Crossing the Chasm: Marketing and Selling Disruptive Products to Mainstream Customers

by Geoffrey A. Moore

The chasm is, by any measure, a very bad place to be. It promises few, if any, new customers—only those who have somehow got off the safe thoroughfares.

Managers would like to retreat into their existing major-account relationships, service them in an exceptional way, and leverage that investment of an additional year in fleshing out the greater part of the visionary’s plan.

there are still sales opportunities here—other visionaries who can be sold to. But each one is going to have a unique dream, leading to unique demands for customization, which in turn will overtax an already burdened product development group.

Cross the chasm by targeting a very specific niche market where you can dominate from the outset, drive your competitors out of that market niche, and then use it as a base for broader operations.

Starting a fire is a problem that any Boy Scout or Girl Scout can solve. You lay down some bunched-up newspaper, put on some kindling and some logs, and then light the paper. Nothing could be easier. Trying to cross the chasm without taking a niche market approach is like trying to light a fire without kindling.

No matter how much paper you put under that log, if you don’t have any target market segments to act as kindling, sooner or later, the paper will be all used up, and the log still won’t be burning.

We do not have, nor are we willing to adopt, any discipline that would ever require us to stop pursuing any sale at any time for any reason. We are, in other words, not a market- driven company; we are a sales-driven company.

To put it simply, the consequences of being sales-driven during the chasm period are fatal. Here’s why: The sole goal of the company during this stage of market development must be to secure a beachhead in a mainstream market—that is, to create a pragmatist customer base that is referenceable, people who can, in turn, gain us access to other mainstream prospects.

That is, there are many more mobile apps for Apple and Android mobile devices than there are for Windows 8 or BlackBerry. There is a much broader base of talent to support Cisco routers and switches than Juniper’s. The existence of this added-value infrastructure not only enriches the value of the product but also simplifies the task of getting support, at no additional cost to either the vendor or the customer.

Now, by definition, when you are crossing the chasm, you are not a market leader. The question is, How can you accelerate achieving that state? This is a matter of simple mathematics. To be the leader in any given market, you need the largest market share—typically over 50 percent of the new sales at the beginning of a market, although it may end up to be as little as 30–35 percent later on. So, take the sales you expect to generate over any given time period—say the next two years—double that number, and that’s the size of market you can expect to dominate. Actually, to be precise, that is the maximum size of market, because the calculation assumes that all your sales came from a single market segment. So, if we want market leadership early on—and we do, since we know pragmatists tend to buy from market leaders, and our number-one marketing goal is to achieve a pragmatist installed base that can be referenced—the only right strategy is to take a “big fish, small pond” approach.

Segment. Segment. Segment. One of the other benefits of this approach is that it leads directly to you “owning” a market.

But, in truth, mainstream customers like to be “owned”—it simplifies their buying decisions, improves the quality and lowers the cost of whole product ownership, and provides security that the vendor is here to stay. They demand attention, but they are on your side. As a result, an owned market can take on some of the characteristics of an annuity—a building block in good times, and a place of refuge in bad—with far more predictable revenues and far lower cost of sales than can otherwise be achieved.

when crossing the chasm, you focus exclusively on achieving a dominant position in one or two narrowly bounded market segments. If you do not commit fully to this goal, the odds are overwhelmingly against your ever arriving in the mainstream market.

Three of its primary technologies—Windows, NT, and Internet Explorer—have been direct extensions of a PC operating system franchise that Microsoft inherited and then stole from IBM. That act of theft was Promethean—the stealing of fire from the gods and giving it to humans. It was not dishonest, it was brilliant.

It controlled the gates to the city. When barbarians showed up with their discontinuous innovations, it could shut the gates. When it showed up with its own versions of same, it could open the gates. They were Gates’s gates, and the franchise was very lucrative indeed. It has taken the advent of mobile and cloud, disruptions more than a decade in the making, to put a dent in this position. But even now, Microsoft throws off cash flow that is the envy of anyone in the tech industry.

Now, having said all that, we need also to acknowledge that there is life after niche. Major market dominance ultimately transcends niche, although it continues to renew and extend itself by developing new segments.

The key to moving beyond one’s initial target niche is to select strategic target market segments to begin with. That is, target a segment that, by virtue of its other connections, creates an entry point into one or more adjacent segments.

For example, when the Macintosh first crossed the chasm back in the 1980s, the target niche was the graphics arts departments in Fortune 500 companies. This was not a particularly large target market, but it was one that was responsible for a broken, mission-critical process—providing presentations for executives and marketing professionals. The fact that the segment was relatively small turned out to be good news because Apple was able to dominate it quickly and establish its proprietary system as a legitimate standard within the corporation (against the wishes of the IT department, which wanted everyone on an IBM PC).

How one goes about ensuring a strategic niche for the D-Day landing site is the subject of the next chapter. Before moving on to it, however, let’s take a look at some highly visible companies who successfully implemented a highly focused approach to crossing the chasm.

software programs at the application layer are “naturally vertical” because they directly interface with end users, and end users organize themselves by geography, industry, and profession. This makes them readily adaptable to the beachhead focus needed to cross the chasm.

infrastructure offerings have just the opposite dynamic. They are “naturally horizontal,” because they interface with machines and other programs where the value, in part, is providing a stable, standard interface. They do not lend themselves to vertical marketing because, as products, they do not change very much from niche to niche.

Usually these innovations are taken up first by a single niche, one that has such pressing problems it goes ahead of the herd. The rest of the herd is delighted by this eventuality because it gets a free look at how well the technology plays out without having to take any immediate risk.

