Excerpt from Transformative

New market entry requires organizations to commit to answering critical questions of who to target and how to make money. Targeting an attractive initial market segment is the first important step.
According to CB Insights research, the most prominent reason for failure among venture-backed companies, resulting in 42 percent of flops, is no market. While transformative organizations are dealing in existing markets, it’s critical that they find a group of initial customers motivated to use them over existing solutions. Failure to find the correct target market puts them directly head-to-head with existing competitors.

It is a widely accepted marketing principle for companies to initially target smaller markets to create a foothold for broader market opportunities. These smaller segments in newly emerging or existing markets serve as a beachhead, a protected space that gives the company time to focus resources and effort to dominate a niche and stake out a position. Companies then use that beachhead to move into adjacent market segments.

Companies traditionally find these beachheads by looking at geographic, demographic, or psychographic similarities to source a segment with a common need. Ideal beachheads create an initial protected space and enable the company to land and expand, quickly moving to a more considerable market opportunity. They must include a set of buyers with a similar buyer profile and a clear, compelling reason to purchase.
The prevailing perspective for identifying a beachhead position is to segment the market by customer.

This involves dividing the potential market into three buckets of customers based on whether they are served, underserved, or unserved by existing solutions. When entering a market, organizations determine whether to outperform incumbents to win existing customer segments or create a product to focus on underserved and unserved customer segments, creating a solution that appeals specifically to their needs.

​This logic of going after unserved and underserved customers is sound. The theory of disruptive innovation, in particular, hinges on targeting underserved and unserved customers. It advocates offering solutions that address their needs and then building on that solution to reach the broader market of already served customers, eventually taking on existing competition directly. This strategy requires companies following this path to initially ignore the primary market and then build on their initial solution until it finally meets the broader market’s needs.

So what is the best way to find those beachhead markets? One successful approach to finding the right beachhead is to take a consumption perspective, looking at customers’ varying consumption levels. This approach starts by asking who is currently consuming the product or service and why. That “why?”—the outcome they are seeking—is critical. Further insight comes from asking how, when, and where they consume it. At a foundational level, you can build a profile of who is or isn’t consuming based on the following categories:
​

• Current consumption. Those customers that currently using existing solutions, and the benefits they seek.
• Limited consumption. Customers who may be using only part of the functionality or in minimal conditions or circumstances, with lessor benefits.
  
• Nonconsumption. Those who are not consuming the solution at all in its current form.

Explore this and other topics in the upcoming book Transformative.