Episode 9 - Crossing The Chasm as a Framework for Investments

June 3, 2021

PUBLISHED BY Wildcat Venture Partners


Crossing the Chasm is a critical framework that the Wildcat team has personally experienced as operators, executives and investors. In fact they have been using it throughout their whole professional careers. 

Geoffrey Moore, Author of the best-selling book Crossing the Chasm, and Partner at Wildcat Venture Partners, shares that this B2B market development model is the lowest risk, highest return play in venture. 

In this episode Geoffrey, Founding Partner Bryan Stolle and COO & Partner Jennifer Trzepacz, also known as JT, dive deeper into this strategic and operational framework that is critical to investment criteria and heuristics, but also to an early stage company’s operating model.


The Crossing the Chasm Framework

Geoffrey shares that this framework comes from the technology adoption lifecycle. In various stages in the development of a market, there are different kinds of customers that have varying sets of expectations and value propositions they want to fulfill. 

The early market is composed of early adopters and innovators looking for an advantage and they are willing to take less than perfection to get that advantage. The early majority is a pragmatist buyer. They’re not going to buy unless it is something that they can implement with a degree of confidence they’ll be successful. That implies delivering the whole product – all of the things you need to have around your core offering should be in place for them to be successful. And they want to see proof that others who have used your product have been successful. This gap between the two is the Chasm and is where most high tech companies fail to make progress. 

Once these early stage companies are able to cross the chasm and get to the mainstream side of the market, pragmatist buyers see others like them using the company’s solutions. As these companies then move out into other use cases and other vertical markets, they will transition into the third stage of the technology adoption lifecycle, the tornado. The tornado is when everybody starts adopting the technology and that’s what creates huge venture capital returns.

Bridging the gap requires finding a very specific, and big enough market to go after, and then becoming an expert in that market. Applying this framework offers several advantages:

  • Allows for focused development efforts
    • Limits feature and function distractions for other target markets that might not be as interesting to the market selected. 
  • Enables the sales and customer support organization to deeply understand and learn the problems of that market segment whereby they can speak their language better than any other competitor. 
  • Creates deeper, stronger relationships with customers 
    • Leads to lower churn and increased probability of landing and expanding. 
    • Offers great referenceability within a group of like-minded customers who can drive that word of mouth power.

At the end of the day, it focuses on how to get across faster in a more predictable measurable way. 


The Nine-Point Playbook That Drives Focus 

The intent of the framework is to help early stage companies get laser focused on Crossing the Chasm which involves the following nine-point checklist:

  1. Target customer
  2. The compelling reason to buy 
  3. Whole product
  4. Partners & Allies
  5. Distribution
  6. Pricing
  7. Competition
  8. Positioning
  9. Next target market

In going through this playbook, the entrepreneur is assessing what they have and how that is unique in a market that’s big enough to matter and small enough to dominate. It’s critical for them to develop a complete solution and the entire ecosystem to support their beachhead customer. Once there is success on that front, there will be a tremendous amount of learning around the product, ecosystem, leadership, and internal systems which will enable the company to figure out where to focus next such as the next target customer where they can dominate.  

There is a deep level of commitment needed from the entrepreneur and their team as there inevitably will be ongoing distractions and a desire to chase the next best thing. In addition, entrepreneurs and investors need to remember that in today’s world, you always have to think about more than just the product itself in order to differentiate and to retain, to attract and retain your customer base.


Applying the Chasm Framework – Guiding Investment Selection and Companies Post Investment  

When it comes to the application of the framework, the Wildcat team also leverages it to drive their investment selection criteria in addition to guiding their portfolio companies post investment. There are four primary tenets they consider when evaluating companies through the lens of their Chasm criteria:

  • Market: Market opportunity of $1bn. There is a clear differentiation and a product/go-to-market advantage.
  • Customer: Identification of the ideal target customer, the use case and specific  problems that they’re trying to solve.
  • Product: Referenceable customers within a specific use case, adoption and implementation metrics to assess current traction(e.g. reasonable churn and acquisition costs).
  • Talent: Has deep experience around the problem that they’re trying to solve. Looks at the problem in a contrarian way to unleash that trapped value. Has a willingness to embrace the framework. 

Wildcat also fundamentally believes that the success or failure of an early stage company also hinges on the people to create the necessary traction to unleash that trapped value. Because it’s the talent not the tech that identifies and operationalizes the opportunities to disrupt a category. And as such, there is an added level of  rigor in their evaluation of an entrepreneur to ensure there is an alignment with their investment criteria.

“It’s always talent at the end of the day. We don’t invest in markets. We don’t invest in products. We invest in people and that’s who we’re backing and supporting. “ – Bryan Stolle


Benefits for the Investor

The benefits to applying the Chasm framework are not limited to the company however. In fact, there are several tangible benefits for investors when these early stage companies drill into how they can effectively cross the chasm coupled with Wildcat’s depth of experience. 

There is an acceleration of performance as the application of the framework helps to 1) reduce risk by exclusively focusing on product-market fit and 2) gain market segment dominance with less capital because of this hyper-focus on one vertical market and use case.

With less capital required, that benefits both the entrepreneurs and investors because everyone gets to retain more ownership. 

In the end, there is a consistent delivery of venture returns with shorter time to liquidity and increased capital efficiency

“It’s such an efficient capital efficient way to take on venture risk. This is the most reliable play in all of venture capital. It just works.” – Geoffrey Moore


Examples of Successful Crossings

There have been several examples of companies that have applied the Chasm framework successfully including Bryan’s own company, Agile Software. 

Everything he did was rooted in Crossing the Chasm framework having learned from his previous startup experience of struggling to find traction with an audience and not delivering a whole product. 

Bryan and his team squarely targeted electronics manufacturers and in short order became the dominant layer in his segment which led to expansion into other target markets. The rapid results were from $0 startup to IPO in four and a half years, $25Million in capital raised with a company valuation of $4.2billion upon going public. 

Geoffrey also highlights that tech titans Salesforce with their SaaS software and VMware with their middleware technology are companies that employed the chasm framework (and are examples he notes in his book). 

Even with over 200 companies that Wildcat can refer to with direct chasm application and resulting successes, JT’s has had her own personal experience with the framework at her former company RocketFuel, an AI machine learning ad technology platform. They identified their beachhead customer, focused on building a compelling whole product which led to sales traction, repeatability and eventually a very successful IPO. And the intimate involvement of Geoffrey and Wildcat Founding Partner Bill Ericson was also essential for helping the team work through different chasm model Challenges.

As operators who have applied it themselves, they inherently understand the trials and tribulations that can often derail startups in successfully crossing the chasm. Yet with any playbook or framework, there isn’t a 100% guarantee of success particularly in venture. However Bryan does make one guarantee:

“You will have a higher chance of success if you follow it, than if you don’t. It takes something from being a random walk into something that’s a much more thoughtful laid out journey or plan. And as everyone knows, you’re more likely to get to a certain destination if you have a well laid out plan and journey than if you just started walking North or West.” – Bryan Stolle


Traction and Trapped Value is produced by Flywheel Associates