Crossing the Chasm – Ian Ippolito

Ian Ippolito is the founder and CEO of Exhedra Solutions Inc. and a serial entrepreneur. He is the creator of the Help Maker Plus and award winning Planet Source Code. He recently sold his latest company (vWorker, formerly known as RentACoder) to for an undisclosed amount in the millions.

I started RentACoder back in 2001 during the heart of the .com bust. Looking back, it probably wasn’t the best time to start a business. But I didn’t really have a choice. I had created another business that had done very well during the late 90s, by generating advertising revenue from cash flush dot-coms.  But when my customers stopped paying their bills and started going bankrupt in droves, I realized my business was in huge trouble. I needed to find something new…and fast. After thinking about it for a while, I thought of a very big need that seemed like it wasn’t being met. I was a computer software consultant and people were constantly asking me to help them with their programming work. But I was at full capacity and had to turn them down. After turning down the 9th or 10th one, I thought there might be an opportunity to create a site that would connect these people to programmers over the Internet. Since they were dealing with complete strangers, it would have to contain safety features such as escrowing and arbitration. So I quickly created a website to do this and put it live.

In its 1st month it made a profit of $45: not exactly the huge moneymaker I was hoping for and needed! In the 2nd month it made $90. The third it made $200. That was over 100% monthly growth rate which looked impressive when I graphed it on an Excel chart. But doing that was just a vanity project. The business was not making anything near enough to solve my financial problems. I needed to find some way of growing it much faster, but I had no idea how.

A few months later I told my brother about my problem and he recommended a book he had read called “Crossing the Chasm”. It was written by a business consultant (Moore) who had seen thousands of startups. Moore noticed that some startups succeeded while most failed and systematically figured out what made the successful ones work. His publisher expected his book might sell 5000 copies, but 10 years later it had sold more than 300,000.

If you’ve taken any business classes, you’re already familiar with the traditional product adoption lifecycle chart. If not, it’s a bell curve that shows that a company’s 1st customers are a small number of innovators and early adopters. In the early majority and late majority a company makes most of its money because those are very large markets. And at the end of a company’s lifecycle, it markets to the late majority which is also a declining number of people (similar to the innovators at the beginning of its life).

Moore noticed that this traditional chart was actually wrong.  In real life, most companies did not have the smooth progression. In fact, he noticed that many companies experienced early success with early adopters but never could transition to majority markets, and died premature deaths. He called this “the Chasm” and his book describes how to avoid falling into it.

1)      Pick a small market segment for domination

  1. Solve a problem better than anyone else
  2. Develop the whole product (the smallest subset you can develop that solves the complete problem)
  3. In products where the person paying for the product is different than the one using it: target the economic buyer and not the user.

2)      The bowling alley: Identify market segments associated with your initial segment.  Once you dominate the initial segment, use that “pin” to knock down adjacent “pins”.

As an example: when GPS was developed by GPS Mobile Knowledge (later acquired), it wasn’t marketed to the general public. That would’ve been too expensive to educate people that they needed a product they’d never heard about. Instead it was marketed to taxicab drivers. This was a small market segment that was soon dominated. Customers of taxicab drivers noticed the new device and asked about it. This was how they knocked down adjacent “pins” to eventually become a mass-market product.

There’s a lot more information in the book itself, which I highly recommend reading:

By: Ian Ippolito