How can the most cutting-edge start-ups fail? Start-ups fall to their death in the deep chasm that separates early tech adopters and the pragmatic mainstream followers. They are two different markets with entirely different customer profiles and purchase requirements. Crossing The Chasm by Geoffrey Moore is widely considered "the bible” for entrepreneurial marketing.
Read the summary to get the blueprint for chasm crossing, and master the ways to choose your target segment, craft your market positioning, and leverage it to become the undisputed market leader.
Key Takeaways:-
To market a discontinuous innovation that demands a shift in consumer behavior, the customer's attitude to technology adoption becomes central. Since start-ups specialize in discontinuous innovations, the technology adoption life cycle model becomes central to marketing efforts.
Technology is absorbed in a community in stages based on the demographic and psychological profiles of various segments. The technology adoption life cycle model, which is a sociological model that describes the adoption or acceptance of a new product or innovation, reflects this as a bell-curve with five segments: innovators, early adopters, early majority, late majority and laggards.
The high-tech marketing model focuses on moving segment by segment from innovators to early adopters. At each stage, marketers must tailor their approach to the segment's unique psychographics. Done right, it can lead a start-up to technology leadership and high-profit margins in a new market. If the start-up loses momentum before winning the early majority, competitors can overtake it.
To create an early market, the start-up offers early copies of its disruptive product to technology enthusiasts. It leverages this by inviting visionaries to engage with technology enthusiasts to secure a technology buy-in. When the visionary is convinced about the technology offering a strategic leap forward, the market unfolds.
A start-up's greatest danger is crossing the wide chasm between the visionary and pragmatist markets. While technology-driven visionary seeks disruptive transformation for strategic advantage, the risk-averse pragmatist wants an incremental improvement. Pragmatists buy from established market leaders based on extensive references from other pragmatists. Start-ups are forced to enter the pragmatist market without references and market leadership.
Failing to cross the chasm is fatal as revenues dry up, market leaders perceive the start-up as competition, investors demand returns, and newer start-ups threaten to overtake the organization. The start-up has to break into the pragmatist market fast or go bankrupt.
Crossing the chasm requires a bowling pin approach. The first step is to dominate a strategically chosen market segment to create a foothold in the pragmatist market. The second step is to line up other market segments where the niche solution created can be leveraged, creating the bowling pin effect.
The key to expanding beyond the niche is to target a strategically valuable segment. Apple Macintosh targeted the graphics departments of Fortune 500 companies and solved the problem of creating high-quality presentations for executives and marketing professionals. Securing this niche, it expanded into marketing and sales departments, and finally, into external advertising agencies and publishers.
Crossing the chasm is easier with applications as end-users champion them. For platforms, the decision-maker is the IT department, which emphasizes reliability over disruption. Though platforms are multi-purpose, its important to tie them directly to a single application for marketing purposes. While this may seem unnatural and difficult, platforms scale faster when the mass-market emerges.
Choosing the right segment is a difficult decision. It carries the high-risk of enterprise failure, and there is little reliable market data. Previous assumptions from marketing to visionaries don't hold, and the pragmatists market has not seen similar products. Leaders have to acknowledge the low-data situation and make decisions based on informed intuition instead of analytical reason.
Target-customer characterization is a technique to tap into the team's informed intuition. The team generates multiple use-case scenarios, each with a target customer and product application. Every member scores them against must-have factors and finally against good-to-have factors. The top scenarios are discussed, and a single target segment is decisively chosen.
To cross the chasm, winning the target segment chosen matters more than choosing the most optimal segment. It is important to choose a segment large enough to meet revenue targets and small enough to establish the market leadership necessary to attract pragmatists.
To bridge the gap between the promise made to the customer, and the actual product shipped, the start-up must assemble an ecosystem of products and services. This is called the “whole product.” While the early market is willing to tolerate the actual product shipped, the mainstream market demands that the whole product be available from the beginning. Pragmatists evaluate and buy whole products.
A relentless focus on the whole product and creating strong tactical alliances to speed up its development ensures that the customer's compelling need is fully met. Companies that execute this competently gain positive word-of-mouth and a strong foothold in the mainstream market.
Delivering anything less than the whole product signals that the product doesn't solve the customer's compelling reason to buy. This results in customer dissatisfaction and poor word of mouth. The start-up must create the minimum whole product required for a single target segment. Every additional customer profile adds many new demands on the whole product.
Pragmatists base purchase decisions on a comparative evaluation of products and vendors within a category. Therefore, start-ups must define their competition by locating themselves within a buying category populated with reasonable buying choices. The product must appear to be the indisputable buying choice.
From a marketing perspective, crossing the chasm is a move from the early market visionaries who care about the product to the mainstream market pragmatists who care about the market. The organization must shift from marketing using product-centric attributes like speed, configuration and functionality to marketing based on market-centric values like market leadership and third-party support.
Market-positioning has the single largest influence on the purchase decision. Customers hate being sold to but love buying. The key is to make the product easy to buy, not easy to sell. Instead of marketing many selling points, focus on making the product the obvious choice for a particular pain-point.
Start-ups can create optimal market positioning by using two reference competitors to triangulate their unique value proposition. The market alternative is the de-facto market standard and represents the enterprise budget the organization is targeting. The product alternative represents a product with a discontinuous innovation but without commitment to the chosen target segment.
The goal during distribution is to find a suitable sales channel based on the target customer profile. The product has to be priced as a market leader while ensuring a premium margin for the distributor as the company is leveraging the channel's existing relationships with pragmatists.
Reference - youexec