In Part I (024) of this series, I introduced Geoffrey Moore’s Crossing the Chasm framework.  In Part II (025), the goal is to apply it to a contemporary example of a high-tech company selling to legal departments. Part II then finishes the chasm framework and discusses some of the special challenges of applying it to the legal industry.

Posts 024-026 are the final installment of Legal Evolution’s foundational series on diffusion theory. Readers seeking to influence innovation within the legal industry will be more successful if they obtain and apply this background knowledge. Care has been taken to make this information non-technical and accessible.

The pre-chasm challenge

Imagine that we are part of a legaltech start-up that has developed a machine-learning AI capability with the potential to be a best-in-class solution for many time-consuming and important activities inside a large legal department.  We’ve made a few sales to some visionary legal innovators/early-adopter types, but the work has mostly been custom.  As yet, we don’t have a turn-key solution that is scaleable. Further, none of us has focused on the humdrum details of successful implementation.  In fact, we have no reference customers that would satisfy a pragmatist buyer. In short, we are a pre-chasm company.

To keep the team believing in the cause and to avoid running out of cash, we have three short-term objectives:

  1. Dramatically reduce our sales cycle
  2. Limit the amount of customization (ideally to zero)
  3. Obtain a base of satisfied pragmatist clients.

Following Moore’s chasm playbook from Part I (024), these three objectives are only possible by overwhelming a niche market segment with our commitment to their problem set, making our company “the only reasonable buying proposition” (p. 110).

Thus, the task on our plate is to correctly identify the right niche market and, through intense focus, successfully deliver a whole market solution. Otherwise, we are going to fall into the chasm.

Which market niche?

As noted in Part I (024), the only tools we have to cope with our “low data, high risk” environment are imagination and empathy.

We start by developing composite profiles of characters working inside our typical buyer and evaluate as objectively as possible how our product positively and negatively affect each of their lives. If the buyer is a legal department, the cast of characters would likely include the GC, the Director of Legal Ops, line in-house counsel, paralegals and admin staff, CEO and CFO, etc.

If we are like other founders and technical types, we’re likely very self-satisfied regarding the versatility of our technology, claiming it can solve many problems well. That may be true, but what product application is going to have the biggest impact across multiple internal stakeholders? If we can deliver a whole product solution in that specific niche, the resulting word-of-mouth buzz will create the enormous tailwind we need to get to the other side of the chasm.

We identify the starting point by building a matrix of stakeholders and applications and scoring each combination on a 1 to 5 scale. Using Moore’s scoring system,  1  = “not usable” and 5 = “must have.” See Figure 6 to right (numbering continued from Part I (024)).

What are some the applications for machine-learning AI?  Based on what I’ve seen at CLOC, ILTA, the ACC Legal Ops meetings and general networking within the industry, there are many.  Each of the applications in Figure 7 below reflect real use cases currently being pitched to large legal departments. In other words, the fate of numerous pre-chasm companies hangs in the balance. The assigned numbers are based on the composite sketches of how the application would impact the daily lives of specific personnel.  Following Moore’s methodology, we are always looking for “must haves.” Thus, 5’s are highlighted in yellow.

Note that the scores inevitably vary based on the stories we construct, albeit we want to construct the most balanced and plausible story possible.  Indeed, the entire point of the exercise is to prime the right side of our brains so we can see the world through the eyes of prospective customer stakeholders and end users and accurately identify who would most benefit from our product. Once identified, we’ll do everything in our power to adapt it into something they must have.

For example, regarding the first application, M&A due diligence, a corporate acquisition can be a heavy burden on in-house corporate counsel and paralegals. Thus, they might welcome the automation of a large volume of boring scut work.  Yet, how much internal juice do they have?  If, however, the company is a serial acquirer where the typical targets involves complex IP or environmental issues that warrant the extensive use of outside counsel, then the score assigned to the GC, Director of Legal Ops, or the CEO/CFO might reach a 5, particularly if the whole product solution reveals a large quality advantage (i.e., the machine makes fewer mistakes than people; the machine aids corporate integration). This has become Kira System’s value proposition.

