First to Market vs. Late to the Game - Enterra Solutions

“The basis of first-mover advantage is simple: by being the first to enter a new market, the business gains an advantage over its actual and ... Home » Innovation » FirsttoMarketvs.LatetotheGame FirsttoMarketvs.LatetotheGame StephenDeAngelis February10,2011 NathanBedfordForrest,aConfederategeneralduringtheAmericanCivilWar,wasonceaskedwhathethoughtwasthekeytomilitarysuccess.Hiscolorfulbutsuccinctanswerwas:“Togettharfustestwiththemostestmen.”Modernstudentsofmilitarystrategymightstatethisdoctrinethisway:armiesshouldseektobefirsttooccupyandholddefensibleground.Inbusinessstrategy,theconcepthasbeentransformedintowhatisknownas“first-moveradvantage.”Anarticleonfirst-moveradvantage[“First-MoverAdvantage,”PearsonEducation]discussestheassumptionsbehindtheconcept: “Thebasisoffirst-moveradvantageissimple:bybeingthefirsttoenteranewmarket,thebusinessgainsanadvantageoveritsactualandpotentialrivals.Thisistruewhetherthebusinessisseekingtodevelopnewgeographical/demographicmarketsorsegmentsforexistingproducts,orwhetheritisseekingtointroducenewproductstoitsexistingmarketsegments.Ifthebusinessisfirstintoamarket,sothethinkinggoes,itcanestablishwhatthemilitarythinkerswouldcall‘defensibleground’.First,itcancapturemarketsharemuchmoreeasilywithouthavingtoworryaboutrivalstryingtocapturethesamecustomers.Second,whentherivalsdocomealong–astheyinevitablywill–thefirst-moveranditsmanagementteamwillhaveadvantagesintheensuingcompetition,suchasfamiliarproducts,brandloyalty,thebestretailoutlets,up-and-runningdistributionsystems,andsoon.Bybeatingrivalsintothemarket,thefirst-movercanconsolidateitspositionandcompetemoreeffectively,notonlydefendingitspreviouslyacquiredsharebutevencontinuingtoexpand.” Anotherdefinitionof“first-moveradvantage”statesthat“sometimes[an]insurmountableadvantage[canbe]gainedbythefirstsignificantcompanytomoveintoanewmarket.”[“FirstMoverAdvantage,”marketingterms.com]Marketingterms.comgoesontomakeanimportantpointaboutthisdefinition. “Itisimportanttonotethatthefirst-moveradvantagereferstothefirstsignificantcompanytomoveintoamarket,notmerelythefirstcompany.Forexample,Amazon.commaynothavebeenthefirstsellerofbooksonline,butAmazon.comwasthefirstsignificantcompanytomakeaentranceintotheonlinebookmarket.First-moveradvantagewasinitiallytoutedascrucialintheInterneteconomy,althoughnowthereisagrowingbacklashagainstit.First-moveradvantagecanbeinstrumentalinbuildingmarketshare,butthismayormaynottranslateintobusinesssuccess.Basically,beingafirst-moveronlymakessenseiftherewardsjustifytherisks.Someindustriesrewardfirst-moverswithnear-monopolystatusandhighmargins.Otherindustriesdonotoffersimilarrewards,allowinglate-moversthechancetocompetemoreeffectivelyandefficientlyagainstearlyentrants.” Asmoreevidenceisobtainedconcerningfirst-moveradvantage,thelesssoundthetheoryappears.Take,forexample,thecaseofhomemovies.FirsttherewasthegreatbattlebetweenSony’sBetamaxformatandJVC’sVHSformat.TheBetamaxformatwasfirsttomarket(1975)followedayearlaterbytheVHSformat.Onecan’targuethatSonywasnotasignificantcompany—itwas.Anditcan’tbearguedthatBetamaxwasaninferiorformat—itwasn’t.MostanalystsbelievethatSonylostitsfirst-moveradvantagetoJVCbecausetheVHSformatcouldrecord3-hoursofprogrammingwhiletheBetamaxformatcould(atfirst)onlyrecord60minutesworthofprogramming.Inaddition,VHSmachinesturnedouttobesimplerandcheapertobuild.ThePearsonEducationarticlequotedabovenotesthateveniffirst-moveradvantagescanbeobtainedtherearedrawbackstomovingfirst.Itcontinues: “First-moverstatusisnotwithoutitsdrawbacks.Thefirstandbiggestoftheseiscost.Inordertobeafirst-mover,anorganisationmustbeapioneer,andthismeansincurringcostsintermsoftimeandinvestment.Technologymustbeinvented,distributionsystemshavetobeestablished,knowledgeaboutnewmarketsmustbelearnedfromscratch,sometimespainfully.Forthosewhocomelatertothemarket,thecostsofacquiringallthisknowledgecanbemuchlower:productscanbereverseengineeredtodiscovertheirsecretsandthenimprovedon,experiencedstaffcanbehiredawayfromthefirst-moverfirmtoimpartandsharetheirknowledge,andsoon.…First-moveradvantageisnotjustaboutgettingtherefirst:speedisnecessarytosuccess,butnotinitselfsufficient.Theadvantagesofbeingfirstmustbeconsolidatedwithresources–money,peopleandknowledge–toenabletheadvantagetobemaintainedandenlargedupon.Noadvantagelastsforever,andthewisebusinessknowsthatitismuchhardertokeepanadvantagethanitistogetitinthefirstplace.First-moverstatusmustneverbeastrategyinandofitself,onlythepreludetoalargerandlongerstrategicplan.” Despitegrowingevidencetothecontrary,somepeoplestillinsist“thekeytocompetitiveadvantageistobefirsttomarketwithexceptionalideasandexceptionalserviceofferings.”[“Developa‘FirstMover’Advantage,”byPatrickJ.McKenna,FindLaw,1January2000].Anotherarticleclaims: “Therearetwostagestodevelopingfirst-moveradvantages.First,acompanymusthaveanopportunitytobefirstatsomething,eitherthroughskillorluck.Second,thefirmmustbeabletocapturethebenefitsofbeingfirst.Intheiraward-winningarticle,professorsMarvinLiebermanandDavidMontgomeryofStanfordUniversitydescribedthreebenefitsofbeingfirst:technologyleadership,controlofresources,andbuyerswitchingcosts.”[“First-MoverAdvantage,”ReferenceforBusiness/EncyclopediaofBusiness,2nded.] Ofthethreefirst-mover“benefits,”perhapsthemostimportantisthelast—buyerswitchingcosts.IsuspectthatbuyerswitchingcostsistheprimaryreasonthatMicrosofthasmanagedtomaintainitsfirstmoveradvantageinthePCsoftwaresector.Consumers,however,havebecomeverywarywhenitcomestopurchasingnewproductsandthatadvantageisdiminishing.Thefactofthematteris,however,someonehastobefirsttomarketwithanewproductoridea.Today’sbusinessmottoseemstobe“innovateordie.”Buthowdoesanindividualentrepreneurorcompanydecidewhethertomaketheleap?JohnTozzireportsthat“newresearchoffersfreshinsightonwhentolaunchaproductorservice,andshowsthatbeingfirsttomarketisn’talwaysacompetitiveadvantage”[“ThinkTwiceAboutBeingFirsttoMarket,”BloombergBusinessWeek,19May2009].Tozzicontinues: “Newacademicresearchsuggestsonewayentrepreneurscanevaluatewhethertheyshouldenteramarketfirstorwaitonthesidelines.Thedecisiondependsonhowhostilethelearningenvironmentis;thatis,howmuchentrepreneurscanlearnbyobservingotherplayersbeforetheylaunchcomparedtowhattheylearnfromparticipatingaftertheyenter,accordingtoMorenLevesque,anentrepreneurshipresearcherattheUniversityofWaterloo.Levesque,alongwithprofessorsMariaMinnitiofSouthernMethodistUniversityandDeanShepherdofIndianaUniversity,usedamathematicalmodeltoweightherisksandbenefitsofenteringthemarketearly.Theirresearch,publishedinMarch[2009]inthejournalEntrepreneurshipTheoryandPracticeisamongthefirsttoexplore‘howdifferentlearningenvironmentsmayinfluencetheentrybehaviorofentrepreneurs.’Thecruxoftheacademics’findingsontimingisthis:Inahostilelearningenvironment,entrepreneursgainrelativelylittlebenefitbywatchingothers.Forexample,iftherelevantknowledgeisprotectedintellectualproperty,studyingthemarketbeforeenteringwouldn’tyieldmuchadvantage.Inthesesituations,thetrade-offfavorsenteringearly.Butinlesshostilelearningenvironments,whereentrepreneursgainvaluableinformationlikelytoincreasetheirsuccessjustbywatchingothercompanies,companiesbenefitfromwaitingandlearninglessonsfromearlierplayers.” Levesquesays,“Ifyouenterearly,youaremoreofapioneer.”BloggerSteveBlankremindsusthatpioneerswereoftentargetsforadversaries[“WhyPioneersHaveArrowsInTheirBacks,”4October2010].Hewrites: “Thephrase‘firstmoveradvantage’wasfirstpopularizedina1988paperbyaStanfordBusinessSchoolprofessor,DavidMontgomery,andhisco-author,MarvinLieberman.