B2B Market Strategy – Figuring Out Your ICP Without Needing a PhD

May 5, 2022

Over the past decade the startup/scaleup world has seen the emergence of a few key business concepts that quickly became three-letter acronyms, such as “PMF”, “MVP”, “PLG” and, more recently, “ICP”.

Whereas PMF (Product-Market Fit) and MVP (Minimum Viable Product) - concepts popularized by Eric Ries in “The Lean Startup” - have helped startup founders and their teams to prove out their value propositions in more funding-friendly ways than happened previously, and whereas PLG (Product-Led Growth) has become code for designing consumer-friendly products to virtually sell themselves at lowest possible cost (i.e., without needing a sales team), the task of defining or refining your ICP (Ideal Customer Profile) has recently become a recognized high priority for management teams in scaleups and even maturing tech companies.

Without a tightly defined ICP, companies struggle with their competitive positioning, often coming across to prospective customers as trying to be all things to all people but great for no one. It also causes some to chase every possible opportunity yet struggle to fulfill any the needs of any one set of customers. Most such companies end up either missing their growth objectives through poorly qualified sales pipelines and/or high customer churn or, in the case of unproven businesses, failing altogether.

Beware of Excessive Complexity

While it’s great to see marketers getting more thoughtful about market segmentation, I’ve noted a tendency for consultants and vendors to turn the search for your ICP activity into somewhat of a pseudo-science. While the amount of detail needed may be arguably valid and the presentation elegant, it’s important to remember that your ICP should ideally be fairly easy for sales and customer success teams to identify with, memorize and use.

For example, one recent template I’ve seen invites marketers to cover classifications such as Background/Demographics, Decision-Making Process, Product Alignment, Wants Goals & Desires, and Behaviors & Tendencies in excruciating detail, resulting in as many as fifty or even sixty bullet points of definition. While all details might add some value, it is not helpful when it becomes too voluminous for mere mortals to absorb and use.

With the multiplication of demand creation programs as well as methodologies such as Account-Based Marketing (ABM - yet another three-word acronym!), we often see marketing folk attempting to perform the prospecting and account planning activities that were traditionally performed by SDRs (sales development reps, known in some companies as BDRs or business development reps) in support of AEs (account execs).

In enterprise sales it’s generally the sales rep’s job to understand the motivations and decision process of each of each prospect or customer, and the business analyst’s and pre-sales engineer’s jobs to fit the solution to the prospect’s business problem. Ideally, the sales team needs to have these skillsets in their reach, to conduct effective prospecting and sales cycles, though many companies skimp on business-savvy consultants, preferring to ask AEs and/or SEs to proxy for them, or CSMs to try to provide cover with existing customers – generally not a very satisfactory approach, especially with demanding enterprise customers.

Why a Clearly Defined ICP is Critical – Building a Self-Referencing Growth Machine

Tech company founders and management teams have a strong tendency to blow hot and cold about the notion of fully committing to a coherent ICP. It may be because they feel that by focusing one set of target customers they will automatically be “forfeiting” opportunities in other parts of the market – though this is usually not the case. Or they worry about whether they have sufficient data in hand to be sure that they have identified the “right” target market.

The whole purpose of an ICP is to prioritize target markets that, if and when served effectively by your company, will increasingly self-reference, resulting in significantly expanded commitments from existing customers or from prospects in the target segment(s) who end up buying as a direct or indirect result of testimonials from satisfied customers.

In other words, over time – which may be as little as four quarters or as much as eight or ten quarters - a successfully cultivated set of ideal target customers becomes a self-referencing growth machine. In fast-growing markets for tech scaleups, it’s not uncommon to see growth of 100% year-on-year, sometimes twice or three times that. Even when the growth rate is below 100%, it can still often result in hyper-growth when sustained over, say, a five-year period. A crucial corollary when this game is played effectively, is low or even negligible churn, which in turn acts as a powerful aid to growth because sales teams don’t have to chase new deals just to maintain the company’s current ARR.

