Why You Should Go For Second Mover Advantage
Why You Should Go For Second Mover Advantage
There is so much talk about first mover advantage for entrepreneurs and rightly so. First mover advantage is actually the leverage one gets for been the first person to venture into a particular market. Of course first mover advantage comes with a lot of benefits. But it appears most entrepreneurs are now focusing on how to gain first mover advantage to the point that the real leverage has actually moved to second movers.
Perhaps many people are yet to understand how powerful second mover advantage can be. In fact, it is now up for a debate if second mover advantage doesn’t give better leverage to entrepreneurs than first mover advantage itself.
In today’s blog post I want to share with you everything you need to know about second mover advantage and how to leverage it to gain competitive advantage.
But before we delve into that, let’s first understand why first mover may no longer be the game changer.
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Why Being a First Mover is Not Necessarily Always The Best
I will prefer to start this section by sharing some hard facts about first movers. First, most of the most successful brands you and I know today aren’t necessarily first movers. Whereas Uber, Amazon and Airbnb can be considered as first movers, but Facebook, Google, Instagram, WhatsApp and TikTok are not.
Add to this is the fact that the last 2 decades have been a particularly difficult time for a couple of first movers. And one could easily argue if their problems are not associated with the challenge of being a first mover. For example both Nokia and Yahoo are popular first movers in their industry, but today they have either gone under completely or struggling hard to remain relevant.
So it is beginning to look as if first mover is a concept that once worked but has become more of a myth today. And below are reasons, First mover may no longer be the best:
1. Everyone is Searching For First Mover
The successes recorded by some first movers like Uber and Amazon as first movers in their industry has made lots of entrepreneurs focus exclusively on her to get their own first movers. While first being a first mover is a good thing but believing that you can only achieve Uber and Amazon level of success by being a first mover is an error.
Unfortunately that thinking has hindered so many people from trying out something else a late movers in other or related industries.
2. Being First Mover Can Be Very Expensive
This is perhaps the biggest disadvantage of being a first mover – you get to bear all the cost.
Research and development is expensive.
Educating a new market is expensive.
Navigating unknown regulatory & legal territories is expensive.
Setting up production for a new product at scale is expensive.
To get an idea of how expensive a simple commodity product can be, consider that Gillette spent $750 million to come up with the Mach3. Almost 20 years later, the Dollar Shave Club offers a near-identical razor that cost just a fraction of that.
As a first-mover, estimating the real costs turns out to be difficult. With market-entry pricing levels that nearly always change. And don’t even forget the opportunity cost that comes with these first-mover propositions.
And the most difficult aspect of these costs is that you have to pay almost all of them upfront.
From parts and equipment to skilled labor, legal/compliance costs, contingency budgets etc.
The question which then rises for the first-mover is: “How do I deal with these up-front investments?” Some may consider lowering market-entry pricing. However, this will mean absorbing investments way too early. But then that is very risky.
3. Difficulty in Breaking into the Market
As a first mover you are trying to sell a product people are not used to. Most people don’t even understand what you are talking about. Others don’t trust it because they have never proven it to know if it works. This means that selling a novel kind of product or service requires the first-mover to make significant efforts on educating their target audience.
You have to explain the problem it solves
You have to explain why customers should go for it.
What makes it better than a supposed alternative?
And how do they use it?
You need to do all of these to break the resistance on the way. And mind you it all comes at a cost also.
As an example – when Udemy first came online, it had to persuade both teachers and students that online learning was a viable alternative to in-person classes. If your offer is radically new, you will have to do something similar, which is another disadvantage of being first in a market.
4. There is No Template to Leverage
Most people prefer to build with an already made template. But with a first mover there is no template. In fact, you are the one to design the template.
And the truth remains that when you’re doing something for the first time chances of making mistakes are high. Unfortunately, the margin of error is usually very slim because you may not be able to afford them at that early stage. A good example is what happened to Apple in the 80s and 90s.
Their first computer – the Macintosh – was a tremendous success. Unfortunately, their industry was new and volatile. Steve Jobs didn’t realize the risk in that and so wanted to continue innovating. But this led to a string of failed projects. Some key employees departed and the company almost went bankrupt.
Guess what? Microsoft later copied Apples and became big by learning from their mistakes.
5. Failure Can Be Disastrous
We already agreed that being a first mover requires significant volume of investment. But the investment is not just in financial resources. You also invest a lot of time and energy. Because the idea is novel, you tend to want to concentrate 100%. You need that to even stand any chance of succeeding at all. The implication of this is that you may be left with little or nothing to invest in other projects or endeavours. So peradventure the idea fails, it might be disastrous.
An interesting example is hot startup Theranos, which touted a technology that only needed a few drops of blood to deliver accurate results. Founder Elizabeth Holmes invested her all in what ultimately proved to be a failed experiment, and ended up becoming the biggest business failure of the 2010s thus far.
6. It Carries The Risk of Complacency
As a first mover you literally have no competition. And what happens when there is no competition? The risk of complacency increases. And when you become complacent you stop innovating. Some can even start taking customers for granted. Of course you have no one to benchmark yourself with.
