“Creativity is a by-product of hard work. If I never have another really new idea, it wont matter.” – Andrew A. Rooney
Too many self-help books tout the virtues of marching to your own drummer, beating your own path, or building your own mousetrap. Let’s talk today about being more like everybody else.
In the world of investing, there are trend followers and contrarians. A trend follower buys when prices are moving up. A contrarian buys when prices are cheap. A trend follower likes the momentum of stampedes. A contrarian likes to be different. I certainly appreciate a good contrarian posture. Anyone who knows me will tell you that. But as a businessman, my contrarian instincts have been worn down over the years by negative experiences. If I had to describe myself today, I’d say I’m a fearful follower.
That’s what Id like to talk about today whether it’s better for your business to be bucking or riding the trends.
This is an important discussion. I cant think of anything that will have a greater effect on the overall success of your financial ventures. Let’s start by figuring out where you stand in terms of your natural business instincts. How do you feel about the following three scenarios?
1. It’s 1990, and you are opening a new restaurant that you hope will become a chain. You realize the importance of having a unique selling proposition (USP), and when you look around at the competition you see that there is a trend developing a kind of eclectic menu that features oversized portions and ranges from spring rolls to meat loaf. Do you open a similar eatery in the same neighborhood? Or do you distinguish yourself by going some other way say by serving sensible portions with a distinctly French or Italian bias?
2. It’s 1997. You are in the diet business. Dr. Atkins is hot again, and so are several new anti-carbohydrate, pro-fat diets (e.g., the Zone and the Carb Addicts Diet). You are a publisher looking at two manuscripts. One is an Atkins knockoff; the other is a new vegetarian program. You can promote only one at a time, and you have a limited budget. Which do you do first?
3. It’s 2000. You are selling cars and planning your marketing budget for the next three years. You have to select a single car to lead your sales promotions. Downsized SUVs are hot. Do you go for one of those? Or do you opt for the half-electric, half-gasoline metro car?
I don’t think any one answer is right or wrong. But if you found yourself taking the contrarian position all three times, watch out. You may be setting yourself up for a long line of business disappointments.
The dream of the contrarian is to buy something (or start something) that is so unpopular people think he is nuts and then to prove them all wrong later on when it suddenly becomes THE thing to do . . . the next trend. So you could say that the contrarians ultimate goal is to establish trends by being far ahead of the pack. You could say that, but I don’t think its true.
The contrarians true goal (and I say this with all the conviction of a former cult member) is to be smarter than everyone else. He proves his smartness by having a different idea and demonstrates his value by doing things differently. But if you want success in business, you need to make success (not what people think of you) your primary goal. And if you do that, you will come to understand that following trends is generally smarter.
For every contrarian investment I’ve profited from, there are a dozen that have failed me. And of the best businesses I’ve launched, the great majority were what investment advisers call momentum plays.
If you accept the premise that following trends works, the question is: When do you get in and when do you get out?
My personal rule is to get in as close to the beginning as I can. Being No. 1 is always the best position, but No. 2 ain’t bad. Generally speaking, Numero Segundo gets about half as much of the market share as the leader which is still very considerable. And the second spot comes with much less risk of capital, time, and hassle.
Being second consistently is no small accomplishment. It requires a very astute sense of the marketplace and a very quick and sophisticated marketing apparatus. Out of all the temporary tendencies, you have to identify the one with momentum that is going to keep rising. Then you have to figure out a version of that which your business can produce and make it happen before someone else does.
Being first is best, but it’s way too expensive to plan on. Being second is about half as good which is usually plenty. Being third is half as good again, which is not usually good at all.
By creating a product-development strategy that aims to take second place most of the time, you have the best of all possible worlds: reduced risk, significant market share, fast growth, good profits, and longevity. If you plan to be neither first nor second, you have no plan at all. You will forever be stuck in the pack, struggling to stay alive and wondering why it takes so much work.
If you are a proud and independent person, you may not like this idea at all. You may think that following trends copycat product development is the most banal and least interesting thing a businessperson can do. But attempting to do your own thing puts you at risk of disappearing and is in my opinion being irresponsible to employees and shareholders.
It’s easy to be fooled by the media when it comes to this subject. Understandably, the stories that beg to be told are the pioneering ones the tales of stouthearted men and women who moved against the grain and created something wholly new that caught on.
But for each success of this kind, there are dozens of failures that you don’t hear about. If your job is to keep your business profitable, shoot for seconds. If you do so long enough and consistently, when the time comes to test your own special new idea, your business will have the cash and the other resources to make it happen.[Ed. Note: Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]