CFO Talk with Lynn Sheehan - Crossing the Chasm in Times of Chaos
Recently Lynn Sheehan joined me for a CFO.University CFO Talk. He shares how to Cross the Chasm in Times of Chaos.
Lynn is the Founder and CEO of Evolve Strategic Ventures, a business transformation firm based out of Vancouver, Washington. Before starting Evolve in 2017, he worked for a number of well-known and successful tech companies.
I’m excited to share Lynn’s message with you in this CFO Talk.
Welcome to CFO Talk. I’m your host Steve Rosvold. Chief Learning Officer at CFO.University. Joining us today is Lynn Sheehan, Founder and CEO of Evolve Strategic Ventures, a business transformation firm based out of Vancouver, Washington. Lynn has a degree in laser and optical engineering. He spent eight years in the fusion program at Lawrence Livermore National Laboratory in California. Before starting Evolve in 2017, he worked for a number of well-known and successful tech companies. I’m excited to share Lynn’s message with our member scholars. Welcome Lynn. It’s great to have you on our show.
Thank you, Steve. I appreciate the introduction. It’s nice to meet everybody who’s going to be watching this. I look forward to interacting with CFO.University more and more. I’ve seen some great things already.
Great, thank you for that. I’ve loved our interactions. We met just a few months ago at Washington State University in a mentor program they have. I really enjoy what you’re doing with your clients and how you’re transforming business today. We’re going to jump right in and talk about you and kind of how you’ve evolved from an engineer and an R&D director into a business strategist. First leading companies and now running your own company. Let’s go back to where you transformed from the research and development director at HP in Dublin to become a business strategist. I found that story very compelling. How did it come about and why did they chose you for that really important role of business strategist?
During the early part of my career, as you said, I was very focused on research and development. This was everything from very fundamental cutting-edge research to solving problems in real time on projects. The majority of those were projects that might take three to five years, some of the longest were up to a decade. When you’re working on fundamental research, where your project schedule and your focus has to be maintained over years and years, I think one of the things you learn in that environment is how do you really stay to a long term strategy or in a vision? I think that early learning that I had on how do you stay on track for those periods of time eventually dovetailed very well into how do you take that same type of strategy, of sticking to a vision over a longer term and planning for a longer term outcome in a business environment and some of the things just personally I always love to learn. I think that people that I’ve worked with and people that have mentored me, have always seen that I love to learn. When the opportunity comes up to help an organization, the fact that I always show passion and I’m always willing to learn something new, I’ve been lucky enough to be pulled into some of those changes. One of those was going from doing research and development into managing large corporate businesses.
Taking a career engineer who’s running the R&D department wouldn’t normally be the first choice a company would make for the business strategist role created to bridge the product commercialization gap. They’re not antithetical roles, but they’re not necessarily congruent, either. What were the characteristics HP saw in you that helped them make the decision to offer you the business strategist role?
I think part of it is just that passion to do things well. The research environment is a very structured environment around how to attack a problem. I’m sure a lot of your audience can attest to, sometimes businesses are not run with that passion to do things well. They want to do things quickly. But sometimes, not always, with the diligence. I think part of it was just that I have a passion to do things well. I’m willing to put my name into the hat to take on a role if it’s really going to help the business. What made the transition at HP was that I was complaining quite a bit to my executive team about the funding for research and development. They were trying to explain to me that they can only invest a certain amount of their business income into research. My side of things was well, but if you don’t invest in the research, where’s the future of the company going? You get into this catch 22. Through those discussions, I was invited to join the business team. Part of that was to allow me to learn more about how the business actually operates, so then maybe we could find an optimal place where I could understand where the funding comes from, and also provide a research program that always has a return on its work.
So you were at Lawrence Livermore for eight years and you’re in these other R&D roles that aren’t necessarily, I would say, commercially focused. All of a sudden, you are being asked to be a business strategist, help the commercial team sell products and decide what products to sell. That is a huge career shift from being scientist/engineer. Was the change scary for you? How did you decide “This is the right move for me”?
Was it scary? I don’t think so. One thing is, I was lucky to be in HP. If any of your listeners have ever worked in that company, the culture there is one of learning and support. I was surrounded by people who are willing to spend the time to teach me the things that I need to understand about making that transition. Not just interpersonal education, but also providing me time to study books to take courses. I’m very thankful for the support that I had. I was surrounded by a team of very capable people. For example, I wouldn’t have known a lot about how to design products for customer need. One of our team members sole focus was customer needs. I spent a lot of time just learning about things that I’d never heard of before like customer insights. While these were all very new topics, I was really well supported through people in the organization.
