New 10 crossing the chasm

On Crossing the Chasm
Ziya G. Boyacigiller
This presentation was created and given by Ziya
Boyacigiller who was leading Angel Investor and a loved
mentor to many young entrepreneurs in Turkey. We have
shared it on the web for everyone’s benefit. It is free to
use but please cite Ziya Boyacigiller as the source when
you use any part of this presentation. For more about
Ziya Boyacigiller’s contributions to the start-up Ecosystem
of Turkey, please go to www.ziyaboyacigiller.com

Ziya G. Boyacigiller (c) 2005 2
Adoption Risks
How to Cross the Chasm
&
Hockey-Stick the Sales
Ziya Boyacıgiller
Sabancı University
(Based on Geoff Moore’s books, How to Cross the
Chasm, and Inside the Tornado)

Your Challenge is:
How can you test
“customer acceptance”
of your product/service at
highest accuracy
and
lowest investment
?

Risk Management
Risk = Probability X Seriousness
1. How can we reduce probability?
2. How can we reduce seriousness?
Example: Risk of a house fire…

Minimize your Risk…
Risk = Investment X Odds
Investment
 
Odds
 R R
 R R

TEST

MIN

Marketing
&
Sales
is
like navigating
through a maze
where
entrepreneur
looks for
customer
acceptance…

“Mouse Strategy”
works for the entrepreneur as well:
1 Look at the alternatives and make a plan,
2 Try it -- quickly… (quick prototyping)
3 Evaluate results, remember your steps and turns,
4 Stop and Go to back to Step 1 if dead end.
5 If you manage to move forward, repeat
as many times as necessary Steps 1 to 4,
until you have found the way-out.
KEY
SLIDE

Use “Evidence Based”
Approach –
Do Not Shoot Blindly !

Evidence Based Management
1. Observe situation
2. Define problem (deviations from expectations)
3. Generate possible causes (ALTERNATIVES)
4. Design experiments to test hypothesis
5. Check if test results fit ALL observations
6. Apply results to situation
Test
Your
Assumption

Product Development
Approaches
• Wrong Approach  Serial
DEVELOPMENT TESTING RE-WORK
 Right Approach  Concurrent / MVP
TESTING DEVELOPMENT
Minimum Viable Product
Paper-Tigers / Quick Prototyping
“EVIDENCE BASED” PLANNING
Marketing Materials
NO REWORK
KEY
SLIDE

How do you test your product
when you have no product?

Paper Tigers to your Rescue
紙老虎

Paper Tiger
From Wikipedia, the free encyclopedia
Paper tiger is a literal English translation
of the Chinese phrase zhǐ lǎohǔ
(Chinese: 紙老虎), meaning something
which seems as threatening as a tiger,
but is really harmless.

How to use Paper Tigers
Turn your vision into reality -- first on paper…
1. Write, for your product/service as realistic as possible:
a. A specification sheet (features), and
b. A brochure (benefits for customer), and
c. A print/media advertisement (positioning), and
d. A press release (differentiation)
2. Use as a model/starting-point your competition’s examples.
Change what you don’t like, keep what you like.
Make them look and feel as real as possible!
KEY
SLIDE

How to use Paper Tigers
3. Show these to potential customers and get their
inputs/feedback.
4. Ask potential customers “what they like” and
“what they don’t like”.
1. Understand WHY they say what they say!
2. Understand priorities (what is more import) and
3. Understand trade-offs.
5. Listen, write down, record but DO NOT MODIFY
or DISCARD any customer comments.
KEY
SLIDE

Paper Tigers Work
Because :
• Customers understand you better (clear communication)
• Customers take your survey more seriously,
• Customers give specific inputs (quantified/facts),
• They cause “creative movement” -- trigger additional customer
inputs,
• They validate “outcomes” and their importance/satisfaction
• They validate your segmentation
• You can ask for an order at the end – Letter of Intent (LOI) and
even advanced payment to reduce your risk even further

At this point, you may think your
product is defined right.
But, can you be sure that your
product will be accepted by
the customers?

