A strategy and marketing classic that remains as relevant as ever. Dissects the difficulty of moving from early interest to wide adoption for disruptive tech products.
“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 a mainstream market dominated by a large block of customers who are predominantly pragmatists in orientation.” (Page 6)
High tech marketing efforts usually fail. Moore contends that this happens between early and mainstream markets. This is the chasm.
This is specifically for discontinuous or disruptive innovations rather than continuous or sustaining tech. That is, does it require a change in behaviour from the customer, or doesn’t it? If it does, it’s disruptive.
Moore argues that customers can be found somewhere on a bell curve from left to right:
Innovators and early adopters are the “early market”. The other three are the “mass market”. A disruptive startup’s goal is to grow each segment, one at a time, because success in each requires a different approach.
However, it’s the transition between the early and late market that is a huge problem and needs more than just another tactic. Your product creates a change and, for the early market, that’s the point. They want that change! But the late market wants something that will create a productivity improvement.
Moore also takes pains to differentiate between marketing and a market:
“What we have here is a catch-22. The only suitable reference for an early majority customer, it turns out, is another member of the early majority, but no upstanding member of the early majority will buy without first having consulted with several suitable references.” (Page 26)
These are your hackers, your ambitious nerds, your people who love to play and tinker with new technology because it excites them and they love to do it.
“They are the ones who first appreciate the architecture of your product and why it therefore has a competitive advantage over the current crop of products established in the marketplace. They are the ones who will spend hours trying to get products to work that, in all conscience, never should have been shipped in the first place.” (Page 38)
These enthusiasts are forgiving, keen, caring critics. They have the fewest requirements but demand the most truth and least fluff. They’re prepared to work with really early technology, but they also want things to be cheap.
“Enthusiasts are like kindling: they help start the fire. They need to be cherished for that. The way to cherish them is to let them in on the secret, to let them play with the product and give you their feedback, and wherever appropriate, to implement the improvements they suggest and to let them know that implemented them.” (Page 41)
“Visionaries drive the high-tech industry because they see the potential for an “order-of-magnitude” return on investment and willingly take high risks to pursue that goal. They will work with vendors who have little or no funding, with products that start life as little more than a diagram on a whiteboard, and with technology gurus who bear a disconcerting resemblance to Rasputin. They know they are going outside the mainstream, and they accept that as part of the price you pay when trying to leapfrog the competition.” (Page 44)
These buyers are looking for strategic advantage from what the technology allows them to do. They know about the tech because they keep in touch with the enthusiasts, and will spend big and make big moves. But—they will want to shape the development of the tech so that it gets molded to their needs.
This can be a road to ruin… or, if it can be packaged properly and managed well, these developments can be productized for other customers.
There are a bunch of things that can go wrong while working in an early market:
These customers are hard to win over, but they’re loyal once you have them. They care about the companies they buy from, the quality of the product, the reliability of the product, and the infrastructure of supporting products and system interfaces.
They tend to be “vertically” interested, looking only within their industry. Because they’re price sensitive and in for the long haul, they like to see competition so they can get costs down. A lot of patience is needed when marketing and selling to these people.
“Conservatives have more in common with early adopters than one might think. Both can be stubborn in their resistance to the call to conform that unites the pragmatist herd. To be sure, eventually conservatives do succumb to the new paradigm just to stay on par with the rest of the world. But just because they use such products doesn't mean they have to like them.” (Page 60)
The conservatives, Moore argues, exist on a 1:1 ratio with the pragmatists. They prefer high-quality, compatible, single-focus products that do their job well and don’t break the bank or rock the boat. They prefer convenience over performance.
“Skeptics—the group that makes up the last one-sixth of the Technology Adoption Life Cycle—do not participate in the high tech marketplace, except to block purchases. Thus, the primary function of high-tech marketing in relation to skeptics is to neutralize their influence.” (Page 66)
As we progress through the market stages, what matters most to the customer shifts:
This happens across the chasm and beyond because of how different the early visionaries are compared to the mass market pragmatists; one wants “state of the art,” the other wants “industry standard.” One can not reference the other, so in crossing the chasm there is a waiting game involved.
“Even investors with reasonable demands and a supportive attitude, however, can be troubled by the chasm. Under the best-case scenario, you are asking them to rein back their expectations just when it seems most natural to let them fly. There is an underlying feeling that somehow, somewhere, someone has failed. They may be willing to give you the benefit of the doubt for a time, but you don't have any time to waste. You must get into a mainstream market segment soon, establishing long-term relationships with pragmatist buyers, for only through these can you control your own destiny.” (Page 77)
Moore uses a WW2 invasion analogy: you need a beachhead (or a foothold) created by overwhelming force concentrated on one particular point. Only once you have mastered that point can you grow outwards from there.
