As long-term investors in HMNYwe feel like we are dancing alone this week. We have been rejected by the market, we are embarrassed, alone, we feel like maybe it would be less humiliating to just sit down, or leave the concert altogether. This is the hard life for startups and their investors. Being an innovator can be very lonely, sticking to an idea when everyone else is running away or rejecting you is one of the hardest things an investor can do. People, humans, are animals, they run in herds.
Please take a couple minutes to watch and listen to Geoffrey Moore the originator of Crossing the Chasm walk you through this incredible example of “Dancing Man” from 2009 Sasquatch. It is a fun video and it explains the phenomena of Crossing the Chasm better than a thousand more words here ever could.
I believe that MoviePass is now at the very scary and most critical juncture for a startup company, it is attempting to cross the chasm from Early Adopters to Early Majority.
All the signs of MoviePass attempting to cross the chasm are emerging at the same time.
- Early Adopters are already in! They love the service. An incredible 83% of MP early adopters say they would recommend it to a friend. The classic WOM* has been achieved.
- The percentages neatly mirror the adoption lifecycle. MoviePass is buying approximately 9-10% of Movie Tickets – matching the early adopter segment perfectly.
- Mitch has stated consistently that the magic numbers needed to achieve profitability are 5 Million Subscribers and around 20% of tickets purchased. I am sure Mitch knows these numbers land him just on the other side of the chasm, where the early majority adopts the service, and a new category is fully established.
- Investors are losing their shit! Investors, venture capital, always get very nervous at this point in the lifecycle, and this is why HMNY is getting killed in the market. VC’s and Wall Street guys are big on vision early, and the freak out when it takes just a little more money or time to get to that vision. They get impatient, they literally freak out, they demand their money back, they look to change management (which BTW has already happened at MoviePass), the give up. I have seen it many times in other investments, crossing that chasm takes vision and balls that most investors seem to lack.
- The media is freaking out! This stage is where a lot of good ideas – (but weak companies) with strong early momentum with the early adopters often die. As such it is understandable that the vultures of the media who love a good car crash and scary death spiral story are seizing the moment to create some clickbait headlines. All of this should be expected right now.
I believe that MoviePass will cross the big scary chasm and live on as a big successful game-changing company. I have not lost faith. Here’s why.
- Bankruptcy Looks Unlikely – No Debt Lots of levers
- Product Changes to adapt to Early Majority customers are now baked into the product. The incredible PR and WOM derived from the too good to be true offer has done the heavy lifting in for Early Adopter phase. Limiting to a single view of any title and reducing fraud with ticket stubs are now in and reducing costs.
- Lack of competition. MoviePass has an incredible lead over any competition, and it’s is now extremely unlikely any more new entrants will come into this space. Yes, there is that Turkish company, but they look like a Bing vs. a Google. No brand there, the offer is weak, and can’t catch up.
- The entrenched establishment now looks shaky and scared. AMC lashing out at MoviePass and subsequently seeing their stock tank after an earnings beat – infused from MoviePass is all you need to see to know that MoviePass has the establishment wondering what the hell they can do now to stop this thing. Again this is a classic crossing the chasm point, where the entrenched competitors realize they have to make some kind of move. I think it is too late for AMC, they will have to acquiesce.
- I have a gut feeling Early Majority has already started. As I have written about many times in the past, at my local theater the employees I talk with estimate that MoviePass is making up around 30% of tickets sold. These are kids, who don’t have all the data, but they see people coming in every day, and they know the trend. These kids say they are seeing the demographics change to more “normal” people, not just movie fans. That my friends is the beginning of crossing to the Early Majority! This is a hard one to put a finger on, pure data can lie to you when trying to figure out if the cross to Early Majority is underway. Truly it is a gut feeling tied to data that tells you when that transition is underway. The kids working at the theater are feeling it!
So what should investors in MoviePass do now?
Well, first of all, I have learned one big lesson, don’t take my advice for timing, so far my advice on timing has been terrible, and for that, I truly apologize. Mark Gomes got the timing so much better than me, if you are a trader looking for a quick turn, I would yield to him on timing calls, he has nailed it – so far! I hate losing money, and I hate it when friends, readers, and others lose money. So far, I have not lost money because I have not sold a single share, but man do I wish I would have listened to Mark about my entry point for this stock. Calling tops and bottoms is really hard, and I missed here.
With that govelling out of the way. My advice to those who are already in the stock, I think you should on and see if MoviePass can indeed Cross the Chasm, if they do, you will be richly rewarded.
If you have not read Geoffry Moore’s Crossing the Chasm, I highly recommend reading it – it is a classic and one I think all serious investors and entrepreneurs should read and understand.
I also highly recommend “Inside the Tornado”, which adapts Moore’s original works to be more relevant to B2C disruptors like MoviePass.