One of a series of articles celebrating the lasting impact of “Crossing the Chasm”
It’s more than 20 years since Geoffrey Moore published the first edition of “Crossing the Chasm”. Since then, it has become a classic, and has cemented its position as the one must-have book that every B2B technology marketer needs to have read.
I’ve been applying the principles since 1991 – the year in which the book was first published – and the timelessness of the core concept is striking. But the world has moved on in a number of significant respects, and the recently published 3rdedition reflects this.
I’m going to assume a certain familiarity with the book (if not, I urge you to get hold of a copy), and I want to use this article to showcase some of the fresh thinking that has emerged in the latest edition.
I recently had the opportunity to spend some time with Michael Eckhardt, Managing Director of the Chasm Institute at the OnTarget conference in Stockholm, and spoke with him at some length about their new “Four Gears” model.
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It’s a disarmingly simple concept that has compelling relevance for anyone seeking to build a scalable, predictable sales and marketing machine that is capable of driving sustained revenue growth.
Four Gears – Metrics That Matter
Geoffrey, Michael and their colleagues at the Chasm Institute have reflected on the lessons learned from thousands of consulting assignments, and have identified four key metrics that matter to any B2B organisation that has Crossed the Chasm and is heading into the Tornado from which only a handful of market leaders ever manage to emerge.
The Four Gears are:
Acquire - the rate at which vendors are able to attract new users. Key metrics here include the percentage growth in both customers and user seats from quarter-to-quarter.
Engage - the average length, depth and frequency of user engagement. Key metrics here reflect the extent to which users truly exploit the potential of the solution.
Convert - the percentage of total users that fully participate in the business model. Key metrics here might include the success in upselling entry-level customers to full-function users.
Enlist - the extent to which the user community helps to drive the growth of the business. Key metrics here include “virality” – the % of business referred by existing customers and its opposite number “churn” – the rate at which existing users drop out of the system.
The Slowest Gear Theory
Prior to entering the Tornado Phase that drives the fastest growing markets, it’s inevitable that at any given point in time, one of these gears will end up slowing the other three gears down – and that your revenue growth will be held back as a result.
It’s a concept that will resonate with anyone familiar with the Theory of Constraints. The key idea behind the four gears theory is that you need to identify the slowest current gear, and focus everyone on speeding it up – whilst keeping the three remaining gears spinning.
So here’s what any pre-Tornado company (and that means the vast majority of the readers of this blog) needs to do: establish a handful of metrics that define the rate at which you are acquiring, engaging, converting and enlisting customers.
Carefully unpick the root causes behind the current state of each of these four performance indicators. Isolate the bottlenecks and constraints that are holding your revenue growth back, and attack them vigorously.
Attack constraints in sequence
Measure the results, and identify the next constraint. The relative importance of the four factors will evolve over time. Eliminating one constraint will reveal another one. Resist the temptation to attack all four gears with equal energy at the same time – you’ll inevitably waste a great deal of effort.
It strikes me – following my conversation with Michael – that you need to do two things particularly well: first, you need to accurately identify the slowest gear and second, you need to ensure that you implement targeted programmes that address the root cause.
The approach is self-evidently relevant to SaaS based businesses, but I’m convinced that even conventional software businesses will benefit from the Four Gears model. So what’s your slowest gear? And what are you doing to speed it up?
It strikes me that embracing “Four Gears” thinking is a key element for any organisation wanting to build a truly scalable business.
By the way, there’s a video of Geoffrey Moore explaining the thinking behind Crossing the Chasm and Escape Velocity in the learning zone of our website, along with a lot of other inspirational stuff. You can watch the videos here. You might also enjoy our quick guide to Crossing the Chasm.