Thus, the reward for successfully targeting a “fertile” segment or set of related segments can be extraordinary. But the question remains: How can you be relatively certain that you’ve identified a sufficiently attractive ICP to make the considerable effort worthwhile to win more than your “fair” share of buying decisions?

This is where a smart methodology comes in, going deep enough into a relatively short list of criteria to have a good chance of striking gold.

Formulating your ICP

Keeping in mind that the ICP for a B2B go-to-market strategy must incorporate a clear definition of both the type of organization and the target job title/persona you aim to address, below is a model that I have used successfully for many years with management teams in many different scaleups.

First, here is a short list of the key criteria that I believe should be looked at. Following this, a brief description of what each one entails and how they relate to each other logically, as you assess the respective merits of, say, half a dozen potential target segments. I'll also cite a few examples of ICPs that have proved profitable for each company and its customers.

As a rule of thumb, markets that are undergoing some form of major transformation are suitable targets for ground-breaking tech products and services.

Target segment – Key Criteria

  • Business problem

  • Regulatory constraints

  • Growth dynamics

  • Geographical factors

  • Business volume or complexity

  • Industry verticals

Here’s my rationale for connecting these criteria to each other logically:

  • First, identify a mission-critical business problem that your company is uniquely equipped to help customers solve – examples might include a broken customer service process that is causing customer attrition to a degree that seriously jeopardizes revenues and/or profitability;

  • Second, find out about any government regulations or constraints that need to be complied with - failure to take such factors into account has torpedoed many a past strategy that seemed too good to miss. This criterion is very useful for slimming down your list of potential target segments;

  • Third, consider whether the types of company you are looking at are in high-growth mode vs. low-growth or even M&A consolidation mode – this factor can make a huge difference to your prospects’ motivation to make a buying decision now vs at some undefined later time. High-growth companies are typically in a “hurry” to adopt technology in order to keep growing and keep pace with their closest competitors, whereas lower-growth businesses adopt technology to reduce operating costs and increase margins;

  • Fourth, consider the relevance of geography and even political factors regarding different continents, regions, countries and even states within countries. Geography often relates somewhat to the earlier issue of the regulatory environment, which often differs between one country/region and others;

  • Fifth, business volume (or scale) or complexity might be a critical consideration that influences your prospects’ propensity to buy; in many industries the top 20-30 companies or government agencies experience problems differently than their mid-sized and smaller peers or competitors, so focusing on specific cohorts that have a lot in common is often the way to go. This is all part of building a self-referencing group of customer organizations;

  • Sixth and last, make sure to identify which industry verticals see the problem you’ve identified as something they must solve, not “sometime in the future” but with a high degree of urgency. Target customers give greater credence to the way their direct peers experience the same problem and which solution they are preferring. Furthermore, when a vendor shows that they understand the special nature of the specific industry segment – and “speak their language” - they tend to respond even more readily.

You can evaluate the six criteria described here in any order that makes sense, but I would argue that these factors provide a sound basis for you to define one half of your enterprise-level ICP - i.e., the type of organization you see as the most attractive target.

The second major part of your ICP definition deals with the executive-level and other job titles that have meaningful roles to play in the decision-making process in each target organization. This is often a non-trivial task, especially for scaleups that are marketing products that are still in the chasm-crossing stage of adoption.

Target sponsor(s)

  • Enterprise relationships usually involve at least half a dozen different stakeholders in three main areas: executive management (CxO, CFO), operational or departmental management (responsible for different groups of users), and IT (responsible for management, implementation and deployment).

  • Primary sponsor: It is crucial to identify which job title should be the primary sponsor. This is the individual from whom the sales team will need to obtain a “mandate” to solve the problem – generally a senior line-of-business executive, and the effective decision-maker, even if this is not someone who will be in evidence more than once or twice during the sales cycle. For most sales teams this figure remains invisible or inaccessible during the entire decision-making process, despite the critical role they play, largely because vendor teams are unable to get past their secondary or tertiary sponsors.

