Geoffrey Moore on finding your beachhead, crossing the chasm, and dominating a market

1. 0:00 – 4:03

   Geoffrey’s background

   1. GMGeoffrey Moore0:00

      ... the tendency when you're in the chasm is, "I just need more customers. I should take any customer I could find," right? And because I, we need, we need revenue, right? It's like taking a match and running it back and forth under a log. (laughs) I mean, it's just... It's not gonna light the log. So how do you start a fire? Well, you start it by putting a little kindling, a little crumpled-up paper, and you hold the match one place until some- the fire starts. And that's why adjacency is so important. If you light the fire and the piece of kindling is here, but the log is, you know, in the other room, that, that doesn't work.

   2. LRLenny Rachitsky0:30

      (instrumental music) Today my guest is Geoffrey Moore. Geoffrey is the author of maybe the most influential and important book on go-to-market ever written, Crossing the Chasm. Even though it's sold over a million copies, still feels like people continue to reinvent many of the lessons that Geoffrey uncovered and shared in his seminal book. In our conversation, we discuss why it's so important to get very narrow with your initial audience, how the bowling pin strategy helps you get past early adopters, what the specific go-to-market playbook is for every stage of the adoption life cycle, why using the wrong playbook during the wrong phase will slow you down, also the seven deadly sins of trying to cross the chasm incorrectly, also how to sell your product to different personas, why you don't need to focus on the problem and the pain when you're selling to early adopters, plus some real good life advice that I didn't expect. Geoffrey has so much wisdom to share if you're building a B2B company, and I'm really excited to bring you this episode. With that, I bring you Geoffrey Moore after a short word from our sponsors. Let me tell you about CommandBar. If you're like me and most users I've built product for, you probably find those little in-product pop-ups really annoying. "Want to take a tour?" "Check out this new feature!" And these pop-ups are becoming less and less effective since most users don't read what they say. They just want to close them as soon as possible. But every product builder knows that users need help to learn the ins and outs of your product. We use so many products every day, and we can't possibly know the ins and outs of every one. CommandBar is an AI-powered toolkit for product, growth, marketing, and customer teams to help users get the most out of your product without annoying them. They use AI to get closer to user intent, so they have search and chat products that let users describe what they're trying to do in their own words and then see personalized results, like customer walkthroughs or actions. And they do pop-ups too, but their nudges are based on in-product behaviors, like confusion or intent classification, which makes them much less annoying and much more impactful. This works for web apps, mobile apps, and websites. And they work with industry-leading companies like Gusto, Freshworks, HashiCorp, and LaunchDarkly. Over 15 million end users have interacted with CommandBar. To try out CommandBar, you can sign up at commandbar.com/lenny, and you can unlock an extra 1,000 AI responses per month for any plan. That's commandbar.com/lenny. This episode is brought to you by WorkOS. If you're building a SaaS app, at some point, your customers will start asking for enterprise features, like SAML authentication and SCIM provisioning. That's where WorkOS comes in, making it fast and painless to add enterprise features to your app. Their APIs are easy to understand so that you can ship quickly and get back to building other features. And hundreds of other companies are already powered by WorkOS, including ones you probably know, like Vercel, Webflow, and Loom. WorkOS also recently launched AuthKit, a complete authentication and user management service. It's essentially a modern alternative to Auth0, but with better pricing and more flexible APIs. AuthKit's design is stunning out of the box, and you can also fully customize it to fit your app's brand. It's an effortless experience from your first user all the way to your largest enterprise customer. Best of all, AuthKit is free for any developer up to one million users. Check it out at workos.com to learn more. That's workos.com.

2. 4:03 – 5:58

   What people often get wrong about Crossing the Chasm

   1. LRLenny Rachitsky4:03

      Geoffrey Moore, thank you so much for being here, and welcome to the podcast.

   2. GMGeoffrey Moore4:07

      Well, it's nice to be here, Lenny, and thank you for having me.

   3. LRLenny Rachitsky4:09

      It's incredibly cool to have you on. You've been at the top of my wish list of guests to have on this podcast ever since I launched it, so it's kind of surreal to be chatting with you, and it almost feels like maybe this podcast has crossed the chasm now that you're on.

   4. GMGeoffrey Moore4:22

      If you'd called me earlier, I probably would have been on it with you. But anyway-

   5. LRLenny Rachitsky4:25

      (laughs)

   6. GMGeoffrey Moore4:26

      ... we're g- we're together now.

   7. LRLenny Rachitsky4:27

      I thought it'd be fun to start with this question of just what frustrates you most about what people still don't get about the things that you teach, particularly Crossing the Chasm? You wrote that, I think, 33 years ago at this point. You have a lot of follow-up books around the topic. What do you think people still don't really understand or often get wrong?

   8. GMGeoffrey Moore4:45

      All the books I write are about frameworks. I mean, they, they're, they're, they're conceptual models about what, what, eh, what patterns should you be looking for as something evolves? Because there's n- in these- in the- in disruptive innovation, there's no, there's no history, right? I mean, you're, you're, you're always projecting a possible history and then seeing if you can make it come tr- true. So that implies there's a lot of freedom to sort of exercise the framework however you choose to. And, and people, people sometimes do that in ways that are just... They actually end up mis- being very misleading about what, what's possible. Uh, so I mean, I can remember one person early on saying, "Yeah, we're crossing the chasm. Our beachhead segment's the Fortune 500."

   9. LRLenny Rachitsky5:28

      (laughs)

   10. GMGeoffrey Moore5:29

       And you went, "Well, I don't think you're maybe as clear on this (laughs) as you could be." So, so and the- and, and to be fair, that's kind of what the function of any third-party advisor is, is to say, "Look. Time out. You might be looking at this through an inside-out lens. Maybe you should be looking at it from an outside-in lens." That, that's probably number one. Gosh, after that, I, I'm just, I'm just empathetic with the fact that their world's more important than my world. So-

   11. LRLenny Rachitsky5:55

       Yeah.

   12. GMGeoffrey Moore5:56

       ... I try to work with their, with their, with their world.

3. 5:58 – 9:29

   Finding your beachhead segment

   1. GMGeoffrey Moore5:59

   2. LRLenny Rachitsky5:59

      So that's exactly where I actually wanted to go next is this idea of starting very focused with your initial target audience. I think people conceptually know this. They're like, "Yeah, we should be really focused with our initial target, uh, market. We should stay very small and expand this beachhead idea." But I think they still don't quite actually do this, because it's like, why not go wider?So could you just talk about why that is so important and how to actually think about how to do that correctly?

   3. GMGeoffrey Moore6:23

      If you're essentially in a business where the category is emerging, then the most important thing for you to do i- is to be able to create enough power around your company that you can navigate your future on your own power. So where does power come from, uh, in, in an early adopting technology world? First of all, it'll come from can you get a lighthouse customer? So one of the things we try to do even before you try to cross the chasm is can you get one or more customers who kind of put you on the map? And they, and they go, "Whoa, did you know that the CIA used AWS?" You know, like, "Holy smoke." Okay. That's great. It doesn't make a company but it, but it makes a story and it lets, it lets people know, "Oh, you're the guys that did the CIA project." That kind of thing. The crossing the chasm model is can you create a viable repeatable business? And in order to do that, you need to have an ecosystem of partners work with you in order to consolidate your position. Well, why would an ecosystem work with some startup that nobody's ever heard of? And the answer would be, if you had consolidated a market segment where you were number one. So one of the things we've learned about company power is that it's basically, it's the company power plus the ecosystem together. And so ecosystems form around market leaders and they do not form around the rest of us. If you're a category leader, if you're like Oracle and databases, you know, you're, you're 40 years in, you're still the leader because the ecosystem organized around you. But when you're little, the only way you can get an ecosystem to organize around you is to go after a segment where you're a big fish in that pond. So we, we talk a lot about fish to pond ratio, right? You, you want to... You want it... Your first pond, your target segment should be something that the next two years if you hit your, you know, really high growth rates, you'd be 30, 40, 50% of that, of the market share in that segment. That would cause partners to go, "Whoa, if we're going to serve that segment, we got to work with these guys, right?" And so, so that's kind of the key, and, and the, and the concept there is, well, why wouldn't you also, you know, do three, two or three or four segments at the same time? It's sort of the same reason why wouldn't you run in three or four primaries at the same time if you want the presidential nomination? Although why you would want that nomination, I have no idea. But, but if you did, you realize if you're running in New Hampshire, votes in Vermont do not count. And it's the same thing with crossing the chasm. You need to get three or four or five or six, you know, reputable companies in a segment to all pick you for then the rest of the segment to go, "Well, it's pretty obvious who the standard is." A- and I'll just close with one last comment, and the reason... The mechanism behind all that logic is that pragmatic people buy what they see their peers are buying. And so if peer one is buying product A and peer, peer two is B and C and D, there's no market leader and, and, and the category kind of goes sideways. But if, if A, B, and C, if three out of four people are using the, the iPhone, it's like, "Oh, I guess I'm supposed to get an iPhone." That kind of thing.

4. 9:29 – 15:45

   The four inflection points of the technology adoption lifestyle

   1. GMGeoffrey Moore9:29

   2. LRLenny Rachitsky9:29

      Awesome. I'm glad you went there because that feels... That's essentially the root of this crossing the chasm idea, that people after the chasm, the pragmatists wait for references and social proof and they're waiting for someone to tell them this is worth using, versus visionaries right before the chasm that are like, "I just want to see... Use the future. I need to be there before anyone else."