Note how the search for “must haves” in the example above has the effect of narrowing the niche market — to serial acquirers with due diligence that is voluminous and legally complex.

The second AI application, outside counsel selection, can also be narrowed.  For example, if legal is a significant cost in a thin-margin business (e.g., insurance, retail, transportation), the GC and CEO/CFO scores might reach the must-have level. This might compensate for the fact that lawyers and staffers who work regularly work with outside counsel aren’t going to like the disruption of changing firms.

Likewise, for the fifth AI application, automated legal review, there are products entering the market that score the legal risks of a proposed contract against desired terms in the company’s playbook, essentially doing the reading and analyzing normally done by lawyers. In most legal departments, this will score a 3 or 4, as it adds no strategic value and the AI machine might make a mistake that will make decision makers look bad. Yet, in complex industries where in-house staff is already at 100% capacity, automated first-level legal review of low-risk, high-volume contracts may be a better long-term solution than more FTEs. Thus, this might become a “must have” for a GC or Director of Legal Ops who needs more lawyer bandwidth focused on high-value company legal work. I know this because Cisco’s legal department is experimenting with this technology in conjunction with Kim Technologies.

The above exercise can be uncomfortable for those of us in the technical crowd who helped build the generic product. We wonder, “why can’t they see what we see?”  Thus, reflexively, we tout data and the technical features of our product, often repeating ourselves. Yet, if we can endure the discomfort of getting inside the head of people very different than us, we’d see how our offering is often a mixed bag when second- and third-order effects are factored in. Cf. Post 020 (reporting “client orientation” and “client empathy” as key attributes of effective change agents).

To boil it down, if this exercise is faithfully performed, we dramatically increase our odds of locating a niche mainstream market where a specific application of our product is a must have. But all-too-often, the temptation is to double-down on sales. “We don’t have time for theories. We don’t have time for books.” Cf. Moore at 68 (“The consequences of being a sales-driven during the chasm are, to put it simply, fatal”).

The above exercise is based on Chapter 4 “Target the Point of Attack” of Geoffrey Moore’s Crossing the Chasm (1st ed. 1991). The original exercise, now more than 25 years old, used a pen-based laptop as the innovative new technology.

How to position (i.e., describe) our product

Buyers have different agendas than sellers, particularly in the mainstream market.  As Moore notes, the lead buyers in the mainstream are pragmatists who want to make a safe choice that will enable them to look good and hit their numbers. Pragmatists also have other things on their plate besides making a purchasing decision.  Thus, to save time and avoid mistakes, the’re going to categorize our product based upon their current frame of reference.

According to Moore, this will be done by placing us within a competitive bracket based upon other vendors and products.  Such categorization takes mental work.  If we leave all of this work to the pragmatist, the comparisons will be too simplistic and unfavorable to us.  Thus, as much as possible, we’ll pre-package a comparison to aid our prospective customers.

Moore calls this “positioning” and offers the following plug-and-play formula to make sure we get it right. Moore instructs the reader to “just fill in the blanks”:

  • For (target customer)
  • Who (statement of need or opportunity)
  • The (product name) is a (product category)
  • That (statement of key benefit–that is, compelling reason to buy)
  • Unlike (primary competitive alternative)
  • Our product (statement of primary differentiation). [pp. 160-61]

How useful is this? Moore offers the following example of Microsoft’s positioning of Windows 3.0 in the early 1990s:

For IBM PC users who want the advantages of a Macintosh-style graphical user interface, Microsoft Windows 3.0 is an industry-standard operating environment that provides the ease of use and consistency of a Mac on a PC-compatible platform. Unlike other attempts to implement this type of interface, Windows 3.0 is now or will very shortly be supported by every major PC application software package. (p. 162, emphasis added)

In a profoundly concise format, this positioning statement give the pragmatist everything he or she needs to make a purchasing decision.

By proper positioning, we boil everything down so we can pass what Moore calls “the elevator test.” Specifically, if our product can’t be easily described in the time it takes to travel from floor to floor in an elevator, then our product will never get the enormous tailwind of a word-of-mouth campaign within the mainstream market. Cf Moore at 159 (“Since we have already established that word of mouth is fundamental to success in high-tech marketing, you must lose [if you can’t pass the elevator test]”). Until we get this distillation right, we’re stuck with an impossibly long sales cycle and the likelihood that our competitors will do our positioning for us.

