Interview with Moore:
Monday , Aug 10, 1998 Sun-Thu at 18:00 (GMT+3)
High Tech Features
No Gorillas in Israel
By Michael Eilan
The more politicians talk about the
wonders of high tech business, the more
nervous the technologists should get. As
a pack, politicians tend to understand only
yesterday's story in business. They talk
about technology business because it's
the only bright spark in a dismal economy,
but by now a lot of people on the inside
know that there is a real pressing problem
in high tech now, and that this problem
needs solutions, fast.
Too many people are looking at the
problem in the financial context, as the
many small cap Israeli stocks get
battered week after week on NASDAQ.
The problem, however, is not in the
market. It's in the companies. They grow
nicely, get to the magic IPO, and then
somehow they falter, and growth eases
off, at which point they typically embark on
a new strategy that rarely manages to put
them back on the high growth path.
The good news from a man who
specializes in this problem is that we are
not alone. The same thing happens to
countless companies in the U.S. The
problem here might be more acute
because we are so far away from our
market, but the solutions are there.
Michael Tanner is a consultant from the
Chasm Group, a Silicon Valley
consultancy that specializes in the
different and often conflicting strategies
companies need to adopt during various
stages of growth.
One of the problems with consultants is
that, while they are highly intelligent,
articulate and convincing, one often gets
the impression that they are talking about
the solution to a problem you don't have.
In Tanner's case, however, the fit between
the problem he describes and the
particular stage of so many Israeli high
tech companies seems perfect.
In a telephone interview from the U.S.,
Tanner described four distinct phases in
the growth of a technology based
company. Different marketing strategies
should be used in each stage. It isn't a
bible, and there are some Israeli
companies, such as the RAD group,
which do very well by operating against
the strategies Tanner suggests. But for
every RAD there are dozens which have
hit the brick wall Tanner says he knows
how to break through.
The Chasm Group operates in Silicon
Valley. Its name comes from a book
written by the company's founder,
Geoffrey Moore called Crossing the
Chasm. He has since written two other
books, Inside the Tornado and The Gorilla
Gate, that describe other phases in
company development. About a third of
the group's customers are huge
companies like Hewlett Packard, another
third are mid-sized companies, large in
Israeli terms, and the rest are either
start-ups or small companies comparable
to most Israeli technology companies.
The key concept that the group brings to
the table is the conflicting desires of
customers in different stages of a
company's growth. Their descriptions of
these stages are: the early stage, the
chasm, the bowling alley, and the tornado.
A technology company sets out to sell a
product that is new. It gets its first sales
from "visionary buyers of products that
don't exist," according to Tanner, or the
early adopters for whom the main reason
for making the purchase is curiosity. If the
market is big enough and the marketing
is suitable, a company can go public
based on its early success at this stage.
The marketing during this stage,
according to Tanner, has to be broad and
"validate the existence of something
new."
Then the company hits a problem which
Tanner describes as the chasm. The early
adopters get bored and move onto
something else because the once new
concept isn't so new any more. The
company has already built up an
expensive infrastructure to cope with the
expected growth pattern, but that growth
somehow does not materialize, and
everybody is unhappy.
The problem, Tanner says, is that they are
looking to get a different kind of customer
with old marketing tools. The early
adopters, he says, will always try
something new, but most buyers,
especially in the business-to-business
world where so many Israeli companies
have staked their claim, are typically
averse to risk and feel threatened by new
technology. For Israelis, there is a cultural
problem here as well. The taste for new
things is particularly strong in Israel
especially in consumer markets. A good
example is the cellular phone market, in
which, for a while, Israel had the highest
growth rate in the world.
Most entrepreneurs are engineers with a
strong desire to explore new ways of
doing things. So it's hard for them to
understand that most of the customers
are, well, just not like them. Most of these
buyers want two things: a product that
everybody else is buying, because that
supports their decision; and something
that Tanner describes as a "complete
product."
"Take an electric car, for example. The
whole product is not only the electric
vehicle, but also solutions to make it easy
to use such as 'Where do I fill it up.?"
Companies that want to cross this chasm
have to get into what Tanner describes as
"the bowling alley." They have to fit their
product to specific niches and use it to
solve real problems that managers have
in that niche. He gave the example of
Documentum a company that went public
on the basis of a brilliant, enterprise-wide
document management technology.
Documentum, which, of course, is a client
of his firm, hit the chasm, but solved its
problem by fitting its technology to a
specific niche, the pharmaceutical
market, where there are vast amounts of
documents relating to drugs and their
approval process. The technology offered
a real solution to a pressing need in this
market, and was widely adopted due to a
niche focused marketing strategy.
The word niche used to be in fashion in
Israeli technology business till a few years
ago. It fell out of use because it seemed
to describe only small companies, and
was hence not too cool. Tanner talks,
however, about a serial niche approach.
After reaching dominance in one niche
well served by the new technology, the
company should move to the next niche
that can be served by the same solution.
This is where the bowling alley analogy
fits in. Enough of the pins have to be
bowled down to break through to the
pragmatic, risk-averse buyer who will buy
things that other people buy.
That's when the tornado takes off, Tanner
says. Probably the only Israeli company
that went through this phase with all of its
ramifications was Scitex. During its glory
days, Scitex's sales went through the
ceiling because its product suddenly
became regarded as the best tool in the
pre-print industry. An article written by
Tanner and Moore in Imaging Business
says: "Tornadoes essentially consist of
pragmatists on a buying binge. They were
once united by a common question - is it
time to move yet? They really didn't want
to buy until it became obvious that the
new technology was an accepted
infrastructure need. But now that it's
obvious, they want to move as a group.
To minimize the risk, they prefer to pick
the same vendor. And, because they want
to establish a comfortable status quo
quickly, they try to get the new technology
infrastructure in place as soon as
possible."
The stage after the tornado is when some
companies, like Microsoft, Intel or Cisco,
become Gorillas and dominate, control
and direct their market. But since no
Israeli company has ever reached that
stage, it's more the stuff of fantasy than a
real-life problem.
We don't want to mention Check Point, or
do we? Consultant's metaphors are
usually so well honed that they can fit too
many companies. But using the Chasm
Group's terminology one could ask
whether the firewall market was just one
bowling pin (where Check Point has
attained strong dominance) in an
complete alleyway that consists of the
business world's need for secure,
managed communications. If so , its
choice and dilemma would be which pin
to attack next? Virtual Private Networks?
Quality of Service?
In any case, most Israeli technology
CEOs would trade in their teeth to have
Check Point's dilemmas. Their problem is
that they have not emerged from the early
stages of success. They must change,
quickly, if only to wipe away the bad luck
of politicians' praise.
Published by Israel's Business Arena on
August 9, 1998 |
