EP205: Finding Your Beachhead Beyond The Chasm

Many a promising startup has seen their lofty dreams dashed on the rocks due to lacking a bridge to cross that yawning chasm, separating early adopters from pragmatic mainstream buyers. Chris has contended with this treacherous chasm across multiple expeditions. Those early adopters feature prominently in startup lore – enthusiastic pioneers who relish new technology, derive career perks from kick-the-tires experimentation and care little about reputation risk. Yet they differ radically from that mainstream majority awaiting pragmatic proof. Chris invites you to draw on the profound insights of Geoffrey Moore (Crossing the Chasm) to help identify those visionary partners, extract maximum value from your earlyvangelists, and ultimately package your technology into a must-have product. Join Chris for this episode, “Finding Your Beachhead Beyond The Chasm.”

Reading list from this episode:

Out of Crisis – W. Edwards Deming

Theory of Constraints – Eliyahu M. Goldratt

Crossing the Chasm – Geoffrey A. Moore

Full episode transcript below:

(00:23):

Today, Chris unpacks one of the toughest challenges for startups, navigating the chasm, separating enthusiastic early adopters from pragmatic mainstream customers. As an admitted disciple of Jeffrey Moore’s pioneering work, Chris aims to spare fellow innovators from the common downfalls along the journey to achieving industry dominance. He’ll examine how to identify key early evangelists and high value visionary partners to fund the next grueling leg after the chasm. Safely across, he’ll share hard-won experience on transforming novel technologies into a must-have solution for pressing business needs. Charting this course carefully can turn scrappy upstarts into mighty market rulers. Chris offers guideposts so more pioneers can find safe passage from fledgling startup to titan. Join us for this episode, finding Your Beachhead Beyond the Chasm.

Chris Beall (01:23):

Hey everybody. Chris Beall here with Market Dominance Guys podcast. And hey, Corey’s not available right now, and I thought I’d just put something in the can here and see whether anybody’s interested in what I have on my mind today. So today I thought I’d talk about something really important that you can just go out and get a book and read what it’s all about and figure it out, but maybe you want to think through some of the things that are unappealing about it that will make you not want to do the right thing when it’s time to do the right thing. So this is for folks who come up with new technologies, with new solutions. So if all you do is you sell old stuff, probably isn’t particularly relevant to you. But if you’re selling a new technology, if you’ve invented something, or even if you’ve just come up with a twist on something and you think it’s really valuable, important, could make a difference in the marketplace, could solve some real problems, you have a real problem.

(02:19):

And your real problem is that people are generally repulsed by new technologies. In fact, in general, people are repulsed by just plain old new stuff. Once it’s been established and other people are doing it, they’re buying it, they’re using it, they’re getting good value from it, yeah, then it’s all pretty easy. But that’s a big barrier to get through is that psychological aversion that people have to doing something new or trying something new, especially if it involves parting with something that they already have that would normally be money and always time, and then you could throw in risk to their reputation and well, it only gets worse. So now you’ve got something new, you’re a member of the innovation economy, you want to come out with something, and I’m going to assume it’s B2B. Why? Because I don’t know anything about B2C.

(03:08):

I think I’ve mentioned this before. I’m clueless as a consumer and as a result, I don’t think that I’m qualified to say anything about businesses that sell to consumers. I divide my Shark Tank episodes into two kinds. The ones where they’re talking B2B, which is almost none of them, and the ones where they’re selling to consumers where I can sit back and relax and think, “I don’t know anything about this. These sharks seem to, but I don’t.” But B2B, I’ve been doing that a long time and I’m a disciple of Jeffrey Moore. The book in question is Crossing the Chasm. There’s another book called The Gorilla Game if you want to get into the fantasy of actually doing what we suggest here on Market Dominance Guys, which is dominating markets. So The Gorilla Game’s all about dominating tech markets with a product, not with a service.

(03:57):

If you want to dominate with a service, you become a king or a queen of that particular market, but you can’t be a gorilla. And Jeff explains this in great detail in both of those books. They are wonderful reads. I must have read Crossing the Chasm now five or six times. If you really want to get everything you need to know, you could consider Crossing the Chasm as a starting point. You could consider Deming’s Into the Crisis, so if you can read the crunchiness of it, he is a pretty grumpy guy when he wrote that book, but I would’ve been too. And then of course, all of the Theory of Constraints books, Eli Goldratt and everything, he tried to teach us about how systems essentially have one constraint and we should pay attention to it. Well, that actually goes together here with Crossing the Chasm.

