Geoffrey Moore on finding your beachhead, crossing the chasm, and dominating a market

24:23And so I will innately trust that. There's also often advice of don't work with big companies because they'll push you around. They'll take a long time. They'll force you to build a thing just for them. And I want to apply to other people. What's your advice to avoid that downside? It has to do with the persona of the executive sponsor. Nine out of 10 executive sponsors are going to be the negative. Because they're going to be a company person working with company processes. They're going to send you to purchasing. It's nobody's going to be happy. You're looking for the tenth one. The tenth one is one who says, I'm so tired of the status quo.

24:58I'm looking for people that are more visionary like me. I like talking to you better than I like talking to my peers because you're different. I want to be different. I want to leapfrog the world. And these people just want to stay on the escalator. So they're staying on the escalator. God bless them. But I want to jump over the top. So it's a persona based choice is the key thing here. That is really interesting. And then say that you are an early stage startup again. How soon do you think it makes sense to invest in finding that big market customer versus finding some smaller. I imagine you start with some startups to see how people, you don't go straight there.

25:36Yes. And so initially, I think with, in the course, you and I both play with, let's be clear, we're playing a software game. I mean, like, for example, I was trying to apply this framework to Intel. Intel said to me, Jeffrey, you do understand that a prototype product in our industry costs about $500 million. Okay, okay, okay, maybe that's not the same model. But for most of the, I think in our world right now, digital transformation, most entrepreneurs are doing some software that play, which means you can work with a small team. And so I think what I would advise is I would do projects. I would initiate even though I'm a product, even though I have a product vision, I would start with trying to make as much projects.

26:21And, and, and which would be very customer led. And frankly, initially, even if I have a roadmap, the customer's probably going to take me out the roadmap a bit. And I have to be willing to say, I'm going to, I'm going to open the aperture enough, because I need, I just need to get enough experience with the technology. I need to get, I need to put in people's hands. If it's a premium play, you can, you can do it, you know, for free. But that, that tends to be more of a consumer play in their exceptions. There are B2B companies like Atlassian and things that didn't start as a premium play. But that's not as normal.

26:55I would, I would think more of the consultative play to do that. But what I would try to do is I would try to get to cash flow break even on my own money with no venture capital. The only reason you need venture capital is if that it were two things either a, that the technology is too expensive and you cannot self -fund it. GPUs, a bunch of that, a training large language module, those kind of things. Or, this thing is going to get catch fired too soon and I don't have time to dither around for two or three years. So those are two reasons to go to venture capital. But just because you want to do a startup doesn't mean you need venture capital.

27:35Yeah, we had Jason Fried on recently the C of base camp and he made that point in many different ways of the benefits of not raising and how most PC funded companies do not work out. And even when they do, you often don't make as much as you could if you tried it to bootstrap it. So I think there's a lot of residents there. And you have this quote that essentially kind of what you just said that with a single round of funding, you should be able to cross the chasm and dominate it. A single use case and a single market within 18 to 24 months. Yeah, that's the, I mean, you know, this is like another, an English major doing math, right?

28:10So be careful. But because I am an English major. But in general, because again, I said it's not expensive. And by the way, you're not discounting. And then you're actually using value pricing because the problem you're solving is severe enough. The customer doesn't want to discuss the customer wants you to is like, you know, if you have to have heart surgery, you don't want to coupon it says heart surgery, 999 this Saturday only. You know, I mean, you want to go to the Mayo Clinic or you want to go to wherever. So you don't have to discount what you do have to do is you have to make a, almost like a guaranteed commitment to the problem to solve.

28:53We're going to take this problem off the table and we're not leaving until you're satisfied. So you, that's the key to that, to the game. And that's a little bit weird because if you've invented chat GPT and now you're saying, but I am going to solve the third grade math problem, which is a real problem. But chat GPT can do anything. I know. But we're going to solve the third grade math problem. A lot of that's hard for a lot of entrepreneurs to get their head around. That reminds me of the way Figma started, even though it took them a long time to find product market fit and start scaling, they ended up working very closely with Coda.

29:33I don't know if you know the story where they just wanted to make sure the Coda team and it was called Crypton Beckman. Was very happy with Figma. And so they went to the office, they said, I'm all up, they started using Figma. And then on the drive home, they called and like, it doesn't work anymore, something's broken. And they're already home and Dylan, basically, and this team drove all the way back, if it goes an hour or two and got there and turned out the Wi -Fi was down. And there's some internet issue and fixed it and just wanted, was obsessed with making sure they were using it. And they were also just fixing the most ridiculous bugs that were not important because they just wanted to make sure they're really happy with it.

30:09And it was a larger company would say, look, we'll put you in our queue and you'll be in our, you'll get you. Yeah, I think this is the, and by the way, this is part of the fun, frankly, of being in a startup because you're so close to the action, because there's nothing between you and the action. And so, you know, why wouldn't you do that? Yeah, and I think one of the takeaways I've had for my own research into this is that you need to find one company that just loves you. It's not like, we here, this is cool. It's like, I'd love this product. I would never want to give it up. That's what that's kind of what I meant by that marquee.

30:42We sometimes we call it a radiating reference. It's just something really, we'll talk about you when you're not even in the wrong. I mean, yeah, you know, very cool. We've talked about this idea of the chasm and crossing the chasm, but it might be helpful just to explain why, what is the idea? What is this chasm? What is it that people fall into and why is this important? And this is funny because I was working at a richest mechanic, which was this marketing agency that was sort of the premier ITEC marketing agency in the 80s. And we had always really successful launches. And then like covers of you, front page articles on Fortune magazine and Wall Street Journal, and then a couple of years later, it's like, well, what happened to these guys?

31:23And so that's where the chasm was like, that's what the investigation, cause the investigation. What we learned was visionaries make their own buying decisions. And they do not consult their peers. In fact, with their peers are doing it, they're probably not going into it. Because they want to be different. So basically these companies were having success capturing the imagination of the visionary. And they thought, well, I'll use the visionaries or reference to get the pragmatists. The pragmatist looks at the visionary and goes, that's not my guy. That, that first of all, he thinks I'm dumb. He thinks he's smarter than I am.