   3. GMGeoffrey Moore9:49

      Right, and one of the ways we try to capture that in a thought bubble is before the chasm, the customers you work with are people who say, "We believe what you believe." So they, in other words, they're, they're on the same side. After the chasm, they say, "Hmm, I'm not sure about that but we need what you have." So transitioning from we believe what you believe, which is kind of how you sell to visionaries, to we need what you have, which is how you sell to pragmatists. That's kind of the, the shift.

   4. LRLenny Rachitsky10:17

      Let's actually spend some more time there on what it is that each of these segments needs and how you convince them to use it, 'cause this is really u- useful. So in this pragmatist group, you're saying the pitch there is you have a pain, I will solve this pain and it's an important pain. And I think people always assume that's the pitch, but interestingly your point is earlier in the two segments, and maybe share what those two are, they, they use your product for a different reason.

   5. GMGeoffrey Moore10:41

      In fact if, if there's a total... In the model of the technology adoption life cycle that we organized this all around, there's actually four I call them inflection points. So the first one we call the early market, that's the one we were talk... That's the visionaries and the technology enthusiasts. They are as excited about you as you are. I mean, they want the demo, they want to see the vision, they're, they're exciting and what they're... And, and the key to that market is to have an executive sponsor who has enough clout to essentially fund this thing as a... Because there's no budget for you, so they got to create the funding and then kind of drive the organization to go all the way to bright. And it's... And they're not that many visionary customers, but there's always one or two. And, and, and the reason why it's so important to work with some... A marquee customer then is you... Look, nobody's ever heard, heard of you and if they've never heard of your customer, I don't care how, how amazing the win is, no- nobody's going to hear about it. So it's really important you did it with Apple or you did it with, you know, Verizon or you did it with, you know, Mercedes, somebody that people have heard of. So that's number one, and that's a project model. Even if you've got... Even if your... If what you sell is a product, those early market, every one of them is kind of a snowflake, it needs a ton of special services, there's no ecosystem of partners to support you, so you throw a bunch of extra labor at it, you do whatever, because you... Whatever... You got to make them successful, so you'll do whatever it takes. Okay. Very cool. Got my marquee client, not scalable business, I mean, obviously,So then the second one's the, is the Crossing the Chasm playbook. That's the one that organizes around the problem. The good news is, those customers are open to hearing from someone new because they've already talked to everybody they already know and the problem is still un... it's not that it's unsolved, it's being solved in a crummy way. And, and by the way, in a deterioratingly crummy way, so it's getting actually worse. So there's pressure for them to act. The, this is where you go from the project model to the solution model and as a vendor, you over-commit to their problem. You, from the very beginning, from the very beginning you talk to them, they don't wanna talk to you about you, they wanna talk to you about them and you need to ask them probing questions about them. Just like going to a doctor, you don't want the doctor to come and say, "Hey, can I show you a movie of the operation I just did?" You know-

   6. LRLenny Rachitsky13:09

      (laughs)

   7. GMGeoffrey Moore13:09

      ... "Oh, I wanna give you a demo. You mind if I give you a demo?" It's like, no, what I would like (laughs) to do is talk to you about this pain I have in my side. And then when the doctor asks you good questions about it, you go, "Ah, this is a good doctor. I'm gonna trust this..." So that's the whole point about that. And again, that scales a lot more than a project business, but it only scales up to the limit of the target segment, right? So we had this bowling alley model of sort of extending, you could go to a second segment, a third segment if it was adjacent. So adjacent means either it's the same customer with a different use case or it's the same use case in a different customer base. And, and, and because you, for one case you use your customer references, the other case you use your partners, because the partners who built the one use case will say, "Well, we got another segment that we work with, let's bring you into that segment too." So that can take a company from, I don't know, tens of millions of dollars to hundreds of millions of dollars, you can... In the bowling alley. And, and, and in specialized industries like computer-aided design or things like that, you can actually go to a billion dollars or higher. But, but with most other categories, at some point you have this third inflection point which is, it's when people go, "Well wait a minute, Wi-Fi isn't just for, you know, financial analysts or isn't just for... Wi-Fi's for everybody." And, and so instead of saying, "We believe what you believe," which that's, we're not there anymore, and even th- these people aren't even really saying, "We need what you have," what they're saying is, "We want what they have. This is really cool, I want what they have." And that creates what we call the tornado-

   8. LRLenny Rachitsky14:44

      Mm-hmm.

   9. GMGeoffrey Moore14:44

      ... and that's when, that's when people, you know, everybody, you, this is when you do want sales coverage and you do wanna go broad and you do wanna have a standard product, and basically you wanna capture as much market share as you can. I mean, there's a whole playbook around, around doing that, which was in a book called Inside the Tornado. And then the last one, w- which is actually becoming much more important over, is, in this century is called ma- is, is, is Main Street, but Main Street i- where products have become commoditized, services become the new place of innovation. So you know, y- we've had taxis for 100 years, but Uber is an incredibly valuable thing and, and, and you know, so you convert the product to the service and how do you revolutionize services and that's a situation where, where now people are saying, "Look, I don't wanna own the product. I don't wanna own..." Well, kids, "I don't wanna own a car. I just wanna call Uber." Right? I, I just... It's convenient. So anyway, those are the four models and, and, and Crossing the Chasm was about that second one.

5. 15:45 – 18:36

   Geoffrey’s bonfire and bowling alley analogies

   1. GMGeoffrey Moore15:45

      Yeah.

   2. LRLenny Rachitsky15:45

      Amazing. You touched on so many things that I wanna talk about. I definitely wanna dive into the bowling alley metaphor and strategy there. But to close the loop on this target audience to start with initially, first of all, you have this awesome, uh, bonfire analogy that I think might be useful to share and then along that, is there an example or an example or two you could share of just someone that did that really well, picking a really good initial target?

   3. GMGeoffrey Moore16:08

      Sure. So well the, the, the bonfire analogy is just, you know, the tendency when you're, when you're, you're in the chasm is, "I just need more customers. I should take any customer I could find," right? And because I, we need, we need revenue, right? And, but I, I, the analogy I have is it's like taking a match and running it back and forth under a log. I mean, it just, it's not gonna light the log. So how do you start a fire? Well, you start it by putting a little kindling, a little crumpled up paper and you hold the match one place until some- the fire starts and then you want to build. The bowling alley metaphor is a little bit about how, first of all, how could you win your first segment but then increasingly, how, how would you go forward to, to win it? And that's why adjacency is so important. If you light the fire and the piece of kindling is here but the log is, you know, in the other room, that, that doesn't work, right? So, so I think those are kind of the key ideas. Um, there's a lot of people that have made Crossing the Chasm, uh, uh, successful. The one that we wrote about very first of, uh, was this company called Documentum and it's a good example. So it was a document management database back in the day. That was not th- nobody had any, what, what, what would you, what, why would you, why would you need this? Started with the pharmaceutical industry because pharma said, "Well, new drug approvals are 500,000 page documents and they really, really, really aren't managed and we're screwing it up and every day we screw it up, we lose a day of patent life of our drug and the patent, day of patent life's worth about $1 million or $2 million a day. This is a bad, this is a bad situation. We need to do something." So okay, pharma, you got pharma. Great. Well then what happened was the guys in, um, w- uh, in petrochemical said, "Well, you know, we're in the chemical industry, we're not in the pharmaceutical industry but we have these standard operating m- manuals and we have all these regulatory d- demands on us too. Not quite like the FDA, but this looks like this could be pretty useful to us too." And then the, and after the petrochemical guys got it, uh, well the, the, the chemical guys got it, then the petrochemical guys got it, and of course they're oil and gas and they said, "Well, you know, in addition we have all these leases and all these le- and lease holds and it's brilliant. We need... This is our, you know, this is, this property's critical to our future plan so we need a document database for the leases." So then the guys on Wall Street who are financing these guys are going, "Well wait a minute. Hell, I mean we're...... we're paper from wall to wall here, why don't we- And so what happens is you have this thing of, of this expansion but in each case it was, into a new segment but the use cases were close enough.

6. 18:36 – 22:19

   Steps to take before trying to cross the chasm

   1. GMGeoffrey Moore18:36

   2. LRLenny Rachitsky18:36

      So if a startup founder is listening and trying to decide is their initial target audience, their ICP too wide? Do you have any advice for how to know if this is still too wide and you should try to get more and more narrow? I know you talk about a single use case, what else should people be thinking about there?