What our customers say about us

When crossing the chasm, there is (a) the positioning statement we communicate to our target customers before the sale, and (b) what our customers say about us after they’ve experienced our product.  The subtitle of Moore’s book may lull lawyers into believing that Moore is only talking about (a) — how to position the product. Yet, Moore seems no less worried about (b). Moore writes:

In the simplified [whole product] model there are only two categories: (1) what we ship and (2) whatever else the customers need in order to achieve the compelling reason to buy. The latter is the marketing promise made to win the sale. The contract does not require the company to deliver on this promise – but the customer relationship does. Failure to meet this promise in any business-to-business market has extremely serious consequences. As the bulk of the purchases in this marketplace are highly reference-oriented, such failure can only create negative word-of-mouth, causing sales productivity to drop dramatically. (p. 115).

A careful reading of Moore reveals that the “big fish, small pond” strategy is as much about conserving bandwidth and resources by not overpromising as it is finding a market segment with a must-have customer need.

Ironically, as difficult as it is to enter the mainstream market — have a great generic product, pick the right market niche, position the product so it’s easy to buy, and then deliver on the whole product solution — the rules seem to operate in reverse once a company gets to the other side of the chasm.  Moore notes, “the more you spend time with mainstream customers, the more you see how relentlessly they pursue this conspiracy to sustain market leaders” (p. 75). Thus, crossing the chasm is a one-time event that permanently alters the financial fortunes of a company — a game that is very much worth the candle.

Selling and law firms as distribution channels

Returning to our AI-enabled legaltech start-up, what’s our sales plan?

Most of the context of Crossing the Cross is based on enterprise-level technology solutions sold to large corporate clients — that is, the same posture as most legaltech start-ups. Moore lists out several options for making sales along a spectrum of “demand creators” (a direct sales force using consultative sales) to “demand fulfillers” (retail outlets).  The more novel and innovative our product, the more we’ll need a direct salesforce to prime the pump.

The problem is that direct sales is expensive. Moore notes, “To support a single consultative salesperson requires a revenue stream of anywhere from $500,000 to several million dollars [in 1991 dollars], depending upon presales and postsales support provided” (p. 173).  As good as a direct sales team can be at educating prospective customers and creating demand, Moore argues that a direct sales force is probably not viable unless the minimum sales is at least $50,000 — again, in 1991 dollars.

As a more cost-effective alternative, Moore suggests a “selling partnership” with another company that already has a business relationship with the target clientele.  Here, law firms come to mind, either as a bundled offering with the firm’s consultative legal services or as a preferred vendor when the firm cannot get the work without adding an external capability that the client is demanding. Under this approach, law firms could become an invaluable distribution channel.  Although Moore acknowledges that this approach may dramatically cut into pricing power — “he who owns the customer owns the profit margin and the future of the product” — he nonetheless endorses it as a way to reduce risk and avoid the grief of managing a salesforce not fit for purpose (p. 175).

For many a legaltech and NewLaw start-up, this approach sounds good in theory but has seldom worked well in practice.  Perhaps the reason can be found in the must-have value proposition that mainstream pragmatist buyers find most irresistible. According to Moore, this is a product offering that “radically improves productivity on an already well-understood critical success factor” (p. 103).  No disruption; just a quantum improvement in what we already known. Unfortunately, so often the business opportunity of legaltech and NewLaw is reducing the inefficiencies and quality constraints of the traditional practice of law billed by the hour.

I know several start-up founders who wish they could get back the thousands of hours invested in trying to strike a deal with law firms. Whether it’s short term self-interest or the consensus decision making of law firm partnerships, see Post 008, law firms have yet to see the benefits of being a distribution channel for new products or services that could significantly help their clients.  Unfortunately, this is a major bottleneck to innovation diffusion within the legal industry.

What’s next? See “Crossing the Chasm” and the “Hype Cycle”, Part III (026)