This transcript has been edited for length. To get the full measure, listen to the podcast.
Nathan Isaacs: Michael, can you tell us more about yourself and the Chasm Institute?
Michael Eckhardt: I’ve been the managing director at Chasm Institute now for the last 12 years. My co-managing director, Mark Cavender and I have worked with over 500 tech companies during the time that our Chasm work has been done.
And we really just do one thing, we focus on helping smart teams and companies with either software, hardware, AI, big data solutions, to really get to the main marketplace in a more efficient and more effective way than the normal thrashing about that new ventures have to go through, whether in big companies or within startups.
Staying Power of Crossing the Chasm
Nathan: The Chasm Institute was born from Jeffrey Moore’s Crossing the Chasm book that was published originally in 1991, and the third edition was published a few years ago in 2014. Why do you think the book has had such staying power over the last few decades?
Michael: Jeffrey Moore is still chairman of Chasm Institute. We’re always thrilled that he’s a major part of it. Yeah, the book was first published back in 1991. That’s a long time ago in tech years, if you think of it in dog years, or cat years, or tech years. It’s over 25 years ago.
The reason for the staying power, or we’ll call it the stickiness, was it was really the first book out back in the ’90s that took one specific problem, which is how do you take what we’ll call disruptive innovation, software, hardware services, and get those across the – some people call it the valley of death or the chasm – we call it the chasm, from really the early adopters which is the easy part, to the mainstream market where about 88 to 90 percent of most customers live in the B2B space.
What the book has done is put together a tool set and a set of frameworks that new ventures or corporate ventures could actually apply and do that with. And the reality is, whether a new venture or an existing one inside of large companies, the issues turn out not to be just about the product, it’s actually about several points of failure we see.
Nathan: You mentioned earlier you’ve consulted more than 500 companies, ranging from Intel, and Cisco, Google, Spotify, and more, and you’ve identified best practices for success such as focusing on one target market at a time, kind of sort of the framework of the book itself. But you’ve also identified what you call the seven deadly sins companies should avoid. What is the first deadly sin?
Michael: It’s kind of an encapsulation of really seven specific worst practices or mistakes that even good companies fall into. And clearly companies don’t do all seven.
As a preamble to the seven deadly sins, the real premise is that most new companies that are ventures or most new initiatives inside of large corporations, have the same illness or the same disease, which is they think, ‘My gosh, this product, whether it’s an AI product, or a big data product, or a SaaS product, who wouldn’t want this.’
And the disease of spray and pray occurs. Spray and pray is launching horizontally and then praying and hoping that somewhere somehow 20 percent of the market buys what we have. And what we’ve done is turn that on its head and say the chasm principles are to get across to really hit a beachhead, a specific segment application area where you’re solving a real tangible, excruciating problem for a target customer in a B2B vertical, or it could be a department, or it could be a geography.
The seven sins are:
- Target customer mix-up
- Compelling reason confusion
- Whole product perfectionism
- Over hiring for sales, or overdoing sales training, when in fact your product’s not ready for a mainstream broad transactional sales process that really needs to have a specialized group of people selling
- Pricing missteps
- Weak messaging
- Vision vs. Strategy: Just because you have a vision of the next two to five years of what you want to accomplish, doesn’t also mean you have a strategy
Sin #1: The Target Customer Mix-Up
Nathan: What does target customer mix-up mean?
Michael: If you think graphically or in a way of an image, the left hand side of the adoption curve, which is where the early adopters live, which we estimate is about 8 to 12 percent of the market, these are people that are willing to risk, buy early, be pioneers, don’t require references, might not even require an ROI calculation, they just believe that this new solution from Salesforce, and marketing cloud, or service cloud, or something along the lines of a new AI solution or big data solution, that that’s inherently something they want to adopt in their organization.
Those are the early adopters. We like to think that those are the easy ones to go after, although nothing’s easy in this world, of course. But the danger is this, if you’re in the early market, and you successfully sold to 50 or 100 or a few thousand early market customers, but they don’t really represent the normal mainstream, the other 88 to 90 percent of the market to the right of the chasm. And the problem is if you have that installed base of early adopters, the tendency is to over-listen to them, that is seek out too much of what do you think the new feature should be, how do we streamline this product, how do we add more into it that makes it even more compelling for you.
