Why do companies fail? (Part I)
My Notes and takeaways from Crossing the Chasm. Although this book was written a while back it continues to stay relevant today. This post talks about the crux of the book. I have outlined specific examples in a separate post here, which is arguably the more interesting part.
The Technology Adoption Lifecycle
This lifecycle is very similar to Gartner’s Hype Cycle
Visionaries
Visionaries are the ones who can match emerging technologies with a strategic business opportunity. Some well-known examples of visionaries are JFK with his launch of the US Space Mission, Henry Ford who had a vision for every household to own a mass-produced car and Steve Jobs who took the Xerox PARC UI technology and put it in the Mac PC.
Here are some other less-known examples:
- Harry McMahon at Merrill Lynch saw the value of Salesforce and consequently, Merrill Lynch became Salesforce’s first large enterprise customer.
- Linda Dillman, CIO @ Walmart, ensured that Walmart’s inventory was tagged with RFID.
- Reed Hastings deciding to run Netflixs’ infrastructure on AWS.
As opposed to the tech enthusiasts, visionaries are not focussed on technology, but the value that the technology can unlock. They are also the least price-sensitive of any segment.
A company at the pre-chasm state needs to do 2 things : provide tech enthusiasts with early versions of their product as well as pitch their vision to visionaries. It should then ask the visionary to check with the tech community whether their vision is achievable with this new technology.
Pragmatists
This persona prefers turn key solutions, since it avoids the hassle of setting up a new solution, integrating it with existing applications as well as maintenance. For this reason, they prefer working with VAR’s (Value Added Resellers). As a startup, it is critical to form relationships with VAR’s, or even System Integrators to easily reach the Pragmatist buyer. This segment also tends to be extremely cost-sensitive since the ROI is what they are ultimately measured on.
Laggards
This group should be taken advantage of because they are not affected by any marketing claims. They will take your product at face value and provide valuable feedback. Instead of trying to ignore this feedback, it will serve companies well to actually act on the feedback if they are to preserve their market share in the long run.
Crossing the Chasm
The crux of this book is essentially this: To cross into the mainstream market, you need to identify a small niche and dominate that niche — dominate from a product, marketing and sales perspective. Once you have a foothold in this market you should have built up a good set of reference customers. You now use your position here to expand into other neighboring product segments. This is referred to as the D-Day strategy since this is what happened in WW II. The allies had an early market base (England) and they had to cross the chasm (the English Channel) to take over the mainstream market (Western Europe). To do this, the Allies target the beaches of Normandy. Normandy was its strategic target market segment. Once they had control of Normandy, they could expand to adjacent market segments (French districts) before market domination (Western Europe).
The biggest problem companies face in crossing the chasm is not that the concept is difficult, it is the discipline to not stray into adjacent markets too early. This gets especially tricky when you have a short-term financial incentive to do so. Secondly, companies are in a hurry to grow fast and target as many customers as possible. However, growing too fast bites them later.
There are 4 key aspects to consider when crossing the chasm:
- Identify a target segment. The segment you pick needs to be big enough to matter and small enough to lead. We should also be able to identify the specific pain point we are solving for this segment.
- Identify how customers can extract the maximum value from our offering and how this can be accelerated. This takes the form of identifying what our whole product is, whom we need to partner with, ancillaries to our core product, etc.
- Be able to identify a target competitor and position relative to them. If you are not able to do this, the budget dollars might not exist for your offering.
- Select our distribution channel and how we price our offering.
Whole Product Model
Once you have identified your target segment, you need to internalize the concept of a whole product model. This essentially means filling the gap of the core product such that customers can extract the maximum value out of it, as well as making the product’s adoption and usage as seamless as possible. This phase focuses not on the core product features, but typically integrations with other systems and is an integral part of defeating an incumbent. In some cases, this is also referred to as solution selling.
The outer cycles of the Whole Product are increasingly important post chasm.
Let’s take the example of a browser to see how it fits this model. Generic Product is what is shipped in the box. The expected product is what the consumer thought they were buying. In this case, it would include portability to all the common OS’s like Windows, Mac, iOS, Android, etc. It would also include a browser home page with a default search engine. The Augmented Product provides the maximum chance of achieving the buying objective. For a browser, it would include plug-ins from 3rd party vendors that provide additional functionality. Finally, the Potential Product could be a world where we interact with the browser without ever interacting with the OS underneath.
Systems Integrators like Accenture and Cognizant could essentially be called Whole Product Providers. They figure out interesting products that are in the process of or just crossed the chasm. They then integrate these products with other mainstream products and provide the maintenance to be able to sell to pragmatists.
The Whole Product phenomenon is why pragmatists prefer ARM smartphone microprocessors to Intel Atom, Google search to Microsoft’s Bing, the iPhone to Blackberry, HP to Epson’s printers, Cisco routers to Huawei’s. It was also the reason how Oracle won the database model, not because it had the best generic product, but because it had the best whole product.
Aruba Networks presents a good example of how Whole Product can be done right. In 2006, they were in the process of crossing the chasm. The incumbent they were dealing with was Cisco. The target segment where the battle would wage was identified as the University Campus. Campuses at this time were going wireless and needed high-speed connectivity in every corner of their campus. Both Cisco and Aruba solved this core need. However, Aruba went deep into this use case to make it easier for their users:
- Campuses had both wired and wireless networks at this point. So, Aruba partnered with and eventually acquired AirWave, a multi-vendor wireless network management system. This would make the network admin’s life much easier, having to only work with AirWave to manage their entire network.
- Partnering with Bradford Networks to offer a NAC (Network Access Control) to enforce access controls.
Positioning & Pricing
Crossing the Chasm represents moving from Product-based values to market-based values.
With Box as an example, it used Microsoft Sharepoint as a Market alternative and Dropbox as a Product Alternative. Box was solving the same problems, going after the same personas and dollars as Sharepoint, but with the user experience of Dropbox.
One reason why companies like Segway and Better Place failed, is because they didn’t position their competition correctly. Segway had no Product or Market alternatives and consequently, it wasn’t clear what budget it was going after. Segway was essentially a ‘People Mover’. Possible market alternatives could be motorbikes or electric wheelchairs, but neither was really accurate and Segway didn’t compare itself to anything. Better Place had product alternatives like Tesla but did not have a market equivalent.
The marketing alternative calls out the budget you are going after and the product alternative calls out how you are different from the incumbent.
When it comes to pricing the general guidance is to price similar to the market leader. This will signal that you consider yourself at par with the leader and are going after them. A significantly higher margin should also be allocated to the channel, so they are incentivized to sell your product.
