Mass Versus Class: Customer Segments Matter

Outside of reading, I spend most of my time meeting and talking with founders either in my now very large portfolio or with new founders. One of the biggest challenges facing founders is understanding the market and actual customers.  A common mistake is that they target too large & wide  of a customer base initially. 

In early days, the more specific a niche is, the easier it is to learn about them and target them. This is where positioning comes in. 

Positioning is defined in Wikipedia as “the place that a brand occupies in the minds of the customers and how it is distinguished from the products of the competitors and different from the concept of brand awareness.” 

I highly recommend the excellent business book Position by Trout & Ries. It’s a must read. Basically, what they posit is that your customer is busy, distracted and has very little brain space for new products. 

If you are not in the top 3 of the category or in a specialized niche then you will be nowhere in their minds. This is one of the reasons for the failure of many new products despite the astounding amounts of advertising put behind their launches. Being stuck in the middle and thus usually not standing for anything or too general.

Assuming you’ve done a good job identifying your initial customer segment, your go to market is just much more straightforward. And this is where the idea of “mass versus class” comes in. 

Ultimately you either go premium/luxury or you go mass market. It’s the difference between Erewon versus Safeway, Neiman Marcus versus Kmart,  Roam or Bare Burger (my fave burger places) versus Mcdonalds, Bentley versus Ford/GM. I think you get the picture. 

There is money to be made going in either direction which makes sense. In almost every category of product and business you have 3 big players who have 80 percent of the market share and usually are mass market focussed. 

But on the other side you have very small but focused super niches that can charge very high premiums because they are specialists in their sector. This usually makes up the rest of the market share. 

Unfortunately every player in the middle gets crushed in between them because they don’t have the scale of the big 3 and thus pricing power over suppliers. Nor are they specialized enough to charge the premiums that lead to big margins. 

Focus on where the money is. As the excellent BowtiedBull writes about on the consumer side:

“You know the baby boomers have the money and the assets. You know their kids will have the money and the assets when they move onto the after life. 

At this point we know which trends matter: boomers and their children. This made it pretty easy to predict the growth of pets and plants. Now? The boomer generation is getting older and the millennial generation is starting to barely taste that sweet sweet inheritance (top end of range of millennials).”

For B2B startups, this would be fortune 500 companies for B2B focussed founders versus targeting SMB customers. All things being equal, I think too many founders overlook the premium side of customers. In other words, go after class, not mass. Or start with class, then migrate down to mass. It usually doesn’t work the other way brand wise. It’s a different story when it comes to software products but this is a whole different discussion and write up. 

Net net: go mass or go class.