First-Mover Advantage: Dead or Alive?

by Ken Mueller on November 16, 2011 · 12 comments

white 15 First Mover Advantage: Dead or Alive?Send to Kindle

if toporek headshot 250x266 First Mover Advantage: Dead or Alive?Today’s guest post is from Adam Toporek, one of the many great folks I’ve met in the comment section of Spin Sucks. Adam is a Central Florida franchise developer and small business owner who blogs about the customer experience and how to provide excellent customer service.

I stumbled across an interesting post at Jason Freedman’s Humbled MBA blog which got me thinking about First-Mover Advantage. Freedman’s post was centered on how startups operating in stealth mode should stop focusing on secrecy. The gist of the post was that most of the secrecy early entrepreneurs engage in is counterproductive, but it was Freedman’s sixth point that caught my attention:

 

“First-Mover advantage is just silliness. The obit has been written on First-Mover Advantage.  It rarely helps.  Facebook wasn’t the first to social networking, Google wasn’t the first to search, YouTube wasn’t the first to video, yada yada.  First-Mover advantage was a flawed theory that helped pre-product internet companies raise billions of dollars in the 90s.”

The notion that First-Mover Advantage (FMA) has little to no value seems to have solidified into conventional wisdom. In fact, there is even research to back the sentiment up. A Boston University study tracked the first 25 U.S. auto manufacturers, and guess what? None of them exist today. Yet, these analyses of FMA tend to be one-dimensional – reduced to the question of does FMA “work” or not. And it is that reductionism that has obscured the true value of FMA.

First-Mover Advantage is Dead… In Tech and Other Realms

Like so many things, the effectiveness of FMA is highly dependent on context. Most of the “obituaries” I have seen written regarding First-Mover Advantage have almost all been from tech-oriented writers and centered on Internet- or technologically-based startups.

In the tech world, the obituaries are mostly correct. One of the primary culprits is R&D. In tech, first-mover companies spend massive capital on research and development, concept development and testing, and all of the other costs associated with figuring out how to make a new technology or idea into a viable business model. Often, they also incur the outsized marketing costs of introducing a new concept to consumers. Then they enter the market needing a home run to succeed.

Later-mover companies arrive later with healthier balance sheets, more capital for marketing, and offering improvements on the original company’s concept. These companies often end up dominating the market.

First-Mover Advantage Is Alive and Kicking… On Main Street

First-Mover Advantage in the brick and mortar world has some high positives. One area where FMA can be crucial is when there is limited prime real estate available. Let’s say a major developer creates a large master planned community and sets aside a single pad for fast food in the retail section. The first-mover in that scenario is the only mover. Or say a brand name gym gets to a suburban market a year and half before its competition and grabs the busiest intersection in the area. In addition to locking up the best location, the first gym has already had a year to establish their brand, grab the low hanging fruit, and form relationships with the best customers in the area. All things being equal, would you really rather be the second gym?

There is no doubt that First-Mover Advantage can truly provide a leg up in the many business scenarios, but FMA is not a magic wand that creates automatic business success.

People Can Screw Up Anything, Even First-Mover Advantage – Just Ask The Japanese

japan 300x218 First Mover Advantage: Dead or Alive?

The term First-Mover Advantage contains a key concept: advantage. An advantage is something that is only useful if it is utilized and deployed wisely. More importantly…

First-Mover Advantage is only one of many possible advantages; if it is not capitalized on well or if it is the only advantage, it will often not be enough to guarantee success.

An example from the non-business world may prove illustrative.

The 1941 Japanese attack on Pearl Harbor is a perfect example of First-Mover Advantage. The Japanese executed a (mostly) surprise attack on the U.S. naval base at Pearl Harbor that was designed to cripple the United States’ fleet and primary naval outpost in the Pacific. The Japanese had First-Mover Advantage yet still lost the war. Two important details demonstrate why.

