Guest post by Steven Wunker, author of Capturing New Markets: How Smart Companies Create Opportunities Others Don’t.
The allure of a fast follower strategy is clear – learn from others’ mistakes and enter a market inexpensively. Yet for many companies a fast follower strategy translates into too little, too late…
Too often these businesses end up ceding the most promising ground in a new market to more ambitious upstarts. Common? Yes. Inevitable? No. Read on as strategy consultant Steven Wunker, reveals several key essentials that can greatly improve your odds of success:
Typically, early movers will beat fast followers if the pioneers can:
Create barriers to later market entrants. Zipcar has 80% of the U.S. market for by-the-hour car rentals, despite eventual competition from Hertz, because it locked up assets such as patents, key rental locations, and desirable customers. Hertz may have scale economies in vehicle purchasing, but Zipcar’s advantages look unassailable.
Build resources and competencies that larger firms would prefer to acquire than to build themselves. New business models often daunt market incumbents (much more so than new technologies), and so the only feasible path for a fast follower with a new business model may be to buy the early mover. That makes market entry costly for those who sit out an industry’s formative years. Ask Abbott, the U.S. drug firm that has recently spent over $3 billion to acquire pharmaceutical firms in India.
Avoid becoming locked in to inappropriate business models or technologies before the market is understood. New technologies often involve many misplaced bets, and one-time darlings of an industry can rapidly lose their leader status. CompuServe, founded in 1969, was America’s first Internet Service Provider, but it became wedded to quirky offerings that the nimble America Online avoided. AOL ended up buying CompuServe in 1998.
Avoid incurring large up-front costs because it is early to market. Many biotech firms have pioneered new markets, but at enormous expense. Followers in these markets have sometimes leveraged the scientific insights of the early movers to create drugs with similar efficacy, but at substantially lower risk and cost.
If at least 2 or 3 of the above conditions do not apply to an industry, a fast follower stands a chance. A fast follower strategy can succeed if it can:
- Exploit powerful competitive advantages. A grocery store can copy successful experiments by grocers in other cities because grocery shopping is such a local business.
- Develop strong competency in “open innovation,” sourcing ideas broadly and rapidly trialing them in a low-cost way.
- Choose a niche to dominate. In the ultra-competitive market for tablet computers, Japan’s Sharp has staked its claim on handling Asian characters and leveraging its in-house 3D display technologies for purposes such as gaming.
- Ride a different horse. Microsoft was a late entrant to the spreadsheet business, but because Excel was tightly integrated with Windows it rapidly drove early leaders from the market.
- Leverage the network. Bank of America introduced its first credit card in 1958, almost a decade after Diners Club created the card industry, but B of A had an advantage that Diners and American Express lacked – a huge base of depositors who frequented its branches. Moreover, as a California institution it posed little threat to banks in other states, so it could license its “BankAmericard” operations to other institutions. The resulting network of banks was ultimately called Visa, and it had advantages that the industry’s pioneers simply couldn’t match.
- Actually be fast. For many firms, “fast” is a nice way of saying “late.” Many companies attempting fast follower strategies have simply missed the boat. Through creating a discipline of asking questions such as the ones above, firms can vastly improve their selection of when they must be early and when profits will come through patience.
Stephen Wunker is an entrepreneur and strategy consultant who has created successful ventures for his own companies and clients across six continents. He has led teams that developed some of the world’s first mobile Internet devices mobile commerce businesses and mobile marketing campaigns. He also became a long time colleague of Harvard professor Clayton Christensen in building a consulting practice based on Christensen’s research on disruptive innovation.