Deciding between first mover or fast follower? Being the last mover may just be the best.
To be a first mover or a fast follower in business is a question with an innate appeal. It is often framed as a blue-pill versus red-pill question in terms of how consequential it is. I explore if it is so.
Pioneering is seductive. To dream up something new and translate that into reality on our own has a gravity. But there are costs to being the first to do something: having to make continual investments in R&D, dealing with uncertainty in the process of ‘problem’ discovery, educating the market and carving out a brand new category, iterating until there is a product/market fit. Early bird catches the worm but that bird also has to scan the broadest swathe of the landscape before it can zero in on the worm.
Imitation on the other hand demands an acknowledgement from us that the best view of the future is perched on the shoulders of giants before us. Choosing to follow signals confidence in our ability to replicate at speed. At the same time, the cost of coming in later is loss of market share and expectations of an order-of-magnitude better experience from customers.
The myth of entrepreneurs as risk-takers
There is an inherent risk in both being an original and a follower. In trying to push through a revolutionary idea, we could be too early and have to invest a lot of time and effort in warming up the world to it. Or, following on the heels of a proven success, we may find ourselves not swift enough and end up having too much ground to catch up.
If Success = Idea X Execution, the pioneers bet on the novelty and non-obvious quality of their idea (not exclusively), while the followers wager on their ability to pull off razor-sharp execution (not exclusively). Yet, it must be said that both are equal parts entrepreneurs. The intuitive persona of entrepreneurs as risk-takers is a fallacy. Irrespective of the market entry approach, founders are known to mitigate risks as much as they can: sometimes by shooting bullets before cannonballs; in other situations, by following fast. That is to say, all entrepreneurs are not compulsive risk-takers and being a first mover is not necessarily riskier than being a fast follower.
Strategies, not goals
Once we stop framing innovation versus imitation as risk-taking versus risk-averse, we begin to see that moving first or following fast are not goals but strategies. They are means to an end but hardly the end. Although there are successes with both approaches--Apple achieved success without being the first mover with the smartphone, with the tablet, with digital music, while Amazon scored big by moving in early as an online bookseller or as a cloud computing platform--in neither case can lasting success be strictly put down to the choice of being an innovator or an imitator.
The smartphone market, because of its rapid maturity, is an apt choice to examine this theory. Motorola is credited to have come out with the first smartphone. Apple was a relatively late entrant (2007) by which time Nokia was the market leader by far across all categories. But Apple innovated faster and, despite its late entry, was eating up 50% of profits off global handsets by early 2013. Soon enough, Samsung was replicating at rapid speed Apple’s success as the market leader in the tablet and smartphone categories, while Apple leveraged its success by building a product-services ecosystem (music, apps) to lock in customers and create a moat against competition. The point worth noting is that market positions as a leader or a follower and therefore roles as an innovator or an imitator may not be constant. Focusing too much on making the right entry to the party leaves us at risk of not lasting until the end of the party.
The last mover
If we can assume that the goal of every business is to become a monopoly, then being the last mover (for a substantial period of time) emerges as a good marker for enduring success. The last mover is a business that makes the last big breakthrough that allows it to grow unimpeded its market share to a monopolistic position. The last move by that measure is the construction of a moat against competition. This is what Peter Thiel espouses in Zero to One.
Thiel opines that ensuring business durability supersedes any question on market entry and that the optimal way to beat competition is to not engage in it. How? By making a series of small breakthroughs and stitching them together. Lasting monopolies rest on conjunctive small breakthroughs that can be vertically integrated with minimal external dependency into defensible businesses. Consider these examples: Tesla has integrated its entire supply chain from its superchargers to distributors; Apple has integrated products and services into an ecosystem; Shopify has integrated payments, analytics, fulfilment into a super subscription for ambitious business owners. Once in effect, vertical integration creates a tremendous lock-in that is hard for competition to emulate. It leads to economies of scale, free customer acquisition, and unmatched customer stickiness. These are all enduring business goals.
Innovate first or replicate fast is a common question business owners ask themselves when considering how to dominate the market. While it is crucial for them to identify the most strategic route to enter the market, its value should not be overemphasized. In the long run the surest way to win is not by beating competition attritionally but by creating a barrier to entry that keeps competitors out.