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Want To Be The Next Uber, Lyft, or Facebook? You Might Be More Successful Trying To Be This Instead

Being first isn’t always best.

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BY Bill Green - 29 Aug 2017

PHOTO CREDIT: Getty Images

As entrepreneurs, we tend to think that the only way to succeed is to be first.

So much emphasis is placed on first-mover advantage--which means being the first company to establish significant market share in an emerging industry. But the truth is (and there is plenty of data to support this), being a first-mover often times welcomes much more risk than if you were to play the less celebrated but better positioned role of "second-mover pioneer."

When you're the first to market, you have to do all the heavy lifting yourself. You have no road map to follow--which is often why those first-movers are celebrated for being so innovative.

Unfortunately, those celebrations are short-lived. While the first-movers have been failing forward, the second-movers have been learning from afar--and positioning themselves appropriately for success.

I don't buy into the idea of first-mover advantage.

I'm not a pioneer. Never have been. I've never done anything first--but the things I have done have been done better. I've made a career out of being the second guy in the door.

Do I have something against innovation? Heck no, I love it. But it's not rocket science to realize it's better to invest in something that has a proven track record. Let the pioneers do all the research. Let them do all the hard work, go through all the bugs and figure out what works and what doesn't. Let them pinpoint who the real customer is.

You can sit back and watch, and then improve upon things once the paint has started to dry

Second movers are all over the place now. People spend zillions of dollars on them in the tech world, especially in the booming fintech industry.

One of my current investments--Crestar Loan Funds--is a perfect example. In this business, we acquire consumer loans from marketplace lending platforms like Lending Club and Prosper Marketplace. Lending Club pioneered the business and Prosper was an early adopter. Both companies spent millions of dollars on their technology.

Then I heard of this other marketplace lending company that was rising fast, so I paid them a visit. I asked them, "What did you spend to build your business?"

"A million bucks," they said.

I followed up with, "What did you spend on your technology?"

"Two hundred grand," they said.

They didn't hand over their code--and truthfully, they didn't have to--but it was pretty easy to see what they did and how they did it. So we copied it. We didn't plagiarize them, but we took their blueprint and made it better.

Since then, I've launched a real estate marketplace lender called LendingOne. Take one guess about what I'm doing with this one?

Second-mover advantage, people.

Pioneers usually die of bug bites and dysentery

The examples of why this strategy works so well are endless. Take Lyft and Uber.

While Uber may have been crowned the pioneers, their hunger for first-mover advantage has been costly for them in the long run. Meanwhile, second-mover Lyft has given up less of their company, raised less money, but in a much healthier position in 2017 than their sleek first-mover competitor, Uber.

Or take Apple and IBM. Apple wasn't the first company to create computers, but they absolutely have become the best to ever do it.

Here's a glaring one: Myspace and Facebook. Myspace absolutely had first-mover advantage. Who could forget the strange new culture of "only friends" that came as a result of the social networking site. Where are they today? A distant memory, while second-mover Facebook has become a global tech giant.

The real question, then, since there are so many second-mover success stories, is why people hail the first-movers and stress the importance of being first to market. Unless your goal is to be known as an innovator and not a business leader who wants to build businesses that will be successful, your chances are success are far greater by watching the mistakes others make and improving upon them.

There is no shame in being a second-mover. At least, no more shame than being a promising first-mover who ends up losing ground to a faster, smarter second-mover.