Tue, Mar 01, 2016
One of the common held believes about building your company and you hear repeated over and over again is: Being the first in a market gives you the “first mover advantage”.
Wikipedia even has an acronym for it (FMA) and a definition: “A market participant has first-mover advantage if it is the first entrant and gains a competitive advantage through control of resources. With this advantage, first-movers can be rewarded with huge profit margins and a monopoly-like status.”
It makes sense. Being first to market is something a lot of companies strive for. When you’re first to market, you are a pioneer. When you are late, you are a settler. And who doesn’t want to be a pioneer?
Surprisingly, the downsides of being the first mover are frequently bigger than the upsides.
In a study from Golder and Tellis, where they analyzed hundreds of brands in three dozen different product categories, they found a staggering difference in failure rates: 47 percent for pioneers, compared with just 8 percent for settlers. Pioneers were about six times more likely to fail than settlers. Even when the pioneers did survive, they only captured an average of 10 percent of the market, compared with 28 percent for settlers.
What that leaves you with is two things: First of all — the first mover advantage is often exaggerated. Secondly (and more importantly): Don’t believe everything you hear. :)