Word of mouth—and the ability to reference others—is incredibly important:
“...for word of mouth to develop in any particular marketplace, there must be a critical mass of informed individuals who meet from time to time and, in exchanging views, reinforce the product's or the company's positioning. That's how word of mouth spreads.” (Page 83)
Getting to a place where there is consistent word of mouth is expensive and time-consuming. But it’s more effective and has better ROI in the long run than being sales-led at this stage. A sales-led approach will always be a cold one and, therefore, always an uphill struggle.
Once you become seen as the market leader in a segment, the pragmatists will want to keep you there in part because you are more likely to keep up with their demands and remain the best option for them to use.
Documentum was a document management service that was spun out from Xerox. After stagnating for some time, they went from $2M, to $8M, to $25M, to $45M over three years.
They did this by specifically targeting the regulatory affairs departments of Fortune 500 pharma companies. There were, at the time, only about 40 such departments and about 1000 people in them. But patent submissions for new drugs are costly and time-consuming, requiring a lot of documents to be managed in the process.
“The commitment did not come from the IT organization, which pragmatically was content to work with its established vendors making continuous improvements to the existing document management infrastructure. Instead, it came from the top brass, who, seeing in Documentum a chance to re-engineer the entire process to a very different new end, overruled the inhouse folks and demanded that they support the new paradigm.” (Page 92)
From this industry an unlikely connection took them to manufacturing, which in turn led them to Wall Street and financial institutions.
[Moore also cites Salesforce and VMWare as examples.]
This is inherently difficult because it is a high risk, low data decision. You will need to rely on informed intuition.
“The key is to understand how intuition—specifically, informed intuition—actually works. Unlike numerical analysis, it does not rely on processing a statistically significant sample of data in order to achieve a given level of confidence. Rather, it involves conclusions based on isolating a few high-quality images—really, data fragments—that it takes to be archetypes of a broader and more complex reality. These images simply stand out from the swarm of mental material that rattles around in our heads.” (Page 109)
Checklist for market development strategy. The following are critical:
The following are nice to have:
Once you’ve made your decision, commit to it completely.
“When faced with such nasty decisions, it is usually best to make them quickly, get into the new flow, and plan to course correct going forward. This is a white-water rafting strategy, where hesitating on a split decision is the one behavior guaranteed to capsize the boat. When you do pick, go hard in the direction chosen, regardless of doubts. Just so with crossing the chasm. The good news in this is that you do not have to pick the optimal beachhead to be successful. What you must do is win the beachhead you have picked.” (Page 124)
Niche size matters, here: “big enough to matter, small enough to lead, good fit with your crown jewels.”
The “whole product” is the idea that there is a gap between the reality of the product and where it is now, versus a technically complete offering. It comes in four expanding layers:
Early adopters are usually happy with just the generic product and can usually integrate it themselves. Pragmatic early adopters want none of that fuss, however.
Simplified, the whole product is, according to Moore:
Plus, everything else needed to achieve the buying objectives:
“Pragmatists are loath to buy until they can compare. Competition, therefore, becomes a fundamental condition for purchase. 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.” (Page 165)
Moore outlines four domains of value combined with four different psychographics that must be won over in each domain:
The chasm exists between (2) and (3), where there is a move from a product-centric world to a market-centric world.
This is what matters in a product-centric/”cool product” world:
And this is what matters in a market-centric/complete whole product world:
Moore points out that pragmatic and conservative buyers simply won’t buy until there is competition. Because without competition they cannot compare. Therefore, if you are coming from an early market, you must make this competition by positioning yourself.
There are two ways to position yourself: against the market alternative, or the product alternative. Market alternatives are your incumbent vendors, whereas a product alternative is one that is using the same technology as you. We need to acknowledge that they exist but differentiate against them.
“It is the market-centric value system-supplemented (but not superseded) by the product-centric one-that must be the basis for the value profile of the target customers when crossing the chasm. This value profile, in turn, will model how the target customers are likely to perceive the competitive set and what position they are likely to accord to a new player coming into that set.” (Page 171)
To Moore, “positioning” means positioning the product within a category that is already familiar with/to the pragmatist buyer:
“Most people resist selling but enjoy buying. By focusing on making a product easy to buy, you are focusing on what the customers really want. In turn, they will sense this and reward you with their purchases. Thus easy to buy becomes easy to sell. 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.” (Page 179)
Moore outlines four types of positioning for the four types of psychographic profiles in buyers/buying companies:
“The number-one corporate objective, when crossing the chasm, is to secure a distribution channel into the mainstream market, one with which the pragmatist customer will be comfortable.” (Page 197)
Here, Moore lists off different types of sales models:
Moore makes notes towards the end on the culture, people, and process shifts needed for operating once the chasm has crossed. This means the purpose of the company needs to shift towards making money, and the temperaments of your people need to change as well; where you used to want pioneers, now you’ll want settlers and homesteaders.
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