Post on 16-Aug-2015
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)
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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…
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Minimize your Risk…
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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.
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KEYSLIDE
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Use “Evidence Based” Approach –
Do Not Shoot Blindly !
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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
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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
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How do you test your product when you have no product?
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Paper Tigers to your Rescue紙老虎
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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.
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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
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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
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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
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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?
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http://www.gartner.com/pages/story.php.id.8795.s.8.jsp
Gartner Hype Cycle
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2007
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First there is a market.Then there is no market.
Then there is…
based on a Zen quan
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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…
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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.”
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How to Cross the Chasm
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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
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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
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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
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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…
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Just like armies select a
Beachhead
you need to select your beachhead – a niche market
to focus their forces and win,
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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
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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
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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
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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
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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.
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Key to Success for an entrepreneur is
creating a
Product/Service And Valuable
KEYSLIDE
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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
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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
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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
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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.
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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
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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?
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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
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“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.
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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
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Whole Product & TALC*
LaggardsLate
MajorityEarly
MajorityEarly
AdoptersInnovators
"TheChasm"
Technology Adoption Process
Time
Sal
es
GENERIC PRODUCT
AUGMENTED PRODUCT
“WHOLE PRODUCT”
EXPECTED PRODUCT
POTENTIAL PRODUCT
* TALC = Technology Adoption Life Cycle
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Evidence to Show Visionaries:
• Benchmarks• Product Reviews by “influencers”• Design Wins• Initial Sales Volumes• Trade Press Coverage• Endorsements
KEYSLIDE
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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
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“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?
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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.
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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
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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
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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
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Where are you placed in TALC?
LaggardsLate
MajorityEarly
MajorityEarly
AdoptersInnovators
"TheChasm"
Technology Adoption Process
Time
Sale
s
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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
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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
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Hockey-Stick the Sales
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Segment 1Application 1
Segment 2Application 1
Segment 1Application 2
Segment 3Application 1
Segment 2Application 2
Segment 1Application 3
TORNADO......................................................
Bowling Alley Market Development
1
2 2 financial spreadsheet
(Excel)
marketing spreadsheet
(Excel)
spreadsheetpresenter
(PowerPoint)
KEYSLIDE
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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!
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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
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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.
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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.
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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)
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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
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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.
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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?
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LaggardsLate
MajorityEarly
MajorityEarly
AdoptersInnovators
"TheChasm"
Technology Adoption Process
Sale
s
Successful Customer Adoption Needs Proactive Management
Through the
TALC
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