business career entrepreneur success

The First Mover Handicap

There is a general belief that being the first mover is the thing to do. Actually many entrepreneurs focus on having that great new idea that will tap into an unexplored and uninvented market, which is supposed to mean guaranteed success. This is the conventional business and this is what we learn from most success stories, and for an untrained eye it certainly looks that first movers rule the world of business.

But, contrary to the popular beliefs, companies like Gillette, Sony, Coca-Cola, eToys and Netscape show that this is not the case. Actually a study shows that pioneers are more successful than followers in about 30% of the cases. Which, to be honest, is not a great percentage if we consider all the extra costs and efforts needed to discovered an uncharted business, even if the sources of first mover advantage seem quite obvious: economy of scale, network effects and learning effects.

Getting big fast helps you make economies of scale because of spreading fix costs over more products and services. Network effects are beneficial when a being part of a network brings more value to a product and when costs of switching are high. Learning first is an asset since companies learn and improve while acting on a market, developing products and serving clients. But this is not always working, and there is a downside of being the pioneer.

There are the obvious pioneering costs which include research, building a market and a competitive advantage that might not help you on the long run if others can use for free your expertise and follow your path while avoiding your mistakes. One huge problem with first movers is the sunk costs trap, which leads entrepreneurs in throwing good money after bad ones just because there is an emotional attachment with the initial project.

But pioneering is good in certain situations. If the expected life of a product category is short, if the value is highly subjective or intangible, if brand matters a lot, and if the cost of imitation is high and if some advantages of first movers are not over estimated, and one way to do it safely is to adopt the freemium model (eg LinkedIn), where the actual product is sold to a high number of free beneficiaries of a basic product.

To conclude, being first and being early is not always so advantageous, contrary to the conventional wisdom. It’s far better to be a first follower and build on what pioneers have learned.