If you want to learn why and how to grow sales with early adopters, reaching $10 million in annual sales before you cross the chasm, you’ve come to the right place.
There are 30.7 million small businesses with fewer than 500 employees in the United States alone. Those are the 99.9% of all businesses in the United States. However, only 11% of all businesses in the United States employ more than 20 people.
Proof of concept with reference customers is almost alway’s a must to convince more sceptic customers to take a purchase decision.
You shall grow sales with early adopters before taking the big leap. There is no short cut, you will only go postal wasting your time otherwise. Early adopters share your ideas while a vast majority of customers are more sceptic and busy with many parallel priorities.
This article is for those of you that have not yet scaled beyond $10 million in annual sales.
This is a summary of what I have learnt over the years:
How to grow sales with early adopters is about five things:
You prepare your business to scale by first focusing on below 5 things.
- Build reference cases, and confirm your niche leadership with enough annual sales volume. Most often at least $10 million.
- Establish your business as a market leader in your specific niche.
- Establish a product market fit, gradually. That happens when a widespread set of customers resonate with your offering.
- Start institutionalizing your sales process and operations. This is important to learn not to give away margins and to prepare for next level sales growth.
- Build a positive cashflow and cash at account to finance next level sales growth. You will need it.
So, why should you follow my advice on how to grow sales with early adopters before crossing the chasm:
- I have 25+ year experience to grow businesses, sales and operations in engineering and technology.
- For the last 10 years I have been working with venture capital and private equity.
- I have USD 8+ billion in personal transaction experience buying and selling growth businesses.
- My specialty is bridging entrepreneur stubbiness and conviction with investor methods and growth focus. I understand both languages.
Today I advise and help ambitious technology entrepreneurs to grow their businesses with strategies proven in venture capital and private equity.
This guide will cover how, and why, you shall first grow sales with early adopters.
A vaste majority of customers are sceptic to you offerings, until you have establishhed and proved market leadership in you specific niche. That’s the eight ball and there is really no way around.
Let’s get started.
Early stage customers are a startup’s friends, not the vast majority of customers
Before I will guide you step by step what have been working, and what have not worked, with companies I have been engaged with, let’s dive into some basics.
What is the chasm?
In 1986, marketing guru Regis McKenna, painted the now famous entrepreneurial lifecycle curve, also referred as the technology life cycle. In 1991, Geoffrey Moore slightly altered that lifecycle curve by introducing the chasm:
The chasm is the divide between a few early stage early adopters and the next level sceptic, mature but larger market with customers.
Remember that early adopters share your ideas, they are technology curious and often visionary in their mindset. Those customers are your early gains, but they are few in numbers.
On the other side of the chasm are vast majority of customers, much more sceptic than early adopters.
The later stage market is a much larger market than your early adopters. But you cannot target that later stage market directly without first acquiring early stage, early adopter customers as your references. More on that later.
Many of the later stage customers are enterprise customers. They have multiple agendas and initiatives and often unclear decision processes seen from the outside. In other words, a completely different ballgame than those early adopters.
The next level larger market with non-early adopter customers is more time consuming. They are sceptic, needs references, run multiple initiatives and timing can be difficult to predict.
The proverb ‘Crossing the chasm’ recognizes the challenge startups have: Going from a few customers and a few million dollars in sales to become a midsize and eventually a large size multinational business.
Understanding the difference between your first sales to early adopters and how to scale and execute sales to a larger but more sceptic market is key to growing a business.
Crossing the chasm requires product market fit not required selling to early adopters
Product market fit is about the quality of the product and the size of the relevant market.
You cannot know, with new technology, how the exact product market fit will look like. That is why those early stage early adopter customers are so important. They are your test bench, listen carefully to them.
Crossing the chasm to the more sceptic customers that are not your early adopters assume a perfect product market fit. Crossing the chasm is how to advance your offering from the those early, somewhat experimental adopters, to more sceptic customers.
Key will be to use your early adopter reference cases as proof, use case insight you have learnt and market trends as trigger.
The vast majority of customers will not experiment, they are sceptic, occupied and often slow to decision.
The moment when a business eventually finds a widespread set of customers that resonate with its offering is what is referred to as product market fit.
Back in 2007 Marc Andreesen wrote an article about product market fit worth reading should you like to deep dive into this specific area.
Read more what makes a good sales strategy.
