The Disruptive Innovator

Discussions concerning Innovation Strategy, how to design and market innovative new high technology products and services, the difference between technologies and products, Disruptive Innovations,the Technology Adoption LifeCycle, the SWIFT New Product Innovation method, Silicon Valley startups and more.

Thursday, September 14, 2006

Innovation and the Technology Adoption LifeCycle

Having identified the archetypal stakeholders, it is time for us to start to describe them in ways that will help us create an innovative product or service that will motivate them to acquire it, purchase it and use it. To do this we need to understand their motivating goals and task they perform, and we also need to know something about their buying preferences and habits. We will come back to goals and tasks in a future post, but in this post I will introduce one of the models of buying preferences and habits that I find helpful.

There are many ways to analyze the buying preferences and habits of a consumer, and there are many books that cover these preferences and habits. The choices are too large to cover here, and even too large to enumerate here, but a serious designer will want to get a broad exposure to this literature throughout their career.

I have found one particular methodology especially helpful, and I’ll briefly cover it here. The methodology in question has been named the “Technology Adoption Life Cycle” by marketing consultant Geoffrey Moore, who first described this model in his books "Crossing the Chasm" and "Inside the Tornado" .

I highly recommend these books, as well as Moore's "Gorilla Game" , "Dealing with Darwin" and “Living on the Fault Line” to interested readers who want to know more. I would also like to thank sales consultant Rick Brown of “Life Cycle Marketing” who has shared with me his further extensions of this model including additional tools for identifying TALC types of stakeholders through various characteristics of those types.

The Technology Adoption LifeCycle (TALC) methodology divides up the stakeholders and corresponding preferred markets into six types:

Buyers Markets
Technology Enthusiasts Innovation
Visionaries Rainbow

“the Chasm”
Early Pragmatists The Bowling Alley
Late Pragmatists The Tornado
Conservatives Main Street
Skeptics End of Life

Each type of customer has certain identifying characteristics and purchasing preferences, and it is the predominance of these specific customer types at different stages of the lifecycle that characterize a market phase.

Technology Enthusiasts and the Innovation Market

For instance, TALC calls the first group of people to adopt a new technology: Technology Enthusiasts.

For high technology innovations such as those we focus on, the Technology Enthusiast is typically someone in engineering or information technology. Technology Enthusiasts want to purchase the latest new technology and be a part of determining what it is useful for. Often they have limited purchasing power on their own. They may offer to beta-test a product in order to keep their costs down and they may not have sufficient budget to purchase the product when it reaches final release. With limited purchasing power, these people may be poor candidates for the Customer or Economic buyer, but very frequently play the role of the Evaluator or Technical Buyer, where their vote of confidence is crucial to product acceptance by the organization.

The market that corresponds to the Technology Enthusiasts’ preferences is called the "Innovation market" in TALC.

While we adopt this usage for conformity with Moore's well known model and terminology, it should be noted that Innovations, in the sense that we have defined the term earlier, can be marketed at every stage of the lifecycle. And each stage, these new products do represent a true innovation to the members of that market -- even if they may have been well known to stakeholders in earlier phases. In fact, as we will see in a later post, Disruptive Innovations often achieve that disruptive characteristic by entering the market in the later "Bowling Alley" phase while leaving the former mainstream companies on the other side of the chasm.

AlthoughTechnology Enthusiasts can be enthusiastic adopters of innovative technologies, a problem for companies targeting this market phase is that Technology Enthusiasts have little money to spend. As a result, a common experience of many start-ups in the dot com boom and subsequent bust was that it was easy to gain the interest of wildly enthusiastic Technology Enthusiasts during a free beta test period, but this customer base evaporated when the company tried to “monetize” their customer base by charging for these products. This is a useful lesson for both entrepreneurs and investors trying to gauge the likely adoption of new technologies.

An additional risk for companies who are successful in getting sufficient revenues to prosper during this phase is that this market can be quickly saturated. Once knowledge of a new technology becomes widespread, Technology Enthusiasts no longer gain influence by telling others about it, and so they naturally turn their attention to the "next new thing." Thus a company successful in this Innovation market must ultimately create additional innovations that can be sold to this market, or they must find a specififc competative advantage of their product which allows them to transition to the Visionaries and the Rainbow market.

Visionaries and the Rainbow Market

A Visionary, on the other hand is usually a senior executive, probably a vice president, and his or her interest is to find a sustainable competitive advantage – a solution no one else has to a business problem that all their competitors have. As a senior executive, they often have authority to make large financial commitments and therefore frequently play the role of the Customer or Economic Buyer in purchases, and occasionally play a powerful role as a Sponsor to Technology Enthusiasts who bring them news of innovative technologies that could be used to create such advantages.

The corresponding market is called the "Rainbow market", because Visionaries drive technologies to be customized into a wide spectrum of custom solutions each of which precisely fits that Visionary’s needs. Visionaries don’t want off the shelf solutions; if such products were available off the shelf, competitors could buy them too and just neutralize the strategic advantage the Visionary hopes to get. Visionaries want a wide range of custom solutions so that they can get the solution that most precisely fits their needs.

