Crossing The Chasm: My Summary

One of the last marketing books I plan on reading for a while, Crossing The Chasm is all about how to go from an early success as a product to the name brand solution to a huge problem.

Originally written for the technology community in the 90s, it has been somewhat updated in the last few years but not really.

You will have to expoliate some connections between technology to whatever industry you are in (even if it is technology).

Overall, I found it as an insightful and valuable read for any entrepreneur, product manager, or marketing manager. At the minimum, it will open anyone's eyes to the details and intricacies that marketing must face when launching a product or just trying to establish a market of customers.

My Summary of Moore's Crossing The Chasm

High-tech inventiveness and marketing expertise are two cornerstones of the US strategy for global competitiveness.

We may see ourselves being out manufactured, but not out-marketed. We remain the experts in marketing these goods to US consumers. Why haven’t we been able to apply these same skills to high tech? And what is it going to take for us to finally get it right?

We have enough high-tech marketing history now to see where our model has gone wrong and how to fix it.

The point of greatest peril is the development of a high-tech market lies in making the transition from an early market dominated by visionaries to a mainstream market dominated by the pragmatists. Crossing this chasm must be the primary focus of any long-term high-tech marketing plan. Like a hermit crab that has outgrown its shell, the company crossing the chasm must scurry to find its new home. Until it does, it will be prey to all kinds of predators. This urgency means that everyone in the company, not just the marketing and sales team, must focus all their efforts on this one end until it is accomplished.

The relationship between an early market and a mainstream market is not unlike the relationship between a fad and a trend. Every truly innovative high-tech product starts out as a fad, something with no known market value or purpose but with great properties that generate a lot of enthusiasm within an in-crowd. Then comes a period during which the rest of the world watches to see if anything can be made of this, that is the chasm.

The task ultimately requires achieving an unusual degree of company unity during the crossing period. One of the functions of this book is to open up the logic of marketing decision making during this period so that everyone on the management team can participate in the marketing process.

Crossing the chasm, therefore, is written for the entire high-tech community – for everyone who is a stakeholder in the venture, engineers as well as marketers, and financiers as well. All must come to a common accord if the chasm is to be safely negotiated.

Our attitude toward technology adoption becomes significant.

Any time we are introduced to products that require us to change our current mode of behavior or to modify other products and services we rely on. In academic terms, such change-sensitive products are called discontinuous innovations. The contrasting term, continuous innovations, refers to the normal upgrading of products that does not require us to change behavior. For example, when Crest promises you whiter teeth, that is a continuous innovation. You are still brushing the same teeth in the same way with the same toothbrush. If the new toothpaste were a mouthwash that did not use a toothbrush, then once again you would have a product incompatible with your current infrastructure of supporting components. That is how and why such innovations come to be called discontinuous.

Whereas other industries introduce discontinuous innovations only occasionally and with much trepidation, high-tech enterprises do so routinely and as confidently as a born-again Christian holding four aces.

We have a bell curve.

The divisions in the curve are roughly equivalent to where standard deviations would fall. That is, the early majority and the late majority fall within once standard deviation of the mean, the early adopters and the laggards within two, and three standard deviations away from the norm are the innovators.

Each group represents a unique psychographic profile.

Innovators pursue new technology products aggressively.

They are intrigued by any fundamental advance and often make a technology purchase simply for the pleasure of exploring the new device’s properties. Winning them over at the outset of a marketing campaign is key nonetheless because their endorsement reassures the other players in the marketplace that the product does in fact work.

Early adopters are not technologists.

They are people who find it easy to imagine and appreciate the benefits of a new technology and to relate these potential benefits to their other concerns. Because early adopters don’t rely on well-established references in making these buying decisions, preferring instead to rely on their own intuition and vision, they are key to opening up any high-tech market segment.

The early majority are driven by a strong sense of practicality.

They are content to wait and see how other people are making out before they buy in themselves. They want to see well-established references before investing substantially. Winning their business is key to any substantial profits and growth.

The late majority wait until something has become an established standard.

Even then they want to see lots of support and tend to buy, therefore, from large, well-established companies. Courting its favor is highly profitable indeed, for while profit margins decrease as the products mature, so do the selling costs, and virtually all the R&D costs have been amortized.

Laggards are generally regarded as not worth pursuing on any other basis.

Companies must use each “captured” group as a reference base for going on to market to the next group.

It is important to maintain momentum in order to create a bandwagon effect that makes it natural for the next group to want to buy in. 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.

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. If you can there first, “catch the curve”, and rude it up through the early majority segment, thereby establishing the defacto standard, you can get rich very quickly and “own” a highly profitable market for a very long time to come. Of course, if this were a sufficient formula for success, you would need to read no further.

