In our last blogpost we suggested that, in addition to all of the decisions they are making within their startups, founders should also track market growth. Most industries or markets go through typical growth patterns. Understanding if you are in the middle of the market’s growth stage or on the tail end is important. First, it helps in forecasting sales. But it also helps for appropriately planning the promotional efforts you will need to make. When a market has had limited growth, it often takes having multiple companies trying to educate the market. With low growth, you need more investments to offset competition.
We’ve already talked about the Bass Diffusion of Innovation model. A second growth trajectory was dubbed Crossing the Chasm by author Geoffrey Moore (1991). In these markets, the early growth and promise of a market stall until some intervention enters the picture. This intervention could be an outside force or technology, a competitor with a new business model or approach, or some combination of the two. Growth then increases significantly and in a big leap or step function. Often this means your product expands from a niche product for a modest market segment of innovators and early adopters, to a mass-market product for most customers. Moore’s model calls these the early and late majority – see the chasm model below:
An example of this might be the explosion of digital music following the introduction of Apple’s iPod. This was not the first such device in the market—the RCA/Thomson Consumer Electronics product Lyra, for example, predated the iPod by years. What Apple did to cross the chasm was introduce iTunes. iTunes was not just software. Apple licensed access to individual songs, not just albums, to overcome copyright issues that plagued Napster. Success came from layering this software on top of the device. It was accompanied by supporting macroenvironmental trends:
Increasing number of home computers
More widespread Internet access
Improvements in bandwidth/broadband access in the home
Following this combination, growth in digital downloads exploded. So if your market seems stuck at low early growth, consider what efforts can be undertaken to jump the chasm. Does the product need to be innovated? Can you recruit other partners to help spur growth? Are there macroenvironmental trends that you can help accelerate? You shouldn’t be satisfied with low growth. Instead, you need to be aware of why it is happening and figure out how to cross your own chasm.