Crossing the Chasm Revisited

Today I attended MassTLC’s “Crossing the Chasm – What has Changed in the Past Two Decades?”. At the event Geoffrey Moore spoke about what he’s learned in the past 20+ years since publishing the seminal book Crossing the Chasm, which taught how technologies get adopted and strategies for moving from early adopter customers into the mass market.

Below I mix my own remembrances from Crossing the Chasm with my notes from today. To learn more, definitely check out Crossing the Chasm, Inside the Tornado and Geoffrey Moore’s more recent books on the subject.

About the Technology Adoption Lifecycle

If you’re not familiar with the technology adoption lifecycle, imagine it as a bell curve.

At the far left technology gets invented and created, after which adoption occurs until it peaks, then decline starts in until it gets discarded. The area underneath the curve represents the number of customers at each stage.

The traditional technology adoption lifecycle had five parts:

• Innovators
  Enthusiasts who love new technology, even when it doesn’t yet have a purpose.
• Early Adopters
  Visionaries who see how a technology can be used to solve a problem.
• Early Majority
  Pragmatists who want social proof that a technology has value before adopting it.
• Late Majority
  Conservatives who prefer old technology until its clear a new technology dominates.
• Laggards
  Skeptics who avoid adopting new technologies at all costs.

The Innovators and the Early Adopters form the early market. But the strategies that worked to acquire innovators and early adopters no longer work with the early majority.

To get from the early market to the mass market, new strategies must be adopted. Moore named this the Chasm, because companies frequently fail to cross it and move their product from the early market to the mass market.

Unlike the visionaries and early adopters, the early majority decide whether to buy based on information from their peers. They constantly ping their peers to find out what’s being talked about. When there’s enough validation for a new technology, they make the jump. This is why focusing on a niche helps: it allows you to focus your message on fewer people to generate the critical mass of social proof.

In Crossing the Chasm, Moore describes strategies for how to make this transition. First, establish a beachhead in a single niche that solves a pain point for the early majority. Secure that niche before tackling the next niche.

To avoid being stranded on a beach that leads to nowhere, Moore proposed a bowling pin strategy. Find an initial niche that has neighbor niches you can easily tackle if you successfully get strong adoption in the first niche.

Imagine each niche as a bowling pin, where by knocking down the first pin, you easily knock down the second pin, which knocks down the third pin, and so on. At some point, you might “enter the tornado”, which gives you rapid growth in the mass market.

Thus Moore elaborated on the initial technology adoption lifecycle, adding metaphors to help us understand the transitions along the lifecycle: the Bowling Alley, the Tornado, Main Street and Total Assimilation. View a diagram of the original technology adoption lifecycle with these additional metaphors here.

Aspects of the Cycles

Early Markets

Early market companies need to sell directly to the visionaries and early adopters that have a problem your product solves. All sales will involve complexity and customization, so ensure these sales have high price tags to make them worth it. Aim for Big Hairy Deals (BHDs). Avoid Small Shitty Deals (SSDs).

• Project Orientation (Custom)
  Think in terms of projects, not products. I interpreted this to include consulting and customization. At this stage, you’re essentially a custom design shop working to find the repeatable solution you can sell into the early majority.
• Sell > Design > Build
  To succeed in the early markets, you need to sell first, design second and build your solution last. I love this because it aligns well with the Lean Startup methodology.
• Focus on Customer Performance
  Improving a specific customer’s performance with your product. If you can’t achieve performance gains, the early majority will never adopt it.

The Bowling Alley

In the first stage of the early majority, sell solutions to business managers. Companies can comfortably grow to anywhere from $10 to $100 million in the bowling alley.

• Solution Orientation (Vertical)
  Find one (and only one) problem that can be solved with your product that the early majority has. The solution must be repeatable so you can scale it to the larger number of customers in the early majority profitably.
• Design > Sell > Build
  To succeed in the bowling alley, you design your solution first, then market it. Once sold, configure your product for each customer to implement your solution. Avoid custom solutions that require development, as the goal is repeatability.
• Focus on Performance/Price
  Provide high performance for the price customers pay. Be a solid return-on-investment.

The Tornado

Selling shifts to the CIO or other senior management as the focus shifts from business solutions to the core product. Engineers love this stage because they get to design first, build second and then finally sell their products.

• Product Orientation (Horizontal)
  Focus on extending your product and competing against other products in the market. As the market increases, creating solutions for all the problems your product solves becomes a limiter on growth. Instead, use channel partners to fill out solutions.
• Design > Build > Sell
  Use the traditional product development lifecycle at this stage, starting with design, then building and finally selling your product.
• Focus on Price/Performance
  Provide solid performance at a good price.

