The Risks of Pioneering an Industry for a Company

Over the weekend, terrible news surfaced: A Virgin Galactic rocket ship crashed during a test flight, killing one of its pilots and seriously injuring the other.

It was an unfortunate accident for Virgin Galactic. The company, which is part of Sir Richard Branson’s Virgin-branded business empire, is the forerunner in creating a brand-new industry – Space Tourism. In a business which has never existed previously, Virgin Galactic aspires to be the first company to bring tourists up into space.

However, no matter how beautiful the dream is, the crash of the rocket ship has brought many people back to reality and once again revealed the risks of being a first-mover, of pioneering an entirely new industry.

Think about the times when the automotive and the airline industries were at its infancies. There were countless failures, including the loss of lives, before both industries managed to reach the high operational standards that we enjoy now.

If you are investing

This is also a reminder to investors who are interested in looking at fast-growing companies that are in a new or changing industry to always be on the lookout for risks. A company might be in a fast growing industry – but that does not mean the investment would come without risk.

For example, we can take a look at Genting Singapore PLC (SGX: G13), the owner and operator of the integrated resort, Resorts World Sentosa. On hindsight, RWS seemed almost destined for success.

But when the company was just bidding for the project at the beginning of it all, the venture was considered a huge risk. This was because Genting Singapore was pioneering a new industry in Singapore – integrated resorts which combine both gaming and non-gaming entertainment facilities – which was untested. There was simply no way of telling for sure if the project can be successful.

Foolish Summary

Investors need to understand the risks of investing in a pioneer, or a first-mover. Sure, the rewards might be big if everything goes according to plan. But, investors should be aware too that things rarely goes according to plan for the first-movers.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim owns shares in Genting Singapore PLC