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.