B16 – Chasm Crossings & Marketing Metaphors

This past week I was at home visiting friends, family, and football. One particular friend has one of the strongest development teams I’ve seen. All of them super genius computer science people at the cutting edge of technology.

And that’s where the issue starts. Their team is comprised merely of developers. No diversity in expertise or thought. They have no specific understanding or approach to market it and that’s where the issue lies. This post is for them. It is about product/market fit and how to succeed in Crossing the Chasm, a book by Geoffrey Moore on how to market and sell disruptive technology to mainstream customers.

Introduction

  • Feature for feature, less successful product on the market is usually technologically superior
  • “The Chasm”: changing from selling to early market comprised of a few visionary customers to a mainstream market with a large number of customers who are pragmatists
  • Early market: your technology is considered a fad
  • Mainstream market: your technology is considered a trend
    • You need to decide which one you’re dealing with
    • It is much better to start with a fad and turn into a trend then try to break into a trend
  • Every great high-tech product starts as fad with great features and “cool” factor with in-crowd
    • Then chasm
    • Then discovers if can be value proposition with set quantifiable customer base at reasonable price to enter mainstream
  • To cross chasm you need a whole team behind you
    • It is not a time for crazy marketing schemes, but careful plans and cautious spending
    • Prudence, not brilliance is key
    • Use whole team (read: including dev team) to co-ordinate the plan, not just a few people

The Technology Adoption Life Cycle

  • Types of innovation
    • Discontinuous innovation: your product changes current mode of behavior
    • Continuous innovation: normal upgrading to technology with no change in behavior
      • Between these 2 lie demands for change
      • Sooner or later all products will demand change in some way
      • These changes require a marketing strategy
  • Each stage of consumers have different type of psychographic profile
    • Combination of psychology and demographics: “Avatars”

Types of psychographic profiles

  • Innovators: pursue tech before it is easy to imagine new benefits and relate the technology to their own concerns
    • For them, it is ok to have bugs in the software, they’ll work through them
    • Not a lot of innovators out there, but you must win them over (gain important social proof)
  • Early adopters: not technologists, but find it easy to imagine the new technology’s benefits and relate to their own concerns
    • They rely on their own intuition not peer references in making decisions
  • Early majority: strong sense of practicality
    • They know that a lot of hi-tech is fad, so they’re content to wait it out and wait for well-established reference checks on the technology
    • ~33% of your market is this and winning them over is key to being successful
  • Late majority: like the early majority but they aren’t comfortable with technology
    • Once you have an established product, they will still wait to see and make sure you have “support” around it
    • They buy from well-established companies
    • You need to court them (aka time and $$)
    • Lower profit margins, but lower average selling costs and R&D
  • Laggards: don’t want anything to do with technology unless it is buried within something they do
    • Like a microprocessor in a brake system
    • They’re not worth pursuing

Moving through the groups

  • Key is to maintain momentum from first group to the last (in order)
    • These groups are your “Window of opportunity”
  • Primary payoff is through profit margins in middle to late stages
    • Create “the standard” by being first and riding the wave so it is harder to use anything else
  • Gaps between groups
    • Between innovators and early adopters: there’s an issue when hot tech product cannot be translated into a new major benefit
      • You must prove that your technology enables a leap forward into a new major benefit
    • Between early majority and late majority
      • Major focus is on the demands of the end user changes from users who are technologically competent to those that aren’t
      • Product at this stage must be easier to adopt then ever before, or growth will stall
      • Don’t let the “Experience” of the product be commoditized
    • The Chasm: refers to the space between early adopters and early majority
      • This gap usually goes unrecognized because your sales are the same from similar type of people, but they buy for very different reasons
      • Early adopter: buys because product is a change agent that will enable a jump on competition
        • From lower cost, first to market, more complete customer service, etc.
        • They expect a radical change from old way to new way of doing things and ready to fight the change resistance
          • They will bear with the bugs and glitches
      • Early majority: buys because it is a productivity improvement
        • Want a gradual evolution, not radical revolution
        • Technology is to enhance not overthrow
        • Don’t want to de-bug, when buy, it should work and integrate smoothly
        • Will buy if “all things check out”
      • Early adopters don’t make good references for early majority
        • Catch-22 because early majority requires reference checks (but only from other early majority)
        • So something might take off, has a lot of publicity, but it’s unsuccessful because you don’t make it easier to use, so it can never break into a new segment
        • Companies fail because they try to expand to early majority without references or customer support
        • At time of greatest peril, people think they’re in the clear and expand rapidly (which dooms them)

