Living Entrepreneurship Blog / Babson Entrepreneurs

Additional thoughts for startups to select market segmentation



PhotoOil Arts is a Babson-based startup that creates handmade oil paintings from photographs. Lei Wang, as founder of PhotoOil, and Nick Dimatteo, as Sales Manager, finalized the best market segmentation several weeks ago after 11 months of experiments. It took us too long to finalize the specific segmentation we have to target. Why? That is the first question that came to my mind.

Some key factors were ignored while scoring segment rather than while defining segmentation. As you know, market segmentation is a well-known concept. It is a marketing strategy that involves dividing a broad target market into subsets of consumers who have common needs. PhotoOil’s products are oil paintings. Customers purchase these products for very important events, such as weddings, birthdays, anniversaries, moving to new a house, and so on. Then we use the psychographic segmentation method to divide customers. Wedding portraits and family portraits are the top two market segments after calculating the potential market size and company profit.

However, the traditional way to select segment is useful for big companies, but not perfect for startups. The potential market size and company profit only measures the quantity of segment, but does not score the quality of segment. The qualified segment is more important for a startup, because a startup is going to collapse if it can’t improve its concept with limited time, money, and human resources. Of course, startups with sufficient outside funding can tolerate a long-term concept exploring process. However, believe it or not, not all startups will get investments before they run out of cash. To survive, a startup should create income as soon as possible. This is the key metrics to select segmentation. Some detailed metrics are shared as follows:

  •   Accessibility of target segment

Big companies have enough resources to spend on promoting their products in any segment, but startups can’t do so. A startup needs to choose a segment to approve its concept and business model in the segment with highest accessibility. Please do not think about the whole US market at the beginning. Instead, think about how to develop your business well in your city, even with your neighbors.

  •   Time of sales circle

Some clients need to be educated before they become interested in your product, but some other clients have the demand right now. Although the number of clients with demand is much less than that of clients who need to be educated, the former segment is much better. Keep in mind: your company might run out of cash in the middle of establishing customer awareness.

  •   Difficulties in working with collaborators

Big players require higher standards than small players do. Try the small players first. It took less time and effort to contact them, sign a contract with them, and meet their requirements. Over time, reputation and experiences will be accumulated and support startups to talk with big players equally.

  •   Intensiveness of competition

Select segmentation with the least competition—be the only one of what you do. You will have more chances to make mistakes and a longer time to do preparation. Even parties that work with you will give you more leeway. In addition, if your product sells quickly, it may be because customers with this demand have no other choices.

All in all, one bird in hand is better for startups than ten birds in the forest are. This old saying summarizes the metrics about how startups should select segmentation. Certainly, this topic is still open for discussion.

PhotoOil Arts, LlC,

Lei Wang