First Mover DISadvantage

Back when I was wasting my time in college, I took a business class. In this business class, we learned about the First Mover Advantage, the idea that the first player to enter a market has some sort of implicit advantage over players who join the market later.

In the Valley, this mentality thrives to excessive degree. “Somebody’s already doing that,” will shut down most pitch meetings right from the onset. So we twist and turn and try to figure out how to explain our ideas as materially, fundamentally differentiated from the existing players, when in reality, we might be better off looking for just one element that gives us an unfair advantage.

It makes some theoretical sense. The first player to enter a field doesn’t have any direct competitors, so for a market with a fixed demand, the limited supply means you get to set prices. You can use these optimal conditions to fuel growth, so that when new players enter the market, they have a formidable opponent to best…

But just ask Tom from MySpace how that worked out…

Being first on the scene means risk and cost:

• Risk that there is no demand for your product, since there’s no existing proof that anybody even wants it
• Costs to convince people they want to enter the market
• Costs to figure out all the unknowns of a greenfield business

And your reward for enduring these costs and risks? A new player entering the market and spending nothing to shortcut their way past all that nonsense.

There’s a lot of money out there for investment, and there are plenty of firms who do nothing but replicate the results proven by smaller startups, fueled by massive amounts of cheap capital.

Of course, we don’t want to enter a totally crowded market, because we might have difficulty competing effectively, and we don’t want to enter a market with a single, massive player that dominates the space, but the sweet spot for me is a space with a few major players who have already proven demand, but none of which have a clearly defined lead. From there, we work on offering something competitively differentiable, but not fundamentally different.

This strategy allows us to learn from our competitors, looking to the decisions they’ve made, and the size of the market they’ve carved out. Their head-start might not be as massive as you think at first-glance, and more often than not, it’s possible to best them head-on with just one key unfair advantage.

To make a track-and-field analogy, first-movers are the sprinters who waste all of their energy on the first lap. By the time they get to the finish line, they’re exhausted and weary, susceptible to destruction.

Don’t be the sprinter, be the guy who starts half-way through lap 4, and just waltzes on into first place.