Main Street

The product becomes part of the mainstream, with all aspects of the company used to make buying decisions. At this stage, you move from the “doubt of the benefit” to the “benefit of the doubt”.

• Systems Orientation (Ecosystem)
  Focus on the “whole product”: infrastructure, customer support, partnerships, etc.
• Build > Sell > Design
  Create your infrastructure and the whole product, then go out an sell it. Once sold, work on configuring it for your specific customers. [Note: I may have gotten this one and the Bowling Alley one confused; my notes on this are unclear].
• Focus on Price/Total Cost of Ownership
  Be a good long-term value for your customers.

When the Chasm Isn’t Relevant

The “chasm” isn’t always relevant. It’s only relevant for Complex Systems businesses.

Moore defined two sweet spots based on the size of the market and the business architecture:

• Complex Systems
  Aimed at a smaller number of customers, on the order of 10 – 10,000. Enterprises and certain government programs fall under this architecture. The technology adoption lifecycle and the Chasm model works well for these businesses.
• Volume Operations
  Aimed at a larger number of customers, on the order of 1 million or more. Consumer and social entitlement programs fall under this architecture. For this architecture, Moore proposed a different model.

Moore claimed that most Software as a Service (SasS) businesses start in the middle of these two, aiming at small businesses, then move toward one of these two models when they start scaling.

The Volume Operations Model

The volume operations model consists of four gears driven by a fifth central gear. The central gear represents the product. The four gears driving the growth of the business are:

• Acquisition
  The process of acquiring new customers.
• Engagement
  Getting customers to use your product. Equivalent to a “like”.
• Monetization
  Generating money from the use of your product.
• Enlistment
  Having customers get others to use your product.  Equivalent to a “share”.

Each gear connects through the product to drive the engine of growth. Gears interact and affect each other. So increase monetization and you might decrease engagement.

To build a business in this model, always focus on the slowest gear, as it limits your growth. Re-evaluate each quarter what gear has become your slowest gear and fix that one.

If done right, the gears can lead a company to jump straight from the early market into the tornado.

Driving these gears can be complicated. The gears can be viewed as two types:

• Performance
  Gears that improve the efficiency of the engine: Acquisition and Monetization
• Power 
  Gears that drive the engine: Engagement and Enlistment

Performance gears can slow the engine down if not managed correctly.

The 4 Quadrants of Innovation

Large companies do not, in fact, fail to innovate. Large companies can be as innovative as startups. They fail in deploying those innovations.

To understand why, Moore described the 4 Quadrants of Innovation:

In this model, a product gets invented and deployed. Once deployed, the business operations take over and start managing the product and optimizing it.

For the core revenue driver of a business, this works fine. Operations can manage and optimize the product to drive more revenue.

But new products suffer from a lack of resources. 90% of any company’s resources tend to be tied up in operations, leaving only 10% to help invent, deploy and then manage & optimize the product until it reaches scale.

This can work, but often doesn’t. The problem lies with the company: it tries to do too much at once. Instead of putting one product into deployment at a time, companies often do 5 or 10 (or upward of 30+ at one company Moore consulted for).

So the 10% of resources that could barely handle one new product get divided amongst all the new products, and ultimately fail due to lack of resources.

To solve the problem, focus on one problem at a time. Steve Jobs did a wonderful job of this at Apple. Each new product innovation became the sole focus: when the iPod came out, ads for the iMac nearly disappeared; when the iPhone came out, ads for the iPod disappeared; and so on. In fact, he had the idea for the iPad before the iPhone, but waited until he could focus only on the iPad.

In Conclusion

Talk about an information-packed morning! And I didn’t touch on the panel discussion between Geoffrey Moore, Andy Ory (Founder and CEO of Acme Packet, recently acquired by Oracle), Susan Hunt Stevens  (Founder and CEO, Practically Green), David Husak (Founder and CEO, Plexxi) and Michael Skok (Partner, North Bridge Venture Partners).

All of Geoffrey Moore’s books have been elevated on my reading list. And I look forward to checking out the new refresh of Crossing the Chasm that he mentioned would be coming out soon with modern day examples.

Hope these notes have been useful. As always, I may have gotten things wrong in my haste to take notes. If you see anything I forgot or messed up, just let me know.

To see slides from the event and read a summary, check out CXO Forum with Geoffrey Moore on the MassTLC blog.