Crossing the Chasm (Geoffrey A. Moore) — Summaries EP51
This book talks about 5 different groups of consumer who adopt your tech product in stages. They range from the earliest of adopters to the most skeptical people who are last to join. Making the jump between the early-adopter niche market and the mainstream market is always a messy transition, because the customers in these markets have different behaviors and requirements. This applies regardless of whether you operate in the consumer or business-to-business space.
The five customer stages of product adoption are:
- The Tech Enthusiasts. (small, early market) They crave technology which is one of the most important interests to them. These people jump in as early as possible, even if the product is not even remotely finished. They will tolerate bugs and faults.
- The Visionaries. (small, early market). These people are interested more in the competitive advantage they can gain as a result of adopting the technology. They are focused on the big picture, and also jump in early into an immature product.
- The Pragmatists are one third of the mainstream market. They are very loyal customers, but will only jump onboard when they feel it’s safe enough for them to do so. They are willing to embrace smaller incremental changes, as opposed to huge leaps.
- The Conservatives are similar to the Pragmatists but they are more suspicious of high-tech. They want a functional and simple, high quality product that will get the job done. These make up another third of the mainstream market.
- The Skeptics are our last and slowest group. They are last to enter and in general feel fear for technology. This group of consumers is not frequently targeted by business plans, however their feedback is still valuable in order to find out shortcomings of your product.
These 5 stages made up of their respective consumer groups constitute the “Technology Adoption Life Cycle”
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Crossing the Chasm
The chasm occurs between stages 2 and 3 of the lifecycle. (Between Visionaries and Pragmatists). Most businesses die when they can’t get Pragmatists to use their product. This jump to the entry of the mainstream market is turbulent most of the time, mainly due to the radical difference of motivations of those two groups of buyers.
The visionaries want major change, and to be the face of that change in their environment: such as a company or community. They are willing to fight against the status quo to bring the technology forward. The sales to these people take a lot of customization time, and don’t bring in as much revenue.
The pragmatists want more incremental changes, more reliability, good support, and aren’t as keen on major innovations.
Because what the pragmatists wants can only be achieved with a well-established infrastructure, largely made possible by a big company, this poses a catch 22 scenario, which is what we call “The Chasm”.
A plan is required for crossing the chasm, otherwise the original owners of the company may even get replaced by the board of directors, which often happens.
In order to cross the chasm, the product needs to be “complete” and include all of its surrounding infrastructure. This includes support, installation, delivery, high quality, auxiliary hardware, upgrades, and all the use cases that the customer needs. Microsoft is a good example, because they provide all these services, and provide a huge established brand image and guarantee with their products.
You can not become a market leader with a generic product, although it’s still useful to have. Because it takes a lot of different skills to fill all auxiliary components of a product, your company will need to make partnerships and alliances with parties who are stronger at those skills than your company. The strategy, when partnering with them, must focus on only 1 of the 3 mainstream market segments completely.
Let’s take a data aggregation business as an example. Large mainstream clients will expect a variety of data sources, but to also receive a standardized data format in an easy-to-consume package. So you may need to partner with a lot of data vendors and APIs to get that data, and then massage it, to be easy to consume. That would be a “whole product” suitable for a mainstream market.
The Entry Point
Trying to break into the mainstream market is an attack, and you should treat it as such. You are bursting into your competition’s land, trying to displace them out. In order to do this successfully, you first need niche adoption with audiences 1 and 2, where you are the market leader to start. There are however different challenges in securing that niche as a leader:
- You must have lazer-sharp focus on only selling to that niche. Do not fall into the trap of making endless customizations and selling to everyone you can find that’s outside the niche. This can cause you to exhaust all your resources, and not become credible enough in your original niche.
- An extreme commitment to your niche will result to testimonials which assist in crossing the chasm, because they can be used to convince pragmatists in buying your product.
- The smaller the niche, the easier it will be to dominate it, and the more potent and targeted your customers’ references.
- If you stick to the niche, then you can develop all the auxiliary features needed gradually, which still belong only to that niche. This will bridge the infrastructure requirements of crossing the chasm to the mainstream markets.
