Crossing the Chasm Between Markets and Meaning with Geoffrey Moore (Part One)

Forbes Books presents the Startup Science Podcast with Gregory Shepard, brought to you by startupscience.io. Greg is an entrepreneur who has built and sold 12 businesses. He's a recipient of 4 private equity awards and is a featured TEDx speaker and Forbes author. Here's Gregory Shepard.

I'm so excited to have Geoffrey Moore on the podcast. Geoffrey is a renowned author, speaker, and advisor. I'm one of Jeff's biggest fans. I've read his iconic book Crossing the Chasm 4 or 5 times at least. I tell every founder to read it, and I've quoted it in dozens of articles that I've written over the years. So Jeff, I just want to start by welcoming you to the podcast and thanking you for what you've done in the startup space.

Well, thank you for all the work you're doing in this space too, because as you know, There's a ton of work to get done and startup founders need a lot of help. So thank you.

Yeah, it's, it's just so cool to be talking to you. To start out with, if you're talking to founders and you're talking about your book and what you do, even if somebody hasn't read the book Crossing the Chasm, what would you say to a founder that's just getting started early stage and they're like, okay, I have an idea. And I'm just starting to raise money. What do I need to know?

First of all, as I think, you know, from the book, it's mostly a B2B world that I work in as opposed to a consumer world. 'Cause I think there's an entire consumer trend that I think you would play with a freemium offer and it's a different game. And frankly, it's my demographic, it was after my demographic. But if they're in a business-to-business world, the first thing a venture capitalist will ask is, What's the disruptive technology or how are you going to be disruptive? Because you're a startup, nobody's going to buy you for your good looks. You got to be doing something unusual. And then where does that intersect what we ended up calling trapped value, which is like something in the existing world system that frankly today just is holding people back. And every system always has a place where it's holding people back. Every system has a limit. And how much trapped value is there stuck under that limit? Because that sort of represents the amount of funding that you could potentially tap into as if you can succeed in releasing that trapped value. And then why is your technology going to intersect there? And that'd be the first thing I'd start with.

So people that haven't read the book and you talk about trapped value, can you unpack trapped value for the for the people that haven't read your book. By the way, if you haven't read it, you should absolutely. It's like one of the bibles of startups. But anyway, could you unpack trap value?

Sure. And the book's really about how the technology adoption lifecycle unfolds, and I'm sure we're going to get into that. But the point is, why would you even start a technology adoption lifecycle? So if you think about, for example, how much trap value was there in The backseat of people's cars before Uber showed up, in the spare bedrooms in people's houses before Airbnb showed up, in the amount of videotape rental late fees you were paying to Blockbuster before Netflix showed up. In other words, when you look at a system, there's always a place where it's, you know, you had to go to a bank instead of using a mobile app. Or you had to go to a travel agent instead of going to Expedia. The bank is the trapped value in that model. And then the question is, if you're a fintech firm or whomever, can you release, can you eliminate that trapped value? Because when you do that, like Amazon Prime is probably the ultimate example of how to engineer trapped value out of a system and essentially win a huge following because You've just made life easier for people.

When I talk about founders, I always talk about there's 2 types of founders. There's visionaries and subject matter experts, right? And a visionary looks from the outside in, and it's more of an outside, tops-down view. And, you know, they're interested in opportunities. And subject matter experts are usually from the inside out, inch wide, mile deep, and they refine. And a subject matter expert will define. So trap value, then, if we put it into that context, trap value is what the subject matter expert finds, like problem or visionary, the actual opportunity, right? So it is the pent-up either problem or opportunity that could be realized. That's what you mean by trap value.

Yeah.

I'm just trying to define it for people.

Well, it's super, it's super. But I think those 2 people you're talking about, because in the venture world, we often fund a 2-headed beast. One person, the visionary, at least in our world, typically is the technology visionary. They're the ones that says, I understand generative AI. I, you know, I've got machine learning, I've got whatever the heck I've got. And the domain expert says, well, yeah, but I know where the trap value is. And so when the guy with the peanut butter meets the guy with the chocolate, you can get a Reese's Peanut Butter Cup. Yeah.