Q: Will the dogs eat
your dog-food?

http://www.gartner.com/pages/story.php.id.8795.s.8.jsp
Gartner Hype Cycle

2007


First there is a market.
Then there is no market.
Then there is…
based on a Zen quan

Early Sales can be Deceptive…
Focus on Crossing “The Chasm”
Laggards
Late
Majority
Early
Majority
Early
Adopters
Innovators
"The
Chasm"
Technology Adoption Process
Time
Sales
PRAGMATIST
KEY
SLIDE
Chasm could be as wide as years !

Chasm could be as wide as
years…

Understand Who will Stop You
from Sales Growth…
• “Pragmatists can relate to technology, but they are
driven by a strong sense of practicality.
• They know that many of these newfangled inventions
end up as passing fads, so 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.”

How to Cross the Chasm

Competitive-Position Road Map
PRODUCT
(visionaries)
TECHNOLOGY
(techies)
COMPANY
(conservatives)
Specialist
Supporters
Generalist
Skeptics
MARKET
(pragmatists)
DevelopingEarlyMarket
DevelopingMainstreamMarket
Crossing
the
Chasm
FOCUS
KEY
SLIDE

Visionaries help Pragmatists
to Cross the Chasm
• Visionaries:
– Technically savvy, interested
– Supporting the Value Proposition
chasm
• Pragmatists:
– Generalists, not technically savvy
– Skeptical of the Value Proposition

Key Factors of Competition
• Visionaries
(product centric)
– Fastest product
– Easiest to use
– Elegant architecture
– Product price
– Unique functionality
– …
• Pragmatists
(market centric)
– Largest installed base
– Most 3rd party support
– De Facto standard
– Cost of ownership
– Quality of support
– …
KEY
SLIDE

How to start a fire…
To try to cross the chasm without taking
a niche market approach is like trying to
light a log without kindling…

Just like armies select a
Beachhead
you need to select your beachhead – a niche market
to focus their forces and win,

How to define the beachhead…
1. Define target industry & geography
2. Define target buyer (end-user? technical-buyer? economic-
buyer?) with department & job title
3. Look for customers that have funds available (budget)
4. Look for customers that can be reached
(addressable)
5. Generate Before-After Scenarios for these customers
showing how your product solves their pain.
KEY
SLIDE

Before Scenario…
• Before:
– Scene or situation
(“job” customer is trying to do)
– Desired outcome (s)
– Attempted approach to fulfill outcomes
(current approach)
– What goes wrong – how & why
(pain)
– Economic consequences
(compelling reason to buy)
KEY
SLIDE

After Scenario…
• After:
– New approach
– Enabling factors
(what conditions and factors help so your product can be
adopted/used)
– Economic and/or Feel-Good outcomes
KEY
SLIDE

Must meet criteria:
– Target customer
• Is there a single, identifiable economic buyer for this offer? Is it readily
accessible by the sales channel? Is it well funded to pay the price for
the whole product?
– Compelling reason to buy
• Are the economic consequences substantial enough (+ROI & pay-back
period) to mandate any reasonable economic buyer to fix the problem
called out in the scenario?
– Whole product
• Can our company with the help of partners and allies field the complete
solution to the target customer’s compelling reason to buy in the next
___ months, such that we can be on the market by ____, and be
dominating the market within ____ months?
– Competition
• Has this problem already been addressed by another company such
that they have crossed the chasm ahead of us and occupied the space
we would be targeting? (If the answer is “no” continue, if it is “yes”
 stop and think…)
KEY
SLIDE

Filtering – Rating…
• Pick the best scenario from all you have
generated. To pick the optimum scenario
to use, rate scenarios based on:
– Partners & allies
– Distribution
– Pricing
– Positioning
– Next target customer segment
– Etc.