(04:44):

And the reason is the constraint in the innovation economy tends to be just above the top of the funnel in the repeatable part of your business. This is the part that is across the chasm, not the part that is before the chasm. Let me see if I can explain this. So I would draw a picture here, but it’s a podcast, so I have to draw the picture with words. So imagine you have a typical sort of normal distribution, a normal curve. You’ve seen them all before a bell-shaped curves, they’re called. So it’s got a left side and a right side and a middle. They kind of get steep for a while and then it kind of levels off the top and goes down. So most folks think, “Hey, this is how markets adopt. They start with a few people at the beginning. Those people get some good out of whatever it is. Maybe they talk it up. Maybe you get to refine your product a little bit and you go smoothly from having hardly any customers to having a little more, a little more. You establish yourself.”

(05:41):

And then eventually you get past that midpoint in the hump and you’re in what’s called the late majority, and then you’re in among the laggards. That’s actually a great place to be. It’s hard to be displaced there, but you are going to where there are fewer and fewer customers over time. So you might have to come up with something new. Eventually, we all have to come up with something new. So the number one thing to know about that curve, that simple, smooth curve, is that it’s a lie. And by a lie, I mean it’s a curve that has a hole in it, it has a gap where you get to a certain point climbing up the side where you’re getting more customers and more revenue in particular, and suddenly it all goes away.

(06:21):

It goes to zero and it goes to zero for a while. And in fact, if you don’t do anything about it, it goes to zero for a while. That’s long enough that now you’re out of business. So the chasm is the part of the curve that for very repeatable, predictable reasons, has just got no buyers in it. And since it has no buyers, it has no revenue. And if you keep trying to sell in the chasm, so to speak, where there’s no buyers, you will run out of money because your overhead, which we’ve discussed before, is like a racehorse. It will eat while you sleep, it will eat up your entire company, and you’ll try more and more crazy and desperate things to get those non-existent buyers to buy your product. And this is referred to my world as thrash, and you will thrash yourself to death trying to sell to folks who just aren’t there.

(07:17):

Now, why are they not there? Well, it’s because the folks who buy early who are divided into two distinctly different groups that must not be mistaken for each other are radically different from the ones who buy just a little bit later. So when you have a new technology, there are always folks that are interested in it. They’re called technology enthusiasts. They love new stuff. They love it because A, it fits their personalities and their background. They know something about everything. B, they like messing around with stuff to see if they can make it work or break it. And C, they derive their own career and political power from being the sacrificial lambs out there trying things out that may or may not work and generally don’t. So they have a special feature. Their reputations cannot be harmed by checking your stuff out your new thing. So they will check your new thing out.

(08:12):

This produces a false signal to you if you’re not careful that says, “Oh, folks are interested in my new invention, my new product, my innovation.” Now there are folks interested just for a funny reason, they’re interested in trying it out, learning about it, kicking the tires, breaking it, tearing it apart, hooking it up to other stuff to see if it breaks that, and then they’re going to move on. So are they good, bad, or indifferent? Well, they’re really important. So you’ve got to engage with them and you got to engage with them early and you got to make them pay a little bit, otherwise they’re not going to take it seriously. And then you have to pay attention to what they have to say. They’re actually providing you with free advice, free consulting, in fact paid, and they’ll pay you to tell you about your product and they’ll actually try to use it.

(09:05):

So you have to kind of overpay attention to them, but also let them mess around and they’ll give you insights and you need to use those insights intelligently in order to improve your technology, which at this point you will probably think is a product, and it’s not a product yet. It’s a product when it’s in the hands of somebody who uses it for pretty much what somebody just like them has already used it for, it’s useful for some job, it does a job. At this point, the job to be done is kind of amusing the tech enthusiast and letting them learn what’s out there, what works and what doesn’t. So you’ve got to sell to them. You got to sell to them right away. You need a certain kind of salesperson. Generally it’s the person who innovated the product or somebody on that team. So feel free to do that.