Yeah. But the trap, so the trap value are, Sort of like hidden gems of opportunity or problem solving, right? That you release. When you say release the trapped value, you mean recognizing what it is and then turning it into a business.

Well, actually, I probably didn't express it quite right. It's the customer who's experiencing the trapped value, not the entrepreneur. Got it.

Right.

You're going to the customer and you're saying that in the status quo, you know, life is what it is, but There's a much better way to do this. I mean, if you've ever tried to get a taxi in New York 15 years ago, as opposed to calling Uber, you know about trapped value because you were experiencing a significant limit in that transportation system, which Uber has eliminated. I mean, just obliterated. And so that's the amazing thing about entrepreneurship and technology-enabled entrepreneurship. We can I mean, we can actually just change the rules. The electric vehicle is changing the rules. I mean, that kind of stuff. And how much trap value is there in a gasoline economy and going to a gas station every so often and going to a dealer as opposed to having your car download the software and become a better car in the morning?

Yeah. Yeah, that happened to me this morning, actually. My Rivian updated itself. It gave me a whole bunch of new features. I was like, this is fantastic.

Yeah. So, and I think that the— I don't want to overstate this trapped value thing, but I do think as an entrepreneur, a lot of times you could be an entrepreneur with something cool, but remember the world's got to pay for it. And so where's the world going to get the money from? They're going to get the money from releasing the trapped— you're helping them release trapped value in their world. They'll pay you a portion of that value in order to get released.

In order to, in order to solve the problem they're experiencing.

Exactly.

Yeah, I get it. I get it. So let me ask you this then. When you think about innovation, right, overall innovation, and there's a lot of people that have different definitions of innovation, it's kind of like choose your flavor, right? But you being like the, uh, the first guy to come out with something that I, anyway, I read, and I do go through these things like constantly, I go through these, these things one a week or two a week. And yours was the first one that really stuck with me. And I thought of it like an innovation book, sort of, you know, about like, how do you think about innovation and where does it come from and what is the catalyst of innovation, you know, like trapped value and stuff. Can you explain for the listeners a little bit how you think about innovation?

Yeah. And this is where I think the technology adoption lifecycle really frames the way I think about it. Because I think innovation actually mutates or evolves over the course of the adoption of a technology. So at the very beginning, what we call the early market, where it's usually visionaries and technology enthusiasts, and you're doing breakthrough project work. I mean, there's no ecosystem yet. There's no standards yet. You're right at the cutting edge of your SpaceX. You're doing something that's just like amazing. And in that world, Innovation is, it's the think different, you know, it's Steve Jobs, right? It's like just, you know, completely, you know, or Elon Musk, just completely reject conventional approaches, you know, be, you know, insanely great products. I mean, whatever. It can't scale in that form, but that lights the fire. That's like that burst of, you know, atomic energy or whatever it is that lights the fire. The crossing the chasm piece, Was the first attempt to marshal innovation in a way that could be economically developed in a— by mere mortals. And so what you did there was you said, look, if you take a first use case in a first market segment and you just concentrate your energy there now and bring a solution, release the trapped value in that segment, bring a solution, and we called it the whole product. I mean, just take that problem off the table. And it's a problem. It's not an opportunity.

Yeah.

This is a situation where pragmatic people are saying, look, we're struggling with something here. We've tried all the conventional stuff. It doesn't work. We need help. We don't know if you're the right person, but we're willing to try almost anything because it's not working. And then what you do as an entrepreneur is you say, I think our technology Shaped correctly and with the right support and the right attention to detail, you can actually blow the COVID off of this problem. That's what we're going to go do. And so that was the crossing the chasm. So that's innovation kind of in a box. I mean, trying to keep it contained because if you don't, if you say, well, I've got 3 or 4 problems in 6 or 7 markets, you evaporate. And I would say most entrepreneurs die in the chasm because they die from evaporation.

Interesting.

They do too many things to too many people. And so the chasm is like, just get to be the go-to player for one thing in one market. And, you know, you and I are old enough to remember the Macintosh.

Yeah.

