Last month I attended a conference. The speaker asked the audience who was the first astronaut to set foot on the moon. Everyone remembers it was Neil Armstrong, just as everyone remembers that Chuck Yeager was the first pilot to break the speed of sound, and Charles Lindbergh was the first pilot to cross the Atlantic Ocean in an airplane... But do you remember who was the second in each of those? Probably not.

The speaker made the point that we only remember the first person to do something, but not the second one, making a case to why being first is important for success.

However, you must take this advice with caution, because it is false more often than true. Especially as an entrepreneur.

You see, you may remember who were the first to achieve major milestones, but you are not trying to buy anything from them. You are emotional when you hear of the milestone being broken (and the media helps you in that...), but you are much more rational when you make purchasing decisions. (I know behavioral economist Dan Ariely, who happened to go to school with my wife, might disagree.) At least, you use different emotions.

As an investor, I often heard entrepreneurs claiming being first to market as an advantage. However, you must remember that Facebook wasn't the first social media platform, Apple didn't produce the first cellphone, and Dell didn't make the first PC. In fact, MySpace, Motorola, and IBM were the first in those fields. None of them is a leader today. Some of them have exited those businesses. But right before you are ready to give up on first mover advantage (FMV), consider Hoover in vacuum cleaners, and Coca Cola in soft drinks. Two who have maintained a very long stretch of competitive advantage and market leadership. And there are more where those two came from.

In a 2005 Harvard Business Review article, authors Fernando Suarez and Gianvito Lanzolla claimed that two factors affect the viability of maintaining a first mover advantage: The pace of market evolution (customer adoption) and the pace of technological evolution.

According to them, when both paces are slow (as in vacuum cleaners and soft drinks), you may establish and maintain a first mover advantage. Technological advances are rare and very incremental (with the exception of Dyson, for example), making it hard for late entrants to differentiate themselves. When the market grows slower, there is a higher tendency to buy what everybody else bought, and a higher level of customer loyalty is created.

If the market adoption is faster, new customers tend to rely less on previous ones. Late entrants can address market segments not addressed by the first movers, where there is no established leader, and it is thus harder for the latter to maintain their initial market position for long.

When the technology changes rapidly, new entrants have the opportunity to differentiate themselves from the first movers and market leaders. In fact, it is harder for the incumbents to accept those technological changes, and they allow newcomers to disrupt their market and cannibalize their market share.

The worst scenario, in terms of maintaining a first-mover advantage, is when both market growth and technological change are rapid. New entrants can differentiate with new features and performance due to the technological advances, and they can address new market segments not previously addressed by the first movers. Such was the case with the iPhone. The cellphone market growth was tremendous in 2007, and Apple used new technologies to introduce a completely different phone.

Over time, the adoption rate of new technologies becomes faster. It took 46 years until electricity was adopted by 25% of Americans. It took 35 years for the telephone, 31 for radio, 26 for TV, 16 for PC, 13 for cellphones, and 7 years for one in every four Americans to start using the Internet. In December 2004 Facebook had one user. In less than 4 years, they crossed the 100-million user mark, and in less than 8 years, in 2012, they crossed the 1 billion mark. Facebook certainly maintains a competitive advantage, but it's not because they were the first movers. In fact, they weren't.

When you count on being first to market as your competitive advantage, be pragmatic. It doesn't matter that you don't remember who was the second astronaut to walk on the moon, because you also don't remember who was the first company to introduce the first personal digital assistant (PDA). It was Apple...

Published on: Aug 17, 2017
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