So far, we’ve covered the Bass Diffusion of Innovation and the Crossing the Chasm models. There is one more industry growth model startups should know about – the Hype Curve or Hype Cycle. Remember, you may get either little or great traction, not just because of what you’ve done, but also because of what is happening in the broader market.
The Hype Curve or Hype Cycle is one of our more recent models, coined by research firm Gartner. In this model, markets experience initial dramatic growth. However, after the initial excitement or hype wears off, sales of the product drop as only enthusiasts and hard-core users in a niche market continue to purchase it. If competitors survive, the market settles into a lower volume than at peak. It’s smaller, but still a respectable and sustainable level of sales.
The uptake of Pokémon Go is a recent example of this type of trajectory. Following its introduction in the summer of 2016, growth happened quickly reaching twenty million daily users. We all might recall walking through parks, streets, and buildings regularly seeing people glued to their phones making jerky arm movements to capture the elusive characters. One year later in the summer of 2017, daily users had fallen by nearly 75%. Pokémon Go has introduced some new innovation in the last year or two to recapture early enthusiasts, and the product line still produces respectable revenue for Nintendo and Niantic. However, the initial hype gave way to lower engagement over time and then rose to a sustainable base. Here is a general hype curve:
How do these market and product trajectories affect strategy and create hidden debt? At the simplest level, these different patterns create very different implications for staffing and fundraising. If a startup hires too far in advance of market and firm growth, it will burn through its cash and sink. Investors have limited tolerance for funding growth that is always one or two years away.
However, shifts in demand also have implications for the startup’s value proposition and target segments. It might have to change how to brand and message through the phases of market growth. Product development must similarly be mindful of industry uptake. If the market is still in the embryonic phase with limited growth, a startup should curtail too much investment in new products and product functionality. It needs to avoid being too far ahead of the market, on the “bleeding” rather than the leading edge. Bridging a market chasm is expensive and challenging to get customers over the void. Most startups don’t have the resources of Apple to create the next iPod/iTunes. Startups can rarely afford to educate mass markets to get them across the void. Here, time and competition can actually help bridge the market from early adopters to the majority. Let competitors help build the bridge over the chasm!
Of course, it would be great to have the crystal ball that allows a founder to predict exactly when a market will take off, when it will Cross the Chasm, or when it might hit a Hype Curve and crash. Even the most savvy and visionary founders and investors struggle to predict the market. However, as part of metrics, strategic founders should monitor not just their own growth and trends, but also those of competitors and the overall market. Here are some signals for tracking industry trajectory: the growth of and investment in competitors, attendance at annual conferences or conventions, and mentions of new technologies or startups in Crunchbase, PitchBook, or TechCrunch, as well as others.
Monitoring industry growth and performance is not a “nice to do” for startups. Founders need to have an active plan for monitoring industry evolution over time, in order to avoid the icebergs in the strategy ocean that might limit their potential and keep them from reaching the promised land.