So the Macintosh, you know, was kind of like just out there for the computer for everybody. And it was desktop publishing that actually, which is a tiny market, And it was not a market that Steve Jobs wanted to go into. He didn't build a computer for, you know, corporate graphics people. But the fact of the matter was, you know, with the help of Adobe PostScript and everything, they took that problem off the table in a way that was just dramatically different. Huge amount of trap value. That was back when we had 35mm slides. I mean, it was really, really, really awkward. So it was a great thing to do.

And WordPerfect.

Word perfect, yes. Yeah, okay, you and I are peeps. So, many people just call me and say, word what? Don't worry about it. Don't worry about it. But the point is, if you do that, so that's the second one. And then if you stay with innovation, now you say, okay, I've solved problem 1, problem 2. At some point, instead of being kind of vertically use case specific, people wait, they go, wait a minute, This is horizontal. This is infrastructure. This is a new way. You know, we should have Wi-Fi everywhere. We should have smartphone apps for everything. You know, we should have cloud computing for everything. You know, and we should have electric chargers everywhere, not just, you know, for, you know, certain places. So, at that point, innovation becomes an innovation around scaling. And that looks— that doesn't look— nope, people don't call that innovation. But I tell you, that's when the war is won. And so, and by the way, you, you, you're, but it's competitive innovation. You're not, it's actually more about, you know, playing the market, playing the competitor, you know, getting out there with the right investments, taking the right kind of risks at the right time. It's the kind of stuff that, you know, that any business would go through in a high growth period. And then the last one I'll just close on is once the technology's been adopted, then it's a question of making it better, better, better, never best. And again, a lot of people don't think that's innovation. They think it's refinement or improvement or incremental. Yes, it's incremental. Yes, it's refining. And yes, it's improving. And I would call it innovation too. And if you don't think it's innovation, try it because it's not easy.

I have tried it. I do it all the time.

Me too. By the way, if you want to know about incremental innovation, Talk to your spouse or your partner.

Well played, sir. Well played. So if you think about, I'm gonna separate these things as objects, okay? So you have innovation on one side, you have disruption on another side, and then you have the chasm. Can you kind of explain for the listeners that how these 3 things play together To get you across the chasm once you explain what the chasm is and get to the other side so you can actually, you know, grow a startup.

Yeah.

Because what I'm interested in talking to you about is what happens between the point that you, where you're like, I have an idea and you get to the point where you're like raising money because 51.7% of founders fail in that first 12 months in that period. And your book does a really good job explaining why. But not everybody read it, right? So I'm trying to like, you know, draw the lines together.

Okay, well, let's see what we can do here. Okay, so the first idea would be, what is this chasm thing? Let me put that in clarity. So the chasm came from looking at the technology adoption lifecycle and the various personas that sort of dominate at various periods, at various points in the adoption of technology. In the very beginning, there are 2 personas that dominate. The technology enthusiast who is going to literally know how your technology works, you know, what is it? And then the visionary who is going to say, I want to make an early bet. I want to be the first mover. I want to put my stamp on this. I'm going to take this technology and I'm going to change my world dramatically. And so it's kind of a project-oriented time because as I mentioned, there's no ecosystem yet. There's no standards. You say, so the visionary actually funds a mega project and the goal of the entrepreneur, by the way, you can do this level with no venture funding, which, because basically the visionary is giving you effectively your seed capital. Basically they're paying you for a project. You're taking your team and you're putting them 100% on that effort. And your goal is to get, is to show the world what Bright could look like. You want to have a, what we call a lighthouse reference account.

Mm-hmm.

And you will do anything it takes to make this account successful. Now, it should be an account that has some cachet. If you make Joe's Tire Shop successful, that's not— but if you make, you know, American Express successful, that's pretty big. So the point is you're looking for a company that has a little bit of brand recognition. It doesn't have to be, you know, the Fortune 100, but it's gotta be something where people go, whoa, you did what? Really? And then you— that's the early market. But the problem with that is most of the money in the world is not controlled by technology enthusiasts or visionaries, controlled by a group of people we call pragmatists. And pragmatists say, hey, if this is going to give benefit to me, if this is going to release trapped value in my world, I'm going to want to use it. But by the way, I don't want to use it until it's ready for prime time. So I don't know if you're ready for prime time. So what I'm going to do is I'm going to ask you to come in and present to me. I'm gonna, you know, I look at your demos, I'm gonna call customer references, but mostly I'm gonna talk to my peers and I'm gonna say, are you doing this thing yet? And if they say, well, we're still looking at it, no, okay, I'll wait too. That's the junior high dance problem, you know? Yeah. That's the chasm. That is the chasm. It's everybody going, hey, good idea, it sounds interesting, probably, let's just see. I don't wanna be a pioneer. Let's see how this thing plays out.

