Crossing The Chasm

Most companies fail to cross the chasm because, confronted with the immensity of opportunity represented by a mainstream market, they lose their focus, chasing every opportunity that presents itself, but finding themselves unable to deliver a salable proposition to any true pragmatist buyer.

INTRODUCTION

KEY TAKEAWAYS

• To be specific, the point of greatest peril in the development of a high-tech market lies in making the transition from an early market dominated by a few visionary customers to mainstream market dominated by a large block of customers who are predominantly pragmatists in orientation. Crossing this chasm must be the primary focus of any long-term high-tech marketing plan.
• One of the most important lessons about crossing the chasm is that the task ultimately requires achieving an unusual degree of company unity during the crossing period. This is a time when one should forgo the quest for eccentric marketing genius in favor of achieving an informed consensus among mere mortals.
• Each group represents a unique psychographic profile - a combination of psychology and demographics that makes its marketing responses different from those of the other groups.
• Innovators pursue new technology products aggressively. This is because technology is a central interest in their life, regardless of what function it is performing. There are not very many innovators in any given market segment, but winning them over at the outset of a marketing campaign is important nonetheless, because their endorsement reassures the other players in the marketplace that the product could in fact work.
• Early adopters, like innovators, buy into new product concepts very early in their life cycle, but unlike innovators, they are not technologists. Rather they are people who find it easy to imagine, understand, and appreciate the benefits of a new technology, and to relate these potential benefits to their other concerns. Because early adopters do not rely on well-established references in making these buying decisions, preferring instead to rely on their own intuition and vision, they are core to opening up any high-tech market segment.
• The early majority share some of the early adopter's ability to relate to technology, but ultimately they are driven by a strong sense of practicality. They know that many of these newfangled inventions end up as passing fads, so they are content to wait and see how other people are making out before they buy in themselves. […] Because there are so many people in this segment - roughly one-third of the whole adoption life cycle - winning their business is fundamental to any substantial profits and growth.
• The late majority shares all the concerns of the early majority, plus one major additional one: whereas people in the early majority are comfortable with their ability to handle a technology product, should they finally decide to purchase it, members of the late majority are not. As a result, they will wait until something has become an established standard, and even then they want to see lots of support and tend to buy, therefore, from large, well-established companies.
• […] Laggards - these people simple don’t want anything to do with new technology, for any of a variety of reasons, some personal, some economic. The only time they ever buy a technological product is when it is buried deep inside another product.
• From this notion comes the idea of a window of opportunity. If momentum is lost, then we can be overtaken by a competitor, thereby losing the advantages exclusive to a technology leadership position--specifically, the profit-margin advantage during the middle to late stages, which is the primary source from which high-tech fortunes are made.
• Its promise of a virtual monopoly over a major new market development. If you can get there first, "catch the curve," and ride it up through the early majority segment, thereby establishing the de facto standard, you can get rich very quickly and "own" a highly profitable market for a very long time to come.
• Actually, in this context, defining marketing is not particularly difficult: It simply means taking actions to create, grow, maintain, or defend markets. Marketing's purpose, therefore, is to develop and shape something that is real, and not, as people sometimes want to believe, to create illusions.
• […] The core of the dream is a business goal, not a technology goal. Understand their dream, and you will understand how to market to them. […] Visionaries are not looking for an improvement; they are looking for a fundamental breakthrough. Technology is important only in so much as it promises to deliver on this dream. The key point is that, in contrast with the technology enthusiast, a visionary focuses on value not from a system's technology per se but rather from the strategic leap forward such technology can enable.
• To get an early market started requires an entrepreneurial company with a breakthrough technology product that enables a new and compelling application, a technology enthusiast who a can evaluate and appreciate the superiority of the product over current alternatives, and a well-heeled visionary who can foresee an order-of-magnitude improvement from implementing the new application.
• There are numerous other scenarios where the early market does not even get a proper start. Here are some of them:
• First problem: The company simply has no expertise in bringing a product to market. It raises insufficient capital for the effort, hires inexperienced sales and marketing people, tries to sell the product through an inappropriate channel of distribution, promotes in the wrong places and in the wrong ways, and in general fouls things up.
• A second problem: The company sells the visionary before it has the product. This is a version of the famous vaporware problem, based on pre-announcing and pre-marketing a product that still has significant development hurdles to overcome.
• Problem number three: Marketing falls prey to the crack between the technology enthusiast and the visionary by failing to discover, or at least failing to articulate, the compelling application that provides the order-of- magnitude leap in benefits.
• Overall, to market to pragmatists, you must be patient. You need to be conversant with the issues that dominate their particular business. You need to show up at the industry-specific conferences and trade shows they attend. You need to be mentioned in articles that run in the newsletters and blogs they read. You need to be installed in other companies in their industry. You need to have developed applications for your product that are specific to their industry. In short, you need to make yourself over into the obvious supplier of choice.
