Secret Silicon Valley: The Vaunted Myth and Meme of First Mover Advantage
By James Santagata
Principal Consultant, SiliconEdge
My first introduction to the concept of First Mover Advantage (FMA) occured in the 1980's when I was introduced to Michael Porter. Around that time we can also find papers on FMA from others such as Marvin Lieberman, David Montgomery.
While FMA is presented in these works as being potentially advantageous, it is never presented as being an unassailable advantage. And yet, during the run up to the Dot Com/Dot Con / Dot Bomb implosion, FMA was often one of the key selling points found in a tech startups plan. The other selling points often being (and laughable so) (a) the programming language used ("we're the first Java-based Email Client!" - Why should I care? How does that benefit me?) and consumer companies the (b) eyeballs the website attracted (often measured first in "hits", later maturing to page views, visits, unique visits and then site stickiness when all of the previously mentioned site metrics failed to be substantially and adequately monetize).
You would think that by now, after witnessing so many First Movers underperform and struggle if not fail, that this myth and meme would be completely dead by now.
However, in listening to entrepreneurs talk as well as monitoring various conversations, threads and articles it appears to now be a widely accepted as well as deeply embedded meme.
For instance, it is not uncommon to hear entrepreneurs talk about it being an absolute advantage without understanding what is needed to make being a First Mover (as in "the early bird gets the worm") an advantage and what, when and why it can be a debilitating disadvantage. Also often lacking is a full understanding of Second Mover Advantages (SMA) or Later Mover Advantages (LMA as in "the second mouse gets the cheese").
So what is a First Mover?
In the most simple of terms, a First Mover is simply a company that makes the first move in an industry, product or service category. The First Mover basically pre-empts the competition or that is how the story is supposed to go.
And as one might expect, along with this first move comes both advantages and disadvantages. What might these advantages be? Well, I'm glad you asked. Consider the following:
There is one Big Daddy First Mover Advantage I didn't include above. And there is a reason for that. The reason is that, even to this day, even though more and more so-called "tech startups" aren't "tech" companies at heart (think: Airbnb, Uber, etc.), these startups believe they are tech companies and they act like it. We know this, because we see how horrible or unrefined their company and product positoning and subsequent branding are or were cross all touchpoints.
One key First Mover Advantages that often isn't mentioned is to firmly establish your brand as the epitome of the industry you are establishing or in (think energy drinks: Red Bull vs Rockstar). Very few do that. In fact, very few firms which claim to be a First Mover do any of those seven points above. And especially in tech startups, positioning and branding are afterthoughts if they are thought of at all.
8. Establish your brand as the epitome of the industry
Now, moving on from the advantages, what are the possible disadvantages from being a First Mover? Although not exhaustive by any means these disadvantages would include:
First Mover Advantages are as real as are First Mover Disadvantages, however, being a First Mover in and of itself does not and will bring you "advantages" unless you purposefully and methodically lock down and secure those advantages while understanding and eliminating or at least mitigating potential First Mover Disadvantages.
At the same time Second Mover Advantages need to be identified and considered. Much of this will also depend on one's industry in terms of barriers to entry, the dynamism of intra-industry competition, market fragmentation and so on.
The goal of business is to win. And you win by selecting or discarding the tools which work or don't work for your particular circumstances. These circumstances will change as your firm moves through its growth stages and as the industry itself (both direct competitors and substitute competitors) shifts and changes.
Principal Consultant, SiliconEdge
My first introduction to the concept of First Mover Advantage (FMA) occured in the 1980's when I was introduced to Michael Porter. Around that time we can also find papers on FMA from others such as Marvin Lieberman, David Montgomery.
While FMA is presented in these works as being potentially advantageous, it is never presented as being an unassailable advantage. And yet, during the run up to the Dot Com/Dot Con / Dot Bomb implosion, FMA was often one of the key selling points found in a tech startups plan. The other selling points often being (and laughable so) (a) the programming language used ("we're the first Java-based Email Client!" - Why should I care? How does that benefit me?) and consumer companies the (b) eyeballs the website attracted (often measured first in "hits", later maturing to page views, visits, unique visits and then site stickiness when all of the previously mentioned site metrics failed to be substantially and adequately monetize).
