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New 10 crossing the chasm

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New 10 crossing the chasm

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New 10 crossing the chasm

  1. 1. 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
  2. 2. Ziya G. Boyacigiller (c) 2005 2 Adoption Risks How to Cross the Chasm & Hockey-Stick the Sales Ziya Boyacıgiller Sabancı University (Based on Geoff Moore’s books, How to Cross the Chasm, and Inside the Tornado)
  3. 3. Ziya G. Boyacigiller (c) 2005 3 Your Challenge is: How can you test “customer acceptance” of your product/service at highest accuracy and lowest investment ?
  4. 4. Risk Management Risk = Probability X Seriousness 1. How can we reduce probability? 2. How can we reduce seriousness? Example: Risk of a house fire… Ziya G. Boyacigiller (c) 2005 4
  5. 5. Minimize your Risk… Ziya G. Boyacigiller (c) 2005 5 Risk = Investment X Odds Investment   Odds  R R  R R  TEST  MIN
  6. 6. Marketing & Sales is like navigating through a maze where entrepreneur looks for customer acceptance… Ziya G. Boyacigiller (c) 2005 6
  7. 7. “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. Ziya G. Boyacigiller (c) 2005 7 KEY SLIDE
  8. 8. Ziya G. Boyacigiller (c) 2005 8 Use “Evidence Based” Approach – Do Not Shoot Blindly !
  9. 9. Ziya G. Boyacigiller (c) 2005 9 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 Test Your Assumption
  10. 10. Ziya G. Boyacigiller (c) 2005 10 Product Development Approaches • Wrong Approach  Serial DEVELOPMENT TESTING RE-WORK  Right Approach  Concurrent / MVP TESTING DEVELOPMENT Minimum Viable Product Paper-Tigers / Quick Prototyping “EVIDENCE BASED” PLANNING Marketing Materials NO REWORK KEY SLIDE
  11. 11. Ziya G. Boyacigiller (c) 2005 11 How do you test your product when you have no product?
  12. 12. Ziya G. Boyacigiller (c) 2005 12 Paper Tigers to your Rescue 紙老虎
  13. 13. Ziya G. Boyacigiller (c) 2005 13 Paper Tiger From 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.
  14. 14. Ziya G. Boyacigiller (c) 2005 14 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! KEY SLIDE
  15. 15. Ziya G. Boyacigiller (c) 2005 15 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. KEY SLIDE
  16. 16. Ziya G. Boyacigiller (c) 2005 16 Paper Tigers Work Because : • 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
  17. 17. Ziya G. Boyacigiller (c) 2005 17 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?
  18. 18. Q: Will the dogs eat your dog-food? Ziya G. Boyacigiller (c) 2005 18
  19. 19. Ziya G. Boyacigiller (c) 2005 19 http://www.gartner.com/pages/story.php.id.8795.s.8.jsp Gartner Hype Cycle
  20. 20. Ziya G. Boyacigiller (c) 2005 20 2007 
  21. 21. Ziya G. Boyacigiller (c) 2005 21 First there is a market. Then there is no market. Then there is… based on a Zen quan
  22. 22. Ziya G. Boyacigiller (c) 2005 22 Early Sales can be Deceptive… Focus on Crossing “The Chasm” Laggards Late Majority Early Majority Early Adopters Innovators "The Chasm" Technology Adoption Process Time Sales PRAGMATIST KEY SLIDE Chasm could be as wide as years !
  23. 23. Chasm could be as wide as years… Ziya G. Boyacigiller (c) 2005 23
  24. 24. Ziya G. Boyacigiller (c) 2005 24 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.”
  25. 25. Ziya G. Boyacigiller (c) 2005 25 How to Cross the Chasm
  26. 26. Ziya G. Boyacigiller (c) 2005 26 Competitive-Position Road Map PRODUCT (visionaries) TECHNOLOGY (techies) COMPANY (conservatives) Specialist Supporters Generalist Skeptics MARKET (pragmatists) DevelopingEarlyMarket DevelopingMainstreamMarket Crossing the Chasm FOCUS KEY SLIDE
  27. 27. Ziya G. Boyacigiller (c) 2005 27 Visionaries help Pragmatists to Cross the Chasm • Visionaries: – Technically savvy, interested – Supporting the Value Proposition chasm • Pragmatists: – Generalists, not technically savvy – Skeptical of the Value Proposition
  28. 28. Ziya G. Boyacigiller (c) 2005 28 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 – … KEY SLIDE
  29. 29. Ziya G. Boyacigiller (c) 2005 29 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…
  30. 30. Ziya G. Boyacigiller (c) 2005 30 Just like armies select a Beachhead you need to select your beachhead – a niche market to focus their forces and win,
  31. 31. Ziya G. Boyacigiller (c) 2005 31 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. KEY SLIDE
  32. 32. Ziya G. Boyacigiller (c) 2005 32 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) KEY SLIDE
  33. 33. Ziya G. Boyacigiller (c) 2005 33 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 KEY SLIDE
  34. 34. Ziya G. Boyacigiller (c) 2005 34 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…) KEY SLIDE
  35. 35. Ziya G. Boyacigiller (c) 2005 35 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.
  36. 36. Ziya G. Boyacigiller (c) 2005 36 Key to Success for an entrepreneur is creating a Product/Service KEY SLIDE
  37. 37. Ziya G. Boyacigiller (c) 2005 37 Crossing the Chasm is centered around your “differentiation” • Compelling reason to buy …translated into • Unique (=differentiated) value proposition …leads to need to develop the • “ ” – without which it is hard (very very hard) to cross the chasm KEY SLIDE
  38. 38. Ziya G. Boyacigiller (c) 2005 38 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! KEY SLIDE
