by Bill Aulet
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Notes
1 As Elaine Chen points out, selection bias is especially pernicious in qualitative research because it is by nature anecdotal with low sample points. Imagine talking to five people who seem to validate your hypothesis and you stop there, and it turns out that there exists nobody else on Earth who agrees with them. You have a lot less of this problem when running a survey with 500 people who respond, assuming you have randomly chosen who within the larger group you survey, and you controlled for the right variables by incorporating demographic or other questions into the survey and weighting the responses.
2 Elaine Chen’s Primary Market Research Primer presentation can be found at http://www.slideshare.net/chenelaine/primary-market-research-an-overview-on-qualitative-and-quantitative-research-techniques.
3 Seelig, Tina, What I Wish I Knew When I Was 20, Chapter 1, HarperOne, 2009.
STEP 2
Select a Beachhead Market
WHAT IS STEP 2, SELECT A BEACHHEAD MARKET?
Select one market segment from the Market Segmentation analysis, Step 1, to be the first market your business will focus on to achieve initial business success.
WHY DO WE DO THIS STEP, AND WHY DO WE DO IT NOW?
As a new entity, you have limited resources, so focusing those resources is essential. You do this step now because, now that you have completed at least a first pass Market Segmentation, you can start to intelligently concentrate your efforts on a single market segment to make better and faster progress.
By the Book: See pages 41–45 of Disciplined Entrepreneurship for basic knowledge on this step.
See pages 45–47 of Disciplined Entrepreneurship for examples of how different companies and teams have addressed this step.
Process Guide
The Merriam-Webster Dictionary defines beachhead as “a beach on an enemy’s shore that an invading army takes and controls in order to prepare for the arrival of more soldiers and supplies.” The analogy for entrepreneurs is that to optimize your chances of success in a timely manner, you will employ the same game plan, choosing a small market segment you can control until your company has sufficient resources to enter other markets.
First, ask yourself: Are the markets from your Market Segmentation in Step 1 well-defined enough and small enough to attack successfully and not only conquer, but dominate? You will compare each market against the three conditions that define a market, which I have refined from Disciplined Entrepreneurship and focused on the end user:
Same product: The end users will all use the same product. If you have to make slightly different products to appeal to the different end users in your market, it’s too broad of a market.
Same sales process: The sales process to the end users will be the same, meaning interchangeable language, value proposition, sales channels, etc. If your salespeople have to change tactics from one end user to the next, your market’s not targeted enough!
Word of mouth: There is strong word of mouth between end users in this community. If your end users don’t talk to each other—if they are separated by large distances, for example—you’re going to have a hard time building up sales across the full group of end users. Refine it!
Use the Market Segmentation Certification worksheet at the end of this chapter to analyze the markets from your Market Segmentation, then go back and refine your markets if necessary—it’s almost always a requirement to further segment your markets.
Once your Market Segmentation is sufficiently refined, it’s time to choose your Beachhead Market. A few tips:
Involve the whole founding team. Presumably you’ve already refined the composition of your team somewhat in Step 1; continue to do so here. You want to finish this step with increased cohesion on your team. You also want to identify and address any team dynamics issues. You haven’t worked together much, so you’ll likely have some issues. Be honest about them, and recognize and address them professionally. If you don’t do it now, you’ll pay a steeper and steeper price as time goes on—in my experience, failure to address team issues up front is the number one reason companies fail. The hardest part of a startup is not technology or strategy, it’s people.
Avoid “analysis paralysis.” There is almost always more than one path to success. Your goal is to eliminate the paths with the lowest odds of success, and choose one path with relatively good odds. Then, take your chosen path and pursue it without thinking about “what could’ve been”—burn the boats! Pursue it until it proves not to work or is much less attractive than originally anticipated.
Keep doing primary market research! Part of why you narrow your selections is because primary market research is time consuming and expensive in terms of opportunity costs, so you want to focus your research on compelling candidates for Beachhead Market. But don’t stop doing primary market research just because your Market Segmentation is done. In fact, you have only just begun!
You’ll consider the same seven key criteria that you used during the Step 1 Market Segmentation:
Is the target customer well-funded?
Is the target customer readily accessible to your sales force?
Does the target customer have a compelling reason to buy?
Can you deliver a whole product?
Is there entrenched competition?
Can you leverage this market segment to enter others?
Is the market consistent with the values, passions, and goals of the team?
Use the Beachhead Market Selection worksheet to compile your notes on your potential Beachhead Markets and to rank and make a decision about which will be your beachhead. It may take a number of iterations, and you might not end up being right with your ultimate selection. But if you later determine your selection will not work, you can always come back (much more easily than if an army chooses the wrong beachhead!) and restart at this point with more confidence and skill in executing the process. For now, you want a good amount of confidence that your structured analysis and plentiful primary market research have brought you to this reasonable decision.
Finally, before you move on to the next step, all of your team members must sign the Agreement on the Beachhead Market Selection. It is important that everyone is on the same page (literally!) and that they are enthusiastically behind the dire
ction your company will be going in. Companies that thrive in their Beachhead Markets are companies with strong cohesion and unity.
GENERAL EXERCISES TO UNDERSTAND CONCEPT
See the back of the book for answers to these questions.
In World War II, what was the beachhead for the Allies as they invaded Nazi-controlled Western Europe? Why was this a good beachhead? Where did the Allied forces go from there (i.e., what were their “follow-on markets”?)