Reference volume, not recognizing that our first customers were friends and early adopters made us stumble to grow sales
One disruptive technology firm I have worked with launched a new financial service infrastructure platform for the payment processing industry. Bold, ambitious and promising.
They delivered a real-time settling technology of payments with no need for daily batching. Transaction cost would be one third of traditional settling operations once critical volumes was reached.
The mentioned company is still around as a small start-up but struggle to survive. Their early day customers were typical early adopters that had been frustrated about available incumbent solutions. Our company secured seven such early customers.
Instead of spending time developing additional functionalities we should have spent much more time prospecting the early adopter market. Moving from those few known early adopters looking for revolutionary technologies to a broader more sceptic market proved to be a bigger challenge than what we understood at the time.
We should have stayed with our minimum viable product that appealed to our early adopter friends. In all honestly, that product was developed with inputs from those early adopters. It was good enough. No need for additional engineering before we had new larger customers and their feedback. We should have targeted a larger volume of early adopters to calibrate product market fit and to build market leadership references before attempting to close larger accounts.
We did not recognize that our first customers were like-minded enthusiasm and early adopters. The widespread market showed polite interest but had all sorts of other priorities. We were lacking enough reference sales and not seen as a leader in our niche.
Now, let’s discuss why you shall grow sales with early adopters, before moving on towards larger more sceptic accounts.
Early adopter’s enthusiasm versus the widespread market looking for productivity gains
Most technology entrepreneurs have a few potential prospects in mind while developing their first version of their product. The minimum viable product that are launched to their early stage, early adopters.
Founders usually know these early-stage prospects very well and a handful of them are likely to become their first paying customers.
They are the likeminded early adopters.
“We secured our first 7 customers that really loved what we were doing. We then struggled to expand despite adding new functionalities.” This is the core of a dialogue with one of my fintech clients. Too early they tried to expand into larger but more sceptic enterprise customers. We were not yet positioned as a market leader in our niche. We refocused to continue tap the pool of smaller early adopters, building a much more sizeable proof of reference. Two years later, we’d niched down even further, seen as a market leader in our niche. We build a much more structed next phase relationship journey sales process and sales support marketing strategy. Gradually the product market fit took shape.
Without early adopter references cases you cannot be crossing the chasm
A serial entrepreneur friend of mine has a new SaaS startup looking to serve a sub-sector of the finance industry. However, targeting large incumbent finance companies, betting to gain big from the start, is proving difficult also to him.
He lack early stage early adopter reference customers. He is not yet seen as a market leader in his niche. Product market fit is just not there yet. Stepping back, he now aims to target smaller, tech savvy more early adopter customer types.
Before crossing the chasm, this is the core of his new plan:
- Step back and focus on securing a handful of smaller contracts with smaller customers. Typical early adopters. Those will be the necessary reference contracts for later larger customers.
- Stop further inhouse product development until at least a handful of early adopting customers has been secured. Product market fit will grow from projects that are being implemented. Lacking inhouse developed features is not the constraint for early growth – reference customers, proof of concept, are.
- Be more visible at trade conferences, relevant small business events, in media and LinkedIn to fish for as many early stage, early adopters as possible.
- Focus all efforts on proactive marketing and sales targeting smaller early adopters only. Secure reference contracts. Stay away from larger accounts to avoid spending years not being able to secure sales with too few references.
- Set $10 million as an early stage early adopter annual sales target, before crossing the chasm.
The larger the next phase customers are, the larger pool of early stage customers is needed. Reason being to prove the point of being a market leader in the niche. For this specific niche, $10 million will be respectful enough to be relevant to a more widespread customer base.
When is it time to grow sales by crossing the chasm targeting the non-early adopter customers?
For example, business critical products and applications requires a larger amount of reference sales to scale in the next phase. Regardless how great the technical solution is.
Targeting very large enterprise customers also requires a larger amount of reference sales.
However, each industry and geography only have that many early adopters making early stage sales equally challenging as growing beyond those early adopters.
Niche down to find as many early adopters as possible. It may sound counter-intuitive but is a way to be relevant and identified by early adopters.
So, for how long shall you focus on the early stage early adopter market? When to grow sales by crossing the chasm?
Let’s talk about comfort.
Comfort to a more widespread market of customers by first building a sizeable portfolio of reference sales with early adopters. Typically:
- Large enterprise businesses need a lot of comfort before making decisions to invest.
