By Robert Jurkowski
Many companies compete in their target markets but do not have a strategy or plan to win those target markets. Here I will present the importance of winning your target markets.
A number of years ago I met the CEO of a cloud provider of financial solutions provider for the property management market and his company had been focused on selling to and serving clients in that niche market for 12 years. I asked him what he wanted to accomplish and he said that he would like to double revenue every year going forward. I also asked him how many potential companies were in the property management market and he said that he thought there were about 10,000 companies. While his company had been successful selling into that niche market, we discussed a strategy to win the entire market. We determined the exact number of companies in his target market and all of the decision makers that he wanted to reach. Then we surveyed them to determine their needs and preferences. We executed a campaign to reach 100% of his market and he became the “gorilla” in that market with the resources to expand into many adjacent markets.
Even if you offer a horizontal solution that can be utilized across many markets or industries, it still makes sense to win one market after another and continue to expand. A recent study by the Marketing Science Institute’s “Profit Impact of Market Strategies” found that businesses with market share above 40% earn an average ROI three times of those with market shares under 10%.
Winning a target market means holding a commanding lead over all other comparable solutions and competitors. For some markets this may be 20% of the total addressable market; for other market, such as niche markets you may be able to achieve a 50% market penetration.
Here are 5 Reasons why you want to win your target market(s):
Your Company Increases in Value
In a crowded market with many companies and their competitors appear the same and deploy a transactional model where solutions can become commoditized coupled with declining pricing power. When you begin to win significant market share in a specific market, you move from a transactional to an ownership model.
When you win a target market investors and potential acquirers find your company attractive because you can articulate a ROI business case beyond a top line growth story. Investors will allocate a premium value to your company over competitors; potential acquirers often realize that it is easier and less expensive to acquire market share than build market share organically.
It Becomes Easier to Sell and Deliver in those Target Markets
For many companies, their biggest competitor is “do nothing” rather than an actual competitor. The biggest obstacle stopping the buyer from investing in a new solution is perceived risk. When you win your target market, your buyer’s perceived risk is greatly diminished and they are ready to sign on.
In addition, the #1 reference group for every executive is their peers. At RightWorks, a provider of spend management and e-commerce solutions one of our first customers was Wells Fargo Bank. We worked with a visionary champion who saw the opportunity to not only manage the MRO spend within the bank but also offer a buying exchange and pass along their volume discount to their customers. Once this model was proven, many banks and financial institutions came aboard because the ROI and benefits of our model was proven by a leader in their industry. When an executive gains confidence that your solution or service works for their peers, this eliminates the barrier to adoption.
You Create a Better Fit for your Solution and Services
I met with a software company in New England that offered an e-commerce solution and their CEO lamented that they twisted and turned their company to close inbound marketing prospects because they would always customize their solution to fit the needs of each new customer.
I suggested that we determine where their solution was the best fit, where they already had profitable, “lighthouse” accounts and focus on winning these key markets. This outbound and focused strategy enabled them to win many similar, profitable opportunities and not force their internal development to change their development priorities every quarter.
The additional benefit that you receive when you sell and implement many customers with similar requirements is that your solution and associated use cases become validated and it becomes easier for you to create a validation or ROI model for prospects in each unique market.
You Gain Competitive Immunity
The fourth benefit that you receive when you “win” a target market is that competitors give up and go elsewhere where they believe that they have a better chance of winning new business. For prospective buyers, this moves the conversation from “why would I buy your solution” to “why would want to buy another other solution”
In the software and cloud solutions industry, we have seen this work for many market leaders like Salesforce, SAP, IBM, Google, Facebook and many other companies. Market leaders also create pricing power because the lack of competition reduces the need for price reductions to win business and the market is willing to pay a higher premium for higher value.
You Create the “Whole” Solution
Finally, when you “win” a target market, you have the opportunity to create the “whole” solution. When we worked with the financial solutions provider for the property management market that we referenced earlier, they understood that they were helping their clients efficiently manage all of their invoices and payments electronically. Soon, they realized that they could offer business intelligence and analytical services to help their customers manage their utility expenses, telecom expenses and many other recurring expenses that could be better managed and procured. For their customers the “whole solution” was managing all of their transactions efficiently and analyze key information and commodities to generate additional cost savings and efficiencies.
According to Inc Magazine, acquiring new customers cost 5 to 10 times more than selling to a current customer — and current customers spend 67% more on average than those who are new to your business. As you expand your solution or services “footprint” in your key markets you increase your Annual Contract Value (ACV), Monthly Recurring Revenue (MRR) and Lifetime Value of a Customer (LTV).
In the next article I will present “The 5 Steps to Win Your Target Market”. Now that you know the benefits to win your target market(s), you will be able to activate your plan to make this a reality.
About the Author
Robert Jurkowski is the Founder and Managing Partner for a Global Revenue Acceleration Agency, On Demand Advisors (www.ondemandadvisors.com).
He is a Revenue Growth Expert and works closely with Business Leaders to help them grow revenue dramatically and win their target markets. As an operating C-level Executive he has led some of the most successful software and cloud companies in Silicon Valley. As CEO, COO, and Chief Revenue Officer for both public and private companies Robert understands how to drive market share, profitability and triple digit revenue growth.