true to say that they don't, and test whether a rival could copy it.

Doubling down on the customers who love you works only inside the market you have

The strongest objection to all of this is simple: skip the analysis and find more of the customers who already love you. It has real evidence behind it.

Rahul Vohra, Superhuman's founder, described in First Round Review how the company narrowed to users who would miss it most. His advice was to "politely disregard those who would not be disappointed without your product."

Narrowing to the users who would be very disappointed without the product moved Superhuman's product-market fit score from 22% to 33%, and then to 58% within three quarters.

That works, and it's a test of fit inside the market you already serve. Superhuman made a choice too: it kept its most demanding users, "the most discerning person within your target demographic," and let the rest go.

The limit is that this method ranks the customers you already have by how much they'd miss you. It doesn't show what each one is worth to you. OpenDNS changed course because of a customer with 100,000 people on its free service that earned it $1.87 in ads, a gap a loyalty ranking wouldn't show.

Use the loyalty check when you compare candidate markets, to see where you already win, and let leadership's goals decide which market to pursue.

A profit-first firm and a growth-first firm should land in different markets

Choosing a market is hard to do from inside the one you're already in. If you're weighing a move and want to think through what it could mean for your brand, get in touch and we can talk it over.

The next time the customer list goes up on the screen, ask which of those customers the company chose.