How Lessons from Crossing the Chasm can extend your reign
The Chasm, according to Moore, depicts a difficult-to-cross gulf between early market adopters and main street. According to Moore, marketing behaviors that contribute to success on one side of the gulf will flat out not workon the other. To succeed on the east side of the chasm requires a radical transformation. Companies must slough off their entrepreneurial marketing habitsas they arrive on the eastern shores of the chasm.
But it’s not just marketing habits that need to be sloughed off. The Chasm is a dividing line that also separates monumental changes in founder behavior and capabilities as well. The Chasm crossing identifies steep personal challenges Founders encounter in their own journeys towards their ultimate success of their ventures and may inform their own tenure. As such, the Chasm is a bright line to which every founder should pay close attention.
Most founders are quite comfortable on the western (early stage) side of the chasm. Their deep personal involvement as an individual contributor, subject matter expertise, passion for doing whatever it takes to make a sale, and desire to control all of the details, are what drive early company success. But similar to changes required of marketing upon landing on the eastern shore, radical changes in founder behavior are required of a founder who wants to stick around post her chasm crossing.
Why Founders are the Perfect Leaders pre-Chasm
Most entrepreneurial ventures fail. According to a Harvard Business School study by Shikhar Ghosh, 75% of venture-backed startups fail. Yet, there is no lack of founders lining up to try it out for themselves. Is that because founders don’t understand the risks? More likely it is just their outsized optimism, a trait that oddly contributes to their success.
Surveys of founders’ expectations indicate that founders know full well that most ventures will fail. They just don’t believe it will be theirs. A study in 1988 asked founders what the chances were of their venture succeeding vs the chance of a similar business run by someone else. Founders were confident that ventures they lead would have a better — 81% chance of success vs 59% for ones run by someone else. Founders maintain an abundant and refreshing, but off- base confidence that they are unique, different, and capable of distorting reality in their favor.
The founder’s naïve and fervent (egoist) belief in their own capabilities, may be what compels these entrepreneurs to head-first tackle opportunities that both don’t make any rational sense in which to participate and seem to be gamed against them.
Fewer ventures would be initiated if the founder weighed the actual odds of success. But founders who start ventures are often willing to take on outsized tasks, work long hours, and do whatever it takes to succeed. This innocent view can be just the right tonic to enable them to beat the odds.
Disruption Requires a Change Agent
Founders often talk about starting their ventures to entirely change how a market operates. Their identification of potential disruptions can pave the way for changing the fundamental operating assumptions of a market. This disruption doesn’t happen by doing things in a “business as usual” behavior. Founders are change agents. Early-market-adopter customers crave change as well. They want to be the first to adopt a new way to operate, to jump on new technology, to be on the bleeding edge. Founders are perfect for feeding that customer’s need.
Selling the Vision
Well before the product or service is ready for delivery, founders engage in selling the vision. There is no one more adept at promoting a solution that does not yet exist than an articulate founder. Early stage ventures are often not a whole lot more than a vision in the head of the founder as they hire their first employees and raise their early capital. He or she can paint a detailed picture of the creation about to unfold. Getting buy-in from employees, from venture capitalists and then from early adopters, before a product is even close to release, is the specialty of a successful founder.
Founders maintain an urgency that transcends all they do. While often requiring herculean efforts of their teams, producing a solution that beats their entrepreneurial competition and catches the embedded competitors on their heels is what is required for a startup to succeed. Being able to convince and lead a team of loyal followers to accomplish something that may not appear possible, bending reality, is what makes a founder so valuable.
Unusual Degree of Company Unity
In order to cross the Chasm, Moore points to the need for an unusual degree of company unity. As the founder assembles and motivates her team to take on the audacious task of establishing a beach head right in enemy territory, the team must be motivated and unified for a single shared purpose. There is no one better than a founder for leading that charge.
Intimate Customer Relationships
In the earliest stages of a market, selling requires a top-level direct approach. This is no place for line level novices who follow a process or an indirect channel. What is needed to make an early market sale is the ability and willingness to listen closely to the prospect, to make quick adjustments and to offer up bespoke terms and whatever concessions are necessary to land the deal. Founders love this. They love the intimate customer engagement. They love the control. They love the immediate reinforcement. They love the control. There is nothing more fulfilling to a founder than receiving a call on his or her cell phone from a customer who is leaning towards adopting a founder’s disruptive product. They love the control. Quick responses and agility are required to make an early adopter sufficiently happy to take a chance on this still unproven product or service. This is something that only a leader-led team, with full authority to promise whatever it takes to make the sale, can accomplish.
The Chasm Changes Everything
The boundaries of the Chasm are not as clearly defined as we might like. But sensing when a company has reached the other shore is critically important. Mainstreet customers who inhabit this new land and predominate the post-chasm population, have drastically different needs, wants and desires than their pre-chasm counterparts. Knowing how and when to change company behavior is important as the market’s complexion changes and number of customers quickly grows.
The transformation of an organization to sell to the larger and more pragmatic mass market requires the organization morph and molt. Like the lobster who must shed its outer shell in order to grow, organizations need to shed their old habits, change out leadership, and dispel many of their original beliefs, especially if all these worked prior to their crossing. Molting requires the founder and her organization, temporarily without the shield of her hard outer body, to take on a new vulnerability as it goes through this transition. Productive behaviors that have produced positive results are hard to give up. Meanwhile, trying a new unproven approach instead will make most founders quite uncomfortable and as vulnerable as the lobster without its shell. Many founders are unable or unwilling to accept this exposure, instead opting to double down on the same behaviors that generated early success. Unfortunately, more of the same often proves fatal.