And the vendor wins because it gets certified by at least one segment of pragmatists that its offering is legitimately mainstream.

So, because of the dynamics of technology adoption, and not because of any niche properties in the product itself, vendors of disruptive infrastructure must also take a vertical market approach to crossing the chasm even though it seems unnatural. The good news for them is that, later on, when a mass market emerges and horizontal marketing prevails, it is much easier to take advantage of the opportunity.

Documentum, the company, despite inheriting a wealth of document management technology “for free” when it spun out of Xerox, had gone through three straight years of flat revenues in the $2 million range.

In the year after Jeff came on board, it went to $8 million, then to $25 million, then $45 million (and an IPO), and then $75 million. That is world-class chasm crossing. What did Jeff and his team do?

Knowing they were in the chasm, and knowing that the first key to getting out was to select a beachhead market segment, they surveyed their client experience to date and targeted a very thin market niche: the regulatory affairs departments in Fortune 500 pharmaceutical companies.

how could a company justify reducing its market scope from “all personnel who touch complex documents in all large enterprises,” to maybe one thousand people total on the planet? The answer is that when you are picking a chasm-crossing target it is not about the number of people involved, it is about the amount of pain they are causing.

Documentum was addressing the market, a successful patented drug generated on average about $400 million per year. Once the drug goes off patent, however, its economic returns plummet. Every day spent in the application process is a day of patent life wasted. Pharmaceutical companies were taking months to get their first application filed—not months to get it approved, months to get it submitted!

That was because new drug applications range from 250,000 to 500,000 pages in length, and come from a myriad of sources—

All this material has to be frozen in time as a master copy, against which all subsequent changes in information are posted and tracked. It is a nightmare of a problem, and it was costing the drug companies big bucks—basically one million dollars per day!

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 reengineer the entire process to a very different new end, overruled the in-house folks and demanded that they support the new paradigm.

This is a standard pattern in crossing the chasm. It is normally the departmental function who leads (they have the problem), the executive function who prioritizes (the problem is causing enterprise-wide grief), and the technical function that follows (they have to make the new stuff work while still maintaining all the old stuff).

In a year Documentum had demonstrated that it could solve this problem, and some thirty of the top forty pharmaceutical companies had committed to its solution. That is what drove...

Inside the drug companies, Documentum became the standard for all document management tasks, so it spread from the regulatory affairs group to the researchers to the manufacturing floor.

When the product hit the refineries, what people in the oil industry call the downstream part of their business, the IT people recognized a tool that could solve a major problem in their upstream business, exploration and production.

And then that success caught the attention of Wall Street, who saw that the same facilities would help them get better control over their swaps and derivatives business. In the end, it turned out that financial services was the biggest customer segment for the company—but importantly, it was not the right target segment for crossing the chasm because its needs, while more pervasive, were not as urgent as those of the pharmaceutical industry.

And that is pretty much the chain of events that took Documentum to more than $100 million in revenues. It was niche marketing at its most leveraged.

The first is knocking over the head pin, taking the beachhead, crossing the chasm (and chaining together three mixed metaphors to do it!). The size of the first pin is not the issue, but the economic value of the problem it fixes is. The more serious the problem, the faster the target niche will pull you out of the chasm. Once out, your opportunities to expand into other niches are immensely increased because now, having ...

The second key is to have lined up other market segments into which you can leverage your initial niche solution. This allows you to reframe t...

It is not just about the money you make from the first niche: It is the sum of that money plus the gains from all subsequent niches. It is a bowling alley estimate, not just a head pin e...

This is a particularly important point for entrepreneurs working inside large corporations who are having to compete for funding against larger...

The bowling pin model allows you both to focus on the immediate market, keeping the burn rate down and the market development effort targeted, while still keeping in view the larger win.

You cannot threaten that many livelihoods without generating a backlash, and a backlash there was indeed. The enterprise ecosystem exclaimed that such a system was inherently insecure, that only a fool would put enterprise data “in the cloud.”

Most doubted Salesforce would even get to the chasm, much less cross it. And yet, as it turned out, Salesforce has become the fastest-growing software company in history, approaching $4 billion in sales as of this writing, with growth rates north of 25 percent even at that size. So how did they do it?

Interestingly, they did not go after a vertical market. Instead they focused their segmentation along the following lines: • They targeted salespeople and their managers only—not customer service, not marketing. • They targeted mid-market companies, big enough to need systems to compete with market leaders in their category, small enough to be unable to afford the IT investment required. • They focused on the United States only, in part to stay close to the customer, in part because the United States has always been the early-adopting country in enterprise software. • They focused on technology-savvy industries, beginning with high tech itself, then moving into telco, pharmaceuticals, and financial services.

The problem they were addressing was, quite simply, making the quarter. Unlike the incumbent sales automation packages, which were sold to enterprise executives to help them with budgeting and forecasting, Salesforce was designed first and foremost to help the salespeople themselves, giving them and their managers direct visibility into their pipelines, showing exactly what ...

A key lesson to learn here is that you want to target a beachhead segment that is: • Big enough to matter • Small enough to win, and a • Good fit with your crown jewels. That’s what Salesforce did.

There really wasn’t much the incumbents could do to block them. All they could try really was to keep them out of the enterprise, which worked fine for a while, until Merrill Lynch caved and bought ten thousand seats, and then other financial services enterprises joined in the fray, and then the attack bloomed to full force. By that time, of course, the chasm was well in the rearview mirror.

VMware was designed to run two operating systems at the same time—so it did not care that both were actually the same. And it was robust enough that running two applications in tandem, the thing that created glitches for Windows, worked just fine. Score another small victory for the technologically astute.