Chasm Don’t Lie: The Reality of the Chasm Model Applies to All Companies, Even in a World of Product-Led Growth
I am always amazed when I meet a tech entrepreneur and they aren’t familiar with Crossing the Chasm by Geoffrey Moore, a book I consider the bible of the tech industry. The pattern of innovators & early adopters not looking like or acting pragmatic early majority buyers plays out over and over again in tech companies and beyond.
In early companies, the joy of the first 12 customers is euphoric until you learn that they often have grandiose visions of super software so much bigger than yours that you are just a means to their delusional end. I’ve heard this first group of 12 called the dirty dozen and notions that you’ll likely have to fire half of them over time before their daily demands sink you. This is a pretty negative characterization of a real phenomenon. In reality, we should really love our early adopters, as they take a risk on our fledgling solutions, but we need to realize that we are somewhat at cross purposes.
These folks are the true visionaries. We need them to bring anything great to life. In return, they demonstrate progress towards their shiny house on the hill, but can’t get all the way there with us in many situations. I’ve seen early visions that combine work execution, with big data, advanced analytics, HR, and ERP so unique and advanced that they could serve only one customer. If you are that customer, their innovator bringing this Frankenstein to life should be lauded for uniquely supporting their business with an approach that creates a unique competitive advantage for them. Celebrate these pioneers, but know that they won’t help you cross the chasm to a place where customers just want a safe, predictable choice that they know has been proven to work.
Another phenomenon that pervades early tech are companies that think they have crossed the chasm, but haven’t. In big markets you see companies that have had such good luck with the innovation departments of large companies that they’ve convinced themselves that they are selling to pragmatic buyers and have crossed over. In tiny niches, you see companies that have built an in roads to almost every company in the space, but are nowhere close to the economics of a viable business. Here you see a lot of confusion between Geoffrey Moore’s notion of early majority buyer behavior with purchase orders from mature companies. Just because a customer is a well-known and perhaps even a conservative brand, does not mean they don’t have innovators & early adopters who work there with decent budgets. Moore, I am certain, is talking about buyer mindset and buyer behavior not the logo on the door.
Recently, product-led growth has been lauded as the holy grail of company creation. The undercurrent, however, is that somehow Chasm no longer applies. I take issue with this. I believe in product-led growth and understand how it accelerates results, but the Chasm is still there. Even Slack, perhaps the most successful example of product-led growth to date hit walls in a gigantic space with almost unlimited potential. It spread like wildfire amongst early adopters and even had a viral impact between companies that collaborate closely. It is so standard today in startups that we all think the entire world uses it, even though we bemoan what it has done to our productivity (#random channel, I am talking to you). At the enterprise level, it is pretty hard to compete with Microsoft Teams, that is clearly not as good, but is often bundled in for nearly free from a very safe source. Put it this way, you don’t agree to be purchased by Salesforce in a market with such unlimited potential if you are killing it in large enterprise or don’t see a big wall coming. The Salesforce acquisition is clearly a move to acquire some corporate legitimacy or the pixy dust called “synergy” by the investment bankers. Did they cross the chasm? Yes. Did they likely get ahead of themselves for the most pragmatic buyers? Probably yes.
Product-led growth is perhaps best leveraged to ensure stickiness and expansion within a company today. Few companies have nailed company-to-company virality, but many are trying. This means that product-led growth gets you to the edge of any phase of Chasm faster, but you could still be staring into the abyss.
In the above diagram, I have mapped the phases of Chasm to the ideal funding rounds of a startup. What I believe we are seeing quite often today are companies that have gotten ahead of themselves with the waves of cheap capital spilling over the top of the VC model as the traditional wholesalers of money — retirement funds, sovereign wealth funds, wealthy individuals, and PE — all try to go direct. If we accept that the traditional funding rounds roughly mapped to:
Seed — Build a Prototype
A Round — Build an MVP
B Round — Prove It <as a business model>
C Round — Scale It
…then, what I believe we are seeing now are companies that look like they have made more progress than they have by using their extensive cash to encourage and find more early adopters. In my consulting work, I am hearing about more companies with way more than a dirty dozen customers that are still to the left of the chasm. Their burn and some of their virality has created a false positive. It can be seen in churn, the lack of basic expected functionality, or declining stickiness after an initial buzz.
So, if you’re in a cash rich, overgrown B round company with the swagger of a D round or a D round company that secretly knows it hasn’t passed the expectations of the B round, what should you do about it to avoid hitting the bottom of the crevasse? I say get religion. Return to Chasm. Rather than get punch drunk staring at the revered names on your logo wall, catalogue who is actually buying. Get real about what features a large, pragmatic buyer needs to be successful. If you have a thin integration layer, your admin features are weak, or your security is rudimentary, look for cracks in the ground ahead of you. The chasm is coming.
The prospect of product-led growth is a very exciting new chapter for our industry, especially given the large sums of money floating around to fuel it. Rather than declare false victory too early though, I think we should dig into the personas of our early successes and truly identify where we are. Further we should plow these proceeds back into building the tech that we know pragmatic buyers will need and require. Don’t increase your burn. Don’t blow out your marketing budget <this advice coming from a marketer>. Build for the buyer personas you need to buy your solution to create a long-term impact on the world. A safe choice can be sexy as proven by the new Volvos. And while “safe” may be a four-letter word, it is not the curse tech entrepreneurs think it is. It is a blessing for building a company that truly makes a mark on the world.
Ken Pulverman is a five time marketing & product leader whose work has driven two acquisitions, one IPO, and a promising D series work in progress. Ken consults on the topics of strategy, marketing, and product to primarily tech companies under his brand SageCMO.
