Disruption and Adoption Are Confusing the Real Issue

February 3rd, 2014 by Matthew Rosenhaft Leave a reply »

It starts with the dreaded question in the pitch meeting. Usually slide #2 of your supposed 5 slide deck. “I think I get what you do, how are you going to build a market?”

You, at that point, will discuss the extrapolated X number of companies that fit the target, talk about your percentage that of the available that you would like to have within Y years, and then talk about all of the mechanics that you plan on driving to get  that percentage at Z cost per customer in acquisition costs. Numbers are actually irrelevant since the person who asked the question won’t really believe your answer; they just want to see if you understand the variables to the formula.

What is really hidden in the question is the assumption about how expensive it is to build and develop a market. They are looking for your Go-to-market strategy, but really they are looking for your built-in short-cuts. They are looking for ways that you can short-circuit the standard investment model for building a market.

Clarification: Usual caveats are that you have something unique for a new market. “Disruptive” would be true, but as we have found over the last couple of weeks when we use that word, everyone thinks they are disruptive. For purists, disruptive is when your innovation forces the buyer to radically change the way they are doing something operationally to derive the value. Disruptive isn’t necessarily if your highly technical and complex technology basically replaces the current vendors less effective technology. Displacement is when you can do better, cheaper. Disruptive works against Displacement. Adoption is the battle to get your disruptive technology to displace the existing entrenched incumbent’s approach before someone figures out how to displace your disruptive technology, your “new” technology gets copied to the point of commoditization, or you run out of money.

Critical mass is a percentage of the available “market” or potential buyers that you think would be open to buying your product which given the complexities of determining that number, most companies short-hand to an estimate of the total number of competitive and your products are sold. Anyway, somewhere between 20-30% is a tipping point where your technology becomes significant to the direction of the market. Your goal is to get your approach to that number, hopefully higher. Hence the Go-to-Market Plan which should be really called the “how do we race to build critical mass before becoming irrelevant sufficient to guarantee the investor whom I am pitching that they will at least get their money back; hopefully at a premium” plan.

Usually, there are three major ways to develop markets, which is not really three separate ways, but three approaches that are used in concert:

  1. Indirect or Piggy-backing – leveraging a sales channel that has existing relationships within the target buyer community. You lose some control over messaging, your product has to be simple enough to get a half-interested sales person who has a bag-full of stuff to pitch you to their clients and you need to be interesting that they want to pitch you to their clients for their own reasons. Works great with products that compliment and augment their core-offering where they get great margin on a core sale. Not so good for disruptive technologies where there is a tremendous amount of education on both the solution and the problem. Really hard if it is a complex sale with a large community of stakeholders who have to buy in. Then it becomes the “introduce me to your network of customer relationships and I will work like crazy to sell it and give you a referral fee” type sale. But, given the cost of covering a market, this model can be a low cost entry approach if you get the right, motivated partner channel.
  2. Direct Marketing or Market Saturation Model – Bread-and-butter of marketers. Given the proliferation of cheap direct marketing, this is a very low cost model for reaching prospective buyers. “Educate, Brand, and Bulk (email) till You Bust”. Marketing Automation is critical for this approach as you basically line up all of your channels to reach potential buyers, align your messaging, and carpet-bomb. Pretty effective if you have something that they need. “Hard Yards” as my Australian friends say if it is a “nice-to-have” or very technical, very disruptive, and very strategic impact. Basically, you target who will pay attention, usually the technical point person, get some type of lead response, and then send it over to the lead qualification team to work until qualified enough for the sales team to begin working the sales process.  It is essentially a numbers game, but with the right approach, right product; it is starts out as a low cost of entry, but gets more expensive over time. Hence, why you need more dollars for building out the market.
  3. Direct Sales or Buyer Adoption Model – HERE IS WHERE WE SEE THINGS DIFFERENTLY – Most early wins for a company comes from network relationships. Your relationships allow you to get into the target buyers, get their attention long enough to figure out they need you, and you get early customers. Challenge is when those networks get exhausted. The two other models are cheap forms of reaching the potential buyers with a message, but they aren’t very effective at getting a senior executive’s attention. If you have a complex, very strategic, complicated, and consultative sale; most of your heavy lifting happens in the sales process. You basically figure out what REAL problem they have. BUT, as we have written and every sales person can tell you, the buyers aren’t going to invite you into their organization like they used to before online peer networks. A lot of them are so busy that they don’t take exploratory meetings, don’t like to respond to lead generation, and are requiring that you actually identify a problem that THEY know they have prior to speaking with you. You basically now have to do what you did in the sales process, but at the market level. Works really well for education sales, disruptive impact, and facilitating awareness to drive market adoption of a new category of product.

What I Would Do Differently – Buyer Adoption Pre-Market

If I have a new category type product, one that I know is truly a different approach to solving a problem for a community(s) of buyers; I know that market saturation and piggy-backing are good forms to get me some quick, cheap wins. But, I also know that it is going to get increasingly difficult to scale those models. Yeah, I can get lucky and get the right partner who gives us growth on steroids or tap a trend that gets me the right PR and we are off, but the investor also knows that you have to prepare for building a market organically rather than just getting lucky. They prepare for the worst and hope for the best. I also know that buyer behavior is changing. I have written 50 prior posts on this so you can read up, but it is clear. A lot of the market development costs are really spent pre-market development prior to critical mass. At critical mass, it becomes more about brand and product awareness to saturate the rest of the market on how you helped your buyers.

But for pre-market critical mass, I would focus on pre-packaging up the problem for the buyer, the decision support needed to get their internal team’s buy-in, and focus on educating on the unique problem rather than the technical nuances of our solution. Adoption is hard enough when it is a new problem for a company the buyer is familiar, why introduce more complexity by trying to get non-technical people to get comfortable with your unique technology. Get their buy-in on the prioritization to fix the problem rather than buying a technology. That means you have to first be able to recognize the different “real” buyer problems that your technology solves and recognize under what scenario a potential buyer would come to the conclusion that they have the problem you need to fix for them.

My go-to-market planning would be about segmenting buyer problems, how they know they have a problem, and how to get peer referral and diagnosis of the problem, rather than marketing my technology solution. This is a different approach, but one that actually solves a lot of weakness issues with the other models of market development. Although it requires more up-front planning and analysis, I think it is faster and cheaper to reach critical market mass. By a factor of 5.

Look, this is not easy. Actually, really hard if you don’t have some sophisticated tools, process, and the exerience doing it. However, I wouldn’t recommend it if I couldn’t do it so you need to consider that it is a viable approach that you need to explore because chances are the investor that you are pitching may now be expecting that you already have.

Matthew Rosenhaft

Matthew is a Social Marketing Executive and is co-founder of Social Gastronomy, LLC and the Social Executive Council. Prior to founding Social Gastronomy, Matthew has over 18 years’ experience as an executive in marketing, product management, and sales. Matthew has an extensive background in the SaaS Software, Social Media, Mobile, IT Services, and Telecom industries. He has prior entrepreneurial experience as a founder and executive in several early-stage venture-backed technology companies, as well as, holds several US patents for a mobile marketing technology. Matthew is a prominent blogger and regular industry speaker on social marketing and strategy topics. Matthew’s blog can be found at www.socialgastronomy.com/blog. For more information on Matthew, you can check out his LinkedIn profile at www.linkedin.com/in/rosenhaft or contact him directly at mrosenhaft@socialgastronomy.com.