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Getting EDA Across the Chasm: 15 Rules Before and 5 After

Getting EDA Across the Chasm: 15 Rules Before and 5 After
by Paul McLellan on 10-02-2015 at 7:00 am

 Crossing the Chasm by Geoffrey Moore (not that G. Moore!) is one of the most well known books on high technology marketing. When I worked at VaST, Mohr Davidow Ventures (MDV) invested in us and Moore (not Mohr), who was a partner there, spent an afternoon with us brainstorming what it would take for us to cross the chasm. Coincidentally, Crossing the Chasm is actually a similar, but more readable, version of an earlier book called Marketing High Technology by Bill Davidow (yes, the D of MDV) which is where the concept of the whole product was introduced. The key insight of both books is that while early adopter enthusiasts will do a lot themselves to compensate for missing pieces of the ecosystems, the mainstream will not. Having a whole product that is ready for the mainstream is really what it takes to get across the chasm.

Jim Hogan and EDAC have been running a series of discussions with founders of EDA startups on what it takes to cross the chasm. Kathryn Kranen (of Jasper, now part of Cadence), Ravi Subramanian (of BDA, now part of Mentor) and Amit Gupta of Solido (still independent). The next evening is in December but I don’t yet have a date. The guest will be John Lee, now a VP at ANSYS having been the founder and CEO of Gear before selling it to them.

I sat down last week with Jim and Amit to talk about what it takes to get over the chasm. Very few EDA companies cross the chasm to, say, $5-7M in revenue. It is fairly easy to get to $1M, everyone has some friends. But $5M to $10M to $20M is a hard progression to achieve. I should point out that Amit’s views are not just based on Solido. He was the founding CEO of Analog Design Automation (ADA) which was acquired by Synopsys in 2004.

 I read somewhere that listicles are click-bait on the net, so here is a recipe listicle style:

  • Find out what the customer pain points are from technology enthusiasts
  • Validate customer pain points across many technology enthusiasts in many different companies. Don’t design a solution for only one company/enthusiast
  • Ensure that there is a large enough market if the product is successful. Avoid the “Intel only needs one copy” products.
  • Ensure that there is alignment between technology enthusiasts, company pain points, and what companies will pay for. Avoid science projects for technology enthusiasts (Intel doesn’t need any copies at all)
  • Figure out a business model to capture the value being delivered (floating licenses, site license, royalty…)
  • With 1-5 raise any investment needed to execute
  • Innovate to solve customer pain points with 10X differentiation from competition (especially big guys who can say they will have it next year if it is just 2-3X better)
  • Hire a product development team capable of delivering product with the customer in the loop
  • Develop minimum viable product
  • Iterate until successfully deployed minimum viable product with technology enthusiasts (early adopters) finding product-market fit
  • Establish needed partnerships with big EDA companies to integrate product into customer flows (Cadence Connections, Synopsys InSync, Mentor OpenDoor etc). This will also require customer references.
  • Survive any market downturns, there will probably be at least one period of weakness/trauma
  • Execute fast enough that competition doesn’t catch up, market window doesn’t pass (although being too early is often more of a problem), and you don’t run out of money
  • Fail fast on stuff that isn’t going to work out
  • Close first purchase orders. The only validation that counts.

     If and only if (aka iff for mathematicians) you successfully complete all these steps do you have a shot at crossing the chasm. Then you can read Geoffrey Moore’s next book Inside the Tornado (which uses Synopsys as one example). This is the point at which you throw gasoline on the fire. In my opinion, it is the critical decision point in an EDA company (and many other types): when do you ramp sales. Too early and you run out of money paying a sales force who cannot sell the immature product. Too late and…this never happens.

    Then you need to:

  • Mature the whole product solution for deployment to a larger mainstream audience (proliferation)
  • Develop a sales recipe for short evaluations at high success rate. Aim for 90 days from discovery to close, not 9 months
  • Build out the company: engineering, AEs, marketing, sales, G&A
  • Deploy and support larger customer base
  • Grow

    Then in the third phase there is a very short list:

  • Be acquired
  • IPO…this never happens, especially post Sarbanes-Oxley
  • Grow profitably, generating cash (Denali showed it can be done for many years before Cadence made them an offer they could not refuse)

    For the biggest picture of all, the whole company, there are also a few rules. First, never take more than $10M in investment ($5M is better) or it will be really hard to sell in a way that makes everyone whole (carve-out and cram-down are not good words). Patents are important, research shows $300-900K per patent in additional exit valuation over and above forward revenue multiple. But don’t do too many since they are expensive to file and expensive to maintain. Market the company too, not just the product. Sell the sizzle as well as the steak.

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