Your ICP: Get it right and you're 67% more likely to exceed quota. Get it wrong; 50% chance of failure.

Getting your ICP (“Ideal Customer Profile”) could define your success or failure as a company. Sadly, many companies don't have a clear understanding and disciplined execution of their ICP and I believe this one critical element will be the difference between the winners and losers in SaaS in 2023 and beyond.?

What if I told you that there is clear research that shows companies who nail the execution of their ICP are:

(1) 50% more likely to acquire new customers

(2) Generate 30% more revenue from marketing, and

(3) are 67% more likely to exceed quota.

(4) That companies that use buyer personas are 277% more likely to close a deal.

This article will explore: (a) The state and impact of ICP today (b) The negative impacts of getting it wrong (c) The huge upside to getting it right (spoiler alert: a lot more sales), and (d) Explain what an ICP is, how to build it for your organization, and provide you with a case study as an example.?

Let's start by assuming you have product market fit, early cohorts of customers, and revenue, and things were going great (until 2022 hit) and you realized things just aren’t quite right. You are struggling to add new logos at the same rate, you are seeing greater churn and contractions increase, your margins are down, and your cost to serve and cash burn is up, and you don’t quite know why???

As a team your asking "which customers and prospects should we double down on and invest ‘go-to-market’ and product efforts on, in an effort to scale?"

You can answer all of these questions with one word (well acronym), ICP, Ideal Customer Profile (and Buyer Persona)

"Nearly half of all start-ups have less than 10% of their ICP as actual customers", which should be a huge warning sign given a study by McKinsey & Company found that "startups that have less than 10% of their ICP as actual customers are 50% less likely to survive the next five years"

In nearly every conversation I have had whether as the Chief Revenue Officer entering a growing startup, as an angel investor, or as a company advisor, this has been the most significant gap in their revenue flywheel and the first thing I seek out to help fix.?

Who is responsible for ICP? ICP definition and execution needs to be aligned across key leaders and teams responsible for the customer journey. There should be alignment from Product, Marketing, Sales and Customer Success on the definition of your ICP. The outcome should be a clear TICP (Target ICP List) as well as clear metrics and targets across the conversion funnel such as Vertical, Size, Regions, Buyer Personas.

I have seen numerous teams targeting prospects that are not their ICP. I’ve seen companies of all sizes getting excited with vanity metrics such as raw total number of MQLs, high fives, and champagne opening, only to find out these “leads” were not relevant and weren’t converting. (Imagine your ICP is Enterprise organizations with 10,000+ employees but the majority of your ‘leads’ are coming from pizza shops, funeral homes, and tiny credit unions in towns you have never heard of). Barely any of these ‘leads’ progress to a first meeting and even less to a new opportunity and a slither of them close. (more on the right metrics like “ICP MQL/SQL in my next post).?

It continues into the sales organization. Account Executives fill CRM with deals that are never going to close, because they don't fit the ICP, and unsurprisingly find out they are too expensive or the wrong product fit versus the eventually chosen solution, which may include doing nothing.

The Result: End up in a Doom Loop, Halting Growth, Churning Customers and Burning Through a Lot of Cash and Team Members.

Start-Ups end up burning through a tonne of precious cash reducing runway, no meaningful new logo cohort, company quota is missed, reset board expectations (again), months wasted, sales and marketing team turnover, conflict, and then you have to start all over again (while in the meantime your competitors who got it right pick up customers who aren’t likely to switch for the next 3-5 years).?

It gets worse. The customers you did sell to who are not in your ICP will have a higher cost to serve, won’t expand (reducing NRR), and have a higher likelihood to churn completely (huge impact on NRR and cash), making the life of the Customer Success team very difficult and spending an inproportionate amount of time and dollars on the wrong accounts. Now you enter your next financial year not only missing new business targets, but your churn number has gone up… it's not pretty.?

Now here’s the good news!?

When done right, companies with a well-defined ICP are 67% more likely to exceed their sales targets, 50% more likely to acquire new customers, and generate 30% more revenue from marketing!?

So, let’s take a step back and ask some basic questions to ensure you are targeting the right buyers with problems you can solve and be one of the companies 67% more likely to exceed sales targets versus one of the companies likely to fail… Let’s dive in.?

What exactly is an ICP? Why is it important? What about Buyer Persona and How do you build it out (properly)??

Ideal Customer Profile (ICP)

An ICP is a detailed description of your ideal customer. It includes information about their demographics, psychographics, and needs. An ICP helps you to focus your marketing and sales efforts on the people who are most likely to buy from you.

An ICP is important because it helps you to:

• Target your marketing and sales efforts more effectively.
• Create more relevant and persuasive marketing messages.
• Improve your customer satisfaction and retention.
• Increase your sales and revenue, and reduce cost to serve and churn.?

Does having an ICP lead to more customers and revenue?

• According to a study by HubSpot, companies with a well-defined ICP are 50% more likely to acquire new customers.
• A study by SiriusDecisions found that companies with a well-defined ICP generate 30% more revenue from marketing.
• A study by McKinsey & Company found that companies with a well-defined ICP are 67% more likely to exceed their sales targets.

Buyer Persona

A buyer persona is a fictional representation of your ideal customer. It includes information about their demographics, psychographics, goals, challenges, and pain points. A buyer persona helps you understand your customers more deeply and create more relevant and persuasive marketing messages. Think about it as creating a fictional avatar of the actual person at the ICP Company. The Avatar is your buyer persona. It is the individual you are “talking” to in your messaging and interaction with your ideal customer (eg a bank).?

