By Thomas S. Lyons, Ph.D.
Lawrence N. Field Family Chair in Entrepreneurship
Baruch College, City University of New York
When an entrepreneur who makes and sells hats thinks about her market, she does not see it as everyone who might buy a hat.
A “mass market” approach, which treats customers as though they are all the same, is not a very effective way to characterize a market because it misses key differences among groups of customers. An entrepreneur knows she needs to tailor her hats and her advertising to reach each of these sub-markets: She may want to make different kinds of hats for women than she would for men, and she would also likely promote those hats differently. Perhaps counter intuitively, addressing a market in smaller groups (known in business as “market segmentation”) actually allows the entrepreneur to capture more of the mass market.
This basic principle of marketing is no less true for community economic development efforts that are entrepreneurship focused. Treating all entrepreneurs as if they are the same may be an efficient approach to facilitating entrepreneurship, but it is not effective. One-size-fits-all approaches tend to serve only a narrow band of the market of entrepreneurs and enterprises, while being beneath many and over the heads of others. Some communities try to counter this mistake by customizing entrepreneur assistance to the needs of each entrepreneur served—but this amounts to an over-segmentation of the market. The strategy can be effective, but it is highly inefficient—a fatal flaw in these times of limited resources.
The secret to success is to segment the community’s market of entrepreneurs and enterprises in truly useful ways—ways that will permit entrepreneurs to develop their skills and their businesses. In more than 25 years of working with hundreds of entrepreneurs and entrepreneur service organizations, Dr. Gregg Lichtenstein and I have learned that the most efficient and effective way to segment a community’s market of entrepreneurs and enterprises is by the skill level of the entrepreneur and by the stage in the business life cycle of the entrepreneur’s enterprise.
There are two reasons this works:
- Success in entrepreneurship depends upon the mastery of a skillset. Every entrepreneur must climb a ladder of skill development, and communities can help them to do that. An entrepreneur’s skill level is a measure of the quality of that entrepreneur.
- Similarly, the stage in the enterprise’s life cycle is a measure of the quality of that business. An entrepreneur must have the necessary skills to move his enterprise forward through its life cycle because movement from one life cycle stage to the next requires a transformation of the structure of the business.
When you put these two forms of market segmentation together into what we call the Pipeline of Entrepreneurs and Enterprises (see graphic), you can see the flow of the pipeline. As skills improve (an upward movement), enterprises can be moved across (to the right) to stages in the life cycle (Expansion and Maturity) that yield the most jobs, wealth and tax base. This permits the community to “map” its market of entrepreneurs and enterprises and intervene strategically to enhance the flow and volume of its pipeline.
For interactive graphic, click here: The Pipeline: A Way To Prioritize Economic Development Efforts In Your Community
THE GOAL: The pipeline of a healthy business community would have most segments of the pipeline represented. Because each successive stage requires further development, there are generally more entrepreneurs/businesses on the lower left of the pipeline than elsewhere.
THE STRATEGY: The job of economic development personnel is to help entrepreneurs move up the pipeline, and to help businesses move to the right (stopping short of decline, but managing it if necessary).
WHY DOES THIS MATTER? Because you don’t have unlimited time or money. Each move in the pipeline is difficult, and with limited resources, economic developers can’t address every need. By assessing the skill level of entrepreneurs in the community as well as the life cycle stage of its businesses, they can target their efforts to what their particular entrepreneurs would find most useful.
OK, SO HOW DO WE PLOT OUR ENTREPRENEURS ON THE PIPELINE? You will need to survey your entrepreneurs. See the book Investing in Entrepreneurs or go to www.pipelineofentrepreneurs.com for suggestions on how to do this.
Thomas S. Lyons is the co-author (with Gregg A. Lichtenstein) of the book Investing in Entrepreneurs: A Strategic Approach for Strengthening Your Regional and Community Economy (Praeger/ABC-CLIO, 2010), which discusses these ideas in depth.