  39. 39. Ziya G. Boyacigiller (c) 2005 39 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! KEY SLIDE
  40. 40. Ziya G. Boyacigiller (c) 2005 40 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.
  41. 41. Ziya G. Boyacigiller (c) 2005 41 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
  42. 42. Ziya G. Boyacigiller (c) 2005 42 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 KEY SLIDE
  43. 43. Example: Why is iPod selling so well? Ziya G. Boyacigiller (c) 2005 43 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
  44. 44. Ziya G. Boyacigiller (c) 2005 44 “Whole Product” Model* POTENTIAL PRODUCT future versions with enhanced benefits AUGMENTED PRODUCT everything the buyer needs for positive user experience “WHOLE PRODUCT” EXPECTED PRODUCT what customer thinks s/he is buying GENERIC PRODUCT 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.
  45. 45. Ziya G. Boyacigiller (c) 2005 45 Whole Product Example note that whole product is defined relative to usage scenario hardware software product peripherals connectivity consulting postsales service& support presale services legacy interfaces allcomplementaryproductsrequiredto fulfillpromisedvalueproposition allcomplementaryservicesrequiredto fulfillpromisedvalueproposition All “whole product” components must be fulfilled to displace the old value chain
  46. 46. Ziya G. Boyacigiller (c) 2005 46 Whole Product & TALC* Laggards Late Majority Early Majority Early Adopters Innovators "The Chasm" Technology Adoption Process Time Sales GENERIC PRODUCT AUGMENTED PRODUCT “WHOLE PRODUCT” EXPECTED PRODUCT POTENTIAL PRODUCT * TALC = Technology Adoption Life Cycle
  47. 47. Ziya G. Boyacigiller (c) 2005 47 Evidence to Show Visionaries: • Benchmarks • Product Reviews by “influencers” • Design Wins • Initial Sales Volumes • Trade Press Coverage • Endorsements KEY SLIDE
  48. 48. Ziya G. Boyacigiller (c) 2005 48 Evidence to Show Pragmatists: • Market Share • Partners and Allies (quality & number) • Third Party Support • Standards Certifications • Applications Proliferations • Vertical Press Coverage • Industry Analyst Endorsements KEY SLIDE
  49. 49. Ziya G. Boyacigiller (c) 2005 49 “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?
  50. 50. Ziya G. Boyacigiller (c) 2005 50 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.
  51. 51. Ziya G. Boyacigiller (c) 2005 51 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. KEY SLIDE
  52. 52. Ziya G. Boyacigiller (c) 2005 52 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. KEY SLIDE
  53. 53. Ziya G. Boyacigiller (c) 2005 53 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. KEY SLIDE
  54. 54. Ziya G. Boyacigiller (c) 2005 54 Where are you placed in TALC? Laggards Late Majority Early Majority Early Adopters Innovators "The Chasm" Technology Adoption Process Time Sales
  55. 55. Ziya G. Boyacigiller (c) 2005 55 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 KEY SLIDE
  56. 56. Ziya G. Boyacigiller (c) 2005 56 Discontinuity Analysis GAIN VALUE FOR CUSTOMERS PAIN PARADIGMSHOCK A B C D 4 3 2 1 MOVE AWAY NOT COMPELLING Early Market  D4 need innovation new value chain Bowling Alley  D2/D3 need segmentation need whole product Tornado  C1/D1 need standards Main Street  A1/B1 need segmentation need added benefits STAYAWAY DEADONARRIVAL KEY SLIDE
  57. 57. Ziya G. Boyacigiller (c) 2005 57 Hockey-Stick the Sales
  58. 58. Ziya G. Boyacigiller (c) 2005 58 Segment 1 Application 1 Customer references W hole Products Segment 2 Application 1 Segment 1 Application 2 Segment 3 Application 1 Segment 2 Application 2 Segment 1 Application 3 TORNADO .................. .................. .................. Bowling Alley Market Development 1 2 2 financial spreadsheet (Excel) marketing spreadsheet (Excel) spreadsheet presenter (PowerPoint) KEY SLIDE
  59. 59. Ziya G. Boyacigiller (c) 2005 59 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!
  60. 60. Ziya G. Boyacigiller (c) 2005 60 Bowling Pin Model Primary 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. KEY SLIDE
  61. 61. Ziya G. Boyacigiller (c) 2005 61 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.
  62. 62. Ziya G. Boyacigiller (c) 2005 62 Strategy for Approaching the Economic 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.
  63. 63. Ziya G. Boyacigiller (c) 2005 63 Tornado or Network 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 KEY SLIDE
  64. 64. 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) Ziya G. Boyacigiller (c) 2005 64
  65. 65. Ziya G. Boyacigiller (c) 2005 65 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 KEY SLIDE
  66. 66. Ziya G. Boyacigiller (c) 2005 66 Winners: Highest % Promoter Sinners: Highest % Detractor Airlines 60% Southwest 34% Northwest Rental Car 53% Enterprise 28% 28% Avis Dollar 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.
  67. 67. Ziya G. Boyacigiller (c) 2005 67 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.
  68. 68. Which stage is the lowest risk for entry into market? Ziya G. Boyacigiller (c) 2005 68 Laggards Late Majority Early Majority Early Adopters Innovators "The Chasm" Technology Adoption Process Sales
  69. 69. Successful Customer Adoption Needs Proactive Management Through the TALC Ziya G. Boyacigiller (c) 2005 69

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