Your Software Startup Needs an ICP

Wed, 03 Aug 2022 00:00:00 +0000

When you join a startup as the first (and maybe the only) sales hire, your instinct will be to start closing deals as quickly as possible. Your eyes turn to dollar signs and you start sprinting after anyone who will sit down for a demo. And in those early days, when you’re relying on prospects who come through your immediate network, it’s okay to cast a wide net. (Just keep in mind you will probably fire some of these customers in the future–that is, if they don’t leave you first.)

But once you’ve plucked all the low-hanging fruit from your network, it’s time to get a lot more disciplined. This is the moment to define your ICP and start selling only to them.

Why now, you ask? Because in the long term, selling your software to a company on the sole basis that they will pay for it can lead you down a rabbit hole of bad fit, bad reviews and ultimately, a bad reputation.

What is an ICP?

First, a quick refresher: ICP stands for Ideal Customer Profile, and it’s a description of the characteristics you’re looking for in your target customer. That can be company size, industry, location, age, or any other relevant descriptors. ICP is not to be confused with target persona, which describes the person within a company that you’re trying to reach.

Why Should You Avoid Selling Outside Your ICP?

There are three good reasons why you want to steer away from anyone outside of your ideal customer profile.

1. They’re going to take up your team’s time with complaints and fixes on a solution that was not made for them.

2. They will try and influence your product to make it something it’s not. Which can lead you down a road of trying to please everybody, which you can’t.

3. They’ll share their negative experience with their network, hurting your perception among future prospects.

For more info about this, check out this blog from Close on how to create a Non-Ideal Customer Profile and avoid selling to the wrong clients.

The main thing to remember is that you are new and you are trying to build a brand. A big chunk of your ‘marketing’ will be word of mouth and that word needs to be consistent and reflective of your goals.

Can you have more than one ICP? There’s no law saying there’s only one ICP per company. At Kolide, we’ve got ICP 1, 2, and 3, and each describes different-sized contracts and different use cases (we have three). And while all the prospects that meet the ICP definition will get some outreach, we devote the most hands-on energy to the biggest fish with the most addressable needs. If you choose to target more than one ICP, just be careful–it’s easy for them to balloon until you don’t have a functional way of excluding anyone.

What an ICP Does

Most articles on ICPs refer to them as a lead generation initiative. But if you take it seriously, your ICP will end up being much bigger than simple lead generation. It should be the drive behind your start-up.

At Kolide, our ICP is our North Star. Everything we do–from product development, to engineering, to sales, to marketing and customer success–is viewed through the lens of “what does our ICP need?” Our pricing, our website, and even our legal agreements are written for our ICP.

We are able to isolate our efforts and have a joint vision by keeping our ICP strictly defined and at the forefront of our decisions. Every Kolide employee knows what constitutes an ICP and is reminded frequently. It is one of the first things we teach a new hire. After all, if they don’t know why we do what we do and for whom, why are they here?

I won’t cover who our ICP is (buy me a drink first). Instead I’ll focus on why it’s important and how to create one.

Set yourself up for referrals

As we’ve covered, when you’re a startup a big proportion of your leads come through word of mouth from delighted customers. But even delighted customers can struggle to succinctly explain why your solution rocks, and everything they say about you will be filtered through their own experience of using your product. And, as we discussed at the beginning of this article, not every customer will be using you in the same way.

Because of this, it’s important that when you’re discussing referrals with your current customers, you paint them a clear picture of who you are looking for. A clean ICP will enable you to create an elevator pitch that turns your existing customers into salespeople.

The ICP topic is easier to bring up than you might think. At the end of a checkup meeting with your client–preferably a client you know appreciates your system–remind them that you are always looking for referrals. Then you can paint them that pretty (quick) picture of your ICP and how you plan to help prospects who match with it. The clearer you are, the more likely that they will sift through their network for the ideal customer you are describing.

Taking the time to share your ICP can lead to higher quality referrals from happy customers who want to help out their friends. (And if you’ve built out a referral rewards program, as we have, then they’ll be eager to reap the material benefits, as well.)

Check out this blog from LinkedIn on a Customer Elevator Speech and a real world example on how it can help your start-up.

Bottom line: make it easy on yourself by asking for the leads you want. A clear ICP will help you control the referral narrative, which is critical to your early lead sources.

Make it easy to qualify leads

I could also call this “Make it Easy to Disqualify.” Your solution isn’t right for everyone, and as we’ve established, this could lead to a lot of bad fit customers that will end up draining your company more than the bump in ARR is worth. This makes it very important that you build a customer set that is similar in profile.

Closing a small group of customers that share a similar profile will usually guarantee they buy in a similar way, expect similar pricing, house a similar target buyer, have similar demands on liability, indemnity, DPA and SLA and, most importantly, similar use cases. When you are small, you need to be able to disqualify leads that don’t fit as quickly as possible.