  • The Japanese did not take full advantage of their first-mover status. After a lopsided victory at Pearl Harbor that completely destroyed America’s battleships in the Pacific theater, Japanese Vice-Admiral Naguno rejected appeals for follow up actions. The results were that the U.S. Pacific Fleet’s two most important strategic assets were left untouched: the oil-tank farms and the aircraft carriers, allowing the United States the ability to recover quickly.
  • The resource advantage, among others, was more important than First-Mover Advantage. Japan woke the “sleeping giant” at Pearl Harbor. At that time, the United States possessed incredible industrial resources and capacity, as well as distance from the theaters of war to produce war materials unmolested. In fact, prior to the war, the United States supplied 80% of Japan’s oil.

So, Can First-Mover Advantage Help You Win in Business?

The true value of FMA to a company is dependent on context; however, one principle is universal: understanding the benefits of FMA and how those benefits fit into the larger framework of all advantages is the key to using FMA wisely. In the end, FMA can be an incredible source of competitive advantage, but it cannot help you if you run your business unprofitably or if you let the competition execute better than you.

In other words, First-Mover Advantage will not make a bad business good,  just first.

What has been your experience with First-Mover Advantage? Have you see companies fail to capitalize on FMA with adverse consequences?

Photo Credit: http://digital.lib.ecu.edu/special/pearlharbor/ph/NPTO/hNPTO.html

 

 

 First Mover Advantage: Dead or Alive?
Buffer
11 comments
3dmodelsart
3dmodelsart

First mover advantage gives the first mover a commitment that they cannot avoid, once they have announced there decision to undertake a strategy. This is because this commitment is observed by rivals and has to be credible enough. Such scenarios will work better for a firm if its in an oligopolistic market, where we have few firms. Chances are if rivals react to such a move with a similar strategy- it would have an adverse effect on relative price and market demand. Assuming its an undercutting move. I strongly feel in a price takers economy, there is alot to discuss and it leaves an open forum for different scenarios.

Latest blog post: 3D Modeling From A to Z

bdorman264
bdorman264

Well one thing you can take to the bank, I will never be a first mover; in fact, I hope I get in before it becomes obsolete.

A few years ago several general lines agents I knew struck out on their own as 'workers comp specialists'. Rates had been increasing for about 10+ years, construction was going like nobody's business so the premium driver payroll was way up. It was very easy to get an audience. Some of the first people who chose this route did quite well. However, as the field became saturated, rates started to decrease, and the economy (payroll) tanked; I don't know a one of them left standing that hasn't gone to a skeleton crew and some are just gone altogether.

It's not quite the same as coming in after the 'first' guys and succeeding, but initially it did create a model for others to follow and some of the later entries became quite creative with their offerings.

Good to see you at Ken's. Hopefully he had some Philly Cheese Steak left over from this weekend because I'm sure he wasn't in a festive mood after the Eagle's effort...............just sayin'............:). We can't talk however, the Bucs aren't exactly playing like a house on fire either.............

Adam | Customer Experience
Adam | Customer Experience

@3dmodelsart You make an interesting point about about relative competition and the effect on first movers and price. I think one variable that is important in that equation is the extent to which the first mover is able to gain competitive advantage by securing strategic resources that followers are unable to replicate -- for instance, key locations, or key supplier relationships.

Adam | Customer Experience
Adam | Customer Experience

@bdorman264 That's a perfect anecdote. One thing that I didn't talk about directly in the post is the difference between being a first mover when there are high barriers to entry and low barriers to entry. If you are first and the barriers to entry are low (like calling yourself a WC specialist) you better have enough time to build a base and some sort of competitive advantage that keeps customers in the fold. Being first can help but is definitely not enough by itself.

It's funny how these "gold rush" things work. Remember in 2007 when everyone's uncle and cousin was a real estate agent.

KenMueller
KenMueller moderator

@bdorman264 I think the problem is that some First Movers have ideas, and aren't necessarily good at what they do. The key is to be AMONG the first in, and do it well. And be smart. I've talked about the life of Edwin Armstrong, who was first in, and good at it, but not smart about how he handled his technology inventions, and as a result, he failed. Google him and read his story. fascinating stuff.

KenMueller
KenMueller moderator

@Adam | Customer Experience@bdorman264 He's the man who invented FM radio (this is where my radio geek shines). Check out the Ken Burns documentary "Empire of the Air. (it's a shorter one). I was a consultant on it.

Trackbacks

  1. [...] as for opting in, is there a first mover advantage in installing the new Timeline on your business [...]

Previous post:

Next post: