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let me talk about the strategy throughout the life cycle okay and let me come back to why it's important for facebook to do what they're doing and they're doing the right thing so let's start from the beginning and i want to talk about the first industrial use of solar which some of you those of you who took my clean energy class you know that it the first industrial use of solar happened exactly 100 years ago in egypt and look at the parabolic troughs right they basically used solar energy to pump water from the nile river to irrigate the cotton fields in egypt now look at that and look at that technology in 1912 and then again in the 1980s same kind of architecture right we've made a lot of progress but basically after the 1912 after the first world war basically solar energy products basically you know went nowhere until the 1960s 70s 80s right and nothing really happened until these got built in the 80s most of the technologies out there both pv and thermal came out of a program that jimmy carter actually started in the late 70s and of course even that went nowhere after the 80s so my point is that solar went up and then down and then up in the 80s and then nothing happened in the 90s and 2000s at least not in the us and this is 2009 right so look at the technology look at the architecture parabolic trough 1912 1980s 2009. it's the same type of architecture but you know it's been 100 and so it went up and down and up and down so the point i'm making is that a lot of products come out and they go nowhere there's no market for it at the time doesn't mean that you know they're bad products means that there's no market for it right at that point and whereas normally we see that nice little curve adoption curve in fact usually it's much uglier than that usually it's like this or it's like this just die and then move on right hopefully you're not gonna die right but the product might um so you know this is the technology adoption life cycle but it's a neat little graph and in fact life is not like that okay uh and usually life is you know more like even if the early adopters uh get in it doesn't mean that anyone else is gonna buy it and even if they get in it doesn't mean that anyone else is gonna buy it so it's it's it's much more difficult than than it seems to be um and you know the the markets are very complex systems i mean we we simplify them but you know they are complex systems uh the life cycle is seldom a straight little line um and there are many variables that we need to you know uh follow and and what not and timing is important it's it's you know being too early may be even worse than being too late as these solar uh parabolic troughs show and you know the question is how do you know if you're ready for the market how do you know if there is a market for your product okay so the point is start with segmentation and targeting find the pain do what we did last week or the week prior okay find the pain today all right so it's fine if this tony siva guy says that solar is going to be a multi-trillion dollar opportunity and it will be right but that's not enough for you to go out and start a solar company you have to find a product and you have to find a market today okay or if you're developing something and it's going to take you a year you have to see where the market's going to be in a year does that make sense so you start with segmentation and targeting find the pain that's the key find the pain today all right not in 2020 not in 2050 today because the pain is going to mean market pool and that is what you want you want the market to pull your product pushing a product is hard it's really really hard okay pulling means that the market is ready for you okay so let me give you the all right um quickly i'm gonna go through star mine it's in the it's in the book but uh star mine was a company uh started about 10 years ago and the you know the eureka moment happened when the founder joe gatto realized that the market the stock follows earnings stock prices long terms follows earnings right but the problem is that the media talks about average or median earnings estimate it did not differentiate between the good analysts and the bad analysts right and he realized if you know if you know who those good analysts are then you have a huge advantage over the market because the stock price is going to follow those analysts who are more correct in estimating earnings so that does that make sense um so that was the big realization and and you know i can talk about it because in fact i reviewed the first business plan right and at the time a lot of companies were going abroad were like doing these big web strategies going after the billion dollar opportunities of course and my advice to joe was go small not large go small target you know as tight as you possibly can grow from there so i mean you can look at the basis of segmentation back at home but that's exactly what what what he did um and in fact what we found was what he found was that there were four distinct segments the retail user the quantitative researcher quant fundamental analyst and the technical analyst those would have been the customers uh and you know there were segmentation bases and whatever then the targeting factors and you know at the end of all this process it turned out that quants there were in the hundreds right retail users were in the millions hundreds uh thousands and thousands right but it turned out that even though there were only a few hundred i think four or five hundred that's it in the whole united states potential customers that was the target market uh on these basis of segmentation it was the uh it was a prime market there was a big pain he added incredible value by doing that i mean these are the folks the quants who are creating models for all these uh you know investment banks and investment management companies and even a one or two percent advantage on 100 million dollars that they're managing one percent advantage is a million bucks does that make sense that's value that they can get out of this piece of software so if you know you can make a million or two extra a year how much would you pay for it right so he went after the smallest market that made sense okay which runs counter to what you hear from most folks right yeah isn't there an issue with this targeting matrix because you're assigning the same amount of value to each target basis