- Conservative industries, like payments, construction and real estate, also requires a lot of comfort.
- Business critical products and solutions require a lot of comfort. Infrastructure IT is one example.
Moving too fast towards larger enterprise sales and more sceptic customers is not going to help grow your sales. Avoid wasting time attempting to cross the chasm to early.
$1o million in annual sales may seem as a huge number to most B2B startups, but it’s really not. With a bit of size you prove that you can deliver. You prove that customers are paying for your services. You’re small but large enough to be trusted to stay around for years. These are important qualities for a vaste majority of B2B customers.
That is why you need to wait targetting the elephants and first grow sales with early adopters.
To build a strong cashflow is another reason why to stay focused on early adopters not growing sales to fast
In my experience, it is usually a miss-conception to assume you only need to hire a few more salespeople to land the large accounts.
Beyond your early adopting customers that share your ideas you will find more sceptic customers. You will meet customers that will seem extremely slow in their decision making.
Large enterprises have multiple parallel investment decisions to consider. Internal power agendas may also play a role. Money is usually not their main constrain but key decision makers and incumbent processes.
Extended relationship journey’s and sales processes with low hit ratios, i.e. several parallel and well-structured sales processes, will need resources, hence cash flow or external financing.
When to grow sales crossing the chasm you will face:
- Time – meaning much more lengthily sales processes than before. You need to take many small incremental steps to prove yourself as a potential trusted supplier. Regardless how transformative your offering may be.
- Timing. Not even product owners or heads of business units at your prospective clients may be able to tell you when the perfect time will be to make a purchase decision. You need to be present over a long period of time to capture that sudden moment when things start to move. Miss that moment and you miss the deal. This is the realationship journey.
- Highly structured sales processes are needed to be able to efficiently manage hundreds of parallel sales initiatives. It will require some investments in time and design to set this up, implement and train for consistency.
- Insight marketing is also a necessary sales support to influence decision makers, and their influencers.
More sales and marketing resources are needed to deliver on next level sales comparted with the early adopter phase. Financing is required, either cashflow from your early adopters or external financing.
You need to stay with a minimal viable product, as long as possible
Your first customers will share your ideas and will be your test bench. Even if it may not feel so at the time, early adopter customers are much easier to land than the next level more sceptic customers.
Spend time finding and delivering to as many early adopters as possible. Doing so you shall also postpone a too excessive inhouse product development for later.
There are four reasons why you shall rely on a minimum viable product before crossing the chasm:
- Most early adopters will either be small businesses or challengers to incumbent enterprise businesses. Their purchasing power is usually limited hence you need to avoid too much costly customization. Pricing is also important.
- Most early adopting businesses have relatively straight forward base requirements. You shall take advantage of this and nail your base delivery offering. Again, avoid too much variance in your product portfolio. Spend money on sales and marketing, not on early stage features development.
- You shall not spend too many resources to go beyond your minimal viable product, until it’s time to cross the chasm. In particular when you still develop your operational skills, processes and resources. Your early adopter customers are not only your reference customers, they are also your opportunity to prepare your operations and processes for scaling.
- You need to grow positive cash flow ahead of crossing the chasm. As you probably have noticed, early adopters are often price sensitive. You need to prioritize positive margins and stay with a minimum viable product to build cashflow. Shall I raise equity to grow? No, plenty of advantages if you can avoid it.
Crossing the chasm in practice means operating with product market fit excellence
Evolution is a challenge to many entrepreneurs. Patience will be your friend:
- You need to get used to evolutionary processes. That is how early adopters operate. You shall to, meaning you shall be in command when to expand your minimum viable products and for whom.
- A product market fit process means exactly that. Scaling a business is not only about scaling sales, you also need to institutionalize your operations. Processes, work descriptions and organization will be your friend avoiding unwanted customizations.
In extreme but poor business cases, all deliverables end up being customized. Sales will be cumbersome, so will operations with limited net margins as the result. A lot is gained keeping things simple while focusing on early adopters.
You will recognize that the challenge is to focus on a base product while attracting early adopters. It’s easy to please customers with highly customized solutions to get those first sales. I get it, I’ve been there. Avoid it as often as you can.
You will learn from your early adopters. Make a list of future features but, if possible, avoid implementing those features, for now.