Recasting the Technology Adoption Life Cycle in the following way:

The First Crack is between the innovators and the early adopters.

The enthusiast loves it for its architecture, but nobody else can even figure out how to start using it. The key to winning over this segment is to show that the new technology enables some strategic leap forward, something never before possible, which has an intrinsic value and appeal to the nontechnologist. The one thing that best captures the power and value of the new product. If the marketing effort is unable to find that compelling application, then market development stalls with the innovators, and the future of the product falls through the crack.

The Other Crack falls between the early majority and the late majority.

The early majority is willing and able to become technologically competent, where necessary; the late majority, much less so. When a product reaches this point in the market development, it must be made increasingly easier to adopt in order to continue being successful.

The real news is the deep and dividing chasm that separates the early adopters from the early majority.

By being the first to implement this change in their industry, the early adopters expect to get a jump on the competition. Being the first, they also are prepared to bear with the inevitable bugs and glitches that accompany any innovation just coming to market.

By contrast, the early majority want to buy a productivity improvement for existing operations. They do not want to debug somebody else’s product.

Because of these incompatibilities, early adopters do not make a good reference for the early majority, but good references are necessary for the early majority to buy. So you have a catch-22. The only suitable reference for an early majority customer is another member of the early majority, but no member of the early majority will buy without first having consulted with several suitable references.

When promoters of high-tech products try to make the transition from a market base made up of visionary early adopters to penetrate the next adoption segment, the pragmatist early majority, they are effectively operating without a reference base and without a support base within a market that is highly reference oriented and highly supported oriented.

We need to achieve a new state – high-tech marketing enlightenment – by going deeper into the dynamics of the Technology Adoption Life Cycle to correct the flaws in the model and provide a secure basis for marketing strategy development.

If you are going to risk time and money, then you really do need to remember how high-tech markets develop, and the following proverb is as good a way as any:

First there is a market, made of innovators and early adopters, it is an early market, flush with enthusiasm and vision and funded by a potful of dollars earmarked for accomplishing some grand strategic goal.

Then there is not market, during the chasm. The early market is trying to digest its ambitious projects, and the mainstream market waits to see if anything good will come of them.

Then there is another market, the mainstream market if you can get through the chasm.

Your marketing strategy must successfully respond to all three of these stages.

Marketing is simply a means taking actions to create, grow, maintain, or defend markets.

Markets are a set of actual or potential customers for a given set of products or services who have a common set of needs or demands, and who reference each other when making a buying decision.

When marketing consultants sell market segmentation studies, all they are actually doing is breaking out the natural market boundaries within an aggregate of current and potential sales.

Marketing professionals insist on market segmentation because they know no meaningful marketing program can be implemented across a set of customers who do not reference each other. Every program must rely on some ongoing chain-reaction effects – what is usually called word of mouth. The more self-referencing the market and more tightly bounded its communications channels, the greater the opportunity for such effects.

Classically, the first people to adopt any new technology are those who appreciate the technology for its own sake.

Inventors, propeller heads, nerds, and techies. We have many labels for a group of people who are delightful companies – provided you like to talk about technical topics. They will forgive ghastly documentation, horrendously slow performance, ludicrous omissions in functionality, and bizarrely obtuse methods of invoking some needed function – all in the name of moving technology forward. They make great critics because they truly care. They are the first key to any high-tech marketing effort.

They want the truth without any tricks. They want access to the most technically knowledgeable person to answer their questions. They want to be the first to get the new stuff. They also want everything cheap. Price cannot be the concern.

Direct response advertising works well. They are the segment most likely to send for literature, or a free demo, or whatever you offer.

Technology enthusiasts are easy to do business with, provided you have the latest and greatest technology, and don’t need to make much money.

Enthusiasts are the kindling, they help start the fire. If you can find the ones that are near the big bosses, then you have a good chance to generate some heat.

Visionaries are that rare breed of people who have the insight to match an emerging technology to a strategic opportunity, the temperament to translate that insight into a high-visibility, high-risk project, and the charisma to get the rest of their organization to buy into that project.

The core of the dream is a business goal, not a technology goal, and it involves taking a quantum leap forward in how business is conducted in their industry or by their customers. Understand their dream, and you will understand how to market to them.

In contrast with the technology enthusiast, a visionary derives value not from a system’s technology itself but from the strategic leap forward it enables. They know they are going to the mainstream, and they accept that as part of the price you pay when trying to leapfrog the competition. They are the least price-sensitive of any segment of the technology adoption profile. This means they can usually provide upfront money to seed additional development that supports their project.

They are more than willing to serve as highly visible references, thereby drawing the attention of the business press and additional customers to small fledging enterprises.