so like the sophistication level and the size of industry are both the equal and importance in the last one uh or here in the targeting so it's like each target exactly i'm asking your question yeah i'm not giving you all the information right what i'm saying is this is this is more or less what the way that that he targeted right uh don't use this use the stuff that we saw here in this course right i'm not giving you all the details here what i'm saying is that he went through this process and he chose the smallest possible market which at the time a lot of folks said you know what are you smoking right why don't you want to go after the big you know retail and and whatnot because it didn't make any sense right so he went up to the small market and the history of the company is that in fact he went you know he doubled revenues pretty much every year until 2006 or seven uh and then he sold the company for 100 million bucks two reuters and now it's called something else right but folks were paying up to half a million dollars for this software so what do you care if it's only 400 people i mean he raised one million dollar uh in his first his angel funding right people were willing to pay half a million if you're a one billion dollar fund then you can make an extra one percent that's 10 million bucks does that make sense all right so let's go back to what's the market for our thermoelectric uh friend right which we started talking about uh last week um and what we did was we segmented and we targeted and we came up with these segments okay i'm just repeating what we did um if there is so we're early in the adoption life cycle if there is a clear market opportunity meaning mark by market opportunity i mean one of these cells so the combination of product and market if there is one clear meaning it's a 10 it's a 9.9 it's a 9.8 then focus on that right away don't wait okay now the problem is that most times we're going to find a cluster of maybe two products and maybe two market opportunities and it's not going to be the 9.9 8.9 9.1 and so on okay so even then this is good because we've gone from the world right what what what some would call rich guys to two markets and two products which is great we've made a lot of progress okay so what you do at this point is you develop prototypes advanced prototypes maybe products that actually work but they're not you know don't spend a billion dollars just yet um and go back right whereas so far we've done a conceptual exercise do the actual you know put it in place is there a pain how much will you pay for this okay uh and ask for a check so actually joe from star mine he asked for a check if they said oh this is nice come back no how much will you pay i want to check and in fact some people wrote a check they were so interested in this product they actually wrote a check that's when you know you have you know a market opportunity does that make sense okay um so you have to repeat you have two and two repeat keep repeating until you have the clear opportunity so keep getting the information keep finding the pain find the pain who is that you know customer who will give you a check that's how you know will they give you a check right now even a large company so abengoa is a multi-billion dollar uh company based in spain and they haven't abangoa solar is a business within a bingoa that built the uh ps10 uh the first solar power tower uh commercial solar power tower in the world and even a multi-billion dollar company was focused on two technologies power tower and trough and two markets southwest u.s and southern spain that's it and you would say but this is a multi-billion dollar company isn't there an opportunity in south africa and in the middle east and in chile and yes but you get a focus okay so they focused on just these two markets and these two technologies until they found their you know their opportunity the big big big pain and they actually are developing a huge uh power plant in arizona right now 250 80 80 exactly uh called called solana so here's the strategy start with a broad kind of focus two and two is fine okay but don't spend 100 million just yet develop advanced prototypes keep doing it keep digging until you get the pain right until you get the pain and you start focusing and focusing and focusing until at this point it's what i call laser focus okay so the earliest adopters are okay with bugs they're okay with technology that's not like airtight that's okay okay go to them develop the market uh develop the product uh you know they're gonna help you through this process but you're going to keep focusing part of this is going to be the painful exercise of divesting some of the businesses that you have originally okay until you focus on one product and one target market okay and this is what uh jeffrey moore called the chasm although you know it has evolved the meaning so you focus as soon as you can now you don't need to wait if you find that big opportunity in the beginning then you focus then okay as soon as you've identified an attractive enough for you product and market segment then you focus so i talked about star mine which went from 0 to 20 million i'll talk about symantec and a little bit about apple right and i talked about avengoa so talking about nuclear your first goal is to achieve critical mass in your target market which is why if you're a startup company it's interesting to go after smaller markets okay well-defined markets now they have to be small enough that you can win but big enough for your investors to find it interesting does that make sense so it can be a market of 10 people i don't know unless that's what's interesting now critical mass is the point of no return meaning beyond critical mass the market is going to self-fulfill okay so whereas in the beginning you are going out to sell the product when you reach when the market reaches critical mass everybody's going to want it right so basically you're gonna be picking up the phone or or fulfilling orders and that is the best place to be absolutely fulfilling orders it poses a different set of challenges but it's a good set of challenges right so before critical mass you focus on generating the band and then unfulfilling different different so what are the keys market size the smaller it is the better defined it is the bigger the pain the more of a chance you have of reaching critical mass adoptability make it simple make the product simple simple right