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Quick Fire Series: ICP Is Not Segmentation · What's Broken in GTM and How to Fix It

• 0:00
  Simon: Louis, ICP is a phrase that gets thrown around a lot in GTM circles, although it's often confused with something else entirely.
• 0:08
  Simon: What's the TL;DL("Too Long; Didn't Listen") for anyone who doesn't have time for the whole episode?
• 0:13
  Louis: An ICP helps a seller find accounts that look plausible.
• 0:17
  Louis: Segmentation explains why groups of customers buy, what they value, how they need to be served, and whether the economics work.
• 0:25
  Louis: If that distinction is missed, the damage appears later as generic messaging, variable sales cycles, massive discounting, expensive onboarding, and churn.
• 0:35
  Simon: Stay with us for around 15 minutes or so to learn more.
• 0:40
  Simon: Hello, and welcome to episode 61 of the What's Broken in GTM and How to Fix It podcast.
• 0:45
  Simon: I'm Simon Daniels…
• 0:47
  Louis: and I'm Louis Fernandes
• 0:48
  Simon: We are exploring the challenges facing SaaS GTM leaders that Louis has been discussing in his newsletter, drilling into the topics a little further to provide some solid practical guidance for SaaS GTM success.
• 0:59
  Simon: Now, we're onto episode two of our quick-fire series running through Louis' recent What B2B Forgot content arc from the newsletter, looking at what B2B SaaS can relearn from more mature consumer businesses.
• 1:14
  Simon: And we're very interested to find out what people think about the quick-fire format, the shorter episodes, and the weekly cadence, so do give us a shout and let us know what you think.
• 1:27
  Simon: Last time then, we set up the series, and we looked at how revenue is a system, not merely a sales number.
• 1:34
  Simon: Today, we're gonna try and make that a bit more concrete and start with one of the most misused terms in GTM, namely ICP.
• 1:44
  Simon: Let's get to it, shall we?
• 1:45
  Louis: Let's do it.
• 1:47
  Simon: so Louis, let's start with that core distinction that you're drawing here.
• 1:52
  Simon: What actually is the difference between ICP and segmentation?
• 1:56
  Louis: So I think the way that it tends to get used is the ICP will have a set of descriptors, and it starts with sensible enough questions like, you know, which industries do we serve best?
• 2:08
  Louis: What size of companies can afford us?
• 2:10
  Louis: Where can we, um, support them geographically?
• 2:14
  Louis: What tech stacks do they use?
• 2:16
  Louis: Those kind of things.
• 2:17
  Louis: And I think the, it really helps organizations with account selection and prioritization, and that- that's how it tends to be used.
• 2:28
  Louis: And I think the thing that it's answering there, though, is it's answering which organizations look like reasonable prospects, and that, like I say, is a perfectly valid thing to be asking.
• 2:40
  Simon: And so what is the distinction between ICP and segmentation?
• 2:44
  Louis: So I think segmentation goes a lot deeper than ICP generally, and it divides the market into groups whose needs, triggers, buying behaviors, value perception, and economics differ enough to require different commercial choices and different ways of approaching them.
• 3:02
  Louis: Now, that's the question that generally doesn't get asked or answered when we think about ICP.
• 3:09
  Louis: And then what ends up happening is we try and retrofit segmentation, like why are people buying, question onto what we're learning through the sales process, rather than actually doing the market research first and understanding what the motivators are.
• 3:28
  Louis: And the way I, I sort of describe it is that we talk about descriptors versus drivers.
• 3:34
  Simon: So let's get into that a little bit more.
• 3:36
  Simon: What is the difference between those and, and why don't firmographics tell the whole story be- between, you know, when we're trying to think about our target markets?
• 3:46
  Louis: Yeah.
• 3:46
  Louis: So first of all, let's explain the term.
• 3:49
  Louis: So firmographics is things like the industry, the size of the organization, how many employees it has, uh, what the, what the turnover is, you know, what markets does it operate.
• 3:58
  Louis: It, it's things that you might say, uh, about a consumer as well.
• 4:02
  Louis: You know, this is somebody who is age, this age, these are their, uh, these are their interests, this is where they live, this is what their income is.
• 4:09
  Louis: It's those kind of things.
• 4:10
  Louis: Drivers are like motivations, and they explain behaviors.
• 4:16
  Louis: So by way of example, you could have two entirely similar looking organizations both turning over roughly the same.
• 4:24
  Louis: Let's go We'll give an example.
• 4:25
  Louis: Two organizations turning over half a billion each.
• 4:29
  Louis: They're both in financial services, they both employ 30,000 people, they both have need of a CRM system.
• 4:38
  Louis: All right?
• 4:39
  Louis: Dead simple.
• 4:40
  Louis: One is in a buying cycle for it, the other one may not be.