You would think that by now, after witnessing so many First Movers underperform and struggle if not fail, that this myth and meme would be completely dead by now.
However, in listening to entrepreneurs talk as well as monitoring various conversations, threads and articles it appears to now be a widely accepted as well as deeply embedded meme.
For instance, it is not uncommon to hear entrepreneurs talk about it being an absolute advantage without understanding what is needed to make being a First Mover (as in "the early bird gets the worm") an advantage and what, when and why it can be a debilitating disadvantage. Also often lacking is a full understanding of Second Mover Advantages (SMA) or Later Mover Advantages (LMA as in "the second mouse gets the cheese").
So what is a First Mover?
In the most simple of terms, a First Mover is simply a company that makes the first move in an industry, product or service category. The First Mover basically pre-empts the competition or that is how the story is supposed to go.
And as one might expect, along with this first move comes both advantages and disadvantages. What might these advantages be? Well, I'm glad you asked. Consider the following:
- Locking up and securing distribution channels & the best locations in terms of in cyberspace (TLD name space, exclusive distribution agreements, product placements) and/or physical space (both the retail or disti sites themselves as well as shelf space, end caps, etc. at retailers).
- Locking up and securing suppliers.
- Locking up and securing supplies (Rare earth metals or in some cases components -- remember when low-latency SDRAM was hot and scarce?).
- Developing and securing intellectual property such as patents and trademarks. This may also entail licensing and/or acquiring other IP as needed, to serve as both a defensive strategy and (although patents are a right which is asserted negatively) a hammer.
- Attracting and acquiring top talent without having direct competitors or entering into a bidding war.
- Setting industry standards.
- Realizing a higher company valuation from investors or the financial markets.
There is one Big Daddy First Mover Advantage I didn't include above. And there is a reason for that. The reason is that, even to this day, even though more and more so-called "tech startups" aren't "tech" companies at heart (think: Airbnb, Uber, etc.), these startups believe they are tech companies and they act like it. We know this, because we see how horrible or unrefined their company and product positoning and subsequent branding are or were cross all touchpoints.
One key First Mover Advantages that often isn't mentioned is to firmly establish your brand as the epitome of the industry you are establishing or in (think energy drinks: Red Bull vs Rockstar). Very few do that. In fact, very few firms which claim to be a First Mover do any of those seven points above. And especially in tech startups, positioning and branding are afterthoughts if they are thought of at all.
8. Establish your brand as the epitome of the industry
Now, moving on from the advantages, what are the possible disadvantages from being a First Mover? Although not exhaustive by any means these disadvantages would include:
- Experiencing costly technological discontinuities. For instance, the technology jump seen in some countries' telecommunications infrastructure from wirelines to wireless, can be considered a first mover disadvantage which favors later movers. The same can be said for Cloud Computing companies (think: SaaS, PaaS, IaaS) which may have a very old, rickety or long in the tooth (by modern standards) system architecture or workflow.
- Skilled employees don't exist - you need to train them.
- Customers don't understand what you do - you need to educate them.
- Investors don't understand what you do - you need to educate them.
- Standards don't exist - you need to build multiples versions or flavors.
- Standards don't exist - you need to organize, promote and produce the standards.
First Mover Advantages are as real as are First Mover Disadvantages, however, being a First Mover in and of itself does not and will bring you "advantages" unless you purposefully and methodically lock down and secure those advantages while understanding and eliminating or at least mitigating potential First Mover Disadvantages.
At the same time Second Mover Advantages need to be identified and considered. Much of this will also depend on one's industry in terms of barriers to entry, the dynamism of intra-industry competition, market fragmentation and so on.
The goal of business is to win. And you win by selecting or discarding the tools which work or don't work for your particular circumstances. These circumstances will change as your firm moves through its growth stages and as the industry itself (both direct competitors and substitute competitors) shifts and changes.
