Is The First-Mover Advantage a Myth?
By Andrew Patricio
May 07, 2018
Small Business & Entrepreneurship
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Entering a new market, or category, before anyone else can carry significant risk. But there’s also a well-known theory that being first to market also carries significant reward. But is this first-mover advantage real or is does it send startups chasing an unrealistic dream?
The Advantage of First-Movers
The theory of the first-mover advantage states that a company that is first to market will create a corner on that market, establish their leadership, and dominate market share while others scramble to catch up. History is filled with examples of the first-mover dominating their markets, but for every example of the first-mover advantage, there is another example of the first-mover disadvantage. So what is common about companies who are able to get an advantage to entering a market first?
Types of Advantages to Being First
Experts agree that there are two different types of first-mover advantages, each with their own characteristics: short term and long term. The short-term advantages are for companies who are able to develop new technology, for example, and who have a clear exit strategy to get out before the advantage is gone.
The other first-mover advantage is longer term when technology advances slowly, along with the market. The first-mover has time to refine their product because the market is slow to adopt the technology. By the time the technology is refined, the market is ready for mass adoption, and by then, the company that was first owns the space. Think Kleenex or Post-Its where the brand names are synonymous with the product. The long-term advantage is dependent on resources over a long period of time, so often you’ll see larger companies with deep pockets and long-term strategies dive into this type of product development.
When the Advantage Evaporates
First-movers don’t always make it. They are burdened with the cost of R&D, moving before the market is ready, or ease of entry that allows others to jump on the bandwagon. A sign to avoid dipping your toe into a new market is when the technology is changing almost as fast as market adoption. Unless you have a corner on the raw materials needed to produce the next big thing, being a first-mover in this type of market environment is not likely to produce the ROI necessary to incur the big risk of missing out to newcomers.
If you’re thinking of entering a new product category, it’s worth analyzing the market and industry conditions that make it wise to be a first-mover or a fast-follower.
The Advantage of First-Movers
The theory of the first-mover advantage states that a company that is first to market will create a corner on that market, establish their leadership, and dominate market share while others scramble to catch up. History is filled with examples of the first-mover dominating their markets, but for every example of the first-mover advantage, there is another example of the first-mover disadvantage. So what is common about companies who are able to get an advantage to entering a market first?
Types of Advantages to Being First
Experts agree that there are two different types of first-mover advantages, each with their own characteristics: short term and long term. The short-term advantages are for companies who are able to develop new technology, for example, and who have a clear exit strategy to get out before the advantage is gone.
The other first-mover advantage is longer term when technology advances slowly, along with the market. The first-mover has time to refine their product because the market is slow to adopt the technology. By the time the technology is refined, the market is ready for mass adoption, and by then, the company that was first owns the space. Think Kleenex or Post-Its where the brand names are synonymous with the product. The long-term advantage is dependent on resources over a long period of time, so often you’ll see larger companies with deep pockets and long-term strategies dive into this type of product development.
When the Advantage Evaporates
First-movers don’t always make it. They are burdened with the cost of R&D, moving before the market is ready, or ease of entry that allows others to jump on the bandwagon. A sign to avoid dipping your toe into a new market is when the technology is changing almost as fast as market adoption. Unless you have a corner on the raw materials needed to produce the next big thing, being a first-mover in this type of market environment is not likely to produce the ROI necessary to incur the big risk of missing out to newcomers.
If you’re thinking of entering a new product category, it’s worth analyzing the market and industry conditions that make it wise to be a first-mover or a fast-follower.