Startup Diligence Guide: Segmenting Your Customers for Market Sizing

Part 3 in the “Navigating Diligence: The Bling Capital Playbook” Series

Why We Segment Customers

This is Exercise 2 in the Bling Capital Diligence Playbook.

In Exercise 1 (“Hair-on-Fire Problem + 10x Better Solution”), you identified the user and buyer, and mapped their pain and workflow. In this exercise, we shift from individual behavior to defining the customer—the paying entity—and segmenting those customers into clear, non-overlapping groups with shared characteristics.

Why segment customers?

Segmentation helps you and your investors to understand your business and its potential. Investors will use this to gut check the market opportunity and if they believe in your GTM strategy. For you, it will help sharpen your priorities on what to build, in what order, and how to mindfully spend your resources and money to acquire customers. Segmentation often results in a phased approach to ‘unlocking additional segments’ that you may plan to do over time—it’s quite common that new companies start with one segment and then expand to many more.

Segmentation helps clarify:

  • Who you’re selling to
  • How much they’ll pay
  • How many of them exist
  • How you’ll reach and serve them

Segmentation lays the foundation for additional diligence items that come later:

  • Market sizing and path to a venture-scale outcome (i.e., $100M+ in gross profit)
  • Product roadmap and pricing strategy
  • GTM and financial model

What This Exercise Includes

You’ll answer five questions, each in short bulleted form:

  1. What segmentation framework are you using?
  2. What are the shared characteristics for each segment?
  3. What are the names of your segments and who are representative customers?
  4. How much will your average customer per segment pay you, and what is the margin?
  5. What is your GTM and which segments are you targeting, in what order?

This is the template we use for the exercise.

Defining Customers

A customer is the entity that pays for your product.

  • If your business is B2B, this is typically an organization (buyer ≠ user).
  • If your business is B2C or SMB, the buyer and user are often the same person.

Segment by customer—the paying entity. Reference buyers and users within each segment when relevant (e.g., for GTM, pricing, adoption, or seat/geography expansion).

Defining Segmentation

Segmentation is a MECE (Mutually Exclusive, Collectively Exhaustive) framework used to group customers with shared characteristics. Each customer belongs to one and only one segment.

Example Segmentations

If your business is… You might segment by…
B2B SaaS Sector + company size (e.g., Enterprise, Midtier, SMB)
SMB Customer type (e.g., merchants without card readers, physical retail)
B2Government State size + number of departments (e.g., Large, Medium, Small)
B2C or DTC User activity or lifestyle (e.g., cyclists, hikers, runners)
Marketplace Verticals (e.g., clothes, electronics, collectibles)
Localized City size and demand (e.g., Large Urban, Midsize Suburban, Small Suburban)

Segmentations can be based on:

  • Geography (states, cities, regions)
  • Size (small, medium, large)
  • Vertical (tech, telecom, media, defense, financial services, etc.)
  • Business type (retail, ecommerce, wholesale, DTC)
  • Attributes (employee count, tech stack, transactions, channel, etc.)

Choose a framework that reflects what drives buying behavior, not just what’s easy to categorize. Then define each segment with objective criteria (e.g., size, usage pattern) and explain why those customers are more or less likely to buy. The best segments are easy to identify, target, and explain — and their members tend to behave similarly.

Example:

  • Early on, Uber may have segmented by city size and density of high-income riders with limited or unreliable access to private transportation
  • Early on, Figma may have segmented by company size in industries that build software products and have product teams

Common Mistakes and Fixes

We often see mistakes emerge in five patterns—here’s how they show up, in the example of a seed-stage product design app, like Figma, and how to fix them:

  1. No segmentation—just top-down TAM
    Example: “There are 100K product designers globally. If each pays us $10K/year, we have a $1B TAM.”
    Mistake: No grouping based on shared traits; no buyer identified; no pricing strategy; no GTM structure.
    Fix: Segment by company size and buyer/user dynamics.

