Thursday, September 04, 2014

First Movers Don't Always Have the Advantage

Many entrepreneurs fall into the trap of believing that being the first mover always conveys a formidable advantage.  The first mover myth trips up many business people. Who was the first player in social media?  Not Facebook.  It was Friendster.  Who was the first mover in the browser market?  Netscape.  Who was first in search?  Not Google.   According to Kellogg Insights, “One study showed, in fact, that pioneers were more successful than late movers in just 15 of 50 product categories.”  

What are the key sources of first mover advantage?  If substantial economies of scale, network effects, and a powerful learning curve exist, then first movers have an advantage.  However, there's downside to being the first mover.   Being the pioneer in a new market can be expensive and challenging.  You make all the mistakes that a pioneer is likely to make.  Others watch and learn from your errors, and then they leapfrog past you.  At the same time, entrepreneurs who move first can then get stuck in the sunk cost trap.  They can become resistant to adapting their strategy that enabled them to gain some initial traction.  Fast followers then pass them by.   Entrepreneurs need to look carefully at a particular market and understand that simply being the first mover may not convey substantial advantage and protect them from competitive threats.


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