Pediatricians talk about the various stages of development that must be mastered sequentially if a child is to reach maturity. Something analogous happens to markets, and, because the Internet has caused a wholesale elimination of old market categories, all markets are being reborn and find themselves in some early stage of development. There is no longer any such thing as the "mature market" that has sustained so many big companies for so long.

This is old news at IBM. It is new news at Barnes & Noble. Technology companies like IBM understand they face a viciously fast life cycle. The Barnes & Nobles of the world have largely been shielded. Until now. The Internet means that every market is driven by technology. So, every company now has to cope with the kind of change that has caused such frequent, embarrassing, public stumbles in the high-tech world in the past decade.

The problem is that, when a market moves to a new stage, something that was the right behavior becomes precisely the wrong thing to do, while something that was the wrong thing to focus on becomes essential. No company can optimize its operations for all phases of the life cycle. It would be like trying to be a toddler and teen at the same time.

To succeed, companies need to understand how to change their behavior in each of the four phases of a market’s life cycle.

The early market. This first phase is when a new product is adopted by technology enthusiasts, who want to determine if it is "cool," and by visionaries, who hope to capture a dramatic advantage over competitors. To use the personal-computer business as an example: The early market began back in the mid-1970s, when computer clubs were exploring the possibilities of PCs.

To succeed in the early market, companies need to focus on two of the four possible value disciplines—what some call core competencies. Companies must emphasize discontinuous innovation—which means creating a whole new product category—and product leadership. In other words, they need a great, working version of a new idea—as Apple Computer had.

Companies need to suppress the other two value disciplines: customer intimacy and operational excellence. Discontinuous innovations demand enormous tolerance and sacrifice by customers as products get debugged. So, the early market is no time for putting the customer first. It is equally wrong to target operational excellence because there is just too much new product and procedure to invent and shake out.

Not surprisingly, companies with engineering cultures do better than do those with cultures focused on marketing or operations.

The bowling alley. The early market is followed by a chasm, a period of no adoption, when the early adopters have already made their choices but the pragmatist majority is still holding back. Pragmatists are looking to other pragmatists to be references, but no one wants to go first. This was the PC market in the early 1980s, when PCs were being purchased by individuals but not yet by companies in huge quantities. I call this the bowling alley because companies need to use the first group of adopters as references to win over the next group, and the next, and so on.

Companies still have to focus on product leadership, because pragmatists demand a great product. But they should suppress discontinuous innovation. Pragmatists who move ahead of the pack do so only because they have a clear problem to fix that can’t be addressed with current technology. They have neither the time nor the resources to support debugging a discontinuous innovation. As in the early market, companies should avoid focusing on operational excellence, because customers at this stage need special attention, which is incompatible with the necessary standardization. But companies should emphasize customer intimacy, so they can integrate all the elements that are needed by a particular market segment.

Marketing-led organizations—like IBM’s old blue-suited horde—are best at crossing the chasm.

The tornado. Some technologies never make it past the bowling alley. No mass market emerges. But, in many cases, a killer app appears—such as the electronic spreadsheet, which helped make PCs so hot in the mid- to late 1980s—and a single product spreads across multiple niches. The market goes into tornado-like hypergrowth for years.

In the tornado, buyers are looking for standard, reliable offerings suitable for rapid mass deployment. So, suppliers need to focus on product leadership and operational excellence—as Compaq did when it surpassed IBM in the PC market. Companies need to suppress discontinuous innovation and customer intimacy because they create opportunities for error, putting mass deployment at risk.

Operations-led organizations tend to have the edge in a tornado, where meeting deadlines, shipping in quantity, and minimizing returns all take priority over innovation and customer delight. Marketing-led organizations, by contrast, typically flounder because they cannot bear to relinquish their commitment to customer intimacy and customer satisfaction. They need to realize that, in a tornado, just getting the new systems installed and working properly is grounds for customer satisfaction.

Main Street. Once the new technology goes beyond the pragmatists and reaches even conservative buyers, it enters the mature stage—the Main Street phase—that so many markets were in before the Internet.

In this phase, companies need to emphasize operational excellence and customer intimacy—as Dell Computer did when it, in its turn, surpassed Compaq. Main Street markets need the support of conservative customers seeking incremental gains in value. These can be achieved either through decreasing the costs of the current offering, the domain of operational excellence, or by improving offerings through a continuous stream of readily absorbed innovations, the domain of customer intimacy.

Companies need to suppress discontinuous innovation because it is simply not welcome among conservative customers. Even offers based on product leadership are problematic. If they require retooling the existing infrastructure, they usually just aren’t worth it. Thus, for example, the rotary engine, a truly superior alternative to the piston-based engine, got nowhere in the automotive market despite Mazda’s aggressive sponsoring. If improvements in products are fully backward-compatible, then they are acceptable.

The changes that companies have to make as their markets move through the life cycle are certainly dramatic. Moreover, the time allotted to make them is painfully small. As a result, it should surprise no one that few real-world organizations are very good at making all of them. Indeed, the larger and more successful an organization becomes, the less likely it is to attempt making them at all. But you have to try.

Moore is the managing director of the Chasm Group, a marketing and strategy consulting practice for high-tech companies. He is also a venture partner with Mohr, Davidow Ventures, a California venture-capital firm. Moore is the author of numerous best-selling books. His most recent book, from which this article is adapted, is Living on the Fault Line, published by HarperBusiness, an imprint of HarperCollins Publishers. Copyright © 2000 by Geoffrey A. Moore. He can be reached at gmoore@chasmgroup.com.