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Venturing: CVC vs Second Mover Advantage
We discuss the limitations of corporate venture capital and compare it an investment strategy to support a strategy of second mover advantage. It highlights the benefits of learning from early movers and leveraging technology advancements, using Apple's entry into the VR and smartphone markets as examples. Second mover advantage can provide a competitive edge for corporations, as the case examples show.
Key Takeaways
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The article presents a case against corporate venture capital (CVC) investing and compares it with the concept of second mover advantage.
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CVC investing is criticized for its inherent limitations and risks, such as lack of agility, bureaucratic decision-making processes, and conflicts of interest with the parent company.
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Second mover advantage is highlighted as an alternative approach, emphasizing the importance of learning from early movers, leveraging technological advancements, and identifying gaps in the market.
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Several examples are cited including Tesla, Dollar Shave Club, and Southwest Airlines.
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The article was prompted by the impending lunch Apple's VR headset.
Introduction
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Corporate venture capital (CVC) investing has gained significant popularity in recent years as corporations seek new avenues for growth and innovation.
However, despite its perceived advantages, there are inherent risks and limitations associated with this approach. We juxtaposition corporate venture capital investing with the other strategic theory of investing for second mover advantage.
We will explore examples where second mover advantage has been highly beneficial, including air travel, fashion, ride sharing, razor blades and smartphones. In almost all cases, it was a combination of recognizing the time was right to leverage advances in technologies and an understanding of reconfiguring the customer experience in ways even customer did not understand.
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Let's explore!
Second mover advantage is often about recognizing that the time is right to leverage advances in technologies and giving customers new offerings that they did not even know they needed.
Limitations of Corporate Venture Capital Investing
While corporate venture capital investing offers potential benefits such as access to external innovation and strategic partnerships, there are several reasons why this approach may not always be the most effective:
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Conflicting Interests
Corporate venture capital investors often face conflicts between their corporate goals and the objectives of the startup they invest in. The need to generate financial returns may overshadow the startup's long-term growth potential and innovation.
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Lack of Agility
Corporations typically operate within a structured environment that may hinder their ability to adapt quickly to market changes. Startups, on the other hand, thrive on agility and flexibility. The misalignment of these characteristics can impede the success of corporate venture capital investments.
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Innovation Constraint
Established corporations may have a risk-averse culture and a focus on incremental improvements rather than disruptive innovations. This mindset can stifle the creative and disruptive potential of startups, limiting the impact of corporate venture capital investments.
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Integration Challenges
Merging the startup's operations, culture, and technology with the existing corporate structure can pose significant challenges. Integration failures can lead to a loss of talent, innovation, and potential value.
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Given these limitations, it becomes essential to explore alternative strategies that can provide a competitive advantage. One such strategy is the concept of second mover advantage.
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Second mover advantage refers to the benefits gained by a company that enters a market later than its competitors or has a very small marketshare. By learning from the successes and failures of early movers, the second mover can refine and improve on existing ideas.
Second Mover Advantage: Seizing Opportunities
Second mover advantage refers to the benefit gained by a company that enters a market later than its competitors. By learning from the successes and failures of early movers, the second mover can refine and improve upon existing ideas, technologies, or products. This approach can result in several advantages:
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Market Observation
Second movers have the opportunity to observe and learn from the mistakes made by early movers. This knowledge allows them to make more informed decisions and avoid costly missteps. This is not as easy it sounds as it takes conviction, not just from what customers are saying and feeling but also knowing existing solutions are be made so much better and take the market to new levels.
When automaker, Chrysler, came out with the first minivan, the market for this class and design of vehicle did not exist. When asked about the minivan design in focus groups, customers doubt whether they will ever buy such a vehicle. But what Lee Iacocca and his team went from Mustang to creating a vehicle that became totally popular with "soccer moms". And the rest is history.
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Technology Leapfrogging
Second movers can leverage technological advancements that have occurred since the first entrants. By incorporating these advancements, they can offer superior products or services to the market.
The smart phone, with what appears to be wholly new technologies - just wasn't. In Apple's case of the iPhone, Apple took advantage of the advancements of specific technologies - from smart glass, storage, microprocess, software and GUI design and brought those advances to supersede anything that was on the market at the time.