Target Customer Characterization
TCC is a tool that’s used to nail down your first initial niche group of customers, and consists of multiple customer scenarios. You reverse engineer and play out multiple scenarios involving your users and your product, and act out exactly how your product solves their specific problem. This process won’t give you complete statistical certainty on your niche selection. Evidence-based intuition is used with observation.
Here’s an example of a narrow niche scenario:
Technical E-books that airport managers buy for their mechanic crew, which always contain up-to-date information and gain quick access to this updated technical information, without having to wait. This results in costs savings in the airline due to the minimization of flight delays.
You can do this exercise many times, and make a list. Based on this list, you can chose the most likely and compelling use case where your customers would want to buy your product the most. There really needs to be a severe problem being solved, otherwise the mainstream customer would not even consider your product.
Usually the time it takes to cross the chasm has to be 3 months long or less. In that time you need to find partners, and build out the remainder of your “whole product”. Staying longer in this transitionary period may jeopardize and strain your company. If you hesitate thinking that you may have chosen the wrong niche, it will likely mean starting from scratch, and discarding all previous investment.
Competition is another problem. Make sure they did not already cross the chasm before you, because if that’s the case, they will always be ahead of you and you will have no edge.
Positioning and Competitor Analysis
This is a statement you have to make in order to convince your niche customers to buy your product, and to implant an image of your product in their minds. Example: “A Rolls-Royce is the finest, highest quality and exclusive automobile you can buy”.
This position should also be a differentiator in relation to your competitors. Just features, performance, or quality alone may not be enough to serve as a differentiator.
One tool you can use is to do competitor analysis ahead of time, and present to your customer the analysis that outlines your several competitors’ weaknesses, and what your product can do that theirs can’t. This may focus their attention on those specific competitors, rather than doing their own research from first principles.
Distribution and Pricing
Mainstream customers, such as the Pragmatists, only buy from select reputable sources. Therefore you need to decide the price of your product and which sales channels will carry it. This distribution channel needs to be one that the pragmatists are comfortable with using.
Having your own sales staff which obtains customers one by one is an effective strategy. It’s efficient and allows you to go after larger deals, such as big corporations.
After you have established dominance in direct sales, you can advance to larger sales channels, retail stores, or value-add networks which bundle your product with other products and take a cut. It’s a risky prospect for a major distributor to start carrying your new product, so you have to incentivize them with heftier profit margins and commissions in the beginning. You then gradually decrease those commissions, as you gain traction through those channels.
The pricing of your product should be comparable to that of the market leader, because that’s the price the average consumer is already comfortable paying.
Consumer Markets vs Business Markets
As a rule of thumb, selling to consumers is always a lot harder than to businesses. This is mainly because of company budgets that exist specifically to allow for adoption of underdeveloped products. Consumers don’t have that budget and the commitment that an investment in an immature product brings. Consumers are much more likely to try many new products, and not be committed to yours.
The presence of strong, global competition is another reason why consumers are much harder to crack. Sometimes, existing systems are just “good-enough”, and even though your product is a bit better, that’s still not enough of a reason to convince the consumer to switch over. The product needs to either be significantly better or bridge the gap between what they currently do, and the new way of doing things.
Pre-chasm baggage, and adapting to the mainstream
The company will likely have previous obligations to investors, customers, and its original niche, even after having crossed the chasm successfully. The most important thing at this stage is to become reliably profitable as a company. This allows you room to keep moving without cutting cost.
The qualities of employees and founders needed for the pre-chasm stage vs the post-chasm stage can differ drastically. Your founding members for example, could become allergic to administrative tasks, long meetings, or mundane operational procedures. It’s a cultural change and many times, a post-chasm company will shed its original founders and in many cases employees.
It’s important to create processes and documentation in an early post-chasm stage. This is because of the higher attrition rate, and the creation of a few new roles. The business effectively splits into a department that maintains existing pre-chasm customer relationships, and the forward-facing mainstream customer management department that works on feature requests and maximizing retention of new go-forward accounts.
The department in charge of legacy pre-chasm accounts can now pursue those old accounts as opportunities to broaden those engagements into the rest of their niche, as part your company’s growth.