[1]Thisonephrasebecamethetheoreticalunderpinningoftheout-of-controlspendingofstartupsduringthedot-combubble.Overtimetheideathatwinnersinnewmarketsaretheoneswhohavebeenthefirst(notjustearly)entrantsintotheircategoriesbecameunchallengedconventionalwisdominSiliconValley.Theonlyproblemisthatit’ssimplynottrue.Theironyisthatinaretrospectivepapertenyearslater(1998),[2]theauthorsbackedofffromtheirclaims.Bythenitwastoolate.…Firstmoveradvantage(inthesenseofliterallytryingtobethefirstoneonashelforwithapressrelease)isnotreal,andtheracetobethefirstcompanyintoanewmarketcanbedestructive.” Atthispoint,newresearchdebunkingthefirst-moveradvantagemightbeconsideredpilingon.Nevertheless,theevidencecontinuestomount.SarahE.Needlemanreports,“Contrarytopopularbelief,beingthefirsttomarketrarelypaysoff,anewresearchpaperconcludes.”[“InRacetoMarket,ItPaystoBeLatecomer,”WallStreetJournal,20January2011].Shecontinues: “Pioneeringfirmscommonlydieyoungbecauseconsumersaren’treadytoembracetheirbusinessmodels,accordingtoauthorsStanislavDobrev,aprofessorattheUniversityofUtah’sDavidEcclesSchoolofBusiness,andAleksiosGotsopoulos,aprofessoratBostonUniversitySchoolofManagement.Andsincemarketforerunnerslackpredecessorstolooktoforguidance,theunprecedenteddecisionstheymakeoftenendupfatal.‘Ifyouhaveanideaforanewmarket,it’sextremelyhardtopulloff,’saysMr.Dobrev.HeandMr.Gotsopoulosresearchedthelifespansof2,197automobilecompaniesthatlaunchedintheU.S.between1885and1981.Noneoftheinitial25lastedformorethan15years,andtodaytherearejustthreedominantplayersintheU.S.autoindustry—GeneralMotorsCo.,FordMotorCo.andChryslerGroupLLC.Theprofessors’findingswerepublishedintheOctober[2010]editionoftheAcademyofManagementJournal.” Asarelevanttopicofresearch,studyingthefateofautomobilecompaniesintheU.S.seemsabitoutoftouch.Carmanufacturersarecompaniesthatemergedandmaturedduringtheindustrialage.Althoughtheyprobablyhavelessonstoteachcompaniesthatareemergingandmaturingintheinformationage,Isuspectthatnotallofthelessonsaretransferable.Needlemancontinues: “Severalmodernexamplesalsoillustratetheconsequencesofbeingamongthefirst—ifnottheveryfirst—topenetrateanuntappedmarket.TakeNetscape,thenow-defunctWebbrowserthatprecededInternetExplorer,Safari,FirefoxandChrome.Orconsiderthefateofpersonal-computermanufacturerslikeOsborneComputerCorp.,KayproCorp.andCommodoreBusinessMachines.They’vealllongbeenreplacedbycurrentmarketleadersHewlett-PackardCo.,DellInc.,GatewayInc.andothers.Andwhilesocial-networkinginnovatorstheWell,FriendsterandMySpacestillexisttoday,nonematchthepopularityorfinancialprowessoftheirsuccessor,Facebook.Ifyou’reunfamiliarwithsomeofthese,you’renotalone.Onceso-calledfirstmoversdisappear,they’reoftenquicklyforgotten,saysMr.Dobrev.‘Yourarelyhearaboutfirstmoverswhofailed,’heexplains.‘Theydon’texistverylong.Theydon’tleavealotofrecords.'” TherearesomeexceptionsIwouldthink.I’vealreadymentionedMicrosoft.ItscompetitorApplehascertainlythrivedandeBayishanginginthere.NeedlemanpointstoCoca-Colaasanothersuccessfulpioneer.Butsuccessesappeartobetheexceptionratherthantherule.Needlemancontinues: “Thoughitmayseemunfair,similarbutimprovedversionsoffailedtrailblazersareoftencreditedwithleadingthepack,Mr.Dobrevadds.Asaresult,manyentrepreneursfalselyassumethatsuccessliesinbeingthefirsttobraveunchartedwaters.