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Cost Efficiency:
Second movers can take advantage of economies of scale, as they can learn from the experiences of early movers and optimize their operations accordingly. This can lead to lower costs and better pricing strategies.
The smartphone, with what appears to be wholly new technologies - just wasn't. Apple's iPhone took advantage of advancements in existing technologies to create something that didn't exist in a form that even users could have envisioned.
Case Studies
Case 1
H&M Disruption of Fashion Retail Industry
A notable example of second mover advantage can be seen in H&M's disruption of the fashion retail industry. Fast Fashion (FF) was introduced by H&M and others like Zara, Topshop and others in the 1990 to early 2000s. The intent of FF is to accelerate the design cycle yet compete with the high end.
Before H&M entered the market, traditional fashion retailers followed a seasonal collection model, where new designs were released a few times a year. This model often resulted in longer lead times, limited choices, and higher prices.
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H&M recognized the changing preferences of consumers who desired more frequent fashion updates at affordable prices. Leveraging their understanding of these shifting trends, H&M introduced a fast fashion model. They focused on offering a wide range of trendy and affordable clothing options that were quickly produced and refreshed throughout the year.
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By adopting a rapid production and distribution process, H&M was able to respond quickly to emerging fashion trends and customer demands. Their ability to provide fashion-forward clothing at accessible price points disrupted the traditional fashion retail industry. Consumers were drawn to the constant flow of new styles, allowing H&M to create a large revenue stream and establish itself as a global fashion powerhouse.
Case 2
Dollar Shave Club Disruption of the Razor Industry - Becomes a Unicorn
Dollar Shave Club provides an intriguing example of second mover advantage in the consumer goods sector. Prior to Dollar Shave Club's entry into the market, established razor manufacturers (like Gillette, Schick and Merkur) dominated the industry with expensive, high-quality razors sold through traditional retail channels.
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Recognizing the opportunity to offer affordable shaving solutions directly to consumers, Dollar Shave Club entered the market as a second mover. They disrupted the industry by offering subscription-based razor services, delivering high-quality razors and grooming products directly to customers' doors at a fraction of the cost.
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Dollar Shave Club's humorous marketing campaigns and personalized subscription model resonated with consumers who were tired of the high prices and inconvenience associated with traditional razor brands. By leveraging e-commerce and a direct-to-consumer approach, they were able to significantly undercut the prices of established razor companies and gain a substantial market share.
This successful second mover strategy led to Unilever acquiring Dollar Shave Club for $1 billion, showcasing the disruptive potential of entering an industry later and challenging established players.
Case 3
Southwest Airlines Low-Cost Air Travel
Southwest Airlines provides a compelling example of second mover advantage in the airline industry. Before Southwest's entry into the market, major airlines followed a hub-and-spoke model, focusing on large airports and offering full-service amenities at higher prices.
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Southwest Airlines recognized the demand for affordable air travel and identified an opportunity to disrupt the industry. They entered the market as a second mover, introducing a point-to-point flight model with a focus on cost efficiency and simplicity.
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By operating in smaller airports, utilizing a single aircraft type, and offering no-frills services, Southwest was able to significantly reduce operating costs and offer lower fares to consumers. Their approach appealed to budget-conscious travelers, who were willing to forgo luxuries in exchange for affordable air travel.
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Southwest's low-cost model disrupted the airline industry, leading to increased competition and a shift towards more budget-friendly offerings from other airlines. Their successful second mover strategy allowed them to establish themselves as a major player in the market and build a loyal customer base.
Case 4
Apple & Uber - when the stars aligned
Apple with the iPhone and Uber with riding sharing was as much about technology as it was about the timing. The advancement of several critical technologies all came together almost at the same time to create the ideal moment to fundamentally change how existing products and services are experienced by the end user.
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The success of Apple's iPhone and Uber's ride-sharing service can be attributed not to the invention of wholly new technologies but to the advancement and integration of existing technologies. These companies leveraged advancements in storage, smart glass, graphical user interfaces (GUI), software development, and the emergence of e-commerce and the internet to create products that were major enhancements to existing ones. Here are some examples:
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Advancements in Storage
The iPhone revolutionized the mobile phone industry by introducing a touch-based interface and a built-in iPod, but its success was also dependent on advancements in storage and other technologies in decade leading up to the iPhone. The availability of compact and high-capacity flash memory allowed Apple to create a slim and lightweight device capable of storing a vast amount of music, videos, and apps
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Smart Glass and GUI
The iPhone's success was driven by its intuitive and user-friendly graphical user interface (GUI). Apple incorporated multi-touch technology and responsive glass displays to create a seamless and engaging user experience. This integration of smart glass and GUI was a significant advancement that transformed the way users interacted with their smartphones.
