Many businesses do their b2b marketing strategy in the rear-vision mirror. That is, they slide into a space by accident, and then seek to justify their position with a retro-fitted “strategy”!
Often, opportunities are uncovered in a random way, and the business is so grateful for the business that they stretch their strategy statement to accommodate this diversion, arguing that a larger market gives greater coverage.
But is “coverage” necessarily good? Just how big is your ideal target market?
The common fallacy is that “you can’t say no to business”. Any expanding business cannot afford to leave opportunities unexplored, and the belief is that you should not exclude yourself from markets that appear to offer growth. The justification for this false reasoning is that the business is creating a full (and large) sales funnel. The target market must therefore be as broad as possible, right?
Wrong.
The inevitable result of this thinking is that businesses large and small spread their resources too thinly because their decision to enter a particular space is opportunistic, not planned.
To be a small player in a big market is as frustrating as it is unprofitable – whereas the “gorilla” is the envy of all the smaller players who see the larger player using its financial muscle to market itself and retain its monopolistic-style position. In fact, the deck is even more stacked than this, because much of the market awareness comes for free for the big guy. Being number one generates its own awareness: prospective customers include the market leader in their consideration set, and position the smaller players relative to the leader.
This is as true for Microsoft as it is for a local PC reseller that is well-established and well-located on a high-trafficked street.
How do you as a growing business counter such success? It’s simple. You need to choose a market small enough – not big enough – to win. Let’s say, for example, that you hold 6 per cent of your market. You’re a chimp, but a wannabe gorilla.
But if you can extract that same 6 per cent from a small segment – one that is just 10 per cent of the whole market – then you can be the gorilla in that segment.
Moving from 6 per cent of the total market to 60 per cent of the segment was more than a mathematical trick. Because the target companies in the segment can see that most of the other companies in that segment are your customers, they will recognise you as the leader. This is the simple power of focus.
Here’s how to work out the size of your target market:
- Identify how many customers you can properly serve. Take a long-term term view, say four years, and identify how many customers you believe you are physically able to serve fully in that time-frame. Be honest, and think about the operational consequences. Let’s say your answer is 200.
- What does dominant look like? Think about your market and the way it is structured. What sort of market share would you need to be a clear No. 1 with a good amount of daylight between you and No. 2? You might assume 60 per cent is necessary, but in fragmented markets it might take only 20 per cent to be the clear No. 1. For this exercise, let’s assume that in your market anyone with 40 per cent or more would be dominant. The next largest in your market might have only 20 per cent and the remaining 40 per cent may be made up with many smaller players.
- How small does your market need to be for you to dominate? If the plan described above is for your 200 customers to be 40 per cent of the market, how big is the ideal market in total? To calculate this, divide your target customer base (200) by your target market share (40 per cent) to determine the number of businesses in your ideal market size. In this example, the ideal market has just 500 businesses in the whole market.
So your key to success and dominance is to select a market that has 500 businesses in it.
Sales and marketing planning must therefore centre on sustainable marketing effectiveness for a market of just 500 businesses. And to get 40 per cent, you will need to hold to your focus.
If targeting this tightly sits uncomfortably, then perhaps reconcile yourself to being the happy chimp rather than the wealthy gorilla.