• There are two keys to success here:
• The first is to have thoroughly thought through the "whole solution" to a particular target end-user market's needs, and to have provided for every element of that solution within the package. This is critical because there is no profit margin to support an after-purchase support system.
• The other key is to have lined up a low-overhead distribution channel that can get this package to the target market effectively.
• The Apple iPad is a wonderful example here, for it appeals not only to technology enthusiasts and visionaries ("It is just so cool!"), but equally so to pragmatists ("No training costs!") and to conservatives ("No training, period!").
• The basic flaw in the model, as we have said, is that it implies a smooth and continuous progression across segments over the life of a product, whereas experience teaches just the opposite. The biggest problem during this transition period is the lack of a customer base that can be referenced at the time of making the transition into a new segment.
• Cross the chasm by targeting a very specific niche market where you can dominate from the outset, drive your competitors out of that market niche, and then use it as a base for broader operations.
• Most companies fail to cross the chasm because, confronted with the immensity of opportunity represented by a mainstream market, they lose their focus, chasing every opportunity that presents itself, but finding themselves unable to deliver a salable proposition to any true pragmatist buyer.
• One of the main reasons they delay their buying decisions at the beginning of a marketplace- thereby creating the chasm effect-is to help them get a fix on who the leader will be. They don't want to back the wrong one. Now, by definition, when you are crossing the chasm, you are not a market leader. The question is, How can you accelerate achieving that state?
• the only right strategy is to take a "big fish, small pond" approach. Segment. Segment. Segment. One of the other benefits of this approach is that it leads directly to you "owning" a market.
• Major market dominance ultimately transcends niche, although it continues to renew and extend itself by developing new segments. [...] The key to moving beyond one's initial target niche is to select strategic target market segments to begin with. That is, target a segment that, by virtue of its other connections, creates an entry point into one or more adjacent segments.
• The fundamental principle for crossing the chasm is to target a specific niche market as your point of attack and focus all your resources on achieving the dominant leadership position in that segment as quickly as possible. [...] First you divide up the universe of possible customers into market segments. Then you evaluate each segment for its attractiveness. After the targets get narrowed down to a very small number, the "finalists,' then you develop estimates of such factors as the market niches' size, their accessibility to distribution, and the degree to which they are well defended by competitors. Then you pick one and go after it. What's so hard?
• But you cannot expect to transform a low-data situation into a high-data situation quickly. And given that you must act quickly, you need to approach the decision from a different vantage point. You need to understand that informed intuition, rather than analytical reason, is the most trustworthy decision-making tool to use.
• the four factors that raise showstopper issues for crossing the chasm are as follows:
• TARGET CUSTOMER: Is there a single, identifiable economic buyer for this offer, readily accessible to the sales channel we intend to use, and sufficiently well funded to pay the price for the whole product?
• COMPELLING REASON TO BUY: Are the economic consequences sufficient to make any reasonable economic buyer anxious to fix the problem called out in the scenario?
• WHOLE PRODUCT: Can our company with the help of partners and allies field a complete solution to the target customer's compelling reason to buy in the next three months such that we can be in the market by the end of next quarter and be dominating the market within twelve months thereafter? The clock is ticking.
• COMPETITION: Has this problem already been addressed by another company such that they have crossed the chasm ahead of us and occupied the space we would be targeting? [...] If some other company got there before you, all the market dynamics that you are seeking to make work in your favor are already working in its favor.
• The enemy in the chasm is always time. You must force the pace at all times, even when in doubt, because standing still plays into the hands of the established vendors and the status quo.
• We might call it wiring the marketplace. Again, the concept is simple. For a given target customer and a given application, create a marketplace in which your product is the only reasonable buying proposition. That starts, as we saw in the last chapter, with targeting markets that have a compelling reason to buy your product. The next step is to ensure that you a have a monopoly over fulfilling that reason to buy. […] To secure that monopoly, you need to understand 1) what a whole product consists of and 2) how to organize a marketplace to provide a whole product incorporating your company's offering.
• If you leave your customer's success to chance, you are giving up control over your own destiny. Conversely, by thinking through your customer's problems - and solutions in their entirety, you can define - and work to ensure that the customer gets - the whole product.
• The way you design a whole product is to work backward from the target customer's use case, filling in the blanks as you go along, either with new R&D, an acquisition, a partnership, or an alliance.
• The net result of the partnering activities we have been reviewing in the cases of Rocket Fuel, Infusionsoft, and Mozilla is the creation of a market. For markets represent more a than just a buyer and a seller. They are an ecology of interrelated interests interoperating to create what business schools call value chains. For any company crossing the chasm, fostering the initial partnerships to create the whole product is the equivalent of seeding the value chain, getting it started.
