All early-stage entrepreneurs and startups must define their target customer. (This article outlines the key steps to do this. The creation of a “day-in-the-life summary” will also help you analyze the nature of the customer problem you are solving.)
Your target customer equals the person or company for whom your technology solves a specific problem. To define your target customer you must:
Determine who your target customer is.
Create a profile of your typical/expected target customer.
Given the importance of defining your target customer, it is crucial to set aside enough time to do a proper analysis of this first step.
Step2
Step 2. Estimate the number of target customers
Step 2. Estimate the number of target customersEstimate the total number of target customers in the market—companies who have a profile similar to that of your target customer.
If you’re a startup venture in Ontario or another Canadian province, you can use industry databases such as those offered by Statistics Canada, U.S. Bureau of Economic Analysis or Hoovers to help you quantify your market.
Case study: By studying publicly available sources, we have found out that in our target group there are 1,300 hospitals in Canada and the United States.
Step3
Step 3. Determine your penetration rate
Refine your market size by assuming a penetration rate for your category of product. The penetration rate is a function of the nature of your product. Assume a high penetration rate if your category of product is mission-critical or mandated through regulation; assume a low penetration rate for products with a specialized purpose.
Example: penetration rates of computers versus business intelligence systems:
Computers, word-processing and internet: It is almost impossible today to operate a business in the developed world without a computer that has word-processing capabilities and is connected to the internet. While the penetration of those three technologies has not quite reached 100%, it is close enough to use that assumption for business growth and planning.
Business intelligence systems: In theory, most companies would benefit from having a business intelligence system – a type of software that is used to manage and analyze data about finance, sales, and marketing activities, in addition to more specialized purposes.
In practice, however, few ventures have the combination of the scale, skills and business practices required to make business intelligence systems a worthwhile investment.This limits the penetration rate to very large organizations that make up maybe less than 1% of all businesses in the developed world. Nevertheless, while 1% may not sound like a lot, it still represents a much larger number of target customers than a new startup could effectively pursue.
Case study: We have studied the factors that drive improvement in patient safety across North America, and found that it depends on provincial and state regulations. Based on areas where patient-safety regulations are strict, we can assume a penetration rate of 70% for our technology.
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Step-by-step explanation:
Step 1. Define your target customer
All early-stage entrepreneurs and startups must define their target customer. (This article outlines the key steps to do this. The creation of a “day-in-the-life summary” will also help you analyze the nature of the customer problem you are solving.)
Your target customer equals the person or company for whom your technology solves a specific problem. To define your target customer you must:
Determine who your target customer is.
Create a profile of your typical/expected target customer.
Given the importance of defining your target customer, it is crucial to set aside enough time to do a proper analysis of this first step.
Step 2
Step 2. Estimate the number of target customers
Step 2. Estimate the number of target customersEstimate the total number of target customers in the market—companies who have a profile similar to that of your target customer.
If you’re a startup venture in Ontario or another Canadian province, you can use industry databases such as those offered by Statistics Canada, U.S. Bureau of Economic Analysis or Hoovers to help you quantify your market.
Case study: By studying publicly available sources, we have found out that in our target group there are 1,300 hospitals in Canada and the United States.
Step3
Step 3. Determine your penetration rate
Refine your market size by assuming a penetration rate for your category of product. The penetration rate is a function of the nature of your product. Assume a high penetration rate if your category of product is mission-critical or mandated through regulation; assume a low penetration rate for products with a specialized purpose.
Example: penetration rates of computers versus business intelligence systems:
Computers, word-processing and internet: It is almost impossible today to operate a business in the developed world without a computer that has word-processing capabilities and is connected to the internet. While the penetration of those three technologies has not quite reached 100%, it is close enough to use that assumption for business growth and planning.
Business intelligence systems: In theory, most companies would benefit from having a business intelligence system – a type of software that is used to manage and analyze data about finance, sales, and marketing activities, in addition to more specialized purposes.
In practice, however, few ventures have the combination of the scale, skills and business practices required to make business intelligence systems a worthwhile investment.This limits the penetration rate to very large organizations that make up maybe less than 1% of all businesses in the developed world. Nevertheless, while 1% may not sound like a lot, it still represents a much larger number of target customers than a new startup could effectively pursue.
Case study: We have studied the factors that drive improvement in patient safety across North America, and found that it depends on provincial and state regulations. Based on areas where patient-safety regulations are strict, we can assume a penetration rate of 70% for our technology.