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

by Geoffrey A. Moore

Actually, in this context, defining marketing is not particularly difficult: It simply means taking actions to create, grow, maintain, or defend markets.

Marketing’s purpose, therefore, is to develop and shape something that is real, and not, as people sometimes want to believe, to create illusions. In other words, we are dealing with a discipline more akin to gardening or sculpting than, say, to spray painting or hypnotism.

As a class, visionaries tend to be recent entrants to the executive ranks, highly motivated, and driven by a “dream.” 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

Visionaries are not looking for an improvement; they are looking for a fundamental breakthrough.

The key point is that, in contrast with the technology enthusiast, a visionary focuses on value not from a system’s technology per se but rather from the strategic leap forward such technology can enable.

The other key quality of visionaries is that they are in a hurry. They see the future in terms of windows of opportunity, and they see those windows closing.

The fundamental principle for crossing the chasm is to target a specific niche market as your point of attack and focus all your resources on achieving the dominant leadership position in that segment as quickly as possible. In one sense, this is a straightforward market-entry problem, to which the correct approach is well-known. First you divide up the universe of possible customers into market segments. Then you evaluate each segment for its attractiveness. After the targets get narrowed down to a very small number, the “finalists,” then you 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. What’s so hard?

Sample Scenario 1. HEADER INFORMATION. At the top of the page you need thumbnail information about the end user, the technical buyer, and the economic buyer of the offer. For business markets, the key data are: industry, geography, department, and job title. For consumer markets, they are demographic: age, sex, economic status, social group.

We need to cross now, which means we need a problem we can solve now. Any thread left hanging could be the one that trips us up.

Dick Hackborn, the HP executive who led the move into laser printers, had a favorite saying: “Never attack a fortified hill.” Same with beachheads. If some other company got there before you, all the market dynamics that you are seeking to make work in your favor are already working in its favor. Don’t go there.

NEXT TARGET CUSTOMER: If we are successful in dominating this niche, does it have good “bowling pin” potential? That is, will these customers and partners facilitate our entry into adjacent niches? This is an important issue of strategy. Chasm crossing is not the end, but rather the beginning, of mainstream market development. It is important that we have additional follow-on niches that can be lucratively addressed.

The enemy in the chasm is always time. You must force the pace at all times, even when in doubt, because standing still plays into the hands of the established vendors and the status

if you are going to be a $10 million company next year you do not want to attack a segment larger than $10 million. At the same time, it should be large enough to generate your $5 million. So the rules of thumb in crossing the chasm are simple: Big enough to matter, small enough to lead, good fit with your crown jewels.

If you find the target segment is too big, sub-segment it. But be careful here. You must respect word-of-mouth boundaries. The goal is to become a big fish in a small pond,

For selecting the target market segment that will serve as the point of entry for crossing the chasm into the mainstream market, the checklist is as follows: 1. Develop a library of target customer scenarios. Draw from anyone in the company who would like to submit scenarios, but go out of your way to elicit input from people in customer-facing jobs. Keep adding to it until new additions are no more than minor variations on existing scenarios. 2. Appoint a subcommittee to make the target market selection. Keep it as small as possible but include on it anyone who could veto the outcome. 3. Number and publish the scenarios in typed form, one page per scenario.

Accompanying the bundle, provide a spreadsheet with the rating factors assigned to columns and the scenarios assigned to rows. Break the rating factors into two subtotals, showstoppers first, then nice-to-haves. 4. Have each member of the subcommittee privately rate each scenario on the showstopper factors. Roll up individual ratings into a group rating. During this process discuss any major disagreements about scores. This typically surfaces different points of view on the same scenario and is critical not just to getting the opportunity correctly in focus but also in laying the groundwork for a future consensus that will stick. 5. Rank order the results and set aside scenarios that do not pass the first cut. This is typically about two-thirds of the submissions.

Repeat the private rating and public ranking process on the remaining scenarios with the remaining selection factors. Winnow the scenario population down to, at most, a favored few. 7. Depending on outcome, proceed as follows: • Group agrees on beachhead segment. Go forward on that basis. • Group cannot decide among a final few. Give the assignment to one person to build a bowling pin model of market development, incorporating as many of the final few as is reasonable, and calling out a head pin. Attack the head pin. • No scenario survived. This does happen. In that case, do not attempt to cross the chasm. Also, do not try to grow. Continue to take early-market projects, keep burn rate as low as possible, and continue the search for a viable beachhead. 5 Assemble the Invasion Force “I have always found you get a lot more in this world with a kind word and a gun than you do with just a kind word.” —Willie Sutton

wiring the marketplace. Again, the concept is simple. For a given target customer and a given application, create a marketplace in which your product is the only reasonable buying proposition. That starts, as we saw in the last chapter, with targeting markets that have a compelling reason to buy your product. The next step is to ensure that you have a monopoly over fulfilling that reason to buy. To secure that monopoly, you need to understand 1) what a whole product consists of and 2) how to organize a marketplace to provide a whole product incorporating your company’s offering.

THE WHOLE PRODUCT MODEL

The Whole Product and the Technology Adoption Life Cycle First, let’s look at how the whole product concept relates to crossing the chasm. If we look at the Technology Adoption Life Cycle as a whole, we can generalize that the outer circles of the whole product increase in importance as one moves from left to right. That is, the customers least in need of whole product support are the technology enthusiasts. They are perfectly used to cobbling together bits and pieces of systems and figuring out their own way to a whole product that pleases them. In fact, this is in large part the pleasure they take from technology products—puzzling through ways to integrate an interesting new capability into something they could actually use. Their motto: Real techies don’t need whole products.