That’s really a great lesson for CFOs. By helping to create a supportive culture they can make the career pivots of their staff relatively easy, creating more opportunities for their staff and building more value for the company. I would have suspected there was a whole bunch of anxiety with such a career move. All of a sudden, you’re moving into a whole different profession. They made you feel comfortable doing that and that says a lot about the importance of building culture. Our CFO leaders and financial leaders on this video could learn a lot from creating that culture of acceptance and helping people feel comfortable when they’re having significant career changes. One of the things you mentioned to me when we spoke earlier was that HP (Hewlett Packard) sent you to some training out in California at the Chasm Institute. You’ve used that very effectively to build your career and your advisory practice. Can you tell us a little bit about that?
During the time I was at HP, there were a few things happening specifically in the inkjet printing organization. The inkjet printing was in decline in the market because people were not really printing as much at home anymore. They had access to photo labs that could very quickly print their photos for them. There were just other avenues to print. One of the things that we were looking at is how do we continue to grow the business? Over the years, I’ve been through a lot of different classes on different ways, processes and frameworks to really drive development of any type of a solution. I’d say over the years, I’ve built up a little bit of skepticism, right? I’d been told a lot of different things would solve all my problems, but they never really did. What I really liked was when I was introduced to Geoffrey Moore’s book, Crossing the Chasm, which is now I think, 28 or 29 years since first press. One of the things that I really enjoyed about it was that it was easy to understand. It was also easy to take their frameworks and implement them in multiple different environments. For example, you could implement Crossing the Chasm in how you manage your product development, but also your research and development. It was the first time that I’d ever seen that kind of bridge-the-gap between engineering, product development and product go to market plans. So I was lucky to spend a couple years actually acting in that role within the inkjet business to really disseminate these frameworks into the different business units, to help us speak a common language and to use a common tactic for how we went to market with products.
You did a really nice job with me when we had coffee of explaining what this Crossing the Chasm means and the metaphor it relates to? Can you help the audience understand it so they can recognize when they’ve hit that ball and they need to cross the chasm?
Absolutely. For those of you that are familiar with market life cycles in a market, when you enter with a new product, there’s what’s called the early market adopters. The early market adopters makes up only about 13% of your potential sales. What often happens is that companies, especially in a startup mode or if they’re launching a new product, get some traction in that early market. Those early market indicators might look really great. They generate a sales forecast based on early market, where they were so successful, and they just scale that into the future. The future forecast is going to be on this rocket ship. What happens is that once they start to saturate that early market, they hit what we call the chasm; a difference between the early market adopters of any type of technology and what we call the pragmatists. The pragmatist might be interested in what your product does, but you haven’t convinced them yet that it’s time to jump in. What happens with companies is they get stuck in this chasm. I’ll give you a technical description of how they might look at this. There are two key things that will happen. Their sales forecast will not be achieved because it was based on this early adoption sales curve. So, if you see your sales falter or start to slow down, it’s an indicator the early adopter market is saturated. But you aren’t necessarily hearing that from your customers. Your business deals get harder and harder to close. From a CFO perspective, things you can look for in the early phase of a product launch, initially sales were accelerating, but then they flatten out and start to decline or stay flat. You’ve definitely hit the chasm. Right? So why do you hit that chasm? There are really two key things that you missed in your product. The first was what we call credible customer references. Pragmatists want to know that somebody else like them has adopted your product. If you haven’t been able to cross the chasm and get another pragmatist to adopt your product, other people will look at and say, “Oh, well, no one else has jumped. I’m not going to jump. Why would I be the first one?”. The second thing is that you missed the mark on what’s called 100% minimum viable product. I think lots of people have heard about minimum viable product. The way to think about that is really, did you put a product through the system that truly solves the pragmatist pain point? Even if they’re a little bit hesitant, if you’re really solving a significant pain point, you can get them to adopt. So those are some of the things that might happen that cause you to hit the chasm. Then the question is, how do you get out? Companies can stay stuck in that chasm for a long time. There are plenty of companies who are happy in that early market phase and sitting in the chasm. It’s called a lifestyle business. You saturate your market and you just stay there and you’re Happy there. But if you really want to grow, you’ve got to cross the chasm. So there are a couple of things you’ve got to do. One is when you look at those pragmatists, you need to pick one of them and consider them your beachhead. Find one of those pragmatists that you think you can really solve that pain point for and go after just them. Remember that they’re going to be your reference for other pragmatists. The other thing is you must make sure that you give them 100% of what they need, the whole product because you want them to be waving your flag. That has a knock on effect of drawing other pragmatists into the fold. It’s really important that you pick that product and actually finish it. What sometimes happens is, especially in engineering or tech companies, is they’ll get very distracted with other shiny objects. You can’t do that. Stay focused on that target company. Stay focused on that pragmatist. Give them the solution to their pain point, Cross the chasm. Once you’re across, you hit what we call the bowling alley effect. You’ve knocked down that first pin and now other pragmatists will start to fall. That’s how you get across the chasm.
