The other day I had the opportunity to interview Peter van der Fluit and Philip Lay, Principals at the Chasm Group. The Chasm Group is a leading strategy consulting firm in the Silicon Valley and Europe. Besides working with medium to large tech companies, Peter, Philip and their partners help early stage companies to “cross the chasm” from breakthrough idea to market leading reality. They lead the way in inspiring business and market strategies that deliver results for technology-based companies of all sizes, across industries, and across borders.
So let’s see what they have to say.
Philip, your company Chasm Group is a team of disruptive thinkers specializing in helping technology-based companies achieve escape velocity in both emerging and established markets. What are the key elements to escape velocity?
The fundamental thought behind Escape Velocity, both the book and the concept, was – as the subtitle says – “Free your company’s future from the pull of the past”. For established companies, this means managing their portfolio of maturing and emerging offerings in such a way as to give the emerging offerings a real chance to grow. Most such companies, especially those that, like IBM, SAP, and Cisco, have powerful product franchises, struggle mightily to allocate sufficient focus and resources to their newer offerings to give them a chance to succeed. Look at HANA for example: SAP has attempted to force HANA into prime time too quickly, leap-frogging the critical “germination” phase that a nascent technology requires. As a result, HANA is deep in the chasm. Although the company claims to have 3,000 or more customers, most of them don’t even know they have licensed HANA, and there are only about 150 bona fide users of the product. The same is happening to IBM’s Watson, about which the company made extravagant claims before the offering was ready for adoption by mainstream customers. In IBM’s last earnings call, Ginni Rometty had to backtrack on the companies over-ambitious revenue goals for Watson, cloud hosting and other emerging offerings. For younger companies that might only have one offering to worry about, gaining escape velocity means gaining mainstream adoption sufficiently to generate rapid growth, enabling them to punch above their weight. The urgency to achieve this is due to the high failure rate of start ups and the need to compete eventually for venture or other capital in order to achieve scale.
Philip, you preach that companies with disruptive technologies need innovative thinking to drive the kind of strategies and programs that enable market leadership. What are the elements of innovation and how can they be applied to generate opportunities?
One critical element of innovative thinking is to understand that marketing a truly disruptive technology requires a different approach than marketing your established ones. Whereas the latter normally require a fair share of resources allocated in a linear manner in exchange for linear growth, the former requires an unfair share of resources, an organizational model that typically violates the company’s current organizational structure, and a decent amount of time to pass the tipping point. Beyond these requirements, which most management teams find it difficult to adopt, newer offerings require thought leadership around customer problems, rather than infinitely creative marketing spin to “sell the product”. So the opportunity to be innovative resides in answering the question: “What problems do I believe people are thinking incompletely about that we can address with a new/different approach?”
Philip, tell me about 3 companies you admire and why so?
Off the top of my head, based on my recent research and writing, the three would be: 1) Apple for its ruthlessness in making tough choices, whether on product design or features; 2) Splunk, for its businesslike approach to building a real business underneath the hype of big data / analytics; and 3) Tesla, for having the courage and persistence to revolutionize the auto industry with the best-designed driving experience imaginable in an electric – or any – car.
Peter, everybody says let’s start with an outside in or customer and market-driven perspective. What are the 3 most important ingredients to get it right?
First and foremost to step out of the office and work together with customers. Too often engineers build things because they can versus whether they SHOULD. Second is TIME meaning you need to do this FAST and iteratively. Develop a hypothesis, create an experiment and validate this. If you can get away with a low fidelity experiment (for example a brochure) than do and do not waste time on building a complete prototype until you really have to. Finally, the third element is to develop the right set of metrics. This means that you need to develop metrics that really matter and are relevant for success. Too often we see companies and innovation teams applying the wrong metrics at the wrong time. This often leads to disappointment and could eventually result in a project sponsor dropping their support and funding.
Peter, every business needs to scale and it seems from building cutting edge innovation to scale a business is a difficult journey. What do you recommend companies of all sizes to master to grow more effectively?
Essentially two things: apply the right market strategy and the right way to organize for the initiative. Let me explain. Scaling a business means finding a target market (niche segment) where you can reach market leadership in 18 to 24 months. You need FOCUS to get scale. From what I have seen, this is one of the most difficult things to do whether you are a big or a small company. Too often there is revenue pressure and every deal is considered a good deal. Well this is bogus. You have good revenue and bad revenue. In the initial scaling phase you ought to drive at least 60% of your revenue from your target market initiative (TMI). This is good and strategic revenue helping you to build Power. Revenue outside the sweet spot causing you to divert resources from the core, is bad revenue. You should avoid this at all times. Neutral or tactical revenue is ok which is the remaining 30% to 40%. The second thing that you need is dedicated resources. Take them away from your current performance engine and stick to this for the 18 to 24 months. There is no such thing as part-time initiatives. You are either all the way in or not at all in. At Chasm we have developed a break-out growth initiative offer where we help our clients develop their TMI, help them setting up the right organization, as well as help them with operationalizing this.