• 4:43
  Louis: The reason one is in a buying cycle is because, let's say, they're un- they're not actually getting the margins they need to, they're unable to identify which customers and consumers are moving from one segment to the next in their own segmentation, and how they should be engaging it and tracking it.
• 4:57
  Louis: The other one is making great margins, and actually they've got a problem instead with something regulatory.
• 5:03
  Louis: Two entirely different needs, maybe two entirely different strategies.
• 5:08
  Louis: One is looking at the local market in the UK, one may be looking at international expansion, and therefore the motivations are k- entirely different.
• 5:16
  Louis: You can't sell to them in the same way because you're never gonna get the same decision from them.
• 5:20
  Simon: Right.
• 5:21
  Simon: And we're saying that the organization itself has this driver.
• 5:25
  Simon: This isn't even talking about individuals within the business?
• 5:28
  Louis: But the individuals within the business will as well.
• 5:31
  Louis: But again, a lot of this will stem down fr- And this is where one of the reasons I've always encouraged people to read the financial reports of any organization before they start approaching them.
• 5:40
  Louis: The annual report will tell you,"This is what our drivers are as an organization.
• 5:46
  Louis: These are our objectives, and this is how we're gonna compensate people in senior roles to achieve those objectives." Well, now I know what's on their, their to-do list.
• 5:57
  Louis: Now I should be focusing my efforts on those things.
• 6:00
  Louis: Because if I'm asking for budget for, uh, a project that they want to do, or they m- or that I believe they want to do, and it's not aligned to those strategic priorities, well, I might get the budget eventually.
• 6:12
  Louis: It's gonna be a long sales cycle, but then it's not really a priority and I'm competing with other things.
• 6:17
  Louis: I end up discounting massively, and guess what?
• 6:19
  Louis: I end up with an unprofitable deal that maybe churns after six months because the other thing was more of a priority.
• 6:25
  Louis: So this is why these things are important.
• 6:27
  Simon: And that I think leads me to, to what I wanted to ask next, which is what does ICP not stand for?
• 6:33
  Louis: I can pay".
• 6:36
  Louis: And what's really interesting about that, though, is that even when you, when you get into this, the, the giveaway is,"I want a massive discount." Well, then you can't pay what the market rate is.
• 6:45
  Louis: So there's, there's your trap.
• 6:46
  Louis: At which point you say,"Clearly you don't see the value in what it is that we're doing.
• 6:50
  Louis: I'm not sure this is a deal we should be going ahead with.
• 6:52
  Louis: I'll respectfully withdraw." But this then takes us back to a lot of the work that we did with, uh, revenue operating governance, where actually the incentives that we have is just to close the deal.
• 7:00
  Louis: So nobody wants to say no.
• 7:02
  Louis: Uh, and that, that's a governance issue, but we'll leave that for another day.
• 7:05
  Simon: Indeed.
• 7:05
  Simon: We can, uh, we can circle back to that.
• 7:07
  Simon: Um, yeah, that's when ICP becomes I can't pay, or maybe it's IWP, I won't pay.
• 7:12
  Louis: Well, this is the other problem here, right?
• 7:14
  Louis: Because when you do start bringing in those logos, you win a net new name logo that is in the I won't pay camp, as we've just suddenly decided to call it.
• 7:24
  Louis: No trademarks here, or maybe I'm talking back to a, uh, something I posted the other day.
• 7:27
  Louis: We'll park that.
• 7:28
  Simon: Mm-hmm.
• 7:29
  Louis: But those, those recognizable logos will then damage margin, adoption, retention, and product focus because they may even come in and say,"Well, actually, we'll, we'll buy your product, but only if you change this bit or that bit or the other bit," and suddenly you're into custom development on something that you never intended to do for one single use case.
• 7:48
  Louis: It's, it's, it's madness.
• 7:50
  Simon: No, it's it makes no sense, that's for sure.
• 7:53
  Simon: And so that is why it's important to recognize what ICP does stand for.
• 8:00
  Simon: Similarly, where does weak segmentation end up showing up if you don't catch it early?
• 8:06
  Louis: Yeah.
• 8:07
  Louis: I think the, the, the challenge with weak segmentation is that it affects the entire value chain, and it ends up being, you know, well, we're gonna have really generic messaging, stuff that doesn't resonate with, with everybody that we're trying to talk to.
• 8:19
  Louis: We're targeting the wrong people because we end up with very variable sales cycles.
• 8:23
  Louis: We've, we've understood the ICP in the, the sense that I've described it previously.
• 8:27
  Louis: We haven't understood the motivations, and therefore we're trying to flog a dead horse.
• 8:34
  Louis: Oh, please buy my product, please buy my product, please buy my product.
