Not just an also-ran

Last Updated: Sun, Feb 03, 2013 20:17 hrs

Being the second mover isn’t just a matter of timing. The first mover does have some advantages that may be hard to match: technological know-how, access to resources and talent, early market dominance, and name recognition. Each of these, however, can be acquired by a smart second mover. Technological know-how can be learned or surpassed.

Even the company considered the final word in microchips, Intel, has ceded some market share to an up-and-coming rival, Advanced Micro Devices. Talent may go to the first mover, but that same talent won’t be happy suppressing their entrepreneurial instincts just to stay employed at a steady first mover. Think of all the Facebook and Google employees who have gone on to start their own companies or join another start-up. A few of my Kaufman and Broad employees went on to become independent homebuilders.

Market dominance and name recognition can be harder to overcome. Sometimes a first mover defines an entire market so well that its name becomes synonymous with the product—such as Tupperware, Coca-Cola, Post-its, or TiVo. Fortunately for the rest of us, such companies are the exception, not the rule, and nothing lasts forever — not even for them. Xerox is a shadow of what it once was. Kodak, which used to be another way of saying snapshot, is now bankrupt. Polaroid suffered the same fate.

As you can see from these examples, a second mover can beat the first mover on branding and market share by relying on an unalterable commercial fact: markets evolve. Tastes and expectations don’t stay the same. Niches grow more numerous, deeper, and, thanks to the Internet, more accessible. A first mover can sometimes fall in love with its product and fail to realize when technology evolves and consumers want something different. This leaves the field wide open for somebody new. The Big Three automakers were all second movers, improving manufacturing methods and offering a better product. General Electric wouldn’t have become one of this country’s largest companies if it had stuck to only manufacturing light bulbs. And Apple, the world’s most valuable tech firm, has been a second mover several times. The company was not the first to sell mp3 players, smartphones, or even personal computers. Apple just did it better than anybody else.

As I learned with our homes without basements, a low price helps a second mover. Unburdened by the costs of research and testing, the second mover can cut prices, which will always be the best way to enter a marketplace dominated by a first mover. Buyers snapped up our first homes at Kaufman and Broad because they cost less than our competitors’.

Holding down your costs requires planning and discipline, but it lets you increase your margins while giving your customers a better price. In France, Kaufman and Broad was able to make more money on our homes than Levitt despite selling at a lower price. We did this, as we had done in America, by negotiating better contracts with suppliers and labor and by working far faster than our competitors did.

Low prices and attention to your own costs won’t matter much, however, if you can’t make the sale. Finding customers who aren’t being served by the first mover allows second movers to get a foothold in the market. Look for needs your competitors don’t satisfy. Look for disgruntled customers who deal with your competitor not out of loyalty but because there’s no other option. Make yourself an attractive alternative. Think of Home Depot, which had long been the giant of everything-under-one-roof hardware. Then Lowe’s came along and managed to grab some market share by offering a distinct experience to their customers: smaller scale, better-organized stores, and friendlier customer service.

At SunAmerica we worked hard to offer the best customer service— one of our many ways of finding our niche among big financial services companies and the old-line insurers. Starting in 1983, we did all we could to make it easy for consumers to find SunAmerica through their financial planners, to buy great policies or innovative retirement products, and to get in touch with our customer service representatives. That meant having the best distribution network, the best technology, and, of course, the best products.

We started with distribution. We wanted the biggest sales force this side of Merrill Lynch’s—the top retailer of financial services—and we got very close. We accomplished that ambitious expansion by buying up brokerages, so we had thousands of independent brokers across the country. That meant SunAmerica’s customers had easy access to brokers in their own neighborhoods, who could guide them through investment decisions and explain our new products.

Beginning in 1990, after moving operations to Los Angeles and streamlining our back office to make it nearly paperless, we installed 24-hour toll-free information lines, a telephone line for the hearing impaired, and software that let our brokers more clearly demonstrate how our products worked. By 1995 our website was up and running, and soon after, customers could log in to look at their policy online — well before many of our rivals even had a Web address. All of this made buying a SunAmerica policy a friendlier, more modern experience than buying from our competitors, enhancing our customers’ sense of security in what was a major financial decision.

One of the biggest second moves of my career was taking over the fund-raising for the construction of the Walt Disney Concert Hall, a new home for the Los Angeles Philharmonic. It turned out to be a forceful reminder that in every aspect of life you can build on the experience of others, add your own innovations, and achieve success.

The effort to construct Disney Hall began in 1987, with a very generous $50 million donation from Lillian Disney, Walt’s widow. A committee was formed to oversee additional fund-raising, design, and building. Architect Frank Gehry designed a strikingly beautiful building. But nine years later, when I stepped in, construction hadn’t even started. The fund-raising committee had wasted a lot of time raising only a couple of million dollars from donors other than the Disney family, even though the project’s cost looked like it would top $200 million.

  Eli Broad
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Excerpted with permission from the publisher. Copyright Wiley. All rights reserved.

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