Startup life is synonymous with innovation and pace of execution. A handful of ” first mover “startups literally start the party as “early” innovators bringing forth unthought of solutions. Many reach the party slightly late with the best wines as the fast follower ! and the thing is – both are loved for the value they bring.
The startup life, therefore, is a constant see-saw between balancing out the handful of established first movers with the dozens of fast followers.
Understanding first movers, fast followers, and late followers:
To begin this whole discussion, it’s important to understand the premise – the “Law of Diffusion of Innovation”. The law of diffusion of innovation is a theory popularized by motivational speaker and author Simon Sinek. It talks about how, why, and at what rate new ideas and technology spread.
The law is the basis of the ecosystem of early movers, first followers, and late followers. Broadly the market entrants offering these technology solutions can be categorized into the three categories:
1. First movers
They are the businesses which are first to enter the market with a new solution and capture the market share relatively easily with no competition around. They are the innovators and hold the highest profit margins for their products largely because they are uncontested.
2. First Followers
These are businesses which enter the market shortly after the first movers have set shop and established their presence. The fast followers are companies who generally are agile with newer technology and refined solutions. These are the early adopters and the early majority. They are the ones who actually mature the market while being profitable as well.
3. Late Followers
These are businesses which are really late to the party with little or no innovation in their product or offering. They are the “me too” brigade of solution providers. These are the late majority and laggards and hold the least profitable margins.
Being a fast follower is not about competition but about customers!
Sometimes an established first mover may not be able to completely satisfy the consumer’s needs. This could be in terms of features, design, price or the consumers might just hold an anti-monopolistic sentiment.
IBM was the first mover and held monopoly until Apple came along to topple the status quo. Salesforce was the first “big” CRM that acclimatized the industry to the possibilities of cloud sales automation. However, new age CRMs like Zoho, Pipedrive, Alore are carving out their own niche as popular fast followers – They are relatively more agile, affordable, futuristic and productivity-centric.
Anyone who finds salesforce cumbersome to implement or heavy on the budget will know this. 😉
Established players and enterprises may be successful and well known but there’s always space for targeting a niche. E.g., In India it’s common to see Uber and its competitors Ola, Meru etc. However, with India seeing a rise in crimes against women, small radio operators like SheCabs, GoPinkCabs, TaxShe etc. came up which are only driven by women and for women passengers. The fact that they’re doing really well indicates that sometimes being a narrow niche ninja and focusing on a specific target audience can work.
Another great example here is Netflix. It started out as a mail order CD renting company, but the leadership figured out early that with better internet, customers preferred streaming online. They quickly moved to a subscription-based streaming service model as a first mover. The risk paid off and the result is for all to see. But the truth is that Amazon’s Prime Video could pave its way into the same market and establish itself as well. Mango TV, a Chinese streaming service focused on Chinese content specifically and established a strong market in a niche of Chinese media. They’re each doing great for their customer base.
Fast Follower ≠ “me-too” solution!
Being an innovator is irreplaceable. Even if you’re following late into a market, you need to have a strong differentiator to your offering for customers to notice you. eg. In Software as a service (SaaS) businesses, there’s constant innovation and disruption happening and the barrier to enter into the market as a SaaS player is at an all-time low. e.g., the following image shows the spread and depth of SaaS marketing tools alone!
Obviously, this fosters an ecosystem that’s innovating at lightning speed and lowering the switching costs along. (Switching costs are the costs involved when a new entrant has to spend to lure users who already use an established competing product)
This switching gets tougher when the new entrants are “me-too” products. Me-Too solutions are spinoffs of existing successful products which enter a market with no unique selling point (USP). If product A and B are almost the same features, design and price wise, why would the customer switch from A to B.
As a fast follower, you have to be solving a certain pain of the customer better than anybody else around. That’s the only way to survive and succeed in business. Some ideas to explore here are:
- Build a great product! – When Google was launched in 1998, it wasn’t the first search engine to enter the market, rather it was the 15th ( Source: SearchEngineWatch)!! WebCrawler (1994), Ask, Altavista (1995), Yahoo (1996) were around much earlier and yet faded into oblivion!
