Do Founder/Users Expand Moore's Chasm?

by Jonathan Enav

In many LTV classes we discussed Geoffrey Moore’s Chasm and whether it is a benefit or a hindrance through the lens of startups following the lean methodology.  However, we never discussed what can make the “chasm” shrink or expand.  Moore’s theory is that there is a “chasm” that separates the innovators and early adopters of a new technology from the mainstream, and that technology companies often find it hard to cross this chasm and grow beyond their core user base to become a widely adopted medium. 

Crossing the chasm is not easy and often requires pivoting your product away from your core early adopters towards the mainstream.  The lean methodology offers guidelines to achieve this; pivot early, pivot often, form a hypothesis, test it, pivot again until you find product/market fit.  So why do so many startups fail at this stage?  The lean methodology tries to make crossing the chasm easier by effectively making the chasm smaller.  However, some founders seem to, unknowingly, make it bigger.  Why does this happen and can they steer away from this pitfall?

Fred Wilson from Union Square Ventures said that his favourite founders were those that use the technology that they are building.  This makes perfect sense.  If a founder makes a startup for travelers, you want him to be a frequent-flyer as much as you want the founder of an online nappy distributor to be a new parent.  The founder of a startup must be passionate about his technology, believe in its benefits, and be a peer of the early adopters.  The founder can then follow his intuition and be hunch-driven when there are not enough customers and not enough resources to be data-driven.  If a founder is his company’s own best customer, one can expect him to think like one.  So what’s the problem?

This founder/user is great at rallying early adopters.  He thinks like them, blogs to them, already has a reputation amongst them, which helps the startup grow at the early stage.  But when it comes to crossing the chasm, is he able to alienate these peers and pivot away from how he envisioned the product and redesign it into one that his mother would want to use?  As he follows the lean methodology, and tests his hypothesis with his customers (remember, all his first customers are early adopters), they will confirm the hypotheses to pivot deeper into the obscure and away from the mainstream, thus expanding the chasm!  Since our founder/user has a vision that is confirmed by hypothesis testing, the lean methodology does nothing but entrench him further from his goals.

How can a founder/user avoid this?  By listening to external advisors like VC’s and board members.  The advisors must sober the visionary with a stiff dose of reality from the mainstream, hopefully dampening the “reality distortion field” clouding the startup.  This can be in the form of a different hypothesis, e.g.  “Dropbox is too hard to install, I had to call my son to help me install it,” which must be tested with a peer group completely dislocated from the early adopters.  Still, for the founder, abandoning his early users and peers is easier said than done.  Being called a “sell-out” is never easy, especially by people you respect. 

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The Grass is Often Greener on Your Side of the Chasm

by Natasha Prasad

A few weeks ago, Fred Wilson and Jeff Bussgang supplanted our usual LTV class with a fireside chat on lean startup methodologies, monetization and VC value-add.  A Fred idea I found particularly compelling suggests that entrepreneurs should be “hunch-driven”, rather than “data-driven” in the early days of a startup.  Indeed, if Jack Dorsey and Mark Zuckerberg hadn’t stuck to their hunches, Twitter would never have gotten past 1000 users and Facebook’s newsfeed wouldn’t exist.

Hunches, however, can only get you so far: most successful startups will at some point face the excruciating transition from early adopter glory to mainstream success.  Founders like Dennis Crowley, who admit to having built products for their own friends, are now struggling to gain momentum with the mass market.  If users outside of NYC, LA and San Francisco lack the vanity-driven penchant for public bar and restaurant hopping, how can Foursquare possibly grow beyond its 6 million strong userbase?  It probably merits some sort of pivot (sorry, at least I held it in till the second paragraph).

Market pivots are painful.  Not simply because you need to get your engineering team, company culture and external investors behind a new vision but because any significant product change can alienate the fanatical userbase that got you off the ground in the first place.  When social news site Digg launched a slightly less geeky version of its product last summer, its nerd powerbase turned hostile, flooding the newsfeed with rival Reddit submissions and quitting en masse.  In fact, any site that crowdsources its content is especially vulnerable to this kind of scale/product quality tradeoff.

So, is it possible to live in the chasm?

Power users tend to be highly engaged, passionately vocal and valuably prescient in vetting hunches; you really don’t want to push them out.  But, barring the success of Second Life, living off a tiny group of loyalists and generating positive cash flow really isn’t easy.  How can you balance these competing tensions?