Letting go is something founders are just not good at. What got them across the chasm was personal involvement, tight control and micromanagement over every detail of the plan. But the new challenges on this eastern shore, require just the opposite approach. Without an expanded capable team of delegated-decision makers, it is not likely that this growth trajectory can continue. There is much to do to set up camp on the other shore; much more than the founder herself is capable.
In order to survive on this side of the chasm, the company must change its focus from early adopters to pragmatists. While growing fast from a small base of revenue was sufficiently fueled by these demanding yet fearless purchasers, now the company has to sell to main street pragmatists, who are much more numerous, yet whose demands are different.
Pragmatists seek complete solutions from companies they expect will be around for some time to come. Pragmatists by definition are not risk takers. They are not comfortable with the swashbuckling style of founders and instead seek comfort from teams of specialists, processes and established brands that can service their needs.
One-off Deals are Not Scalable
Pre-chasm, each deal was special and peculiar to that early-adopter customer. Founders are great at making the promises necessary to serve each customer’s needs while their organization scurries to make good on those outlandish promises. This time-consuming and disruptive behavior only works when there are fewer customers demanding special relationships. On this other side of the chasm, successful selling requires delivering an increasing volume of standardized deals that can be produced quickly and profitably. Specials and one-offs quickly become unwieldy. The weight of supporting a growing number of unique solutions can quickly collapse the newly laid foundation.
As volume increases ensuring there is sufficient gross margin on each sale becomes a new concern. It’s no longer just about making sales and growing revenue. Now, we need to ensure these sales are profitable. And we need more of them! This requires efficient processes and a different level of review, often not the strong suit of the founder. Finding someone the founder trusts for this critical transformation and giving up the authority to handle the transition, is difficult for founders to readily accept.
It is Not About You
Early adopter customers want access to the founder. And founders thrive on the electricity from their touches. But as the number of customers grows, it is impossible for the founder to engage each of them individually. Even the expectation that the founder will connect with customers directly can be debilitating.
One company where early adopter customers were used to ringing up the founder on his mobile phone, came to this realization shortly after it crossed the chasm. Along with growth came new responsibilities demanding the growing organization leader’s time and attention. When those tasks caused the founder to begin to miss calls, early customers were offended. Several voted with their feet and left for competitive offerings.
Pragmatists Seek Proven Products
Main Street customers are different than early adopters. With a lower tolerance for risk, pragmatists want to be sure that whatever they buy will work, right out of the box. That means they want to ensure your product is tested and if not, your company will at least be around to make good on your warranty and service their product. They are less concerned with your vision than they are on the proper operation of the solution they select.
Manufacturing, service and support are not the sexy roles for which most founders get their juices flowing. But to serve main street this stuff has to work flawlessly. Putting others in charge and giving them the authority to do what is required, is not necessarily part of the founder’s DNA. But, someone has to do it!
Pond Hopping Is Required
Act I focused on becoming the big fish in a small pond. But as the stakes change, the small pond is no longer sufficient to sustain the company’s growth aspirations. And while the founder was the expert of this pond, the company now needs to explore new more foreign ponds and perhaps even a new sea of opportunity.
To do this requires knowledge that is not native to most founders. New expertise is required. And although founders are certainly capable of learning new things, that takes both time and the willingness to once again become a beginner. Often, it is more opportune to acquire and rely on the expertise of others who already have this knowledge and experience and give them the responsibility and authority to do whatever it takes, once again requiring the founder to give up control.
Must We Replace the Founder?
Most experienced venture capitalists know that replacing a founder is very disruptive. All would prefer to keep their founders in charge forever, or at least until they can cash out. They place bets on founders that they expect can at least get across the chasm, if not beyond. When they end up with a founder that can’t make it to the other shore, then it is likely that the company is doomed. Replacing the founder this early probably won’t help. Better to know when to fold than continue to throw good money after bad in a company without capable founder leadership at this stage.
For the more capable founders, there is a choice to be made. Acknowledge and accept that your role will be forever radically changed and step up to that new challenge or go the way of the majority of your chasm crossing colleagues. By the time companies receive their C round of funding, often coinciding with the chasm crossing, three quarters of these founders are replaced. But this doesn’t have to happen!
It is imperative that the board pay close attention to whether their founder is up for this challenge, willing to make the radical transformationand take difficult actions required by this change. Pragmatic prospects won’t wait long to assess whether the new offering can serve their needs. Boards need to act early to prod reluctant founders to seek new approaches.
More founders need to be aware and prepared for the challenges the chasm crossing poses, even when this cuts their chasm crossing celebration short. They need to attentive during the crossing. And, not long after landing on the eastern chasm shore, be willing to accept the vulnerability that starting over as a beginner requires. They need to give up the habits that caused their success. They’ll need to shed some of their loyal teammates. They need to accept the inevitable release of control and adopt delegation. They need to seek to fix what is not broken and anticipate the changes that growth on the eastern shore of the chasm requires.
Those who accept this fate will live to play another day. Those who can’t or won’t will be summarily replaced by their board by someone who is skilled at operating on this side of the chasm.
Author’s note: I met Geoff Moore in 1982 shortly after the first publication of Crossing the Chasm and found his ideas to be critically important to how I considered technology marketing. But the idea of applying the chasm analogy to founder transitions was not raised until some 30 years later by Noam Wasserman, now Dean of the Sy Syms Business School at Yeshiva University, in his Harvard Business School Class, Founder’s Dilemmas.