Coming in Second: When Being a ‘Fast Follower’ Is the Best Strategy

WAITING IN THE WINGS
Many first movers make the mistake of jumping in too soon with an ingenious product, hoping to create a market sensation. In such cases, it is not uncommon for the innovator to give less thought to the supply chain, order fulfillment, distribution channels, regulatory compliance and back-office finance and accounting aspects of profiting on the product. Having spent a bundle on R&D and production, they may be short on capital to make quick adjustments correcting mistakes. The fast follower has these elements in place and can quickly pounce with an improved alternative that may also be less expensive.

There is value in letting the early movers absorb the first blunders. This wisdom helped the launch of crowdfunding marketplace CircleUp, an online intermediary between private equity investors and startup companies. CircleUp deliberately waited to see how earlier equity-based crowdfunding sites fared before it opened its virtual doors in 2012. “The first movers wanted to be all things to all investors,” says Ryan Caldbeck, CircleUp founder and CEO. “There would be tens of thousands of startups looking for investments, with most of them just dying on the
platform because the investors were confused and frustrated.”

Caldbeck had a better idea. “We decided to focus on startups in one industry—consumer products and retail—and reach out to investors that were solely private equity,” he explains. “We also curate the ventures that reach out to us, eliminating 98 percent of applicants. This way, the right ideas reach the right investors.” He adds, “This is not about first-to-market, it’s about first-to-market fit.” The strategy is working. CircleUp has expanded the number of startup companies it works with by 10 times since July 2013.

DARE TO REDEFINE
Other late entries win market share from early movers by redefining a category, which was the case with Burlington, Vermont-based Sustain Condoms. Like Starbucks, by no
stretch the world’s first coffee shop, Sustain came to a mature market with a new product and novel marketing message. “Our goal is to get people to think about sustainability and corporate responsibility every time they open a condom package, even though they’re understandably distracted,” says Jeffrey Hollender, the company’s founder and CEO.

Sustain’s condoms are made from natural latex, the sap of the rubber tree, a renewable, sustainable material unlike synthetic rubbers. The packaging is recyclable and Sustain gives 10 percent of profits to support women’s reproductive healthcare. The company is leveraging these brand equities with a unique target market—women. “Forty percent of condom purchasers are women, but the product is aimed at men,” Hollender says. “We wanted to make a product that was aimed and owned by women. We sincerely hope this will increase condom use by single, sexually-active women, which is 19 percent.”

The condom’s packaging is in a Tiffany-like blue-green color, with pictures of shells and wet rocks. Advertising is confined primarily to women’s health and beauty magazines like Self. Launching in 2014, the product is now available online and in more than 1,000 stores nationwide.

Another fast follower that is redefining a category is Sonoma Cider. Longtime beverage industry executive David Cordtz saw that hard cider sales were beginning to rise in the mid-2000s. In the 1970s, Cordtz was the youngest commercial wine maker in California’s Napa Valley with Cordtz Brothers Cellars. He sold the winery in the early 1980s, but stayed in the industry in a variety of sales and production positions, dreaming about running his own company again.

His entrepreneurial itch was scratched in 2014 with Sonoma Cider. The timing was crisp, as the hard cider market had more than tripled in size since 2010 and was on track to bring in $1 billion in sales by 2018, according to IRI. Big beverage companies like MillerCoors and Anheuser Busch had just jumped into the business to take on industry veterans C&C Group and S. Martinelli & Company.

Cordtz entered the fray with a product that took the category in a new direction—hard cider made from organic heirloom apples and pears harvested in Washington State’s Yakima Valley. “They taste better and are vegan and gluten-free,” he says.

He marketed his cider blends, Hatchet, Anvil and Pitchfork, to health-conscious Millennials and Gen X-ers at youth-oriented music festivals like Coachella. The effort paid off. Organic hard cider has caught on with Millennials in the same way that craft beer caught on with their parents. Sonoma Cider is now sold in 24 states, producing more than 70,000 cases and chalking up an impressive $3 million in revenue in its first year of business. The company is on track to produce 200,000 cases in 2015.