• 8:36
  Louis: And I'm, I'm talking to the right personas, and firmographically you look right, but because I'm flogging the dead horse,'cause it doesn't align with your strategy and it doesn't align with your objectives and it doesn't align with, you know, the other things that are going on in your world, it doesn't matter what I'm doing.
• 8:49
  Louis: So eventually, uh, I end up with that variable sales cycle.
• 8:53
  Louis: The discounts start coming in, and not only that, but I end up with that very expensive onboarding cycle and, and then end up churning after a short while.
• 9:03
  Louis: So then starts really showing in my net retention rates.
• 9:06
  Louis: And, and that's where it really starts exposing the compounding effect of bad segmentation, and it can be a disaster for SaaS businesses, like some of them are finding out at the moment.
• 9:19
  Simon: Yeah, I mean, it's the opposite.
• 9:21
  Simon: We've mentioned a few times the, the, the eighth wonder of the modern world, aka compound interest, and it's, it's, it's almost the opposite of that, isn't it?
• 9:29
  Simon: It's, it's discompounding in, in the sense that small bad things add up to a big bad thing.
• 9:36
  Louis: Yeah.
• 9:37
  Louis: So I don't know if you remember the film Passengers, uh, with Chris Pratt and Jennifer Lawrence.
• 9:41
  Louis: The premise of the story is they're on a spaceship doing a long distance journey.
• 9:44
  Louis: One, uh, a meteorite hits them and it affects one major system, and that major system then compounds and has knock-on effects to other systems, and other systems, and other systems, until you end up with, a year down the line, a catastrophic failure.
• 9:58
  Louis: That's exactly what's happening here.
• 10:01
  Louis: We have all these minor little things changing, and you end up with a catastrophic failure down, down the line.
• 10:06
  Louis: It's just happened with Airtable, you know, and Miro.
• 10:11
  Louis: They're two great examples that actually Jacco vander Kooj, uh, was talking about the other day as part of the, um, work that we're doing with Winning by Design.
• 10:20
  Louis: Great examples.
• 10:21
  Louis: Exactly the kind of problem we're talking about.
• 10:23
  Simon: Who knew sci-fi had lessons for GTM?
• 10:27
  Louis: Always!
• 10:27
  Simon: Well, we we need to r-respect our quick-fire format and get to a close.
• 10:35
  Simon: So operationally, what should segmentation actually be shaping inside the business?
• 10:42
  Simon: And just touching back on what you were saying really, it, it goes all the way, you know, up to the, to the top of the chain, doesn't it, in terms of marketing as well as, as sales in, in the sense of understanding who we're trying to speak to and what we're trying to say to them and so on.
• 11:00
  Louis: Yeah.
• 11:00
  Louis: So I mean your segmentation I think governs pretty much everything in your business.
• 11:04
  Louis: It's the proposition, how you package it, how you price it, what the coverage needs to look like, the channels, the sales motions, onboarding, service levels, you name it.
• 11:15
  Louis: It, it's all being assessed through the lens of your segmentation.
• 11:20
  Louis: Which segments are we gonna serve?
• 11:23
  Louis: How are we gonna serve them?
• 11:25
  Louis: And why are we gonna serve them?
• 11:27
  Louis: And the segments, the other thing that you gotta remember is the segments are just effectively hypotheses, and you gotta test them against the observed behaviors and the economics, and they should never become permanent labels, uh, that are created in a workshop.
• 11:40
  Louis: So it's important to test them in real life.
• 11:42
  Simon: Very good.
• 11:43
  Simon: Let's leave it there.
• 11:46
  Simon: All right, so Louis, how would you sum up the differences in everything we covered today?
• 11:52
  Louis: So a good ICP narrows the field, but good segmentation explains which parts of the field are worth building the business around.
• 12:01
  Louis: Once the company's chosen a segment, it still has to design around how that market becomes aware, builds trust, buys and creates value, which is what I think we're gonna look at next time.
• 12:13
  Simon: Indeed.
• 12:13
  Simon: And in the meantime, those are our takeaways for this episode.
• 12:16
  Simon: Thank you so much for listening to episode 61 of the What's Broken in GTM and How to Fix It podcast.
• 12:22
  Simon: Check out our LinkedIn page where you can find show notes relating to the episode.
• 12:26
  Simon: You can also get in touch with us via LinkedIn and follow us for regular updates.
• 12:30
  Simon: And don't forget to subscribe in your preferred podcast app to make sure you don't miss an episode.
• 12:35
  Simon: Next time, we look at whether B2B has built a route to sales rather than a route to market, so please join us.
• 12:42
  Simon: Until then, it's goodbye from me, Simon Daniels…
• 12:45
  Louis: and it's goodbye from me, Louis Fernandes.
• 12:47
  Louis: Have a fantastic day.