Why A Focus On Total Addressable Market Is Forcing Your Business Into A Vicious Circle

Most businesses won’t admit it, but nearly all are guilty of taking money from whoever is willing to give it to them. They forgo the prospect’s needs and focus on their own – they need to hit the company revenue targets for the next quarter, or the individual reps are focused on hitting their own quota. They almost certainly haven’t thought about becoming a buyer-focused business.

They’re not considering what might happen later down the line when the customer realises that the product isn’t for them – it can be pretty damning for your brand.

When businesses do this, they’re creating a vicious circle that takes them further away from achieving their growth targets. As targets increase quarter by quarter, the quarter gets harder than the last. And your finance team is continually re-forecasting because you’ve missed the target for two consecutive quarters, and the growth ramp was meant to really kick in during the third and fourth quarters.

Are you buyer-focused?

I’ve seen this far too often in the tech industry. It’s particularly true for small or medium-sized businesses with lofty growth targets typically driven by outside investment.

What this comes back to is that when we think about entering a market, we look at the market opportunity – or total addressable market (TAM). When it comes to understanding the potential market opportunity, this is a great measure. But what it doesn’t do is consider the different types of buyers or market segments that exist within the total market.

It also doesn’t factor in the technology adoption lifecycle model originally developed by Geoffrey Moore in Crossing The Chasm. In this model, he explains that the total addressable market typically falls within two standard deviations of the median.

Crossing the chasm - the process of moving a product from early adopters to mass market adoption

What’s more important though is that each different segment of the adoption model represents a different psychographic buyer profile. Buyers in these different segments have fundamentally different needs, wants and desires that lead them to a purchasing decision. Without being buyer-focused, you struggle to attract the right prospects.

Who’s your ideal buyer?

After recently working with several businesses to develop their go-to-market strategy, I came to a harrowing conclusion. It’s all too common for businesses to focus their customer acquisition efforts on a set of specific job titles.

I typically ask, “who is your ideal buyer?”

And I far too regularly get a response like this: “We’re targeting CMOs.”

So I reiterate the question again… “But who are they?”

“They work in one of these ten industry sectors,” they reply.

The message isn’t getting through and I’m slightly dumbfounded.

They’re thinking about buyer demographics rather than buyer psychographics.

While this helps to provide some focus to the market, and helps to give investors a larger TAM, it is old-school thinking. It is also very likely to be the number one influence on why the company continually misses its revenue targets: they are not buyer-focused.

Demographics vs psychographics in action

I recently straw-polled a room of entrepreneurs. First, I asked how many of them had visited a McDonald’s restaurant within the last 6 months. About half of the audience’s hands reluctantly went up. I then followed up to ask how many of them had been to a fine dining restaurant within the same period. Many of those who raised their hand to my first question also raised their hand to my second.

The audience of entrepreneurs ranged from recent graduates to seasoned professionals with 30+ years of experience under their belts. This helps to explain the difference between demographics and psychographics.

If I’d just been thinking about demographics, there’s no way I would directly target seasoned professionals at McDonald’s. It just wouldn’t work, because most seasoned professionals wouldn’t want to admit to visiting a McDonald’s restaurant. If they did, it’d be a reluctant admission like what I just described.

This helps to explain the difference between demographics and psychographics – and why the latter is even more important today than ever.

As an explanation of this phenomenon, in the same talk, I asked how many of the audience sent an emoji to a friend or family member recently. You guessed it, the whole audience responded yes. What was more interesting was when I got specific and asked how many had sent a poop emoji to a friend or family member. More seasoned professionals raised their hands than newly-grads.


The five psychographic profiles

Before I get too far off topic, let’s get back to talking about TAMs.

In the B2B tech and SaaS industries, any given market is split into five distinct psychographic profiles: innovators, early adopters, the early majority, the late majority and the laggards. If you’re selling your product to multiple industry verticals, you can multiply that by the number of verticals you’re targeting.

While it’s essential to have defined your business’s total addressable market. It helps you to set long-term growth targets and attract investors if required, but it is too-wide a net to cast when you’re in the early stages of growth.

You need to create smaller addressable markets, or market segments within your lofty TAM to help you focus on shorter-term goals. It helps you focus on making the best product, the most compelling value proposition and the most memorable experience for one very distinct group of buyers.

Blazing the innovator’s trail

So, going back to the question of “who is your ideal buyer?”, it’s nigh on impossible to create a value proposition that will mean something to every CMO.

There will be trailblazing CMOs who see the opportunity your product might create and they innovate their way to success. But for every innovator, there will be 9 CMOs who ask for referenceable and robust use cases. And 30 CMOs who ask for case studies explaining how those use cases were successful. And another 60 CMOs who want to see a long list of well-known brands already adopting your technology.

So how do you solve this problem?

You must understand where you’re at as a business – or where your product is on the maturity scale. Do you have well-defined use cases? Is there an industry vertical that you’re seeing much more success in than others? Have you got a set of robust case studies that describe every major use case for your technology?

Once you understand this you can then consider which segment of buyers you provide the most value to today. And then focus on attracting every single one of them.

Focus is key here.

Understanding and delighting your ideal customers with Jobs to be Done

You’re trying to build a minimum viable segment before you cross into adjacent industry verticals because, to cross verticals, you need momentum. Focus on building an ideal buyer profile and job map that perfectly represents the needs, wants and desires of your target buyer. I like to use a combination of both the Job To Be Done and the Goals, Challenges, Fears and Frustrations frameworks to build these.

I also like to build a typical day in their life too – as that helps me target them in the right place, at the right time.

The job map needs to be detailed enough to enable you to step into the shoes of your philosophical buyer and see things from their perspective when they are trying to get the job done.

This allows you to focus all your efforts on tightening your messaging and materials to attract your ideal buyer. Being able to ask, “How would X react to this?” based on their psychographic and personality profile gives you incredible insight into how to craft your materials and messaging. It can also influence what features you should prioritise in your next major product update.

What next? Is it time to develop your ideal customer’s job map?

At this point you might have acquired just one percent of your TAM (possibly much less).

However, what you have is a group of customers who get what you do and see the value. They’ll also help you to craft the right experiences to help you attract more of the right customers.

You’re now well on the way to establishing market-product fit (i.e. the right market for a very specific product). You’re also building an army of lifetime fans who will go out of their way to help you reach your next segment of customers.

Then, and only once you’ve won them over, you can start to think about targeting an adjacent audience who are trying to do similar jobs. At that point, you’ll have a product more suited to wider market adoption. But, maybe you’ve not exhausted the first segment within your TAM at that point, so keep your focus if the results keep coming.



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