Crossing the Chasm and Growth Hacking

What is the "chasm" in the TALC? How do you cross this "chasm"? What are the "Bowling Alley" and "Tornado" stages? and What is Growth Hacking? 

This week's blog will answer the above questions. We will also look at how we can apply what we learn from these answers in our entrepreneurship project.

Crossing the Chasm

Figure 1: Adoption Life Cycle

Two weeks ago, in a blog entitled "Stages of the Technology Adoption Life Cycle and their Importance" we spoke about the different groups of people in the Technology Adoption Life Cycle (TALC). Today, we will look at the "Chasm" portion of the Talc. Figure 1 on the right shows the Adoption Life Cycle, similar to the one in my previous blog. But this figure also shows other aspects of the TALC, including the "Bowling Alley" and the "Tornado". We will also look at these two sections of the TALC in this blog. 

The Chasm is a period of time between the Visionary adopters and the Pragmatic adopters. During this period of time, sales of a disruptive technology tend to stop completely. Just prior to the Chasm, sale of the product will be on a incline and then complete stop. Right after the Chasm, sales begin again and rise quickly. But why is there this period of time where sales stop?

The Chasm is the result of the contrasts that exists between the Visionaries and the Pragmatist. When Visionaries buy a new disruptive product, they are trying to get a jump on the competition, they are looking for a radical change between the old and the new, they are, as the name suggests, visionary people, looking for great new products. When Pragmatists buy a product, they look at how the product can improve productivity and efficiency of the existing operations. They don't necessarily want a completely new method that replaces the old. Because of the contrast in buying priorities, making the jump from visionaries to pragmatist is very difficult. During this "Chasm" period, many firms and start-ups fail because they might not recognize the chasm period.

Geoffrey Moore teaches us how to overcome this period of time in his book, Crossing The Chasm. He compares crossing the chasm to the D-Day invasion. The goal is to target "a very specific niche market where you can dominate from the outset". The same way that all the Allies put their efforts to invade the Beaches of Normandy on D-Day, June 6, 1944. By winning over a niche group of Pragmatists, allows the product to start gaining the acceptance of the Pragmatist market. Pragmatist, tend to buy based on reference from other pragmatists, it is important to win over the first group of pragmatist for this to happen. 

Most start-ups and small companies don't have the resources necessary to target a large market or all the pragmatists. If they do, their message will get diffused quickly before they convince anyone to buy the product. However, if they focus all their resources on a single niche target market, they have a better chance of winning the market. 

This initial step into the pragmatist market is known as the Bowling Alley. The idea is that a company should focus all their resources on knocking down the first pin (i.e. the niche market). The first pin knocks down the second, the second knocks the third and so on so forth, where each pin represents a market segment within the pragmatist group.

The bowling pin effect leads to the Tornado stage. In this stage, a company goes through huge growth rates, in the double and even triple digits. To understand how to cope with such fast growth, we need to first consider the concept of Growth Hacking.  

Growth Hacking 

Based on Franco Virriano, the co-founder and co-host of the #1 Business podcast, hacktostart.com, Growth Hacking is determining methods to grow a business. When starting with a new business idea, there are three key concepts that are needed to properly achieve growth, based on Franco. They are:

• The idea or product must be scalable. In other words, it must be possible to provide the product or service in an efficient way as the market grows. If the product idea is not scalable, a company will have a difficult time to grow. 

• Growth must be testable. Testing allows the company to make adjustments to the development of their idea. These adjustments help the company grow in a more efficient manner. 

• Growth must be trackable. If a company can't track growth, it will have a difficult time determining it's position on the TALC. Understanding growth is important, especially when preparing a marketing strategy. 

Making sure that these concepts are understood and possible by a company is essential before reaching the Tornado stage. If any of these 3 concepts fail, the company will face difficulties during the Tornado stage, which might cause the company to lose valuable market share. 

Application: Entrepreneurship Project

What we discussed above can be applied in our entrepreneurship project for the Telfer Business School class of MBA6262. As we discussed in our last blog, our product idea currently falls in the "Early Adopters" group of people, also known as the visionaries. Therefore we would be soon entering the Chasm portion of the TALC. As we validate the idea for the project, we need to determine which specific niche market would be the best to target as our first bowling pin. Determining the best niche market is essential. Missing the first pin can be catastrophic, since we would have focused all of our resources on it. 

Also, as we develop our idea further and determine changes to our Business Model Canvas, we need to keep in mind the concepts of Growth Hacking. We need to make sure our idea stays Scalable, Testable, and Trackable. 

Sources

Moore, G. (2014). Crossing the chasm: Marketing and selling high-tech products to mainstream customers (3rd ed.). New York: HarperBusiness.