Both the buyer and the seller can build successfully on two key principles. First, visionaries like a project orientation. This is followed by more project work, conducted in phases, with milestones, and the like. The winning strategy is built around the entrepreneur being able to “productize” the deliverables from each phase of the visionary project. It is important, therefore, in creating the phases of the visionary’s project to build in milestones that lend themselves to this sort of product spin-off. The other key quality of visionaries is that they are in a hurry. As a result, they tend to exert deadline pressures – the carrot of a big payment of the stick of a penalty clause – to drive the project faster. This plans into the classic weaknesses of entrepreneurs – lust after the big score and over-confidence in their ability to execute within any given time frame.

The goal should be to package each of the phases such that each phase is accomplishable by mere mortals working in earth time, provides the vendor with a marketable product, and provides the customer with a concrete return on investment that can be celebrated as a major step forward.

The most important principle stemming from all this is the emphasis on management of expectations. The only practical way to do business with visionaries is through a small, top-level direct sales force. You need such a group to understand the visionaries’ goals and give them confidence that your company can step up to them. You need to be extremely flexible about commitments as you begin to adapt to the visionaries’ agenda. You need to be very careful in negotiations, keeping the spark of the vision alive without committing to tasks that are unachievable.

In terms of communications, typically you don’t find them, they find you by maintaining relationships with technology enthusiasts.

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 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.

The entrepreneurial company seeds the technology enthusiast community with early copies of its product. It then invites the visionary executives to check with the technology enthusiast of their choice to verify that the vision is indeed achievable. The entrepreneurial company commits itself to product modifications and system integration services it never intended to.

Winning at marketing means being the biggest fish in the pond.

If we are small, then we must find a small pond. Sooner or later, we have to go “pond hopping”. Where one targets a given segment not just because one can “knock it over” but because, in so doing, it will help knock over the next target segment.

Reevaluating what we have, if it is not a breakthrough product, then it is not ever going to create an early market.

Perhaps it could serve as a supplementary product. Alternatively, if we truly have a breakthrough product we must get practical about focusing on one application. The biggest problem is typically overly ambitious expectations combined with undercapitalization.

Mainstream Markets

The early majority, or pragmatists, have represented the bulk of the market volume for any technology product. The goal of pragmatists is to make a percentage improvement – incremental, measurable, predictable progress. Pragmatists are hard to win over. However, they are loyal once won over. Often enforcing a company standard that requires the purchase of your product. This standardization is dramatic.

When pragmatists buy, they care about the company they are buying from, the quality of the product they are buying, the infrastructure of supporting products and system interfaces, and the reliability of the service they are going to get. References and relationships are very important to these people, and there is a kind of catch-22 operating: pragmatists won’t buy from you until you are established, yet you can’t get established until they buy from you. Pragmatists want to buy from proven market leaders because they know that third parties will design supporting products around a market-leading product.

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. You need to be mentioned in articles that run in the magazines 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 the industry. You need to have partnerships and alliances with the other vendors who serve their industry. This is a long-term agenda.

For every pragmatist, there is a conservative.

Conservatives believe far more in tradition than in progress. They tend to invest only at the end of a technology life cycle, when products are extremely mature, market-share competition is driving low prices, and the products themselves can be treated as commodities. Through sheer volume, they can offer great rewards to the companies that serve them appropriately. The conservative marketplace provides a great opportunity, in this regard, to take low-cost, trailing-edge technology components and repackage them into single-function systems for specific business needs.

There are two keys to success here.

The first is to have thoroughly thought through the whole solution to a particular target end-use market’s needs. The other key is to have lined up a low-overhead distribution channel that can get this package to the target market effectively.

Pragmatists drive the development of the mainstream market.

The product must be good enough, and should a competitor make a major breakthrough, you have to make at least a catch-up response.

The key to making a smooth transition from the pragmatist to the conservative market segments is to maintain a strong relationship with the former, always giving them an open door to go to the new paradigm, while still keeping the latter happy by adding value to the old infrastructure.

It is a balancing act.

The longer your product is in the market, the more mature it becomes, and the more important the service element is to the customer.

It would be a much simpler world if conservatives were willing to pay for all this service they require, but they are not. We must use our experience with the pragmatist customer segment to identify all the issues that require service and then design solutions to these problems directly into the product. This must be the focus of mature market R&D: the gradual incorporation into the product of all the little aids that people develop, often on their own, to help them cope with its limitations.

The Perils Of The Chasm

A truly predatory type of investor – sometimes referred to as a vulture capitalist – looks to use the chasm period of struggle and failure as a means to discredit the current management, thereby driving down the equity value in the company so that in the next round, he or she has an opportunity to secure dominant control of the company, install a new management team, and worst case, become the owner of a major technology asset for dirt cheap.

