Taking the Air Out of the “First Mover Advantage” Bubble

March 27, 2008 7 Comments by maya

There are very few panels, forums or boards, where investors evaluate ventures, that the notion of “First Mover Advantage” isn’t raised. In many cases, it is regarded with such awe, that the mere hint of another player “moving” first, may kill the chance of the venture to be financed.

Deadly Crash on the TTM (Time To Market) Highway

It’s almost as a side note of little significance, that Steven Gary Blanks in his brilliant book The Four Steps to the Epiphany (p 136), talks about the fallacy of “First Mover Advantage”. Worthy of serious discussion, I’d like to dedicate this post to this notion. It has driven too many promising startups to exceed the speed limit, loose control and end up in a deadly crash on the TTM (Time To Market) highway. The phrase “First Mover Advantage” was first popularized in a 1988 paper by a Stanford Business School professor, David Montgomery and his co-author, Martin Leiberman. Only 10 short years later, in a 1998 retrospective paper, the authors backed off from their claims. Blank: “By then it was too late. It’s misreading by some Silicon Valley VCs who had Montgomery as their business school professor, was used to justify the wanton and reckless ‘get big fast’ strategies of dot-com startups” … “this one phrase was the theoretical underpinning to the out of control spending of startups”.

Pioneers Get the “Advantage” of 47% Failure Rate

Ford TIn the 1993 Journal of Market Research article Pioneer Advantage: Marketing Logic or Marketing Legend? the question of “First Mover Advantage” is revisited and approximately 500 brands in 50 product categories are analyzed. The results show that 47%, almost half, of the market pioneers fail and their mean market share is much lower than that found in other studies. Early market leaders on the other hand, have much greater long-term success and failure rate of only 8%. Leadership dynamics in the US Auto Manufacturer market is just one example of the above findings. Ford, the first to mass produce cars in the US, soon lost it’s lead to GM and now both gradually lose market share to Toyota’s continuing upward momentum.

That’s The Rub. First ≠ Leader.

Too ofter, “First Mover Advantage” is taken literally, driving entrepreneurs to put all their resources in being first to move – first to put a product on the shelf. Blinded by the promise of long term victory, many burn out quickly, before they even understand the driving forces of the new market they’ve entered. What we should be aiming for, is Leader Advantage. Or, as Ries and Trout show with countless examples in The 22 Immutable Laws of Marketing, sustainable market advantage is achieved by those who follow “The Law of Leadership” and successfully position their product FIRST in the customer’s MIND. If all it took to win was to be the first to move, most competitive sports would be dead boring to play, moreover to watch. Similarly, it’s true understanding of the type of market you’re entering, compatible penetration strategy and agility, that makes a winner. Next time you hear praises of “The First Mover Advantage” remember the famous saying: “You can always tell who the pioneers are because they have arrows in their back and are lying face down in the dirt.”

6 Comments

  1. Boaz Kantor
    9 years ago

    Great post!!
    It’s true that second place can shoot the first mover in the back. I think the problem, though, is that the personality of entrepreneurs and risk investors does not allow them to be second.
    I guess the feeling or intuition, both in business markets and investment markets, is that the more players are around, the lower the possibilities for a phenomenal success. Even though it might not be true in practice, as your post shows, it’s something within us.
    Maybe it’s an animal instinct. What are the chances of surviving of the first mover (lion) who attacks the zebra, as opposed to the second mover (hyena) that gets the leftovers?
    Bottom line is, no one wants leftovers. We are all lions. At least when we look at the mirror 🙂
    Maya, keep up the great and most interesting posts!!

    K.

  2. Maya
    9 years ago

    Thanks for your kind words Boaz 🙂

    The advantages of a second mover, that also intentionally decides to stay second in market share, is discussed in this CNN article: http://money.cnn.com/magazines/fortune/fortune_archive/2006/03/20/8371782/index.htm

    What I was talking about is being first where it counts the most – in the customer’s mind, rather than being the first mover just for the sake of moving first.

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One Trackback

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