   3. GMGeoffrey Moore18:53

      Well, so, er, first of all before you try to cross the chasm do you have a marquee, eh, have you won a marquee customer that puts you on the map? So don't, don't even... I mean that's more, that... because if you're not... you need to get visi- you need to make yourself visible before you can make the crossing the chasm play. Let's assume you've done that. So, so then the gl- your first thought is well why don't I just use that industry? Turns out that the visionary person you work with, first of all they did some very weird things (laughs) 'cause they're visionaries. And second of all, they don't want to help their industry. The whole point of this was they wanted to get ahead of their com- competitors, they didn't want to help 'em. So normally you can't use the visionary, uh, project as, as your beachhead. Y- you'd love to from a point of view of reusing the work but you just can't. So then the question becomes, okay, where am I gonna go? And so the, the key formula and this is the formula if there's one, sort of takeaway from founders listening at this point. You want to have a target segment that is big enough to matter, small enough to lead, and a good fit with your crown jewels. That's the formula. So big enough to matter means if I got, if, if I w- do I have enough room to double or tr- often venture capitalists talk about a triple double followed by a double triple. So if you said, "Okay, I'm a mil- let's just, I'm going to make you a million dollars for that visionary but just to give you a number." Okay, so a double triple would be I went from one to four and from four to 12 and then I did a triple double. So that would be 12 to 24, 24 to 48, 48 to 90. Okay. So how, how would you get from one to $100 million? So you want to have a segment that says that I could get to $100 million in, in, in a five year... That, that, that, that was a five year window, right? So you say, okay. But, but it can't be as a billion dollar segment because if it's a billion dollar segment, you might be able to get there but you would not be a big fish. So that's a fish to pond ratio thing. So you want to think about par- particularly as you're starting out, if you, if, if you could, if you could... And this is a B2B model predominantly, if I could take the top 20 customers in this segment meaning... But what do I mean by a segment? It's in the, it's in the same geography. People in Japan don't talk to people in America, people in America don't talk to J- people in Germany. They even speak different languages. I don't know why everybody doesn't speak English but apparently they don't. So they, they have to be same geography, same industry 'cause, you know, dentists do not talk to, to, you know, software designers who don't talk to advertising people. And in the same, um, profession. So salespeople don't talk to finance people and finance people don't talk to us, to, um, you know, uh, guys in the warehouse. So, so same industry, same geography, same profession, and then the compelling use case which is the thing that... And that, and the r- and that's the, that's the thing that starts the fire. I mean, there's segments everywhere and they all... By the way, they all have that, they all do... Every segment works the same way. If I have to make a high risk buying decision, I'm going to talk to my peers about it and I'd, and I don't want to be first. I want to be able to do whatever the herd's doing. But what a compelling reason to buy does is it goes, "Well, but I have to act faster than I want to." And that's what you need as an entrepreneur. You need the customer to be coming toward you even though you're, you're new and you're unproven and you frankly, you scare the crap out of them. But they're even more afraid of the problem that they're saddled with. And so that's why you can build a relationship with 'em.

7. 22:19 – 25:19

   Signs you’re ready to cross the chasm

   1. GMGeoffrey Moore22:19

   2. LRLenny Rachitsky22:19

      Amazing. And this phase comes... You kind of imply it comes after say you're at a million dollars ARR. You don't do this sort of work of trying to cross the chasm at that point until you reach something like that?

   3. GMGeoffrey Moore22:31

      Unless your ARR is going to be the right, the right reference. Here's what you need. You need a major account who's gone all in with you on the new technology and who is willing in some way to, to talk about it. The good news about visionaries is they tend to have fairly big egos and they tend to like to talk. So, so, so that i- i- it's a pretty, uh, un- unlike pragmatists who will not want to talk. Pragmatists and then they'll have to go to legal and get permission and blah, blah, blah. But, but, but, but once, but once you've got that, whatever your revenue is, at that point you, you should be starting to think about, well how... What is my beachhead segment? And the good news about crossing the chasm, it's not expensive. I mean think about it, once you've said I'm going to stay in one geography, in one industry, one profession, think about your marketing budget. I mean, you, you're, you're not, you're not buying Super Bowl ads here. There's no sock puppets. You know? We're not... (laughs) that's not what we're doing, right? (laughs) We want to, we want to get to maybe 200 people, uh, you know, with, with a message. And then, and then they, do you, do you have the domain expertise to really understand the problem? And if it's a really compelling problem, they'll take the meeting. And that, getting that meeting is, is... 'Cause y- you know, if you're s- if you're an entrepreneurial founder, you're probably fairly charismatic. First of all, if you've con- you've convinced your spouse that you're willing to, like, work for no money and with no benefits (laughs) and maybe you pitched to venture capitalists and you, you fooled them, so why can't you fool these guys? (laughs) Anyway, that would be the way I would go.

   4. LRLenny Rachitsky24:02

      Essentially the advice here is if you're a new early stage startup one of the biggest milestones you want to aim for is a big marquee customer. Like, when I think about this and look at a startup deck, if I see something like Figma's using this product or Notion or Salesforce, like clearly I will be like wow, okay, these really sophisticated people decided this is useful to them. And so I will innately trust that.There's also often advice of don't work with big companies because they'll push you around, they'll take a long time. They'll force you to build a thing just for them and it won't apply to other people. What's your advice to avoid that downside?

   5. GMGeoffrey Moore24:37

      It has to do with the persona of the executive sponsor. Nine out of 10 executive sponsors are gonna be the negative d- because they're gonna be a company person working with company processes, they're gonna send you to purchasing, and nobody's gonna be happy. You're looking for the 10th one. And the 10th one is the one who says, "I'm so tired of f- of the status quo. I'm looking for people that are more visionary like me. I like talking to you better than I like talking to my peers because you're, you're different and I wanna be different. I wanna leapfrog the world and these people just want to stay on the escalator. So they're staying on the escalator, God bless them, but I wanna, I wanna, I wanna jump over the top." So it's a persona-based, uh, choice is the key thing

8. 25:19 – 27:31

   Advice for startups on where to start

   1. GMGeoffrey Moore25:19

      there.

   2. LRLenny Rachitsky25:20

      That is really interesting. And then say that you are an early stage startup again, how soon do you think it makes sense to invest in finding that big marquee customer versus finding some smaller c- I imagine you start with like some startups to see how people... You know, you don't go straight there.

   3. GMGeoffrey Moore25:36

      Yes. A- and so initially I think in w- with and of course w- you and I both playing with... Let's be clear, we're playing a software game. I mean, like for example, I was trying to apply this framework to Intel and Intel said to me, "Geoffrey, you do understand that a prototype product in our industry costs about $500 million?" (laughs) It's like, "Okay, okay, okay, okay. Maybe, maybe there, maybe that's not the same model." But for most of the... I think in our world right now with digital transformation, most entrepreneurs are doing some software led pla- Which means you can work with a small team. And, and so I think what I would advise is I would do projects. I would init- Even if though I'm a product... Even though I w- I have a product vision, I would start with trying to make as mu- projects and, and, and which would be very customer led and, and frankly initially e- even if I have a roadmap, the customer's probably gonna take me off my roadmap a bit. And I have to be willing to say, "I'm gonna, I'm gonna open the aperture enough 'cause I need, I just need to get enough ex- experience with the technology. I need to get, I need to put it in people's hands." If, if, if it's a freemium play, you can, you can do it, you know, for free, but that, that tends to be more of a consumer play. I mean, there are exceptions. There are B2B companies like Atlassian and things that did start as a freemium play, but that's not as normal. I, I would, I would think more the consultative play to do that. But what I would try to do is I would try to get to cash flow break-even on my own money with no venture capital. The only reason you need venture capital is if the, i- i- well two things. Either A, the, the technology's too expensive and you cannot self-fund it, uh, GPUs, a bunch of that, c- training large language modules, those kind of things. Or, um, this thing is gonna get, catch fire too soon and I don't have time to dither around for two or three years. So those are two reasons to go to venture capital.

9. 27:31 – 27:53

   Thoughts on venture capital

   1. GMGeoffrey Moore27:31

      But just because you want to do a startup doesn't mean you need venture capital.

   2. LRLenny Rachitsky27:35

      Yeah, we had, uh, Jason Fried on recently, the, uh, CEO of Basecamp and he made that point in many different ways, the benefits of not raising and how most VC funded companies do not work out. And even when they do, you often don't make as much as you could if you tried it, to bootstrap it. So I think there's a lot of resonance there.

10. 27:53 – 30:52

    A general timeline for crossing the chasm

    1. LRLenny Rachitsky27:53

       And you have this quote that essentially kind of what you just said that, "With a single round of funding, you should be able to cross the chasm and dominate it. A single use case in a single market within 18 to 24 months."

    2. GMGeoffrey Moore28:03

       Yeah. Yeah. That's the... Uh, I mean, you know, um, um, you know, this is like another, an English major doing math, right? So be careful. But, but 'cause I am an English major and, you know, uh, but, but in general because again I said it's not expensive. And, and by the way, you're not discounting. Uh, in other word, you, you're actually using value pricing because the problem you're solving is severe enough the customer doesn't want a discount. The customer wants you to... It's like, you know, if you have to have heart surgery, you don't want a coupon that says, "Heart surgery 9.99 this Saturday only." You know, I mean, you, you want to go to the Mayo Clinic or you want, you want to go to wherever so, so you don't have to discount. What you do have to do is you have to make a, a, um, almost like a guaranteed commitment to the problem to solve, "We're gonna take this problem off the table and we're not leaving until you're satisfied." So you... That's the key to that, to the game. Uh, and, and, but that's a little bit weird because if you've invented ChatGPT and now you're saying, "But I am going to solve the third grade math problem," which is a real problem. "But ChatGPT can do any..." "I know, but we're gonna solve the third grade math problem," a lot of... That's hard for a lot of entrepreneurs to get their head around.

