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PostHeaderIcon The End of The Chasm and the Beginning of The Rapids

I’m back at it after travel to SMX Advanced London, where I had my first speaking opportunity as the CEO of OnlineMatters.  Now that I’m clear from that presentation, it’s time to get back to the topic of my prior post (not) crossing The Chasm.

In my last post, I posited that The Chasm, as far as Internet-based businesses are concerned, is quickly disappearing.  Let me explain why and why The Chasm has now been replaced by what I call The Rapids.

The Chasm exists because of the disconnect between

  • The time/resources needed to evolve both a high-tech product and business model from meeting the needs of early adopters to support the larger market segment – the early majority.
  • The money available to fund this transition, which is limited by the size of the early adopter market.  The available funds are not likely to grow until the early majority purchases the product en masse, for two reasons. First, because sales generate cash.  Second, because sales validate that the business model and product features are now positioned for scale, thus increasing the company valuation and ability to attract new third-party capital needed for growth.

Voila – A Catch 22 and birth of The Chasm.

But today’s Internet-based business startups work differently.  Thanks to new technologies and approaches to IP (open APIs, open source licensing, crowdsourcing, cloud computing, mashups), software products that used to take months and years to conceive and develop using a large number of engineering and marketing resources, can now be brought to market in a few weeks by two-three people in a condo (Sad to say, the garage crowd went upscale in the late 90s in Silicon Valley and have never really returned to their roots in the humble garage).  Without a lot of effort, they use word-of-mouth and viral techniques, as well as search engine optimization and perhaps a little PR, to acquire an initial set of customers who hopefully like the product and tell their friends.  If they are smart, they add a customer feedback tool like getsatisfaction or uservoice to their sites and begin collecting immediate, extensive, and continuous feedback from customers.  They plow this feedback into the product using daily or even hourly code pushes.

The difference in speed of product evolution between traditional high tech startups and Internet-based business startups is like the difference between the gestational period of an elephant and a virus. And that difference is one of two reasons The Chasm is quickly shrinking, and ultimately disappearing, for Internet-based business startups.

While products in both cases evolve in discrete steps, the size of the steps in the case of an Internet-based business are relatively small and from day to day customers do not see huge changes in the product they are already familiar with.  However, they get to use the product even as it is evolving, unlike the case in more traditional hardware or software businesses where customers can only engage with a new set of features when they are released in large, discrete “chunks” and not before.  As a result the early adopters are brought along even as new customers try the product.  Each step involves a group that more and more reflects the larger majority of customers until at some point the product meets the needs of the earliest of what would have been called the early majority –  who also happen to be the latest of the early adopters.  There is no ability in this case to find a demarcation between these two groups.  Customers’ perceptions of the product and their needs from the product change as the product itself changes because they experience those changes in small steps as they occur.  Obviously some early customers will chose to leave the product as it evolves, but that is true of any product at all times as customer attrition is a fact of life.  Rather, the customer need and product feature evolve in tandem in a virtuous cycle, removing any need to leap between one set of customer expectations/needs and another.

So on the one hand, the capital requirements for an Internet-based business startup have declined (and continue to decline) substantially, while the time required to evolve the product and engage customers in its evolution continues to shrink.  As a result, the challenge for Internet businesses is not The Chasm, because it effectively doesn’t exist any longer.

The new strategic challenge for Internet-based startups is sifting through the reams of data available – customer feedback, site analytics, Twitter feeds, Facebook fan pages, competitive data (of which there is much more today than ever) –  in near real-time and clearly identifying the critical strategic requirements for the business and product requirements needed to serve the core customer segments.  Whereas the traditional high tech startup has difficulty getting enough feedback and making enough changes in a short enough time to perfect the product and business model, the Internet-based business startup faces the problem of determining the key insights from a plethora of data (“the rocks”) and making those insights actionable in time frames that are more logical for a supercomputer than a human being.    More importantly, they need to have the discipline to avoid taking on too many strategic imperatives (“oversteering”) and not over-evolving the product because…well…because it is relatively easy to do.    The Internet startup isn’t crossing a chasm.  They are trying to avoid the rocks and not oversteer their course.  They are navigating The Rapids.

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