Factor 1: Market Focus
Of all Five Factors, market focus probably drives high growth more than any other.
Geoffrey Moore defines a B2B market segment as the intersection of industry, role in that industry, and geography— for example, hospital administrators in the US. Evidence suggests that the tighter the definition of a market segment, the greater the performance of a Seller in that segment.
Therefore, if all other factors are equal, a company that sells to “Hospital Administrators in the US” will see higher growth rate and profitability than one that sells to “Health Care Professionals in the US”. To expand upon this example, a company that sells to “Hospital Administrators In California” will see the fastest growth.
What usually happens, however, is that Sellers keep widening their definition of the market they serve thinking that they will get more business by doing so. The reality is often the opposite. To demonstrate this principle, we will need to analyze these three different markets.
Let’s assume that XYZ Corp is a $100 million provider of software products for the healthcare industry.
The question is where it would realize faster growth and profitability: Hospital Administrators in CA, Hospital Administrators in the US, or Health Care Professionals in US.
|Segment||A. Hospital Administrators in California||B. Hospital Administrators in US||C. Health Care Professionals in US|
|Key competitors||4-6||70-120||200 - 300|
|Message||Managing value-based reimbursement||Managing value-based reimbursement||Regulations in healthcare|
The prospect of selling to 128,000 Health Care Professionals in North America instead of only 400 Hospital Administrators may seem more appealing. However, what really matters is the perspective of the buyer. Does XYZ offer the best value?
Imagine how XYZ Corp will have to demonstrate such evidence of value to 128,000 Health Care Professionals in the US.
First, it has to reach them in some way. You can imagine what it takes to reach such a widely diverse audience. Does it attend 211 conferences? Does it run TV or Print Ads? Does it try to buy email lists? What would be the subject line? What would its compelling message be for a wide assortment of professionals including Doctors and Nurses, Therapists, and Hospital Administrators? How would it organize its sales force— by geography or by profession?
Whichever road it takes, XYZ Corp’s choices remain the same—either go shallow and wide, or spend an enormous amount of money to build the necessary expertise in each of these professions.
When faced with that choice, most companies seem to choose the wide and shallow route, rather than choosing market focus. Unfortunately, companies that go shallow and wide are always beaten by those that go narrow and deep—hence the cost of sales and marketing rising faster than revenues.
In reality, there is a third choice—one that is actually better than either of the above. That choice is to go narrow and deep in only one segment at a time.
For example, if XYZ Corp decides to go narrow and deep with a focus on Hospital Administrators in California, it will face a totally different scenario. It can now direct its product, messaging, and services to just that market. It only has to compete with 4 to 6 other providers, and if it chooses to attend conferences, it only needs to attend the top 3. Both are doable tasks.
Finally, its sales reps only have to work with Hospital Administrators in CA, so it is perfectly feasible to have sales reps who are experts on the issues that their customers face.
In which segment would you say that XYZ Corp has a better chance of closing more deals faster and at better prices: segment A, B, or C?
It is worth repeating that Focus is the most important of all the Factors Driving Revenue Growth.
Read about the second factor driving revenue growth here.