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4 Second Mover Advantages: Why competitive markets can make for great companies

The “second mover advantage” is the advantage a company gets from following others in to a market or mimicking an existing product.

Being a first mover is often attractive to entrepreneurs and investors because of the upside potential and ability to capture and sustain market share. However, being the first to market with a wildly innovative idea is also risky. You don’t know a) if customers will view your product as valuable, b) if it’s something that customers can/will buy, c) how to acquire customers, and potentially d) if it’s even a problem worth solving in the first place.

Below are four advantages to being a second mover.

1) Customer Development. From an existing company or competitor, you can learn what customers want. A competitor with traction validates that the problem is worth solving and that customers view the solution as valuable. Therefore, you don’t need to do as much customer development or product validation work at first. You can be more confident that you have something that customers will buy.

2) Product Management. As a competitor goes to market, and if they’re smart, they will be testing and optimizing the product. By analyzing their product you can learn about what works best. This saves testing and optimization time. Examples of product management features include CTAs, user onboarding flows, copywriting, highlighted value propositions, etc.

3) 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. You can also learn from their sales messaging and copywriting.

4) Procurement. 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.

You don’t need a wildly innovative idea to build a great business. Noah Kagan recently published a great blog post about his effort to earn $1,000 in 24 hours by starting a new business. One of my biggest takeaways was “focus on what already works.” If you mimic something customers are already doing/paying for, your procurement process may be much simpler.

When looking for new business opportunities, instead of trying to find a new problem to solve, looking for a problem that you know (because of the data of other companies in the market) customers have, and providing the same, a similar/differentiated, or a new solution, could be a great option.

Examples of successful second movers include Amazon, Facebook, and countless non-market leaders that may not be billion dollar IPOs, but are still extremely valuable companies. Think about how many big financial services companies there are providing the same services.

Conclusion: Despite popular belief, being second to market, or even replicating an existing product, can make for a great business. While it may mean limited potential because of competition, it can also mean lower risk, and history has shown it can still have massive upside.