Business Model Canvas: Customer Segments

StartupSOS

28 May 201906:41

Summary

TLDRIn this video, Steve Morris introduces the concept of Customer Segments as part of the Business Model Canvas. He explains the importance of organizing customers into different groups based on their needs and how startups should focus on one key segment at a time to maximize efficiency. Steve also highlights the complexity of multi-sided markets, like social media platforms or grocery chains, where different customer groups need to be addressed. The video emphasizes selecting a primary segment and creating targeted value propositions for each side of the market. Practical advice is offered for startups to focus their resources effectively.

Takeaways

🔍 Customer segments help organize customers into different groups based on their unique needs or how they should be reached.
🍦 A simple example like the milkshake market shows how different segments have different needs and marketing strategies.
💡 Startups should focus on one customer segment initially due to limited resources, to ensure clarity in messaging and product features.
🎯 It's crucial to choose and focus on one segment first, as trying to address all segments early on is overwhelming and impractical for startups.
🚀 Over time, a startup can expand and address additional segments, which is appealing to investors when done progressively.
🧩 A multi-sided market means the business serves different types of customers, like Facebook users and advertisers, requiring distinct value propositions for each side.
🏪 Complex markets, such as grocery chains, may have multiple sides and value stages, each needing careful attention to provide value at every step.
📝 It's recommended to create separate business model canvases for each side of a multi-sided market, as each has unique requirements and propositions.
⚖️ When selecting a customer segment, prioritize based on factors like ease of access, product simplicity, or a compelling customer need.
✅ Deciding on one segment to focus on is better than indecision, and understanding whether your market is multi-sided is essential to cater effectively.

Q & A

What are customer segments in the context of the Business Model Canvas?
-Customer segments are groupings of customers based on their distinct needs or the different channels required to reach them for marketing or sales purposes.
Why is it important for startups to focus on a single customer segment initially?
-Startups usually have limited resources, so focusing on a single customer segment allows them to tailor their product features, marketing messages, and sales channels to that segment, increasing the chances of success.
What is the milkshake example mentioned in the video?
-The milkshake example demonstrates how different customer segments in the same market can have different needs, leading to different product features and marketing strategies. A link to the video explaining this example is provided in the transcript.
What are multi-sided markets, and how do they affect customer segmentation?
-A multi-sided market involves two or more fundamentally different types of customers. For example, social media platforms like Facebook cater to users who seek value from the platform and advertisers who provide the revenue.
Why is it necessary to create a business model canvas for each side of a multi-sided market?
-Each side of a multi-sided market has different needs and value propositions. Developing a separate canvas for each side ensures that the value provided to all types of customers is clearly understood and addressed.
What challenges do multi-sided markets present for startups?
-In multi-sided markets, startups need to manage and satisfy the needs of different customer types simultaneously. This can complicate product development, marketing, and distribution strategies.
How can a startup decide which customer segment to focus on first?
-A startup might choose a segment based on factors like ease of reaching the segment, the simplicity of the product required for that market, or the urgency of the customers’ needs, leading to faster sales.
What should a startup do after identifying its first customer segment?
-After choosing the first customer segment, the startup should evaluate whether the market is multi-sided and, if so, develop a business model canvas for each side.
Why is it not advisable for startups to target multiple customer segments at once?
-Targeting multiple segments at once can lead to confusion in the market and spread resources too thin, making it harder to deliver clear messaging and focus on the specific needs of any one segment.
What are some factors to consider when listing customer segments on the Business Model Canvas?
-When listing customer segments, consider how big the segments are, their specific needs, and how easy or difficult they are to reach. Prioritize which segment to focus on first, as this will influence the rest of the business model, particularly the value proposition.

Outlines

00:00

📊 Introduction to Customer Segments

In this segment, Steve Morris introduces the topic of Customer Segments, which is the focus of this video. He explains that customer segments refer to different groups of customers with varying needs or marketing channels. Morris emphasizes that understanding these segments is crucial for startups, as resources are limited, and targeting one segment at a time helps focus marketing efforts and product features effectively. He also refers to a previous video with a 'milkshake' example to illustrate how different customer segments have distinct needs.

05:01

🎯 Importance of Focusing on One Segment First

This paragraph delves into why startups should concentrate on one customer segment initially. Morris highlights that addressing multiple segments at once can confuse the market and spread resources too thin. By focusing on one segment, startups can refine their value proposition and sales efforts, and once successful, expand to additional segments. This approach aligns with what investors look for—clear, focused strategies rather than attempting to address a broad market from the outset.

