First Mover Advantage, is it that important?

In 1988, a Stanford Business School Professor, David Montgomery, and his co-author, Marvin Lieberman, popularised the phrase “first mover advantage.” This concept is taught in pretty much most business schools in the world till today.

Being a first mover basically means that a company earns a form of competitive advantage by being the first to enter an industry or market.

Fast followers on the other hand, are defined as a company or firm that quickly imitates the innovations and business model of its competitors.

But being a first mover in a market, does it matter?

Not necessarily. Several companies did take advantage of their early presence in the market such as eBay and Coca Cola. However, based on a research by Peter N. Golder and Gerard J. Tellis, they found 47% of first-movers actually fail. Even worse, mean market share of the firms that survived was lower than found in other studies.

On the other hand, the study found only 8% of fast followers fail. According to the same study, fast followers or early market leaders had a higher tendency to have much greater long-term success. Shockingly, those in their sample entered the market thirteen years later on average than the first movers.

If we look closely, there are so many instances where such advantage doesn’t always work. Look at Facebook, before its massive adoption in 2004, there were social networks that offered similar experience, such as MySpace and Friendster. These two companies were big before being supplanted by Facebook.

Another example is Google, they were not the first search engine in this universe, Archie was. This is not only true for Facebook and Google but also for many other companies: they never entered their market as the first mover, but they followed fast and succeeded.

Ultimately, startups need to really work on their homework to find out whether or not the market is ready. According to Bill Gross of Idealab, one of the most important factors to success is not even under your control — that of market timing. He ranked 100 companies at Idealab and he found timing accounted for 42% of the difference between success and failure.

According to Gross, there is only one way to understand timing and that is to “really look at whether consumers are really ready for what you have to offer them. And to be really, really honest about it; not be in denial about any results that you see, because if you have something you love, you want to push it forward. But you have to be very, very honest about timing.” This homework requires strong analytical skill as well as good intuition. Even if you have the best idea or product in the world, if the timing is not right, then you may need to reconsider your startup strategy.

Creating the first product that nobody ever think of does sound cool, but having a critical number of people actually using your product is a more meaningful definition of success for your startup.

This article first appeared on The Quad at convergencevc.com

Special thanks to Adrian Li and Gary Khoeng for editing

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