To enter the mainstream market is an act of aggression.

You are an invader. For guidance, we are going to look back to an event in the first half of this century, the Allied invasion of Normandy on D Day. Our long-term goal is to enter and take control of a mainstream market (Eisenhower’s Europe) that is currently dominated by an entrenched competitor (Nazi’s). We must assemble an invasion force comprising of other products and companies (the Allies). Our immediate goal is to transition from an early market base (England) to a strategic target market segment in the mainstream (the beaches of Normandy). Once we force the competitor out of the targeted niche markets (secure the beachhead), then we will move out to take over additional market segments (France) on the way toward overall market domination (Europe).

That’s the strategy: Concentrate an overwhelmingly superior force on a highly focused target.

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.

Being sales-driven (looking for any sale anywhere) during the chasm period is fatal.

Whole product commitments must be made not only sparingly but strategically. This can only happen if the sales effort is focused on one or two niche markets. More than that, and you burn out your key resources, falter on the quality of your whole product commitment, and prolong your stay in the chasm.

One of the keys in breaking into a new market is to establish a strong word-of-mouth reputation among buyers.

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 reinforce the product’s or the company’s positioning. Chemists talk to chemists. Lawyers talk to lawyers. Winning over one or two customers in each of 5 or 10 different segments will create no word of mouth. Winning four or five clients in one segment will. The segment-targeting company can expect word-of-mouth leverage early in its crossing-the-chasm marketing effort, whereas the sales-driven company will get it much later, if at all.

When crossing the chasm, you are not a market leader. The question is, how can you accelerate achieving that state?

You need the largest market share, so take the sales you expect to generate over any given time period, double that number, and that’s the size of the market you can expect to dominate. To be precise, that is the maximum size of market.

The only right strategy is to take a “big fish, small pond” approach.

There is life after niche. The key to moving beyond one’s initial target niche is to select strategic target market segments to begin with.

Target The Point Of Attack

If you don’t know where you are going you probably aren’t going to get there. Target a specific niche market as your point of attack and focus all your resources on achieving the dominant leadership position in that segment.

First, you divide up the universe of possible customers into market segments.

Then you evaluate each segment for its attractiveness. 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.

The market we will enter, by definition, will not have experienced our type of product before.

And the people who have experienced our product before, the visionaries, are so different in psychographic profile from our new target customers, the pragmatists, that we must be careful about extrapolating our results to date. We are in a high-risk, low-data state.

The biggest mistake you can make in this state is to turn to numeric information as a source of refuge or reassurance. This tactic is a huge house of cards.

The only proper response to this situation is to acknowledge the lack of data as a condition of the process.

You can fight back against this ignorance by gathering highly focused data yourself, but you cannot expect to transform a low-data situation into a high-data situation quickly.

You need to understand that informed intuition rather than analytical reason, is the most trustworthy decision-making tool to use.

It involves conclusions based on isolating a few high-quality images of target customers. The first rule of working with an image is: If you can’t remember it, don’t try. Only work with memorable images.

Whole target-customer populations become imagined as teeny-hoppers, yuppies, pickups and gun racks, or the man in the black hat. These are memorable.

Let’s call these images characterizations.

They need to become more concrete, more target-market specific.

That is the function of a target-customer characterization. Markets are impersonal, abstract things. We need something that feels a lot more like real people. The idea is to create as many characterizations as possible, one for each different type of customer and application for the product. Somewhere between 20 and 50, you realize you are just repeating the same formula with minor tweaks, and that in fact, you have outlined 8 to 10 distinct alternatives. We can then apply a technique to reduce these “data” into a prioritized list of desirable target market segment opportunities.

The Market Development Strategy Checklist: How go-to market plans are built

- Target Customers: Is there a single, identifiable economic buyer for this offer?

- Compelling Reason To Buy: If pragmatists can live with the problem for another year, they will.

- Whole Product: Can you be in market by the end of next quarter with a full offering and then dominate the market within twelve months thereafter?

- Partners & Allies

- Distribution

- Pricing

- Competition: Never attack a fortified hill.

- Positioning

- Next Target Customer

Evaluate all target customers (characterizations) against the first four key issues (target customers, compelling reason to buy, whole product, and competition). When scenarios are scored against these four factors, 1 to 5, the worst total score they can get is 4, the best a 20. When in doubt, favor scenarios which have a high-rated compelling reason to buy. The best scenarios will be “whole product challenged”.

Characterizations which pass the first cut of these four issues are rated against the next five factors (partners & allies, distribution, pricing, positioning, and next target customer). These factors fall into the “nice to have” category. At the end of the process, top-ranked scenarios are taken to be the top chasm-crossing targets. They are further discussed until the team commits to one, and only one, beachhead target. That is your high-risk, low-data decision.

