Everybody thinks that it's the market pioneers who have the best name recognition, the highest market share, and the most enduring market leadership....Right? In order to test the truth of this conventional wisdom, we carried out a decade-long historical analysis of 66 markets, as they evolved over the decades.
(Editor's Note: This article comes from a new book. You can read Chapter 1 of this book and other information at www.willandvision.com)
Our discoveries may surprise the business community. After exposing the limitations of prior studies that extolled the success of pioneers, we find that pioneers mostly fail, have low market share, and are rarely enduring market leaders. In addition, we found that the current trend of staking everything on getting there first all-too-often leads companies to embrace a disastrous strategy of rushing to market with incomplete, inferior, and flawed products.
Why do people so often believe that the pioneer or the first firm to market will be the long-term leader? That belief is based on at least two biases that afflict much casual observation and most formal studies: survival bias and self-report bias. Survival bias occurs when pioneers fail and are no longer around to answer surveys of researchers. Self-report bias occurs when successful late entrants call themselves pioneers, because no one remembers the true pioneers (who often fail). As a result, the rewards to market pioneering are greatly exaggerated.
Consider for example the following:
Gillette entered the safety razor market decades after it began but has dominated it ever- since. Microsoft dominates many markets but has pioneered none. Amazon is the dominant but not the first Internet bookseller.
There are 5 key principles for enduring market leadership: vision, persistence, innovation, commitment, and asset leverage.
Vision of the Mass Market
The word vision is an overused and much maligned term in business today. It has often come to mean broad mission statements that are designed for press releases or to initiate new employees but are not specific enough to be criticized. The vision of enduring leaders is completely different. It involves a radical concept of doing business which current incumbents scorn as ineffective or futile. In particular, it involves focusing on mass markets when competitors target high paying market niches. It involves low prices when the catch phrase is premium. For example, when the late entrant, AOL, targeted the mass market, critics ridiculed it as the "Kmart network." They said the firm dumbed down information relative to the sophistication of CompuServe or the technology of Prodigy. Today AOL is dominant while those former leaders play very minor roles in the market.
Managerial Persistence
Many analysts dismiss enduring market leaders as blessed with luck - being in the right place at the right time. However, enduring leaders were not simply blessed with luck. On the contrary, they faced huge obstacles, intense competition, and endless struggles over long years. Indeed, dramatic market success rarely comes from pure luck. Rather it comes from a will to persist through many long years to overcome huge obstacles while competing against better-equipped rivals.
Relentless Innovation
Markets and technology change constantly, rendering once successful products obsolete. The positions, of even the most entrenched firms, are quite susceptible to the forces of technological and market change. Enduring leaders are firms that are willing to innovate relentlessly, even at the cost of cannibalization, to cater to evolving markets. For example, Sony labored for over 20 years to develop a video recorder for the mass market. The established technological and market leader, Ampex, focused on a niche, and is today a very minor player.
Financial Commitment
Building markets and maintaining leadership through turbulent times requires large financial resources. Obtaining resources from outsiders is tough because venture capitalists are difficult to persuade and demand a steep price. Devoting one's own resources is tough because failure leaves the manager at great personal financial risk. Enduring market leaders are firms that had the will to commit their resources when returns seemed uncertain and far off. For example, a small firm Haloid, over a 14-year period, gambled much of its resources and future to bring to market one of the most successful products of all time, the Xerox 914. That success transformed the late entrant into Xerox, a giant in office copying.
Asset Leverage
New categories often emerge as an offshoot of a parent category. Firms that dominate the parent category have great potential to do so in the new category. However, this simple decision becomes quite difficult because the new category often appears to threaten current products, current investments or current routines. Enduring market leaders are firms that are willing to risk or cannibalize current assets to build positions in the new category. For example, Microsoft has leveraged its resources, products, and people to bring out Internet Explorer. It willingly sacrificed many other products, including MSN, in the process.
These business principles have been as enduring as the great companies they created. They were embraced by enduring leaders in markets as far back as the early 19th century and as recently as the early 21st century. We expect they will continue to separate the long-term winners from the losers in the battle for market dominance.