Yeah, you're right. A lot of them, because, They're trying to get that, that first date, right? And everybody's like, well, I don't know, I don't know. And you get stuck in that. That's happened to me so many times. And you're like, and you hear founders talking about it, right? They're like, geez, if I could just get somebody's brand to just adopt this, oh, it would take off.

Yeah. And the other thing that happened out here was if you got one to adopt it, then your VCs thought, well, Now we're ready to pile on. And that created the chasm catastrophe because just because you've got 1 or 2 wonderful clients, which I hope I would, by the way, that really is the big, you really do need to get 1 or 2 wonderful clients. So you probably, you shouldn't try to raise money. You just don't. But if you get 1 or 2 wonderful clients, you're not home free. They're the exception. They're not the rule.

And—

Because they lean in, whereas the other customers are leaning back. So anyway, that was the chasm problem. And then the other, the last thing was, so then how in the world would you get a group of people who are sort of reluctant to dance, start to dance? And that's where that notion of don't try to get everybody to start at the same time. Find a smaller group of people that right now really are urgently in need of doing something different.

Mm-hmm.

And find one that matches your technology so that, you know, your domain expertise and your Technology, the trap value idea, all that's gotta, that's gotta all kind of, the crosshairs have to meet in this use case, in this market segment. But once it does, then instead of saying, well, I'll try that, but I'll still try everything else. You take, you never can take 100% of your company, but you probably can take 80% of your company and say, for the next 6 to 12 months, this is all we do. We're gonna try to get one customer and then a second customer and then a third customer. Because what happens is after you get 3 or 4 or 5 customers with the same use case in the same market, they talk to each other. And so when I say to you, why are you doing this? They say, hell yes, we're doing it. You are? Yeah. Oh yeah. Does it work? Yeah. Oh, okay. I'm in.

Yeah.

And so all of a sudden you get that tipping point thing that Malcolm Gladwell told us about. And that tipping point, now all of a sudden, now the VC's going, boy, I want a piece of that action. And the VC has a word for this. They call it traction.

Yeah.

Well, you've got traction. And until you have traction, they're very reluctant to put money in.

And traction is based, you know, getting your keystone tenants.

Traction's getting, I would say, getting that first market segment underway in a way that it's clear that you're making really strong and fast headway with one use case in one market segment to the point Where even though you're still a small company and privately held, people in that segment who have that use case, they know about you. And that's the key thing. Because now, because what really marketing's really about is when, what do people say when you leave the room? And you want people to talk about you when you leave the room.

So the bridge that you build that gets you from, I have an idea to the other side and gets you over the chasm is based off of working to try to get those keystone tenants to support you and vouch for you so that you can move into where you can actually start obtaining real, real customers. So let me ask you your opinion on something that I talk about. I'm curious to see. You can criticize it all you want. I'm not— I have autism, so I don't really care.

We're here for your customers. We're not here for each other. Yeah.

So one of the things I tell people is that when you get started, you need to create what I call an industry advisory board and a user advisory board. And the industry advisory board gives you vertical subject matter expertise, and the user advisory board gives you customer subject matter expertise. And when you get a validation from your industry advisory board, then you move forward and you try to get your user advisory board/customer advisory board. And if they adopt, Then you have validation. And that is sort of my way of teaching people to do that bridge of your keystone tenants. You start them by kind of explaining to them what you're doing and getting their input, and then they help you create the product, or they think they're helping you create the product. And then you have the product of their dreams and they're like, yeah, this is great. And then if they buy it, then, you know, you've built the bridge. It doesn't mean you've crossed the chasm, but you've built a bridge to allow yourself to start walking across. Is that Would you, how would you criticize that or how would you put that into your expertise? Because you're, to me, you're way above my level of understanding this. I can't even tell you how just excited I am to even be talking to you.