If there is a genuine problem in the segment, you will have the target customer pulling for you to win (and solve their problem).

Pick on somebody your own size.

If you find the target segment is too big, subsegment it. The goal is to become a big fish in a small pond. The best sub-segmentation is based on special interest groups within the general community. These typically are very tightly networked.

Assemble The Invasion Force

Marketing’s most powerful contribution is called the whole product marketing. It is the fundamental basis for assembling the invasion force.

For a given target customer and a given application, create a marketplace in which your product is the only reasonable buying proposition. That starts with targeting markets that have a compelling reason to buy your product. To secure that monopoly, you need to understand what a whole product consists of and how to organize a marketplace to provide a whole product incorporating your company’s offering. There is a gap between the marketing promise made to the customer (aka the compelling value proposition) and the ability of the shipped product to fulfill that promise. For that gap to be overcome, the product must be augmented by a variety of services and ancillary products to become the whole product.

Four Different Perceptions Of Product:

1. Generic Product: What is shipped in the box and covered by the purchasing contract

2. Expected Product: What the consumer thought she was buying when she bought the generic product. It is the minimum configuration of products and services necessary to have any chance of achieving the buying objective

3. Augmented Product: The product fleshed out to provide the maximum chance of achieving the buying objective

4. Potential Product: The product’s room for growth as more and more ancillary products come on the market and as customer-specific enhancements to the system are made

The marketing battle takes place at the level of the generic product.

This is the hero in the battle from the early market. As the marketplace develops, we enter the mainstream market, products in the center become more and more alike, and the battle shifts increasingly to the outer circles.

The customers least in need of whole product support are the technology enthusiasts.

For the visionaries, they are going to have to take responsibility for creating the whole product under their own steam.

To get to the right of the chasm, you have to first meet the demands of the pragmatist customers. These customers want the whole product to be readily available from the outset.

Pragmatists evaluate and buy whole products.

Whole product planning is the centerpiece of developing a market domination strategy.

In the simplified model, there are only two categories: what we ship and whatever else the customers need in order to achieve their compelling reason to buy. Anything less than 100% means that the customers either supply the remainder themselves or feel cheated. By solving the whole product equation for any given set of target customers, high tech has overcome its single greatest obstacle to market development. Every additional new target customer will put additional new demands on the whole product. It soon becomes clear to even the most optimistic product marketing managers that they cannot go after all markets at once, that at a minimum they have to sequence and prioritize opportunities, and that each opportunity has very real support costs.

Marketing partnerships and strategic alliances are trendy.

The company cultures are normally too antithetical to cooperate with each other. Decision cycles are wildly out of sync with each other, leading to enormous frustration among the entrepreneurs and patronizing responses from the established management. Each side has probably misrepresented itself one way or another during negotiations, such that there is plenty of ammunition for each group to fire at the other once tempers get hot. Despite the impeccable logic of these mergers, they are very though to pull off.

What does work, on the other hand, are tactical alliances.

Tactical alliances have one and only one purpose: to accelerate the formation of whole product infrastructure within a specific target market segment. This benefits the product manager by ensuring customer satisfaction. It benefits the partner by providing expanded distribution into a hitherto untapped source of sales opportunities. These types of alliances can often be readily initiated and managed at the product marketing manager level. This amounts to creating a market. For markets represent more than just a buyer and a seller. They are an ecology of interrelated interests interoperating to create what business schools call value chains. Any company that executes a whole product strategy competently has a high probability of mainstream market success.

Define The Battle

The major obstacle in our way now is competition. To succeed in securing our beachhead we need to understand who or what the competition is, what their current relationship to our target customer consists of, and how we can best position ourselves to force them out of our target market segment.

Any force can defeat any other force, if it can define the battle.

Throughout the Technology Adoption Life Cycle, the nature of competition changes.

However, where there is no competition, there is no market. With developing an early market, competition has not come from competitive products so much as from alternative modes of operation. Resistance has ben a function of inertia growing out of commitment to the status quo, fear of risk, or lack of a compelling reason to buy. Our goal in the early market has been to enlist visionary sponsors to help overcome this resistance. That’s how competition works in the early market. In the pragmatist’s domain, competition is defined by comparative evaluations of products and vendors within a common category. Pragmatist buyers do not like to buy until there is both established competition and an established leader, for that is a signal that the market has matured sufficiently to support a reasonable whole product infrastructure around an identified centerpiece. The pragmatists loath to buy until they can compare.

This means, you often have to create your own competition.

Creating competition is the single most important marketing decision made in the battle to enter the mainstream.