    • Enterprise: 10K+ employees
    • Midmarket: 1K-10K employees
    • SME: <100 employees

  2. Segments are not fully defined; no reference customers in segments
    Example: “We segmented into Enterprise, Midtier, and SME.”
    Mistake: No clear, MECE definitions for each segment and no representative customers.
    Fix: Use objective criteria (e.g., revenue, employee count, complexity of deployment), and include real or plausible customers to anchor each segment:

    • Enterprise: Companies with >10K employees and global product teams (Google, Microsoft, Salesforce, Adobe)
    • Midmarket: Companies with 1K–10K employees and centralized design leadership (Datadog, Atlassian, Dropbox)
    • SME: Companies with <1K employees, typically early-stage or bootstrapped (Series A and B startups)

  3. Overstating the average number of users per customer in a segment
    (Also common in other frameworks — e.g., counting all adults aged 25–34 in B2C when only a subset experiences the core pain.)
    Example: “We counted all employees who could potentially use the product.”
    Mistake: Inflates user counts and skews pricing assumptions.
    Fix: Include only users who match your “Hair-on-Fire + 10x Better” profile:

    • Enterprise: 30K employees → 5% in product = 1,500 users
    • Midmarket: 5K → 10% = 500 users
    • SME: 50 → 50% = 25 users

  4. No pricing or margin assumptions per segment
    Example: “Our average ACV is $100K/year with 80% margins.”
    Mistake: Ignores pricing/margin differences by segment.
    Fix: Break it down:

    • Enterprise: $1M ACV ($55/seat), 60% margin
    • Midmarket: $200K ACV ($30/seat), 80% margin
    • SME: $3K ACV ($10/seat), 90% margin

  5. Overlapping segments (not MECE)
    Example: “We segment by company size (SMB, Midmarket, Enterprise) and by industry (Health, SaaS, etc.)”
    Mistake: A customer (e.g., a 300-employee digital health startup) could fall into multiple segments, creating ambiguity in GTM and TAM.
    Fix: Pick a primary segmentation axis. You can use industry or other traits as sub-attributes, but each customer should clearly belong to only one segment based on observable criteria.

The Bling Capital Method

We structure segmentation in a shared Google Doc to allow faster iteration and collaboration.

We aim for short, direct answers. The best examples read more like field notes.

Example: Pre-seed Figma

  1. What segmentation framework are you using?

    • Company size by employee count

  2. What are the names of your segments

    • Enterprise
    • Midtier
    • SME

  3. What are the primary characteristics for each segment, with example customers?

    • Enterprise: >10K employees, ~5% design-focused (e.g., Google, Microsoft, Amazon, Workday)
    • Midtier: 1K–10K, ~10% (e.g., Datadog, OpenAI, Anthropic)
    • SME: <1K, ~50% (e.g., A-D startups)

  4. What is your annual revenue per segment, and what is the margin?

    • Enterprise: $2M (3,500 users × $50/mo), 85% margin
    • Midtier: $360K (600 users × $50/mo), 90% margin
    • SME: $6K (25 users × $20/mo), 95% margin

  5. What is your GTM and which segments are you targeting, in what order?

    • We currently have customers across all segments. We start with self-service PLG and layer in sales motions as we move upmarket:
      • SME: PLG
      • Midtier: PLG + founder upsell
      • Enterprise: Founder-led direct sales

Why It Matters

To raise venture capital, you need to be able to tell a credible, bottoms-up GTM plan that shows you can scale to at least $100M in gross profit within 7 years. That’s generally considered the minimum bar for being “investible” or “venture scale“.

Segmentation is how you structure the inputs for that plan. It answers:

  • “Who your customers are”
  • “How many of them exist”
  • “How much they’ll pay you”
  • “What % you could realistically win”

These inputs feed into your market sizing and GTM strategy, and ultimately determine whether you can support a venture-scale outcome.

Here’s why that matters, using simple investor math:

  • A seed investor has a $100M fund
  • They invest $1M in your company for 10% ownership at seed
  • Your company exits for $2B
  • After dilution, the investor owns 5%
  • They receive $100M (5% of $2B)
  • The investment returns the fund

Segmentation is how you work backward from that bar.

Final Takeaways

Segmentation helps you:

  • Ensure complete, non-overlapping coverage of customers with shared characteristics
  • Prioritize which segments to target, and in what order
  • Define pricing and packaging for each segment
  • Build market sizing that shows a credible path to $100M+ in gross profit
  • Develop your GTM strategy
  • Prioritize features in the product roadmap
  • Allocate resources and spend money more effectively to acquire customers

Next Up: Market Sizing

In Part 4, we’ll build a bottoms-up TAM model using your segmentation.

We’ll cover:

  • Why market size matters
  • Our shared method and framework—step by step, with a template
  • How to calculate and present your bottoms-up TAM

Stay tuned!

Thanks to Melody Koh, Jared Fliesler, Gokul Rajaram, Nevin Raj, Tyler Maloney, and Andrew Bocskocsky for reading drafts of this.