Dear Strategy:
“What are the risks of being a follower to a competitor versus being a game changer?”
Before I answer this question, I want to be sure that our definitions are clear. Way back in Episode 22, I addressed the difference between being a “fast-follower” and being a “me too” provider. In reality, these are two very different strategies, so I definitely recommend going back to that episode to get aligned on what those two terms mean.
With that being said, for the purposes of answering this question, I am going to group both “fast-follower” and “me too” strategies into the broader category of being a follower of some type. And, to get right to the answer, being a follower is typically less financially risky than being a first-to-market provider. But the answer isn’t quite as simple as that…
You’ll notice that I referred to a follower as being “less financially risky.” The reason for my inserting this little qualifying word into that sentence is because there are different types of risk that companies can take. Of course, the most common type of risk that we all think about has to do with money. And, in that regard, yes, being a follower is normally less risky than being a leader. But that should be fairly obvious since breakthrough providers have to spend lots of extra time and money on upfront research, development, and marketing without any guarantee that any of those investments will ever actually pay off. Of course, just like most financial risks, if you do happen upon a hit, then you can really hit it big! But if you don’t, then your losses can be just as significant on the other end of the spectrum.
Followers typically don’t have to worry about all that because they are usually only following after products that were already proven successes. Of course, the faster you follow, the more financial risk you incur. But, by and large, the financial risk is still much lower than it would be for a breakthrough innovation. As to the magnitude of that risk, this will be different for every product. But you can pretty safely say that it will be roughly equal to the difference between whatever the first-to-market provider has to spend to bring their product to market, and whatever the follower would have to spend to improve upon that product. And this can easily be in the tens of millions of dollars range for any given product, if not more. So, yeah, the risk can be pretty big for breakthrough providers.
But, luckily for our first-to-market strategists out there, financial risk isn’t the only type of risk that companies should be considering. There is also the matter of reputational risk at stake, and this can be of great consequence if you choose to be a follower of any type. “Once a follower, always a follower” – as some saying somewhere probably goes.
Being slightly less anecdotal, let’s take the case of Samsung versus Apple – particularly in the mobile device space.
Both are incredibly innovative companies. Both are incredibly successful in the marketplace. But when you think of the breakthrough provider, who comes to mind first? Probably Apple. And the follower is likely to be seen as Samsung. Why? Because that’s the position that each of these companies carved out for themselves early on in that space.
But if one looks a bit deeper than gut feel and analyzes the actual number of breakthrough products and innovations that each of these companies has released over the past 10 years or so, you might be swayed away from your initial reaction. Yet, the impression of Apple being the leader and Samsung being the follower is hard to break, no matter the reality. And that inevitably translates into brand reputation and, ultimately, the pricing that can be demanded by each of these brands over the longer term. That’s not to say that initial impressions can’t be changed. But it usually takes a lot of time – and a lot of money to go with it – which ultimately brings us back to some financial impact if you ever want to change your strategy somewhere along the way.
So, what is the risk of being a follower versus a game changer? Well, on the positive side, the upfront financial risk is probably lower. But, on the negative side, the long-term reputational risk may be difficult to overcome – especially if you decide to be something other than a follower at some point in the future.
Listen to the podcast episode
Dear Strategy: Episode 054
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Bob Caporale is the founder of Strategy Generation Company, the author of Creative Strategy Generation and the host of the Dear Strategy podcast. You can learn more about his work by visiting bobcaporale.com.
