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 SalesZiya 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 &

Salesis

like navigating through a maze

whereentrepreneur

looks forcustomer

acceptance…Ziya G. Boyacigiller (c) 2005 6

“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.


KEYSLIDE


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

TestYour

Assumption


Product Development Approaches

• Wrong Approach Serial DEVELOPMENT TESTING RE-WORK

Right Approach Concurrent / MVP TESTING DEVELOPMENT

Minimum Viable ProductPaper-Tigers / Quick Prototyping

“EVIDENCE BASED” PLANNING

Marketing Materials

NO REWORK

KEYSLIDE


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


Paper Tigers to your Rescue紙老虎


Paper TigerFrom 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.

http://en.wikipedia.org/wiki/English_language

http://en.wikipedia.org/wiki/Chinese_language

http://en.wikipedia.org/wiki/Tiger

http://ww2.esd.org/_IMAGES/events/2005-05_bowling-pins.jpg


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!

KEYSLIDE


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.

KEYSLIDE


Paper Tigers WorkBecause :

• 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

http://upload.wikimedia.org/wikipedia/en/9/94/Gartner_Hype_Cycle.svg


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”

LaggardsLate

MajorityEarly

MajorityEarly

AdoptersInnovators

"TheChasm"

Technology Adoption Process

Time

Sal

es

PRAGMATISTKEY

SLIDE

Chasm could be as wide as years !

Chasm could be as wide as years…


http://upload.wikimedia.org/wikipedia/en/9/94/Gartner_Hype_Cycle.svg


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

Sup

port

ers

Generalist

Ske

ptic

s

MARKET(pragmatists)

Deve

lopi

ng E

arly

Mar

ket

Dev

elop

ing

Mai

nstrea

m M

ark

et

FOCUS

KEYSLIDE


Visionaries help Pragmatiststo 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– …

KEYSLIDE


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.

KEYSLIDE


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)

KEYSLIDE


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

KEYSLIDE


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…)

KEYSLIDE


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 And Valuable

KEYSLIDE

http://glenndairy.tripod.com/sitebuildercontent/sitebuilderpictures/1purple_cow.gif


Crossing the Chasm is centered around your “differentiation”

• Compelling reason to buy

…translated into

• Unique (=differentiated) value proposition

…leads to need to develop the

• “Whole Product” – without which it is hard (very very hard) to cross the chasm

KEYSLIDE


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!

KEYSLIDE


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!

KEYSLIDE


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

KEYSLIDE

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*

POTENTIALPRODUCT

future versions with enhanced benefits

AUGMENTEDPRODUCT

everything the buyer needs for positive user

experience“WHOLE PRODUCT”

EXPECTEDPRODUCT

what customer thinks s/he is buying

GENERICPRODUCT

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 Examplenote that whole product is defined relative to usage scenario

hardware

software

productperipherals

connectivity

consulting

postsales service& support

presaleservices

legacyinterfaces

all com

plem

entary p

rod

ucts req

uired

to

fulfill p

rom

ised valu

e pro

po

sition

all c

om

ple

men

tary

ser

vice

s re

qu

ired

to

fu

lfill

pro

mis

ed v

alu

e p

rop

osi

tio

n

All “whole product” components must be fulfilled to displace the old value chain


Whole Product & TALC*

LaggardsLate

MajorityEarly

MajorityEarly

AdoptersInnovators

"TheChasm"


Time

Sal

es

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

KEYSLIDE


Evidence to Show Pragmatists:

• Market Share• Partners and Allies (quality & number)• Third Party Support• Standards Certifications• Applications Proliferations• Vertical Press Coverage• Industry Analyst Endorsements

KEYSLIDE


“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.

KEYSLIDE


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.

KEYSLIDE


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.

KEYSLIDE


Where are you placed in TALC?

LaggardsLate

MajorityEarly

MajorityEarly

AdoptersInnovators

"TheChasm"


Time

Sale

s



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

KEYSLIDE


Discontinuity Analysis

GAINVALUE FOR CUSTOMERS

PAIN

PA

RA

DIG

M S

HO

CK

A B C D

4

3

2

1

MOVE

AWAYNOT COMPELLING

Early Market D4

need innovationnew value chain

Bowling Alley D2/D3

need segmentationneed whole product

Tornado C1/D1

need standardsMain Street A1/B1

need segmentationneed added benefits

STA

Y A

WA

YD

EA

D O

N A

RR

IVA

L

KEYSLIDE



Hockey-Stick the Sales


Segment 1Application 1






TORNADO......................................................

Bowling Alley Market Development

1

2 2 financial spreadsheet

(Excel)

marketing spreadsheet

(Excel)

spreadsheetpresenter

(PowerPoint)

KEYSLIDE



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 ModelPrimary 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.

KEYSLIDE



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 theEconomic 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.


TornadoorNetwork 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

KEYSLIDE

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

KEYSLIDE


Winners:Highest % Promoter

Sinners:Highest % Detractor

Airlines 60% Southwest 34% Northwest

Rental Car 53% Enterprise28%28%

AvisDollar

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?


LaggardsLate

MajorityEarly

MajorityEarly

AdoptersInnovators

"TheChasm"


Sale

s


Successful Customer Adoption Needs Proactive Management

Through the

TALC


Date post:	16-Aug-2015
Category:	Small Business & Entrepreneurship
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New 10 crossing the chasm

Small Business & Entrepreneurship