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The Val e of Bei g Second u n

Published: September 28, 2012

Business Literature: Author's Choice

The Value of Being Second

Oded Shenkar, author of Copycats: How Smart Companies Use Imitation to Gain a Strategic Edge, introduces an excerpt on the wisdom of entering markets after first movers from The Art of Being Unreasonable: Lessons in Unconventional Thinking, by Eli Broad. Innov ation does not need another adv ocate. It has acquired div ine status, with ev en politicians prom oting its v irtues, prom ising that we will innov ate our way out of any m ess in which we find ourselv es. There is, howev er, one little problem : ev idence. A close scrutiny of the em pirical work suggests that the m arket suprem acy of innov ators is questionable, often distorted by biased assum ptions and inadequate design. Many of the m ore rigorous studies show that innov ators produce lackluster returns. Ev en those studies that identify a m odest first-m ov er edge find that it has been receding ov er tim e. Who does capture the benefits of new ideas, products, and m odels? Im itators. They get a free ride, av oid dead ends, capitalize on the shortcom ings of early offerings or tweak the originals to better fit shifting consum er tastes. And y et, im itators rarely get the recognition they deserv e: When was the last tim e som eone receiv ed an Im itator of the Year Award? Eli Broad, who built not one but two Fortune 500 com panies KB Hom e and SunAm erica would be a good nom inee for a lifetim e achiev em ent award for successful im itation. This excerpt from Broads recent book, which collects the insights and lessons he learned during his career, explains why . Oded Shenkar

An excerpt from Chapt er 5 of The Art of Being Unreasonable: Lessons in Unconventional Thinking

Before y ou can be num ber one, som etim es y ou hav e to be num ber two. For a while during the 1 9 9 0s, it felt like y ou had to be first to get any where. The beginning of the Internet age seem ed to reward innov ation abov e all else. Men and wom en who could create totally new technologies to serv e m arkets that no one else thought existed becam e wealthy and successful v irtually ov ernight. But what y ou m ight call the first m ov er adv antage alway s has been ov errated and nev er m ore so than in the early y ears of the new digital econom y . Consider the onetim e kings of the 1 9 9 0s and early 2 000s: Netscape, Napster, WebCrawler, and Friendster. Netscapes browser had consum er goodwill and great m arket share, but Microsofts Internet Explorer beat it by m atching its features and being bundled free into new personal com puters. Napster sunk
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The Val e of Bei g Second u n

