Customer segmentation is like drilling for oil

December 9, 2009

During this time of year, our Growth Stage portfolio companies are heads-down in creating their 2010 operating plans.  This requires intense analysis and retrospect to help synthesize the data and ultimately determine how the company is tracking against its aspirations.
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Over the past 3-4 months, my partner George Roberts and I have been spending a fair amount of time at one of our Growth Stage portfolio companies to explore different ways to optimize the sales organizational structure in 2010. George is a well known veteran in the ranks of the high tech community as former EVP of North American Sales for Oracle and understands how to scale and optimize a sales organization. I too ran sales at Microsoft for a number of years and really enjoyed digging deeply to understand how to optimize sales organizational structures. 

During the past 2 years, one of our portfolio companies has been in hyper drive mode and focused on hiring and ramping an inside sales team, establishing a sales methodology, and otherwise getting to a state of repeatability. Needless to say, this is a challenge for most Growth Stage companies as they try to determine their target segment, messaging and economic model.

Now that the company has reached a critical mass of inside sales people and customers, the question is how do they best optimize the sales organization to take advantage of the greatest opportunity. 

While examining various approaches to sales organizational structures, we visited with a few companies to understand what worked well and not so well at various stages of their growth. We first visited with Scott Bleczinski, VP of Sales at ExactTarget and then Hilarie Koplow-McAdams, EVP Global Corporate Sales at Salesforce.com.

One of the things that really resonated with me during our visit with Scott Bleczinski at ExactTarget is his formula for success. It is simply Segmentation + Specialization = Scale. My other partner, Scott Maxwell, also subscribes to this in a big way and has been on the board of ExactTarget for a number of years addressing the same issue of how to optimize the sales organizational structure.

Our second visit to Salesforce.com was also very helpful in examining their sales organizational structure and methodology. Some of this is described in the books Sales 2.0 and Behind the Cloud. Hilarie Koplow-McAdams and her team were very gracious with their time and something each of our portfolio companies will enjoy for a lifetime.

As you begin to explore various approaches to sales organizational effectiveness, one of the areas that is often overlooked is customer segmentation. I can not emphasize enough the importance of rolling up your sleeves to understand discrete customer attributes and how powerful this can be in optimizing your sales resources against the highest potential segments, while tailoring the company’s offerings in Creating Competitive Advantage.

Bain & Company describes customer segmentation methodology as:

  • Divide the market into meaningful and measurable segments according to customers’ needs, their past behaviors or their demographic profiles;
  • Determine the profit potential of each segment by analyzing the revenue and cost impacts of serving each segment;
  • Target segments according to their profit potential and the company’s ability to serve them in a proprietary way;
  • Invest resources to tailor product, service, marketing and distribution programs to match the needs of each target segment;
  • Measure performance of each segment and adjust the segmentation approach over time as market conditions change decision making throughout the organization.

Example questions you may ask yourself is how are my customers divided today, e.g., by # employees, revenues, industry and what is the growth year over year in each of these segments? Do we know how many leads there are per segment and the conversion rates? 

Once you gain a thorough understanding of this, things will become much clearer and you will recognize the high impact areas and how best to organize for maximum profitability.

Key Account Director

Marc Barry is an experienced sales leader in the Enterprise Technology Industry including Software, Cloud and Consulting. Currently, he is the Key Account Director at <a href="http://www.oracle.com">Oracle</a>. He was previously a Venture Partner at OpenView.