Instead of boxing their customers into one profile, large companies are segmenting customers into ever-narrower lifestyle profiles and categories to understand their core values. They're targeting the 20 percent of customers who generate 80 percent of their business, says James Chung, founder of Reach Advisors, a Belmont, Massachusetts, strategy and research firm. Electronics retailer Best Buy, for example, now focuses its business on five customer profiles instead of trying to broadly tailor its marketing to fit every customer profile.

Most entrepreneurs, however, still try to be everything to everyone by targeting a wide demographic. "Most small businesses are afraid of planting a flag and saying that their business focuses on a specific, high-value target audience," Chung says. "[But] it's a lot easier to focus on a profitable target, then do everything you can to engage them."