32:00Second, well, he does stuff that I would never do. And he makes decisions in a way that I would never make them. So that's not that no. And so, but by amateurs that are talking to my peers. So, but the problem now is, which of the peers are going to go first? And we had, it was kind of like the junior high dance problem. How do you get the party star? So, so that was the chasm. That was what created the chasm. The pragmatists need references and they will not accept the visionary as a reference. And they don't have any peers that have tried it. So that was what was happening. I think that's such an important point that I think people don't quite always get that that reference marquee customer needs to be a pragmatist.

32:42It can't be one of these early adopters that are just trying stuff. Yeah. And the by these other pragmatists need to feel that this is my person. This is just like me and they love it. I mean, by the way, one of the reasons that pragmatists have a certain, it's not, they just, it's not contempt for visionaries, but it's definitely worryness. It's because often they have to clean up the messes that these guys leave behind. Because when you're a visionary, you make, you leave a lot of messes in your wake. And then the pragmatists has to come in and clean it up. So they're going, oh, that's a second.

33:12That's another mark against these people. I saw a deck of yours where you actually represent each of these stages of the life cycle. And the visionaries, Steve Jobs, is the way you represented it. And the pragmatists are just like business people in suits sitting at a conference table. Exactly. And there's six of them. And the key idea behind that is, yeah, none of us, by the way, I don't think any of these people are guru. And they don't think I'm a guru. We're using the antelope strategy of the, it's a herd strategy, you know, and, you know, but at some point. And by the way, we do this all the time.

33:45Everybody, everyone, like Airbnb, well, I want to get an Airbnb in, you know, Portland, and you know, if you ever stayed, you do, right? Is this a good hotel? Is this a good restaurant? Is this a good dentist? Is this a good lawyer? So we do it. I think Uber and Airbnb is the best example of this in action where I would not ride in a random car, especially I think women were most like, I will never get into a car into an Uber. This is insane until all of their friends are doing it. And then if, okay, let's give it a check. I guess it's okay. Yeah. So essentially, most people were pragmatists in, I guess, that makes sense.

34:18And pragmatists make up the biggest chance. By the way, you can be a visioner with some things, a pragmatist or other things that are conservative with others. So it's, the way to really think about them is what is my persona in relation to this decision? I love this example of the junior high dance problem where nobody wants to go ask the person, right? It's like, I'm going to wait for them to come to me. I want to see how this plays out. Such a good metaphor. In terms of how much of your product needs to be built at each of these stages, what advice do you share of like, how much do you need for these visionaries versus the next?

34:52So with the visionary, you have to have, you have to have the magic ingredient working. You don't have the whole product. In fact, your product may be buggy, but it does something. Andy Grover used to call it the 10X effect. You need to do something that is an order of magnitude better than anything because that's why the visionary is talking to you. Oh my gosh, you have this fusion. Fusion? Really? Yeah. We got fusion energy. So that's number one. Then why would you still cause you to not cross the chasm yet? If there's not enough product there, pragmatists cannot put up with a product that doesn't work.

35:35So you may need to do some additional work to say, look, we just, I think we get some more customers. I'm not the, you know, I'm still, I'm still living hand to mouth. If there's still, it's mostly project work. But, but until the product has got enough stability and it can be productized, I really can't afford to cross the chasm. So that once you have a product that works, then you go and say, okay, now I got to find a market where it can be the dominant solution. That's the time to cross the chasm. And a big part of that is obviously there's, they have bosses, they have checklists, they have compliance people, they have IT people, they have people they need to go buy into this, this meeting room with six people, they all have to be like, all right, this is the best choice.

36:18And by the way, normally those people are designed to keep you out. And that decision process will take forever and you'll be, you'll be on the welfare lines before they make their choice. So that's why it's so important to have what we call the compelling reason to buy. You need to have a group of people in a room where they're going, where the, where the leader, the guy is going to actually sponsor to make this decision as saying, look, I already gave this problem to everybody in the room. And our answer sucks. They wouldn't say it that way. But, but that's the truth. And, and therefore we're kind of at the, I mean, I'm getting the message.

36:53First of all, my boss is boss is boss knows my name. That's a very bad thing. Secondly, I'm getting the message, you're either going to fix this problem, Jeffrey, or we're going to find somebody who can. And so that's when gives them the energy to go against the inertial momentum of the decision making process in their company. Let me tell you about a product called arcade. Arcade is an interactive demo platform that enables teams to create polished on brand demos in minutes. Telling the story of your product is hard. And customers want you to show them your product, not just talk about it, or gated.

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38:09Arcade offers product customization options, designer -approved editing tools, and rich insights about how your viewers engage. Every step of the way, ready to tell more engaging product stories that drive results, head to arcade .software slash Lenny and get 50 % off your first three months. That's arcade .software slash Lenny. So April Dunford was on this podcast and she has this book that she put out recently called sales pitch. And she makes this point that buying software, SaaS software, is harder than selling it these days because you can get fired for buying the wrong thing. It's so stressful.

38:45There's all these options. You boss has to be happy with it. It's often people end up just not going with anything. We're just going to keep what we have. It's fine. It's simpler, safer, sales force is fine. And it sounds like that's kind of what you're describing. Well, so if you're a pragmatist, the first thing is if an ape broke, don't fix it, which makes you totally different than a visionary. Vision is like, yeah, come on, break it, come on, let's move on. The ape broke, don't fix it. If it is broke, who has fixed it? Is there fix in production? Does the fix work? I want that. In other words, it's a basically to your April's point.