While there may be more Visionaries than Technology Enthusiasts, the Rainbow market can also be a difficult one for companies to thrive in for long. Because Visionaries can command significant budgets, they may be able to use that leverage to induce a small new company to create a solution so customized that it cannot be fielded as is for any other potential customer.

This fragmentation leads to markets dominated by companies who invest considerable professional services effort into determining customer needs and in creating custom solutions. Because of the high amount of customization by highly specialized and technically skilled staff, margins for such products are often extremely high. And because every solution is customized, the companies successful in this stage rarely create “off the shelf” solutions that are truly usable by the mainstream customer who don’t know what customizations to ask for.

Moreover, as we will see later when exploring Clayton Christensen’s related Disruptive Innovation model, the next class of prospects, Pragmatists, have less stringent requirements than the typical Visionary. Moreover, because their needs are less complex, the margins on sales to these new prospects will pay is typically much lower. As a result, executives at a company successfully selling to the higher end visionary customers will find that there is a strong financial disincentive to investing in products for the lower margin pragmatist market when higher margin products can still be sold to their existing best customers, the Visionaries.

Kit Car Confusion

In part due to the forces, rather than offer a standardized product, at best a “toolkit” product will be offered. The toolkit will be sold with technical training and consulting providing customers with help in creating their own custom solutions (and generating those high margin professional services revenues the manufacturer is used to).

Toolkits often appeals to engineering driven companies populated by engineering teams consisting of many Technology Enthusiasts and Visionaries who like to create their own solutions. To these individuals, a toolkit seems to have a potential reach of a huge “horizontal” market, in which every customer solves their own unique problems with their own custom, vertical, solutions. In comparison, a targeted “no configuration” solution aimed at just one vertical or demographic, seems too narrow – they feel such a solution abandons all the other potential users whose differing needs will now be left unaddressed.

The problem with this view is that the mass market customer doesn’t want to put the effort into creating their own custom solution. In fact mainstream customers rarely want to put any effort into identifying their own needs sufficiently to specify such a solution. Instead, they look for existing solutions that address problems they are already aware that they have. If the proposed new product doesn’t solve all of their problems – at least is solved one!

Toolkits thus don’t address their needs and in fact reduce the size of the relevant market. This is often startling and confusing to technical innovators who are facile with new technology and love to create (and demand) customized solutions.

In SWIFT we often refer to this kind of misunderstanding about the nature of markets as “Kit Car Confusion”. To understand why, consider the following scenario:

InnoCar is a company trying to break into the automotive vehicle market. InnoCar hires a marketing researcher to find out what kind of vehicles people want.

The researcher develops the following two tables. He found that prospects greatest preference for a new vehicle by class was as shown on the left. However, he found that prospects admitted that they would prefer one class vehicle some of the time and another class another part of the time, based upon how many people or how much cargo they needed to carry. The researcher then generated the 2nd chart showing how much of the time people wanted 2 seats, 4 seats, 5 seats or 7 seats.

Model preference % seats
Compact car 4858 27% 4
Economy Car 3884 21% 5
Sports Car 1400 8% 5
Luxury Coupe 100 1% 2
Luxury Roadster 800 4% 2
Compact Coupe 1145 6% 2
Roadster 829 5% 2
Sports Coupe 951 5% 2
wagon 1213 7% 5
hatchback 2980 16% 4
SUV 124 1% 7
Total 18284 100%


% time
2 21%
4 43%
5 36%
7 1%


The researcher concluded that, assuming all vehicle classes generated the same profit, if InnoCar wass going to produce just one class of vehicle, the compact car would address the largest single market segment of 27% of the total available market.

However, if the car could be reconfigured to into a hatchback when extra storage was needed, the car could address 43% of the available market.

If the car were made even more configurable, allowing it to stretch to 5 seats on occasion, 79% of the market could be addressed.

Engineers at InnoCar propose creating a "kit car" in which body and interior parts of the car could be bolted together in various combinations on a standard engine and chassis to allow the customer to drive a gas conscious compact car for commuting on Monday through Friday, a 2-seater sports car on a Friday night date, a family car for when other members of the family visit on Saturday, and an SUV for bringing home new furniture on Sunday. Cars would be delivered unassembled to the purchasers drive way. Once initially assembled, a car can be reconfigured whenever desired. Reconfiguration can be accomplished by any competent home mechanic, using provided hand or power tools in as little as 4 hours! Since the vehicle is capable of ALL configurations, this should address the maximum market.

Of course the flaw in this theory is that while people might want different vehicles at different times, they aren’t willing to learn to become mechanics or spend 4 hours to reconfigure it. So while InnoCar’s design is far more flexible than LuddiCar’s one model, any color so long as it is black” family sedan, LuddiCar winds up with the greater share as people drive off the lot in an already running LuddiCar instead of assembling their vehicles at home.

The combination of differing needs (and profit margins) between Visionaries and main market purchasers, plus Kit Car Confusion, often prevent companies who are successful selling to Visionaries from making the leap to selling to the mainstream.

These forces lead to what Geoffrey Moore calls "the Chasm" phase of the Technology Adoption LIfe Cycle. In our next post, we will begin looking further at the Chasm, as well as the phases on the other side of the chasm.


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