The two figures above reflect frameworks that are widely used within the technology industry to grapple with the treacherous nature of high-tech product development.
Figure 1 is the 2017 Hype Cycle, which is published by Gartner, a large international research company that helps CIOs and other IT professionals understand and evaluate emerging technologies. The Hype Cycle has been published every year since 1995, always with the same shape and the same five stages, beginning with the “innovation trigger” and ending with the “plateau of productivity.” The only changes are the technologies and their relative placement on the Hype Cycle.
At the “peak of inflated expectations” for 2017, we see several types of artificial intelligence that are now widely discussed in the legal press, often with headlines that foreshadow the replacement of lawyers by machines. If Gartner is right, such a threat is premature, overblown, or both.
The second figure (Figure 2) looks like a Rogers Diffusion Curve, see Post 004, but with a large gap between the early adopter and early majority segments. The gap is the “chasm” discussed in Geoffrey Moore’s Silicon Valley classic, Crossing the Chasm (1st ed. 1991). Figure 2 is titled “The Revised Technology Adoption Life Cycle” because Moore added the gap to reflect the crucial transition from early adopters to the early majority. (Prior to Moore’s book, the high-tech community relied heavily upon the unrevised model — i.e., a model identical to the Rogers Diffusion Curve.)
Moore’s core thesis is that most high-tech ventures fall into the chasm and die because they fail to grasp the many moving parts that must be fashioned and coordinated to move from early market to the mainstream market — i.e., to cross the chasm. Moore’s book provides very detailed prescriptive advice. Once on the other side of the chasm, the company has a much higher probability of ascending the upward-bound S-curve and thus producing a large financial return for company founders and investors.
Moore’s book is essentially a practitioner’s manual, far removed from academic theory or empirical validation. Yet, it is now in its third edition and has sold more than 300,000 copies.
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.
This is Part I of a three-part final installment in Legal Evolution’s foundational series on diffusion theory, albeit the topics covered — “Crossing the Chasm” and the “Hype Cycle” — are not part of diffusion theory, at least not directly. Nonetheless, these two frameworks have long guided decision making in the tech industry; and tech is indisputably where the legal industry is headed. Therefore, those working in legal innovation need to understand how these concepts fit together.
- Part I (024) summarizes the key features of Geoffrey Moore’s widely used and powerful chasm framework. It is very important for readers to understand these ideas from the perspective of Moore and his audience — i.e., as practical business advice being dispensed to entrepreneurs. Surely practicing lawyers ought to be sympathetic to this approach.
- Part II (025) applies Moore’s framework to a real-world example of high-tech companies selling to legal departments. Part II then finishes the chasm framework and explains the special challenges of applying it to the legal industry.
- Part III (026) reveals the unusual intellectual origins of Crossing the Chasm and how those origins illustrate several of the key concepts of diffusion theory in ways that are surprising and ironic. Part III also returns to the Gartner’s Hype Cycle as a lens for viewing technologies at the industry rather than the company level.
More so than any other foundational posts, Posts 024-026 speak to the specific challenges of legal start-ups and technology companies. Law firms are discussed, albeit primarily as part of a “distribution channel” that controls valuable client relationships. For a variety of reasons, most law firms will be reluctant partners. It is unclear whether in the long run that will prove to be a wise strategy.
The Whole Product Solution
An entrepreneur “crosses the chasm” by turning a fledging start-up into a high-growth business built around a new technology. Much to the chagrin of technology inventors, the technology itself is not sufficient to reach this goal. Instead the technology must to become part of a “whole product solution” that anticipates and overcomes a wide range of potential obstacles to adoption.
Building a whole product is less a technical feat than an extended exercise in commercial empathy. Several market competitors may have similar technology. But according to Moore, the first to build and communicate a whole product solution will be the first to cross the chasm and capture the mainstream market. See p. 114 (“[W]inning the whole product battle means winning the war”).
Below are two graphics that reflect the whole product solution.