39:23It is a risk reduction buying strategy. And by the way, you go as slowly as you can, manually. But when you're under duress, you have to go faster. So the compelling reason to buy is putting you under duress. There are examples of these compelling reasons to buy. They come to mind that give people a sense of like, here's a really good compelling reason to buy. I don't know if it's a pitch. Well, there's time. How about ransomware? I mean, you're all of a sudden the cybersecurity thing is like, holy smoke. Because it used to be, well, they wouldn't attack my company. Or if they did, I mean, I have no assets.

40:03Yeah, well, actually, because it used to be what they did is they would only attack companies that had data that they could resell in a dark web. Then God bless cryptocurrency. People are saying, is it across the chasm yet? Well, their first use case is criminals. It's not a pretty good use case, I'm sorry to say. But the point is now ransomware with cryptocurrency can be a monitor. So that means everybody is vulnerable. And so that would be that's one kind of compelling reason to buy. But if you look around like kids who are struggling with school, the parents are compelling reason to buy anything with healthcare compelling reason to buy anything with if you're an illegal problem, you have a compelling reason to buy.

40:48So I mean, there's always these situations where you say, okay, that's a that's on a personal basis on a company -wide basis. It maybe things like, well, what are we supposed to do in my office space? Can I get my company to come back to the office or do I have to dump the space? What am I supposed to do? And by the way, I know I'm going to have some kind of space, but do I want to design it the way we use it? I'm getting into some space. By the way, I got a great deal because it was a fire sale, right? Cool space. What am I putting it? Is it supposed to have offices? Is there doors? Are they not?

41:23There's a bunch of stuff where you get people going, okay. How can you know, how can we help? How can we help? I need help, but and I've gone to my standard solutions and like, no, I don't believe that. So I need help. Okay, so it's interesting that I even misunderstood what you're saying. And I think this is a really important point. The compelling reason to buy is not a compelling reason to sell, which people often think about as the pitch you're making. The buy is basically the pain point. Like they need a really big pain. Yeah, because that's what's so therefore the key to the bowling alley that's different from the tornado.

41:58And it's also different from the early market. In the early market, it's about you. You tell the story about you and the visionary wants to hear about you. In the tornado, it's also about you because we now have budget to buy this stuff in your candidate. In the bowling alley, it's never about you. And that is so hard for a series of entrepreneurs because they want to give it demo. They want to tell the story. They want to share their vision. The answer is we don't care. We don't want to hear your story. We hate demos. And I don't know who you are. I don't care. What I, I'm in trouble. You need to talk we need to talk about me.

42:33We don't want to talk about you. And so we have this saying and the crossing the casemps sales book, crowdplay, but leave it for some leave a lap. Chef the goddamn laptop. Don't don't open it and start with and the way you start the conversations is always the same. You know, we're here because we've been working with some people in your industry and we understand there's this really serious problem around, you know, document management or around, you know, Wi -Fi access or whatever it is. And we believe that, you know, your company might have, I said, true. And what's interesting about it is you'll get two responses, one of two responses.

43:13Either, oh, you are you kidding me? Okay, we have that or they are often going to say, well, not exactly. And you go, oh, but then before you can say anything else to say, what a real problem is. So people will talk about their, they want therapy. They'll talk about their problems. And so if you're willing to, but you got as an entrepreneur, you got to realize the gold at this point is problem -gaming knowledge. That's, that's the thing you really want to collect. Amazing. So you've sort of answered this question, but I want to make it even more complete. You have this amazing LinkedIn post of these four go -to -market playbooks based on the stage you're in.

43:55And you've touched on this already, but it might be helpful just to go through it one by one. And even more helpful would be like, what does it look like when you're in the early market? Like, what is, how do you know if you're in the early market versus in the bowling alley versus in the tornado? Okay. So in the early market, you know you're there because, first of all, the story is the technology. So if you, and it's specifically the disruptive technology, by the way, you could start a business with a non -disruptive thing, but then you don't need these playbooks. Then, then you're on Main Street.

44:26So, but, so the assumption you've got something that nobody's ever done before or seen before. And so in that playbook, the first thing is just, you hear the responsibility. So an adventure capitalist would say the same thing to you. Do you have a, do you have a technology expert who's, who's a, who's a wizard? Because we're not going to fund just any two guys and a PowerPoint tech, even though we like your dog. So that's number one. Number two, can you have proof of time? Can you demo? Can you demo the technology? You have to be able to demo the thing. And then three, can you create a vision, which says, what forces it in a release?

45:03And the concept that we use in venture, we call, I call it trap value. And what the idea is, where's the trap value that this innovation would release? Because when you release trap value, the we're going to give you a portion of the of the gain, typically 10%. I see a number to do math with, as I said, on English major. So if you want a billion dollar company, you better find 10 billion dollars for the trap value that your technology could be. Airbnb is an amazing example of that, right? Where they unlocked people's homes. Yeah. And they take it basically. And lock their back seat, the head of the car.

45:38I mean, yeah. So the free labor force, I mean, it was like, whoa, okay. So really cool idea, early market, fine. For the, for the Boeing, alley one, then the playbook is no, well, within that, where's the problem? And then you got to take it down to, in what geography, what industry, what profession, what use case. And that takes, that's not just odd. I mean, you want to spend some time in doing that. And then what you want to really do is just maintain intellectual curiosity about the problem, as opposed to jumping to the solution. So, so why is this a hard problem to do? What is going on? Where is the trap value?

46:17By the way, how how expensive what what what is the cost of not solving this problem? And often it's a risk, it's a risk exposure or it could be, it could be just a, a, a, a, a, a gating item on your growth or potentially a churn problem. I mean, by the way, if you wanted to pick a compelling reason to buy, how about if you help SaaS companies deal with churn? Do you think that, do you think they would care about that? I think they might. Okay. So, so, so the point being you're going to, and you're going to say, okay, I'm going to learn more about churn than any, I'm going to really understand, and by the way, I'm going to stand your churn, which is different maybe from somebody else's churn.

