We're (Not) #1

Why playing second fiddle to an industry leader may be music to your ears

In a nation where only gold medal winners are revered and nobody remembers the teams that didn't win the World Series or the Super Bowl, it's heretical to proclaim a desire to come in second or third. When legendary football coach Vince Lombardi proclaimed, "Winning isn't everything; it's the only thing," he echoed a people groomed to believe "second place" is another term for "loser." But is that smart business?

Some entrepreneurs answer with an emphatic no. "Our core strategy is to be No. 2. We see it as a real competitive advantage, and we'll never sacrifice profitability just to get market share," proclaims Tom McDonnell, CEO and president of Jackson, Mississippi-based U-Save Auto Rental of America Inc., the country's No. 2 off-airport, neighborhood car-rental business. McDonnell, 37, readily concedes that his company, with about 25,000 cars and 500 locations nationwide, comes in well behind sector leader Enterprise Rent-A-Car: "They have 60 percent of the market; we're aiming to have 25 percent," he says. But, he stresses, "for us, being No. 2 is all positive. We absolutely believe it's a key strength."

McDonnell isn't alone in trumpeting the virtues of second place. "I've competed against giants for a long time," says Carey Balzer, 40, CEO and co-founder of Vectris Communications in Austin, Texas. Balzer's company sells broadband services-mainly high-speed Internet access-and wherever he competes, his company goes up against monolithic Baby Bells. "We prefer to go into markets where a Bell already offers broadband," says Balzer, who started the company in 1999 and currently operates in 10 states.

And it's not just entrepreneurs celebrating the role of the runner-up. They're getting plenty of support from researchers. "[Being a second-tier company] can offer significant advantages," says Steven Frumkin, a professor of marketing at Philadelphia University. "You know who No. 1 is, and that knowledge can help you create a profitable niche for yourself."

Adds Bing-Sheng Teng, an assistant professor at the George Washington University School of Business in Washington, DC: "It's much less risky. You get less competitive attention, and you can operate in the shadows while No. 1 takes the heat."

Not being the leader doesn't mean being a mere shadow of the industry giant, however. "Many companies seek to be best in their niche, not to be market leader," says Chuck Matthews, director of the Small Business Institute at the University of Cincinnati's College of Business Administration. "Don't go toe-to-toe against a much more powerful rival. It's oftentimes much smarter to dominate a sector than to try to be the overall market leader."

What benefits do entrepreneurs find by playing this open field? Read on-you could discover there's big money to be made by setting out to own not a market, but a piece of it.

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This article was originally published in the January 2001 print edition of Entrepreneur with the headline: We're (Not) #1.

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