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Software Development
Both Apple and Uber heavily relied on software development to create their groundbreaking products. Apple's iOS operating system provided a stable and secure platform for app developers to create innovative and diverse applications, driving the growth of the App Store. Uber's success was also built on robust software development, including real-time ride matching, GPS tracking, and seamless payment processing.
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Emergence of E-commerce and Internet
The success of both the iPhone and Uber was closely tied to the emergence of e-commerce and the internet. Apple leveraged the internet to offer seamless connectivity, access to online services, and an extensive digital content ecosystem through its iTunes Store. Uber, on the other hand, capitalized on the rise of e-commerce and mobile connectivity to disrupt the traditional taxi industry by providing convenient, on-demand ride-sharing services.
By making use of advancements in these technologies, Apple and Uber were able to create products that not only enhanced existing ones but also transformed entire industries. Their success demonstrates the power of integrating and advancing existing technologies to meet evolving consumer needs and preferences.
What Makes for Successful Second Mover Advantage Strategy
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When examining the case examples and companies cited for successful second mover advantage, several commonalities emerge. These common factors contribute to the success of second movers in disrupting existing markets and creating significant revenue streams. Here are the key commonalities:
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Advancements in Existing Technologies
Second movers capitalize on advancements in existing technologies rather than inventing entirely new ones. They leverage the progress made in areas such as storage, smart glass, GUI, software development, and the emergence of e-commerce and the internet to create innovative and enhanced products.
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Integration and Improvement
Second movers excel at integrating various technologies and improving upon existing solutions. They identify the shortcomings of early movers' offerings and find ways to enhance them through better design, usability, performance, or additional features. This integration and improvement process results in products that provide a superior user experience.
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Market Awareness and Gap Identification
Successful second movers possess a deep understanding of the market they aim to disrupt. They closely observe early movers, identify gaps or unmet needs, and leverage advancements in technology to fill those gaps. This market awareness allows them to position their products strategically and offer solutions that resonate with consumers.
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Customer-Centric Approach
Second movers prioritize the needs and preferences of their target customers. They focus on delivering products that address pain points, provide convenience, and offer an improved user experience. By placing the customer at the center of their strategy, second movers gain a competitive edge and drive adoption in the market.
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Timing and Execution:
Timing plays a crucial role in second mover success. They enter the market when technologies have matured, enabling them to deliver more refined and impactful products. Moreover, their execution is precise, ensuring seamless integration of technologies, efficient operations, and effective marketing strategies.
These commonalities highlight the importance of leveraging existing technologies, market understanding, customer-centricity, and strategic timing and execution. Second movers who embody these traits have a higher likelihood of disrupting industries, creating revenue streams, and achieving long-term success.
Last Words​
The concept of second mover advantage extends beyond the technology industry and can be observed in various non-technology sectors. The examples of Tesla's electric vehicle revolution, Dollar Shave Club's disruption of the razor industry, and Southwest Airlines' low-cost air travel model demonstrate the significant impact that can be achieved by entering a market later and leveraging unique strategies.
While corporate venture capital investing has its merits, the concept of second mover advantage provides an alternative approach for corporations to consider. Second movers have the opportunity to learn from the successes and failures of early movers, leverage advancements in technology, and identify gaps and opportunities in the market.
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By carefully observing market dynamics, understanding customer preferences, and refining existing ideas or business models, second movers can disrupt established industries and create large revenue streams. The Tesla electric vehicle revolution, Dollar Shave Club's disruption of the razor industry, and Southwest Airlines' low-cost air travel model showcase the power of second mover advantage in driving innovation and market dominance.
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To compete effectively, corporations should foster a culture of agility, innovation, and strategic observation. By embracing the concept of second mover advantage, corporations can position themselves to seize opportunities, adapt to market changes, and achieve sustainable growth in a rapidly evolving business landscape. It is crucial for corporations to carefully evaluate the risks and limitations associated with corporate venture capital investing and explore alternative strategies that offer a competitive advantage.