High-Tech Marketing Enlightenment

  • First there is a market (innovators and early adopter), then there is none (chasm), then there is (early and late majority)
  • Marketing: actionable way to find a way that will predictably and positively affect company revenues
    • Actions to create, grow, maintain, or defend markets
  • Market: set of actual or potential customers, for a given set of products or services, who have common needs/wants, who reference each other when making a buying decision
    • If they can’t reference each other, they’re not in same market
  • Early market (initial customers)
    • Willing to spend hours fixing bugs/trying to get product to work
    • Make great critics because truly care and will help debug
    • Want truth without tricks: can see through B.S.
    • Wants access to smartest developer on the team for support
    • Want it first (making them sign an NDA is often ok)
    • Want it cheap
    • Direct marketing with demo or literature, but don’t want all the marketing hype
    • You need them, let them in on your “secret,” let them play with product, give you feedback, and show them you incorporated it
    • Find ones that work with big bosses who controls purchasing decisions
  • Early Adopters (visionaries)
    • Insight to match new tech to strategic opportunity and translate that to their company
    • Hidden source of VC with partnerships
    • Usually are new execs with a “dream” that’s a business goal, not a tech goal
      • Dream is a quantum leap in how business is done
      • Understand their dream and market to them
    • Not looking for improvement, but a fundamental breakthrough and tech has to deliver on this dream and ability to leap company forward
    • They will work with low-funded startups, knowing they have to go outside the mainstream
    • Least price sensitive (usually big budgets) and can fork over money up from for additional service
    • Serves as public officials to give testimonials/references
    • Easy to sell, but hard to please because their “dream” will never be fully satisfied
    • Start with pilot program with milestones that they can be involved in
    • Create deliverables that you can “productize” at each phase to sell to those with lesser needs
      • They see it as a “window of opportunity,” very time sensitive, big reward or big penalty
      • Each phase: make sure can be accomplished in a reasonable amount of time, creates a marketable product, and provides customer with a solid ROI
    • Manage their expectations and celebrate each step forward
      • Use a small but top direct sales force with careful negotiations and flexible
      • Work with at least VP level customers (have power)
    • Usually they find you with their connections to techies who you’ve impressed
    • They provide publicity and large deals, but seek to influence your direction which could lead to disappointment

Issues of early market (innovators and early adopters)

    • No expertise is sales/market force: have to be biggest fish in pond, if not find smaller pond….eventually you will go to a bigger pond
    • Sells vision before has the product (vaporware)
    • Fails to make the jump: explain the extraordinary benefits
      • If none present, rethink forecast and partner with company that already exists
    • Overly ambitious projections and under capitalized

Mainstream markets (like B2B markets)

  • Early majority (pragmatists) and late majority (conservatives)
  • Pragmatists
    • Risk is bad to them, waste time and money
    • Hard to win over, but loyal once won over, be patient
    • Focus on winning their trust by employing support and focusing on quality and long term issues
    • Easy if go to a value added reseller (VAR)
    • Like to see competition, 3rd party support, etc. because then know it will be adopted
    • Reasonably price sensitive, but want best deal
  • Conservatives
    • 1/3 total population and not usually marketed to appropriately
    • They are against change: if not broke, don’t fix it
    • Fear technology
    • Buy tech only so they don’t get left behind
    • Like things packaged and preassembled
    • Usually like products dedicated to one function: fax, copy, print, etc.
      • Allows you to break apart your offering into many different products
    • Want it cheap and support
      • No margin, but should have already worked out the bugs
    • Dynamics of mainstream markets
      • Driven by pragmatists
      • Doesn’t need to be “best” just good enough with promise of developing a solution to catch up to “newest thing”
        • They don’t want to switch software, so on your side, don’t abuse that though
      • Ways to lose mainstream
        • Stop investing R&D to improve existing products
          • By focusing on new projects
        • Make flagship product bad in new version
      • Smooth transition
        • Allow for new solutions (pragmatists) but also constantly improving existing solution (for conservatives)
        • Longer your product is in market, should be more a focus on service
        • Use pragmatists to work out bugs for conservatives
      • Skeptics (laggards)
        • Don’t market to them to buy, market so that they won’t block the sale
        • Do so by ensuring you have “full solution” and deliver on promise, otherwise will jump all over

Chasm (between visionaries and pragmatists)

