#HTE

Book Review: Crossing the Chasm

You might consider each year’s raft of new social impact design startups to be what Samuel Johnson called “the triumph of hope over experience.” Unfortunately, many social impact organizations and for that matter many startups follow a similar and discouraging trajectory:

- bootstrapped “beautiful baby” prototype attracts design awards and newspaper articles

- PR leads to initial wave of seed funding

- funding allows a pilot of dozens or even hundreds of units

- product enters awkward adolescent phase: the innovation is no longer news; despite the initial hype and promise, “reality remains complex” and social impact results are difficult to measure

- major donors lose interest and move on to the next new thing

- with no marketing and sales capacity, and a dependence on a small number of large donors, the organization begins to starve for funding

- the organization collapses or enters the twilight of the living dead

The first few pages of Geoff Moore’s Crossing the Chasm were sufficient to blow my mind. I immediately saw his explanation of the chasm between early adopters and the early majority as an explanation for this unhappy social innovation life cycle. What follows is a quick summary of my favorite ideas. Fantastic book, check it out! And if you buy the book through the links in this email, Amazon will send part of the proceeds to DtM! [Crossing the Chasm]

THE BELL CURVE

Moore’s customer taxonomy for technology consumers applies just as well to the philanthropic community. This suggests that the $330B total US philanthropic “market” can probably also be grouped according to same standard deviations of the normal probability distribution.

- Innovators: these donors pursue new innovations aggressively, and are willing to invest in social enterprises before there’s even a business plan. This includes student program grants, early-stage fellowships and maverick individual donors who enjoy discovering new talent. In probability terms, Moore estimates that this group is half the 3-sigma standard deviation or 0.15% of all donors, suggesting they control $525M of the $330B total US philanthropic “market”.

- Early Adopters: these donors buy into early-stage concepts. Consider mezzanine fellowships like Draper Richards Kaplan and Ashoka. This group is half the 2-sigma standard deviation (minus the tiny sliver of Innovators) or 2.3% of all donors, suggesting they control $8.7B of the $330B total philanthropic market.

- Early Majority: these donors “share some of the early adopter’s ability to relate to technology, but ultimately 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.” This would be large institutional donors like the Gates Foundation. This group is half the 1-sigma standard deviation or 34% of all donors, suggesting they control $119B of the $330B total philanthropic market.

- Late Majority: these donors “share all the concerns of the early majority, plus one major additional one: Whereas people in the early majority are comfortable with their ability to handle a technology product, should they finally decide to purchase it, members of the late majority are not. As a result, they wait until something has become an established standard, and even then they want to see lots of support and tend to buy, therefore, from large, well-established companies.” These are the sorts of donors you see lending their names to museums, hospital wings and university buildings and many forms of corporate philanthropy. This group is the other half of the 1-sigma standard deviation, or 34% of all donors.

- Laggards: these donors “simply don’t want anything to do with [entrepreneurial ideas], for any of a variety of reasons, some personal and some economic. The only time they ever [invest in entrepreneurship] is when it is buried deep inside another product—the way, say, that a microprocessor is designed into the braking system of a new car—such that they don’t even know it is there.” This group is the other half of the 2-sigma standard deviation, or 2.5% of all donors.

Few social impact designs are able to “cross the chasm” from early adopters to engaging the early majority, which is why they eventually starve and fail. To avoiding financial starvation and to reach that early majority, Moore summarizes the goal as follows:

The key to getting beyond the enthusiasts and winning over a visionary is to show that the new technology enables some strategic leap forward, something never before possible, which has an intrinsic value and appeal to the nontechnologist. This benefit is typically symbolized by a single, compelling flagship application, something that showcases the power and value of the new product. If the marketing effort is unable to find that compelling application, then market development stalls with the innovators, and the future of the product falls through this first crack in the bell curve. [Geoff Moore, Crossing the Chasm, p.20]

Moore goes on to recommend a number of specific strategies to help new technologies cross the chasm to reach the early majority.

MARKETING THE WHOLE PRODUCT

One of Moore’s big ideas is the observation that the cultivation activities and funding pitches that work for “early adopter” innovation enthusiasts are useless in cultivating and pitching the more conservative “early majority”. Moore’s “early majority” are pragmatists, indifferent to fancy new gadgets (Moore’s “generic product”) but deeply concerned about the entire system (Moore’s “whole product”).

The [whole product] concept is very straightforward: There is a gap between the marketing promise made to the customer—the compelling value proposition—and the ability of the shipped product to fulfill that promise. For that gap to be overcome, the product must be augmented by a variety of services and ancillary products to become the whole product. […]

In the simplified model there are only two categories: 1) what we ship and 2) whatever else the customers need in order to achieve their compelling reason to buy. The latter is the marketing promise made to win the sale. The contract does not require the company to deliver on this promise, but the customer relationship does. Failure to meet this promise in a business-to-business market has extremely serious consequences. [Geoffrey Moore, Crossing the Chasm, p.110]

Moore sees a hierarchy of products:

- Generic product: This is what is shipped in the box and what is covered by the purchasing contract.

- Expected product: This is the product that the consumer thought she was buying when she bought the generic product. It is the minimum configuration of products and services necessary to have any chance of achieving the buying objective. For example, when you buy a tablet, you need to have either a Wi-Fi network at home or a cellular connection for it to work, but either one is likely to have to be purchased separately.

- Augmented product: This is the product fleshed out to provide the maximum chance of achieving the buying objective. In the case of a tablet, this would include email, a browser, a calendar, a personal directory, a search engine, and an app store, for example.

- Potential product: This represents the product’s room for growth as more and more ancillary products come on the market and as customer-specific enhancements to the system are made. The fact that for the Apple iPad there are, at the time of this writing, some 374,090 apps on its App Store that I can buy to extend its reach and value is one of its key selling points.