Interesting from a CFO standpoint. You talked about the 100% minimum product viability. And I’m wondering from a project standpoint somebody might want to launch the product when its not yet completely cooked. Does that limit the likely success of the product? For CFO’s, who are controlling these new product budgets, and all of a sudden somebody wants to launch a product that is only 90% done early. Can that be folly for the success of the product?
It’s actually a necessity. So doing that market launch early is perfect. You want to test and fail, test and fail and test and fail. All of those failures are teaching you what the product really has to be. The thing you have to be careful of is to not take the success you have and assume that it will continue to scale. You also have to be careful that if you solve those problems, (you failed and you learned) did you only solve the problems for the early market adopters? Or are you actually solving problems for the pragmatist? You have to make sure that when you do your product definition that you’re defining your product with the minimum viable product, targeting pragmatists, not early adopters, but certainly use the early adopters to learn launch and learn and launch and learn, right, that’s where you’re doing these, you know, alpha test, beta test. So that is kind of your sandbox to really test out your potential market, but you always have to really understand what is the pragmatist’s need?
Are there KPIs (key performance indicators) that might help us determine sales targets if we’re hitting the chasm? Where else do you see finance leaders participating in this to make sure they understand what’s going on? They’re helping the company make good decisions. Are there places in this whole product lifecycle where you’ve seen some really successful finance people contribute to the process?
Oh, for sure. I think one of the things that’s really critical on this, if you think about the story that I’ve just explained, is really defining the business model for the product and the company. Business models are not an engineer’s forte, right? Business models are not necessarily a sales group’s forte. Business models are finance. Any place that finance professionals can help to create models and tools, so that engineers and product marketing people can use those tools to figure out what are the variances here I could use to take my product to market, meet that minimum viable product, but also make sure that we’re maximizing profit. That’s not in the normal day to day role of engineers and product marketing professionals. If you give them models, they will optimize because everyone in a company wants the company to be successful. Financial modeling is really critical. I’ve worked in different types of organizations, some that do not support that at all, meaning that the finance group says sorry, models are not our problem. That’s your problem. The product marketing teams are left to figure out their own models and when they present those models to management, nobody believes them because finance wasn’t involved. The second version is where finance is intimately involved. Quite often a finance group might have what we call a new product introduction, finance person. That person is really there to help as part of that NPI process of developing a product and to be the financial person to give them the things they need. Help them with the business model, help them with modeling different types of ways you might go to market and provide that connection to the finance team so that the CFO can be confident they have somebody in the room representing them. From a CFO perspective, the other piece of this that’s really important is that quite often, this type of a move for a company will put the company into a J curve. Meaning that it’s going to take quite a bit of an investment to launch whatever this new product or new market is. And the early part of that investment is going to be a negative thing. Then the CFO needs to be the one that really helps figure out what the can company afford to do in the early part of that J curve. And, does that match the need for the program? Because these can be quite significant shifts, this could be a pretty significant chunk of the company’s cash. The time that it takes to get through that negative J curve should be well understood by all, with the idea that you all have to be on the same team. When you come out of the bottom of the J curve the goal is growth.
That’s great. I love the comparison between the two finance teams. The finance industry is working toward team 2 in your example. I don’t know a CFO who wouldn’t love to have a great financial modeler on their team. It’s a scale thing. Smaller businesses have trouble affording that skill, at bigger companies, it’s no problem. I don’t know any CFOs who don’t want to provide the modeling skills. I do know a lot of CFOs who have struggled because they don’t have the capacity to manage or budget to afford a dedicated financial modeler, but it is becoming much more important. The whole FP&A or financial planning and analysis area is a huge growth area in the finance industry, where modeling is becoming more important. I think your word is getting out and the financial people are listening. They see the value they can add by partnering with and creating opportunities with the business folks that you’re talking about. You and I were at a luncheon not too long ago listening to a company talk. The executives were describing where they were at in their business. You immediately turned to me and said, “they are trying to cross the chasm. They’ve hit the wall”. This was a company that had great potential, but it had hit the chasm? What things did you recognize that made this so clear to you?
