chasm

Successful entrepreneurs, investors and strategy experts all extol the virtues of focus. I have as well, as a strategy consultant, then a founder, a writer, and now as a seed stage investor at OperatorVC.

“If you focus on a small segment, you can own it, dominate it.”

So the conventional wisdom goes.

But there are times when focus can constrain a startup from achieving its potential. When you become a big fish in a small pond, while there are gloriously large oceans just around the corner.

How do you know which is which? How do you know when to focus, and when to extend?

This came up in a conversation with Ankesh Kothari, a fellow entrepreneur and seed investor. He highlighted how a lot of startups focus too narrowly on a small market, and never expand. And we often see the opposite at OperatorVC. Startups trying to solve problems across a broad swathe of consumers from the outset. “Microsoft Office products that solve everyone’s problems”, as I call them here.

Here’s what’s interesting: neither of these is always the right answer.

Sometimes, you have to focus on a specific consumer segment. Make sure you solve a need deeply. At other times, you need to expand your horizons.

If you focus too acutely, you’ll never become a $100 million company.

This is not intuitive. You can’t be deep in the weeds one moment, and flying at 20,000 feet the next.

Great founders can alternate between these two opposite behaviors well. And legendary founders plan for this in advance.

Exhibit A: Elon Musk’s Master Plan for Tesla.

Before Tesla started, Musk anticipated when he would focus. And when he would extend lower in the price pyramid. And he wrote it all in a badass blog post, for all the world to see.

[Tweet “If you focus too acutely, you’ll never become a $100 million company.”]

So how can you be more like Elon Musk?

At its very basic, it’s three simple steps:

1. Start with extreme focus. Focus on a narrow segment. Serve that segment’s needs so completely that you build a monopoly in it. Focus on a city, community, or neighborhood, and then OWN it
2. Then, expand into an adjacent segment
   
3. Repeat steps 1 and 2.

 

Several great startup successes have done exactly this:

• Facebook: Started with a student listing, just for Harvard. Once Zuckerberg found product-market fit there, he then expanded to other universities. And then the rest of the world.
• Uber: Started as a premium limo service. Only for select customers, only in San Francisco. Today, there’s a good chance you’re reading this sitting in an Uber.
• In the 70s, two Harvard geeks built a simple Basic interpreter for the Altair, a decidedly non-popular microcomputer. How would that ever grow big? It did. You might have heard of Microsoft.
• Oracle has done this scores of times, sometimes even pivoting at scale to a new, much larger market.

 

Now, I know what you’re saying. Hindsight is 20:20.

Is this just one of those clichés that you retrofit to success stories? Or is there actually a lesson here for people just starting out?

 

Is it even possible to be more like Elon Musk?

The Chasm model of product adoption is a great framework to know when to focus, and when to extend.

At the trivial level, we all know this. Tech enthusiasts and early adopters will use your product first. The mass market (the Early Majority or “Pragmatists”) will gradually start using it later.

But the Chasm Model offers two new insights:

1. There’s a “chasm” between the early adopters and the mass market (the early majority). It’s very hard to make that leap, and many startups die trying.
2. Unlike the early adopters, the early majority aren’t interested in your tech. They are interested in its application to their most important needs.

And therein lies the way.

 

When to focus

Focus when you’re crossing the chasm.

Focus on a single narrow niche within the mass market. Understand that niche and its most important needs. Create an application of your technology tailored to that segment’s needs. Find product-market fit, and cement your place there. Own that niche.

• Tesla first focused on the luxury segment. It built a perfect car. So good it broke the Consumer Reports rating system. Oh, and it was electric too.
• Let’s take an example we’ve seen at OperatorVC. Say you’re building an AI based system to help people recover from illnesses. Don’t start coding algorithms for all the million diseases that are possible. Don’t even start with the 100 most prevalent diseases. Start with one disease. Just ONE.

 

When to extend

Extend once you own that first segment.

Select the next niche(s) in the mass market that you want to own. Again, design applications of your technology for those segments.

And REPEAT.

• This is exactly what Tesla is doing now, working its way down the price segments.
• Once the healthcare bot is perfect for that one disease, it’ll be much easier to expand to the next disease. And the next hundred.

[Tweet “Be like Elon Musk. Focus first. And then extend to own the world.”]

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So, when you’re starting off, make sure you focus on a segment you can really own. But also be ready to extend later, so you can own the market.

Niche to win, baby. But then parlay.

[Tweet “Let focus be your superpower. But don’t let it become your kryptonite.”]

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PS. Focus is really a superpower. See how focus can be a competitive advantage.

PPS. Read Crossing the Chasm. Few books have a higher wisdom / word ratio.

[A version of this article appeared in Yourstory on Oct 10, 2016]