The conversation goes something like this:
“If we just add that feature and tweak that flow there we’ll be able to sell this thing to that group over there as well. We’d be crazy not to give it a go. Let’s do it…”
No, let’s not. Seriously, no. At least not yet.
The decision to take focus away from the bullseye customer you originally identified when you set out on your journey – even by 5% – can be extremely costly for SaaS businesses.
Here’s why:
- The more generic your product becomes (and that’s essentially what we’re talking about here), the more generic your SaaS marketing becomes. Because you’re trying to talk to a wider audience, and pretty soon you’re talking at such a high level, nothing you say cuts through and the wheels quickly come off the acquisition bus.
- By becoming more generic you open the door for someone to come in underneath you and eat your lunch by being very specific. We live in a world of hyper-specialisation where the (tech) barriers to entry are getting lower and lower – so winning in your particular niche before expanding out of it is crucial.
- In practice, it’s never ‘just a tweak here and a tweak there’ – there’s always more. Before you know it, you’re half pregnant in two markets, your product and marketing teams are paralysed because they’re trying to meet the needs of two segments with the capacity to do one well and you’re starting to hurt.
Focus matters…
In today’s ‘long tail’ world, focus matters more than ever. If you did the research right before you started cutting code and your TAM (Total Addressable Market) is big enough to make your business work, then you have no need to dial down your focus.
The tighter your focus, the more precise, engaging and relevant you can be. As humans, we naturally want to buy from people that understand us deeply and the harder we have to work to see ourselves in their marketing, the less inclined we are to engage with them. Being specific is a good thing and it will win you customers if you take the time to really understand them.
The TAM rule of thumb
The TAM question is always an interesting one, and there’s an easy rule of thumb you can apply to make it easy to work out if you can make a business out of a given niche. It’s the rule of thirds.
In any given market with a super-well targeted and fully formed proposition, you can expect to win 33% of customers in five years (if you’re lucky). There’s 33% of the market that, for whatever reason, you will never win (you’re too expensive, under-featured, they don’t like you) and there’s a third of the market that you MIGHT win if you work really hard and you have luck on your side. So, the reality is that you should never assume you can win any more than 50% of any market and it’s much safer to build your model on between 25 and 33% market share over five years.
If 33% of the market isn’t big enough to make your numbers work then (and only then), there might be a case for dialing back your focus to get to a TAM worth chasing.
It won’t happen overnight
Of course, no one gets 50% of any market overnight; it can take years to build traction (think how long it took Xero to dominate) and during that time there will be new competitors and changes to the landscape that change your maths, so you need to be ready to adapt and change as the landscape changes around you.
So, if you haven’t got focus and it’s all looking a bit fuzzy out there, then you might need to get some – fast. If you are unsure how to get that focus and avoid the fuzz, consult with the experts.