Key to Success for
an entrepreneur is
creating a
Product/Service
KEY
SLIDE

Crossing the Chasm is centered
around your “differentiation”
• Compelling reason to buy
…translated into
• Unique (=differentiated) value proposition
…leads to need to develop the
• “ ” – without which it is
hard (very very hard) to cross the chasm
KEY
SLIDE

Positioning…
• Pragmatists need competition to evaluate
products and vendors before buying.
• Competitive Position is a condition for
sales
• Pragmatists look for market-centric
(augmented by product-centric) inputs to
buy
• If there is no competition, YOU need to create it!
KEY
SLIDE

How to Position:
– Name it! – New Product Category
– Form The Claim – a.k.a. The Elevator Test:
– For {target customer}
– who are dissatisfied with {market alternative}
– our product is a {name it}
– that provides {key problem solving capability}.
– Unlike {product alternative}
– we have assembled {key whole product features only you
offer}.
CAUTION: Pick one, and only one, claim!
KEY
SLIDE

Example Palm Statement
– For corporate workers,
– who are dissatisfied with carrying key information in
a paper note book or a heavy PC,
– our product is a “Pocket PC”
– that keeps your calendar, address book, to do list,
and notes in your shirt pocket.
– Unlike a paper note book or a PC,
– the Pocket PC makes it easy to have access to the
information you need any where you go; allows you
to make changes easily, and back up all data on a
PC; and conveniently synchronize any changes you
or your secretary make, so you have access to up-to-
date information - always.

Why one-claim…
– In all communications consistently use the same
claim over and over again.
– Establishing a position takes time and resources
– Frequency of exposure to the merchandising
message is important to establish position in
customers’ minds.
– Multiple claims will confuse customers – you can’t
be all things to all customers

Whole Product
• Make sure that you have a product/service with a
compelling reason to buy
• Ensure you have a monopoly on “to fulfill compelling
reason to buy” better than competitors
• Create a monopoly such that for the target market and
application your product is the only reasonable alternative
• This should lead to make your product a standard in the
industry & the market
KEY
SLIDE

Example:
Why is iPod
selling so
well?
Make sure that you have a
product/service with a compelling
reason to buy
Ensure you have a monopoly on
“to fulfill compelling reason to
buy” better than competitors
Create a monopoly such that for
the target market and application
your product is the only
reasonable alternative
This should lead to make your
product a standard in the industry
& the market

“Whole Product” Model*
POTENTIAL
PRODUCT
future versions with
enhanced benefits
AUGMENTED
PRODUCT
everything the buyer
needs for positive user
experience
“WHOLE PRODUCT”
EXPECTED
PRODUCT
what customer thinks
s/he is buying
GENERIC
PRODUCT
what is available
* Theodore Levitt
“Whole Product” is the complete set of
products and services needed for the customer
to fulfill the compelling reason to buy.

Whole Product Example
note that whole product is defined relative to usage scenario
hardware
software
product
peripherals
connectivity
consulting
postsales
service& support
presale
services
legacy
interfaces
allcomplementaryproductsrequiredto
fulfillpromisedvalueproposition
allcomplementaryservicesrequiredto
fulfillpromisedvalueproposition
All “whole product” components must be fulfilled to displace the old value chain

Whole Product & TALC*
Laggards
Late
Majority
Early
Majority
Early
Adopters
Innovators
"The
Chasm"
Time
Sales
GENERIC
PRODUCT
AUGMENTED
PRODUCT
“WHOLE PRODUCT”
EXPECTED
PRODUCT
POTENTIAL
PRODUCT
* TALC = Technology Adoption Life Cycle

Evidence to Show Visionaries:
• Benchmarks
• Product Reviews by “influencers”
• Design Wins
• Initial Sales Volumes
• Trade Press Coverage
• Endorsements
KEY
SLIDE

Evidence to Show Pragmatists:
• Market Share
• Partners and Allies (quality & number)
• Third Party Support
• Standards Certifications
• Applications Proliferations
• Vertical Press Coverage
• Industry Analyst Endorsements
KEY
SLIDE

“Whole Product” wins sales…
Since your product is defined for the target segment
and is a Whole Product, it should meet the
requirements of the customers better than any
other product available. This will make you
“own” the market and have a monopoly.
TI did this with their TI83 type calculators for high-
school students… There are many other
calculators but all high schools used the TI83.
Why?
iPod did this for MP3 players. How?

