The central thing we're going to be working with this week is customer segments and value propositions. A customer segment is a group of customers who share a common characteristics. And a value proposition is something you're going to do for them. It's going to make them feel better or stop feeling so bad. We're going to go into some detail about what different kinds of customer segments are, how they work, what the ins and outs of the them are and so forth. But I think we ought to start with a question, why have customer segments at all? It might sound like a stupid question, except that every entrepreneur has this question when they start out. The basic thing that's on the entrepreneur's mind is really I have something that is for everyone. Why wouldn't everyone want this? Why is narrowing it down do me any good is the question. If I have something for everyone and I only sell it to 10% of everyone, why am I not just settling for 10% of a market when I could be getting 100% of a market? The reason is that things don't work that way. [LAUGH] The first point is that everyone doesn't want the same thing. Once you start looking into it, what you consider to be something that everyone would want, they don't all want or they don't all want the same aspect of it. They also don't want it in the same way. Everyone doesn't want to get the same thing in the same way. And that's very important because when you approach them with buying this thing, or this service, you're going to to reach them in a certain way, and you're going to have to reach them in the way they want to be reached. You're not teach them a new way to reach them. If there is something that everyone would want but some people want to buy it and other people want to rent it, those are different customers segments and they're going to approach the product in different ways. A costumer segment really reflects a unique business model and that's the reason to divide costumers into costumer segments. Every costumer segment is its own business model and limiting the customers to one segment at a time allows you to focus on how to sell to those people. Paradoxically, the more you focus, the more sales you get, not the less. Because you could be utterly inept at selling something to everybody but have a reasonably good chance of selling something to 10% of everybody who you understand well enough to know how they buy, when they buy, what they buy, and how your product or service is going to offer a value proposition to them. So that's the main argument for going into customer segments. People say that's fine for other people, but I'm selling the secret of eternal life. Everyone wants the secret of eternal life. Why wouldn't you want that? Even in this case, even with eternal life, and even if you really had it, the human race would be divided into segments. There'd be different geographies. There'd be different incomes and classes. There'd be different regions. There'd be different religious beliefs. Some people would approach the offer as I only want it if it's authorized by the God that I worship. Some people are going to want it but they can't afford it. How are you going to finance that? Other people, etc, you get the idea. There's different business models for reaching different customer segments. Even if there were something that everyone in the world actually wanted, they'll buy it differently. If you have a bunch of segments, a lot of people don't want to leave segments on the table, and so they ask which segment comes first? First of all, the segments that you leave by, that you don't do anything about right now, you can always come back to them. Don't worry about the 90% of the market that you're missing, you'll take care of them in a few years, once you've taken care of the 10% that you're taking care of now. But how do you pick that 10%? One way is the lowest hanging fruit. A lot of software people sell software tools to developers. It's because they are developers, themselves, they understand how developers think, they understand how to sell to developers. It's low hanging fruit. It's a very easy market to get into. Lowest-hanging fruit is not a bad rule of thumb to use for getting into a segment. Another rule of thumb is biggest market. If there was something that affected tens of millions of people and there was something that affected a couple hundred people, you'd probably go for the thing that had the tens of millions of people. Everything else being equal, why not, you'd be a fool not to. Third one, might be the easiest to sell to. If you have a choice between people who you have to reach through an elaborate and expensive channel, and people whom you can reach directly with tweets on the Web, why wouldn't you just reach the people with the tweets? Finally, as I said before, most familiar to you. A form of lowest-hanging fruit could be that you know them really well. You understand this market, you know it inwards and out. Although you gotta watch out for confirmation bias there, because you might think you know this market, and you don't actually. The problem is that these four criteria are mutually exclusive often, and contradictory, so the lowest-hanging fruit is not going to be the biggest market. The easiest to sell to is not going to be the most familiar to you, etc. You've got to do a balancing act and you have to pick a segment, or at least a small group of segments, and go after them. Customers come in customer segments because each customer segment has its own business model. And unless you have a complete business model, you're not going to be able to sell what you want to sell to the people that you want to sell it to. There's no such thing as a product for everyone, and even if there were, they wouldn't buy it the same way, so it would still be different business models even if there were one universal product that the whole world wanted. You have to pick what segment you're going to go after first and probably based on size and lowest-hanging fruit. Some combination of those is going to be your watch word. Let's get more into it later.