Okay, well, let me try this because I do think you've done something important, which is really the yin and the yang of high-tech success is the ecosystem, what you call it the industry board, the people that understand the technology, as an industry. And that tends to be a kind of horizontal across many markets. And then the customer advisory board, which is more about the user experience. And so when I talk about these 4 stages, what I call the early market, the crossing the chasm stage, I sometimes call it the bowling alley, the tornado, and then tornado's when everybody does it, and then Main Street when everybody's doing it, it's just normal. In that world, at the very beginning, the industry advisory board I think can give you really important input. You can't talk to customers yet because customers don't even know what you're talking about, but the industry does know what you're talking about.

Yeah.

So you want that. Then when you cross the chasm and you're going into that vertical-specific domain problem use case one, those customers, that's a very specific set of customers, but they become your true north, not the industry, because you're going to go into their world, not your world. And so you use their words and you understand their problems. But then as you try to branch out and say, well, I can't just serve one use case in one, I mean, this technology is much more applicable than that. Then you go to that third one, which is, okay, now I need to go back to a horizontal, which means I go back to my industry advisory board about, okay, how do we take this thing to scale? You know, how, what kind of an ecosystem, who do I need to partner with? What platforms do I need to be on, et cetera, et cetera. And then finally, Once it's at scale and now you're kind of in the second or third, you know, fourth, fifth, sixth, seventh, eighth year of your business, at that point, now you kind of want to go back to the customer, particularly the user, and all the stuff we've been doing about user experience and customer experience and product-led growth and letting people upgrade on their own and self-service, all of that stuff. So it's funny, industry, customer, industry, customer as we go through those 4 cycles.

So when you look at the industry, I'm just going to try to wrap it up in a way that I understand, and maybe it'll help the users. You look at the industry advisor, this is like somebody flying at 30,000 feet, and they're like, I have this big problem that I can see from way up here. But then when you're looking at the customer or slash the user, this is your champion, this is your persona, this, this, because A lot of times I tell people, I'm like, just because the company wants it doesn't mean that the people that work at the company want it. Sometimes it puts them out of business, right? They lose their job and you're talking to somebody trying to sell something that they don't want involved. You know, they don't want it there at all. Maybe they have to go talk to their CFO that they don't like, or it's a bunch of extra work for them, or it's limiting their job or one of their colleagues' jobs or whatever. So how do you, how do you navigate that? Minefield when you get the industries like, yeah, we want this really bad. And now you go to have conversations with people that don't want it.

Right. Well, you know, at the end of the day, I think you have to find a shared value with the people that you want to sell to or convince. So look, if the thing threatens their job directly, then either you have to have the conversation which says, look, Whether you buy it from me or somebody else, this is gonna happen. And you, you, you gotta kind of wake— this is like Darwinism, you know, we're, we're having a moment of natural selection. You need to evolve in order to keep yourself safe and provide for your family, et cetera, et cetera. But it may also be that, look, you know, if you accept this into your routine, yes, you're gonna have to change and learn new behaviors, but it's actually gonna make you more powerful in helping your customers. So the shared value there would be, we want to make you more successful with your customers, and we hope that you want to be more successful with your customers. It turns out in companies that care about their customers, that works. If you're going to certain bureaucratic government agencies, sometimes they don't care so much. Then it's like, no, no, it's about me. It's about me. It's always about me.

Yeah.

That one's a lot harder. That one is a lot harder.

Absolutely. I mean, I could talk to you forever about this stuff, but we have to take a break right now. Coming up in the second part of my talk with Geoffrey Moore, the author of Crossing the Chasm, Geoff shares 2 of the biggest failure points for startup founders.

The number one failure point is not picking a single target. And then the second thing is not staying on target until you get— until you Essentially, we call it knock over the first bowling pin. Once you knock over the first bowling pin, the second, third, fourth are they'll come.

The Startup Science Podcast with Gregory Shepard is brought to you by startupscience.io. Founders can log on to startupscience.io and use code Forbes to get free access. To connect and find out more about Greg, go to Gregory. The Startup Science Podcast is a production of Forbes Books.