It turns out we’re asking the wrong people. Because those people that have bought already, those 8 to 10 to 12 percent who represent the early visionaries and early adopters, they do not represent the whole product requirements of the main marketplace. We’ve seen companies make billion-dollar errors by listening too intently to the early market customers, when in fact at that juncture that they’re at, they need to cross the chasm into the main marketplace.
The correct answer here is not to continually survey your install base. It’s all well and good to understand them. But to figure out how people have decided not to buy your product yet and not been implementing it. And, as a result, what do we need to do from a vendor standpoint to complete the whole product, whether it’s on migration path, key services, key feature sets, or maybe even removing features and simplifying things more, which is often an antidote that the early market’s not looking for. What we’re saying here is you can make mistakes by focusing only on the customers you already sold to, when, in fact, you need to be looking at the ones that have not bought. That’s target customer mix-up.
Nathan: The ones that have not bought, are those the early majority then?
Michael: It would be the early majority thinking about the concept overall of fundamentally allowing yourself to think that what’s good for the early adopter is good for the early majority, the pragmatic customer, and what we call the bowling alley, to use our jargon. And it turns out that fundamentally, and this is not well-understood even by some smart tech companies, that the criteria and the way you go to market in the early market, is almost 180 degrees opposite of how you went in the main marketplace.
I’ll give you two examples. In the early market you can sell successfully without having a list of 10 references of other companies in your industry as a customer who have already bought. In fact, if you go to a true early adopter in the early market and say here’s 10 other companies in financial services who have already bought this cloud solution, the real reaction from a visionary is, ‘Oh my gosh, I must be late, this is not breakthrough, this is just an add on for later if already other 10 companies have done this.’ The irony is the early market you might get the reinforced notion that references aren’t important and you’d be right. But in the early majority, the pragmatists, without a reference list, you’re dead, you’re a dead man walking.
Another example would be in the early market, that if the customer asked who else has a solution like this solution for big data and analytics in the marketplace for hospital and medical facilities. And in the early market, an answer of we’re the only ones doing this, is actually a very favorable answer to the early market. If you go to the pragmatists across the chasm and they ask who else has this solution besides you, and you say we’re the only ones on planet earth with this solution, the pragmatists say sorry, if you’re the only one going down this path, then we might be going over a cliff. Aren’t there other smart companies who would also think of the same idea? And if they’re not, we’re not sure your idea has been vetted properly.
So those are the examples of how different and dramatically different early market buyer behavior is in a B2B space versus the pragmatists in what we call the bowling alley.
Sin #2: Compelling Reason Confusion
Nathan: When we get into the second deadly sin, compelling reason confusion, what are we getting at there? What do you mean?
Michael: What we say is if you want to cross this chasm and get into the beachhead, the beachhead is the first segment, a vertical, or an application, or a specific geography and customer type, could even be a job title. If you need and want to focus on that specifically, then there must be a compelling reason to buy. And by that we mean not just for the product, but for the category, for this new SaaS type solution, or this hybrid cloud, or this big data, or analytics. There must be a real pain point inside, not your mind as the vendor, but in the customer’s mind in that beachhead segment.
And compelling reason to buy is do they understand they have a problem. We’ve seen many companies and many people running product lines who say, ‘Well, the customer doesn’t really understand their problem, but we can go out and educate them on that problem.’
Our short answer is, don’t do that, go find a different segment. If they don’t understand they have a problem, then you’re going to be having a long sales cycle of frustrating timing. Compelling reason confusion is most vendors have lots of reasons for why they want to sell the product and why you should buy. We call that compelling reason to sell. That’s the opposite of being customer centric.
We need to focus on the compelling reason why the customer wants to buy the category and the solution. And that’s very different than what’s often on our website as a vendor or in our sales pitches and so forth.
So, to bring this home, if we believe what this can be is the speed of processing for large transactions in a financial services company can be reduced by 15 percent with this new solution, but the reality is that’s your compelling reason to sell. But the real issue for the customer in the financial institution whether Citibank, or Wells Fargo or Bank of America, is not about processing volume, but perhaps accuracy of processing and lack of error rates being minimal, then that’s the compelling reason to buy, not what you think the product can deliver. It’s often a dichotomy between what we think we’re selling and what the customer actually thinks they’re buying. And the one who’s right, sorry to say or happy to say, is the customer and not our view of what the product can do.