    3. LRLenny Rachitsky29:24

       It reminds me of the way Figma started, even though it took them a long time to find product market fit and start scaling, they ended up working very closely with Coda. I don't know if you know the story where they just wanted to make sure the Coda team and they, it was called Krypton back then-

    4. GMGeoffrey Moore29:39

       Mm-hmm.

    5. LRLenny Rachitsky29:39

       ... uh, was very happy with Figma and so they went to the office, they set 'em all up, they started using Figma and then on the drive home they called them like, "It doesn't work anymore. Something's broken." And they were already home and Dylan basically, and this team drove all the way back, I think it was an hour or two, and got there and turned out the wifi (laughs) was down and there's some internet issue and fixed it and just wanted... Was obsessed with making sure they were using it.

    6. GMGeoffrey Moore30:03

       Yeah.

    7. LRLenny Rachitsky30:04

       And they were also just fixing the most ridiculous bugs that were not important because they just wanted to make sure they were really happy with it.

    8. GMGeoffrey Moore30:09

       And, and w- whereas a larger company would say, "Look, we'll put you in our queue and you know, you'll be on our, you know, we'll get you, you'll get your..." Yeah. No, I think this is the... And by the way, this is part of the fun frankly, of being in a startup because you're so close to the action 'cause there's nothing between you and the action. There's... And, and so, you know, why wouldn't you do that?

    9. LRLenny Rachitsky30:29

       Yeah. And I think one of the takeaways I've had from my own research into this is that you need to find one company that just loves you. It's not like, "We're here, this is cool." It's like, "I love this product. I would never want to give it up."

    10. GMGeoffrey Moore30:39

        That's what- that's kind of what I meant by that marquis ref- We sometimes we call it a radiating reference. It's just somebody who can... Uh, really, who would talk about you when you're not even in the room. I mean, yeah. You know? Very cool.

11. 30:52 – 32:35

    What exactly is the “chasm”?

    1. GMGeoffrey Moore30:52

    2. LRLenny Rachitsky30:52

       We've talked about this idea of the chasm and crossing the chasm, but it might be helpful just to explain why is... What is the idea? What is this chasm? Why is it that people fall into, and why is this important?

    3. GMGeoffrey Moore31:01

       And this is funny 'cause this... I- I was working at a- at Bridges McKenna, which was this marketing agency that was sort of the premier high-tech marketing agency in the 80s, and we had all these really successful launches and then like w- w- and there were covers of, you know, front page articles on Fortune magazine and Wall Street Journal. And then c- a couple years later it's like, "Well, what happened to these guys?" And so that's where the chasm was like... That's what the investigation, caused the investigation. What we learned was visionaries make their own buying decisions and they do not consult their peers. In fact, if their peers are doing it, they're probably not gonna do it, um, because they're- they want to be different. So basically, these companies were having success capturing the imagination of the visionary and they thought, "Well, I'll use the visionary as a reference to get the pragmatist." The pragmatist looks at the visionary and goes, "That's not my guy. That... First of all, he thinks I'm dumb. He thinks he's smarter than I am. Second of all, he does stuff, uh, that I would never do and he makes decisions in a way that I would never make them. So that's not... No." And so... But- but I- but- but I am interested in talking to my peers so... But the problem now is well, which of the peers are gonna go first? And- and we had... It was kind of like the junior high dance problem. How do you get the party started? So- so that was the chasm. That was what created the chasm. The pragmatists need references and they will not accept a visionary as a reference, and they don't have any peers that have tried it yet. So that was what was happening.

12. 32:35 – 36:05

    The difference between visionaries and pragmatists

    1. GMGeoffrey Moore32:35

    2. LRLenny Rachitsky32:35

       I think that's such an important point that I think people don't quite always get, that that reference marquis customer needs to be a pragmatist. He can't be one of these early adopters that are just trying stuff.

    3. GMGeoffrey Moore32:45

       Yeah.

    4. LRLenny Rachitsky32:46

       And the... By... These other pragmatists need to feel that this is my person, this is just like me-

    5. GMGeoffrey Moore32:51

       And they... Yeah.

    6. LRLenny Rachitsky32:52

       ... and they love it.

    7. GMGeoffrey Moore32:52

       I mean that the- the other... And by the way, one of the reasons that pragmatists have a certain... It's not... They just... And it's not contempt for visionaries, but it's definitely wariness. It's 'cause often they have to clean up the messes that these guys leave behind. Because when you're a visionary you make... You le- you leave a lot of messes in your wake and then the pragmatist has to come in and clean it up. So they're going, "Oh, this is sick. Uh, that's another mark against these people."

    8. LRLenny Rachitsky33:14

       I saw a deck of yours where you actually represent each of these stages of the life cycle and the visionary is Steve Jobs-

    9. GMGeoffrey Moore33:19

       Yeah.

    10. LRLenny Rachitsky33:19

        ... is the way you represented it, and the pragmatists are just like business people in suits sitting at a conference table.

    11. GMGeoffrey Moore33:24

        Exactly.

    12. LRLenny Rachitsky33:25

        Yeah.

    13. GMGeoffrey Moore33:25

        And there's six of them and- and- and the key idea behind that is, yeah, none of us... By the way, I don't think any of these people are a guru and they don't think I'm a guru. We're using the antelope strategy of the, uh, uh, uh... you know, it's a herd strategy, you know? And- and- and, you know, we're- we're... But- but at some point... And by the way, we do this all the time. Everybo- everyone. Like Airbnb, "Well, I want to get an Airbnb in, you know, Portland." And do you know? Have you ever stayed in two? Right? Do you... Is this a good hotel? Is this a good restaurant? Is this a good dentist? Is this a good lawyer? It's how we do it.

    14. LRLenny Rachitsky33:58

        I think Uber and Airbnb is the best example of this in action where I would not ride in a random car, especially I think women were most like, "I will never get into a car, into an Uber, this is insane," until all of their friends are doing it and then, "Okay, let's give it a shot."

    15. GMGeoffrey Moore34:13

        Oh, I guess- I guess it's okay. Yeah.

    16. LRLenny Rachitsky34:15

        Yeah. So essentially most people were pragmatists in... I guess that makes sense. And pragmatists make up the biggest chunk of it.

    17. GMGeoffrey Moore34:20

        Oh. By- by- by far and e- and by the way, you can be a visionary with some things, a pragmatist with other things, and a conservative with other things.

    18. LRLenny Rachitsky34:27

        Mm.

    19. GMGeoffrey Moore34:27

        So it- it- it- it... The way to really think about them is what is my persona in relation to this decision?

    20. LRLenny Rachitsky34:34

        I love this example of the junior high dance problem where (laughs) nobody wants to go ask the person, right? It's like, "I'm gonna wait for them to come to me. I wanna see how this plays out." That's such a good metaphor. In terms of how much of your product needs to be built at each of these stages, what advice do you share of like how much do you need for these visionaries versus-

    21. GMGeoffrey Moore34:51

        Yeah.

    22. LRLenny Rachitsky34:51

        ... the next?

    23. GMGeoffrey Moore34:52

        So with the visionary, you have to have- you have to have the magic ingredient working. Uh, you- you- you don't have the whole product. In fact, your product may be buggy, but it does something. A- Andy Grove used to call it the 10X effect. You need to do something that is an order of magnitude better than anything because that's what- that's why the visionary's talking to you. They're going, "Oh, my gosh, you have this fusion." "Fusion? Really?" "Yeah. Yeah, we got fusion energy." Okay. So- so that's number one. Then, uh, why- why would you stay? Why would you... What would still cause you to not cross the chasm yet? If there's not enough product there, pragmatists cannot put up with a product that doesn't work. So you may need to do some additional work to say, "Look, we just... I need you to get some more customers. I'm not b- You know, I'm still- I'm still living hand to mouth. If there's still... It's mostly project work, but- but, uh, until the product has got enough stability and- and can be productized, I- I really can't afford to cross the chasm." So that... Once you have a product that works, then you got to say, "Okay, now I got to find a market where it can be the- the dominant solution." That's the time to cross the chasm.

13. 36:05 – 43:45

    Finding the compelling reason to buy

    1. GMGeoffrey Moore36:05

    2. LRLenny Rachitsky36:05

       And a big part of that is obviously there's... They have bosses, they have checklists, they have compliance people, they have IT people, they have bo- they have people they need to buy into this. You know, this meeting room of six people, they all have to be like, "All right, this is the best choice."

    3. GMGeoffrey Moore36:18

       And- and- and- and- and by the way, normally those people are just not going to keep you out.

    4. LRLenny Rachitsky36:22

       Mm-hmm.

    5. GMGeoffrey Moore36:22

       And that decision process will take forever and you'll- you'll be- you'll be on the- in the welfare lines before they make their choice. So that's why it's so important to have what we call a compelling reason to buy.... you need to have a group of people in a room where they're going, where the, where the leader, the guy who's gonna actually sponsor this, make this decision is saying, "Look, I already gave this problem to everybody in the room, and our answer sucks." Now he, he wouldn't say it that way, but, but that's the truth. And, uh, and therefore, we're kind of at the, uh, uh, uh, I mean, I'm, I'm getting the message... First of all, my boss's boss's boss knows my name. That's a very bad thing. Secondly, (laughs) I'm getting the message, "You're either gonna fix this problem, Geoffrey, or we're gonna find somebody who can." And so they're... that's what gives them the energy to go against the inertial momentum of the decision-making process in their company.

