<h4></h4>
<h4>One of the big challenges for tech investors is the fact that many of their investments never reach profitability. There are two fundamental reasons for this: first, that all startups must cross a chasm in the market, which occurs when the mass market starts to buy the startup's product or service. And second, due to a chasm of entrepreneurship, caused by changes in the start team's focus and energy levels.</h4>
<h5>The default state for startups is failure</h5>
<p style="text-align: justify;">As Chris Dixon of Andreesen Horowitz says, "The default state for startups is failure." Indeed, the classic VC business model assumes that 2 out of 10 investments fly, 4 break even and 4 will fail.</p>
<p style="text-align: justify;">But why is this? Why do startups have such a high attrition rate?</p>
<p style="text-align: justify;">When you pose this question to investors, they typically respond with answers such as "the founder dynamics were wrong", "too many competitors entered the space", or "the company never achieved traction."</p>
<p style="text-align: justify;">These reasons are all valid. However, these reasons are all subsets of two huge challenges that all startups must overcome if they are to avoid The Chasm of Startup Doom:</p>
<p style="text-align: justify;"><img alt="Post - startup chasms picture 1a" src="http://redwingconsulting.com/wp-content/uploads/Post-startup-chasms-picture-1a.jpg" width="688" height="148" /></p>
<p style="text-align: justify;">Let’s examine each of these chasms in turn.</p>

<h5><b>The Chasm of Technology Adoption</b></h5>
<p style="text-align: justify;">Back in 1994, one of Silicon Valley's classic books was published: Crossing the Chasm. In it, serial entrepreneur Geoffrey Moore outlined the most common market trap for startups - that once the earliest adopters of a new service have rocket-fuelled a new company, the fuel suddenly dries up, and a completely new set of marketing approaches are required to penetrate the mass market (which is filled with non-technical users).</p>
<p style="text-align: justify;"><img class="alignnone size-full wp-image-2281" alt="Post - startup chasms picture 2" src="http://redwingconsulting.com/wp-content/uploads/Post-startup-chasms-picture-2.jpg" width="692" height="276" />
This market chasm – which is simply a result of the psychology of buyers - caused many of Silicon Valley’s early startups to fail. It happens when a startup fails to leverage its early success into large-scale success in the mass market. These market dynamics are just as relevant to the Indonesian market today as they were to the US in the 1990s.</p>

<h5 style="text-align: justify;"><b>The Chasm of Entrepreneurship</b></h5>
<p style="text-align: justify;">More recently, Paul Graham, the founder of Y-combinator, introduced the idea of a Startup Curve (<a href="http://www.avc.com/a_vc/2012/03/the-startup-curve.html" target="_blank">source</a>) to describe the phases entrepreneurs go through as they grow the business:</p>
<p style="text-align: justify;"><img class="alignnone size-full wp-image-2282" alt="Post - startup chasms picture 3" src="http://redwingconsulting.com/wp-content/uploads/Post-startup-chasms-picture-3.jpg" width="496" height="319" /></p>
<p style="text-align: justify;">Following the initial rush of excitement when the startup idea is conceived, entrepreneurs enter a lengthy period of development, missed expectations and refinement, until (hopefully) their perseverance pays off and the business starts to grow.</p>

<h5 style="text-align: justify;"><b>The Chasm of Startup Doom</b></h5>
<p style="text-align: justify;">What is interesting is how the Chasm of Technology Adoption and the Chasm of Entrepreneurship overlap:</p>
<p style="text-align: justify;"><img class="alignnone size-full wp-image-2283" alt="Post - startup chasms picture 4" src="http://redwingconsulting.com/wp-content/uploads/Post-startup-chasms-picture-4.jpg" width="691" height="289" /></p>
<p style="text-align: justify;">It is no coincidence that these chasms overlap: the maturing of the entrepreneurial team is typically the key factor which drives adoption by the mass market. Conversely, a team that fails to adapt goes crashing into the market chasm.</p>
<p style="text-align: justify;">Think of it this way:</p>

<ul style="text-align: justify;">
	<li>When a startup first launches, its initial customers are enthusiastic early adopters. They love the service, are willing to put up with service glitches, and pretty much use the service as-is. Everyone is happy.</li>
	<li>As the startup begins to grow, it attracts customers who find the service very useful. They aren’t quite as enthusiastic as the early adopters, but they like it enough to try something new, and give lots of feedback to the entrepreneurs through forums and social media. Everyone is optimistic, and busy making improvements to the service.</li>
	<li>When the startup reaches the mass market, suddenly it comes across customers who are not early enthusers. The mass market is very pragmatic, and just wants something that works. It is also rather passive, and doesn’t give great feedback. This is where the chasms come from – suddenly the market is harder to penetrate <span style="text-decoration: underline;">and</span> the entrepreneurs are stuck in their own chasm of putting out new features and releases in the hope of reconnecting with the early market enthusiasm.</li>
</ul>
<h5 style="text-align: justify;"><b>Helping your investees through these chasms</b></h5>
<p style="text-align: justify;">Investors can add huge value to their investees (and drastically reduce their investment risk) by helping them cross the two chasms.</p>
<p style="text-align: justify;">First, how do you know that the startup you’ve invested in has fallen into a chasm? Look out for these signs:</p>

<ul style="text-align: justify;">
	<li>Growth has suddenly slowed, and the founders don’t know why this is happening.</li>
	<li>The startup is regularly releasing new features, yet these aren’t creating growth  in new customers.</li>
	<li>Customer engagement has fallen, and the startup is still using the same sales messages that it used when it first launched.</li>
</ul>
<p style="text-align: justify;">What you’re looking for are signs that growth is flagging, even though the market appears healthy and your startup is still moving the product forwards.</p>
<p style="text-align: justify;">Second, what broader perspective can you provide to your investees to help them move into the mass market?</p>
<p style="text-align: justify;">1. Take a proper look at the market. Get the company to profile the types of customers that are now buying the service and compare them to the types of customers who were buying at launch. The newer customers will be different, and will have different needs.</p>
<p style="text-align: justify;">2. Use the understanding of these new customers’ needs to change the value proposition and the sales pitch. It is likely that a new proposition will be required which is more simple, conservative and focused on value for money.</p>
<p style="text-align: justify;">3. Focus marketing efforts on promoting the great experiences of existing customers and providing testimonials. The mass market is risk-averse rather than opportunity-driven, and so they need to feel that they are buying a proven product or service.</p>
<p style="text-align: justify;">Above all, you need to help your team shift into a highly market-focused mentality, with an especially strong focus on the needs and aspirations of less tech-savvy customers.</p>
<p style="text-align: justify;">(And last but not least, you could also encourage your team to read Crossing The Chasm – it’s one of the best books on technology marketing ever written).</p>