The Chasm Crossing
Warnings
• Attempts to cross the Chasm without a niche
market approach are almost always failing.
• Consequences of sales-driven strategy (chasing
every opportunity) during the chasm period are
fatal.
– Company can afford to support only a limited number of whole
products (resources are limited).
– Winning customers in several market segments does not create
critical mass for “word of mouth” momentum indicating a leader.
– Lack of “word of mouth” makes selling the product harder, more
expensive and more unpredictable.
– Lack of dominating leadership status (500 kg. gorilla) does not
entice pragmatists to buy.

You Need Partners and Allies
To build the Whole Product
make use of Partners and Allies
when necessary.
This will get you to market faster and require
less resources.
This will require you to manage the
opportunity, but it is worth the effort.
KEY
SLIDE

Choice of Distribution for
Crossing the Chasm
• Use direct sales and support as a demand-
creation channel to penetrate the initial
target segment (in fact CEO/CTO should
sell first customers to create a working
sales process)
• Once the segment has become aware of
your presence and leadership, and you
have a working sales process, then
transition to the most efficient fulfillment
channel you can offer.
KEY
SLIDE

Choice of Pricing for Crossing
the Chasm
• Set pricing at the market leader price
point.
– This reinforces the claim of market leadership.
• Build a disproportionably high reward for
the distribution channel into the price
margin.
– With time, you can respond to competitive
pressure by reducing this award.
KEY
SLIDE

Where are you placed in TALC?
Laggards
Late
Majority
Early
Majority
Early
Adopters
Innovators
"The
Chasm"
Time
Sales

Discontinuity
Analysis Tool
GAIN
PAIN
A B C D
4
3
2
1
A: Provides modest improvements
B: Adds substantial new value
C: Adds dramatic new value
D: Changes the competitive field
4: Significant changes, new system
3: Major changes to existing systems
2: Modest changes to existing systems
1: Integrates with existing systems
“cost” of benefits
“benefits” to user
KEY
SLIDE

Discontinuity Analysis
GAIN
VALUE FOR CUSTOMERS
PAIN
PARADIGMSHOCK
A B C D
4
3
2
1
MOVE
AWAY
NOT COMPELLING
Early Market
 D4
need innovation
new value chain
Bowling Alley
 D2/D3
need segmentation
need whole product
Tornado
 C1/D1
need standards
Main Street
 A1/B1
need segmentation
need added benefits
STAYAWAY
DEADONARRIVAL
KEY
SLIDE

Hockey-Stick the Sales

Segment 1
Application 1
Customer
references
W
hole
Products
Segment 2
Application 1
Segment 1
Application 2
Segment 3
Application 1
Segment 2
Application 2
Segment 1
Application 3
TORNADO
..................
..................
..................
Bowling Alley
Market Development
1
2
2 financial
spreadsheet
(Excel)
marketing
spreadsheet
(Excel)
spreadsheet
presenter
(PowerPoint)
KEY
SLIDE

Q: How do startups survive and succeed
when they have limited resources!
A: If you have one pot of water, several plants to
water, and this pot of water is enough to keep
only one plant alive what do you do?
Do define and focus on a niche market first!