Figure 3 is what Moore refers to as the Whole Product Model. At the center is the Generic Product, which is “what is shipped in the box and what is covered by the purchasing contract” (p. 111). However, end users make buying decisions based on the “expected product”, which Moore describes as “the minimum configuration of products and services necessary to have any chance of achieving the buying objective” (Id). For example, if the generic product is an IBM PC equipped with a Microsoft DOS operating system — a product on the market when Moore was writing the first edition of Crossing the Chasm — Figure 4 is a reasonable depiction of the ancillary products and services that make up the expected product.
A company has crossed the chasm when it has become a market leader in a niche portion of the mainstream market. Although the foothold is not large, it is the ideal place to develop the “augmented” and “potential” products (the third and fourth rings in Figure 3). If the expected product was the IBM PC shown in Figure 4, the augmented product might include a customer hotline, advanced training, accessible service centers, and expanded software offerings. Likewise, the potential product might include what we see today — a platform for streaming entertainment and playing complex, interactive games.
The Early Market versus the Mainstream Market
According to Moore, its not the underlying technology that separates winners and losers. Rather, it is a failure of both entrepreneurs and investors to realize that the market is divided into two parts — an early market, where a promising generic product is sufficient; and a mainstream market, where customers will not buy without overwhelming evidence that they are, in fact, buying the whole product. See Figure 5 below.
Success in the early market comes in the form major sales to visionary clients who see the technology’s breakthrough potential. This market evidence is often sufficient for venture capitalists to provide another round of financing in anticipation of rapid growth. This is because VCs — more so in the days before Moore’s book — bought into the smooth continuous shape of the Technology Adoption Life Cycle (Figure 2 above, but without the chasm). All-too-often, however, the S-curve adoption never materialized.
The recurring mistake, according to Moore, is that customer expectations are dramatically different in the early versus the mainstream market. In the early market, “visionary” early adopter customers are drawn to the potential breakthrough implications and have the imaginative capacity to envision the whole product as something real and inevitable. Yet, visionary buyers are relatively rare. But Moore argues that the problem runs deeper than that — these “visionary” early adopters are unsuitable as reference clients.
Moore refers to the early majority (the leading edge of the mainstream) as “pragmatists” because their buying requirements are so practical and stringent. “When pragmatists buy, they care about the company they are buying from, the quality of the product they are buying, the infrastructure for supporting products and services and systems interfaces, and the reliability of the service are going to get” (p. 43). When the company’s sales team points to visionaries, the pragmatists are unimpressed, distrusting the visionary’s risk-taking, flaunting of convention, excessive attention given to early stage technology, and the “overall disruptiveness” they impose on others. See p. 58-59.
If a tech start-up is not aware of the chasm, it runs the risk of being lulled into complacency by a few large sales to visionary clients. But more problematic is the resulting “catch-22.” As Moore notes, “The only suitable reference for an early majority customer … is another member of the early majority” (p. 21). This is the problem that Crossing the Chasm is trying to solve.
How does a company cross the chasm?
A company transitions from the early market to the mainstream market — i.e., crosses the chasm — by focusing on a niche market where, by sheer dint of preparation and focus, it becomes “the only reasonable buying proposition” (p. 110). The narrow focus is necessary to conserve limited resources and increase the odds of delivering a whole product solution. This “big fish, small pond” strategy enables the start-up to “secure a beachhead in a mainstream market — that is, to create a pragmatist customer base that is referenceable” (p. 68).
Moore provides tremendous guidance on how to find the right niche market. The difficulty is that a technology start-up only has a few significant clients in the early market, none of whom are representative of the mainstream. Because better information is time and cost prohibitive, pre-chasm companies operate in a “low data, high risk” environment. Thus, the only option is to engage the management team’s imaginative faculties to anticipate the needs, preferences, and objections of the various stakeholders employed by your target clientele. This is the extended exercise in commercial empathy mentioned earlier — and its extremely difficult, particularly for left-brained technical types (lawyers as well as engineers).
In Part II (025), I will illustrate how this is done by applying Moore’s methodology to a contemporary legal industry example.
What’s next? See “Crossing the Chasm” and the “Hype Cycle”, Part II (025)