    6. LRLenny Rachitsky37:14

       (instrumental music) Let me tell you about a product called Arcade. Arcade is an interactive demo platform that enables teams to create polished on-brand demos in minutes. Telling the story of your product is hard, and customers want you to show them your product, not just talk about it or gate it. That's why product forward teams such as Atlassian, Carta, and Retool use Arcade to tell better stories within their home pages, product change logs, emails, and documentation. But don't just take my word for it. Quantum Metric, the leading digital analytics platform, created an interactive product tour library to drive more prospects. With Arcade, they achieved a 2X higher conversion rate for demos and saw five times more engagement than videos. On top of that, they built the demo 10 times faster than before. Creating a product demo has never been easier. With browser-based recording, Arcade is the no code solution for building personalized demos at scale. Arcade offers product customization options, designer approved editing tools, and rich insights about how your viewers engage every step of the way. Ready to tell more engaging product stories that drive results? Head to arcade.software/lenny and get 50% off your first three months. That's arcade.software/lenny. So April Dunford was on this podcast and she had this, this book that she put out recently called Sales Pitch, and she makes this point that buying software, SaaS software, is harder than selling it these days because you can get fired for buying the wrong thing. It's so stressful. There's all these options. Your boss has to be happy with it. So often people end up just not going with anything. "We're just gonna keep what we have. It's fine. Simpler, safer, Salesforce is fine." And it sounds like that's kind of what you're describing is it's so hard.

    7. GMGeoffrey Moore38:58

       Well, so, so, baby, baby, if you're a pragmatist, the first thing is if it ain't broke, don't fix it-

    8. LRLenny Rachitsky39:03

       Mm-hmm.

    9. GMGeoffrey Moore39:04

       ... which makes you totally different than a visionary. A visionary is like, "Yeah, no, come on, break it. Come on, let's move on." If it ain't broke, don't fix it. If it is broke, who, who has fixed it? Is there a fix in production? Does the fix work? I want that. In other words, I... it's a, it's a... basically, to your po- to April's point, it is a risk reduction buying strategy. And, and, and, and, and, and by the way, you, you go as slowly as you can normally, but when you're under duress, you have to go faster. So the compelling reason to buy is putting you under duress. Yeah.

    10. LRLenny Rachitsky39:41

        Are there any examples of these compelling reasons to buy that come to mind that give people a sense of like, here's a really good, compelling reason to buy? I don't know if it's a pitch.

    11. GMGeoffrey Moore39:48

        Oh, there's ton. I mean, and, and well, how about ransomware? (laughs)

    12. LRLenny Rachitsky39:51

        (laughs)

    13. GMGeoffrey Moore39:52

        I mean, you know, all of a sudden the cybersecurity thing, it's like holy smoke, we... 'cause it used to be, well, m- they wouldn't attack my company. Or if they did, I mean, I have, I have no assets. Yeah, well, actually... because it used to be what they did is they would only attack companies that had data that they could resell in the dark web. Then, then god bless cryptocurrency, people are saying, "Has it crossed the chasm yet?" Well, their first use case is criminals. Okay? (laughs) It's, it's not a very good use case, I'm sorry to say. But the point is now ransomware with cryptocurrency can be, it can be a monetization. So that means everybody is vulnerable. And, and, and, and then this... uh, so that would be... that, that's one kind of compelling reason to buy. But if you look around like, uh, k- you know, kids who are struggling with school, okay, that, that, the parent has a compelling reason to buy. Anything with healthcare, compelling reason to buy. Anything with, with, with, with if you're in a legal problem, you have a compelling reason to buy. So I mean, there's, there's always these situations where you, where you say, "Okay, that's a per- uh, that's on a personal basis." On a company-wide basis, it may be things like, "Well, what am I supposed to do with my office space? Can I get my c- co- company to come back to the office or do I have to dump the spa- ... what am I supposed to do? And by the way, I know I'm gonna have some kind of space, but do I wanna design it the way we used to? Huh? I'm, I'm getting into some space. By the way, I got a great deal 'cause it, it was a fire sale, right? Cool space. What do I put in it? Is it supposed to have offices? Is... do they have doors? Do they not have doors? You know? How do we..." So in other words, there's a bunch of stuff where you, where you get people going, "Okay, how can we... you know, how can we help? How can we help?" I, I, I need, I need help and, and I've gone to my standard solutions and like, "No, I don't believe that." So I need help.

    14. LRLenny Rachitsky41:37

        Okay. So it's interesting that I even misunderstood what you're saying, and I think this is a really important point. The compelling reason to buy is not a compelling reason to sell, which people often think about as the pitch you're making. The buy is basically the pain point, like they need a really big pain.

    15. GMGeoffrey Moore41:51

        Yeah, uh, uh, because that's what's gonna go... so therefore, the key to the, to the bowling alley that's different from the tornado and it's also different from the early market. In the early market, it's about you. You tell, you, you tell the story about you and the visionary wants to hear about you. In the tornado, it's also about you because, uh, we now have budget to buy this stuff and you're a candidate. In the bowling alley, it's never about you. And that, that, that is so hard for a series of entrepreneurs 'cause they wanna give a demo, they wanna tell the story, they wanna share their vision. And the answer is, "We don't care. We don't wanna hear your story. We hate demos a- and, and I don't know who you are and I don't care. What I... I'm in trouble. You need to ta- we need to talk about me. We don't wanna talk about you." And so we have this saying in, in Crossing the Chasm sales book, uh, playbook, leave the... first of all, leave the lap- shut the Goddamn laptop. Just don't, don't open it. And, and start with... and the way you start the conversation is always the same.You know, we're here because we've been working with some people in- in- in your industry and we understand there's this really serious problem around, you know, document management or around, you know, uh, uh, wifi access or- or whatever it is. And- and we believe that- that, you know, your company might have... Is that true?" And what's interesting about it is you'll get two respon- well, two responses, either, "Oh, are you kidding me?" Okay, we have the... Or they, or often they'll say, "Well, not exactly." And you go, "Oh." But then before you can say anything else they say, "What our real problem is..." So people will talk about their... They- they- they want therapy. They'll talk about their problems. And so if you're willing to... But you've got to, as an entrepreneur, you- you- you got to realize the gold at this point is problem domain knowledge. That's- that's the thing you really want to collect.

14. 43:45 – 45:46

    The Early Market playbook

    1. GMGeoffrey Moore43:45

    2. LRLenny Rachitsky43:45

       Amazing. So you've sort of answered this question, but I want to make it even more complete. You have this amazing LinkedIn post of these four go-to-market playbooks based on the stage you're in. And you've touched on this already, but it might be helpful just to go through it one by one. And even more helpful would be like, what does it look like when you're in the early market? Like what does... How do you know if you're in the early market versus in the bowling alley versus in the tornado?

    3. GMGeoffrey Moore44:07

       Okay. So in the early market, you know you're there because first of all, the story is the technology.

    4. LRLenny Rachitsky44:14

       Mm-hmm.

    5. GMGeoffrey Moore44:14

       So- so if- if you... And- and it's specifically the disruptive technology. By the way, you could start a business with a non-disruptive thing, but then you don't need these playbooks. You-

    6. LRLenny Rachitsky44:24

       Mm-hmm.

    7. GMGeoffrey Moore44:24

       Then- then you're- you're- you're on Main Street. So but- but so the assumption is you've got something that nobody's ever done before or seen before. And so in that playbook, the first thing is just, you- here are the responsibilities. And a venture capitalist would say the same thing to you. Do you have an... Do you have a technology expert who's- who's- who's a wizard? Because we're not going to fund just any two guys and- and a PowerPoint tech, um, even though we like your dog. So that's number one. Number two, can you have proof of concept- can you demo- can you demo the technology? You have to be able to demo things. And then three, can you create a vision which says what forces are going to release? And- and the concept that we use in venture, we call it- I call it trapped value. And what the idea is, where's the trapped value that this innovation would release? Because when you release trapped value, the world will- will give you a portion of- of the- of the game, typically 10%. So I have a... It's an easy number to do math with, as I said, I'm an English major. So if you want a billion-dollar company, you better find $10 billion worth of trapped value that your technology could

    8. LRLenny Rachitsky45:30

       Airbnb is an amazing example of that, right? Where they un- unlocked people's homes. Yeah.

    9. GMGeoffrey Moore45:34

       Right. Yeah.

    10. LRLenny Rachitsky45:34

        And they take basically 10%.

    11. GMGeoffrey Moore45:35

        And Uber unlocked their back seat of the car. I mean, yeah, so, uh, but with a free labor force.

    12. LRLenny Rachitsky45:42

        Mm-hmm.