Bowling Pin Model
Primary goal for targeting the pins is:
 Key criteria for selecting Bowling Alley pins:
 Are they small enough? (Do not attack the segment bigger than you can dominate; pick on a
market segment you can dominate)
 Will they serve the strategic goal?
 Customer focus in bowling alley should be on:
 end-user community, or
 economic buyer with budget responsibility
 not a technical community (because this is focus for pre-bowling alley)
 Create a compelling reason to buy for the target buyer.
 Dominate a segment with over 30-40% market share in ___ months (or other time frame, but
before competition does so…) Note: You need 30-40% for word of mouth to work, to convince
pragmatists that they should buy from you, the market share leader.
 Get your product adopted as the market leader (standard) in as many niches as possible.
 Over-invest when invading a new pin to accelerate your rise to market leadership:
 Deliver superbly engineered whole product without having to tie yourself to ongoing
customization commitments.
 This is the only way to divert resources to the next pin.
KEY
SLIDE

Bowling Alley Problems
 People are in too much of a hurry to properly execute Bowling Alley strategy.
 Companies fall in love with the first few niches and settle in them for life
forgetting about exponential growth opportunity (for creating a Tornado).
 Companies get trapped in the lure of recurrent service revenues and never
design a pared down product (generic product for main-street) that could break
free from the need for value added service support.
• Structure of consumer markets does not support Bowling Alley strategy
conveniently (meaning this model doesn’t work well for B2C).
• Inability of giving up R&D product-centric perspective, in favor of customer-
based application-centric focus by entrepreneurial executives.

Strategy for Approaching the
Economic Buyer in Bowling Alley
1. Offer new product solving existing problem which costs customer
money (time to +ROI, payback period typically <6 months).
2. Show that the problem is inherently related to current infrastructure
paradigm, and the situation is getting worse or not getting better.
3. Show that new paradigm eliminates the root cause of the problem.
4. Show that you learned the application in-depth, and you bring not
only the generic product, but the whole product as well.
5. Present the whole product.

Tornado
or
Network
Effect
(a.k.a. Metcalfe’s Law, snowball,
hockey-stick, viral, word of mouth..)
Positive feedback system
– Examples:
• Microsoft Office & DOS,
• CD vs. long-play
To make it work for you:
Get customer
feedback
Implement in
product/service
Communicate
improvements to
customers
KEY
SLIDE

Viral?
• Works when one-person causes > 2-others to
adopt
• Communication can be verbal or visual
• Customer satisfaction must be high
• Transaction-ROI to adopt must be positive
• Will need to seed growth (need sneezers & germs)

Customer Satisfaction
is a Must Meet Requirement
• For Tornado you must have happy  customers.
• Test Customer Satisfaction:
1. Would you buy from me again? (1 to 5 rating)
2. Would you recommend me to others? (1 to 5 rating)
3. To rate us a 5 what is it that we have to improve?
• NPS (net promoter score) =
{% customers rating 4 or 5 }
minus
{% customers rating 2 or 1 }
http://www.netpromoter.com/calculate/index.php
KEY
SLIDE

Winners:
Highest % Promoter
Sinners:
Highest % Detractor
Airlines 60% Southwest 34% Northwest
Rental Car 53% Enterprise
28%
28%
Avis
Dollar
Car Brands 74% Saturn 49% Mercury
Full Service Brokerage 64% AG Edwards 36% Merrill Lynch
Source: The Net Promoter Database built by Satmetrix Q1 2001 - Q1 2005;
* represents data from Bain-sponsored survey performed in Q4 2004.

About the Main Street
• A product eventually takes off and creates a tornado
where sales skyrocket.
• Competition, sooner or later catches up with you,
start exerting pricing pressure and chipping away at
your market share – this is when the technology
adoption cycle is said to be in Main Street.
• This is the time to come up with your potential
products to stay ahead of the competition, and attract
customers who need additional benefits.

Which stage is the lowest risk
for entry into market?
Laggards
Late
Majority
Early
Majority
Early
Adopters
Innovators
"The
Chasm"
Sales

Successful Customer Adoption
Needs Proactive Management
Through the
TALC

New 10 crossing the chasm

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