What exactly is a "Fast Follower" company?

A Fast Follower is a company that strategically waits for pioneers to prove a market exists before entering with a refined, improved version of the product or service. Rather than spending heavily on initial R&D or market creation, these companies observe what works, identify weaknesses in first-mover approaches, and then launch superior alternatives. Examples include companies like Samsung, which perfected smartphones after Apple pioneered them, or Facebook, which improved on earlier social networks.

Why might Fast Followers perform better than innovators?

While innovators create new markets, they also bear significant costs and risks: expensive R&D, market education, regulatory hurdles, and early mistakes. Fast Followers can learn from these pioneers' experiences, avoid their missteps, and enter with improved products once demand is proven. They typically spend less on development, benefit from existing customer awareness, and can focus resources on optimization rather than invention. Historically, many market leaders today weren't the first to market, but rather those who executed better after others proved the concept.

What are the risks of investing in Fast Follower companies?

While Fast Followers generally face fewer risks than innovators, they're not without challenges. They may struggle if they enter too late when competition is already entrenched, or if first-movers secure strong patents or network effects. Fast Followers must also continually invest in R&D to maintain their ability to rapidly improve upon others' innovations. Additionally, in mature markets with established leaders, the second-mover advantage may diminish as the cost of switching becomes too high for consumers.

How does a company like Super Micro Computer (SMCI) exemplify the Fast Follower strategy?

Super Micro Computer demonstrates the Fast Follower approach by not developing new semiconductor technologies themselves, but instead rapidly incorporating innovations from chip makers like Intel, AMD, and NVIDIA into optimized server systems. Rather than taking on the massive R&D costs of chip development, they focus on creating flexible, efficient systems that leverage these new technologies quickly. This allows them to offer cutting-edge solutions while avoiding the enormous risks associated with semiconductor innovation.

What market conditions favor Fast Follower companies?

Fast Followers tend to thrive during periods of rapid technological change and innovation, as these create frequent opportunities to improve upon pioneering concepts. They also perform well in markets with low customer switching costs, where consumers can easily adopt better alternatives. Additionally, industries with high initial development costs but relatively straightforward production scaling favor Fast Followers, as do markets where customer experience and usability improvements matter more than the core technological innovation itself.

15 handpicked stocks

Fast Followers

These carefully selected stocks represent companies that excel at strategic waiting. They let others take the risky first steps, then swoop in with better, more refined products to capture the market. Our expert analysts have identified these smart second-movers with proven track records of success.

Han Tan | Market Analyst

Updated 2 days ago | Published at juin 17