46:55So, so it's it's it's it's the problem domain. And then you build you build your go -to -market around the lead gen is, hey, do you have any of these seven symptoms of, you know, fatal churn? And people, people that respond to that ad are pre qualified. And then, and then the BDR, and they may have your sales force, a BDR would call you and say, just confirming, you have these problems. Oh, yeah, and you're ruled the company is what and, and are you responsible for doing this? Well, actually, no, it's Harry not married. Okay. Maybe we shouldn't talk to Harry. Yeah, I'd be probably stuck to Harry.

47:32So, you know, we're not not that, then you call Harry and you get you get the appointment with Harry because Harry's got the problem. And, and then the next thing is, you know, you confer, you do a diagnostic with them, right? So, we understand, we talk to your colleagues, here's the problem, here's what we think we're, we're doing. But, but before we tell you about how great our solution is, let's make sure that we understand what your challenges are. And your goal in that call is to get them to talk as much as possible. And for you to take notes. And by the way, this is a place where you probably still want to remember to use a pen, because you actually want them to see you writing down their words, because that means, okay, these listening, these listening.

48:14Oh, interesting. That's a good tip. It's like on Zoom, with your advice there, be just make sure the camera shows your hands. Yeah, okay, lean in. Yeah. Or you, or you, on some time, I mean, you know, you couldn't do this. As you say, we've recorded, but they don't want to read. They don't want to record it because they're going to say some things during the call that they don't, they won't be necessarily complimentary to all their colleagues. They don't want you to record it. Got it. Okay. So in this bowling alley phase, how do you know, you, I know it's not like this binary switch, but that you're ready to move into that versus the early market playbook?

48:49Well, I think you get to a point where you realize, I can't scale my business doing what I've been doing. I mean, I just can't. And if you've taken venture capital, the thing you want to do is I want to be able, I don't want to have to raise another one. So I understand how venture capital funding works for a second. This is important. The venture capitalist gives you money. And what they're buying from you with the, with money is I want you to use this money to change the state of your company such that when we raise the next round, the next investor will value your company two to three times higher than we're valuing it today.

49:30So basically, the purpose of this money is to change the value state of your company. If you, if you do anything else with that money, like you could have done brilliant things, created amazing demos, hired great people. But at the end of the day, you haven't changed the value state of the company. And we have to raise more money. We're going to raise it at the old valuation and I as an investor looks. Or even worse, we have a downround. And I lose even more. Okay. So once you, so, so once you start thinking about that, so when that crossing the chasm, the crossing the chasm play is I need to change the state of my company from a cool possibility to what, what, what, what account, accountants call a going concern.

50:12So what is it going concern? A going concern is a company that two years from now, you would expect still to be in existence. Why would you do that? Because they have a customer base, they spoil and they have a ecosystem of partners that bring them into new deals and they have, they have established, you know, their tact and their TV and they've kind of figured out their operating model. And it's not the biggest company in the world. It's somewhere, we're not probably in the 10, 20 million dollars, but it's a real company, it's a real company. And that, and that's what you're trying to create when you cross the chasm.

50:46And you know, you've crossed the chasm when you say, I don't have to raise any more venture capital. Now, I may want to because I I have ambitions to be global, globally dominant, but you don't, but you get to raise it on your nickel, on your timeline, not on, oh my god, I'm running out of money. So you do, the sooner you can get offered that I'm running out of, I mean, and particularly last year was, last year was fatal to a huge number of companies because that was not how they were thinking about raising funds. They're going to be another, there'll be another round or another round or another round.

51:20And they were not thinking about changing the valuation state and they're not here. That's a really interesting insight. This idea that you, you know, you've crossed the chasm if you can survive with that more venture funding. How do you think about that? Like the profit element of that? Because it feels like that's the core to be able to survive without venture funding. Is it about making enough money that you can cut and make a profit? Or is there some other reason? All you really care about is cash flow positive. I just, I just, I just want to be able to keep, I want to keep doing what I'm doing.

51:55Got it. So you don't care about the actual gap accounting that at all. I see. So you could cut back and you can get to profitability if you need, but the idea is your cash flow positive. Yeah, and it's all, and, and, you know, and you'd like to grow and you might want to raise money. But the point is if you do want to raise money, you get to raise money at a different valuation. So the way in which venture capitalists categorize you is they say, what risk is my money going to take off the table? So an angel investor says, well, my money is going to take off the table, the risk of whether you can even create anything.

52:27I'm going to give you enough money to get into trouble. It's basically it. And then the, the, the crossing the chasm money says, I'm going to take company existence, uh, uh, uh, viability off the table. I don't know if you're going to grow. I don't think you're going to become a venture return, but I'm going to take the, I'm going to take you going out of business off the table. And then the bowling alley stuff is, okay, I'm going to, I'm buying, I'm buying, I'm buying probably a journey from 10 million, $100 million or something like that. And I want to see, and I'm expecting a growth rate. And if I, if you, and this is probably where the rule 40 starts to kick in, if you're, if you're playing the rule 40, uh, you'll, we, we, we might raise more money later on, you're going to have a different valuation, uh, than we had before.

53:13And then the tornado thing, by that point, now you say, you're in that cat, you're in Gen AI, you have a large language mantra. Whoa. Okay, you're worth a lot more than we thought is now that categories in the tornado. And that's a different game. Yeah, I was going to say, AI is clearly, uh, an example of being in the tornado. So maybe just talk a little bit about what that is, the tornado phase. And then there's the main street playbook. So how do you know there's the bowling alley tornado prior to the tornado, when your sales team calls on the customer, they do not have a budget for you. In the early market, there's no budget for anything.

53:51In the bowling alley, there's budget, but it's budget for a solution that's not you. It's for the old way of trying to bandage the problem. So we say in the early market, you have to create budget. In the bowling alley, you have to redirect budget. That, but that takes sales cycles. It takes time. And, and if it's a small market, this is why entrepreneurs can win these market segments. Because if you're a big established company, this is just a pain in the ass. I mean, it's, it's too small a market. It's too much work. It's too hard redirecting the way. I want my salespeople to go where the budgets already established.