Obvious technical shortcomings will need to be fixed of course. For that you have a gold mine of early adopters sharing your ideas.
It has clear benefits to grow sales with early adopters before crossing the chasm
Staying firm with a minimum viable product as long as possible targeting early adopter customers makes it much easier to:
- Build reference cases, confirmed with good enough annual sales volumes.
- Establish your business as a market leader in your specific niche.
- Gradually moving to product market fit. That is when a widespread set of customers resonate with your offering.
- Start institutionalizing your sales process and operations. This is important not to give away margins and to prepare for next level sales growth.
- Build a positive cashflow and cash at account to finance next level sales growth.
Case example: A few years well spent before crossing the chasm
One of my clients operate an infrastructure service for fund managers. They did the following to gain early adopter volume:
- Identified early adopters to be newer and smaller fund managers. Larger fund managers have complexed incumbent systems. Hence it would be a more cumbersome business-critical decision to switch even when new technology emerge.
- My clients stayed with a base level minimum viable product for smaller fund managers, attracting those with less complexed requirements. To scale with additional functionalities is deliberately postponed for the future.
- Volume-linked pricing with a low fixed price component which is attractive to new smaller fund managers on the grow.
Reaching more than $10 million in annual recurring revenue they have established themselves as a market leader in their specific niche.
The company is now investing to transform their sales and marketing to target a more widespread customer base.
Collect as many early adopter customers as possible.
I have described in detail in previous chapters why you shall stay with early stage early adopting customers. Avoid targeting typical non-early adopting customers such as large enterprises, as long as possible.
Later stage customers are cumbersome sales and can easily consume your cash flow and motivation. You need first to exhaust the early adopter sales phase.
Crossing the chasm in practice means a resource intense, three to four years non-profitable sales offensive. That shall come after you established your business amongst early adopters.
In my experience, you risk being disappointed and frustrated making hundreds of offerings with few or no closing. You need plenty of early adopter reference cases, enough of annual, credible sales revenues, a slick scalable operation, and enough cash flow for long sales processes.
What to do to find as many early adopter customers as possible before crossing the chasm:
Early stage, early adopter customers often has two or several of the following characteristics:
- Smaller niche down companies.
- Challenge existing incumbent businesses.
- Tech savvy, curious, outspoken.
- Startup’s, curious about new solutions.
- Mature facing severe margin pressure, in urgent need for a new solution.
You shall try to identify prospective early adopter customers in your niche, on criteria’s like the ones above.
To be visible to early adopters you also need to make some marketing noise. If they can’t see you, they can’t find you. LinkedIn posts by your self, familly and friends and like-minded professionals, events, news interviews, etc.
Sales hit ratios are usually quite low. In some industries one out of hundreds of prospects leads to a sale. In business critical B2B applications one out of thirty qualified leads may lead to a deal close.
Your sales process needs to be fed with new qualified leads, all the time. Your pipeline of leads needs to be large enough to readh your targeted sales, considering your hit ratio.
Summary – why you shall grow sales with early adopters before attempting to cross the chasm.
Early stage, early adopter customers share your ideas, are often tech savvy and fast to decision. They are your early wins.
These early stage, early adopters will also be your reference customers to a more sceptic majority of customers. Reaching a certain annual sales volume will be proof of concept for more sceptic customers.
Early adopters will also be your test bench. You will avoid spending too much inhouse time to develop features not yet sold. Product market fit is when a widespread set of customers resonate with your offering.
Growing sales also means you will grow your operations. Scaling a business with early adopters usually means with relatively small customers. To operations, that’s highly beneficial since you can easily dilute margins with inefficient internal processes customized to high-end customer needs.
Finally, early adopters are less time consuming to sell to than should you target the wider market. You will built reference cases and cashflow much faster targeting early adopters.
Sales processes are quite long with sceptic non-early adopter customers. In particular with investment goods or solutions that are part of business-critical processes. Hiring more sales reps, sending more tenders is simply not enough to gain trust and timing with the wider market.
Technology based businesses need to define a niche market to start grow their sales. With a narrow niche market, it’s easier to become a market leader with early adopters. A market leading position and enough annual sales, usually a minimum of $10 million, makes a newcomer relevant.
It’s time to grow sales by crossing the chasm once you have conquered the early adopters of your market niche. That is when you have credibility, offering comfort and can become relevant for those more sceptic customers.