    • When change strategies, it will be awkward because just got comfortable with old way of doing things
    • Biggest problem is lack of customer base that can be referenced
    • Previous group not effective as references to new group
      • Visionaries think they’re smarter, and when product has support services, think they’ve missed the window to adopt
      • Pragmatists want references (a lot of them) but only 1 or 2 visionaries exist per market
      • Visionaries are bored and look to tech for fun, but pragmatist look for proven function
      • Visionaries don’t expect “standards,” protocols, support, pragmatists do
        • State of the art vs. industry standard
      • Visionaries jump from company to company if new project fails, because can see if it will fail or not, pragmatists stay and will have to deal with repercussions of failure
    • You want/need pragmatist to buy now and they want/need to buy later

Crossing the chasm

  • Lack of customers: too few early market and pragmatists not ready
    • Mainstream competitors now focused on competing with you
    • Tend to try to sell again to existing base, but not sustainable because they have not more money
    • Investors are looking for returns to rise (futile)
    • Leads to vulture capitalism
  • To enter mainstream, it’s an act of aggression, time to fight, not nice
  • Find a Niche (your Normandy)
    • Move competitor out of your target niche, then take over more
    • Do so by providing over-abundance of support into that niche
      • Niche must be tightly bound = talk and share opinions on things with one another
    • Companies fail by chasing all opportunities (if don’t take Normandy, don’t have to worry about Paris)
      • They are sales driven, when should be market driven
        • Reject sale if not in target
      • Goal is to create pragmatist customer base that is referenceable
        • So have to do a great job, so whomever we promise the “whole product” to, must be strategic and done sparingly
      • Not 1 or 2 in each of 10 markets, but 4 or 5 in 1 or 2 markets to create word of mouth
    • Whole product = market leadership, 3rd party products, accepted standard
    • To find market size: take # sales expect to make over given time, double it, and that’s target market, but be 50% in whatever market
      • Must be big fish in little pond
    • Why Niche: word of mouth effectiveness, whole product leverage, and perceived market leadership
    • Meet non-niche customer’s needs with whatever resources are left
    • Target market segment after niche market
    • Applications: are usually vertical because end users and they organize as such: by geography, profession…easier to market to end user over techies
    • Platforms: naturally horizontal, but must be marketed vertically, harder because must be attached to a software that is useful
    • When pick your target, not about number of people involved, but pain you’re curing
      • Pained department gets executives to force tech to implement
    • Bowling pin affect: once fix pain, it will lead to other departments to adopt, so when pick first target, line up your other segments
      • Value is not of pin 1, but what pin 1 can knock down
    • Sometimes it’s not about features, but having just enough that solve the pain (Palmpilot)
    • Sometimes closed communities allow for the saturation needed (government, schools, etc.)

Target the Point of Attack

  • To find niche, have to make a high risk, low data decision with informed intuition
    • Your company is too small and inaccurate to look at a “total market” forecast, and say “if we get 5% of $1B market,” that’s just not going to work
      • Forecast is based on multiple assumptions that if one of them is even slightly off, it dramatically affects results
    • Often there is no accurate previous product to compare it to and quantify the market for
  • Market is impersonal “fax machine market” – selling is acutely personal
  • Target customer customization: find a type of person with type of behaviors à Avatars
    • What kind of people are they: an end user, technical buyer, economic buyer of the offer, etc.
    • What business market are they: industry, geography, department, and job title
    • What Consumer markets: age, sex, economic status, social group

Sales pitch:

  • A day in the life (before)
    • Scene or situation
    • Desired outcome
    • Attempted approach
    • Interfering factors
    • Economic consequences
  • A day in the life (after)
    • New Approach
    • Enabling factors
    • Economic rewards
  • Do 40-50 scenarios and whittle down to 10 common ones
    • There will be a bias, but best you can do
    • Rate in 2 stages
      • Stage 1 (those that must have this product)
        • Target customer
        • Compelling reason to buy
        • Whole product
        • Partners and allies
          • Find highest ranked one
            • If any one of these areas is ranked low, get rid of it
            • If there are none, you’re not ready to cross chasm yet
      • Stage 2 (those where it’s nice to have the product)
        • Distribution
        • Pricing
        • Competition
        • Positioning
        • Next target customer
      • NOW PICK ONE, ONLY ONE: YOUR BEST ONE
        • Size matters, need to be able to sell to over 50% of that market sizeà market leader
        • If it’s too big, split up, if too small, repack or combine