Whole Product Planning As we have just seen, the whole product model provides a key insight into the chasm phenomenon. The single most important difference between early markets and mainstream markets is that the former are willing to take responsibility for piecing together the whole product (in return for getting a jump on their competition), whereas the latter are not. Failure to recognize this principle has been the downfall of many a high-tech enterprise.

For those who wish to take a more prudent course, however, whole product planning is the centerpiece for developing a market domination strategy. Pragmatists will hold off committing their support until they see a strong candidate for leadership emerge. Then they will back that candidate forcefully in an effort to squeeze out the other alternatives, thereby bringing about the necessary standardization to ensure good whole product development in their marketplace.

The Simplified Whole Product Model

In the simplified model there are only two categories: 1) what we ship and 2) whatever else the customers need in order to achieve their compelling reason to buy. The latter is the marketing promise made to win the sale. The contract does not require the company to deliver on this promise, but the customer relationship does. Failure to meet this promise in a business-to-business market has extremely serious consequences. As the bulk of purchases in this marketplace are highly reference oriented, such failure can only create negative word of mouth, causing sales productivity to drop dramatically.

The first rule is you have to leverage a point of disruption, one that puts the incumbent a bit back on its heels.

The second rule is, remember the fish-to-pond ratio principle from the prior chapter, and target a market segment that is big enough to matter, small enough to lead, and a good fit with your crown jewels.

Big fish have trouble competing in small niches.

the eve of our invasion, let us regroup. We have already established the point of attack, a target market segment plagued by a problem that gives it a truly compelling reason to buy. We have already mapped out the whole product needed to eliminate this problem and have recruited the necessary partners and allies to deliver it. The major obstacle 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 drive them out of our target market segment.

This is what we mean by defining the battle. The fundamental rule of engagement is that any force can defeat any other force—if it can define the battle.

competition has not come from competitive products so much as from alternative modes of operation.

how can you avoid selecting a self-serving or irrelevant competitive set? The key is to focus in on the values and concerns of the pragmatists, not the visionaries.

In the early market, where decisions are dominated by technology enthusiasts and visionaries, the key value domains are technology and product. In the mainstream, where decisions are dominated by pragmatists and conservatives, the key domains are market and company.

THE COMPETITIVE-POSITIONING COMPASS

The directionality provided by the compass comes in the form of the two labeled axes. The horizontal dimension shows the range of buyer interest in and understanding of high-technology issues. In general, the early market is dominated by specialists who, by their nature, are more interested in technology and product issues than in market standing or company stature. By contrast, the mainstream is dominated by generalists who are more interested in market leadership and company stability than in the bits and bytes or speeds

If you try out this exercise of choosing the competition, and have trouble finding either a single, clear market alternative, or a credible second vendor leveraging your type of disruptive technology, this is a clue. It means that you are probably not ready to cross the chasm.

Here there is one fundamental key to success: 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.

Think about it. Most people resist selling but enjoy buying. By focusing on making a product easy to buy, you are focusing on what the customers really want.

Name it and frame it. Potential customers cannot buy what they cannot name, nor can they seek out the product unless they know what category to look under. This is the minimum amount of positioning needed to make the product easy to buy for a technology enthusiast.

The purpose of the post-chasm enterprise is to make money.

The target market segment manager has one goal in his or her short job life—Transform a visionary customer relationship into a potential beachhead for entry into the mainstream vertical market that that particular customer participates

And when compensation programs do discriminate—when they discourage the very behaviors that ought to be rewarded, or vice versa—then organizations fail.

The key is to discriminate between account penetration and account development. The latter is a more predictable, less remarkable, longer-abiding achievement. Compensation here should reward such things as longevity of the relationship, customer satisfaction, and predictability of revenue stream. It should be spread out over time and not clumped into dramatic payments. Because there is high value associated with the intangibles of the ongoing customer relationship, much of it can be based on an objectives-based formula rather than pure revenue attainment.

By contrast, compensation for account penetration by a 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 account. This is an extraordinary event, one that few can accomplish, and it is critical to determining the firm’s long-term future. It is an extraordinarily high-risk endeavor, with the odds stacked heavily against the salesperson. It therefore deserves extraordinary compensation. On the other hand, if it was achieved by promising more than anyone can deliver, perhaps even more than anyone really knew, then that is not behavior we want to reward. So, although we would like the compensation to be front-loaded, there must also be a reality check built into the process. Because the pioneer salesperson will be moving on, we do not want an extended compensation program, and thus equity, for example, is an inappropriate vehicle. Taking all this together, the situation argues for a bonus-based program more than a straight commission approach—something lucrative for the salesperson, event-driven and over and done with relatively quickly, and not so closely tied to revenue recognition that either the pioneer has to overstay his or her welcome in order to reap the rewards or earns an extraordinary cash reward

To sum up, improper compensation wastes dollars and demotivates people. To be appropriate to high tech, compensation programs must take into account the differences between desired performance in the early market and in the 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.

Whole product R&D is driven not by the laboratory but by the marketplace.