The Myth of the First-Mover Advantage: Why to be Smarter, Not Faster

Companies today worry too much about being fast. They want to fail quickly, pivot, and be first to market with their new idea. They want to make sure that they’re in front of customers before their competitors. It makes sense. Why would anyone want to be late to the game when you’d just have to take on an entrenched competitor who already has name recognition and a host of other competitive advantages?

Uber pretty easily makes the case for being first. Since pioneering the app-based ride hailing market, Uber has been bombarded with other companies trying to offer similar services or address niche markets that are under-served by Uber. But none of them have come close to matching Uber’s prominence in the U.S. Its closest competitor — Lyft — has struggled to gain even one-third of the market. And that’s as Uber continued to get bombarded with controversies and reported scandals.

Yet the first-mover advantage is often little more than a myth, and there are countless examples of latecomers coming away as the eventual victors. Atari and Diners Club, for example, built their respective industries from the ground up, only to become minor players down the road. Having seen the “first but failed” story too many times, most top executives today will tell you that the real value is in being able to compare dissimilar opportunities and make smarter plays.

Apple shows us how being late to the game can be just as advantageous as being first. The iPod wasn’t the first portable music player. It wasn’t even the first MP3 player for that matter. As other companies released MP3 players, Apple sat back, observed where there were pitfalls among existing offerings, and created a solution that noticeably outperformed the competition on key dimensions. It offered far greater storage capacity, faster file transfers, and a high-quality software component for buying and organizing music collections. Despite taking a wait-and-see approach, the iPod captured roughly 70% market share.

So should companies be more like Apple or more like Uber? Is the story of the iPod just dated? Could it be that in today’s world the pace of change is simply too fast to risk being late to the game? In reality, whether it makes sense to be a first-mover depends on a few important factors, which I outline below. Even though it may not always pay to be faster, it does always pay to be smarter. Here are three steps smart companies take to make sure they’re making the right decision about where, when, and how to play.

Spot opportunities that are nascent but enticing. If you’re responding to moves that your competitors made, you’ve already missed the opportunity to decide whether you should be first. That’s why it’s important to look not just at emerging trends, but also to become truly customer-centric. When you understand what jobs your customers are struggling to accomplish today, you’ll have an array of options for responding to those unmet needs. Find the problems that are a big deal to a large number of people, and work from there.

Once you’ve settled on an idea, you’ll need to make an assessment of whether a play needs to be made quickly. Is this an opportunity where the window will close? Prove it. The question isn’t whether others are moving quickly. Instead, you’ll want to answer three questions about whether being first will truly offer you an advantage. First, will an early play create true barriers to entry for others who come later? Second, will an early play allow you to avoid large upfront costs that will later materialize for others? Third, will an early play lock you into a technology or business model that might be flawed?

Determine how large the opportunity is and whether you have a right to win. Now that you’ve decided whether you need to move quickly, you’ll need to pause and consider whether you want to move at all. Regardless of how much hype there is, it’s important to assess whether an opportunity offers enough potential to meet your organization’s goals, as well as whether you’re the right company to pursue it. That can be an involved process, but at a minimum you will want to do at least two things. First, you need to determine how big of a population prioritizes the job you’re trying to solve for. This also means assessing how well-satisfied that population is with its ability to get that job done today. Second, you need to understand what competitive advantages your organization has, such that it’s the right play for you.

Identify how you would make a play. Finally, assuming you’ve decided that the opportunity is a good fit for the organization, it’s important to develop a go-to-market plan that focuses on the details. Few teams miss the obvious things like defining a budget, determining pricing, or choosing channel partners. But what often gets overlooked are the internal factors that can ultimately derail a project after a long period of investment. Who’s responsible for determining what level of risk is acceptable? Has leadership from the relevant business unit been involved so that they’re not surprised by the project? Who will ultimately staff the project, and where does that headcount come from?

While there are sometimes situations in which it pays to be first to market, it almost always pays to make the smartest entry into the market. That requires determining how quickly you need to move, assessing why the opportunity is a good fit for your organization, and creating detailed plans for how to act that preempt major barriers that could appear down the road.

Dave Farber is a strategy and innovation consultant at New Markets Advisors. He helps companies understand customer needs, build innovation capabilities, and develop plans for growth. He is a co-author of the award-winning book Jobs to be Done: A Roadmap for Customer-Centered Innovation.