• any company that executes a whole product strategy competently has a high probability of mainstream market success.
• Unfortunately, where there is no competition, there is no market. In our experience to date with developing an early market, competition has not come from competitive products so much as from alternative modes of operation. Resistance has been a function of inertia growing out of commitment to the status quo, fear of risk, or lack of a compelling reason to buy. In the pragmatist's domain, competition is defined by comparative evaluations of products and vendors within a common category. So, coming from the early market, where there are typically no perceived competing products, with the goal of penetrating the mainstream, you often have to go out and create your competition.
• Positioning is the most discussed and least understood component of high-tech marketing.
• 1. Positioning, first and foremost, is a noun, not a verb. That is, it is best understood as an attribute associated with a company or a product, and not as the marketing contortions that people go through to set up that association.
• 2. Positioning is the single largest influence on the buying decision. It serves as a kind of buyers' shorthand, shaping not only their final choice but even the way they evaluate alternatives leading up to that choice. In other words, evaluations are often simply rationalizations of pre-established positioning.
• 3. Positioning exists in people's heads, not in your words. If you want to talk intelligently about positioning, you must frame a position in words that are likely to actually exist in other people's heads, and not in words that come straight out of hot advertising copy.
• 4. People are highly conservative about entertaining changes in positioning. This is just another way of saying that people do not like you messing with the stuff that is inside their heads."
• When most people think of positioning in this way, they are thinking about how to make their products easier to sell. But the correct goal is to make them easier to buy. [...] By focusing on making a product easy to buy, you are focusing on what the customers really want. The goal of positioning, therefore, is to create a space inside the target customer's head called "best buy for this type of situation" and to attain sole, undisputed occupancy of that space.
• 1. Name it and frame it. Potential customers cannot buy what they cannot name, nor can they seek out the product unless they know what category to look under. 2. Who for and what for. Customers will not buy something until they know who is going to use it and for what purpose. [...] The key idea here is to focus on the So what? and the Who cares? part of the value proposition. 3. Competition and differentiation. Customers cannot know what to expect or what to pay for a product until they can place it in some sort of comparative context. This is the minimum extension to positioning needed to make a product easy to buy for a pragmatist. 4. Financials and futures. Customers cannot be completely secure in buying a product until they know it comes from a vendor with staying power who will continue to invest in this product category. […] The key takeaway from this section is that positioning is more about the audience's state of mind than yours. Most failed positioning statements arise from vendors being unable to see themselves from someone else's point of view.
• during the chasm period, the number-one concern of pricing is not to satisfy the customer or to satisfy the investors, but to motivate the channel. To sum up, when crossing the chasm, we are looking to attract customer-oriented distribution with one of our primary lures being distribution-oriented pricing.
• All investment is a bet on performance against competition within time. [...] How long will it take before I can achieve a reasonably predictable ROI from an acceptably large mainstream market?
• Until break-even cash flow is achieved, nothing is secure, and your destiny is not under your own control.
• enterprises that are venture funded for long periods of time fall into a "welfare state mentality," losing their sense of urgency, and looking for their next paycheck to to come from yet another round of financing instead of from the marketplace.
• The key to leaving the chasm behind is to stop custom developments and institutionalize the whole product, to build to a set of standards that the marketplace as a whole, or at least one segment of it, can support.
• Whole product R&D is driven not by the laboratory but by the marketplace. It begins not with creative technology but with creative market segmentation, It penetrates not into protons and processes but rather into habits and behaviors.
• Product life cycles truly are getting shorter-but whole product life product life cycles are as long as they ever were. Ask Adobe about Photoshop or Apple about the Mac.
• The Four Gears:
• Engagement comes first. Can you create digital (or digitally mediated) experience that is sufficiently compelling and differentiated that end users will want to repeat it, hopefully many times over?
• Once the engagement gear begins to spin, then it is time to introduce the acquisition gear. These two interact with each other, each modifying the other, as you seek to answer the second big challenge facing your fledgling enterprise: Can your compelling experience scale? This means grow both on the demand side (onboarding new users, eventually those who want something more or different from your initial users) and on the supply side (onboarding new content or product features to broaden the offering from its initial footprint).
• Where the tipping point actually comes is not predictable in advance--it only shows up in the rearview mirror--but when it does, when you feel the world pulling you forward rather than pushing back, then, if you have not done so already, you want to activate your enlistment gear. Enlisting the faithful involves "hyper-engaging" with a small but vocal minority of consumers who have already demonstrated a propensity to evangelize and proselytize on your behalf. They do this because they believe in you and what you are doing so much they have made it part of their own identity.
• All this leads us to the fourth and final gear, monetization. Whereas crossing the chasm is definitely a pay-as-you-go model, the four gears represent a "URL" approach (ubiquity now, revenue later)

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