    13. GMGeoffrey Moore45:42

        I mean, it was like, whoa. Okay, so really cool idea,

15. 45:46 – 48:39

    The Bowling Alley playbook

    1. GMGeoffrey Moore45:46

       early market, fine. For- for- for the bowling alley one, then- then the playbook is know within that where's the problem and then you got to take it down to in what geography, what industry, what profession, what use case. And- and that takes... That's not just obvi- I mean, you- you want to spend some time in doing that. And then what you want to really do is just maintain intellectual curiosity about the problem as opposed to jumping to the solution. So- so why is this a hard problem to do? What is going on? Where is the trapped value? By the way, how- how expensive... What- what- what is the cost of not solving this problem? And- and often it's a risk, it's a risk exposure, or it could be, it- it could be just a- a- a, uh, a gating item on your growth or potentially a churn problem. I mean, by- by the way, if you wanted to pick a compelling reason to buy, how about if you help SaaS companies deal with churn? Do you think that, do you think they would care about that? I think they might.

    2. LRLenny Rachitsky46:42

       Mm-hmm.

    3. GMGeoffrey Moore46:42

       Okay. (laughs) So- so- so the point being, you're going to be, and you're going to say, "Okay, I'm going to learn more about churn than any... I'm going to really understand. And by the way, I've got to understand your churn, which is different maybe from somebody else's churn." So- so it's- it's- it's- it's- it's- it's the problem domain play. And then you build, you build your go-to-market around the lead gen is, "Hey, do you have any of these seven symptoms of, you know, fatal churn?" Right? And- and people, the people that respond to that ad are pre-qualified and then, and then the BDR, if- if you're at Salesforce, a BDR would call you and say, "Just confirming, you know, you have these problems." "Oh, yeah, RBI." "And your role at the company is what, and- and are you responsible for doing this?" "Well, actually, no, it's Harry, not Mary." "Okay, maybe we should talk to Harry." "Yeah, maybe, probably should talk to Harry." So now- now... Then you call Harry and you get, and you- you get the appointment with Harry because Harry's got the problem. And- and then the next thing is, you know, you confirm, you do a diagnostic with them, right? So we understand, we're talking to your colleagues. Here's the problem. Here's what we think we're- we're doing. But- but before we tell you about how great our solution is, let's make sure that we understand what your challenges are. And- and your goal in that call is to get them to talk as much as possible-

    4. LRLenny Rachitsky48:01

       Mm-hmm.

    5. GMGeoffrey Moore48:01

       ... and for you to take notes. And by the way, this is a place where you probably still want to remember to use a pen, because you actually want them to see you writing down their words, because that means, okay, he's listening, he's listening.

    6. LRLenny Rachitsky48:14

       Oh, interesting. That's a good tip.

    7. GMGeoffrey Moore48:15

       Yeah. Yeah.

    8. LRLenny Rachitsky48:16

       Especially like on Zoom, would your advice there be just make sure the camera shows your hands?

    9. GMGeoffrey Moore48:19

       Oh, yeah. Yeah.

    10. LRLenny Rachitsky48:20

        Yeah. Okay. Lean in. Yeah. Yeah.

    11. GMGeoffrey Moore48:22

        (laughs) Yeah. Or- or you, and sometimes, I mean, you know, you- you couldn't do this. I was going to say we record it, but they don't want to re- they don't want to record it, because they're going to say some things during the call that they don't... They won't be necessarily complimentary to all their colleagues. So they- they- they don't want you to record it.

    12. LRLenny Rachitsky48:38

        Got

16. 48:39 – 51:26

    Different sales approaches for early market and bowling alley

    1. LRLenny Rachitsky48:39

       it. Okay. So in this bowling alley phase, how do you know you... I know it's not like this binary switch, but that you're ready to move into that versus the early market playbook?

    2. GMGeoffrey Moore48:49

       Well, I think you get to a point where you realize, I can't scale my business doing what I've been doing. I mean, I- I just can't. And- and if you've taken venture capital, the thing you want to do is, I want to be able... I don't want to have to raise another... Well, so understand how venture capital funding works for a second. This is important.... venture capitalist gives you money and what they're buying from you with th- this money is, "I want you to use this money to change the state of your company such that when we raise the next round, the next investor will value your company two to three times higher than we're valuing it today." So basically the purpose of this money is to change the value state of your company. If you, if you do anything else with that money, like you could have done brilliant things, created amazing demos, hired great people, but if at the end of the day you haven't changed the value state of the company and we have to go raise more money, we're gonna raise it at the old valuation and I as an investor lose, okay? Or- or even worse we have a down round and I lose even more. Okay, so once you... so, so once you start thinking about that, so we're then crossing the chasm. The crossing the chasm play is I need to change the state of my company from a cool possibility to a, what- what account- accountants call a going concern. So what is a going concern? A going concern is a company that two years from now you would expect still to be in existence. Well, who... why would you do that? Because they have a customer base that's loyal and they have a, they have a- a- a- a, uh, ecosystem of partners that bring them into new deals and- and they have- and they have established, you know, their CAC and their LTV and they've- they've kind of figured out their operating model and it's not the biggest company in the world. It's somewhere, you know, we're now probably in the $10, $20 million, but it's a real company. It's a real company. And- and that, and- and that's what you're trying to create when you cross the chasm. And you know you've crossed the chasm when you say, "I don't have to raise any more venture capital. Now I may want to because I- I- I have ambitions to be global- globally dominant." But you don't... but you get to raise it on your nickel and on your timeline, not on, "Oh my God, I'm running out of money." So you- you- you do... the sooner you can get off with the, "I'm running out of..." I mean, and particularly last year was, well last year was fatal to a huge number of companies because that was not how they were thinking about raising funds. They always thought, "Well there'll be another, there'll be another round and another round, another round." And they were not thinking about changing their valuation state and they're not here.

17. 51:26 – 53:28

    Changing the value state of the company

    1. GMGeoffrey Moore51:26

    2. LRLenny Rachitsky51:26

       That's a really interesting insight, this idea that you... you know you've crossed the chasm if you can survive without more venture funding. Uh, how do you think about that, like the profit element of that? Because it feels like that's the core to being able to survive without venture funding. Is it, is it about making enough money that you can cut and make a profit or is there some other reason?

    3. GMGeoffrey Moore51:47

       All you really care about is cash flow positive.

    4. LRLenny Rachitsky51:50

       Mm-hmm, yeah.

    5. GMGeoffrey Moore51:50

       "I just, I just, I just want to be able to keep, I want to keep doing what I'm, what I'm doing."

    6. LRLenny Rachitsky51:55

       Got it. Got it.

    7. GMGeoffrey Moore51:55

       Uh, so you don't care about the actual GAAP accounting, that at all.

    8. LRLenny Rachitsky51:59

       Mm-hmm.

    9. GMGeoffrey Moore52:00

       Yeah.

    10. LRLenny Rachitsky52:01

        I see. So you could cut back and you can get to profitability if you need, but the idea is you're cash flow positive.

    11. GMGeoffrey Moore52:06

        Yeah, and as long a- a- and, you know, and you'd like to grow and you might want to raise money. But the point is if you do go out to raise money, you get to raise money at a different valuation. So the way in which venture capitalists categorize you is they say, "What risk is my money going to take off the table?" So an angel investor says, "Well, my money is going to take off the table the risk of whether you can even create anything. I'm going to give you enough money to get into trouble." That's basically it. And then the- the- the crossing the chasm money says, "I'm going to take company existence, uh, uh, viability off the table. I don't know if you're going to grow, I don't know if you're going to become a venture return, but I'm going to take the, I'm going to take you going out of business o- off the table." And then, then the bowling alley stuff is, "Okay, I'm going to... I'm buying now, I'm buying a gr- I'm buying probably a journey from $10 million to $100 million," something like that. "And I want to see and I'm expecting a growth rate." And if I, if you... eh, and this is probably where the rule of 40 starts to s- kick in. If- if I, if you're playing the rule of 40, "Uh, uh, you, w- we, we want to raise more money later on, you're going to have a different valuation, uh, th- than we had before." And then the tornado thing, by that point, now you say, "You're in that cat- you're in gen AI, you have a large language module. Whoa, okay. You're worth a lot more than we thought." Because now that category's in the tornado and that's a different, different

18. 53:28 – 57:35

    The Tornado playbook

    1. GMGeoffrey Moore53:28

       game.

    2. LRLenny Rachitsky53:29

       Yeah, I was going to say AI is clearly a- an example of being in the tornado. So maybe just talk a little bit about what that is, the tornado phase, and then there's the main street playbook.