It begins with locating your product within a buying category that already has some established credibility with the pragmatist buyers. Within this universe, your goal is to position your product as the indisputably correct buying choice. You can succeed in creating a competitive set that you clearly dominate, but this set, unfortunately, is either not credible or not attractive to the pragmatist buyers. The key is to focus in on the values and concerns of the pragmatists, not the visionaries.

The Competitive-Positioning Compass

There are four domains of value in high-tech marketing: technology, product, market, and company. As products move through the Technology Adoption Life Cycle, the domain of greatest value to the customer changes.

You develop the early market by demonstrating a strong technology advantage and converting it to product credibility, and you develop a mainstream market by demonstrating a market leadership advantage and converting it to company credibility.

Crossing the chasm requires moving from an environment of support among the visionaries back into one of skepticism among the pragmatists.

Competition has to be based in market-oriented concerns. We must shift our marketing focus from celebrating product-centric value attributes to market-centric ones.

Creating the competition involves using two competitors as beacons so that the market can locate your company’s unique value proposition.

The first of these two competitors we will call the market alternative. This is a company that the target customer has been buying from for years. We are going to use a discontinuous product innovation to address a problematic limitation in the traditional offer. The second reference competitor we will call the product alternative. This is a company that has also harnessed a discontinuous innovation and is positioning itself like us as a technology leader. Their very existence gives credibility to the notion that now is the time to embrace a discontinuity. Our intent here is to acknowledge their technology but to differentiate from them by virtue of our own niche market focus.

Your market alternative helps people identify your target customer (what you have in common) and your compelling reason to buy (where you differentiate) Similarly, your product alternative helps people appreciate your technology leverage (what you have in common) and your niche commitment (where you differentiate). Thus, you create the two beacons that triangulate to teach the market your positioning.

You choose your competition to help you define the niche market you will dominate. As long as they are well behaved and stay out of your niche, you go out of your way to honor their achievements elsewhere. If they should stray into your niche, on the other hand, you must defeat them totally. The beachhead segment must be your niche and yours alone.

If you try out this exercise of choosing the competition and have trouble finding a single, clear market alternative, this is a clue. It means that you are not ready to cross the chasm. Chasm-crossing requires a single target beachhead segment, and in that segment, there needs to exist already the budget dollars to buy your offer.

You can keep yourself from making most positioning gaffes if you will simply remember the following principles.

Evaluations are often simply rationalizations of preestablished positioning. The most effective positioning strategies are the ones that demand the least amount of change. It is then possible to talk about positioning as a verb, a set of activities designed to bring about positioning as a noun. 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.

Most people resist selling but enjoy buying.

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.

There are four stages in this process:

1. Potential customers cannot buy what they cannot name, nor can they seek out the product unless they know what category to look under.

2. Customers will not buy something until they know who is going to use it and for what purpose.

3. Customers cannot know what to expect or what to pay for a product until they can place it in some sort of comparative context.

4. 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 purpose of positioning is to put in place these sets of perceptions with the appropriate target customers in the appropriate sequence and at the appropriate time in the development of a product’s market.

When positioning is thought of primarily as a verb, it refers to a communications process made up of four key components:

1. Claim: a two-sentence format

2. Evidence: sufficient proof to make any disputation unreasonable

3. Communications: identify and address the right audiences in the right sequence with the right versions of the message

4. Feedback & Adjustment: competitors can be expected to poke holes in the initial effort, and these need to be patched up or otherwise responded to.

The hardest to get right is the claim. Can you explain your product in the time it takes to ride up an elevator? The key is to define your position based on the target segment you intend to dominate and the value proposition you intend to dominate it with. You then set forth your competition and the unique differentiation that belongs to you and that you expect to drive the buying decision your way. Just fill in the blanks:

For (target customers, beachhead only) who are dissatisfied with (the current market alternative) our product is a (new product category) that provides (key problem-solving capability) unlike (the product alternative) we have assembled (whole product features for your application).

What is often interesting about writing a statement like this is not what you write down but what you have to give up. It’s like a telegram with less than one line. Positioning is not about hype. It is about clear and precise direction. The statement of position is not the tag line for an ad.

The kind of evidence that is needed evolves over the course of the Technology Adoption Life Cycle.

Not only do you have to develop this kind of evidence, you also have to make sure that everyone hears about it.

If the message is not, “Look at my hot new product” then what is it, and how are you going to get it out? The message is “Look at this hot new market”. The lure embedded in this story is that we are seeing a new trend in the marking, and everyone who has a seat on this bandwagon is going to be in on The Big Win.

There are two venues that lend themselves to who product stories.