🌐 Multi-Sided Markets Explained

Morris introduces the concept of a multi-sided market, where a business serves different types of customers with unique value propositions. Using Facebook as an example, he explains how platforms must balance providing value to both users (who don’t pay) and advertisers (who generate revenue). He extends the concept to other industries like grocery stores, illustrating how a complex market might have multiple sides that require attention. For multi-sided markets, he advises creating separate business model canvases for each customer type.

📋 Action Steps for Customer Segment Analysis

In this segment, Morris provides actionable steps for filling out the Customer Segments section of the Business Model Canvas. He suggests identifying and evaluating the different market segments based on factors like size, accessibility, and urgency of need. Choosing a segment to focus on is essential, and there is no 'wrong' answer, but it's better to choose than to delay. He also encourages considering whether the market is multi-sided and creating a business model for each distinct customer type if necessary.

👍 Conclusion and Next Steps

Morris wraps up the video by encouraging viewers to ask questions and leave comments for further clarification. He reminds them to subscribe, like, and share if they found the video helpful. This video is part of a series covering the Business Model Canvas, and he hints at future discussions in upcoming videos. He also includes a link to the playlist to continue the learning journey.

Mindmap

Keywords

💡Customer Segments

Customer segments refer to the different groupings of customers based on their unique needs or the ways they are reached through different marketing and sales channels. In the video, Steve explains that startups should focus on identifying and selecting a single customer segment to target initially, as focusing on too many segments at once can spread resources too thin.

💡Multi-Sided Market

A multi-sided market involves addressing two or more fundamentally different types of customers. In the video, an example of a multi-sided market is Facebook, which serves both users (who don’t pay) and advertisers (who pay). Each side requires a unique value proposition, making the market more complex for businesses to manage.

💡Value Proposition

The value proposition refers to the benefits and solutions a business offers to its customers. In a multi-sided market, each side requires a distinct value proposition. Steve emphasizes that understanding customer segments is crucial for tailoring the value proposition effectively to meet the specific needs of each segment.

💡Marketing Channels

Marketing channels are the pathways through which businesses communicate with their customer segments to create awareness and generate leads. Different segments may require different channels. Steve discusses how startups need to be strategic in choosing the right channel for each segment to maximize reach and impact.

💡Sales Channels

Sales channels refer to the routes through which businesses complete transactions and deliver products or services to customers. In the video, Steve notes that different customer segments may need distinct sales channels, and startups should focus on aligning the sales process with the targeted segment's needs.

💡Focused Strategy

A focused strategy is a business approach where a company targets a single customer segment with tailored offerings and messaging. Steve advocates for this strategy, especially for startups with limited resources, suggesting that focusing on one segment allows for more precise product development, marketing, and sales efforts.

💡Boiling the Ocean

‘Boiling the ocean’ is a metaphor used to describe trying to do too much at once. Steve warns against this for startups, advising them to avoid attempting to address all possible customer segments at the same time, as this approach dilutes focus and resources, making it difficult to succeed.

💡First Segment

The first segment is the initial customer group that a startup chooses to target. According to Steve, selecting this segment is critical because the rest of the business model, especially the value proposition, will depend on this choice. He advises startups to nail this first segment before expanding to others.

💡Business Model Canvas

The Business Model Canvas is a strategic tool that helps startups outline their business model, including customer segments, value propositions, channels, and more. Steve introduces this tool in the video and explains how it can be used to organize and plan for different customer segments and market strategies.

💡Distribution Channel

A distribution channel is the path through which a product passes from the manufacturer to the final customer. In the video, Steve mentions that when choosing a customer segment, startups may consider those that can be easily reached through existing distribution channels, making them more accessible and cost-effective to target.

Highlights

Customer segments are ways to organize customers into different groupings based on their needs or marketing channels.

Different customer segments may require different features and marketing messaging.

The milkshake example illustrates how different segments can have different needs.

For startups, focusing on one customer segment is crucial due to limited resources.

Focusing on a single segment allows for tailored features, messaging, and sales channels.

The strategy is to nail one segment before moving on to the next.

Investors prefer to hear that a startup is focused on one segment initially.

The first segment chosen will influence the rest of the business model canvas.

Customer segments can be more complex in a multi-sided market.

A multi-sided market addresses two or more fundamentally different kinds of customers.

Examples of multi-sided markets include social media platforms like Facebook.

Each side of a multi-sided market may require a different value proposition.

It's suggested to develop a business model canvas for each side of the market.

Action steps for filling out the canvas include identifying market segments and choosing one to focus on first.

There is no wrong answer in choosing a segment; the key is to make a choice.

Consider factors like ease of reach, product simplicity, and market need when choosing a segment.

If dealing with a multi-sided market, develop a canvas for each customer type.

The discussion concludes with a call to action for viewers to engage with the content.