  • Secondary and tertiary sponsors: CDO (chief digital officer), managers of user departments, IT management (CIO, CSO). Quite often, middle managers “pose” as the decision-maker as part of their vendor management strategy but most often they have veto influence but not “say-so” power. When sales teams are unable to leverage their relationships with these sponsors to gain access to the actual decision-maker, the buying process runs the risk of slowing to a crawl, favoring a competitor, or ending in no-decision.

  • Adoption behavior: It’s also important to understand how different sponsors respond to technology. Visionaries, pragmatists, and conservatives have dramatically different mindsets and motivation regarding the circumstances in which they have a propensity (or reluctance) to adopt new or newish technologies. This consideration can make a decisive difference when it comes to actual buying decisions. As a general rule, visionary line-of-business executives buy early in order to gain strategic competitive advantage against their closest competitors, while more pragmatically-minded executives buy later in order to solve a broken mission-critical process. Sales teams that ignore these contrasting motivations run the risk of delayed buying decisions or lost opportunities.

The above elements represent my “minimalist” set of criteria to analyze in order to produce a suitable ICP.

Examples of ICPs that have proved to be successful hunting grounds for different scaleups include these:

  • Mobile banking software maker: Enabling CMOs in the top 40 retail banks in North America and the UK to meet the challenge of providing online banking services on-demand for account holders, in order to increase cust-sat and reduce attrition among most profitable clients.

  • Collaboration software developer: Helping supply chain executives in the top 30 homebuilders in the western U.S. to simplify management of bids from myriad contractors and sub-contractors in order to accelerate completion and launch of major multi-use developments.

  • E-commerce software vendor: Enabling store operations executives in the fastest-growing fashion apparel chains in U.S. and major European markets to reduce cart abandonment and thus increase sales on their e-commerce sites, thus streamlining the customer journey.

  • Online marketplace for freelance techs: Helping CROs and supply-chain execs in Tier 1 MSPs (managed services providers) to plug resourcing gaps on-demand for specialized field technicians in remote locations throughout the U.S. Fixing this problem in turn enabled each MSP to win more service assignments from their corporate customers.

To be clear, your ICP might acquire different "flavors" over time. You may decide to focus on different verticals in different countries, or even focus on a few different segments in parallel in the same geography. This all depends on your company’s ability to deploy different resources to target each segment effectively.

Keep in Mind the “Three WHYs”

No matter what ICP you settle on, it’s always worth keeping in mind the “Three WHYs” in your prospect’s mind that must be answered if your marketing and sales strategies are to bear fruit:

  1. Why Act? - "Why do we need to change today’s status quo?"

  2. Why You? - "Why should we trust your company to help us solve the problem?"

  3. Why Now? - "Why not wait, we’ve got too many priorities clamoring for attention as it is, why must we act now rather than sometime later?"

Just to make things more intriguing, there is arguably a fourth “Why” that enterprise sales teams should always keep front of mind: Why should your primary sponsor spend some of their political capital to decide in favor of this investment – what is the win for them?

Applying and Refining Your ICP

After being brainstormed internally, your draft ICP should of course be stress-tested and validated via interviews with target customers – both existing customers and prospects – as well as (potential) partners, analysts, and others.

Starting with a basic ICP modeled on company size, geographical location, and industry vertical – for example, the top 50 property and casualty insurers in North America and the UK – you can begin to tier your target market using additional descriptors that you have found to be relevant in prior buying cycles, such as industry sub-group or specialty, growth rate, regulatory compliance factors, cultural influences, decision-making dynamics, etc.

In sum, while the above approach requires a considerable degree of study, debate, and validation with third parties, I believe it makes practical sense and leads to a more satisfactory outcome in terms of a viable ICP and effective market penetration strategy.

And despite the need to go think deeply about each of the criteria above, you really don't need a PhD in marketing to define your ICP!