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STRATEGY

Grist: The Second-Mover Advantage

Despite all the business wisdom exhorting you to smash the rules and shatter the paradigms, it can be just as smart to let others do the trailblazing.
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Imagine yourself a chef in France after the revolution. The aristocrats you've cooked for have all been bounced, if not decapitated. Meanwhile, Paris is thronged with revolutionaries, all of whom need to eat. What do you do? What else? You open a place to feed them--something we now know as a restaurant.

That's a one-paragraph history of how the French restaurant was born. But it also contains a good lesson for entrepreneurs today: Follow the revolutionaries. Despite all the business wisdom exhorting you to smash the rules and shatter the paradigms, it can be just as smart to let the others do the trailblazing. You can build a thriving business by hitching your wagon to a winning horse--as opposed to creating a solar-powered wagon in your garage.

Two good examples of this are eBay and the iPod, both of which have spawned robust business ecosystems in their wake. Start-ups like AuctionDrop, iSold It, and QuikDrop serve eBay sellers who need someone to handle the posting of photographs and the shipping of merchandise. As for iPod, the accessory business is booming, with consumers spending like crazy to trick out their MP3 players with fancy cases and hi-fi docking systems. Other examples abound: The popularity of online dating services like Match.com has sparked new firms like ProfileHelper.com and PersonalsTrainer, which write profiles and advise daters on their online strategies. And who would have expected that the ubiquity of cell phones would spark a huge business in ring tones?

Those who create businesses in the afterglow of the successes of others--call them concept extenders--aren't followers in the traditional sense. They're not coming into a category as competitors. Instead, they're savvy observers, patiently tracking the growth of specific products and services and springing to action when the right opportunities emerge.

Why aren't these opportunities being pursued by the companies that started the whole thing in the first place? Why aren't Nokia and Samsung selling ring tones? For one thing, first movers tend to be too focused on building their core platform to look beyond it. Plus, they're reluctant--and rightly so--to jump into a business that they don't understand.

That's where the entrepreneurs come in. The relationship between first movers and concept extenders isn't as parasitic as it might seem. Instead, it's often a situation in which everyone wins. If you've flown JetBlue recently, you've no doubt noticed the proliferation of food vendors near the departure gates. It's great for the airline because it gives customers more meal options. Similarly, eBay benefits from retail drop-off locations; the company even keeps a directory of these and other vendors for its customers.

The point is that a successful new business concept almost inevitably creates demand for new products and services--and entrepreneurs are the ones who can respond the fastest. Meanwhile, the Internet makes it possible to reach target markets while that demand remains fresh. Indeed, it's never been easier to start a business based on customer aggregation. Whether you're selling handmade BlackBerry cases or a subscription to a new magazine for players of Xbox games, all you have to do is buy the appropriate search terms on Google, and your audience is practically delivered to you.

Understanding these ecosystem dynamics and interdependencies will be increasingly important to entrepreneurs in all industries. And the best part? To succeed you don't have to be the first mover--just the first watcher.

Adam Hanft (grist@inc.com) is founder and CEO of Hanft Unlimited, a Manhattan-based consulting, advertising, and publishing firm. For more Grist, visit Inc.com's Marketing Resource Center.

Last updated: Jan 1, 2006




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