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Inside the Tornado is the second in Geoffrey A. Moore’s high growth technology business books and is the companion to Crossing the Chasm. Whereas Crossing the Chasm deals with the early market development and adoption problem of new technology innovation, Inside the Tornado deals with what happens once the market tips and the new technology is embraced by the market pragmatists; “The term refers to a brief period of hyper growth when markets accelerate to triple-digit growth rates and new product categories spread like wildfire”.
It is this discontinuous innovation that creates periods of hyper growth that can have such cataclysmic effects on established marketplaces and incumbent technology giants, and it is the reason that small companies can, what seems like overnight, go from zero to multi-billion dollar companies. You don’t have to look very far to see many examples of companies that have been swept up into tornadoes. Microsoft, for example, started off as a small software company, but it was the revolution in Graphical User Interface Operating Systems that created the huge wealth and monopoly the company created during the 1990s and early 2000s. “The appearance of a new category of product that incorporates breakthrough technology enabling unprecedented benefits”.
The Tornado effect has been extremely powerful in technology, and in particular the computing industry whilst other industries have not felt the effects at all. For example, a car that is 20 years old is not that much different to a car that was built this year, whilst a computer has evolved many times in the same period. This is because, in the technology industry, the infrastructure is constantly being redrawn every couple of years. “Moore’s Law is a rule of thumb in the history of computing hardware whereby the number of transistors that can be placed inexpensively on an integrated circuit doubles approximately every two years.”, and therefore every two years the new crop of technology renders the old infrastructure useless. This discontinuous infrastructure paradigm shifts create the Tornado effect and give opportunity for new market entrants to exploit a technological innovation that offers unprecedented benefits over the current accepted incumbents. The magnitude of difference and the increase of power and performance every couple of years is unique in the technology industry.
The technology adoption life cycle
Moore’s first book, Crossing the Chasm dealt with “The technology adoption life cycle”. This is the well trodden path of how discontinious technological advancements are adopted by the mass market. The technology adoption life cycle can be broken down into 5 key areas that form a bell-curve.
The Innovators are the technology enthusiasts who love nothing more than tinkering and understanding exactly how something new and exciting works. This group of people are by far the easiest to please because they fully expect your product to not be finished or full of bugs. They understand that this is not the whole product, and they want to help you develop it. This group is too small to ever build a successful business off, but they are critical to moving on to the next stage as it’s these users who become your evangelists and inform the next crop of customers on the potential benefits of your product.
The Early Adopters
The Early Adopters are the first group of users with buying power. This group is made up of the one or two people in an Organisation that sees the potential in your product to gain a huge competitive advantage over their competition. Usually these people won’t be dealing with the current infrastructure of the Organisation, and will see their time at the company as a limited period of high impact. It’s these users who will get your product inside the company, but they won’t have the true buying potential or influence as later customers will have.
The Early Majority
The Early Majority user group is made up of pragmatists who use technology to make the Organisation work effectively. These customers aren’t interested in the potential competitive advantage of your product, and are looking to buy into the established market leader who can offer a whole product or a product that is firmly supported by third party companies.
The Late Majority
The Late Majority only adopt new technology once it has firmly established itself and it becomes a necessity rather than a choice. This group still represents a large untapped market, but the product has to have reached a saturation and support level where it just works and is part of a bigger integrated infrastructure.
And finally the Laggards will look to dismiss your product at every opportunity and forcefully look to de-rail any new technology innovation. But thankfully this group represents a small subset of the potential market.
The bell-curve of the technology adoption life-cycle starts small with the Innovators, but quickly rises through the Early Adopters and Early Majority. The curve falls once again with the Late Majority and finally tails off with the Laggards. Therefore it is imperative to reach the Early Majority to hit the mass market. However reaching the Early Majority is the problem that is detailed in Crossing the Chasm. Whilst The Early Adopters and the Early Majority are right next to each other in the life cycle, their needs are quite distinctive. Whereas the Early adopters are more open to accept an early version of your product, The Early Majority expect the whole product. Therefore a company that is introducing a new discontinuous technological innovation is required to deliver a whole product or face falling into the chasm abyss. To do this they must establish a beachhead to deliver a whole product to a single type of user and work with other companies in business development to form the whole product.
The Bowling Alley
Once a company as successfully established a whole product with a chosen beachhead, they now enter the phase known as “The Bowling Alley”. The Bowling Alley is the first taste of the mass market, but the company is still quite a way from The Tornado. During The Bowling Alley phase the company must use the initial beachhead customer as the head bowling pin to win further niche market opportunities. It is only after establishing itself within a community of niches that the technology innovation can become standardised enough to be adopted by the pragmatists and the mass market and to ultimately enter The Tornado. It is still too early to control the market, in fact you are at the mercy of your first customers, but it is these customers that will become your allies in attracting further clients in order to gain the mass market standards.
The Bowling Alley phase is one that is often sidestepped in order to go for the big money of the mass market. However it is critically important to build a reputation and forge strong alliances and a whole product at this stage of growth if you want success in the bigger mass market.
Finally, when the time is right, the current market leader is propelled into the Tornado by the sudden stampede of pragmatist buyers who choose a vendor to become the de facto standard. Once the first pragmatic buyers choose a winner, the rest quickly follow as a self fulfilling prophecy. As more pragmatic buyers choose the same company, the decision for which vendor to choose eventually goes away and the market has a dominant leader.
The pragmatist buyers will be look to keep the chosen market leader in the winning position at just about any cost because they require set standards, third party suppliers and a strong community market place to ensure that their company’s infrastructure is well supported. However there are a few things that can de-throne a market Gorilla such as not meeting falling price points or forcing a new discontinuous innovation.