Moore argues that pragmatic early majority types are more likely to go for the incumbent’s “brain-dead, ineffective Band-Aid approach to solving what has become a broken, mission-critical process” because they’re worried about the system that provides the outcome. For a medical device, a “whole product” might include clinical trial data in the medical literature, regulatory approval, quality assurance practices, distribution channels (including the ability to negotiate customs), user-training materials, service manuals, supply chains for consumables and spare parts.

This isn’t conjecture. PATH released a report called Innovation Countdown 2030 that details thirty global health innovations technologies that they consider particularly promising. Acting as an agent for the early majority, PATH clearly placed less value on pure innovation than on an organization’s ability to manage the unglamorous tasks of product financing, manufacturing, marketing and distribution at high volumes. Similarly, value-engineered products like GE’s Lullaby line may not be driven by the best principles in social impact design, but pragmatic consumers know that GE products come with regulatory approval and “GE Mark” quality control, comprehensive product documentation and a spares supply chain (even if that supply chain doesn’t necessarily reach poor countries).

DONOR MARKET SEGMENTATION

Moore explains that the other challenge with market segmentation is that only groups who reference and reinforce each other can be thought of as a proper market.

The notion that part of what defines a high-tech market is the tendency of its members to reference each other when making buying decisions—is absolutely key to successful high-tech marketing. […] If two people buy the same product for the same reason but have no way they could reference each other, they are not part of the same market. That is, if I sell an oscilloscope for monitoring heartbeats to a doctor in Boston and the identical product for the same purpose to a doctor in Zaire, and these two doctors have no reasonable basis for communicating with each other, then I am dealing in two different markets.

Marketing professionals insist on market segmentation because they know that no meaningful marketing program can be implemented across a set of customers who do not reference each other. [Geoffrey Moore, Crossing the Chasm, p.30]

Word of mouth is ultimately a labor-saving phenomenon. It means that every single donor in a given market can serve as a trusted referral, cultivating potential new supporters on an organization’s behalf. These network effects don’t happen automatically.

For word of mouth to develop in any particular marketplace, there must be a critical mass of informed individuals who meet from time to time and, in exchanging views, reinforce the product’s or the company’s positioning. [Geoffrey Moore, Crossing the Chasm, p.68]

Who do you consider your most likely allies in supporting your organization? Are there any natural networks among them?

GETTING NOTICED

In his bell-curve taxonomy, Moore classifies “innovators” and “early adopters” as willing to make bets on disruptive innovations, even if the innovation hasn’t yet assembled a credible business plan or the necessary partnerships. According to Moore’s “technology position compass”, these early adopter donors are specialists who are excited to hear stories about the product: benchmarks, design awards, user-endorsements.

Early majority donors could not care less about how many followers an organization has on Twitter, or how many people saw the founder’s TED talk. They’re more impressed with academic citations, clinical studies, regulatory approval and strong peer references.

To market to pragmatists [in the early majority], you must be patient. You need to be conversant with the issues that dominate their particular business. You need to show up at the industry-specific conferences and trade shows they attend. You need to be mentioned in articles that run in the newsletters and blogs they read. You need to be installed in other companies in their industry. [Geoffrey Moore, Crossing the Chasm, p.49]

Who do you consider as your early majority supporters? Where do they congregate? What results do they value? There’s a whole class of business literature where title alone spares you the necessity of reading the book: one of these is What Got You Here Won’t Get You There. In other words, the results and stories that impressed your early adopters won’t impress the early majority–they may even find them repellent. In a sense, you have to learn a whole new way of talking about your mission and your results.

CREATING A VALUE PROPOSITION

This is the key to messaging the early majority. Moore lays out his framework in Chapter 6:

- For (target customers—beachhead segment only)
- who are dissatisfied with (the current market alternative)
- our product is a (product category)
- that provides (compelling reason to buy).
- Unlike (the product alternative),
- we have assembled (key whole product features for your specific application).

I love Moore’s rationale for the exercise:

The fundamental rule of engagement is that any force can defeat any other force—if it can define the battle. If we get to set the turf, if we get to set the competitive criteria for winning, why would we ever lose? [Geoff Moore, Crossing the Chasm]

Applying this value proposition framework to our Otter Newborn Warmer, we get:

For global health NGOs focused on infant health who want to treat patients at the point of diagnosis rather than risk transporting them to crowded central facilities, Otter is a newborn conductive warmer designed specifically to allow rural hospitals with limited resources and inexperienced staff to successfully treat premature newborns who are especially vulnerable to hypothermia.

Unlike the high-end incubators a rural hospital might receive as donations or the inexpensive radiant warmers they might receive through a government purchase, the Otter Warmer provides effective newborn warming that is “easy to use right and hard to use wrong”–in other words the device eliminates the most common sources of product failure.

Remember when writing your value proposition that there’s little to gain from bashing your competition. Rather, the goal should be to explain how your product occupies a niche that the competition cannot address. In other words, you don’t need to make any claims about the quality of your competitor’s products because you’re certain that they’re intended for a different context.

Note that value propositions are closely related to another marvelous startup tool: the elevator pitch. It’s just you and Bill Gates: how do you explain your great new idea before you reach the lobby? Consider these seven different frameworks for variations on the theme.

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This “Design Experience that Matters” series is provided courtesy of Timothy Prestero and the team at Design that Matters (DtM). As a nonprofit, DtM collaborates with leading social entrepreneurs and hundreds of volunteers to design new medical technologies for the poor in developing countries. DtM’s Firefly infant phototherapy device is treating thousands of newborns in 21 counties from Afghanistan to Zimbabwe. In 2012, DtM was named the winner of the National Design Award.