simplify take away features don't add features take away features okay and value prop of course the easier it is the simpler it is then uh you know the the the better it is for the market to reach critical mass and laser focus means no plan b okay no plenty you're gonna get married no plan b i mean that's it once you get married you throw out all your match.com you know phone numbers that's it no plan b right if not don't bother getting married does that make sense no plan b that is what laser focus means put all your wood behind one single arrow semantic um interesting so i talked about uh star mine but look at semantics semantic in the 90s in the 80s also went sideways you know look at the stock the stock was somewhere around five or six through you know the whole 80s and 90s and suddenly in 2000 boom the thing took off right uh and within five years it went up about ten times what happened so semantic in 1999 all these products and you know basically the what what they told me was that the only commonality between all the products was the yellow boxes okay they didn't know who their customers were they didn't have a direct channel to their customer they were basically a publisher they bought companies they put it in a yellow box and they put it on best buy that's it that's what they did and that worked for them but you know it wouldn't take them to the next level so what they did was focus they hired a new ceo who said you know what we have too many products going after too many markets we need to focus and these were the targeting factors that they used no clear leader large and growing market opportunity you know can we acquire the strength blah blah blah right so you can it's it's in the book uh and tangible goals and that's what made all the difference not adding stuff but actually spinning off so they spun off all the products and technologies that did not meet these targeting factors and you know they went from 600 million to 1.6 billion in basically four or five years the stock went up 6x actually from 10 to 60. not bad and they became you know a great software company whereas you know there were sideways for 10 years so you know what they call the chasm crossing the chasm is focus you cannot go to the mass market without focusing on one product in one target market period okay you know the early majority they remember what i said before that they don't want to be the first but they don't want to be the last they will only go with the market winner but who is the market winner if there are 20 30 companies vying for that market opportunity which if it's a good market opportunity there they will be okay the only way for you to compete is going to be to totally focus on that market is going to be to love your customer love your customer beyond commitment okay so no plan b and you have to show them that that you're thoroughly committed to them okay that's going to be the only way for you to compete uh in the uh you know to make the jump the techies and the early adopters to the the broader uh pragmatist market okay and you know all these things are keys to what you need to do meaning you need to reduce uncertainty uh generate word of mouth and all that but the key is you have to appear to be the leader okay you have to earn their trust that you'll hang around that you'll be around no different from getting married again right earn their trust love them to death okay love your customer okay again focus all right and i have a quote from steve jobs about focus and focus is not just what you got to focus on but all the other distractions getting away from all the other opportunities that are distractions even apple okay which you know this is apple's revenues up and down and then up and then boom here's when they came up with the ipod right ipod boom right and then they came up with the iphone all right and then they came up with the ipad so a mistake would have been to come up with all these products at the same time does that make sense and that is the strategy for expansion so once you have a market so we started with targeting and we said we're gonna go after you know the product is exhaust waste heat to power and our target market is data center operations manager how do you expand from here assume that you've earned their trust you've you know earned their love and you've achieved critical mass and you're like okay so we're ready for the next market how do you go you get an introduction from your lead champion so basically go back and do this again okay go back and do the targeting exercise again right now what's going to end up happening is that you're going to move to adjacent cells which means either take that same product into adjacent markets or stay in that market and the great thing about being in one market especially if you're the winner is that you will understand more about the pain in that market and i assure you everyone has 83 problems so once you've taken care of one there's still 82 okay and if you're inside then you know what the other 82 are so if you do the same targeting exercise you'll come up with another opportunity to develop another product for the same market or you can say you know what i'm going to go horizontal i want to take this product and take it to other markets does that make sense and either one is fine okay you just can't do both at the same time unless you're a large company question what was my question how do you choose between what makes what helps you decide should you spend horizontally or yeah so it depends on the corporate strategy and you know if you know if you're an apple computer if you're a cisco system you'll probably go horizontal because you want to go after us large take that product scale it as much as you possibly can uh you know if not then you know you you you'll go deep into one market it depends on your corporate strategy does that make sense but is it safer to go horizontal um all right i'll talk about hyper growth next week but safe is to stay in the same market the safest thing to do is to stay in the same market right they know you they love you they trust you find another pain and stay there right that's safer uh but you know the the horizontal strategy is more if you want ipo right if you want to really really grow that is the way to go and you know it's going to be a combination it's going to be a combination it's not going to be either or but you know depends on your resources and your corporate strategy you