    3. GMGeoffrey Moore53:39

       So how do you know there's... so the bowling alley and the tornado? Prior to the tornado, when your sales team calls on the customer, they do not have a budget for you. In the early market, there's no budget for anything. In the bowling alley, there's budget, but it's budget for a solution that's not you, it's for the old way of trying to Band-Aid the problem. So we say in the early market you have to create budget, in the bowling alley you have to redirect budget. That, but that takes sales cycles, it takes time. A- and, and if it's a small market, this is why entrepreneurs can win these ma- market segments, because if you're a big established company, this is just a pain in the ass. I mean, it's- it's too small a market, it's too much work, it's too hard, redirecting... I want my salespeople to go where the budget's already established. Well, when does budget get established? When a category goes horizontal and people go, "Well yeah, we all want, we all want Wi-Fi, we all want mobile apps, we all want cloud computing, we all want whatever it is." And now what happens is... a- and by the way, the pragmatist heard this. They went from, "You're not doing that, are you?" "No." "Me neither." "Okay, good," to, "You are? You are? You are? Oh, sh- we're behind. We better do it." So these budgets come into the market and kind of all at the same time, which is what creates the tornado. Because if you give a, if you give a department a budget, they will spend it. And when they spend it, they're going to spend it with a vendor and whoever vendor they select, they're probably going to stay with. So now the market share battle is now on.... and whoever gets the most company, uh, customers early on, the ecosystem starts to form around them. So in the '90s we saw a lot of tornado guerrilla play, Cisco, Intel, Oracle, um, uh, you know, uh, obviously Microsoft, uh, I mean these companies, and Sun, they were, they were all incredibly competitive companies, they were all tornado plays, which is this client server, the internet, between client server and the internet just created this massive tornado, uh, kind of e- kind of effect. So, it's and, and, and that game plan is very competitive sales to grab market share and then at some point if you're not number one then you have to kind of do a defensive maneuver and retreat into a niche and say, "Okay, if I can't be a guerrilla, I at least need to be a chimp." You know? And a chimp is like a local gorilla, (laughs) you know what I'm saying? I, I, I'm not the gorilla, but, but for my, you know, I'm not, I'm not Cisco, I'm Juniper. But for telcos, Juniper was the Cisco of telcos, uh, you know, at that time. So anyway, that- that's the, and- and I don't know if you saw in the paper today, but, but at the other end-

    4. LRLenny Rachitsky56:23

       Huh.

    5. GMGeoffrey Moore56:23

       ... of that lifecycle, uh, H- HPE has bought Juniper.

    6. LRLenny Rachitsky56:27

       M&A is happening. I like that, that's good news.

    7. GMGeoffrey Moore56:30

       (laughs)

    8. LRLenny Rachitsky56:32

       So one of the most interesting lessons you teach is also that these playbooks don't work together well. Basically, if you use one in the wrong phase it's the opposite, it does, it has the opposite effect. So before we get there, ju- let me just summarize maybe quickly the playbook in each of these four, I have some notes here, and then maybe just talk about why is it that they fail if you pick the wrong one.

    9. GMGeoffrey Moore56:54

       Sure.

    10. LRLenny Rachitsky56:54

        So in the early market you're looking for a visionary customer that just wants to use something new and cool and stay ahead of the curve. In the bowling alley phase you want to engage with a pragmatic business person who has, like, a huge problem and they need a fix and you're there for them. In the tornado there's just this land grab, something is just going crazy, AI, and everyone's just spend, spend, I want, I need AI in my product. And then main street is just, it's kind of the sustaining tech that everyone just needs to sus- make sure continues working and s- doesn't deteriorate.

    11. GMGeoffrey Moore57:24

        By the way, the way I would just sub last two is think of tornado as kind of the land and main street as the expand. I mean that's not a bad way to think about the two as well. Yeah. But yeah, you got it. You got it.

    12. LRLenny Rachitsky57:34

        Okay, great. Yeah,

19. 57:35 – 59:10

    Why combining playbooks doesn’t work

    1. LRLenny Rachitsky57:35

       so why is it, why is it that these undercut each other if you're trying to use either the one in the wrong phase or use both?

    2. GMGeoffrey Moore57:42

       Well, so let's, listen, le- let's start with classic sales 101 from the '90s, qualify the customer on budget before you make a sales call. Okay? That absolutely is critical on main street. It's dumb on, I mean it's critical on the tornado, it's dumb on main street 'cause they obviously have budget, they've got budgets, it even has your name on it if you can go get it. But it's a big mistake in the early market, in the, or in the bowling alley because they don't have budget, and, and so you're not gonna get it. And the way you win in the early market is with a project model, and the way you win in the bowling alley is with a solution model. And the problem is if you bring a project model to the bowling alley you, you know, the problem is you won't scale because it won't be repeatable, the ecosystem won't form around you. If you bring a solution model to the early market it's like you're over-investing in one thing, the visionary's saying, "Well, yeah, but I have so many other things I want to do." And so they're gonna, they're gonna want to take you way off your solution roadmap. So each one of these things, the, the, the market dynamics c- call for a very clear response. And it's not hard to see the response. What people struggle with is, "I have been successful with this playbook. The market has moved to the next phase. But I'm really good at the old playbook, so I want to stay with the playbook I'm good at." And so that's when they get in trouble.

    3. LRLenny Rachitsky59:05

       So I think that's extra reason to pay close attention to which phase you're in, and that you're practicing

20. 59:10 – 1:03:02

    Using generative AI in different market phases

    1. LRLenny Rachitsky59:10

       the correct playbook. We've talked about AI a little bit and I don't want to get too far down this road, but I guess is there any advice you would share for an AI startup in being in this tornado or a company looking to integrate AI? Is there anything that you've seen of just, like, make sure you're doing this right?

    2. GMGeoffrey Moore59:26

       Well, it's interesting about, and particularly right now, I mean the thing that's caught everybody's imagination is generative AI, right? And, and, and so we're- we should be thinking about things like OpenAI with Microsoft and Copilot and those kinds of things. Well, maybe not. It depends on what... So from a customer's point of view, there's AI in the early market, there's AI in the bowling alley, there's AI in the chasm, there's AI in the tornado and there's AI on main street.

    3. LRLenny Rachitsky59:48

       Right.

    4. GMGeoffrey Moore59:48

       So I mean I would argue if you go to chat to, to Microsoft Copilot you're on main street. You're not, you're not taking any risk, you're, you're, you're, you're, you're experimenting with a new thing, it's kind of cool, makes you more productive. God bless, you know? It's, it's kind of like just an add-on to Teams or to, to your whole Office 365 suite. Stuff that's in the tornado right now, I don't know, I'm trying to think about what in the in, what is the use, what is the use case for gen AI? I'm not sure there is one in the tornado. But let me, uh, th- the closest I would say is sale- Salesforce has probably got close enough. They have a sales copilot, they have a services copilot, right? Uh, I'm sure there, they have marketing copilot. So you're going ... but, but we're gonna change our sales motion and we're going to use, we're gonna use, um, generative AI inline, in our, in our performance am- and on, on a, on a very wide spread across our entire, entire base. So all our salespeople are gonna use this new tool, okay? That, that would be okay. A- and that makes sense because the new tool, they, first of all Salesforce has their own large language module. So it's like, it's, it's not like you're going out to the OpenAI world and having all those issues. So you can do it. And, and there's a, there's a very high productivity return at a modest risk I think would be- and modest disruption. For the bowling alley you'd say, I don't know if this is bowling alley or, or early, uh, early market. I'll, I'll, I'll, I'll say it's bowling alley. So if you're Sal Khan and you have the Khan Academy and you're saying, "Look, we, we, we want to provide educational resources for the world for, for young people. The problem with education right now is that..."... particularly after the pandemic, you're a teacher, you used to have... When you were a teacher in K, say K-12, K-8, you have a class of c- 30 kids and probably, you know, 10 to 15 of them are middle of the road, and-

    5. LRLenny Rachitsky1:01:45

       Mm.

    6. GMGeoffrey Moore1:01:45

       ... some number are actually significantly ahead and some number are behind. Then the end... Your job as a teacher is to kind of work with that. Well, after the pandemic, you might have five grade, different grade levels in the same classroom, not three or six even. That's an impossible problem. But if you said, "Look, we can use GenAI tutoring and we can tune it to each one of those six grade levels," now, not... That's a teacher copilot, but that's a really specialized idea. So you go, "Well, that's amazing." And then if you wanted to go to the other side, you say, "You know, all these ad agencies say they do this really cool advertising, but I think I can do it myself with GenAI (laughs) and I'm gonna sell it to other peop-" I mean, you can imagine, you can imagine, uh, whole businesses that say, "We write legal opinions and we always start with GenAI. We don't ship GenAI. We, we... You know, there's a human in the loop, but we do, but we do... You know, we have... We're gonna do amazing..." Or more images maybe, "We're gonna, we're gonna design visual images with all the really cool stuff you can do. We're gonna invite in, invent a new agency or a new kind of agency. We're gonna charge di-" I'm... I don't know what, what, what it would be. But the point is yo- GenAI, I think can be absorbed by the marketplace at multiple places.

21. 1:03:02 – 1:04:21

    The risks of discounting

    1. GMGeoffrey Moore1:03:02

    2. LRLenny Rachitsky1:03:02

       As you were talking about that lawyer example, I was thinking part of the pitch would be, and it's also a lot cheaper, but that reminds me of this other post that you wrote, The Seven Deadly Sins of Crossing the Chasm, and I wanted to chat about some of these and one of them is discounting before you cross the chasm. Can you talk about why that's something you wanna avoid?

    3. GMGeoffrey Moore1:03:20

       Back to that issue about, you know, heart surgery, 999 this Saturday only if you get a coupon. I mean, w- the discounting model makes sense when something's commoditized or, or that, that there is... Or, or the, or the place to even do the freemium model. The freemium model makes sense if there is no risk in adopting the, the offer, but chasms are based on risk-bearing decisions. I mean, basically that's the, that's the problem that creates the chasm. I have to make a risk-bearing buying decision. And so discounting does not reduce risk, right? I mean, it... A- a- and so in fact, it might even increase risk because they might w- this vendor might say, "Well, uh, yeah, I'll give you a better price, but now I'm not gonna give you the extra support or I'm gonna cha-" Or we'll have a change of scope, you know, we'll say, "Yes, uh, yeah, but now that, that wasn't in the contract, so you have to add more..." You know, and all of that is fair game on Main Street, but it's not for crossing the chasm.