Why is a buyer persona important?

A buyer persona is important because it helps you to:

• Understand your customers' specific needs and pain points.
• Create more relevant and persuasive marketing messages.
• Improve your customer satisfaction and retention.
• Increase your sales and revenue.

Buyer Personas result in a higher generation of leads and achievement of sales goals:

• According to a study by MarketingSherpa, companies that use buyer personas generate 20% more leads and 18% more sales.
• A study by Forrester Research found that companies that use buyer personas are 70% more likely to exceed their sales goals.
• A study by LinkedIn found that companies that use buyer personas are 277% more likely to close a deal.

5 Steps to create an ICP and buyer persona

There are a few steps involved in creating an ICP and buyer persona:

1. Gather data. You need to gather data about your target customers, including their demographics, psychographics, goals, challenges, and pain points. You can gather this data from a variety of sources, such as surveys, interviews, and customer reviews. Your Sales, Marketing, and Product teams must be regularly talking to customers to iterate and validate this upfront and regularly over time.
2. Analyze the data. Once you have gathered data, you need to analyze it to identify your ideal customer. You need to look for patterns in the data to identify the characteristics that are most important to your target customers.
3. Create the ICP and buyer persona. Once you have analyzed the data, you need to create the ICP and buyer persona. The ICP should be a detailed description of your ideal customer, while the buyer persona should be a fictional representation of your ideal customer.
4. Validate the ICP and buyer persona. Once you have created the ICP and buyer persona, you need to validate them. You can do this by testing them with your customers to see if they are accurate.
5. Create a Target Account List (TAL) consisting of companies that fit your ICP and the Buyer Persons in them. A target account list is a list of prioritized accounts you want as customers that helps you avoid going after potential customers who do not meet your ICP.?

Let's look at a real-life example?

(note: this is purely my subjective and external perspective and there could be (most likely :-) )?some errors but you will get the gist). Here is the ICP and Buyer Persona for Crowdstrike: (CrowdStrike is a cybersecurity company that helps businesses protect their endpoints from cyber threats).?

Crowdstrike Ideal Customer Profile (ICP)

• Company size: 100-500 employees
• Industry: Technology, Healthcare, Financial Services
• Location: United States, Canada, Europe

Challenges:

• Dealing with a growing number of cyber threats
• Lack of visibility into their security posture
• Difficulty in responding to security incidents

Pain points:

• The risk of a data breach
• The financial and reputational damage caused by a data breach
• The loss of productivity due to a security incident

Goals:

• Protect their organization from cyber threats
• Gain visibility into their security posture
• Be able to respond quickly to security incidents

Buyer Persona

• Name:?John Smith
• Title:?Chief Information Security Officer (CISO)
• Company:?Acme Corporation
• Location:?San Francisco, CA
• Demographics:?45 years old, male, has a background in IT security
• Psychographics:?Driven, results-oriented, concerned about the security of his organization

Challenges:

• Dealing with a growing number of cyber threats that are specifically targeting his industry.
• Lack of visibility into his organization's security posture, especially as it relates to these new threats.
• Difficulty in responding to security incidents in a timely manner.

Pain points:

• The risk of a data breach that would expose sensitive customer data.
• The financial and reputational damage caused by a data breach.
• The loss of productivity due to a security incident.

Goals:

• Protect his organization from cyber threats, especially those that are specifically targeting his industry.
• Gain visibility into his organization's security posture, especially as it relates to these new threats.
• Be able to respond to security incidents in a timely manner.

As you can see, the ICP is a more general description of Crowdstrike's target market, while the Buyer Persona is a more specific description of a single individual who might be interested in Crowdstrike's products or services. The ICP helps understand the overall market, while the Buyer Persona helps understand the needs of a specific potential customer.

Do ICPs and Buyer Personas always stay the same??

No, not always. Looking at Crowdstrike is an interesting exercise. Many people may be surprised to see the ideal company size so low (100-500), but according to CrowdStrike's 2022 annual report, 62% of its revenue came from small and mid-sized businesses (SMBs), while 38% came from large enterprises. This breakdown has remained relatively consistent over the past few years. CrowdStrike's focus on SMBs as their ICP is a strategic decision.?

They believe that SMBs are often more vulnerable to cyber threats than large enterprises, and they may not have the same resources or expertise to protect themselves. CrowdStrike's products and services were designed to help SMBs protect themselves from cyber threats, and the company's focus on this market has helped it to grow rapidly.

However, after executing their initial strategy and winning market share in their ICP, CrowdStrike then expanded their ICP and focused on large enterprises. Large enterprises face a different set of cyber threats than SMBs, and they often have more complex security needs. CrowdStrike has/is developing new products and services to address the needs of large enterprises, and the company is investing in its sales and marketing efforts to attract more large enterprise customers. This will mean coming up with a new ICP and Buyer persona.?

Going through this exercise as a team will align teams, resources, and goals across the organization. It will enable you to create definitions and metrics to guide and track your success.?

The result is a rich set of target companies and individuals who you are confident have a strong pain that needs to be solved, and that your solution is a strong fit for them, resulting in new, happy, and delighted customers who remain loyal and help increase your CLTV and reduce your CAC. Happy Hunting!?

Richard Dufty can be found at https://www.dhirubhai.net/in/richarddufty/ and is currently working with start ups to advise them on their go to market strategies to help create their flywheel.