Monthly Archives: January 2012

Back to The Chasm

chasmBefore Eric Ries, and even before Clay Christensen, there was Geoffrey Moore. Moore’s Crossing the Chasm was a seminal book at the time it was published in 1991, and should still be one of the very first book any entrepreneur reads. Back in those days, before the “internet” became an ubiquitous medium, the majority of the venture investments was in B2B – enterprise software, semiconductor, networking equipment, servers etc. Microsoft dominated the consumer software market (it had just wiped the floor with Lotus & Wordperfect) and Symantec took whatever crumb Microsoft deemed not sexy enough to go after (utilities!). Consumer hardware outside of PC’s was considered a low margin, short product lifecycle business better left to the Japanese.

Crossing the Chasm was written in a world where product were sold and not given away; a world where the sales person represented the last mile between a company and a customer. In that world, Geoffrey Moore’s book became the definitive guide to achieving the highly sought after hockey stick for entrepreneurs trying to introduce a disruptive innovation into a market. Geoff posits that there was a chasm between early adopters and the early majority and almost all startups fail not because they failed to find early adopters, but because they failed to make the jump through the chasm to the early majority. And to cross this chasm, entrepreneurs needed to dominate the first niche through offering a highly tailored product for that segment of users. Next, the entrepreneur needs to methodically capture additional adjacent niches through a “bowling pin” strategy until it is able to achieve some sort of scale and momentum. Once across the chasm, the goal is to redefine the competitive space and anoint oneself as the winner. The marketing focus is on “branding the space” and marketing to potential customers the necessity of buying a product in the category – not the company itself. (this was how the CRM war was created & won by Seibel). A must read synopsis here.

Of course, this was all before the Internet turned “mail order” and “publishing” into “e-commerce” and “web portal.” It was before Hotmail discovered virality, before eBay realized Metcalfe’s law, before Google re-invented intent, and before Facebook institutionalize word of mouth. eBay scaled almost effortlessly for over 5 years. Amazon tackled vertical to vertical until it was A to Z. Google search was a run away train that is still going. Youtube achieved escape velocity in 18 month. Facebook was a phenomenon that redefined the adoption curve for not just itself but companies on its platform. Twitter was part of the cultural zeitgeist almost since the day it was launched. To many people, Geoffrey Moore was just a worrywart who could not have predicted that the game itself would have changed.

For a time, it did seem like the rules that Moore had outlined didn’t apply as much anymore given how the internet upended much of the traditional technology business models and go to market strategies. (freemium, advertising, affiliate programs . . . sem, seo, viral, social). However lately, lots has been written on the struggles of some of the highest profile venture funded companies and the potential pile of living dead startups just barely holding on to their seed funding in the recent months. Whether they are just anecdotal stories or a trend that will realize itself into connectable data points is still been debated. What is true is that given the extreme valuation of well known startups on one end, the undeniable fact that VC’s are asking for significant business momentum at series A, and the shrinking venture capital pool in general – learning to efficiently cross the chasm will become increasingly important for any entrepreneur.

In the early parts of 2011, based on the valuation of startups getting funded, it did appear that many venture capitalists wrongly presumed that the “chasm” either no longer existed or that the companies they had invested in would have not problem crossing it.

Square: $1.6B | niche: mobile acceptance for mobile businesses | market: mobile payments

Airbnb : $1B | niche: c2c boarding | market: collaborative consumption

Quora: $1B | niche: tech q&a | market: all q&a

Gilt: $1B | niche: flash sale for (women) luxury goods | market: all luxury goods e-tailing

Pinterest: $40M | niche: interest discovery for moms | market: interest discovery for all

LikeaLittle: $35M | niche: college casual flirting | market: casual flirting for all ages

A few of these companies are doing just fine, some haven’t really started executing their chasm strategies, and others have definitely hit the wall. For all of them, it is not a foregone conclusion that they would be able to “cross the chasm” and fulfill their promises as the next Google or eBay or Facebook. In fact, it would appear that the pendulum has swung in the other direction – that several market driven factors has made crossing the chasm harder than ever.