- Have a brilliant UI and product experience – Apple’s success proves this is a differentiator.
- Price Point – Basecamp’s success shows this is a clincher.
- Freemium – Providing key features for free and hooking the users to the idea of the product – Canva is an excellent example of this working well.
- Great marketing – e.g., AirBnB’s Live anywhere campaign
- Platform approach – If you can provide a bunch of inter-related features that help you do multiple tasks from a single point e.g., Facebook as a platform allows you to post, chat on messenger, blog.
Why fast followers succeed:
While being a first mover certainly is a great position to be in, it has its own set of disadvantages. First movers do all the explaining while creating the primary market and validating the need. Fast followers can use this very aspect as an advantage:
a) The benefit of market maturity:
Sometimes the success or failure of first movers helps future competitors – the fast follower can learn and gain from the first mover’s experience. The first movers have already dealt with the risk and uncertainty involved in being the first entrant. The market is also conditioned to the idea of the product concept by the time the fast follower enters the race. This matters.
Sometimes fast followers are companies who entered the market ahead of their time. A good case in point is my current company Plash who’s first product failed for this reason. Back in 2013, my boss Vikas left his career as a Venture capitalist in Amsterdam and moved to India. He created a news curation app which he scaled up to a million downloads. Awesome right?!
Now the glitch. Since the app was free to download, the app’s revenue model was ads. Initial market research had shown an openness to looking at new marketing channels, mobile ads being one. This was contrary to ground reality where decision makers spoke of adopting digital marketing but didn’t really want to invest in mobile ads. A great product ahead of its time. The product had to be closed gradually for monetization issues.
However, 2 years later another company started with almost a similar proposition and business model and it worked well. The biggest difference was by 2015 digital marketing had caught on in India.
b) Adapt to Customer needs
First movers have already tested out various strategies by the time the next wave of competitors is readying up. This also means that a fast follower can observe and learn of the shortcomings and pain areas the customers of the first movers feel. Why do you think Steve Jobs was able to strike a chord against an established IBM (Remember the 1984 commercial that compared IBM to Big brother from George Orwell’s dystopian novel 1984?)
c) First Mover Inertia
First movers started early and grew big. Over time they are highly likely to invest in fixed assets and be process heavy. This leaves room for smaller and newer players following agile methodologies to adapt to the market sooner. This is also why a fast follower is able to flip the tide of the incumbent first mover’s customers. A McKinsey study showed digital disruption hits established first movers hard, on average cutting 45% of their revenue growth and 35% of their earnings. This happens all the time as the market matures and fast followers bring in more value.
Its also seen that as first movers become established players, they are often not receptive enough or able to adapt at the pace the market is evolving. e.g., on one hand, you have Citigroup wanting to reimagine how bank branches of the future will be and on the other hand, you have cryptocurrency coming up.
d) Price competitive:
First movers are generally the ones who invest a tremendous amount of resources in creating the primary market. Hence it’s logical that their prices tend to be higher as a result of the need to recover the investment. A fast follower doesn’t have this dilemma. The foundation is ready, the primary market is aware and if the fast follower can offer a valuable differentiator the users will be inclined to take notice or even better “jump ship”.
While its great to be a first mover, it needs added resources, persistence and time to succeed. Being a fast follower is equally great if you can offer a solution that solves a pain that the first mover is not able to.
Being an innovator and visionary is important no matter what. While a first mover is the one who is bringing forth unthought of solutions and doing the explaining, a fast follower needs to move in quick with a unique selling proposition(USP). The USP needs to be valuable and something a customer is willing to pay for. Have a proven and validated unique selling point based on design, price, features, platform approach etc. Importantly, it’s suicidal to enter the market if you’re a late entrant with a me-too product or your only differentiator is the price.
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