Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers is the handbook many SaaS CEO’s have turned to over the years when launching and scaling their businesses. With over 1M copies sold across 10 different languages, author Geoffrey Moore has solidified himself as one of the most influential writers the business world has to offer.
Why do VC’s tend to take advantage of companies that are in the process of crossing the chasm?
Moore pointed out that, anytime you do something disruptive, you are naturally going to attract some customers that believe the same things you believe. Your company will likely land some deals in the beginning with early adopters, but most customers will want to see more traction before committing to your solution.
“Your first group of customers will value going ahead of the herd for competitive advantage,” Moore explained. “The next group will value going ahead of their peers, only to solve an extremely painful problem.”
This shift requires an important change in messaging and usually leads to raising venture funding in the form of a Series A round. It is when companies miss their revenue targets at this point in time that VC’s have been known to take additional equity during a down round.
What if founders are confident they are just in the middle of crossing the chasm and simply need more cash to do so?
In order to avoid being taken advantage of by VC’s, Moore suggests that founders should be transparent with investors and openly communicate the potential traction gaps they may encounter down the road. Additionally, he recommends that businesses in the process of crossing the chasm become extremely targeted in how they spend their money.
“The key idea is to go after a single use case for your software,” Moore said. “Pick the most compelling use case and, for the time being, just go get customer after customer after customer on that use case.”
He argues that, by building a strong customer base within a small niche, momentum will begin to build and word will start getting out within the segment, ultimately leading to more organic growth down the road.
What does “big enough to matter, small enough to win” really mean?
Moore compares this early stage strategy to that of a bonfire:
“Founders and VC’s alike want to light a billion dollar bonfire,” he describes. “But you can’t do that by holding a single match to a massive log. You have to get the fire started somewhere – a smaller, niche market – and then spread the heat.”
When should you focus on “jumping ponds” or doubling down on the current customer segment?
Often times, awareness is the biggest factor preventing companies from growing horizontally, Moore mentioned. A lack of familiarity and trust for your product are typically the biggest hurdles your business will have to overcome.
“Pragmatists make their buying decisions based on what their peers tell them, not what you tell them,” Moore noted.
Moore believes 20-30% market share within your segment and use case is the amounted needed to cross the chasm. After this saturation point, your product starts becoming the default solution and unsolicited inquiries begin to emerge.
This is when it’s time to begin thinking about entering new ponds and considering expansion, whether it be winning the same use case within a new market or finding a new use case within your existing market. This is when you should begin expanding your product footprint.