Varriano, F. (2015). Growth Marketing. PowerPoint Slides. 

The Product Life Cycle and the Concept of High-Tech Marketing

What is the Product Life Cycle? How is it related to the Technology Adoption Life Cycle? and What is a High-Tech Market?

This week's blog will answer the above questions. We will also look at how we can apply what we learn from these answers in our entrepreneurship project.

Product Life Cycle

Figure 1: Product Life Cycle

When a new product is launched and sold, the product goes through a cycle known as the Product Life Cycle (PLC). Figure 1 on the right shows a graph of a typical PLC. The PLC has 4 main stages, Introduction, Growth, Maturity, and Decline. Depending where a product is located on the PLC, a company's marketing strategy and marketing mix will differ. Let us look at the 4 stages in more detail.

• Introduction: At the first stage, the sales of the product are still low, the market for the product is still small. Additionally, the per unit production cost is still high. 

• Growth: At this point, the sales of the product start to increase. Also, the Company selling the product can start benefiting from economies of scale, the per unit production cost of the product decreases. 

• Maturity: At this point, the product sales grow at a lower rate, and the sales will peak at a point, and then decline. Profit also starts to decline because at this stage competition in the market is strong, a lot of money is spent on marketing and advertising. 

• Decline: At the last stage, the market for the product diminishes. Sale of the product decline. Profits also decline, this results in companies leaving the market. Money spent on advertising also declines at this stage.

For more information on the Product Life Cycle Stages visit: productlifecyclestages.com

In last week's blog, we looked at the Technology Adoption Life Cycle (TALC). The TALC model and the PLC model follow a similar curve shape, however they are not the same model, they complement each other. The TALC explains to us how consumers, in different groups, adopt a product based on their psychographics. The PLC explains to us how the sales of a product vary over time. 

The two models complement each other. When the early market group (in TALC) adopts a product, i.e. the Innovators and the Early Adopters, the product will be in the Introduction stage of its life cycle (in PLC). When the Early Majority of people (in TALC) adopt the product, it will be in the Growth stage of its cycle (in PLC). And so on so forth. Interestingly, the PLC doesn't account for the "chasm" period of time, seen in the TALC model, where sales drop. 

Each stage of the PLC and the TALC offer different challenges when it comes to marketing. A different marketing strategy and mix is needed at each stage of both models. But before we can jump into the marketing world, we need to understand what a High-Tech Market is.  

High-Tech Market 

To be successful in marketing a High-Tech product, we need to find out what IS a market. Based on Geoffrey Moore's book Crossing the Chasm, a market is the following:

1. A set of actual or potential customers
2. for a given set of products or services
3. who have a common set of needs or wants, and
4. who reference each other when making a buying decision. 

According to Moore, the first 3 parts of the definition are easily understood, but people often forget the 4th part. According to Moore, "Getting the last part is absolutely key to successful high-tech marketing." If two people buy the exact same product, but they don't have a reasonable basis for communicating with each other, then they are not in the same market. Each person is in a different market.

To make sure that people don't forget this crucial part of the definition, we often hear people speak about a Market Segment. This is essentially the breakdown of the market's natural boundaries. 

Marketing Segmentation is very important, because no marketing strategy is meaningful "if it is implemented across a set of customers who do not reference each other".

Although this definition is written by Moore for High-Tech markets, we can see it apply in different types of markets. 

Application: Entrepreneurship Project

In our entrepreneurship project for the Telfer Business School class of MBA6262, we have spoken with a group of people about our app idea. As we review what we have learned from these people, we can make two observations. 

Firstly, for most people, our idea is considered very new. By the comments we have gathered from our interviews, we can say that our idea would fall under the "Early Adopters" segment of the TALC. In other words, we would still be in the Introductory stage of the PLC. 

Secondly, we realized that there were different types of potential customers. As we spoke with people, we saw individuals interested in becoming buyers, some in becoming sellers for short periods of time, others for longer periods of time. These essentially are different market segments that our app can target. As we review our Business Canvas, we can use each market segment in a different way to generate revenue. Each group of people are willing to pay us for different uses of our product.

Sources

Moore, G. (2014). Crossing the chasm: Marketing and selling high-tech products to mainstream customers (3rd ed.). New York: HarperBusiness.

Product Life Cycle Stages. from http://productlifecyclestages.com/

Stages of the Adoption Life Cycle and their Importance

What is the Technology Adoption Life Cycle? Why is it important to understand each stage of this cycle? and Why is it important to understand this cycle when developing a business model?

This week's blog will answer the above questions. We will also look at how we can apply what we learn from these answers in our entrepreneurship project.