54:28Well, when does budget get established? When a category goes or a zongle and people go, well, yeah, we all want, we all want Wi -Fi. We all want mobile apps. We all want cloud computing. We all want whatever it is. And now what happens is, and by the way, the Pride Register service, they went from, you're not doing that, are you? No, me neither. Okay, good. To you are, you are, you are. Oh, we're in behind. We better do it. So these budgets come into the market in kind of all at the same time, which is what creates the tornado. Because if you give it, if you give it to the department of the budget, they will spend it.

55:05And when they spend it, they're going to spend it with a vendor. And whoever vendor they select, they're probably going to stay with. So now the market share battle is now on. And whoever gets the most company, customers early on, the ecosystem starts to form around them. So in the 90s, we saw a lot of tornado guerrilla play Cisco, Intel, Oracle, obviously Microsoft. These companies, a son, they were all incredibly competitive companies. They were all tornado plays. Which is a client server, the internet, when clients server in the internet, they just created this massive tornado kind of a kind of effect.

55:47So in that game plan is very competitive sales to grab market share. And then at some point, if you're not number one, then you have to kind of do a defensive maneuver and retreat into a niche and say, okay, if I can't be a guerrilla, I at least need to be a chimp. You know, and a chimp is like a local guerrilla. I'm not the guerrilla, but for my, you know, I'm not, I'm not Cisco. I'm Juniper. But for Telcos, Juniper was the Cisco of Telcos, you know, at that time. So that's the, I don't if you saw on the paper today, but with the other end of that, like, HPE is bought Juniper. And many is happening.

56:28I like that. That's good news. So one of the most interesting lessons you teach is also that these playbooks don't work together. Well, basically if you use one in the wrong phase, it's the opposite. It does, has the opposite effect. So before we get there, let me just summarize maybe quickly the playbook in each of these four. I have some notes here. And then maybe just talk about why is it that they fail if you pick the wrong one. So in the early market, you're looking for a visionary customer that just wants to use something new and cool and stay ahead of the curve. In the bowling alley phase, you want to engage with a pragmatic business person who has like a huge problem and they need a fix and you're there for them.

57:07In the tornado, there's just this land grab. Something is just going crazy AI and everyone's just spend span. I need any AI in my product. And then Main Street is just it's kind of the sustaining tech that everyone just needs to just make sure continues working and doesn't deteriorate. The way I would just say last two is think of tornado is kind of the land and Main Street is the expand. I mean, that's not a bad way to think about the two as well. Yeah, yeah, you got it. You got it. Okay, great. Yeah. So why is it why is it that these undercut each other if you're trying to use either the one in the wrong phase or use both?

57:42Well, so let's listen, let's start with classic sales 101 from the 90s. Qualify the customer on budget before you make a sales call. Okay. That absolutely is critical on Main Street. It's dumb on, I mean, it's critical on the tornado. It's dumb on Main Street because obviously I have budget. They've got budgets here. As your name on it, you can go get it. But it's a big mistake in the early market or in the bowling alley because they don't have budget. And so you're not going to get it. And the way you win in the early market is with a project model and the way you win and the bowling is with a solution model.

58:17And the problem is if you bring a project model to the bowling alley, you know, the problem is you won't scale because it won't be repeatable. The ecosystem won't form around you. If you bring a solution model to the early market, it's like you're over investing in one thing. The visionary is saying, well, yeah, but I have so many other things I want to do. And so they're going to, they're going to want to take you way off your solution roadmap. So each one of these things, the market dynamics call for a very clear response. It's not hard to see the response. What people struggle with is I've been successful with this playbook.

58:54The market has moved to the next phase. But I'm really good at the old playbook. So I want to stay with the playbook I'm good at. And so that's when they get in trouble. So I think that's extra reason to pay close attention to which phase you're in and that you're practicing the correct playbook. We've talked about AI a little bit and I don't want to get too far down this road. But I guess is there any advice you would share for an AI startup in being in this tornado or a company looking to integrate AI? Is there anything that you've seen of just like make sure you're doing this right? Well, it's interesting and particularly right now.

59:28I mean, the thing with the economy is imagination is generative AI. Right? And we should be thinking about things like open AI with Microsoft and co -pilot and those kinds of things. Well, maybe not. So from a customer's point of view, there's AI in the early market. There's AI in the Boeing, there's AI in the Casemars, AI in the tornado and there's AI. So I mean, I would argue if you go to chat to Microsoft co -pilot, you're on Main Street. You're not taking any risk. You're experimenting with a new thing. It's kind of cool. It makes you more productive. God bless. It's just kind of like just an add -on to teams or to your whole office 365 suite.

1:00:09Stuff that's in the tornado right now, I don't know. I'm kind of thinking about what is the use the use case for J .A. I'm not sure there is one in the tornado. But let me know. The closest I would say sales source is probably close enough. They have a sales co -pilot. They have a services co -pilot. Right? I'm sure they're marketing co -pilot. So you're going, but we're going to change our sales motion and we're going to use we're going to use the generative AI in line in our performance on a very widespread, a question, an entire base. So all our salespeople are going to use this new tool. That would be okay.

1:00:51That makes sense because the new tool, first of all, salesperson has their own large language module. So it's like it's not like you're going out to the open AI world and having all those issues. So you can do it. And there's a very high productivity return at a modest risk, I think, and modest disruption. For the bowling alley, you'd say, I don't know if bowling alley or early market. I'll say it's bowling alley. So if you're South Khan and you have the Khan Academy and you're saying, look, we want to provide educational resources for the world for the three young people. The problem with education right now is that particularly after the pandemic, you're a teacher.

1:01:33You used to have, when you were a teacher in K through 12, K through 8, you have a class of 30 kids and probably, you know, 10 to 15 of them are middle of the road and some number are actually significantly ahead and some number are behind. And your job as a teacher is to kind of work with that. Well, after the pandemic, you might have five different great levels in the same class from not three or six even. That's an impossible problem. But if you said, look, we can use Gen AI tutoring and we can tune it to each one of those six great levels. Now, that's a teacher co -pilot, but that's a really specialized idea.

