The Myth of the First Mover Advantage
First Mover Advantage
One of the most common fears entrepreneurs express to me is the fear of bringing a product or service to market “too late." They are typically worried about their good ideas getting stolen, going to waste in somebody else's business, and not being able to capitalize them themselves. Typically, this fear is the fear of not being able to capitalize on what is considered the “First Mover Advantage."
The First Mover Advantage is one of the most widely held fictions in the entrepreneurial world. If you look throughout business history, First Movers are rarely the most successful businesses. While there are anecdotal First Movers that gone on to succeed, far more fail and sputter out.
The Subsequent Mover Advantage
We often fail to recognize that the most successful businesses were not even Second Movers, but actually came much further down the line: companies like Ford, Burger King, Facebook, and Google are all examples of companies that were not First Movers. They took an existing business and made it a little better. Ford, for instance, did not invent the automobile, Ford only made it easier to produce them. Burger King was able to save millions of dollars in site selection and scouting by simply piggybacking on McDonald's locations. Facebook didn't invent social media, they simply built on the ground that was broken by MySpace. Google didn’t invent the search-advertising business, the refined their algorithm to make it better than the competition.
The First Mover Disadvantage
There are many more risks in being a First Mover. While the prospect of exponential growth in a new market is very enticing, the reality is that these opportunities rarely manifest. There are often multiple issues with a First Mover business model that prevents even a perfect product from being successful in the market. Such problems include educating the market about the product, identifying the specific problem that customers want solved, identifying a pricing mechanism, among many others.
Relatively small issues can side-line First Movers. America Online was First Mover in internet service providers. Their business model, which was based on a pay per use, could not stand up to competitors offering monthly flat fees, which customers found more attractive. AOL’s competitors benefitted in that AOL spent millions of dollars in advertising encouraging people to use their product and to educate their customers on how life-changing internet access could be. After breaking open the market, competitors were able to advertise how they provided a better or equivalent service in a manner better suited to the customer. Now, AOL as a service provider is a thing of the past. Their “First Mover Advantage" was very quickly used up when other companies were able to do what AOL had done, but only better.
So what does this mean for your company? Do not be in a rush to get a product to market. Find out what customers want. Find out how they need it. Find out how much they are willing to pay for it, and in what manner they prefer to pay. All of these questions can take months, if not years to determine. Even still, once they've been determined, customer preferences can change, as AOL found out too it's a disadvantage. Ultimately the reason why Second Movers can be much more successful is because they do not have to make as much money as First Movers They have to spend small fraction as much to survey and research their customers and to test and measure their assumptions. They can afford to let the First Movers make those mistakes for them.
If you are considering starting a business, spend more time researching your market, seeing what other companies in the industry do, researching customer tastes, and generally getting a feel for how your company can be successful. Spend less time worrying about getting to the market first. You can make mistakes in pushing a product or service out that are difficult, if not impossible, to fix once the product or service is on the market. Prevent making these mistakes by spending the time to put a great product out, and not just a quick one.