ITWeb: Espiál is not a traditional consulting company. What is its background?
KRÜGER: I started an advertising agency 17 years ago. What I discovered was that clients would come to me and ask me for advertising, while it was quite obvious they didn`t need it - there would be something wrong with the product, process or pricing, and no amount of advertising would fix it. So I started advising them what they should be doing with their business instead of selling them advertising and wasting their money.
Then I established Strategic Expert Systems (Stratex) as a marketing and consulting business. And I realised you can have a great product, a great promotion, great price, but if you cannot deliver the value you have a problem with the process. So I was in an early stage of business process reengineering and I became a reengineering consultant. I had over 100 interventions - I merged Mercantile Bank with the Bank of Lisbon and I got involved in big turnarounds, one of the biggest was Rainbow Chicken.
ITWeb: Why didn`t you want to stay in that business?
I saw that companies were sickening not because they were bad, but because the economy and landscape were changing. IT all of a sudden boomed. And IT wasn`t the automation of manual processes, IT was the substitution of distribution, IT replaced the old way of doing business. So all these companies actually had a distribution problem. They needed to make the transfer from atom-based services to bit-based services. I realised I was busy trading in the market that was going out of business.
ITWeb: How different are business rules in the digital economy?
KRÜGER: The model of the new economy is showing that all the new market leaders really had were their installed base and brand name. That was all they could leverage. The bricks and mortar meant nothing.
ITWeb: How can bricks and mortar businesses make the transfer to the new economy world?
KRÜGER: The only way they can get into tomorrow is to promote progress and get involved in hi-tech companies, by buying patents or little startups, or getting involved in alternative distribution channels.
But businesses don`t understand this so they try to merge with someone or buy a company and try to compete within the old "products for markets" way, which is the wrong way because that`s price-based competition.
ITWeb: A more radical change is needed?
KRÜGER: Yes. They should change the paradigm. Their knowledge is based on their history, but they couldn`t use their past to see their future. The old saying that there`s lots of foresight in hindsight doesn`t work any more.
ITWeb: Espiál uses the methodology developed by The Chasm Group as the basis for its consulting business. What is the essence of this methodology?
KRÜGER: The Chasm Group was set up in Silicon Valley to help hi-tech companies go to market. It found that unlike ordinary, conventional marketing, IT is dependent on infrastructure. That`s where the term "chasm" comes from: if there`s no infrastructure in place, you fall in the hole. You can have the greatest product but you must have the infrastructure.
Before the chasm, you must emphasise customer intimacy and product excellence. Once this works, you must cross the chasm with the whole product, a whole solution for the vertical market. To do that, you must have product excellence and operational efficiency. You must be able to serve that vertical market properly. And then you must dominate a specific niche within that vertical market and become the de facto standard and market leader. Then you create what is called the product tornado. Once you create the tornado, you suck up more than 50% market share and 80% of the profits and you become the market leader.
ITWeb: Palm Pilot is an example you like to cite.
KRÜGER: Yes. 3Com`s Palm Pilots have 41% market share - they may not be the best product, but have become the standard for handheld devices.
ITWeb: How have you built on the Chasm methodology?
KRÜGER: We have created software that will automatically place a product on the technology lifecycle. Then we have a battle-plan of how to take this product to market, including target customer, compelling reason to buy, distribution, pricing, competition, positioning, profit opportunity, company structure and how to communicate this to the market.
By applying this unique tool, it`s easy for me to define a company and marketing strategy within two days.
ITWeb: What do companies usually do wrong?
KRÜGER: Most people can`t cross the chasm because they don`t have a whole product. Or they don`t have relationships or they cannot fund it. You can only cross the chasm with a 100% solution for a segmented vertical market.
Once it takes off, you have the bowling pin potential: if you have captured the market with a banking solution, you can knock over the next bowling pin, which could be financial services, insurance or professional services.
ITWeb: Do you target any particular markets?
KRÜGER: We specialise in financial services, hi-tech and pharmaceuticals, but we`ll do anything that has an IT component to it or that is infrastructure-dependent.
ITWeb: So Espiál Consulting can help a business avoid that dreaded chasm?
KRÜGER: People can come to my door with a patent or just an idea and I`ll build them a whole product and incubate the business for them: product, partners, pricing, distribution, communication, image. I`ll even find funding for them.
Or they can come with a product that`s in the chasm - in other words, they launched it and it didn`t work. Then I`ll bring them back, show them where they made the mistakes and re-launch them. We`ll take them across the chasm.
Espiál Consulting`s new economy strategy development programmes are based in part on ideas, models and methodologies overviewed in publications by its US associate, The Chasm Group, publishers of such business best-sellers as Crossing the Chasm, Inside the Tornado and The Gorilla Game.
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