1:02:14So you go, well, that's amazing. And then if you want to go the other side, you say, you know, all these alley agencies say they do this really cool advertising, but I think I can do it myself with Gen AI. And I'm going to I mean, you can imagine, you can imagine a whole business that say we write legal opinions and we always start with Gen AI. We don't ship Gen AI. We, we, you know, there's a human in the loop, but we do, but we do, you know, we have, we're going to do a maze or more images, maybe we're going to, we're going to design visual images while there really cool stuff you can do. We're going to invite and invent a new agency or a new kind of agency.

1:02:52We're going to charge to, I'm not what it would be, but the point is, you, Gen AI, I think can be absorbed by the marketplace at multiple places. As you were talking about that lawyer example, I was thinking part of the pitch would be, and it's also a lot cheaper, but that reminds me of this other post that you wrote the seven deadly sins of crossing the chasm. And I wanted to chat about some of these and one of them is discounting before you cross the chasm. Can you talk about why that's something you want back to that issue about, you know, heart surgery, 999 this Saturday only bring a coupon.

1:03:26I mean, the discounting model makes sense when something's commoditized or there is, or the, or the, let's do even do the freemium model. The freemium model makes sense if there is no risk in adopting the, the offer, but cancels are based on risk bearing decisions. I mean, basically, that's the, that's the problem that creates the chasm. I have to make a risk bearing by decision. And so discounting does not reduce risk. Right. I mean, and so, in fact, it might even increase risk because they might, this vendor might say, well, yeah, I'll give you a better price, but now I'm not going to give you the extra support or I'm going to, or we'll have a change of scope.

1:04:10You know, we'll say, yes, I'll give you a, but now that that wasn't in the contract, so you have to add more, you know, and all of that is fair game on mainstream, but it's not for crossing the chasm. I'm going to pick on a couple of these other sins that you mentioned. One is you call the target customer mixup. Can you talk about that? The key to this whole crossing the chasm playbook is, you know, start with the world. Don't start with, well, stop. We're trying to add the question, you're trying to answer is where is a small pool of trap value that we can, we can become our pool. So that's why we have geography, profession, use case.

1:04:49We're just trying to give it big, you know, big, you know, big, off the matter, but small enough to lead is a one. And then once you find that pool, the question you have to say is, who controls access to that? Who's got a sponsor, my deal, in order for me to solve, to release that trap value for that company, that's your target customer. And you may not know them. Typically, my experience is you probably have worked with at least one company in the industry at some point along the line. It's kind of odd if you just had never heard of the industry and you picked that one. Usually that's why I said, well, maybe I should have added that to how do you know you're ready to cross the castle?

1:05:31You should at least have a hunch. You know, you should have listened, you know, we've done this work and I think this is the one. Now, you have to go validated and make it happen. But basically the way you would validate it is rather than trying to go to a researcher and do something that won't work. You say, well, we're going to run a marketing campaign, a modest one. Probably see if I can't get two more of the same use case. And I'm going to, I'm going to bet the next three months of my company by saying in the next three months, all we're going to do is try to get two more deals that have this pattern.

1:06:07And that would be kind of the way you might go after. So I think that is worth spending a little more time on this idea of how you know you're ready to cross the castle. So one is you find one very excited, marquee customer. Then you're sharing maybe find a couple more and see if it's actually starting to roll and tip. No, well, it's not wrong. The marquee customer is probably not in your in your beach and market. The marquee customer is a famous company that you have the visionary sponsor. That's the thing because that's the company that the business press wanted to write about or the tech press wanted to write about people want oh, you were the guys who, you know, you're like Han Solo.

1:06:46You did the whatever that run was in the 15 parsecs. I can't remember what it was. But that took put you, you're claimed to fame, right? You're claimed to fame. But the crossing the castle one is oh, and by the way, the press is not interested in crossing the castle, but the local if they were if there was a local press, they'd be all over it. The castle run. The castle. Thank you. The castle one of 15 parsecs. Thank you. Exactly. That was just vision everything. So I think that important takeaway there's there's always this advice of talk to customers. Make sure they're happy. Build with, you know, not necessarily build what they want, but make sure you're understanding what they need.

1:07:25But I think when you're most important insights here is make sure you're talking to the right people, which are essentially people in the next stage, essentially, of the adoption lifecycle, the more pragmatists. It's eight yes, and they have to be the I think you need to talk to the economic buyer as opposed to the end user. Because they'll be end user will be saying, oh, yeah, you're right. Oh, it's just terrible. Where we're oppressed. But if their boss doesn't want to sponsor it, it doesn't work. Yeah, which is hard hard off in when you're building B2B software. You just want to make it great.

1:07:54And then it's like, these people don't actually care when they're buying it. They just have all these check boxes. Yeah. Okay. And then another deadly sin which you've touched on, but I think it might be worth sharing again is just this idea you call it the compelling reason confusion. We're instead of thinking about your compelling reason to sell. You think about what is the pain point you're solving compelling reason to buy? Yeah. And we, you know, obviously it's not true. You have a comparison to sell. But the thing that you bet that what they tend to do is in trying to cross the chasm if they're not using this approach, they think, well, I haven't, haven't made my product attractive enough.

1:08:32And so then they say, well, I'm going to make a sex deal. So this is the deck that we ought to be using. And that's all about compelling ways to sell. Not compelling reasons to buy. And the pragmatist, by the way, by the way, the pragmatists will take the meaning. One of the problems with the chasm is they don't say no. They just never say yes. And they actually encourage you know, you should come back and deal with this to our, this is really interesting. Yeah, it is really interesting. Kind of along those lines positioning, how important is that? And any advice on figuring out your positioning when you're doing this?

