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  • Writer's pictureInventor Pty Ltd

What is the First-Mover Advantage?

When a business is just starting out with an innovative product or in a new market, you’ll often hear their founders talk about having first-mover advantage as one of their biggest strengths.

The concept has been around for a while now. And it’s meaning is pretty intuitive; when a business is the first to take a new product or service to market, they’re considered to be in the best position to succeed, because well, they’re the first ones in the market.

But is that really the case? Or is there more to the story than meets the eye? Let’s dig a little deeper.

What Do the Experts Say?

As it turns out, there really is no empirical evidence to definitely support the idea that the first-mover advantage is really as powerful as founders make it out to be. For every academic study that proves that it exists, there’s another one proving that it doesn’t. Naturally, you’re probably wondering why you should bother caring about something that doesn’t necessarily exist.

What’s happened here is that the business world has made the error of oversimplification. As humans, we love blanket rules and laws that apply to everything. Yet in reality, that simply isn’t the case.

The first-mover advantage is without a doubt an opportunity for any business, but the business itself needs to be successful and well managed in order to actually take advantage of being first to market.

What Drives First-Mover Advantage?

Generally speaking, to secure a first-mover advantage, you need to take advantage of opportunities in three key areas of your business. First of all, the greatest opportunity you have is simply time. As the first player in the game, you have at the very least, a few months before anyone else enters the market. And even that is a best-case scenario for your competitors. It could be a few years until someone else enters the market. Think of all the things you can get done in a few years!

In a similar way, being the first firm to hit the market with a new product, means that you have the opportunity to gobble up all of the scarce resources that may be crucial to success in that industry. Maybe you have specific staff expertise requirements and there’s only really three people in the country with the specific skill set to do what you need done. The first-mover advantage allows you to hire all three of those people before anyone else even has a chance to interview them.

And finally, with a first-mover advantage, you have the opportunity to secure a strong and loyal customer base, well before anyone else even has their product prototyped. Building a strong base with customers who are happy with your business will go a long way in securing your revenue in the long-term.

But keep in mind, being the first-mover doesn’t necessarily mean you’re guaranteed to have an advantage over your eventual competitors when they show up. Time, resources and customer bases are simply opportunities.

It is up to your business to secure them as advantages in a timely manner. Think about it. Sure, you may have a decent customer base when you’re the only player in the game, but if your customers aren’t happy with the product, they’ll promptly switch over to the new business when they enter the market; undoing all of your work as the first-mover.

The Up’s and Down’s

Yet it’s not all sunshine and daisies for the first-mover in a new market. Think about it this way. You’re at the beach with a friend and you want to go snorkelling near the rocks but you’re not sure whether the current is too strong to swim out to the spot you want to get to.

Your friend convinces you to go in first, and he’ll make his decision based on your response to the water. If you go in and the current is fine, you’ll be metres ahead of him by the time he gets in, which means you’ll get out to the snorkelling spot before he does and see a bunch of fish that will be gone by the time he gets there. That’s your first-mover advantage right there.

But that scenario relies on the fact that you’re at least as fast a swimmer as he is. If he’s a much faster swimmer, he’ll catch up to you and your first-mover advantage will be gone. In this case, you failed to capitalise on your opportunity and now have no first-mover advantage. The same thing occurs if you fail to take advantage of the opportunity of extra time, ability to secure resources or develop a strong customer base.

Now, imagine that it turns out that the current is actually too strong to swim out to the spot easily. You’ll probably get a few metres in before you realise it, and then you’ll have to swim back to the shore to think of a new way to get out there. By the time you’ve swum out, realized you can’t swim all the way and swum back, your friend has already learnt from your mistakes.

He saw you struggling out there, and decided to climb around on the rocks to dive in closer to the spot. He’s now way ahead of you and will definitely get out to the snorkelling spot before you and see more fish as a result.

That right there, is your second-mover advantage.

The ability to learn from the mistakes of others is not an option for the first-mover. They’re entering the market blind, with no history or evidence to know what’s going to happen. The second-mover has the opportunity to learn from past mistakes, and adjust their business strategy to account for them.

As you can see, there’s benefits to both sides. And when it really comes down to it, the quality of your business and its products are more important to the long-term success of the business than whether you enter first or second.

Yet it’s important to understand the concept, so that you can develop a strategy to make it work for your business.

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