(09:59):

Go sell to them. It’s great. You’ll have a little bit of growing revenue. Don’t make the mistake of building out your revenue plan for the next 2, 3, 4, 5 years based on the growth in the tech enthusiast market. That market burns up quite quickly. And if you find yourself going from one to another to another company trying to find the tech enthusiast, you’re selling to a market that has no future, and that’s a mistake. So as long as you’ve got a few, it’s moving fast, you’re getting great feedback, stick with them. But meanwhile, you’ve got to look for your other kind of pre-chasm customer, and that is somebody called a visionary customer. And a visionary customer, it’s a funny name actually, I’ve never quite liked this name. It’s a customer who has a vision of how your technology, not your product, but your technology can confer upon them competitive advantage.

(10:59):

And why is that a vision? Well, they’re having a vision of changing the competitive landscape or the strategic landscape in their business, in their market where they play. So it might be something that fills a gap for them that’s just showed up in the world because now everybody has it. Today that gap would be generative AI. This is why generative AI is generating such a big buzz in the world and such high valuations for so many companies is not that the tech enthusiasts will pick it up. They will, which is fine, but that it provides new potential weaponry for somebody in a specific industry who if they could just figure out how to use gen AI with the rest of what they’re doing, they could change the strategic landscape. That is they could get in a superior competitive position. The internet was like this once there was a point in the life of the internet when every internet company had a valuation that was based on the fact that lots of these visionaries, these customers that were going to seek competitive advantage, we’re going to need help.

(12:06):

And so if you could help them either with a product or a service that leveraged the internet all to the good, so you’re seeing that very same thing with generative AI. We’ve seen it before with e-commerce. We see it all the time in what I call hard engineering with advances in material science. You see it with battery technology. This is done all the time where something new shows up and the reason it goes hype crazy is actually a pre-chasm reason. It’s not the tech enthusiasts who will fool around with it. They’ll do things like I’m a better one when it comes to generative AI. We wrote a book using ChatGPT about market dominance, but it was really just to experience what is it like to use ChatGPT to write a book. So I made sure to keep it short time-wise, 6:30 in the morning on a Saturday until 11 o’clock on Sunday, the book had to be written from scratch or at least from transcripts out of this podcast and published on Amazon in three formats using ChatGPT to tell me how to do that.

(13:06):

Okay, so that was tech-enthusiast stuff. That doesn’t really drive that early hype in a new material or new crazy thing that you can do like, well, ChatGPT. What does is the fact that there are always lots and lots of companies out there in competitive positions where vis-a-vis their big competitor, they think they could make a difference if they were first to adopt and use something new as a weapon. So with your visionary customer, you’re selling to their vision of dominance or maybe their vision of escaping the dominance of somebody else. If they’re number two in a market, they got to be trying to figure out something. So I have an example from a long time ago where the folks at W. W. Grainger, big catalog company with MRO products recognized, “Hey, this internet thing means that our book, our catalog book no longer needs to contain only say 90,000 products. It could contain hundreds of thousands, but how are we going to organize them in a way that we can manage them and by the way, help people find them, which is the claim to fame in our red book?”

(14:15):

So they were willing to do some very strong financial shifts in order to get ahold of some technology, in this case, it was catalog technology. I happened to be the guy selling it and they could do some big things. They thought if they could get the data together about all these products and then organize it in a way that people could find it and buy it, but also keep it up to date because that’s a big problem when you’re publishing a book, you do it in annual cycle, but the internet says you have to do it all the time. So we ended up doing a pretty big deal with them at a company I was with called Requisite Technology is a pretty big deal.

(14:52):

It ended up being probably out of the box 14, $15 million at a time when we had essentially maybe, I don’t know, a million dollars of revenue. So should you do business with these visionaries? Absolutely. How many? A good number is one, that’s a pretty good number in that you focus on really helping them achieve their competitive goals, and you do it at a reasonably great sacrifice to yourself of some of your resources. So you put together a deal that’s got elements in it alike, believe it or not, source code, which no one likes to sell, but hey, if somebody needs competitive advantage, they need proprietary control. So one, make sure this isn’t somebody who’s actually representative of your future market. This is a smart one-off, and you’re going to do a deal that makes a lot of money, which you need unless you like going to venture capitalists and taking their money and having them sort of run your company for you one way or another.

