And the Winner, in Second Place…

Everyone loves a winner.  But what happens when the champion eventually ends up in second place?

The novelty of The New means that entrepreneurs often place great belief in the first-to-market strategy — particularly in industries with large network effects.  But as with many of the myths of entrepreneurship, much of this enthusiasm may be misplaced, as studies for over a decade have shown significant advantages to second movers. And increasingly, being a second mover seems a viable intentional strategy — let the new firm develop the market, then swoop in and pick up the majority of the profits. 

In support of this strategy, several business school professors recently published a primer on second-mover advantage, which argues that there are a number of characteristics which should help determine if you are better off being first in a particularly field, or being a fast follower.  Particularly when a product will face constant change and innovation, second movers can overcome an initial disadvantage.  When the product is likely to remain largely the same, second movers face a tough task to capture share.

When might first-mover advantages be strong enough to overcome the additional risk of leading the pack?  The authors suggest that in products with a short life cycles, or where value is highly subjective and brand is prominent, there is still a rationale for being first.  And another reason why so many entrepreneurs pursue a first-mover advantage is that second-movers are often best served by firms with deep pockets.  If you are a second-mover, even if agile, you may require more capital and resources. Second place may be where losers should start so that they eventually win.