I have a confession to make: for years, I was a vocal champion of the Ideal Customer Profile (ICP) methodology. As a SaaS CMO, I evangelized ICPs as the enlightened alternative to the "spray and pray" approach that dominated B2B marketing, where CEOs would default to the loudest voices in the room (usually sales leadership) and target anyone with a pulse and a budget.
The ICP methodology was meant to be our salvation. It replaced gut feelings with data-driven precision, focusing resources on prospects that matched specific firmographic and demographic criteria. And yes, on paper, it was a significant improvement. Conversion rates climbed, CAC payback periods shortened, and marketing teams could justify their existence with refreshingly concrete metrics.
But after reviewing hundreds of go-to-market strategies across dozens of industries in our consulting work, me, as a fractional CMO for SaaS companies and Jordan as a growth hacker, have identified a foundational flaw in the ICP approach: it fails to recognize customer pain as the primary driver of purchase decisions. It's inherently seller-centric rather than buyer-centric, focusing on which customers are most convenient for us rather than which prospects urgently need our solution.
This limitation was tolerable in yesterday's market (like, five months ago). Today, the efficiency gap is becoming existential, with AI-native competitors "drinking their own Kool-Aid" and achieving dramatically lower customer acquisition costs. Companies clinging to traditional ICP-based targeting (or worse, the spray-and-pray method that preceded ICP) simply cannot compete with the economic advantages of truly pain-based segmentation at scale.
We broke down this evolution during our Category Rodeo live stream using Electronic Health Records (EHR) and Practice Management software as our case study. What we discovered points to a fundamental shift in how B2B companies must approach market segmentation to survive in an AI-accelerated landscape.
The ICP Delusion: Why Traditional Segmentation Is Failing Us
For decades, B2B companies have segmented their markets using the same basic approach: firmographics, demographics, and technographics. The resulting "Ideal Customer Profile" is supposed to focus marketing efforts on prospects who, on paper, should be the most likely to buy.
But here's the problem: companies don't buy solutions because they fit a demographic profile. They buy because they're experiencing an acute pain point that threatens their business.
In fact, I'd argue something even stronger: demographic-based targeting is actively working against you. It blinds you to actual buying triggers and forces you to communicate in generic terms that fail to resonate with the real issues your prospects face.
Let me illustrate this with a simple tale of two practices:
Practice A: A five-physician cardiology group with $3.2M in revenue, based in Chicago, 10 years in business, using legacy practice management software, perfectly aligned with the "ideal customer profile."
Practice B: A two-physician dermatology practice in rural Iowa with $1.1M in revenue, just three years old, and their first EHR implementation, entirely outside the ICP.
Traditional targeting would focus all resources on Practice A. But here's what this approach misses: Practice A has a comfortable 38% gross margin and only 7% revenue leakage from billing errors. Meanwhile, Practice B is experiencing 22% revenue leakage, and its gross margin has collapsed to 19%, putting it on a fast track to bankruptcy.
Which practice do you think has greater urgency to buy?
If you're selling EHR and practice management solutions that promise to reduce revenue leakage and improve margins, Practice B is literally fighting for its life. They're not shopping around. They're not prolonging the sales cycle. They're not nickel-and-diming you on pricing. They need a solution yesterday.
This illuminates the fundamental flaw in traditional market segmentation: it focuses on what's convenient for the seller rather than what's urgent for the buyer.
Pain-Based Segmentation: The New Framework
Once you identify the Existential Data Point for your category, you can build a new, more powerful segmentation model called Pain-Based Segmentation.
A pain-based segment is a group of potential customers unified by a common, significant business problem or pain point. Unlike traditional firmographic segmentation, pain-based segmentation focuses on the intensity and specificity of the issue being experienced.
Let's revisit our healthcare example. When we analyzed the EHR and practice management market, we found that the intersecting metrics of revenue leakage rate and gross margin were the critical existential data points. This led us to identify two pain-based segments:
Margin Collapse (High revenue leakage + Below-threshold gross margin)
Practices experiencing critical financial distress due to billing inefficiencies and low margins
Typically, this results in losing 20 %+ of potential revenue through denied claims and poor collections.
At imminent risk of closure or acquisition
Growth Blockers (Moderate revenue leakage + Moderate gross margin)
Practices with stabilized operations but unable to scale due to administrative inefficiencies
Experiencing 12-19% revenue leakage and margins between 36-41%
Adding staff but not seeing proportional growth in billing capacity
Both segments experience a distinct pain related to the existential data point, but the urgency, scale, and nature of their pain varies dramatically. This variation is what creates your targeting opportunity.
How Pain-Based Segmentation Can Transform Texada’s Growth
To illustrate the power of this approach, let's look at Texada, a vertical SaaS provider that helps equipment lessors manage and optimize their businesses.
