Technology companies talk alot about Geoffrey Moore’s technology adoption lifecycle bell curve. If you are not familiar with it, I’d highly recommend that you grab a copy of Moore’s “Crossing the Chasm” and give it a quick read. Many technical people consider it to be the bible of the challenges and hurdles facing young technology companies in their quest to be the next Oracle, Google or Apple.
In summary, Moore’s book breaks down the market for all technology companies into five segments; Innovators, Early Adopters, Early Majority, Late Majority and Laggards. Moore does an excellent job of defining these categories and enlightening technology companies on the important attributes for each of these stages. I’ve tweaked the definitions a bit to conform to our experiences in the market. So, I’d encourage you to read “Chasm” for a more complete understanding of Moore’s research. My purpose here is slightly different, applying Moore’s definitions to companies that are creating technology — rather than just for companies that are buying technology. In the middle market, companies that provide technology to their customers are often targeting a solution to a very specific vertical niche (as opposed to a horizontal niche) and thus, on a very different scale.
This is a good time to talk about categories and products as it applies to Moore’s research. For example, NoSQL is a category of technology — databases that do not rely on relational data structures under the covers. As a category, it includes a number of products, such as MongoDB, Cassandra, or BigTable. (It’s even a little more complicated in the case of NoSQL databases, since there are many types of NoSQL databases; Key/value, Document Store, and Wide Column Store to name a few.)
Products may fit into existing categories, but they represent a revolutionary change in that category. For example, Dart is a programming language and platform for building structured web applications. Structured web programming is not a new category, as you might already have heard of Ruby on Rails or Zend PHP. Dart is a relatively new entry into the category of structured web development (although it does build on existing technologies to some degree).
Whether we are talking about a new category with many products, or a new product within an existing category – the adoption (or lack of adoption) — tends to follow a fairly standard curve.
Innovators are the very earliest adopters of technology. By definition they would be one of the very first customers to use a product or category. Every company ends up selling their product or service to an Innovator at the beginning. I’d argue that the first 10 customers for any company are all Innovators. From a middle market perspective, I almost NEVER want any of my companies to be buyers or adopters of technology at the innovative stage. (Venture investors, on the other hand, routinely invest at the innovator stage). Why? It is a matter of risk. Why does anyone buy early stage technology? Any number of reasons. Sometimes it’s a matter of ego — the customer just likes the idea of being one of the first customers to try something new. Other times it is a matter of real need, as there is simpler NO other solution that will work. And sometimes the customer believes that it will provide them with real competitive advantage. My companies already have revenue and lots of paying, satisfied, customers. There’s too much risk and not enough reward having a middle market company adopt a technology that is so early stage.
If you’re thinking about writting your new customer service app in Dart right now, I’d say that you are an innovator.
Early market technology products are “real” products at this point, with paying customes that have deployed production systems with the technology. There is less risk here, but there is still real risk. Moore argues that many companies fail along this section of the curve between the innovators and the early adopters. From a middle market perspective there is lots of risk here, but it is a risk of a different sort. Innovative technologies often fail early. So, you’ll waste resources and money, but you might not lose a ton of calendar time. With the early adopters, you could lose lots of time, money AND get yourself locked into a technology that has no future. For example. I’d argue that NoSQL databases are here to stay – but I couldn’t tell you with any certainty which NoSQL databases are going to be the big winners. A big company that makes a bet on a losing product often has the resources to keep it alive until they can make a clean exit. A middle market company is not likely to have the resources to make the same graceful exit. Having said all this, many of my middle market portfolio companies leverage technology in the early adopter stage. However, I push them to the late end of the early adopter market. For example, I’ve got a number of companies using MongoDB right now. MongoDB is a relatively early-stage, document-store NoSQL database. MongoDB might not end up being what Moore would call a “gorilla” in the NoSQL market — but it has got enough to traction to be worthy of the risk. For our companies that provide technology to their customers — the late early stage is a good place to invest. Early enough to provide real value, but far enough along to mitigate some of the risk.
Writing that same customer service application in node.js ? — that seems like early adoption to me.
The early majority is where I expect most of our non-technology middle market companies to land. A light-industrial company in the middle market should not be investing in technology at the innovator or early market stages — too much risk, too little reward. For categories, the early majority indicates that the market segment is here to stay. When we are talking about products — at this stage of the market there are some likely winners and probable losers. Success at this point isn’t predicated on picking the market leader. Rather, success is predicated on getting on board before the market has passed you by. You’ve still got time at this point, but the clock is ticking.
Using MongoDB for that customer service app that you are writing — I’d say that you are part of the early majority (maybe very early majority).
When we are talking about categories, the late majority features a clear “winner” (what Moore calls a “Gorilla”) and a number of strong runner-ups. If we are talking about an individual product, then this is the point where most of your peers are either using the product or talking about using the product. As a consumer of technology, this is not necessarily a bad place for middle-market private equity-backed companies to invest. But it’s not ideal. At this stage of the game, many of your peers have already chosen a technology platform or product — and you are coming late to the game. The benefit of jumping in this late in the game is that you are not likely to be betting on a category or a product that “isn’t going to make it”. It will be easier to find consultants and employees that know the technology and it will probably be cheaper at this stage of the game. The down side is that you are not getting the jump on any of your peers.
Working on your first iOS app? — I’d say that you are part of the late majority.
Laggards are the long tail of the market. At this stage of market adoption, both the category and the product winners are well established. Buying is a safe bet at this stage, but you might have missed out on many of the benefits you would have enjoyed if you’d made the leap a little sooner. Most larger companies tend to stick to a particular segment of the market; innovators, early adopters, early majority, late majority or laggards. Middle-market companies are often the exception — especially if they are selling a technology-based product of their own. They are often early adopters of one category — while being laggards in another. Many of the companies that I see are just starting to implement Salesforce.com — which I’d argue makes them a laggard. This is often the result of being laser focused on their own products at the expense of following the larger market.