‘Weliketohearagoodstoryaboutsomeonewho’singeniousandcomesupwithagreatideaandseesitthrough,’hesays.‘That’snottruemostofthetime.'” Needlemanclaimsthat“thereisatleastonemajoradvantagetobeingthefirsttomarket—alackofcompetitors.Butsolitudeisn’taguaranteedrecipeforahit.”Shecontinues: “‘Youcanbethefirsttomarketandfail,’saysMr.Dobrev.‘Itboilsdowntohavingagoodstrategy.’IsaacBarchas,directorofthetechnologyincubatorattheUniversityofTexasatAustin,saysentrepreneurslookingtobreakintoanuntestedoremergingmarketshouldconsidertakingawait-and-seeapproach.‘Ifyoucanwatchotherpeopleandlearnfromthem,thatgivesyoutheopportunitytofigureouthowtotweakthebusinessonthemarginstobebetter,’hesays.‘Youcanlearnalotfromtheexperience(someoneelsehas)paidfor.’Attemptingtomakehistorycanbackfireonayoungcompany,addsMr.Barchas.‘Acolloquialwayoflookingatthisisbeingthefirstsoldieronthelipofthetrench.It’sagloriousandnobleposition,butit’salsodangerous.'” Needlemanoffersacasestudytowatch—acompanycalled“SalescoopLLC’sScoopSt.,adailydealwebsite,launchedinOctober2009,aboutayearafterrivalGrouponInc.tookoff,andnearlyadecadeafteronlinediscounterGoldstardebuted.”GrouponappearstohaveaGoogle-likeadvantageoveremergingcompetitors,butScoopSt.“co-founderDavidAmbrosesaysheandhispartner,JustinTsang,benefitedbyobservingthecompetitivelandscapepriortolaunching.”Iguesswe’llfindout.NeedlemanreportsthatScoopSt.“hassofarraised$1.5millioninangelinvestmentsandprojectstoreachprofitabilitybythespringorsummer.”Groupon,bycontrast,hasraisedover$375millionininvestmentcapital.NeedlemanexplainsScoopSt.’sstrategy: “Todistinguishtheirstart-up,Mr.AmbroseandMr.TsangdecidedtoofferdealsonScoopSt.thatencouragebuyerstoengagewithoneanother,suchascouponsforweekend-longfestivals.Bycontrast,theysaytheircompetitorsmostlyofferdealsforservicesorproductsthatconsumersarelikelytocashinontheirown.TheyalsodecidedtolimittheirofferingstoNewYorkCitywhereasmanyotheronlinedealsitesoperatenationally.Still,Mr.Ambroseaddsthatspendingtoomuchtimefocusingonthecompetitioncanbedistracting.‘Ifyou’reonlylookingatthepeopleinfrontofyou,you’renevergoingtogrowyourbusiness,’hesays.” IfIweregoingtobetonanorganizationthatcouldwininthebattleagainstGroupon,I’dplacemymoneyonthesuitorGrouponturnedaway—Google[“GoogleOfferscouponlaunchconfirmed,”byRobPegoraro,WashingtonPost,21January2011]. Insomeways,thedebateoverfirst-moveradvantageisabattlebetweenadages.Proponentsoffirst-moveradvantageofferup“theearlybirdgetstheworm”whileopponentscounterwith“thesecondmousegetsthecheese.”Thedebateislikelytocontinue,buttheevidenceismountingthatbeingfirstisn’talwaysbest. RelatedPosts: NoBetterTimetoConsidertheTheoryofConstraints Justimaginewhatyoucoulddowithunlimitedtimeandresources.Givennoconstraints,manyofusprobablybelievewecouldbemorecreative.The ReadMore» InnovationandProblem-Solving We’veallheardtheoldproverb:“Necessityisthemotherofinvention.”ThetelevisionshowMcGyverwasbuiltaroundthatpremise.Theproverbhasbeen ReadMore» EnterraAutonomousDecisionScience™ OurPlatform IndustrySolutions Clients News&Insights AboutUs Menu EnterraAutonomousDecisionScience™ OurPlatform IndustrySolutions Clients News&Insights AboutUs AllRightsReserved.PrivacyPolicy©2022EnterraSolutionsLLC®|ClickforAccessibility Email Howcanwehelp? 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