Before starting my business I hadn’t given much thought to what goes into choosing a good market to sell to. I had a failed SaaS app under my belt, and I’d acknowledged one of the reasons it had failed was because of the market I’d chosen.
I took this into consideration when starting With Jack, but I still failed to ask myself some important questions about the market I’d chosen—freelancers.
There were a few reasons why I chose to target freelancers;
- The majority of quotes submitted via my MVP were from freelancers. This proved there was a need for a service like this
- I was part of this market myself having freelanced for several years. I knew I’d have an understanding of the people I’d be selling to
- No other insurers were heavily targeting freelancers or doing a good job of positioning themselves to this market
Here was my first mistake. I didn’t ask why that was. I naively thought it was an opportunity insurers had overlooked—to my benefit. Freelancing was a small but growing market and I thought there was a gap for an insurance company created exclusively for them.
So, in August of 2016 I soft-launched With Jack, an insurance company built for freelancers. For the first year I attracted designers, developers and tech-related freelancers before expanding organically into other segments.
I love targeting freelancers, but there are more lucrative areas I could pivot to. I want to stick with freelancers for a simple reason: I like them and I enjoy helping them!
However, that doesn’t mean I’ve chosen an ideal market to sell to and I want to share some of the factors I wish I’d considered beforehand. If you’re starting a business you will want to consider these factors, too.
Is churn high?
Because of the flexible nature of freelancing churn is high. 11% of our customers cancel their policy mid-term or don’t renew. Overwhelmingly, the reason for this is that they’ve accepted a full-time role.
Other common reasons for cancellations;
- Relocating abroad
- Maternity leave
- Client work drying up
- New contract not requiring insurance (the ‘tick a box’ freelancer)
Out of my first 100 customers, 71 have active policies.
Losing customers—whether mid-term or once their policy expires—never gets easier. It ruins my day. Despite this, I ensure the process of leaving is simple. Monthly insurance plans and 0 cancellation fees mean there’s little friction with cancelling.
I believe that by making it simple to terminate your policy we’re likelier to earn recommendations or welcome back those who churned.
Freelancing is flexible. Whilst this means many accept full-time positions it works the other way, too. Three years in I’m seeing a pattern where those who became employed are now returning to freelance work. And they need insurance again! Our frictionless cancellation process ensures they’re likelier to use our services again.
Do I think churn would be lower if I was targeting, say, agencies? I think so. Agencies have projects with longer lifespans and employees, so they’re not flitting between self-employment and full-time employment.
When choosing your market ask yourself, is churn high? Flexible markets like freelancing and the gig economy pose the risk of people falling in and out of using your product.
Are they price conscious?
Freelancers earn an average of £16,000 a year, so they’re incredibly price sensitive with insurance. They’re happy to spend time shopping around if it means saving a few pounds and they’re not shy in asking you to beat or match competitors’ prices.
I’m not interested in fighting this battle. Competing on price is a race to the bottom.
If someone grumbles about price I’m the first to refer them to cheaper providers. With Jack does not want to compete on price and there are several reasons for this;
- I want my business to be around long-term so I need to make a profit
- I want to work on new products and features to benefit customers. I need to make money to be able to do that
- I believe in the value of insurance and see first-hand how beneficial it is to freelancers. I want to do my bit to nudge the industry away from the price-driven buying behaviour that comparison sites have contributed to, and focus on the value it delivers instead
- Price conscious customers are the biggest time sink. Regardless of industry—whether it’s insurance or when I was a photographer—this rule of thumb usually applies
There are few occasions I make an exception. If someone is just starting out and their turnover is low I’ll do my best to help on the price front. I’m generally very firm on not lowering our prices. It’s something I feel strongly about.
Standing your ground and losing out on a sale because you aren’t willing to shave £20 off the price can be scary. In the early days I wasn’t as confident. But this stance has worked well for my business and as a result we’ve attracted high quality customers.