I think there are two pieces of it. One is I had been following them as a tech company since they first relocated to Vancouver. There were a few things I noticed just in kind of how they were putting their product together. They were very focused on early adopters. Meaning, and this is very common for startups, if somebody gives them a check to develop a product they’re going to develop that product. The problem with that is they’re going to develop that product for just that customer. What about the next customer? What if they want it to be a different color? What if they want it to be a different platform? Instead of an Android they want an iPhone? What if they haven’t really looked at what the minimum viable product for the market is? What they’ve done is looked at what the minimum viable product is for the first adopter. Those early adopters are not great at helping you understand where the mass market is. If you were to compare their products to some of the larger corporation products that are out there, those larger companies are really looking at a market solution, but they miss out on some of these niche solutions. The trick here is to have some way to navigate that and do both. That’s where the chasm frameworks really come in. From the very early days, you’re building up this idea of a whole product model. A whole product is different than a minimum viable product. This is where the second thing I really heard from their discussion comes in. With a whole product model, you have to think about the fact that you have this core product that you sell. That might be the hardware. What about the software? What about the peripherals? What about the headphones? What about the helmet, the hat, right? What about connectivity? What type of connectivity do you have? Is it only Bluetooth or is it 5g? And what about legacy interfaces? If somebody is actually on 4g, is it still going to work? And, what are you going to do to help them understand how to use the product? What consulting services are you going to provide? That could videos, it could be tutorials. All of those together create an ecosystem that is called the whole product. This is where a lot of companies missed the boat. They might develop the hardware, but one of the things they said during that talk is “we didn’t realize how many people needed software”. We didn’t realize how many people needed to have our hardware but they also needed another product to go with it”. For example, a drone. As he was going through the talk, he started to really discuss some of those, what I would consider, whole product pieces that they’ve now realized they were missing. Those are some telltale signs.
That’s interesting. But you know, I said, I listened to you talk about that. And, you know, besides hiring Evolve Strategic Ventures To help how to small HP has the resources to do that, how your smaller companies obtain the resources to make sure they aren’t missing some really big chunks of that minimal viable product. You’re talking about how, how do they do?
I would say there are a few different approaches. One is Evolve Strategic Ventures, my business. One of the things that we really help companies with is to define and then implement their strategy for growth. When we set up the company, we very intentionally wanted to make sure we could service not just big companies, but small companies also. We actually do business programs for startups that are affordable. That’s one method. The other is to go out and learn. If you go to YouTube and search Crossing the Chasm, you will find people like Michael Eckert, (he’s one of the editors of the books) and Jeffrey Moore. They’ve been very generous to put a lot of this material on video. If reading a book is too much, and you really don’t get as much out of it, go watch the videos. They have a lot of great content available. I’m very much of the go giver way. If people reach out to me, I’m more than happy to share templates and frameworks with them that are available free from the internet. I’m happy to support companies that way. If companies are ready to make a bigger dive, we can pull the Chasm Institute into these kind of discussions through their books, they’re trying to convey those lessons. There are two books that I recommend to people. One is and the second one is called . Escape Velocity is especially good in these kind of challenging times or when companies are facing a challenge in their business. Escape Velocity is really about freeing your company from the pull of the past. One thing about facing a time of crisis is that you don’t want to waste that crisis. This is a good time for you to really step back and think, what are the things about your businesses that might be holding you back? or things that you’ve always thought about really transforming into. Now is the time and these two books are quite useful for people to review.
Well, you know, you’ve mentioned touched on something and then I know our time is almost out, but serving small and medium sized businesses, you kind of mentioned that to me a couple times, that’s, that’s really important to you. And, so, why is it important to you and how do you execute on that?
Certainly, I am blessed to have had a family history of entrepreneurship going all the way back to my grandparents and their grandparents before them. We were early settlers in America and I remember my grandmother specifically, in the early 1900’s, ran her own business. For women to run a business in that time was rather unheard of. I think I grew up with a little bit of that kind of spirit. When I look at small businesses, I really see this as our country. I saw some great statistics out of the SBA, given what’s gone on in the last month, about how important small businesses are in America. The SBA statistic is that small businesses less than 500 people account for 99.7% of all businesses. Wow! They employ 56.8 million people in our country and the biggest problem is that a large number of those companies will fail within the first 10 years of their life, almost always due to cashflow. 86% of those business owners are people who earn less than $100,000 a year and 30% of them don’t even take a salary. How can we as your audience in CFO.University and my audience in business strategy help these companies by giving them some tools that they can use to create a better, more successful business? My passion is to decrease the amount of failure. Let’s take advantage of what our economy is, which is small business based and make it more financially viable for our country.
What a great message for financial and finance. It has a special place in helping our economies, the allocation of resources and cash flow and understanding business. And of course, the business strategy part. Business transformation is so important today, because I’ll tell you, there will be a lot of us transforming our businesses over the next six months out of necessity. From that standpoint, that kind of wraps up our CFO Talk. Thank you for joining us live. What a message! It was really exciting to see you. You have that ability to give back and the willingness to share. You’re an expert in what you do. We really appreciate that. CFO.University is a community of members, scholars, companies and trusted advisors committed to the professional development of CFOs. Visit us at www.CFO.University. Thanks again for joining us.
Enjoy, learn, engage, and please be safe.
Thank you, Steve.
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