During The Tornado there is one clear winner, usually one much smaller player and then the rest of the competition makes up the remaining small chunk of the market. The market leader will usually remain the market leader until a new discontious innovation comes along to spark a new Tornado.
The most striking thing about the transition from The Bowling Alley to The Tornado however, is the fact that in order to succeed, you must use two completely opposite strategies. Everything that made your company successful in The Bowling Alley will destroy your company in The Tornado.
For example, in The Bowling Alley, you found customers by using references, customising your product, focusing on the end user, emphasising ROI, and vertical and niche positioning. However if you are fortunate to become the Gorilla in The Tornado all of this strategy becomes wrong. Your strategy now should be to focus on the mass market, increase distribution, focus on a generic product, position your product horizontally, attack the competition and commoditise your product. Failing to switch strategies as the Tornado hits is a sure fire way to blow the opportunity the market has given you.
Main Street marks the end of The Tornado, a period of calm and loss of demand from the market place. Main Street can be a troubling time for even the most experience executive because it characterised with the complete opposite characteristics of The Tornado. Now supply has accelerated past demand, and the market is no longer crying out for your commodised product.
Once your market reaches Main Street, it becomes insensitive to performance gains. The product has been comoditised to such an extent that the low cost alternative is just as appealing to the customer as the market leading product was during The Tornado. Now that standards have been set, choosing a lower cost alternative is not a great risk any more.
In order to succeed in Main Street, your company must once again change paths. In The Bowling Alley, your company attacked niche markets for which to collect evangelist customers to spread the news of your product via word of mouth. In The Tornado phase, you positioned your product as a general purpose product and pushed it out as much as possible to gain as many new customers as you possibly could. Now that you are in Main Street, there isn’t any new customers, and so you must upsell customised installations to niche markets and customers. Completing the circle that began in The Bowling Alley.
Now that your market has been comodotised, you must differentiate your product by highlighting or adding features that set it apart in the eyes of the end user. The end user of your product is now the person in the organisation you need to target. By adding (with low engineering overhead) or highlighting a hidden feature or use of your product, you target new niches for which to sell your product at a higher margin. That is the secret to surviving Main Street.
Many companies die in Main Street because they can’t adjust after life in The Tornado. However, by once again altering your strategy, your company can remain healthy until the next Tornado comes along. Main Street is about having farmers reap the benefits from the land your captured during the Tornado, and not using Soldiers to try and capture more land.
Implications for strategy
The second part of Inside the Tornado concerns itself with the related issues for managing the strategy of navigating The Bowling Alley, The Tornado and Main Street. These areas are strategic partnerships, competitive advantage, positioning and organisation leadership.
Whilst I won’t go into detail on every section, Moore outlines some critical aspects for dealing with and navigating the rough waters of The Technology Life Cycle. Arguably this section part of the book is even more informative than the first because it deals with key actionable decisions and considerations you must make in order to be successful.
Strategic partnerships are critical to the success of discontinuous technological innovations because new technology will only be widely accepted if it is part of a whole product. Whilst many companies look to control new technology tornadoes (think Sony’s Betamax) ultimately pragmatist buyers will only buy into a widely accepted and standardised product that is supported by third parties and service companies.
Competitive advantage looks at the three key variables outlines by Michael Treacy and Fred Wiersema at CSC Index call in their 1995 best seller The Discipline of Market Leaders (Affiliate link). These three variables are “Product Leadership”, “Operational Excellence” and “Customer Intimacy”. Much like many other factors of The Technology Life Cycle, it is the market that chooses which combination of these variables are the most important at critical junctures of the lifetime of a product. Moore outlines where each of these variables are relevant, and explains why it is important to focus on the right issues at the right times.
Positioning, often misunderstood as a statement about us, in fact relates to how we fit into the current market structure. On entering a market, you will be defined, like it or not, by the current players in that market. In this section Moore makes excellent use of caricatures to highlight the different roles of a market place and how these roles interact and fit together.
And finally Moore looks at Organisational Leadership and what it takes to lead a company through The Technology Adoption Life Cycle. One of the main themes of the book is that the underlying strategy of the company needs to radically change as the company moves through different phases of the product life cycle. It takes a strong leader to be able to chart a course then make the radical change to do the complete opposite at the right time. Many of the world’s greatest company leaders are unable to do this, and so the future prosperity of the company suffers. Moore outlines what kind of Organisation Leader would be best suited for each section of the life cycle, and how it should be approached by a leader or management team.
Inside the Tornado is a fantastically grounding books on the foundations of building a innovative technology company. Moore is one of the leading authorities in this industry, and this book offers a wealth of information, knowledge, experience and practical advice for navigating The Tornado. Techonlogy companies have a huge opportunity to create vast sums of wealth if they manage their discontinuous innovations through The Bowling Alley, The Tornado and Main Street. Whilst many management executives believe they have the ability and knowledge to do this job, Inside the Tornado should act as a constant reference to stay on course.
If you haven’t already read Crossing the Chasm I would urge you to read that book first as it provides a solid foundation for many of the themes of this book. Whilst it’s not critical to read first, you will be able to pick up on the lessons of The Tornado far quicker.
Inside the Tornado is a must read if you are currently, or a looking to disrupt an incumbent technology industry. The lessons in this book are timeless and offer a deep understanding of the industry, how it works, and how you can best approach and conquer it.
Buy Inside the Tornado on Amazon (Affiliate link).
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