The Key to Catching (and Passing) Your Market Leader

If there is one thing nearly universal among small company owners and managers, it is the need—and sometimes the outright obsession—to do what the market leader is doing.  Whether copying a piece of their business model, matching their prices, advertising in the same places or hiring their ex-employees, the fact is most small companies spend a great deal of time trying to emulate companies they are chasing.  And from experience, I can tell you there are three primary (and dangerous) assumptions at work here:

Assumption #1: Every decision the market leader makes is backed by good data.
Assumption #2: Every product the market leader releases will be a success.
Assumption #3: Every initiative the market leader undertakes will increased their revenue and market share.

But just as you cannot pass the car in front of you by driving the same speed, you cannot pass a market leader by doing what they do.  Yet small company owners and managers continue to spend portions of every single day monitoring websites, reading newsletters, and scanning press releases for their competitors’ next move.  Although keeping close tabs on a market leader is perfectly acceptable as far as most MBA programs are concerned, in the real world we need to set aside our textbooks for a moment and realize something:

In most industries, companies closest to the top of the food chain are the least likely to do anything innovative, creative, or even remotely interesting.

Understanding there are exceptions to this rule, the fact is market-leading companies have no choice but to pursue low-risk strategies designed to help them keep what they already have, with growth being a secondary focus.  Recent history is littered with examples of market leaders who played it safe while companies in second place (or worse) gained ground uncontested.  Apple Computer spent over a year stealing market share from Microsoft with its Vista-bashing “I’m a Mac, and I’m a PC” campaign before Microsoft was finally goaded into responding.  In May of 2008, every Starbucks in the world was shut down for an entire morning to retrain employees how to make good coffee and provide better service—something local coffee shops had never forgotten how to do.  And it might surprise you to know that McDonald’s was NOT the first fast-food chain to offer healthy alternatives to French fries OR the “value menu.”  The Wendy’s chain began offering both in the mid-1980s—back when it wasn’t anywhere near the Top 10 List of fast-food franchises.

The point to be made here is that keeping a close eye on the market leader can be extremely valuable . . . as long as you have no intention of doing what they do.  If the time used to monitor a leading competitor is to be spent wisely, it should be spent looking for opportunities to do the opposite of what they’re doing; i.e. finding weaknesses in their product, service or business model which you can exploit to grow your own business.  Market leaders understand that one botched product release, one high-profile customer complaint or one bad marketing campaign can give a competitor the opportunity to leapfrog them.  This makes market leaders conservative, predictable and risk averse—all of the characteristics growing companies cannot adopt if they wish to reach the top some day.

So what is my point?  That the tendency to give market leaders too much credit can become a problem that eventually stifles internal creativity, and (ironically) neutralizes a small company’s ability to step out of the shadows and claim the leadership position for themselves.  Companies who are chasing the market leader need to push forward with new products and services, out-of-the-box marketing initiatives, and bleeding-edge technology investments designed to acquire massive amounts of market share in very short periods of time.  With this in mind, a key piece of any small company’s strategy should definitely be to watch the industry leader for opportunities.  And when it comes to finding the next great industry innovation, the companies who deserve the most attention are very likely the ones who are chasing you.

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