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Ask many entrepreneurs and investors, and they'll tell you that being first to market can provide a significant competitive advantage. It makes sense: if you're out there selling before anyone else, you can, in theory, acquire market share before would-be competitors get their shoes on.

But is the notion of a first-mover advantage really just a bunch of nonsense? Essentially yes says a study conducted by researchers at the University of Utah David Eccles School of Business and the Boston University School of Management.

This conclusion was reached after the researchers looked at 2,197 automobile companies launched in the United States between 1885 and 1981. What they found: the first 25 didn't survive beyond 15 years.

While one might correctly observe that U.S. automobile companies are hardly reflective of all new companies, The Wall Street Journal observes that a similar trend is seen with technology startups too. From Commodore Business Machines to Netscape to Friendster, there are plenty of examples of first-movers in the tech market which were eclipsed by rivals that were born later.

So why is the idea of a first-mover advantage so engrained in entrepreneurial thinking? One of the researchers, Stanislav Dobrev, points out that "You rarely hear about first movers who failed." He adds, "We like to hear a good story about someone who's ingenious and comes up with a great idea and sees it through. That's not true most of the time."

Of course, first-mover success stories do exist. There's eBay, for instance. But for entrepreneurs hoping to hit the jackpot, being first doesn't appear to provide a statistical advantage in the long run. Which will be music to the ears of plenty of startup entrepreneurs.

Entrepreneurs like the founders of Scoop St., which the Wall Street Journal mentions. Scoop St. is a daily deals site like Groupon, but it launched more than a year after Groupon. The founders are trying to differentiate themselves by offering deals that "encourage buyers to engage with one another."

Unfortunately, this highlights a sad truth for entrepreneurs: even if being first isn't so important, jumping into highly-competitive tech markets with low barriers to entry and hoping that small differentiators will make a big different usually isn't a winning formula either.

In other words, the Wall Street Journal's headline -- "In Race to Market, It Pays to Be Latecomer" -- is probably just as misguided as the belief that first-mover advantage is everything. A company like Groupon might not be here in 10 years, but would you rather be Scoop St. right now? Probably not.

So what should entrepreneurs do? If you're a first-mover, recognize that market share might come easy early on, but you need a sustainable business model and a product that keeps customers around once the competition comes knocking. If you're not a first-mover, you're in the majority, but to succeed, you need to execute.  

No matter when you launch your business, you can't expect to succeed if you're not really, really good at what you do.

Patricio Robles

Published 21 January, 2011 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

2429 more posts from this author

Comments (5)

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Peter Johnston

Duh. Someone doesn't understand barriers to entry.

The global car market has an extremely high barrier to entry - the cost of creating a new vehicle runs into billions. So the US car industry is far from being a good role model for innovation as the cars of the last 25 years have shown.

But this article is a perfect example of its last sentence. It starts well with a good headline. But by the time you get half way down you realise that it is actually a collection of mis-reported, disconnected articles to support that headline.

The confusion continues as the whol article veers off at a tangent - there is a big difference between being a corporation gaining first mover advantage to being an entrepreneurial startup.

And where did that conclusion come from. It certainly isn't supported by the preceding text.

As my old professor liked to say "This contained parts which were original and good. But the parts which were good were not original, and the parts which were original were not good."

almost 6 years ago

Peter Leatherland

Peter Leatherland, Online Sales Manager at Ethical Superstore

@ Peter Johnston - Well I think that might be a bit of a harsh assessment! Barriers to entry into the car market were much lower in 1885 than they are now, the first cars were little more than horse carriages without horses, if you could build an engine you could build a car. Today the only new car companies are niche because there is no way you can compete with a modern manufacturer. I think there is a good point in it, the second businesses to enter a new market see the success of the first mover and to compete think "we must make something better" so they look at the first mover and copy them but also find some way to make them better. The First Mover opens people up to the idea, then once open to the new product see there is a better one. Just look at Myspace (OK so not the first) and Facebook, Myspace got people using a social network who wouldn't have before, then Facebook came along at it was just better.

almost 6 years ago

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rory

Why did so many people Tweet this article-is it just to be seen on Twitter?! The article is lame and lazy, in my opinion.

almost 6 years ago

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rory

@PeterLeatherland Peter, regardless of what industry or year it is, you cannot enter any market by making one of anything. do you get that? you need the resources to make and market many thousands of products-the cost of so doing is the 'barrier to entry'.

almost 6 years ago

Peter Leatherland

Peter Leatherland, Online Sales Manager at Ethical Superstore

@rory yes I know there are barriers to entry to every market, I never said there wasn’t, my point is that they are usually lower in a new market because of the lack of competition, and a lack of competition that has built up a customer base, factories, technology. With the car industry in the 1890s the barriers were lower because there were no large manufactures and the technology was basic, now there are large manufactures who have already spent billions on technology and research/development. It would be virtually impossible to set up a new mainstream car company now without the backing of a Government or an existing large manufacturing company. With the example of Facebook the barriers to entry were very low, they created a better product and used existing real (not online)social networks of people, i.e. universities. They managed to overtake MySpace, Friendster etc. The barriers to entry for a social network site along the lines of Facebook are huge as they have a massive active userbase. Barriers to entry in 2004 were low, in 2011 they are high

almost 6 years ago

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