Assemble the Invasion Force

  • To cross the chasm you need the whole product: customer support, sales, R&D/Improvements, distribution channels
    • Can either create them all (which is costly) or can partner with others to provide what you need because it is not your core competency
      • These partners are your invasion force
    • Types of the product
      • Generic product: shipped in box and covered by purchasing contract
      • Expected product: a product the consumer thought he/she was buying
        • They are the minimum configuration of the product necessary to buy it
      • Augmented product: has the maximum chance of achieving buying objective: “But that’s not all, it also does…”
      • Potential project: product’s room for growth
    • Generic product is good to focus on for early adopters
    • As go more mainstream, need to focus on expected and augmented more because there will be competition
    • Companies that win might have inferior generic product, but has a superior “whole product”àsupport, distribution, sales, & key strategic relationships
      • Whole product allows the shipped product to fulfill the marketing promise made (the compelling reason to buy)
      • Whole product Model does all these exceptionally well:
        • What we ship & are responsible for
        • Anything else that is needed for the product is provided
          • “needs this graphics chip to continue”
        • Ensure each vendor/partner wins & gets fair share
        • Develop vendor relationships slowly, from loose to formalized over time, don’t rush in
        • Manage own company’s expectations for growth
      • Early market is okay if they are dealing with bugs and using their own pieces for the whole product, but the mainstream expects no bugs, full help/service, and given all pieces needed
        • These additional things 3rd party will usually provide later, but not while you are crossing the chasm
      • Every new target customer will put additional demands on the whole productà Training manual/sessions
      • If segment is too large or too loose, early leaders can be displaced by larger competitors
      • Internet relies on tactical alliances

Define the battle

  • Competition: who it is, what their current relationship is with target customer, and how can we best position ourselves
  • You can’t lose if you set the turf and define the victory (unless you misinterpret what people want)
    • Pragmatists want strong competition and to be marketed in terms of what they know
  • But if new technology, usually no competition (just internal debates within a company of visionaries and pragmatists)
    • So have to create own competition within the market they’re familiar with and with companies they respect, while making your product the indisputable choice
      • By finding which attributes, ranking them, and strategy against strongest competitors
      • Product centric: fastest product, easiest to use, elegant architecture, product price, unique functionality
        • Market centric: largest installed base, most third party supporters, de facto standard, cost of ownership, quality of support
      • Create 2 things
        • Market alternative: product customers have been buying for years but have a limitation (customers have $ allocated to it though)
          • Will fight you because taking their money, but yours is so much better
        • Product alternative: another company with similar technology as yours but focused elsewhere
          • Different niche, but validates your technology
          • Points to the difference but sustainability/feasibility
        • If competition stays out of your way, respect their accomplishment, but if enter your niche, end them
      • Bar method: have to summarized what you are doing as if talking to someone at a bar: fast, easy to understand
        • If having trouble, means not ready to cross yet
      • Make sure your target has budget allocated, not yet allocated to you, but at least it exists
  • Positioning: noun and verb
    • Noun: attributes associated with product/company
      • Single largest influence on the buying decision
      • Exists in people’s heads (simple terms), not in your own/marketing words
    • Verb: activities towards making buying easier (not selling it easier)
      • People hate selling, but enjoy buying
    • Goal: “x is best thing to buy in y situation”