1:09:17And he talked a lot about making sure you focus on their pain point. But at some point, you're like, here's what we're doing for you. Yeah. One of the nice things about crossing the chasm is the positioning formula is absolutely the same every time. It's really cool. So basically, when you're thinking about positioning, you say, look, I'm going into it, I'm going with this use case in this, you know, particular segment. Okay. So they have an incumbent vendor. The advantage of the incumbent vendor is they understand the business, but they don't have the new technology. Okay. Conversely, you have technology competitors who have as good technology, maybe a better technology than you have, but they don't understand.

1:09:53They're not committed to this domain expertise of this thing. So your positioning is we are the technology leaders who have specialized and committed to solve this problem. And by the way, we have a huge respect for your incumbent vendor. We're not asking you to kick them out. They just can't solve this problem. We also have respect for our peers, but frankly, they wouldn't know your problem if they wouldn't recognize it in a lineup. We are here. And by the way, if anybody comes into our quadrant, we're going to kick their ass. We're going to be beyond compare. Nobody is going to handle this problem with this kind of technology the way we will.

1:10:32And that's our claim to think. That's what we're going to do. And that's our positioning. I love that. Say you're building a product -led growth company, a bottom -up, oriented B2B SaaS companies. Is there anything that changes in your advice? Yeah. If you're going to use a volume -ups approach, I feel like a last year or like, you know, anything kind of grows up from the bottom -up, you're playing a different game. So first of all, you're playing, because you attract the end user before you attract the economic buyer. So you have some versions of a premium strategy. That's how you're going to do.

1:11:06And yeah, we did this, right? And they eventually got popped up by Microsoft. So the way you play that game is, first of all, you probably do need some funding. Oh, man, that's not necessarily. Maybe you can make, you know, maybe you can do this all on AWS and a credit card. But the game that is going to be, how do I create that that moment of credit calendar? What you would do is you'd say, I need, or firstly, you need telemetry. So you need to figure out what are the people really doing with our product. And then you need to find a way to communicate with them to see if you can fair it out. Is there a compelling reason to buy thing in their environment?

1:11:49So it'd be a different way of doing early market. You wouldn't have a market. You would not have a marquee client. But to cross the chasm, you cannot cross the chasm with product -like growth. You can't. Because it's like saying, well, yeah, I'm going to cure COVID by just putting vaccines out in public places. It's like, no, people need to learn more. No. So you'd have to do that. Where product -like growth plays really interestingly is in the land and expand phases of the market. If you can land with a hot product, but more importantly, product -led growth was a really good ad is expand. And that's, because it prompts the user to get more involved.

1:12:38And that's classically a main street play. But there's got to be no risk. That product -led growth works when basically the extended purchase has very low risk. And therefore, you're not really dealing with the chasm. That is incredibly interesting. Interestingly, every product -led growth company ends up building a sales team, 100 % of them, including Atlassian, which had product -led growth for a long time. And I don't know if anyone's heard this perspective on it that if you really want to cross the gap, imagine it happens in some form of... Well, and here's the thing. If the reason they build a sales team eventually is they need to get enterprise deals.

1:13:18And obviously you need a sales team to get enterprise deals. And one of the mistakes you could make is hiring an enterprise salesperson when you're trying to cross the chasm. Enterprise salespeople are not good chasm crossers because they're used to doing horizontal coverage model. This is like no domain expert narrow model. You want somebody that looks more like a sales engineer than a salesperson. You want somebody very very diagnosed and very committed to the integrity of the problem solution framework. And so it's just different. Okay, just a couple more questions. You had this very public exchange with Martin Cassado.

1:13:59He's a partner at Andrews and Horowitz. And just to summarize briefly, essentially he was arguing that I think some people believe once you've crossed the chasm, life's good. It's all downhill. People are going to start pulling your product out of you. It's going to be so easy. And his argument is he doesn't see that it's endless pain and suffering and hardships. And I know you went back and forth trying to correct this. But what's your... What's a way to think about what happens? So actually, Martin, I had a couple of the say, his biggest point, I'll come back to your point a second. But his biggest point is Jeff, the venture community at least, and it's certainly in recent Horowitz, doesn't deal with the level of granularity across the chasm anymore.

1:14:44There's too much money that wants to be put to work. By the way, there's so much software already out there that the notion that your software is going to be that disruptive is increasingly improbable. Because you're just like, you're standing on the... You're not standing on the shoulders of giants. You're standing on the shoulders of people standing on the shoulders of people standing on the shoulders of giants. So he was making a bunch of those points, which I thought were pretty interesting. But his other point about this life ever become easy. No, life never becomes easy. The problems change.

1:15:16But the... But software, I mean, the challenge with software is... Well, there's a lot of challenges with it. But software that people use, the software that we, the application software, we all have different minds. We all have different contexts. To make a product that would work, that would solve what I want to solve what you want and solve what the listener wants. The margin, no. We're going to have different expectations. And so there's always... And then, of course, there's competition and then there's funding and then there's technological shifts and just about the time it really works well.

1:15:55They say, no, we got to put it... No, no, no. You put it on the... We put it on the data center. We got to put it in the cloud. Oh, no, no, you've got in the cloud. You've got to put it in Kubernetes. Oh, no, no, no, no. You just... Just because on and on and on. And so I think if you're going to play this game, you've got to kind of be up for... Yeah, there's going to be a new headache every week. That's exactly how I see it. Are we still founders? You shouldn't start a company unless you can't not start a company. Yes. And then, by the way, why did I leave? I mean, I was at... Regisby County was a great place to be, but I had to do my own thing.

1:16:32You know, yeah, and that's real. That's a real pull. Kind of along the lines of some you just shared, maybe a final question, is there something you've changed your mind about or something you've evolved your thinking on recently, either from the beginning of the book or just even more recent? I think what I realized over time increasingly was this is a model that's really optimized for B2B markets because it implies federated decision making around high -risk -wide decisions. And so, and I would say for the 20th century, that was 95 % of tech. But it was so interesting about the change in the century, because remember, right at the change of century, B2B tech went in the tank.