1. Seed your site with high quality users: Quora has done an impressive job in nurturing an informed and prolific community of contributors as well as encouraging self-governance through norms.  If mainstream users can derive value from “read” rather than “write”, scaling need not lead to deterioration in product quality.  On Wikipedia, for instance, 20,000 users contributed 80% of the content.
2. Know what kind of market you want to serve when you grow up:  Product Market Fit is a fantastic milestone, but the pursuit of this legendary goal tends to emphasize “Product” over “Market” as the active lever; the sooner we recognize the other side of this equation, the easier it will be to pivot in the direction of longer-term alignment.
3. To each his own: Facebook, Twitter and even Foursquare to some extent hold huge appeal in that they are different things to different people.  The versatility of each platform enables users to derive value however they see fit.  Supporting the creation of sub-communities of users based on different use-cases and consumption patterns is one way of ensuring power/mainstream user harmony.  

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Hiding in Moore’s Chasm

by James Matthews

Early on in our Launching Tech Ventures course we had the privilege of a visit from Eric Ries to our classroom for a Q&A session. Eric is a leading proponent of the lean start-up methodology; he has written extensively on the subject and has coined much of the terminology of the (increasingly formalized) discipline.

One particular point that Eric made stood out to me that day. He made the argument that Moore’s Chasm is a benefit, not an obstacle to the lean start-up. Geoffrey Moore’s seminal book, “Crossing the Chasm,” describes a major problem faced by many technology companies: there is a chasm in the product lifecycle between early adopters (or “visionaries”) and the early majority (or “pragmatists”). One fundamental difficulty in crossing the chasm is that your early adopters are not good referees for the mainstream – even if these “visionaries” love your product, the rest of the world does not trust them. Moore observed that many companies failed when crossing this chasm, even if they had a technologically viable and useful product.

Eric’s addendum to this theory is that for a lean start-up, the chasm will in fact shield you from your early mistakes. In its early stages, a lean start-up deploys early and deploys often, testing and learning what it can from its early adopter user base. Eric posits that the chasm allows you to move quickly, potentially making mistakes that annoy or even harm your early user base, but that this will not hurt you in the long run as their referrals to the mainstream are not heeded.

While this argument was compelling to me at the time, as we have studied more and more lean start-ups over the course of the semester I have come to the conclusion that this concept is far from generally applicable – in fact, it may only apply to a few specific situations.

Firstly, we can rule out applying it to start-ups that sell to businesses, either as their only customers or as part of a multi-sided platform. David Skok of Matrix partners gave us an excellent talk on the marketing/sales funnel for businesses that sell to other businesses, and here it was clear that in this limited pool of customers your reputation is a very precious commodity. It is still true that there are early adopters and mainstream adopters, but references are your most powerful selling tool. Companies, even early adopters, can have low tolerances for ‘mistakes,’ and while positive references may have difficulty crossing the chasm, negative references from early customers are a product killing red flag.

Secondly, there is an entire class of consumer-facing businesses where the subject matter of their product is just too important to have early failures. From our course we’ve seen Dropbox’s handling of their early adopters’ personal files, Cake Financial’s processing of sensitive financial information and Predictive Bioscience’s cancer detecting tests as examples where you wouldn’t want to make ‘learning mistakes’ with an active user base.

Lastly, we have seen businesses where the primary growth strategy was to develop a strong service reputation amongst a specific demographic – here Chegg, the college text-book rental company, stands out. While I’m sure you can split the student population into ‘early’ and ‘mainstream’, in truth Chegg’s reliance on word of mouth acquisitions to get ahead of competitors really meant they had to get it right the first time.

So, which companies have we studied where I am convinced the shield applies? Certainly for Eric’s own start-up, IMVU, where the shield allowed him to experiment and pivot freely amongst his early adopter teenage user base. It may also be relevant for ‘nice to have’ services such as social Q&A facilitator Aardvark.

However, if I were running or working for a business that was still pre-chasm, I would be very reluctant to assume I had a reputation shield. While there are clear benefits to frequent product experimentation, the shield argument presents too black and white a picture. In reality, for most companies, there is always a tricky balancing act between experimentation and reputation.

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