(15:50):

So you need a lot of money in order to cross the chasm. So how do you load up on it? Well, you do a visionary deal with somebody in which they get proprietary control within a specific domain of how it is that you do things. I’ll call this your source code. It could be your secret formula, but it’s something along those lines. They also need intellectual property, so you need to cross-license or license patents to them if you have them and know-how, they need help, so you’re going to have to provide them with your best engineers. At what price? About one and a half times market because they’re going to get very, very special value out of your very, very special people. How long? Probably a year, year and a half. That’s normally long enough to execute on one of these sort of visionary plays.

(16:40):

And then what about exclusivity? Yeah, you got to offer that too if you want to make this work because you’re offering a competitive advantage so you can’t turn around and offer it to their competitor the next day. So let them name some competitors and have a period of time and a field of use and put that in the contract that you won’t sell this deal to those named competitors for this period of time within that field of use. And that way you’ve provided all of the elements for a competitive advantage for that visionary. And assuming that they’re big enough and this is a strong enough play for them, they will pay you a lot. How much is a lot? 10, 20, $30 million is possible on deals like this.

(17:21):

I know that sounds somewhat fantastical with the new technology, but especially if things are hot and you have information that’s special, that’s distinct, that’s rare about how to make some new technology work in a particular industry and you think that somebody could really do well if they had control over it and you don’t think they represent your future mass market, then go ahead and do one of these.

Speaker 1 (17:46):

We’ll be back in a moment after a quick break. ConnectAndSell, welcome to the end of dialing as you know it. ConnectAndSell’s patented technology loads your best sales folks up with eight to 10 times more live qualified conversations every day. And when we say qualified, we’re talking about really qualified like knowing what kind of cheese they like on their impossible whopper kind of qualified. Learn more at connectandsell.com. And we’re back.

Chris Beall (18:25):

These deals generally take about six weeks to do. You need to make it clear that your board of directors has told you to do a deal like this with one of three or four identified players, all of whom are competitors in that industry. You’re going to do one deal and the phrase that you use is that everything’s on the table. They will respond very positively if in fact this is something that appears to be of competitive advantage and otherwise they’ll leave you cold. So it’s a really easy qualifier. You won’t get a lot of tire kickers on this one. So you do that deal and now you have to split your company in two. So one part pays a great deal of attention to your new visionary customer, really a partner at this point. And another part takes the feedback about your technology and thinks, “Hmm, where could we go in order to establish our technology packaged appropriately to do a job as a product?”

(19:23):

And that where we can go is across the chasm. The beauty now is that you have hopefully enough money to cross the chasm because as I said before, there is no revenue down there in the chasm. It’s very, very dry. There’s the bones of companies that have crossed or tried to cross the chasm and didn’t make it. You’re going to have to walk by them and you’re going to shudder a little bit, but you got to realize, “Hey, over on the other side is the magic of the early market.” It’s the early market post chasm or early majority, and you’re looking for somebody with a broken mission-critical business problem that you’re pretty sure that your product along with whatever services are need to make it work, this is called a whole product, and it’s all put together can actually solve that broken mission-critical business problem.

(20:16):

Now, everybody has these. They’re all over the place. I mean, we’ll never run out of broken mission-critical business problems. They sort of like rabbits, right? Every time something happens in the world that’s new or different or somebody buys somebody or something is being obsoleted out or whatever, something’s broken, it could be an internal problem that they have. It could be a problem with their go-to-market. It could be a problem in their supply chain. It could be a problem in their financial supply chain. It could be a problem with people. Who knows? You know because you know what your technology can do, but you’re going to have to package it up as sort of a paper product that claims to solve this problem. Then you need to go to talk to folks who you think have this problem. And with some of them it will resonate and they’ll say, “I actually have this problem.”

