Demographics refers to statistical data relating to the population and particular groups within it. For a startup founder, this is the raw material used to define the boundaries of a potential market.
It is the systematic categorization of people based on objective, quantifiable traits. Common examples include age, gender, income level, education, geographical location, and employment status.
When you are building a business, you often start with a problem. But a problem only becomes a business opportunity if specific people experience it and are willing to pay to solve it. Demographics help you quantify those people.
It moves your idea from “I think people will like this” to “There are 4 million people in the Midwest with the income level required to afford this solution.”
Defining Demographics in a Startup Context
#In a corporate environment, demographics are often used for broad reporting. In a startup, they are used for survival and focus. Resources are limited. You cannot target everyone.
By narrowing your demographic focus, you increase the efficiency of your initial capital. You are looking for the Minimum Viable Segment just as much as you are looking for a Minimum Viable Product.
Here is how you might categorize this data:
- Socioeconomic: Income, occupation, education
- Biological: Age, gender, ethnicity
- Geographic: Urban, rural, specific climate zones
- Family Status: Marital status, number of children
Founders use this data to calculate Total Addressable Market (TAM). Investors will almost always ask for this. They want to know the hard numbers behind your assumptions.
Demographics vs. Psychographics
#It is critical to distinguish between demographics and psychographics. These terms are often confused, but they serve different functions in your strategy.
Demographics explain who the buyer is. Psychographics explain why they buy.
Consider two men born in 1948, raised in the UK, wealthy, and twice married. Demographically, they are identical. However, one is King Charles III and the other is Ozzy Osbourne.
If you only use demographics, you might treat them as the same customer. That would be a mistake.
Demographics provide the skeleton of your customer profile. Psychographics provide the flesh and muscle. You need demographics to identify the market size and location, but you need psychographics to craft the message.
Practical Scenarios for Application
#There are specific phases in the startup lifecycle where demographic data is most useful.
The Pitch Deck When you raise money, you need to prove the market exists. You use demographic data to build a bottom-up market analysis. This shows you have done the math on how many potential customers actually exist.
Product Development If your demographic data shows your target audience is primarily over the age of 65, your user interface needs to account for eyesight and dexterity changes. If your audience is college students, your price point must align with their discretionary income.
Advertising Spend Platforms like Meta and LinkedIn allow you to filter audiences by demographic traits. This prevents you from spending money showing ads for high-end enterprise software to entry-level retail employees.
Questions We Must Ask
#Data is helpful, but it is not infallible. As you collect this information, you should maintain a level of skepticism.
Does falling into a demographic group actually predict behavior? Just because someone has the budget, does that mean they have the need? Are the demographic trends shifting faster than the census data can keep up?
Founders must constantly verify if the statistical groups they are targeting still behave the way the historical data suggests.