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October 1, 2015

Scaling via Channel Partners

Crossing the Chasm

If you were selling software twenty years ago, the chances are that you would have had one very particular book on your bookshelf – Crossing the Chasm by Geoffrey Moore. It was first published in 1991. A revised edition was published in 1999. And a new edition was published just last year. But it’s based on ideas that were first mooted several decades ago.

The American Mid-West in the 1930s suffered from the depression like everywhere else, but it also suffered from successive years of drought. As such, hybrid crops which had been cross-bred for superior resilience and superior yield were one of the more exciting hi-tech innovations of the time. You would therefore have expected farmers to queue up to be first to grab this new wonder crop. But you would be wrong.

Researchers studied the pace of adoption of hybrid corn with a sample of 250 or so farmers in Iowa. They published their findings in an obscure journal – Rural Sociology – in March 1943. What they found was that the farmers had taken an average of five years to adopt the new crop, and overall it took around fourteen years before pretty much everyone had experimented with planting these new seeds.

Further studies were undertaken, and not just with hybrid seed corn. Eventually a pattern emerged. The adoption of many new technologies seemed to follow a similarly-shaped sigmoid curve. A few would want to lead the way by getting on-board right at the start. Next, a few others would join the party, once they could see the commercial benefits of the technology. At this point, sales of the product would typically go one of two ways – either it would gain market acceptance and start to build momentum in the broader market, or it would simply wither and die.

The Technology Adoption Life Cycle (TALC)

Nowadays, the model that emerged to depict the pattern of successful product deployment is called the Technology Adoption Life Cycle – or TALC. It separates prospective customers of new technology products and services into five categories, determined by the speed with which they adopt new ideas: innovators, early adopters, the early majority, the late majority, and laggards.

The TALC model is a bell-shaped curve, and according to Geoffrey Moore, “the divisions in the curve are roughly equivalent to where standard deviations would fall.” So, “the early majority and late majority fall within one standard deviation of the mean; the early adopters and laggards within two; and way out there, at the very onset of a new technology, about three standard deviations from the norm, are the innovators”.

Innovators are usually customers which have a natural appetite for all things new, or customers where they have some budget earmarked for ‘experiments’. Either way, the culture of the organisation, or the individuals tasked with managing this type of buying decision, is one where being ahead of the curve is a natural part of their character. Clearly, there are rarely many innovators in any market segment.

Early adopters are very similar to innovators, although it’s not the newness of the technology that is their primary interest, it’s what it can do for them – the benefits if you will. Also, as Moore puts it, they “do not rely on well-established references in making… buying decisions, preferring instead to rely on their own intuition and vision”. As such, they need us to put in a bit of effort to be persuasive about our offer.

These first two classes of customer are where most high-tech start-ups cultivate their network to get things moving. And often, of course, there is a desire to get some well-known logos on the screen to demonstrate credibility, and also to reassure the next tranche of customers that the product is viable.

The third class of customer – and certainly the most important for anyone wanting to scale their business – is the early majority. They typically want to see well-established credible references before they’re likely to take a punt with your product. They are also way more risk-averse than the customers you’ll encounter in the first two phases of the TALC model. But, as Geoffrey Moore puts it, “because there are so many customers in this segment – roughly one third of the whole adoption life cycle – winning their business is key to any substantial profits and growth”.

The rather sluggish late majority will typically wait until something has become an established standard before becoming a willing buyer. And even then, they will almost certainly want to see lots of well-thought-through support.

And then finally, there are the laggards, and their name is pretty self-explanatory. This is not often a class of customer on which fortunes are made.

Micro-Segments / Self-Contained Niches

Our main interest, though, is navigating through the first two classes of customer to find ourselves ready to “cross the chasm”. That’s the divide between two quite distinct markets – the first, a relatively small market dominated by enthusiasts and pioneers who are quick to appreciate the nature and benefits of new ideas and new ways of doing things; and second, a more mainstream market representing those who want the benefits of new technology, but who don’t want to experience too many of the start-up glitches that inevitably bedevil most first generation products and services.

But, the transition between these two markets is often anything but smooth. And this is where indirect channels – alternative routes to market – often have a role to play. Simplifying things hugely, the secret is to segment the next cluster of customers into micro-segments or self-contained niches. Ideally, the first micro-segment provides a pathway to the next segments and so on. Geoffrey More calls this the bowling alley, where the first skittle knocks over the second one or two, and so on.

There are three quite different ways of working with others to secure revenues to manage the transition across the chasm.

Reseller agreements

Negotiating a reseller agreement is the most obvious way to go, but almost certainly the most difficult. Identifying prospective resellers is probably the easiest part. But having a proposition that they can relate to is a little more difficult. In a perfect world, they would simply bundle your product into their core offer, and off you go. But it’s never that simple.

Advocacy programs

Agreeing something a little less formal, like a referral or advocacy agreement, is usually far easier to organise than any sort of reseller programme. But while this should give you access to customers and decision-makers you might not otherwise get to meet, it generally means that you have to do all the heavy lifting yourself. And that limits your speed to scale.

Vendor Ecosystems

A third option is to target those customers which already use the software or service of a mainstream ‘host vendor’. If it’s appropriate, and technically feasible, then hooking into the ecosystems of, say, Salesforce or SAP should make customer access that much easier. Also, of course, it makes segmentation and targeting decisions that much easier too – you just follow the host.

This post has probably generated more questions than answers, so we’ll be following this through with some more posts which dig further into the role of partners in navigating your way across the chasm.

About the author:

Richard Nockolds is a Director of Fugleman Limited. He specialises in guiding B2B players through the Go To Market minefield. He helps his clients map direct and indirect routes to market which reflect the ever-evolving behaviour of organisational buyers. Richard has worked with over 120 clients and in 40 countries.

Post produced in partnership with Richard Nockolds, Founder at Fugleman.

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