How to position

  • Name and frame: name of it and category in
    • Minimum for it to be bought
  • Who for and what for: minimum to buy for visionary
  • Competition and differentiation: comparative context, pragmatists
  • Financials and futures: will know company has staying power, conservative
    • Process
      • Claim: 2 sentence positioning
      • Evidence: make any competitor’s attempts to discredit you unreasonable
      • Communications: ID and address right audience, right sequence, with right version of the message
      • Feedback and adjust: from competitor’s attacks and holes
      • Process is dynamic and have to keep dealing with same customers, so key is loyalty
    • Claim (2 sentences)
        • For (target customer—niche)
        • Who are dissatisfied with (current market alternative)
        • Our product is a (new product category)
        • That provides (key problem-solving capability)
      • Unlike (product alternative)
      • We have assembled (key whole product features for your specific application)
  • If can’t reduce
    • Can’t transmit through word of mouth (too confusing)
    • Marketing material/communication all of the map (no focus)
    • R&D will be all over the map
    • Won’t be able to recruit partners and allies because they won’t be sure of your goals and commitments
    • Won’t get financing from anyone (because don’t have a marketing strategy)
  • Keep claim simple, even though might be limiting because people won’t give you that much space in their head
    • Like a telegram/text
    • If you don’t do it right, they will do it wrong
  • Positioning is not about hype, but clear and precise direction
  • The claim is not tagline for an ad, but ad should support claim
  • Evidence wanted for positioning claims
    • Technology (enthusiasts): architecture, schematics, demos, trials, tech press coverage, guru endorsements
    • Product (visionaries): benchmarks, product reviews, design wins, initial sales volumes, trade press coverage, visionary endorsements
    • Market (pragmatists): market share, 3rd party support, standards certification, applications proliferation, vertical press coverage, industry analyst endorsements
      • How committed partners are to you with co-marketing, references to you, and back door opinions
      • Need to be “look at new market” not “look at our product version 3.0”
    • Company (conservatives): revenues and profits, strategic partners, top tier customers, full product line, business press coverage, financial analyst endorsements
    • Whole market stories:
      • Business press: generate bandwagon affect with framework of a big idea of new problem or opportunity
      • Trade press: customer at center of things and how your product meets their needs

Launch the Invasion

    • Distribution and pricing
      • Key is not to satisfy the customer/investor, but to motivate the channel
    • Customer-oriented distribution
      • Direct sales, one with most controls
      • Predicted channel mainstream pragmatist would want and expect
    • Distribution-oriented pricing
      • Is it priced to sell?
        • Price is not a major issue for buyer
        • Not too high, but not too low,
      • Is it worthwhile to sell?
        • Sufficient margin for seller’s hassle of new item
      • Set price at market leader price point with disproportionate margin for the channel distribution (which slowly lessens)
    • Demand creators vs. demand fillers: does outlet already have relationships you can leverage
      • Do we already have a partner/ally who has connection with customer
    • Role in providing the whole product: less it has, more can focus on selling
    • Potential for high volume
      • Sacrifice some volume for better service
    • Partnerships
      • Are good if partner spends money to educate and advertise your product, but yours can’t be too expensive (max 15-20%), or might be hesitant to sell because would steal sales from them
      • Good for priming relationships, but not long term
    • Once fire is lit, then spread as fast as possible, requires different people
    • Customer oriented pricing: based on their preference
    • Competition based pricing: 30% more for market leader than rest
    • Vendor-oriented pricing: cost accounting
    • Distribution oriented pricing: one to use to cross chasm, but price at premium of comparable to demonstrate superiority

Getting beyond the chasm

  • Post-chasm has to fulfill or transfer all promises made to pre-chasm clients that got them over the chasm
    • Best solution is to avoid making wrong kind of commitments, especially after you cross the chasm
    • Things change from “tech” to “tech support”
  • Change doesn’t sit well with developers and sales people
    • Used to doing it successfully the one way
    • People leave/you fire them and need new people
  • Finance: not hockey stick growth, but staircase
    • DON’T promise the stick
    • Most important is how wide is the chasm, aka time until get predictable ROI
      • Answer: as long as take to get whole product
    • Market boundary: occur at failed value proposition or whole product
    • Force companies you invest to do this, and don’t expect any “margin” until crossed the chasm
  • Funding: can get visionaries to pay consulting fees to help fund low capitalization
    • But usually cost to make is too high, and can’t develop as fast as they want
    • Spend money after established market dominance
  • Pioneers to Settlers
    • R&D and Sales have a liking and strength for one type of customer, when changes, they leave or drag company down
    • Sales: need interim positions
      • Target market segment manager –> industry marketing manager
      • Whole product manager à product marketing manager
      • Interim gets leads, and should get bonus based on leads, not equity because most likely will leave
      • New position address bugs, close and deliver, and get commission overtime with revenue recognition
    • R&D: they got core product out, but not the whole product which was a team effort with partners
      • Compensate early, but will usually leave because no longer on cutting edge, so try not to give equity, but cash is usually tight, so give equity
    • Focus groups: useless if not familiar with new technology, but useful after technology has been established
    • Try having marketing and R&D work together, ex. For packaging

Recap:

  • Find target point/invasion point
  • Assemble invasion team (partner’s/allies) that get you whole product
  • Define Battle (niche niche niche)
  • Launch invasion (positioning, pricing, and distribution)
  • Recoup and recover

I have full faith my friend and his partners will come to understand this (or some similar version) as their needed next steps. That is, hopefully before their cash flow runs out.