Technology Adoption Life Cycle

Figure 1: Technology Adoption Life Cycle

The Technology Adoption Life Cycle (TALC) is shown in Figure 1 on the right. TALC is a model used to describe the types of consumers of a new and disruptive technological product that penetrates the market. The TALC classifies consumers into 5 groups. The groups are: Innovators, Early Adopters, Early Majority, Late Majority and Laggards.

As we can see from figure 1, the TALC model is shaped like a bell curve. Each group is roughly equivalent to the appropriate standard deviation. For example, the Early Majority and Late Majority groups fall within 1 standard deviation from the centre, therefore each group is approximately 34% in size. Additionally, in the TALC, shown in figure 1, we see a gap called the Chasm. This gap creates a challenge for companies to grow and capture the Majority markets. Additional information about the chasm, and how to cross it, will be provided in future blogs, so stay tuned!

The following is a brief summary of each of the 5 groups in the TALC:

• Innovators: The first group of people are the "techies". These are people who buy technological products at a very early stage. This group loves to play with new technology, trying out the different features and coming up with new applications for the technology. This group doesn't mind having "bugs" in what they buy, as a matter of fact, they enjoy finding the bugs and reporting them. 
• Early Adopters: The second group of consumers are the "visionaries". These are people who buy products relatively early on, dreaming, imagining, and envisioning the benefits that can stem from the technology or product. Unlike the Innovators, the Early Adopters are not technologists; they do not go into the technical details of the technology. 
• Early Majority: The third group of people are the "pragmatists". This group of people are driven by practicality. They do not want to buy into a technology that "might" one-day be mainstream. They buy products that have already proven useful, they like to see established examples of the technology or products before purchasing it. 
• Late Majority: The fourth group of consumers are the "conservatives". Unlike the Early Majority, this group of people are usually not very technologically competent. They tend to buy a product only when it has become mainstream. They like to have access to support, and they like to buy products that are easy to use.
• Laggards: The last group of people are the "skeptics". These are people who don't want to use new technology; they don't want anything to do with it. This group of people are the absolute last group of consumers to buy a product. From a marketing point of view, it is usually not worth pursuing this group.

It's very important to understand the differences between each group of consumers when marketing for a new technological product. Being able to adjust the marketing strategy as the product moves through the cycle is necessary for success. As Geoffrey Moore states in his book Crossing the Chasm: 

“Each Group represents a unique psychographic profile – a combination of psychology and demographics that makes its marketing responses different from those of the other groups.”

Additionally, it is important to understand that a product must go through one group of people before moving on to the next. Each group that has already adopted the product is used to "capture" the next group. Therefore it is important to understand how the profile of each group is related to the neighbouring group.

The Business Model Canvas and the TALC

Figure 2: Business Model Canvas

One of the tools used when developing a business is the Business Model Canvas. A picture of the canvas is shown in figure 2 (click here to download pdf). It is important to be aware of the five different groups in the TALC as we develop a business model using the canvas. The value propositions that innovators want are different than the value propositions that the Early Majority and Late Majority groups want. When building a business, the goal is long-term success and profitability. To be able to win over a large share of the market, it is necessary to win over the Early and Late Majorities. Therefore when building the business model canvas, we need to make sure that the value propositions are relevant for these two groups.

It is also important to keep in mind the five group profiles in TALC when developing other section of the Business Model Canvas. Mapping both the Canvas model with the TALC model is crucial for success. Channels, for example, might be different for each group in the TALC. Customer Relationship can also differ from the point of view of different groups. The Late Majority, for example, prefer to buy a product that has a proper support team, this is a specific customer relationship that other groups might not care for. 

Application: Entrepreneurship Project

We have recently began our entrepreneurship project for the Telfer Business School class of MBA6262. We have developed the first version of our Business Model Canvas, and now we are in the process of validating the assumptions that we have made. As we speak with potential clients, we need to be able to differentiate between the profiles of these people. We need to determine in which group each person falls under. If we only meet people who fall in the Innovators group, they might really like our ideas. This could lead us to believe that our idea is valid and has a lot of potential. But in reality, the idea might not prove successful. Additionally, knowing under which group a person belongs to, helps us to properly communicate to that person with the appropriate message. 

In conclusion, it is important to understand the Technology Adoption Life Cycle, and each of the groups within it. It is also crucial to keep in mind the concepts of this model as we develop our Business Model Canvas and as we validate our ideas. 

Sources

Moore, G. (2014). Crossing the chasm: Marketing and selling high-tech products to mainstream customers (3rd ed.). New York: HarperBusiness.

Business Model Canvas. From http://www.businessmodelgeneration.com/downloads/business_model_canvas_poster.pdf