25 June 2020
Startup Flight #9: Finding our ICP and eliminating 99% of our target market.
Hi there! My name is Charlotte and I’m Co-Founder & CEO of Equalture (a hiring software that leverages gamification to debias hiring for SMBs) and living in the most beautiful city in the world: Rotterdam. Being an entrepreneur for 4 years now and building my second company together with my twin sister, I get a lot of questions from other founders and people thinking about starting their own company.
Since I believe that every single founder experience can be helpful to other founders, I decided to translate these frequently asked questions into a blog series: Startup Flight.
In this ninth blog: How we found our Ideal Customer Profile, leading us to eliminating 99% of our target market, and why I believe this is the best decision we could have made.
The importance of selling to everyone (in the beginning)
January 2019 was the first month of active selling here at Equalture. And where we now have a clear vision on our product-market fit, back then we didn’t have a clue.
Which is not extremely weird, by the way. We had just developed a first version of a recruitment software (because back then it was purely about matching candidates). So the luxury and pitfall of a concept like this, is that your target market is endless. Or to be precisely: your target market is all companies with personnel. Well, at least it wasn’t too small.
So we started selling to everyone. Startups, scaleups, SMEs, corporates and everything in between. Funnily enough we also managed to get all these different types of companies on board. And that was amazing! You know why?
There are way too many SaaS companies who think they’ve found their product-market fit, while they have actually just chosen a market that they hope to be successful in and now desperately trying to find that fit with their solution here.
My best learning: don’t think about the term ICP (Ideal Customer Profile) during the first 12 months of selling your product. You need to try different markets in order to find out what works and what doesn’t work. Here at Equalture we used the following matrix to determine the success rate of new customer, 9 months after their start date:
Although it might sounds weird, the best thing that can happen to you is having a lot of companies in all different categories. And yes, also in the two ones below, meaning that you’ve had some churn.
The reason why that is so useful is that you can look for similarities in these different categories. What type of companies are very happy, but leave? What type of companies are not happy at all, but actually stay? And of course: Who are your ambassadors? The ones you’re calling for a customer story? Because that group represents your Ideal Customer Profile.
From Sales to CS: The transition in reasoning
You as an entrepreneur want to grab all possible chances to sell your product. Why? Well, because this is the reasoning of founders selling their product less than one year:
‘’Every sell proves the value of our product.’’
After a year, however, you find out that you got it wrong. Do you know why? Well, because this will be your reasoning then:
‘’Every sell walking away within 9 months proves that I’m selling to the wrong market.’’
And the reason why your reasoning (do you keep following me?) changes is because of the fact that, once your customer base is growing, you get introduced to the concept of Customer Success — the most important, yet unfortunately highly undervalued component of every SaaS company.
So after these first 12 months of selling, you might find yourself in this position as well. And that means you’re almost there!
The smaller, the better: Thanks to data
The smaller your Ideal Customer Profile, the better. And yes, I know that is scary, but in this transition from Sales to CS you have (hopefully) learned that, the broader your market, the more bad revenue you generate (revenue from customers that don’t fit into your ICP and are therefore likely to be unhappy and churning quickly).
Here at Equalture, we reached this point a bit later than after 9 months, because it was quite hard for me to accept that our ICP required us to exclude 99% of our target market. And what also didn’t help was the fact that it took us quite some time to find our Product Owner.
Luckily enough, Robin, our amazing PO, came on board in March 2020. And he was the one challenging us from day one to prove our assumptions by showing data. ‘’So you want me to put this on the roadmap? Well, you first need to show me some prove then.’’
That was our flipping point. By being forced to focus on data, we started collecting data in every possible way. We linked buyer personas to sales, we linked sales to CS, CS to product and eventually back to Sales. All of a sudden I started realising that we had huge data sets to act on. To prove that works and what doesn’t work.
And that resulted in an even more specific ICP. Because in October 2019 we already had an ‘MVP version’ of our ICP, but last month we could further sharpen. And that now allows us to make our sales strategy way more targeted and to only build features that add even more value to our ICP. And all we needed to do for this is collecting and connecting our data.
Our ICP dimensions
We focus on European, tech-savvy scaleups between 11 and 100 people. Company characteristics, however, isn’t the only thing we are focusing on. These are the dimensions that we take into consideration:
- Company characteristics (industry, growth stage);
- Location (different countries ask for different approaches);
- Contact person (focus on the one who’s facing the heaviest consequences of the problem you solve).
And you know what? It feels great to have such a laser focus! The satisfaction of becoming a market leader in your niche market feels way better than being just one of the many tools in a broad, undefined market.