Friday, July 2, 2010

Favorite lines from Crossing the Chasm by Geoffrey Moore

There's a reason this book has been a best-seller--it's full of great insight, it's well-written, accessible, and Moore's arguments are backed up by clear logic. It was initially published in 1991 but I read the revised version, published in 2002. Here are some of the ideas I found most inspiring.

Chrossing the Chasm is all about "marketing and selling disruptive products to mainstream customers". This line, direct from the cover, means so much more to me after reading the book--for example, the fact that growing a business based on a technology product is not soley dependent on the value proposition and execution--but is equally dependent upon the sales channels and relationships we build in a target market. I learned why our salespeople do so much networking, and why my personal network is so valuable.

So let's begin with Moore's first principles; a high-tech market is:
"a set of actual or potential customers, for a given set of products or services, who have a common set of needs or wants, and who reference each other when making a buying decision". So there it is--what we already knew before--that word-of-mouth marketing is the most effective form of marketing. What is new to me, though, is the premise that word-of-mouth marketing is effectively the ONLY way to reach the mainstream market. We may reach our first clients (innovators and early adopters) directly, but to fuel sustained growth, to cross the chasm, we need to become the referent solution in a market segment - that is, word-of-mouth should mention our product any time the problem comes up. How do we ensure this? Attack a very focused market segment--and become the market leader. Yet crossing the chasm is dangerous for a company, too, because mainstream customers will not pay the margins that early adopters will--and so we cannot offer them the same level of service or customizations. The innovative developers and visionary sales staff of a pre-chasm organization are not the same kinds of people that are required for managing a post-chasm business--the post-chasm folk are experts at fitting the existing product into a customer's environment without tailoring--and the post-chasm developers are making the product easier and easier to support / use. This brings up a good point about how to reward founders (pioneers) and settlers. Pioneers should be paid highly for initial conquest/development work, and then they're likely to move on to new challenges; settlers should be given equity and share in the long-term growth of the company. Often compensation models are quite the opposite.

Moore breaks down market adoption into the following phases: innovators (technophiles), early adopters (visionaries), early majority (pragmatists), late majority (conservatives), and laggards (skeptics). Many companies get stuck after finding their first innovators, or get stuck after their early adopters... but there's a chasm between each phase. He says many companies fail to leverage the conservative market--but because it's so large, it can be a great source of profit for technology that is no longer under active development. Conservatives want COTS (commercial off the shelf software)--everything in a box. This brings up another important concept--the whole product. In crossing the chasm, the innovators must discover the full suite of services, features, and support required for successful implementation of the product, and add that to the product during the early adopter and early majority phases (since late majority users won't pay for support). Also of note--Moore considers himself a late majority adopter. To help pull them along, without hurting sales for the early majority, we need to provide easy upgrade paths and continued support of old products--thereby showing a commitment to the stability expected by conservatives.

"The consequences of being sales-driven during the chasm period are, to put it simply, fatal". The chasm period isn't about sales--it is about conquest. To cross the chasm, we need word of mouth references--we need buzz--we need everyone to be thinking about us in a particular market segment. The smaller it is, the easier it is to conquer. So sales outside of that segment are distractions that hinder our market penetration. It's fine to do another segment later--and successful conquest of several segments in a row will generate its own buzz--but stay focused! Mainstream market customers like easy buying decisions--and if you're the referent solution, they're happy, and willing to pay a small premium (30 percent) for the best of breed solution. Be the big fish in a small pond, over and over and over.

How do we pick the right market segment? Find one that you already have contacts in (you have their confidence), and go for the prospect with the most pain--something you can really help them with. If you have no strong contacts, grow some, and fix someone's pain with your product. Take note that crossing the chasm with an identifiable product is much easier than a product platform--e.g., smartcard-enabled credit card payments, since platforms need to be deployed ubiquitously before they're of much value. For more help in identifying segments or in categorizing clients, Moore uses a customer profiling technique he calls "scenarios". This profile is detailed starting on page 95 of the book, but captures elements like the point of frustration, the user, technical buyer, and economic buyer, the customer's goal, the current approach, the problems, and the economic consequences. Often you won't have enough knowledge to fill everything in--but "informed intuition" is OK too. The objective of mapping out user scenarios is to be able to target one, build it, and sell it. The targeting process will include a round-table discussion (with field reps) to rate each scenario against the following: "target customer, compelling reason to buy, whole product, partners and allies, distribution, pricing, competition, positioning, next target customer". With a compelling reason to buy, we can drive sales in shorter than 3-month cycles, and saturate the market in a year. With a market alternative, or product alternative, the customer can look at the existing budget for the product, and knows what it's worth--otherwise we have to wait for them to maybe budget for us next year. If you can't identify a market alternative, you may need a product analog--a methaphor that explains in a pithy phrase what this product is. Oh, and if you "have trouble finding a single, clear, market alternative" to attack and replace, then you won't be able to cross the chasm--people won't have a budget for you.

Product positioning is the pinnacle of marketing--but it's also tricky. People hold an image of a product in their minds--and don't like anyone else to manipulate that. So instead of trying to define it, find ways to make the product easier to buy. "Think about it. Most people resist selling but enjoy buying". Positioning is the attempt to get people to decide "best buy for this type of situation". Make sure your pitch passes the elevator test--because it has to be spread by word of mouth, and without this sort of focus, the development team will be fraught with too much complexity, marketing messages will be wildly different from one another, and potential partners/allies/investors will shy away since they do not know what you stand for.

Geoffrey Moore also talks about sales channels. We may use direct sales, systems integrators, retail sales, value-added resellers, or the internet. Of these, he prefers direct sales for an early stage startup because we need to provide a lot of hand holding to get customers off the ground, with a gradual transition to a less resource-intensive sales approach as we approach a mainstream market. Although integrators and resellers may reach a larger audience than we can alone, they who are in contact with the paying customer get the main profit.

The hockey stick sales growth of crossing the chasm is largely a myth. Moore says most sales patterns are like staircases. We discover and conquer a market, step up, and are stagnant again for a while while we invest in another market. He says some "vulture capitalists" take advantage of these stagnant periods to strip founders of their equity in the company.

These are just some of my favorite lines from the book--if you're part of a startup, I highly recommend reading the whole thing yourself!

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