Peter, how are Sales and Marketing contributing to a growth journey? What needs to be done to be effective?
Some people say sales is from Mars and marketing is from Venus. Well it takes two to give birth to a beautiful baby. Hence alignment is critical. Sales should be driven by a market strategy. Marketing needs to point out which customers segment to go after, which personas to focus one, with what message i.e. what problem are you solving for that person, as well as arm the sales force with the right provocation to use. This needs to be consistent and repeatable. There is no heroic sales effort when you want to grow. Selling should be a well oiled machine. To obtain leadership in a disruptive-innovation initiative you need to have thought-leadership which gives the sales air cover and ultimately creates pull once you have established a sufficient number of references with what we call pragmatist buyers (these are buyers looking for a pain pill with a 10x ROI because they are suffering from a business problem which they got to solve now.
Philip, what are you passionate about?
In business, helping clients to solve strategic problems that they see as intractable; in my writing, I am passionate about debunking hype and encouraging authentic thought leadership and the exercise of sound management practices. In my private life, I love reading great thrillers and biographies of historically important leaders from Hitler to Stalin to Roosevelt to Churchill, and more recently I’ve developed an interest in opera. In sports, I play and watch tennis, and follow sports teams that exemplify world-class teamwork – among them, FC Barcelona, the San Francisco Giants (baseball), and the Chicago Bulls of the Michael Jordan era.
Philip, what keeps you up at night?
Whenever my mind starts racing with tomorrow’s priorities. Also, any problems occurring in my personal or family life, whether with my wife or my four adult children.
Peter, what 5 iconic figures would you invite at your dinner party?
Tito Schipa, because the ultimate performing art from is Opera and he was one of the best lyric tenors ever and in my next life I would like to be one; Marcello Malandugno, a school teacher in Southern Italy who became a painter, we have four of his incredible paintings; Hasso Plattner a highly successful entrepreneur with whom I had the pleasure to work during the R/3 roll-out, he for sure keeps you on your toes; Meryl Streep, an actress who masters the Stanislavski method of acting where she immerses herself completely in the character she is playing; Jamie Oliver because we need someone who can cook!
Peter, what’s the last thing you Googled?
UCAS, checking up on the application of my last child at home who will be following his other brother and sister to study in the UK next year.
Philip, you need to be ahead of your customers to be relevant? How do you stay smart and innovative?
Stay close to your clients, keep your humility, combat conventional thinking on key topics and issues, and always be curious.
Peter, what book do you currently have on your nightstand?
I am an avid reader and just finished Piketty’s Capital. Fascinating material where he proposes a progressive tax on capital in order to enable countries to pay their bills instead of digging themselves a deeper hole. Interesting enough he is not talking about others paying their fair share such as companies. We are seeing too many “tax deals” whereby individuals and businesses alike get away with putting the burden of the cost of society on others. You might be legally right, this does not mean you are ethically correct! If everyone would pay their fair share and governments avoid being Santa Claus we would all be better off.
Peter: either Or
Tex Mex or Boeuf Bourgignon; actually leave out the Tex
Tahiti or St. Moritz Gaugain was no fool!
Water or Wine (water when I prep for the marathon)
Bear or Bull because I am born in May
City or Suburbs cities to visit; suburbs to live in
Philip: either Or
Rio de Janeiro or Paris
Andy Warhol or Pablo Picasso
Ipad or Laptop
Caipirinha or Pinot Noir
Angelina Jolie or Amal Alamuddin (don’t care)
Peter van der Fluit, Principal Chasm Group
Peter is a principal with the Chasm Group and focuses primarily on technology-based organizations in Europe. He is a Dutch national and based in Amsterdam. Peter has a passion helping companies build new businesses via disruptive technologies. He has a deep understanding of what it takes to innovate and scale businesses with 25+ years of operational experience having worked in organizations across Europe, USA, Asia, and Latin America.
He focuses on issues concerning strategy, marketing, sales, and alliance management as well as advising general management in both large enterprises as well as SMBs; and has worked with many of Europe’s leading hardware, software and services organizations.
Philip Lay, Principal Chasm Group
Lay is a senior advisor at the Chasm Group (TCG) and has been a part of the Chasm brand ecosystem since 1994. In 2003, eight years after joining TCG as a managing director, Philip co-founded sister firm TCG Advisors together with Geoffrey Moore. He left TCG Advisors almost ten years later in order to reorder his work around five activities: writing, consulting, board membership, teaching business school, and investing in startups. He has now rejoined the firm to help expand TCG’s practice in Europe, as well as continue to work with clients in the U.S. and elsewhere.
Over the years Philip has authored many articles for different trade and other journals. He co-authored “In a Downturn, Provoke Your Customers”, a highly successful article published in 2009 by the Harvard Business Review. His thought-provoking online newsletters and blogs, starting in 2000 with Under the Buzz and more recently with his new blog at http://www.philiplay.com, are highly regarded by tech executives.