Traditional ICP approaches would segment Texada's market by company size, equipment inventory value, geographic location, and industry focus. But our research revealed that the existential data point for equipment rental companies is the utilization rate , the percentage of equipment that's generating revenue at any given time.
When equipment utilization falls below 60%, rental companies start bleeding cash. This single metric separates a thriving business from one facing potential failure. This allowed us to identify several pain-based segments:
Below 60% utilization — These companies are bleeding cash. They're in serious trouble if this continues for more than three months. Six months? They might go out of business.
60-70% utilization — This is the "Goldilocks zone," where companies have positive cash flow but could still optimize.
Above 70% utilization — These companies are profitable but face a different problem: they might not have equipment available when needed and may need to expand their fleet.
Rather than spray-and-pray marketing across the entire equipment rental industry, Texada can focus on the first segment, companies with utilization rates below 60%, allowing them to create highly targeted messaging that speaks directly to existential pain.
The Pain-Based Segmentation Process
So how do you apply this approach to your own business? Here's the framework we use:
Step 1: Identify the Existential Data Point(s) for your category
This requires deep research into customer pain points, industry challenges, and critical business metrics. You're looking for the threshold that separates success from failure — the metric that creates genuine urgency when it crosses a specific threshold.
We've developed a two-prompt approach for this discovery phase, recognizing the different strengths of today's AI models:
Comprehensive Research Prompt—This prompt is designed for models that excel at deep research (like Gemini 2.5 Advanced or ChatGPT). It gathers extensive information about market dynamics, pain points, the competitive landscape, and critical metrics within your category. Access the Research Prompt here.
EDP Analysis Framework - This analytical prompt is optimized for Claude's superior analytical capabilities. It takes the research output and identifies potential Existential Data Points, evaluating each against urgency, universality, and actionability criteria. Access the Analysis Framework here.
This two-stage approach ensures more comprehensive research and insightful analysis than a single model for the entire process.
Step 2: Map your category using the Existential Data Point(s)
Once you've identified the Existential Data Point, create a visual representation that plots customer segments based on their relationship to this critical metric. For multi-vector Existential Data Point (like revenue leakage × gross margin), this often takes the form of a 2×2 grid or quadrant map. We’ve mapped segments with four pain vectors in the past so don’t be afraid to get creative with spider graphs and other non-traditional mapping (Claude is always helpful here).
The goal is to identify the "strike zone, " where customers have sufficient pain to create urgency but haven't yet crossed into the "too far gone" territory where they're unlikely to make any purchase.
Step 3: Score your Pain-Based Segments
Based on your category map, identify distinct customer segments unified by common pain related to the Existential Data Point. Give each segment a descriptive, memorable name that encapsulates its unique challenge.
For each segment, calculate:
Pain Intensity Factor (severity score reflecting urgency)
Conversion Rate (estimated % of pain-experiencing organizations that would adopt a solution - let AI score this)
ACV (Average Contract Value)
Sales Efficiency Factor (adjustment based on expected efficiency)
This allows you to score each segment for potential ARR for using the formula:
Segment ARR Forecast = TAM × Pain Intensity Factor × Conversion Rate × ACV × Sales Efficiency Factor. See the DISCO case study for a tutorial.
The Revenue Impact: Why This Matters
For companies struggling with challenging acquisition economics, we believe pain-based segmentation can be transformative:
Reduced CAC: By targeting prospects with acute pain related to your solution, you eliminate wasted marketing spend on prospects who don't have urgent needs.
Accelerated Sales Cycles: Pain creates urgency. When you message directly to existential pain points, prospects move through the sales process faster.
Higher Conversion Rates: Speaking directly to what keeps buyers up at night dramatically improves conversion at every stage of the funnel.
Reduced Competitive Pressure: When you position yourself as a solution to a specific problem rather than a generic tool, you often sidestep competitive bake-offs entirely.
Improved Retention: Customers who bought because you solved an acute, well-defined pain point are more likely to recognize your ongoing value.
The Fundamental Shift: From Firmographics to Pain
The shift from demographic-based to pain-based segmentation represents a fundamental reorientation of how we approach go-to-market strategy.
Traditional segmentation asks: "Which customers are best for us?"
Pain-based segmentation asks: "Which prospects have the most acute need for our solution?"
This customer-centric approach improves acquisition economics and forces a ruthless prioritization that most marketing teams desperately need. Rather than trying to boil the ocean, you can focus your resources on the prospects most likely to convert because they're experiencing genuine urgency.
As the competitive landscape grows more crowded and customer acquisition costs continue to rise, companies that master pain-based segmentation will enjoy a significant competitive advantage. They'll spend less to acquire better-fit customers who move through the sales process faster and stay longer.
That's not just good marketing, it's good business.
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