It happened to Ford Motors and it can happen to anyone else. Ford was the first company to produce cars. And in 1921, it had a 1,000% market share advantage over GM. Unfortunately, this level of dominance made Ford complacent – and it didn’t do much while G.M. worked tirelessly to expand its product line and offer more kinds of cars. As a result, after about 10 years G.M. had comfortably overtaken Ford in sales.
History seems to repeat itself recently as Tesla’s market value surpassed that of GM and Ford combined as investors bet on the future.
7. You Step On Toes and Attract So Many Enemies
When you shake up an industry, you’re bound to step on toes. And those people won’t just fold their hands and watch. So, you are likely to face resistance from lobbyists, politicians and, of course, other businesses. Not to mention legal systems that might not even be ready for you.
In Nigeria, I know at least 2 startups that has an innovation that could solve the problem of power supply in Nigeria, but they will never be allowed by different interest groups who are feeding from the problem they want to solve.
Same thing applies to me, through HTS Waste Management Services, I could have ended the problem of refuse disposal in Imo State, created jobs for many and generate revenue for government. But some persons are fighting it.
Uber also suffered this early on. Their services were suspended in Spain, San Antonio, Portland and South Korea – as well as partially banned in Germany, the Netherlands and Thailand. In most airports across Africa, Uber drivers are not allowed to enter – what is their sin? They have disrupted the industry and was about sending some persons out of business. Regulatory resistance can curb your potential or significantly add to your cost of doing business. So never underestimate the impact it can have on your business.
So seeing the challenges associated with being a first mover, it might make sense to consider second mover advantage. But what is second mover advantage?
What is Second Mover Advantage
Second mover advantage is that leverage a business gets by sitting back and learning from the mistakes of first movers before venturing. A second-mover benefits from the first-mover by appealing to its existing customer base and using marketing strategies that have proof of success.
What second mover advantage tells you is that to build a great business you don’t need a wildly innovative idea.
Rather, all you just need is simply to focus on something that already works. If you mimic something customers are already doing/paying for, your procurement process may be much simpler.
But a second mover does not necessarily have to be the immediate second entrant into the market.
In fact a second mover can be a fast follower or late market entry.
A fast follower is the business that decides to venture just after the first mover. So what they do is to wait for others to try out an idea first. From the experience of the first mover they will now start.
On the other hand late market entry is simply waiting for several other players to have tried out the idea.
But whether as a fast follower or as a late market entry, second mover advantage has lots of benefits.
Benefits of Second Mover Advantage
Here are some of the major benefits second mover advantage gives you:
Customer Development Is Easier Faster and Less Expensive
As a second mover who have studied an existing company before venturing, you can learn a lot about what customers want. If you have a competitor to be with traction it is a prove that there are customers for the product. So with that you don’t need to do or invest as much in customer development or product validation from beginning. You can be more confident that you have something that customers really think is worth it.
Product Management Becomes Easier
By simply analyzing the products of the first movers or existing competitors you can learn what works and where to improve. The easier cost of experimenting and testing is cut off thereby saving time and money.
Ease of Customer Acquisition
Through some research, you can often learn about how companies acquire customers. Figuring out how to acquire customers in a repeatable and profitable way often requires testing multiple channels, which costs time and money. Analyzing how the first mover acquires customers can guide your strategy.
I have had to push a product where I was a first mover. It didn’t take a while for me to run out of fund. Others later picked it and build on the customers we have trained. Imagine how painful that could be.
But most importantly you can convince them with an improved products having learnt the weakness of the first movers.
Product gaps can be seen more easily
When you are a second mover you have the advantage of spotting the gaps in your competitor’s offering and addressing it.
As is usually the case first movers take a couple of things for granted. In fact customers are forced to accept such as the only way it can be. And it will almost always remain that way until someone innovates. That innovation oftentimes comes as a second mover advantage.
In Nigeria today, every telecommunication company is offering per second billing. But it was not so from the beginning. MTN been the first mover never believed it was possible and customers just accepted it. It took Globacom to change that as part of their second mover advantage. Similarly, AirBnB‘s refund policy is not looking like an innovation today because everyone is also offering it. But VRBO didn’t have anything like that for years.
If it’s a new market, the marketing and sales your competitor does may help to educate customers of the value of your products and actually expand the market. This would be especially valuable if it’s a market where customers would buy more than one product. In a market where customers have a high loyalty to an existing and inferior solution, the first mover may do the heavy lifting of getting customers to start thinking about switching.
Examples of Second Mover Advantage
And many other million dollar worth companies
How to Leverage Second Mover Advantage
In order to leverage your second mover advantage it is important you do the following:
1. Think of what the first movers are offering that is increasing costs unnecessarily and eliminate it
2. Now you have removed the ones that are not necessary, think of new and improved features you could add
3. How to improve customer service including addressing feedback
First mover advantage is important but second mover advantage seems to have even more benefits. With second mover you have the advantage of understudying others and learning from their mistakes. But if you are the first mover you have no one to learn from.
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