III.Finding your target group
All ventures, whether a new startup or an initiative for a new product inside a bigger company, should focus from day one on finding their target customers. This is key to avoid building something that nobody needs. Once you have identified a problem, you should focus on defining the potential target customers as precisely as possible.
Avoid targeting everyone
One common mistake that entrepreneurs make is to target their solution at everyone in the belief that the target group should be as big as possible. For example, you might hear something like this: “My target group is the entire population of Europe – because if I get even just 1% of that, my startup will be huge!”
Unfortunately this kind of thinking is problematic. Startups have very limited resources and the product in question needs to create significant value for their users – people don’t change their habits (and spend their money) for marginal improvements. Also, it’s usually easier for people to keep using whatever solution they have now compared with trying something new from a startup that nobody has ever heard of.
To create clear and great value for many different kinds of people is very hard (nearly impossible in fact), since different people have different needs. A solution that’s actually attractive for everyone would be very complex and difficult to communicate.
Because of the reasons listed above, it’s much smarter for a startup to first solve a problem for a more niche target group. You can still have a vision about solving the problem for a bigger audience in the future, but in the early years starting smaller is usually better.
For example, Facebook started as a social web application for students in a few universities. After reaching high market penetration in this smaller market, Facebook then moved on to new markets. Even today, the target group for Facebook is not “all the people in the world” (even if it might feel like it). Facebook's target group is people with internet access (which already excludes several billion people) and also a certain age group that leaves out the youngest and oldest.
Defining your target group
Now it’s time to define your initial target group. You can start by thinking about what kind of people suffer the biggest negative impact from your problem. This should be the target group for your first user interviews – and also one of the things you want to validate with the interviews. However, it’s also good to interview other kinds of people so that you have something to compare with. After you’ve done the first batch of interviews you should try to identify which groups of people seem to be most affected by and interested in the problem.
For example, let’s say that you’ve done 20 user interviews and find out that 10 of those people really seem to identify with the problem. Now your task is to understand what those 10 people have in common. It’s also great to understand what the 10 people who don’t identify with the problem have in common so you can think of ways to get them more interested. One possible end result of this process may be to leave the 10 “non-interested” people out of your core target group completely – but this should be only after careful consideration and tens of interviews.
Based on the results, you can also come up with new groups of people who might identify with the problem and interview them as well. One approach worth checking out is to create ideal customer profiles (a short description of who your dream customers are). By creating an ideal customer profile, it can be easier to keep in mind who you should focus on.
How significant is the problem?
Once the target group starts to take shape, it’s worth considering how significant the problem is – in other words, how big is this target group and your eventual market? In most cases, it’s easiest to start with your home market (the country or area where you live). So, for example, if the initial user interviews show that 10 out of 20 potential users identify with the problem, you can estimate the total number of potential users in your home market as follows:
0.5 x all the potential users = the initial market
A more accurate way to estimate the market is to find what these 10 people have in common and research how many of these kinds of people live in your home market. It’s also essential to consider if your interview sample accurately represents the whole market.
When the home market seems clear, you can start to think about other countries. If possible, it can be beneficial to also interview potential users from other countries just to understand what factors make the situation different. How critical it is to start talking to users in other countries depends on how big the home market is. A startup from Finland (5.5 million people) should almost immediately consider if this problem exists in other countries. A startup from the US, China or some other large country can stay in their home market for quite a long time.
Another factor to consider when estimating the significance of the problem is the future. Will there be more users with this problem in the future or will the problem probably fade away? Even if the problem is not big now, if it’s clear that this will be a more common problem in five years, you’re very likely to be on the right track.
Defining the purpose
Why does your business exist? No investor will invest in your company unless you have a good reason to do the things you’re doing. No potential employee will join a three-person startup if you don’t have a purpose that resonates with them. And no potential customer will be one of the first customers for a startup if they don’t believe in the purpose. "Making money" is not an interesting enough reason for a company to exist.
Defining a startup’s purpose is something you should do in the very early days. Prioritizing and focusing on what matters is essential for startups given that they often have limited resources. When a startup can define its purpose precisely, it also helps in focusing on what matters.
There are many approaches to defining a startup’s purpose. However, the simplest way to describe the purpose of a startup can happen before building anything, before finding co-founders or before actually founding the company. By answering the question: “what problem am I solving”, you’ve just created your first version of the purpose.
Never fall in love with your product
“Don’t fall in love with your product – fall in love with the problem you are solving” is probably one of the most used phrases in the startup world. That’s because it’s true.
In the next chapter we will start covering how a startup can create a solution to the problem. The solution might change as the startup learns from its users and other stakeholders – and that’s totally fine. The mistake many first-time startup entrepreneurs make is that they fall in love with their first solution idea and don’t consider user feedback to make the solution better. Whatever you do, don’t make that mistake. Test.
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