My experiences with the 'chasm'
To start with, the company was a typical Silicon Valley based, venture funded startup. It had its engineering center in Bangalore with about 120 employees both in India and in the US. The company was into broadband gateway business, mainly focusing on home-gateways or Customer Premise Equipment (CPE) product. It raised about 9 million series-A and 13 million series-B venture funding apart from the initial angel funding. It was the year 1999 and everything looked so good at the beginning. Before this company the angel investor and the CEO has sold 14 startup companies to various huge corporations. In early 2000, the company was valued about 300 million USD.
From the technology standpoint, it had an excellent product called 'Gateway-on-a-chip' (GoC), which was a patented Application Specific Integrated Circuit (ASIC). This custom designed hardware architecture for home-gateways will provide an integrated platform solution for Data (Internet browsing), Voice (Voice over packet) and security (Firewall and Virtual Private Networks or VPNs) and related applications. Following were the unique selling propositions (USP s) of the product:
- The platform provided customized hardware and software, suitable for home-gateway development. Since the software was customized for the hardware, the routing software was the best in terms of performance.
- The hardware was custom designed and it was very difficult to replicate it in a very small period of time. By having this high entry barrier, competitors were finding it hard to replicate it.
- The target customers were Original Equipment Manufactures (OEMs) and the integrated platform would reduce the time-to-market for them in a big way.
- The software was highly customizable and the features can be chosen in a plug-and-play fashion. Multiple combinations of data, voice and security products can be built by arranging them like 'Lego boxes'.
- The company was mainly betting on Voice Over DSL (VoDSL) area and it was already inter-operating with almost all the major gateway vendors. The interoperability was proven in various trade shows.
- Apart from that, the .com bubble was bloating big time and high-speed Internet was the talk of the town. The GoC cutting edge product was competing with all big players and all set to take-off.
Mapping to the 'chasm model', (see the figure below) the company already has technically superior product, thereby attracting the 'technology enthusiasts'. The VC community and telecommunication industry was betting big time on the VoDSL technology by looking into its bright future. The platform was already bought by some set of initial customers who were planning to ship the product in high volume. I could literally see the excitement in employees and Christmas parties, ping-pong tournaments, fashion shows were a common phenomenon. The 'visionaries' were all set to make it big. Unfortunately we were not aware of the 'chasm' we need to cross.
Fundamentally VoDSL technology is all about running a single copper wire to the Small-Office-Home-Office (SOHO) which would provide up to 16 telephone connections and Internet connectivity. The SOHO market was very hot in the pre-2000 time frame as 'get-rich-quick' dot com companies were mushrooming like anything. Having a single VoDSL would reduce investment costs for these SOHO customers. But the fundamental problem with this technology was, its was cannibalizing land line business of telephone operators. If any service provider (say AT & T) provides this VoDSL service, they may end up loosing their long distance land line business. So put in the chasm model, the 'pragmatists' like AT & T were not ready to adapt this technology. Because of this simple reason they stopped investing in VoDSL deployment in large scale and the VoDSL gateway companies started shutting down one by one. Now what do we do with our VoDSL home gateway? Simple! Its of no use. Whats the point in using a device at my home, where there is no support from the service provider side. The company was in deep shit.
As the company also had data solution (router, firewall, VPN) it started pushing for it big time. Since the company's main bet (VoDSL) is no more, it brought in huge amount of work pressure to R & D teams slogging day and night. Every time the marketing and sales folks would give wonderful presentations about design wins but nothing got into the main production. As the company was operating in the OEM model, shipping units in large scale was very vital point which we missed big time. No doubting any more! We have become victims of the chasm.
Its really amazing how valuation of the company drops like droplets during the chasm period. Other events like telecom melt-down. .COM bubble burst, 9/11 attack fueled the company fall even further. One of the semi-conductor major took 51% stake of the company for just 25 million USD, which valued about 150 million USD before the chasm period. In spite of the huge corporation support, the company didn't take off from there. Ultimately the company filed for bankruptcy and rest is history now. After knowing the 'chasm' model, I am able to co-relate and understand the failure my previous company much better now. At the same time the excitement and thrill that the high tech venture offers is mind-blowing. It should be experienced than writing or talking about it.
Technorati tags: Innovation,Marketing,Crossing the chasm,Technology
Comments
What you experienced is very critical for most entrepreneurs to realise even before jumping into some exciting new idea. While Guy Kawasaki says you should not analyse too much but start prototyping, it doesn't always work that way.
One has to have a good sense of the market, also what could go wrong, not put all eggs into one basket. I also am not a big fan of the OEM model, but lot of startups feel that its the only way to break ground and make revenues, but those who stay up/build up a brand. Also, hardware products are always going to be more risky then software products.
While I didn't work for a startup, I worked in a startup/new business venture at larger networking company. We ran into a similar problem when the larger optical fiber market dried up affecting all the equipment manufactures. However, I felt that if the management was smart, creative, and able to respond to the challenge, quickly work out a product that it still made sense for the pragmatists, then we would have still survived. Finally whether you survive a downturn or not totally depends on the commitment/talent of the top management. The reason Yahoo/Ebay still survived the dot.com era was they were able to innovate inspite of the downturn, change their business models...
Yes. I agree with you pretty much. No company fails because of the technical competency but for its business focus and marketing stuff. At the same time we cannot rule out the OEM model because of its own advantages. The software only method seems to be less risky in terms of money, we also need to understand that the entry barrier for it is pretty less. For example take the case of mobile applications space. Everybody is flocking into that area because all you need is some PC with simulation running. Having a hardware of your own gives a high entry barrier so you can reduce the competition.
According to me any entrepreneural venture should strike a balance in that and 'adapt' to the situation. You have given very good examples of successful .COMs which I agree very much.
Please keep giving your inputs.
Also if the VoDSL dried up, why not implement it for VoDOCSIS. The Comcasts of the world would have loved such an idea. Maybe it was not a bit market those days I guess.
Still, nice learnings. Shows how applicable the Technology Life Cycle model is.