The first is the business press. Whole product stories, particularly ones sparked by partnerships and alliances coming together to bring off some wonderful result for a particular company, are the bread and butter of business fare. In this instance, it is important first to build some references in the financial analyst community, based not on the company per se but on the market opportunity it has in its sights. Once they have bought into the market, then they can be used as a reference point by the business press in developing a story. One effective tactic is to hold a press conference with multiple spokespersons on the topic. A more elaborate version of the same approach is to sponsor a conference on the core issue that is driving the development of this market. Communicate the bandwagon effect in progress.

As we launch our invasion across the chasm, distribution is the vehicle that will carry us on our mission, and pricing is its fuel.

Secure a channel into the mainstream market with which the pragmatist customer will be comfortable. The number-one concern of pricing is not to satisfy the customer or to satisfy the investors, but to motivate the channel. We are looking to attract customer-oriented distribution, and one of our primary lures will be distribution-oriented pricing.

Channels are optimized for different purposes, as follows:

1. Demand Creators v Demand Fulfillers. Direct sales forces are optimized for creating demand, while retail superstores are optimized for fulfilling it. Our immediate goal is to create mainstream demand, but we must also look ahead toward putting in place a channel that can fulfill it.

2. Role in providing the whole product. The goal is to take the burden of whole product off of the channel in order to free it up to spend more time creating – and fulfilling – demand for the product.

3. Potential for high volume. Our ultimate target is likely to be a high-volume channel.

Does the channel already have or is it optimized to create, a relationship with our target mainstream customer?

How will this channel fit into our whole product mix – our partners and allies strategy? It is absolutely critical that our mainstream customer gets the whole product, and we should be willing to sacrifice some volume in order to prevent customer dissatisfaction at getting less than the whole product.

The right choice of distribution channel for crossing the chasm is to:

- Use direct sales and support as a demand-creation channel to penetrate the initial target segment

- Then, transition to the most efficient fulfillment channel for your offer

You always start with direct sales to establish a sustainable market position. You start the fire.

The first perspective to set on pricing is the customers’.

Visionaries are price insensitive. Conservatives want low prices. Between these two types lie the pragmatists. They expect to pay a premium for the market leader relative to the competition, perhaps as high as 30%.

From a distribution perspective, there are two pricing issues that have a significant impact on channel motivation. Is it priced to sell? Is it worthwhile to sell? Being priced to sell means that price does not become a major issue during the sales cycle. Set pricing at the market leader price point, thereby reinforcing your claims to market leadership (or at least not undercutting them), and build a disproportionately high reward for the channel into the price margin, a reward that will be phased out as the product becomes truly established in the mainstream, and competition for the right to distribute it increases.

All organizations are market-driven.

The rapid acceleration in market development followed by a dramatic lull, whenever a discontinuous innovation is introduced, where they must leave the relative safety of their established early market and go out in search of a new home in the mainstream. This drives the market.

The impact of the chasm extends beyond the marketing organization to every other aspect of the high-tech enterprise, such as finance, development, and R&D. The post-chasm enterprise is bound by the commitments made by the pre-chasm enterprise. Avoid making the wrong kind of commitments during the pre-chasm period. This is harder to achieve than it looks.

To leave the chasm behind, there is a molting process. It is not a time to cease innovation or to sacrifice creativity, but there is a call to redirect that energy toward the concerns of a pragmatist’s value system instead of a visionary’s.

Financial Decisions

The purpose of the post-chasm enterprise is to make money. This is not a purpose of the pre-chasm organization. The early market organization is not required to adopt the discipline of profitability. When that motive is not present, people make financial commitments that have consequences they either do not, or do not care to, foresee. Although this comes in many and varied forms, perhaps its most prevalent one is the hockey stick forecast of revenue growth.

Revenue is a slave. It is a slave to the entrepreneur’s cost curve and to the venture capitalist’s hockey stick expectations. Revenue numbers, under this methodology are, whatever they have to be. However, the revenue development that actually occurs looks more like a staircase than a hockey stick. There is an initial period of rapid revenue growth, representing the development of the early market, followed by a period of slow to no growth (the chasm period), followed by a second phase of rapid growth, representing return on one’s initial mainstream market development. The staircase model is perfectly viable, unless you mortgaged your stake in the company on making the hockey stick come true.

All investment is a bet on performance against competition within time. The most pressing question initially is, How wide is the chasm? How long will it take before I can achieve a reasonably predictable ROI from an acceptably large mainstream market? The simple answer to this question is, as long as it takes to create and install a sustainable whole product. No mainstream market can occur until the whole product is in place. Estimates of market size, rate of penetration, cost to achieve market leadership, and anticipated market share can all be made in the light of day, without smoke and without mirrors. Make crossing the chasm part of your business plan.

