When Second Really Is the Best

Second Chances

Of course, entrepreneurs who follow the market leader do face some significant disadvantages. One disadvantage arises when the first-mover has already locked up critical resources. These resources may include patents, technologies, standards, locations, regulatory relationships and brand loyalties. In Voodoo Tiki’s case, Patrón’s marketing blitz worked so well it secured the loyalty of countless consumers. “Patrón really won them over,” DeCunzo-Taddeo points out. “So it made our job harder to convince them to just try us.”

Very small markets can also be unfriendly to second movers. When Wal-Mart enters a small town, Knott notes, little unserved demand may remain for latecomers. High switching costs, found when customers must jump financial or other hurdles before moving to a new supplier, can also factor in. For example, Microsoft’s legion of customers face daunting learning curves when considering alternatives such as Apple or Linux. Network effects also block second-movers by making products and services more valuable as more people use them. In that sense, having far more users than other online auctioneers is one factor keeping eBay atop its heap. “The unfortunate truth of the matter is that sometimes the best product doesn’t win,” says Lorien Gabel, a veteran of three successful second-to-market startups. “No matter how much better you create your product, some first-timers have already captured consumers through brand awareness and distribution. And people are sometimes hesitant to change their habits when something is tried and true.”

Still, with Gabel’s latest venture, Pingg, an online invitation service, he pitted himself against Evite.com, the undisputed leader in the space for the past decade. What was he thinking? Rather than seeing only obstacles, Gabel, 39, envisioned opportunity in Evite’s paucity of customization features, exclusive reliance on e-mail delivery and neglect of niche markets. Launched in 2008, Pingg offers millions of images and will send invites by electronic or regular mail. It appeals to charity events with tools such as online donation options and to ticket-required events with the ability to link to third-party ticketing services. For Pingg, starting 10 years after the first mover has produced monthly growth rates exceeding 20 percent. The New York City company has 11 employees and annual sales of more than $2.5 million.

But it’s not enough to just be second. Second-movers must take the right steps; a later offering can resemble a first offering, for example, but it still must be different. “You copy with a twist,” BenDaniel says. That may be in packaging, pricing, features or any other component. Pingg, for instance, also came up with a business model that differed from its rival. Rather than being entirely advertising-supported and free to users, Pingg generates sales from add-on services such as print mailings of invitations. That allows Gabel to customize visitor experiences by, for instance, offering a paid option that doesn’t display ads.

There are fewer and fewer truly original ideas. It’s almost a requirement for entrepreneurs to contemplate being second to someone. But that’s OK if you can take a practical view. “If you expect to go into the market as a husband-and-wife tequila company and take over the whole market from Patrón, you’d be kidding yourself,” DeCunzo-Taddeo says. “But if you say you’re going to come in and take a part of the market now that there’s a tequila drinker who appreciates good tequila, you can.”  

—By Mark Henricks, who writes on business and technology for leading publications and is the author of Not Just a Living.

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