under the weight of lawsuits, losing custom ers to its riv als, legal and illegal. WebCrawler could claim to be the first widely used search engine, but it couldnt keep up with the likes of Ly cos or Infoseek. Friendsters social network couldnt m atch My space for custom ization and m usic integration. Then, a lot of these second m ov ers were beaten out by still later com ers like Google and Facebook. Who knows what m ay com e along next? My first m ov e in business was a second m ov e: building houses without basem ents. Other hom ebuilders elsewhere had done it before Kaufm an and Broad, and that gav e us sev eral adv antages. We didnt need to conduct consum er research to know that people would buy these houses. That m ade it easier to ignore the condescension of older Detroit builders: Young m an, Iv e been in this business for 2 0 y ears and y ou just dont understand the m arket like I do. Sure, their disapprov al gav e m e a little pause, but I knew we werent attem pting som ething com pletely untried. Kaufm an and Broad was the second m ov er again when we expanded to France in 1 9 6 7 . Lev itt and Sons, the fam ed builder of the East Coasts Lev ittowns, had set up shop in Paris three y ears before. Bill Lev itt was the first to recognize that Europe would take longer to recov er from World War II but that when it did, the housing m arket would boom as Am ericas had right after the war. Lev itt was right about Europe, and I was sm art enough to know it. Following him to France was som ething like following the first hiker on a trail. The guy in front has to break through the brush, get scratched up, and lose his way a few tim es before m aking it to the top. The second guy can just charge along the path the first guy has m arked, av oiding the rough patches where he stum bled. In Paris, our com pany went head-to-head with Lev itts and m ade a solid m ark. Ev entually , after som e troubles with his corporate parent, Lev itt had to shut down European operations, leav ing us the only gam e in town. We went on to becom e Pariss biggest single-fam ily hom ebuilder. Being the second m ov er isnt just a m atter of tim ing. The first m ov er does hav e som e adv antages that m ay be hard to m atch: technological know-how, access to resources and talent, early m arket dom inance, and nam e recognition. Each of these, howev er, can be acquired by a sm art second m ov er. Technological know-how can be learned or surpassed. Ev en the com pany considered the final word in m icrochips, Intel, has ceded som e m arket share to an up-and-com ing riv al, Adv anced Micro Dev ices. Talent m ay go to the first m ov er, but that sam e talent wont be happy suppressing their entrepreneurial instincts just to stay em ploy ed at a steady first m ov er. Think of all the Facebook and Google em ploy ees who hav e gone on to start their own com panies or join another start-up. A few of m y Kaufm an and Broad em ploy ees went on to becom e independent hom ebuilders. Market dom inance and nam e recognition can be harder to ov ercom e. Som etim es a first m ov er defines an entire m arket so well that its nam e becom es sy nony m ous with the productsuch as Tupperware, Coca-Cola, Post-its, or TiVo. Fortunately for the rest of us, such com panies are the exception, not the rule, and nothing lasts forev ernot ev en for them . Xerox is a shadow of what it once was. Kodak, which used to be another way of say ing snapshot, is now bankrupt. Polaroid suffered the sam e fate. As y ou can see from these exam ples, a second m ov er can beat the first m ov er on branding and m arket share by rely ing on an unalterable com m ercial fact: m arkets ev olv e. Tastes and expectations dont stay the sam e. Niches grow m ore num erous, deeper, and, thanks to the Internet, m ore accessible. A first m ov er can som etim es fall in lov e with its product and fail to realize when technology ev olv es and consum ers want som ething different. This leav es the field wide open for som ebody new. The Big Three autom akers were all second m ov ers, im prov ing m anufacturing m ethods and offering a better product. General Electric wouldnt hav e becom e one of this country s largest com panies if it had stuck to only m anufacturing light bulbs. And Apple, the worlds m ost v aluable tech firm , has been a second m ov er sev eral tim es. The com pany was not the first to sell m p3 play ers, sm artphones, or ev en personal com puters. Apple just did it better than any body else. Eli Broad
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The Val e of Bei g Second u n

Excerpted with perm ission of the publisher, John Wiley & Sons Inc. Copy right 2 01 2 by Eli Broad.

THE REVIEWER
Oded Shenkar (shenkar.1@osu.edu) is the Ford Motor Company Chair in Global Business Management and professor of management and human resources at Ohio State Universitys Fisher College of Business. He is an advisor to companies around the world, governments, international institutions, and universities, as well as a past vice president and fellow of the Academy of International Business. Shenkars books include The Chinese Century: The Rising Chinese Economy and Its Impact on the Global Economy, the Balance of Power, and Your Job (Wharton School Publishing, 2005) and Copycats: How Smart Companies Use Imitation to Gain a Strategic Edge (Harvard Business Press, 2010).

THIS BOOK
The Art of Being Unreasonable: Lessons in Unconventional Thinking (John Wiley, 2012), by Eli Broad Eli Broad cofounded and led KB Home, the first homebuilder to be traded on the U.S. and New York stock exchanges, and SunAmerica, which was acquired by AIG for $18 billion in 1999. A noted philanthropist, he established The Broad Foundations, which include the Eli and Edythe Broad Foundation and The Broad Art Foundation, to advance entrepreneurship for the public good in education, science, and the arts. In 2007, Broad received the Carnegie Medal of Philanthropy. The Art of Being Unreasonable: Lessons in Unconventional Thinking is his first book.

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