- I believe our churn isn’t as high as it could be because, come renewal, customers don’t have that mindset to shop around for the lowest deal
- We attract established freelancers who are likelier to be in business longer. The average turnover of our customer base is £50,000 as opposed to the average of £16,000
- Those who buy insurance based on price tend to be ticking a box to satisfy a client’s contract. These ‘tick a box’ freelancers aren’t ideal customers because there’s little brand loyalty and their lifetime value is lower
When choosing your market ask yourself, are they price conscious? Are you going to have to fight for each sale or have you chosen a market with momentum? Traction is trickier when selling something with a low perceived value (insurance) to a market with a lower salary than the national average.
Do you need high volume?
Freelance premiums are small (our average premium is £250), so I’d need lots of volume to build a behemoth of a business.
On the contrary, the average premium for tech startups whose insurance I’ve arranged is £1000. I’d have a very different business financially if my customers were startups instead of freelancers.
1000 freelancers with an average premium of £250 = £250,000
1000 startups with an average premium of £1000 = £1,000,000
My goal has never been to build a big business. What excites me is creating a remarkable product for a small group of people.
I am one person bootstrapping from a flat in Glasgow, so I’m getting by with the number of customers I have. But if my goal was bigger and I had employees to support, flashy office space to pay for and investors to return money to I’d need a higher volume of customers to reach that goal.
On the ‘five ways to build a $100 million business’ scale, I’m hunting mice. If I was hunting elephants I’d need far fewer of them to build a $100 million business. Again, that’s not my goal. But it’s a good scale to give you perspective on the volume of customers you need.
When choosing your market ask yourself, do you need high volume? Understand what your goal is and how many customers you need to get there. If your market is enterprise customers you’ll need fewer to reach $100 million. But it your market is prosumers paying $100 a year, you’re going to need a lot of volume!
Is the market big?
There’s an estimated 2,000,000 freelancers in the UK. This sounds like a big number, but all of the investors I spoke to said the same thing—the market’s too small (this is one of the reasons they weren’t interested in investing).
This was absurd to me. If I take 10% of the market, that’s 200,000 freelancers. This is over £15 million in sales a year! I would get out of bed for that.
Over time I came to realise the investors were correct—it isn’t a big market.
Even though there are 2,000,000 freelancers in the UK I’d estimate only 25% of them are insured. Suddenly the pool of people ready to buy our product shrinks to 250,000. If I take 10% that’s 25,000. That £15 million pot is now only £1.9m.
Don’t get me wrong, I’d still get out of bed for that but it’s significantly smaller than I first realised.
When you consider I’m going after this market alongside established incumbents and VC-backed startups, all of which have bigger teams and more resources than me, it becomes harder to make a dent in that market.
When choosing your market, think about the size and availability of your customers. In fact, read Justin Jackson’s Twitter thread about fishing which is an excellent analogy for choosing a market.
Don't target customers that are rare, hard to find, hard to reach, hard to convince, or don't have sufficient numbers to build a business on!— Justin Jackson (@mijustin) June 1, 2019
I still choose freelancers
I do think I’ve chosen a tricky industry (insurance) and a challenging market (freelancers), but I wouldn’t change a thing. There’s something more important to me than market size and volume of customers, and that’s company/founder fit.
It’s important to ensure the company you’re creating fits the kind of life you want to live. I don’t want to raise investment or build a billion dollar business. I want to create a remarkable product for a small group of people that I like, whose work I find interesting. Freelancers fit the bill perfectly.
Whilst there’s a lot of stuff you’ll uncover about your market post-launch, it is worthwhile going into business being aware of the potential pitfalls of your chosen market. Make sure you consider these questions when thinking about the market you’re going after.
- Is churn high? Flexible markets are likelier to experience higher churn
- Are they price conscious? Do they have money to spend?
- Do you need high volume? How many customers do you need to build the business you want?
- Is the market big? Are there lots of available customers (with money to spend) looking for your solution?