What does a VC want when they ask about your ICP? Judging from the answers we receive from dozens of founders weekly, I can tell you that most founders think the question is frustrating. Founders say,
1) having customers is enough proof of the MVP or beta;
2) they’ll figure out the rest when they have to; and
3) the market is clearly too huge to limit themselves too soon.
Faux-CPs You See At Seed
For example, this morning, one proposed ICP was “the head of revenue, our CRO, at a company from $5 million to $50 million in revenue, operating currently in this region and then moving forward globally.” Another one this week was, companies past a Series A, with less than $50M in sales and fewer than 100 people. These are some very broad brushes. They aren’t ICPs.
Like most faux ICPs, these sound like the founder has been thoughtful about who will buy. But what has likely happened is that they’ve looked at the few customers they have and created a broad category to encompass them all. That’s where VCs start to get concerned. Let me explain: the only thing VCs are rewarded for is investing in companies that can grow fast. Most founders want to build companies that can grow fast, too. Each year, a new set of VCs get their wings by investing in companies that set new records in their speed of growth. That capacity is almost always defined by fresh business models, but before the fresh business model can scale, you have to have that elusive customer profile.
Focus is freedom
To be practical about why, if you wanted to maximize all the sales you could make in a given day, week, two-week period, or at a convention, would you spend your time running around the city, going to every convention? Very likely, your common sense would tell you to focus on selling to a convention of ready buyers whose need for your solution was extremely strong. You wouldn’t go from a healthcare conference to a professional services conference, then to a cosmetic surgery conference, then a cosmetology conference, then a blockchain conference, then a Java developer conference, and finally, an AI conference for gamers. You would realize immediately that anyone who tried to do it that way would run themselves into the ground and never be credible with each different type of attendee.
It’s the same in sales at a larger scale. It may not be impossible, but it’s significantly more challenging to build sales teams that understand multiple dynamic sectors well. The person who truly understands what it’s like to sell to “large enterprise healthcare facilities” is usually not the person who has spent their career in home hospice care, and even less so is that person the right fit for “AI for gamers.” When a founder shares with us that their ICP is broad, even if their revenue or another factor is constrained, I simply understand that they haven’t yet found their market—and by “the market,” I mean their market.
Testing ICP hypthetheses on a shoe string
So, what to do? A young company has very few resources and can’t test multiple markets—that would take a lot of budget. What I highly recommend is that the founder start in the industry they know best or where they can land their first enterprise customer. By starting with what you know, even if you later change sectors, you at least get some initial sales traction and learn more about your solution in the market.
Once your revenues are sustaining the team, then it’s time for some careful testing. One of my favorite platforms to test market messaging is LinkedIn. If you do a great job of defining what your solution can do, then you can write three short ads for an upcoming webinar with you, the CEO, sharing how the solution is transforming a specific industry. If you spend $100-$200 per sector, you get information about how resonant your message is just from the clicks alone. If you can get three to five potential buyers per sector to your webinar, you also get real market feedback. Rather than selling, presenting the early solution as a humble but clear answer to a specific, detailed, nuanced challenge in the industry is often a great approach to kicking off meaningful pilots, if not actual customers.
Narrow focus is the friend of your first $10M in sales
I appreciate the difficulty of finding the right customer; it’s a discipline that never stops. My point in writing this blog is simply to clarify that VCs are not trying to pick apart your company or its customers, or trying to tell you that your solution is not valuable to anyone. All customers are indeed welcome, but that’s what’s known as the long tail of your sales. In the first one to three years, you’re looking for rewarding early adopters, ideally of only one type. This allows you to hire efficiently and build your internal platform efficiently. Your KPIs will be focused, and the numbers within them will be meaningful. These are all the benefits of a true ICP.
5 questions to test your ICP candidates
1) ROLE: Who can’t wait to refer you to their same role at another company? When you are highly referable from a singular role, you’re talking to your ICP tot;e
2) SIZE: Who doesn’t need you at all, even though they have the same title? This can give you insights around sector, stage or maturity of the company.
3) TRIGGER: What just happened at the company, that makes it super clear your software is needed (if only they knew about you!). These sales trigger moments are golden for finding ICPs.
4) SECTOR: Which sector has the problem worse than any other sector?
5) SAM and ICP: Where is your ICP expressed as a SAM south of $5B? This prospect list should look a lot like your 24 month pipeline.
Every time you need to build a team that knows an industry, another team that can implement software in that industry, and another team that can be a regular voice in that industry’s ongoing community, you add complexity to your company.
- Simple companies appeal to founders and teams as having clear KPIs and clear ways to win.
- Simple companies appeal to VCs as the easiest way to make a lot of money fast.
Embracing the discipline of defining an actual ICP can serve you well.
— Lisa Calhoun
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Photo Credit: Valor VC DAY, photo of Elizabeth Halkos, serial startup C-suite executive, and Lynne Laube, Valor venture partner.