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What was the Beachhead Market for Facebook?
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For Pinterest?
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For desktop computers in businesses?
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For Apple?
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For the first cell phones?
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WORKSHEETS
Market Segmentation Certification Worksheet
Are all market segments actually market segments in that they meet all of the three criteria for a market (similar product, similar sales process, word of mouth)?
___ Yes ___ No
Do your market segments identify actual human end users and not just general companies or department in companies?
___ Yes ___ No
Are the market segments segmented down into reasonable sizes for your start-up to address (i.e., less than a billion and more than a few hundred thousand)? (More on this later in Step 4.)
___ Yes ___ No
Are these criteria met? If these criteria are not met, then continue to iterate on the market segmentation matrix until they are.
___ Yes, then done ___ No, then iterate (return)
Understand that your first Market Segmentation Analysis does not have to be correct; it will certainly have lots of holes in it, but make an intellectually honest attempt (i.e., without biases as much as possible) to answer the fundamental questions in the matrix as best you can. Only then can you make an educated guess on what the top Beachhead Markets are to analyze further.
___ I understand, and now I can proceed.
Beachhead Market Selection Worksheet
Criteria
Market Segment = _______________
Market Segment = _______________
Market Segment = _______________
Market Segment = _______________
Rating is Very High (best), High, Medium, Low, Show Stopper (worst)
1. Economically attractive
2. Accessible to your sales force
3. Strong value proposition
4. Complete product
5. Competition
6. Strategic value
7. Personal alignment
Overall rating
Rating for ranking is 1 (most attractive) to 4 (least attractive) – key factors is most important contributor to the ranking
Ranking
Key deciding factors
Decision for Team to Sign Off on the Beachhead Market
STEP 3
Build an End User Profile for the Beachhead Market
WHAT IS STEP 3, BUILD AN END USER PROFILE FOR THE BEACHHEAD MARKET?
Using primary market research techniques, build out a description, including demographic and psychographic information, with specific facts about the end users of your product. You will include their needs and wants as well as invaluable information about their behavior.
WHY DO WE DO THIS STEP, AND WHY DO WE DO IT NOW?
There are three reasons you do this step:
To keep the focus on the customer
To validate your selection of Beachhead Market by deepening your understanding of the end user
To provide the necessary information to estimate the Total Addressable Market (TAM) in the next step
By the Book: See pages 49–53 of Disciplined Entrepreneurship for basic knowledge on this step.
See pages 53–56 of Disciplined Entrepreneurship for examples of how different companies and teams have addressed this step.
Building the End User Profile brings the focus to the actual person who uses your product, so that real value is created by your product.
PROCESS GUIDE
Once you have identified your Beachhead Market, you need to dive in and do a detailed analysis of the market to see if it is in fact viable, see if you have scoped it out and defined it properly, and start to develop a game plan to effectively “attack” this market.
As I describe more fully in Disciplined Entrepreneurship, the customer is not a monolithic being, but consists of a number of people playing different roles, particularly when selling to a business. Even if a person both uses the product (“end user”) and makes the decision to purchase the product (“primary economic buyer”), there may be a range of other individuals involved in the decision, and you’ll fully explore that in Step 12, Determine the Customer’s Decision-Making Unit.
You will start analyzing the customer for this market by developing the End User Profile. Why start with the end user and not the person who will pay? Because if the end user does not use your product, the customer realizes no value in buying your product and nobody will pay you for it. If by chance someone does pay you once, they won’t buy again. In either case, you will not have an economically sustainable business.
This workbook focuses on one-sided markets, where only one kind of end user is required for the product to work, so that you have a good grounding in the fundamental principles of building an End User Profile. Multisided markets, such as marketplace platforms like eBay that attract both buyers and sellers, use the same techniques described herein, but they require developing an End User Profile for each side of the market.
The fundamental concept of the End User Profile is that it must be a person and not an organization or department. In the end, it is a human being, or set of human beings, who will use your product or oversee the use of your product, so you need to deeply understand this person, or as I say in class, you must “walk a few miles in their shoes.”
There are six items that are the most common when building a useful End User Profile. You may want to expand or contract this list depending on the complexity and economics of your situation.
Demographics: Demographics are quantifiable data that can be used to identify your target end user and also filter out those who are not your end user. These are things like gender, age, income, geographic location, level of education, sch
ool attended, and other relatively easily measurable factors. The good news is that these are pretty easy to figure out, but the bad news is that they might not always be useful in understanding your end user. Knowing your end users are women in their 20s, even if you narrow the group down to a certain income group and geographic location, does not gain you much information if there exist wildly divergent attitudes, values, or fears in that group. As a result, the demographics are becoming less important than the psychographics. Definitely analyze the demographics, but then decide how much emphasis to put on them as you move forward. Use the worksheet below and sources online to customize which demographics you collect for your situation.
Psychographics: Merriam-Webster Dictionary defines psychographics as “market research or statistics classifying population groups according to psychological variables (as attitudes, values, or fears).” The simple working definition I give in class is that psychographics refers to the qualitative description of your target end users. What are their aspirations? Who are their heroes? Understand how they behave based on what they believe, rather than the general identifiable characteristics that demographics give you. Psychographics are immensely valuable but are much harder to get or analyze. Lots of government or industry database services, or even Facebook, can break down information by age, geography, industry or job classification, or income, but far fewer can be searched by “number one fear.”