22. 1:04:21 – 1:09:09

    Other “deadly sins” of crossing the chasm

    1. GMGeoffrey Moore1:04:21

    2. LRLenny Rachitsky1:04:21

       I'm gonna pick on a couple of these other sins that you mentioned. One is you call the target customer mix-up. Can you talk about that?

    3. GMGeoffrey Moore1:04:29

       The key to this whole Crossing the Chasm playbook is, you know, start with the world, don't start with... Well, stop w- what we're trying to answer... The question we're trying to answer is where is a small pool of trapped value that we can, we can become our pool. So that's why we have geography, profession, use case. We're just trying to keep it big, you know, you know, big enough to matter but small enough to lead i- i- is, is one. And then once you find that pool, the question you have to say is who controls access to that p- Who's got a sponsor my deal in order for me to solve tha- to release that trapped value for that, that company? That's your target customer. Um, and, and you may not know them. Uh, typically, my experience is you probably have worked with at least one company in the industry at some point along the line. It's, it's, it, it's kind of odd if you just had never heard of the industry and you picked that one. Y- usually that- that's why I said w- well, maybe I should have added that too. How do you know you're ready to cross the chasm? You should at least have a hunch. You know, you should at least said, "You know, we've done this work and I think, I think this is the one." Now, the... You still have to go validate it and make it happen, but basically the way you would validate it is rather than try to go to a researcher and do something, that won't work. Yeah, you say, "Well, we're gonna run a marketing campaign, a modest one, but I'm gonna see if I can't get two more of the same use case, and I'm gonna... I'm willing to bet the next three months of my company by saying in the next... in this three months, all we're gonna do is try to get two more deals that, that have this pattern." And that would be kind of the way you might go after it.

    4. LRLenny Rachitsky1:06:10

       So I think this is worth spending a little more time on this idea of how you know you're ready to cross the chasm. So one is you find one very excited marquee customer, then you're ex- sharing, maybe find a couple more and see if it's actually starting to roll and tip.

    5. GMGeoffrey Moore1:06:26

       No, what I... I said it wrong. So the marquee customer's probably not in your, in your beachhead market. The marquee customer is a famous company that you're the... you have the visionary sponsor. That's the thing, because that's the company that the business press wanted to write about or the tech press wanted to write about. People went, "Oh, you were the guys who..." You know, you're like Han Solo. You did the w- whatever that run was in 15 parsecs, I can't even remember what it was. I but, but that, that's what put you... Yeah, it's your claim to fame, right? It's your claim to fame. But the, but the crossing the chasm one is, oh, y- And, and by the way, the press is not interested in the crossing chasm, but the local... If, if there were, if there was a local press, they'd be all over it, right?

    6. LRLenny Rachitsky1:07:08

       The Kessel Run

    7. NANarrator1:07:09

       just 'cause you asked.

    8. GMGeoffrey Moore1:07:09

       The Kessel Run. Thank you. The Kessel Run in 15 parsecs. Thank you.

    9. LRLenny Rachitsky1:07:13

       (laughs) Right.

    10. GMGeoffrey Moore1:07:13

        Thank you. Exactly. That was his visionary thing. (laughs)

    11. LRLenny Rachitsky1:07:16

        So I think an important takeaway there is there's always this advice of talk to customers, make sure they're happy, build what... You know, not necessarily build what they want, but make sure you're understanding what they need. But I think one of your most important insights here is make sure you're talking to the right people, which are essentially people in the next stage, essentially of the adoption life cycle, the more pragmatists.

    12. GMGeoffrey Moore1:07:35

        It, it's, it... Yes, and they have to be the... I think you need to talk to the economic buyer as opposed to the end user 'cause they'll... the end user will be saying, "Oh yeah, you're right. Oh, it's just terrible and we're, we're oppressed." But if their boss doesn't wanna sponsor it, it doesn't work.

    13. LRLenny Rachitsky1:07:50

        ... yep. Which is hard, hard often when you're buil- building B2B software, you just want to make it great and then it's like, "Oh, these people don't actually care whether they're buying it, they just have all these checkboxes."

    14. GMGeoffrey Moore1:07:59

        Yeah.

    15. LRLenny Rachitsky1:08:00

        Okay, and then another deadly sin, which you've touched on but I think it might be worth sharing again is just this idea, you call it the compelling reason confusion, where instead of thinking about your compelling reason to sell, you think about what is the pain point you're solving, compelling reason to buy.

    16. GMGeoffrey Moore1:08:13

        Yeah, a- and- and- and- and we, you know... (laughs) And obvi- obviously as an entrepreneur, you, you have a compelling reason to sell. I mean it's, but the, the thing that you, that, that, what they tend to do is in trying to cross the chasm, i- if they're not using this approach, they think, "Well, I haven't, I haven't made my product attractive enough." And so then they say, "Well, I'm gonna make a sexier demo." Or, "I'm going to, I'm gonna change my deck. I'm gonna write a new..." And then, and, and the, you know, the sales guy comes back, says, "This, I had a great presentation. This is the deck that we ought to be using." Right? And- and- and that's all about compelling ways to sell, not compelling reasons to buy. And it ju- it j- uh, the pragmatists by the way, and by the way, the pragmatists will take the meeting. O- one of the problems with the chasm is they don't t- they don't say no. They just never say yes. And they actually encourage. You know, "You should come back and demo this to our... This is really interesting." Right?

    17. LRLenny Rachitsky1:09:05

        Mm-hmm.

    18. GMGeoffrey Moore1:09:06

        Yeah, it is really interesting. (laughs)

23. 1:09:09 – 1:10:36

    Positioning in crossing the chasm

    1. LRLenny Rachitsky1:09:09

       Kind of along those lines, positioning. How important is that and any advice on figuring out your positioning when you're doing this? I know you talk a lot about making sure you focus on their pain point, but at some point, you're like, "Here's what we're doing for you."

    2. GMGeoffrey Moore1:09:21

       Yeah. Yeah, one of the nice things about Crossing the Chasm is the positioning formula is absolutely the same every time. It's really cool. So basically, when you're thinking about positioning, you say, "Look, I'm going into a c- I'm going with this use case and this, you know, particular segment." Okay. So they have an incumbent vendor. The advantage of the incumbent vendor is they understand the business, but they don't have the new technology. Okay? Conversely, you have technology competitors who have as good technology, maybe better technology than you have. But they don't under- they're not committed to this domain expertise of this thing. So your positioning is we are the technology leaders who have specialized and committed to solve this problem. And- and- and by the way, eh, we have huge respect for your incumbent vendor. We're not asking you to kick them out. They just can't solve this problem. We also have respect for our peers, but frankly, they wouldn't know your problem if they wouldn't recognize it i- i- in a lineup. We are here and- and- and by the way, if anybody comes into our quadrant, we're gonna kick their ass. There's, we are gonna be beyond compare. Nobody is gonna handle this problem with this kind of technology the way we will. And- and that's our claim to fame. That's what that, that's what we're gonna do. And that's our positioning.

24. 1:10:36 – 1:13:54

    Product-led growth and crossing the chasm

    1. GMGeoffrey Moore1:10:36

    2. LRLenny Rachitsky1:10:36

       I love that. Say you're building a product led growth company, a bottom up oriented B2B SaaS company. Is there anything that changes in your advice?

    3. GMGeoffrey Moore1:10:46

       Yeah. If you're gonna use a volume ops approach like, like Atlassian or like, or like, um, you know, any- anything that kind of grows up from the bottom up, you're playing a different game. See, fir- first of all, you're playing, you, you 'cause you attract the end user before you attract the economic buyer. So you have a fr- you have some version of a freemium strategy. It's, it's, it, it's, that's how, what you're gonna do. And- and Yammer did this, right? And- and- and- and- and, uh, and eventually got bought by Microsoft. So the way you play that game is, eh, that first of all, you probably do need some funding. "Oh, well, not necessarily." Maybe you can make f- you know, maybe you can do this all on AWS and a credit card. Eh, but the game that is gonna be how do I f- how do I create that, that, that moment of criticality? What you would do is you'd say, "I need," or first of all, you need telemetry. So you need to figure out what are the people really doing with our product. And then you need to find a way to communicate with them to see if you can ferret out is there a compelling reason to buy thing in their, in their environment. Eh, so it'd be a different way of doing early market. You wouldn't have a marquis, you would not have a marquee client. But to cross the chasm, you cannot cross the chasm with product led growth. You can't. Be- because it's the, it's, it's like saying, "Well, yeah, I'm gonna cure, I'm gonna cure, um, uh, COVID by just putting vaccines out in public places." It's like, "No. People need to learn more." Eh, no. So, so you, you, you, you'd have to do the... W- where product led growth plays really interestingly is in the land and expand phases of the market. Uh, if you can land with a hot product, but more importantly product led growth was uh really good at is expand, you know? And that's you 'cause it prompts the user to, you know, get more involved. And that's a m- that's classically a mainstreet play. But there's gotta be no re- the, though product led growth works when basically the extended pur- the next purchase has very low risk. A- and therefore you're not really dealing with chasms.

Episode duration: 1:24:49