  • We are at the tail end of the first stage of the innovation cycle across multiple platforms (mobile, social, local) where hyper-competition, readily available capital, and the lower costs of starting a new venture have over saturated even niche opportunities where previously there would not have been a startup in that space in the first place. This has created a marketplace where every niche appear to have an incumbent (airbnb for XXX) making it extremely hard for even presumed market leaders (airbnb) to take on additional bowling pins. (Not mentioning the long term prospect of the derivative companies)
  • Many of today’s internet behemoths got here because they either relied on PR or leveraged at-the-time novel and cheap acquisition channels to grow their user bases. Hyper competition has made PR harder than ever. Direct acquisition channels that once helped scaled a large number of startups has either become too expensive (SEM), too competitive (SEO), or lost its effectiveness due to abuse (to some extend, social and email). Entrepreneurs now must be clever and relentless to find other acquisition channels to grow their company. (Celebrities? Craigslist?) – but the window for those channels are unpredictable, short, and most likely magnitude smaller than more scaled platforms.
  • Furthermore, the Internet has become so integrated into our daily lives and its reach so become pervasive that it is finally possible to build niche BRANDS on the internet (Warby Parker, J Hilburn, etc) without tens of millions of dollars spent on advertising. While branding creates long term equity and barrier to entry, it also limits potential adjacent market expansion opportunities. Brands are like quick drying concrete – they settle in consumer’s mind quickly and it is hard to change. The days where you can take a brand like eBay and apply it across multiple verticals or categories has pretty much ended.
  • Many of the current generation of startups have relied on social platforms to achieve their exponential user acquisition growth. The dark side of relying on those platforms for growth is that the users are more likely than not to belong to the same segment if not the same community. As a result, as the company starts moving across other communities and segments for additional growth, the incumbent community will either turn off new members or even worse – reject the new members completely.

So what advice are we giving our companies? . . . well. .

  • go read the book
  • ignore the chasm at your own risk
  • take to heart of the message of “bowling pin” – one step at a time
  • understand it’s a long slog – nothing just “goes viral”
  • be scrappy and clever – bend but don’t break the rules
  • methodically plan out your chasm crossing strategy
  • no niche is too small to find a wedge, but have a plan to take over the world (see last point)
  • integrate yourself into your target niches/segments months before launch (join forums, go to parties, survey customers etc)
  • don’t be afraid of getting your hands dirty
  • leverage offline marketing tactics where the lazier startups wont do
  • have no shame when it comes to self-promotion
  • be open to brand extensions and building multiple destinations (but do an incredible job in cross promotion & sharing liquidity)
  • and lastly . . . like solving a hard puzzle, this is suppose to be fun!

MuckerLab Top Ten Predictions for 2012

magic-eight-300x199Was feeling a bit left out by all the smart and daring people putting forth their forecasts for the coming year, so I decided to join the party. While most people are afraid of being wrong; we, at MuckerLab, are not afraid of being right. In no particular order, here are MuckerLab’s fearless predictions for 2012:

1. Mark Zuckerberg decides to bail out Greece, Spain, and Italy to ensure the Facebook IPO goes out smoothly

2. Economy stalls, forcing brogrammers to start applying to MBA schools – creating a whole new specie called “Brogrammers who wear pants”

3. No one will ever confuse an “accelerator” for an “incubator” again, just like no one ever type “www” to the beginning of his or her urls anymore.

4. Gamification finally hits enterprise software: SAP launches gamification module for SAP ERP HCM which allows companies to match employee 401K contributions with badges instead of money.

5. Big Data crushes Small Data. (No Data announces retirement)

6. Consolidation in the Los Angeles accelerator market will create an 800 pound gorilla called AmpedUpEngineMuckPad.La which will create a formidable competitor to YCombinator . . . and bring balance to the Force.

7.  The mythical yet imminent “Series A Crunch” will spawn an evil twin called the “Series B Crunch” – to which, we’ll all just finally admit getting other people to part with their money is just plain hard . . . with or without a “crunch.”

8.  YouTube video marketshare will continue to grow unabated, causing the media industry to call for “online video distribution neutrality.” Google responds by buying Clearwire for pennies on the dollar and stealing DirecTV from the lustful eyes of AT&T.

9.  Twitter breaks $150M in revenue. (and $50B in secondary market valuation)

10. “Silicon Beach” will fall into the ocean and thus ending the Series A hopes of 199 subscription mobile e-commerce social app startups and one optical networking equipment company.