(21:07):

Now you have an interesting problem. So your product isn’t quite perfectly ready for prime time, so you need to take the minimum version of it and you need to round it out with services, make it a whole product, and then sell it to somebody. For how much? Well, you’re actually going to price it down, and this is very counterintuitive to a lot of people. You’re going to price it down because you’re essentially buying the first customer’s willingness to work with you because they’re working for you and they are going to point out everything about your product that doesn’t actually solve their problem. So you were able to describe the solution, but you weren’t able to actually implement it quite perfectly. It’s really hard to get everything right in a product and they’re going to teach you, but by the time you’re done, you’ll actually have a product that is probably sellable to the number two person, and more importantly, you will have a reference.

(22:04):

And across the chasm, we tend to sell by reference. That’s why it works. That is the slightly more cautious person will buy what the slightly more desperate person bought if it worked for them. And everybody knows who that is. Everybody knows who the lead dog is. So now you go from one to another to another. You get your product more complete, you get your references more robust, and eventually word of mouth starts to take over. And at that point, your market is probably pretty small. You want it to be pretty small. The edge of your market is everybody who will talk about it and refer somebody else to it as a solution to their broken mission-critical business problem. And so, hey, you just keep going until that market starts to run out. But well before that, you identify an adjacent market that is similar enough in terms of the broken mission-critical business process that you can solve, but different enough, maybe a different role.

(23:07):

So for instance, say you solve a problem in sales, you might want to go talk to customer success or say you’re verticalized within banking, you might want to go talk to folks in insurance. You’ll know how to do this. You just have to decide when to do it, otherwise you’ll sort of plunge into a chasm of your own making. And after that, it is reasonably straightforward. Now you’re into, I’ll call it standard issue market dominance, like we talk about all the time on this show. That is you make a list, you call the list, you talk to people, you build trust, you recognize that only 1/12 of your market’s in market in any given point because they’ve already solved the problem too recently using something else and you have to wait till the replacement cycle for their solution kind of plays out. And now you go and you dominate that market.

(23:57):

But if you don’t get into the market, you don’t get to dominate it. So while you can employ brute force techniques like we recommend at Market Dominance Guys, make a list, call the list, talk to people, build trust, have meetings. Also have folks come to your website because you talk to them, have them answer emails because you talk to them, have them connect to you socially because you ask them to and you just talk to them. All that good stuff you get to do, but you want to do that on across the chasm side primarily, and you’ll feel it. It gets easier and easier and easier if you’re across the chasm. If you’re not, it just kind of stays the same. You can actually build very large pre-chasm companies. They sell weapons, not tools, but you’ve got to play the game a little bit differently.

(24:46):

You’re actually doing an endless series of these sort of little visionary deals. They’re little ones. They’re not as big because you can’t extract the big money for competitive advantage from folks that are competing with each other. It sounds like you could, and some have figured out how to do it. I mean, Google does this with Google Ads. They’ll sell you the ad words or they’ll help you with them, and then six months later, your number one competitor gets powered up by Google to compete with you with better or more powerful ad words that somehow yours have gone a little weak and back and forth it goes. It’s very rare. If you do one of those, more power to you. You can own jet airplanes of your own and do all manner of things and have silly names for your products, and it’ll all work out really great.

(25:30):

But if you’re more of a standard issue, “Hey, I’ve got a new product or a new idea for a product with magic technology and I am hoping to take it to market,” just remember you need to divide your market into two big pieces, pre-chasm and post chasm. Then you need to divide the pre-chasm into two pieces, tech enthusiasm, visionaries, then you got to make a very uncomfortable deal with one of the visionaries that’s sufficient to fund your chasm crossing and you just saved your company from a whole round of financing by doing that, and you’re still in control.

(26:03):

Then you need to make that list. But you’ve got to know that you solve a broken mission-critical business process before you make the list. Then you make the list and you get on something like ConnectAndSell, or you work with people like at Branch 49 or whatever, and you talk to people in order to get more and more folks to pay attention to the fact that, “Hey, there’s a solution to this thing. And by the way, a bunch of people just like you have already bought that solution and they’re quite happy with it.”

(26:33):

So that’s the end of this little episode. A little lesson. I feel like I’ve given it before on market dominance guys, but maybe not quite so straightforward away, and I thought even if I have, well, you know what they say, repetition is the mother of learning. So we just repeated it. And good luck to all of you mothers and fathers and others out there who are trying to take new stuff to market in the innovation economy. You’re much needed.