Until profitability is achieved, nothing is secure, and your destiny is not under your own control. There is a very strong case for adopting profitability from day one. The great benefit of adopting the discipline of profitability at the outset is that you do not have to learn it later on. The discipline of profitability teaches you to “just say no” early and often. You begin to wonder why you would ever not choose this route. Essentially, there are two reasons: the price of entry is too great to fund with sweat equity or consulting contracts and when the market is expected to develop so rapidly that you cannot afford to mark time as a bit player.

It is typically more capital intensive to cross the chasm than it is to build the early market. You do need to invest in early market public relations, a product launch is crucial to building early market success, but you do not need to advertise, nor do you need to invest in developing partnerships or building channel relationships. Once early market leadership has been established, however, the entire equation changes. The whole product investment takes a significant number of funded initiatives, so does the channel development process, both on the pull and push sides, creating demand and providing incentives for sales. This is when you want to spend your money, not before.

Organizational Decisions

To leave the chasm behind, to cross it and not fall back into it, involves a transformation in the enterprise that few individuals can span. It is the move from being pioneers to becoming settlers. Pioneers are the ones who push the edge of the technology application envelope. Settles milk the land. Settles do not take pioneers’ places. They take other places, ones that pioneers never have occupied nor would ever choose to. Nonetheless, settles do take over the employment roster, and the management positions and the authority and budget. How in the world can you make the transition between these two groups in an orderly way?

The key is to initiate the transition by introducing two new roles during the crossing-the-chasm effort. The first of these might be called the target market segment manager, and the second is the whole product manager. The former leads to being an industry marketing manager and the latter to a product marketing manager.

The target market segment manager has one goal in his or her short job life, to transform a visionary customer relationship into a potential beachhead for entry into the mainstream vertical market that particular customer participates in. He must attend the trade shows, read the literature, study the systems, and meet the people. He must take over supervision of the visionary’s project, make sure it gets broken up into achievable phases, supervise the introduction and rollout of the early phases, get feedback and buy-in from the end users of the system, and work with the in-house staff to spin off the kind of localized implementations that give these initial deliverables immediate value and impact. The goal is to isolate the idiosyncratic elements as account-specific modifications, making sure thereby not to saddle the ongoing product development team with the burden of maintaining them.

The market segment manager can be expected to expedite the implementation of the first installation of the system. During the first installation, he can introduce his own replacement, a true account manager, a “settler”, who will serve this client, hopefully, for many years to come. Leverage the ongoing project to create one or more whole product extensions that solve some industry wide problem in an elegant way. Such add-ons increase the value of the product within the target market segment and create a barrier to entry for any other vendor.

The whole product manager is a product-marketing-manager-to-be. What should increasingly become the prioritizing factor for ongoing product development work is a contribution to the mainstream, pragmatist customer satisfaction. In other words, contribution to the whole product. Hence the need to transfer authority.

A few compensation programs recognize either the fundamentally different contributions of pioneers and settlers or their fundamentally different ensures with the enterprise, and thus these programs end up discriminating against one or the other. First let’s start on the sales side. The key is to discriminate between account penetration and account development. The latter is a more predictable, less remarkable achievement. It is also the more lucrative. Compensation here should reward such things as longevity of the relationship, customer satisfaction, and predictability of revenue. Compensation should be spread out over time and not clumped into dramatic payments. Since this is not a high-risk role, it should not be a high-reward one either. Compensation for the pioneer salesperson should have the opposite characteristics. It should provide the bulk of its rewards immediately, in recognition of a single key achievement – winning the business. This argues for a bonus-based program more than a straight commission approach. Don’t tie it to revenue recognition because this can influence the pioneer to overstay his or her welcome in order to reap the rewards at a time when the company cannot afford that sort of outlay.

Moving to the development side. The pioneer technologist has a right to a large share of the early market returns because here it truly is the core product that drives success. Equity should be reserved for people who cross the chasm and stay, not the pioneer’s ideal role.

Compensation programs must take into account the differences between desired performance in the early market and mainstream market, as well as the types of people that can be called on to achieve these performances and the likelihood that some of these people will need to leave the company long before it achieves significant profitability.

R&D

We learn to create products, and then markets, and then enterprises to dominate those markets, but it starts with technology. The products and markets and companies we create all grow up to make persistent and legitimate demands on us. We have no choice but to serve them. Once this scenario begins, R&D doesn’t get to focus on the generic product anymore. It must become whole product R&D.

Whole product R&D is driven by the marketplace. The word that tech people uses for whole product R&D is maintenance. It represents a kind of convergence between high-tech marketing and consumer marketing, where, for the first time, the tools of the latter can be of significant use in solving the problems of the former. It’s not market research alone, nor is it just product development. It’s whole product R&D.