13 Mar Everything B2B startups need to know about making a market in one slide
In a guest post for Sales Confidence, Ben Wright tells us all we need to know about making markets in the B2B startup world.
They said it wasn’t possible, but here it is. One slide that covers everything (well, almost) you need to know about building your initial Early Adopter market and crossing over the Chasm to the big money of the Early Majority.
This isn’t theory either. This is what I’ve been putting into practice for B2B startups for years, often with dramatic results.
If you haven’t read Geoffrey Moore’s seminal book Crossing the Chasm, from where analogy originates, then shame on you! Work on remedying this situation immediately.
One slide to rule them all
Anyway, that one slide. Are you ready? Here we go:
Let me explain. June 6th 1994. D-Day. Operation Neptune if you want to get technical. WWII has been raging for almost five years. The country has been under strict rationing for two years. Things are looking pretty grim. We’ve launched attack after attack against the Axis forces with varying levels of success, yet none of these has managed to repel the occupiers of mainland Europe.
And so, the Allied forces formulate a bold plan. A huge attack to take place on a single day in June. 160,000 British, American and Canadian troops, 1200 planes, 5000 ships – the biggest single strike force ever assembled. Think about those numbers. You can do a lot with 160,000 troops, 1200 planes and 5000 ships. You might think the most sensible strategy, when you have such a large strike force, would have been to spread it out, to hedge your bets and launch multiple attacks at different strategic points across several sections of the European seaboard.
Except that would have been the exact opposite of the Operation Neptune strategy. In fact, they chose an incredibly narrow focus of attack, a strip of beaches just fifty miles wide on the northern coast of Normandy. All those troops, all those planes, all those ships. All targeting just one tiny strip of the north France coastline.
It was an unbelievably risky plan. If it had failed, we’d probably have lost WWII. Even Churchill had second thoughts in the days leading up to June 6th, lobbying Eisenhower to reconsider having just one single focus of attack.
However, the plan remained. An overwhelmingly superior force at the narrowest possible point of engagement.
D-Day tactics in the startup age
OK. History lesson over. What does this mean for us?
The same plan that helped the Allies win WWII is, in a nutshell, the strategy that successful B2B companies employ. They find the narrowest possible market that is large enough to be meaningful, yet small enough to win. Then they ruthlessly focus and deploy the entirety of their resources to win that narrow market. Once you’ve won the narrow market, or established a beachhead, to continue the D-Day analogy, you can use that beachhead to attack other adjacent markets.
Sure, it’s a risky strategy, but it’s much lower risk than spreading your resources across multiple markets and geographies and never quite winning any single market. I’ve seen this time and time again. Companies spread their resources too thinly and too widely and never feel like they’re winning, because they aren’t.
The story of Documentum
Let me give you a great example of a company finding a narrow market then attacking it with overwhelming force. Again, this is taken from Moore’s Crossing the Chasm.
Documentum. A company you may never have heard of as it’s been through multiple acquisition cycles, but as Moore describes was probably the ‘granddaddy of all chasm crossings’.
Documentum was formed in 1990 by Howard Shao and John Newton as a solution to allow companies to digitise, organise and manage all of their documents and other unstructured information. The first use case of Documentum was to store and organise the thousands of training manual pages for the then new Boeing 777.
In 1993, Documentum appointed Jeff Miller as their new CEO – the company had initially grown well, but revenues had stagnated – a key sign that a company has fallen into the chasm. Miller reviewed their customer experience to date, looking at all of the different solutions they were selling to all their different sorts of customers. Then he made a bold decision. The company was going to stop doing everything it was currently doing, with the exception of providing a solution for a small niche of prospects that he’d identified as their beachhead for crossing the chasm.
The beachhead that Miller selected was remarkably narrow, the regulatory affairs departments in Fortune 500 pharmaceutical companies. It was a tiny beachhead, no more than 40 companies with perhaps a few dozen people in each. He narrowed down their entire addressable market to perhaps 1000 people on the planet.
He did this because he understood the most important criteria for beachhead selection. Pain. And in the case of these pharmaceutical regulatory departments, the pain was immense.
These departments were responsible for submitting all of the new drug approval applications to the hundred or so regulatory authorities around the world. This process didn’t start until after a patent was granted – patents that had at the time a lifespan of 17 years.
Back in the 90’s a patented drug could expect to make on average $400 million a year, so while a drug was on patent and not out in the market, every single day was costing the owner of that drug over $1m in lost revenue.
Furthermore, the submission process for new drug approval was a nightmare. Somewhere between 250,000 and 500,000 documents had to be submitted from a wide variety of sources. The submission process – not the approval process, this is just the submission process we’re talking about – took months. At a cost of… you’ve guessed it, $1m of lost revenue per day. Per day!
As you can imagine, once these pharmaceutical companies understood there was a solution that was able to help solve this $1m per day problem, Documentum gained some strongly committed customers – and that commitment came right from the top. In the first year that Documentum showed it could solve this problem, it acquired thirty of the top forty pharma companies as customers, driving its revenues to $8m and then $25m.
Having won their beachhead in a very narrow market, Documentum was then able to win adjacent territories. They moved at first inside the pharmaceutical companies to the research teams and then the manufacturing floor where it was used to organise and manage all of the documentation for the systems and processes in the factory. Once they’d started winning this market, they were able to use the contractors who worked on the shop floor to bring their solution into other sectors such as the chemical and oil refinery markets.
And so on, and so on. Documentum IPO’d on Nasdaq in 1996 followed by an acquisition in 2003 by EMC. Bada-bing, bada-boom, as they say.
The moral of this story? Find the narrowest possible market where the greatest pain intersects with the greatest willingness and funding to solve that pain. Make winning that market your goal, and do nothing else until you’ve achieved it.
In this article, we’ve talked about the importance of establishing a narrow market on which to build your beachhead, your base for success. In my next article, I’m going to show you how to do it. Don’t miss it.
Want to know more? Drop me a line. Give me a call. But don’t forget to read Crossing the Chasm cover-to-cover! READ IT!