One of the biggest problems I see in the San Francisco/Silicon Valley area is the fallacy that fast following is a way to build a successful business. For those not familiar with this concept, it is identifying a successful business model or product, replicating it quickly and bringing the new company or product to market. There are some successful examples, none probably worth more than Microsoft’s fast following of WordPerfect with Word, Lotus 1-2-3 with Excel and Freelance Graphics with Powerpoint. This strategy generated hundreds of billions of dollars for Microsoft and its shareholders. This example is the exception rather than the rule, as fast following is more likely to sub-optimize or fail.
A strategy built on arrogance
A key indicator that fast following is a flawed strategy is that it is built on arrogance. Fast followers are saying they can take an idea or product and do it better than the original company or anyone else. The question then arises, “Why are you going to be better?” You may be smart but there are a lot of other people out there who are smart. You may be able to put together a great team but there are a lot of great teams out there. You may think you will out work your competitors but there are a lot of entrepreneurs who will work hard. Also, realize you are not going to build a better company just by taking an idea to the next level. Once you realize there are a lot of smart, hard-working people starting companies, the challenges of fast following become clearer.
Imagine the market leader with one year to optimize
When you are trying to fast follow, you are not competing against the existing market leader but against version 2.0. Any good young or growing company is constantly evolving to better meet the market needs. You may see ways to improve on their offering but look objectively whether your product will be superior not to their current product but to the product(s) they will be offering when you launch. If it will take you a year to bring your superior offering to market, will it be better than where your competitor is with their existing product, direct market feedback and a year of improvement. If you are not sure you will be significantly superior (that much better that people will switch), you are probably waste a year and a lot of capital.
Don’t accept faux competitive advantages
Many smart entrepreneurs and great investors do not fall into the traps above but still pursue a fast follower strategy based on a list of advantages over the market leader. Many times these competitive advantages sound great on paper. You may have a list of five, ten or twenty bullet points that show why your company or product is superior. The problem is that these “advantages” do not actually provide an advantage. They may not give value to customers. They may not be achievable (e.g., a shorter development cycle or more frames per second). Or they may be things your competitor can either copy or bring to market first. If you are pursuing a fast-follower strategy, you must assess carefully and objectively whether you have true competitive advantages.
The Example: Microsoft
I started this post by pointing to an example of successful fast following: Microsoft’s strategy for its Office line of products. Ironically, Microsoft also provides a great example of a company failing to compete successfully by utilizing a fast-follower strategy. Look at the Microsoft Surface. Microsoft felt they could compete with Apple by following (maybe not that fast, but it is Microsoft) the iPad. I am sure they felt they had better engineers and marketing capability. Well, Apple kept iterating while Microsoft continued to follow. Microsoft released a product that achieved no traction despite all of their brilliant engineers’ best efforts. What they felt were competitive advantages did not provide value to players (though the company does make entertaining ads).
Adding a chiclet keyboard sounded like a competitive advantage but anyone who would appreciate it already purchased a bluetooth keyboard. Using a Windows-based operating system sounded great inside Microsoft. except many potential customers only used Windows because they had to. By pursuing a fast-follower strategy, Microsoft lost ground to competitors like Apple, Google and even lesser-known app developers.
While many accept the challenges above of fast following, they still rationalize pursuing the strategy by creating competitive advantages that do not help them compete. They may do this to raise money, as many entrepreneurs are more focused on fund raising than on creating a great company. They may do this because they want to start a business but do not want the challenge of creating a truly innovative idea. Or they may actually believe they have competitive advantage where they do not.
The Why Not
If you truly want to create a great company, CREATE. I look at the companies that truly impact people lives and they are based on great ideas and great execution. Companies like Uber, Yelp, Twitter and Airbnb (to name just a few) did not copy existing products in the market. They instead pursued ideas that they knew would enhance consumers’ lives.
Rather than trying to look at exciting new businesses and copying them, spend more time to come up with the exciting new concept that everyone else will want to copy. Then focus on executing and growing your company so you can stay ahead of the fast followers.