Your ICP works as a system to qualify leads. A great way to do this is to build a checklist of requirements that your ideal customer has. This checklist can make it easy for anyone in the company to quickly qualify or disqualify a prospect. Of course, a prospect doesn’t need to get a perfect score to be worth your time, so any checklist should weigh criteria according to whether they’re “nice to have” or “non-negotiable.”

For example, it might not be a deal breaker if a customer is a little smaller or younger than your ideal, but if you’re selling a Mac solution and they run on Windows, then walk away.

Check out this 7-Step Ideal Customer Profile Guide (W/Free Template and Checklist For B2B).

Find produce market fit faster

Product Market Fit is seen as the holy grail for software startups. I’m not here to dispute that, but I am here to say that your Product Market Fit is directly linked to your ICP.

Many companies struggle to find product market fit because they don’t actually have a well-defined market. They have a handful of disparate customers and they hunt for alignment in how these different customers use their solution. But trying to reverse-engineer product market fit from that early customer data is like guessing what a jigsaw puzzle will look like when you only have five pieces. (Just because the pieces all happen to be red, doesn’t mean the puzzle will turn out to be a basket of apples.)

Starting with product market fit is putting the cart before the horse, since without defining who your product is for, how will you define if your product fits in a particular market?

A well-structured and clear ICP will ensure you look for product market fit in the right place, among similar customers and prospects. And it will mean you can basically reuse the same sales deck, because you are selling to people with the same needs.

For more information on determining Product Market Fit, check out David Skok’s guide for SaaS Startups.

Tips on Creating Your ICP

You might be tempted to start big and claim an entire industry. But saying “my ICP is law firms” is a surefire way to end up boiling the ocean. Your solution might solve an industry specific problem, but a 1,000-person law firm will have quite different requirements than a 5-person law firm. I don’t just mean product requirements or feature requirements–I also mean requirements around pricing, support, contracts and purchasing. You will not be able to sell to law firms of both sizes right out the gate.

Size can be a useful characteristic in your ICP, for obvious reasons. And when narrowing down the ideal prospect size, be sure to tailor your ICP not just to a dollar amount, but to the type of customer your company can actually support. You don’t want to waste your energy chasing minnows, but you might not be ready to reel in a shark.

At Kolide we also use company age as a characteristic in our ICP. Age and Size are interesting as they let you understand the growth trajectory of your profile. Young, large companies are fast growing, meaning you could have great retention metrics if you close them. Information like this can help you qualify what leads are worth the extra effort.

The criteria above are pretty universal, but you can come up with other, unique attributes that will help you narrow your ICP. Maybe it’s their existing tech stack, their name recognition, whatever matters to you.

There is, however, a balancing act between making a clear and defined ICP market without making it too small to build a business. Look at your current sales goals and narrow it to a point where you are targeted but still have a big enough set of prospects to hit your goals. It will not be good if your ICP ends up being 5 companies (but you’d be surprised how often this happens). So some market research to get a sense if the parameters you’ve set make sense. Run searches on platforms like LinkedIn and Crunchbase to see how many companies are in your ICP as you define it.

Finally, build your ICP around the core product features you have right now. If your current slate of prospects don’t plan on using features that are important to what you are trying to build, exclude those companies from your ICP. They will wind up being a distraction for your team.

Here’s what that looks like in practice. At the moment Kolide is built for teams that use Okta. It’s not possible to use Kolide without Okta, therefore, we made Okta an ICP requirement.

We get asked from time to time if we plan to support SSO platforms, and the answer is: maybe someday. But right now we are still working on being the best solution for teams that use Okta. That doesn’t mean we’ll never expand to those platforms, it just means we’re not trying to be everything to everyone.

Remember, an ICP isn’t meant to be set in stone–it can evolve along with your company. But while you have one, stick to it with discipline and conviction.

Have the Confidence to Start Small

I remember when we were defining our ICP at Kolide, some colleagues were concerned we were excluding a lot of the market. You’ll feel the same. It’s easy to look at who’s not in your ICP and worry you’re limiting yourself. And hey, you are. If you’ve done the ICP exercise correctly, most companies will not be in your ICP.

But that’s okay, because you’re trying to pursue prospects that you can be a great fit for now, as a startup. Being small, you’re probably in the best position to serve businesses that are also small. Not pursuing a customer that isn’t your ICP today doesn’t mean that they’ll never be your ICP. Your profiles will mirror your company in change and growth. You’ll grow your resources and in turn be able to address a larger market.

Every failed startup had a product they believed in. What they didn’t have was continued new customer growth. Yet all too often, I meet software startups who have a process to manage product development but no process of identifying the right prospects. That’s your job, sales hire. Define your ICP, stand proudly behind it and let them know you are tailor made for what they need.