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