1:17:16It was a tech bubble, because everybody was afraid of the year 2K problem, by 2K problem. So they did a whole bunch of buying up of software. And then there was like a year where they think, well, we ate more than we could at Thanksgiving dinner. We're not eating, we're not eating another burger here. So at the market with the tank. And so by the way, at that point, Venture started saying, well, maybe we should be investing in biotech or maybe we should be doing clean tech. I mean, Venture kind of stepped back from the table too. But out of this consumer computing came out of nowhere. And it was, for my generation, it was unimaginable.

1:17:54When the first time I heard about Google and they said, we're going to save every, we're going to save every search argument. That's the dumbest thing I've ever heard of my life. And they're not going to be able to afford it. But there a model was, we were rethinking this thing from the ground up. You have, Jeffrey, you have no idea what we're doing. Boy, were they right. So the point was when that came in, then the consumer computing, and then the iPhone hits, and then we have mobile apps. You have a world now where the B2C play can actually be the core of innovation. It used to be B2C was an afterthought.

1:18:31And now it's like, no, no, no, no, B2B might be the afterthought. And so it's a completely, and the whole digital transformation of the universe. And we're all, we're still living through the digital transformation to 20 years in. And I don't think crossing the chasm is designed for that, for that problem. So that's a different problem. So basically if you're building a consumer app, don't spend time studying cars in the chasm. Yeah, if you're doing B2B, this is the most reliable play, but I mean, it's still in people are still in this playbook 30 years in. So it's obviously the playbook kind of works.

1:19:04Yeah. And I think I said this earlier, I feel like people are just reinventing many of the things you uncovered 30 years ago. Everyone's like, oh, yeah, target audience, really important, or finding a marquee customer. So I'm really happy that we spent this time digging into many of your theories. Well, let me thank you for being, you've been, you've been a really great surprompter and questioner. So thank you very, very much. I really, really appreciate that. Is there anything you want to leave listeners with as a final thought or piece of advice or just anything? Look, I have a baby's reading the paper recently, but the world's not exactly nailing it right now.

1:19:40There's a lot of stuff going on that we could do a lot better. And software and able technology, I almost certainly at the core of any solution that scales to any world problem that matters. And so I think it's more important to be an entrepreneur now than maybe ever. And I wouldn't make becoming a billionaire, Michael. I mean, frankly, I don't even know what a billionaire would do with him. I mean, I don't even imagine the money. That's $1 ,000 ,000. I mean, it's making sense. But what does make sense? Or it does make sense? I'm happy to get to, do I know what to do with 10 million? Yeah. What could I do 20 probably?

1:20:22Could I use 100? Probably not. But at some point, I want people to make yourself a great living, make yourself a, but after that, have an impact. I mean, and if you're gifted enough to be able to start a software company and do something original, you're a scarce resource. So don't waste it. Amazing. I'm going to sneak it one more question along these same lines, actually. Your last book is very unlike all your other books. It's called the Infinite Staircase, which is essentially a guy to living a good life and a meaningful life. Is there any, is there maybe one piece of advice you could share with folks have just had to live a better life, a more meaningful life?

1:20:59The purpose of that book was twofold. One was, so I was looking around, this is an American sort of experience, the between social media and the politicians or whatever, our ability to defend traditional values is becoming increasingly challenging. And historically, you say, well, religion was sort of the place where you, the foundation for solidifying traditional values. But in my lifetime, the counter -explanation of how we got here other than being created by a creator, this whole, the big bang in the Darwinian model, is becoming increasingly credible. And I'm fascinated. So my question I had the back of my mind is, how could you take that model and still support traditional ethics?

1:21:52So the first part was, well, what's the model? It turns out to explain, getting from the big bang to Lenin Jeffrey talking on this podcast, there's a lot of steps you got to go through, but there's a whole thing about complexity and how complexity emerges in layers. And the staircase is a series of layers. And the first two thirds of the book takes 11 stairs to get you from physics to theory. And it's like, really? Yeah, yeah, from from ask from, yeah, from, you know, a cloud of atoms to us talking about crossing the chasm, 11 steps we can get you there. It's just kind of fun. And it's just, it's assembling the last 25 years of my reading.

1:22:32I mean, I just, just fascinating stuff in all these different topics. And I was just trying to knit it together. No original research. I was just literally just trying to get the story going. But then the last third was, okay, that's a very reasonable narrative. It's, you know, maybe even more reasonable than religious narratives. But now, how do you validate ethical action? And where's it come from? And so the last part was about, okay, how do you do that? And so, and how does it tie into the, how does it derive from that creation story, the secular creation stories or that was what was important.

1:23:09At the end of the day, I think the message of that book is just, you really do need to do good. But, but, but, but it's not because you're obeying, I mean, in this framework, it's not because you're obeying a divine creator. It's because we're mammals and mammals nurture their young. And we learned, we were gifted with unconditional love, but we were born. Because otherwise, you and I could not be here, right? I mean, one year old cannot, if somebody doesn't love the hell out of a one year old, there not gonna be two, right? So, so we know where we started. So come on, those values were built into us.

1:23:47They didn't come, they don't have to come from above. They can come from below. And therefore, how can you integrate them into your life? And that was the book anyway. That is a beautiful message. And on, I promised I'd get you out of here in one minute. And so, just to let people know you do speaking, you do consulting, working people, find you online if they want to reach out and work. Link, yeah, I'm on LinkedIn. And I have a blog on LinkedIn. And if these topics are interesting, you'd probably be interested in the blog. And then message you on LinkedIn would be the idea. Absolutely. Easy. Jeffrey, thank you so much for being here.

1:24:19Well, thank you, Lenny. It was a pleasure. It was my pleasure. Bye, everyone. Thank you so much for listening. If you found this valuable, you can subscribe to the show on Apple podcasts, Spotify or your favorite podcast app. Also, please consider giving us a rating or leaving a review as that really helps other listeners find the podcast. You can find all past episodes or learn more about the show at Lenny's podcast .com. See you in the next episode.