Wednesday, April 27, 2011

Why "First Mover Advantage" Isn't Always An Advantage

Why "First Mover Advantage" Isn't Always An Advantage

It's often a key buzz word to include in your pitch: Our Competitive Advantage: We're the First in the Market. Terrific. Here's why you probably just turned off your audience.

What is it about First Mover Advantage anyways?

Let's start with a definition of First Mover Advantage. FMA is defined as being the first company to enter a market segment, allowing for that company to gain control. This can be further expanded to include tying up scare resources such as a prime domain name or physical location, the ability to register patents and trademarks, creating a strong brand loyalty early on, and the cache of being the first company to do whatever it is that you do.

So why is it not a positive thing?

It's not a bad thing. Someone has to be the first mover, or no one would ever enter a market. So why am I writing this at all then? If it's not so bad, why put down those pioneering first movers? Because Second Mover Advantage is where it's at.

There's 2 obvious problems with being the first mover: Cost & Risk.


The cost of entering a new market can be substantial. R&D does not come cheap, and it is a big risk to spend your initial capital (whether it's your money or an investors) on proving a concept before even thinking about generating the first dollar of revenue.


With no history to look to, there are huge risks in being the first mover. What if there really isn't a demand for your product or service? Maybe you've done your homework, but the homework just wasn't good enough.

One Other Problem with touting your FMA:

It's become cliche. Whenever I talk to an entrepreneur and I hear lots of buzzwords, including how substantial of a FMA they have, I start to lose hope that there is any steak beyond the sizzle of a trumped up pitch. Being a first mover is one thing, calling it an advantage is another, and banking your success on it is a huge red flag.

Don't be ashamed to be 2nd.

There are several pros to being a late entrant to a market. Remember: You don't have to use the buzzwords to impress investors. Impress them instead with your honesty and business model. Focus on the positives of being a second entrant:

Free Rider Effects

The ground work is done for you. Let the first mover spend their capital on R&D, and piggy back off of their hard work, their successes and their failures. Being first can be a painful and long process, let someone else take on that burden.

Minimal Market Education Needed

First movers will have to educate the market on the products availability, how it fits a market need, pricing expectations, where to purchase, etc. All of this adds up to further spending and time spent on ramp up. Let the first mover lay the ground work again, then jump in and capitalize on their hard work. If they did a great job educating the market, it's an easy entry.

Learn from the First Movers Mistakes

First movers will stumble, guaranteed. Even if they are small problems, learn from the first mover. Maybe the marketing method was off. Possibly the pricing was just a little too high. The publics perception of the product was completely different than anticipated. All of these can be hurdles the first mover can tackle while you watch from the sidelines, learning from their mistakes.

I encourage all startups to not be ashamed to be a 2nd mover and stout the advantages of being so.

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