FORWARD BASE B

"Pay my troops no mind; they're just on a fact-finding mission."

First Mover Advantage v. Ecosystem/Fast Follower Advantage

Peter Thiel mention’s this in his class on Start-Ups

As product development cycles continue to shrink, and as it becomes easier to reverse-engineer products once they appear in the marketplace, one could argue that the need to be first has faded into the background. The “first-to-market” mentality has been replaced by a broader, more strategic imperative: to create a truly global ecosystem that encompasses devices, platforms and operating systems. It’s okay to introduce a tablet after everyone else, as long as that tablet runs on your operating system and helps your overall ecosystem perform.

In many ways, Google’s current innovation strategy is almost textbook MBA: focus on the core, innovate at the edges. There’s one other small wrinkle, though, that they may not teach you in business school: At least for now, it’s more valuable in the short term to build a copycat product that plugs into an existing ecosystem than it is to build a first-to-market innovation. Scale matters, and networks and ecosystems give you that scale. To be a great business in today’s digital world, it requires spotting all the emergent technological trends on the borders and edges and transforming them into new, scalable market opportunities that build on existing strengths in a unique way. Link

Current dogma embraces the “fail fast, fail often” mentality. Which is quite devastating, particularly if you’re just getting started and tank most of your seed money away on a failed idea. Rather than think things out or let others take more of the risks, the majority of entrepreneurs still support the war by attrition method.

Three types of benefits—technology leadership, control of resources, and buyer switching costs—can provide long-lasting first-mover advantages. However, researchers believe that in many industries, companies entering later can overcome these advantages. Sometimes there are even first-mover disadvantages, or advantages enjoyed by companies who enter later. For example, the first entrant may invest heavily in enticing customers to try a new type of product. Later entrants would benefit from informed buyers without having to spend as much on education. Later entrants may be able to avoid mistakes made by the first movers. If first movers become complacent, later entrants may take advantage of changing customer needs. As the Internet continues to develop, technology companies find themselves especially susceptible to second- or later-mover success. Follower companies are reverse-engineering many new products to develop competing products either faster or cheaper—negating much of the first-mover advantage. Link

After a certain point, you set priorities. Do you want to have more control, more money, or more innovation? The problem with innovation is that most consumers in any market are behind the “curve”. Even the early adopters can rarely keep up with all of the technological advances in a field. So if you have a product that is very ahead of the curve there won’t be a market established for it.

I’ve seen this personally as a few of my friends who are much more successful than I am, that nonetheless can’t keep up with changes in their field as they happen, not to mention apply them across their various campaigns. But that didn’t really matter, they were still supplying the customer with what they wanted. In fact, they grew so fast that they never set up a proper system to scale their work or developed cognitive skills for information management. They worked themselves to the bone, one took up chain smoking menthol’s to deal with the stress and wound up with a collapsed lung and had to have surgery to have part of it removed before he was 24. As long as you can hit the “good enough” checkpoint in innovation and provide a superior user experience or have better marketing, you will out-compete opponents.

In fact, a 1993 paper by Peter N. Golder and Gerard J. Tellis had a much more accurate description of what happens to startup companies entering new markets. [3] In their analysis Golder and Tellis found almost half of the market pioneers (First Movers) in their sample of 500 brands in 50 product categories failed. Even worse, the survivors’ mean market share was lower than found in other studies. Further, their study shows early market leaders (Fast Followers) have much greater long-term success; those in their sample entered the market an average of thirteen years later than the pioneers. What’s directly relevant from their work is a hierarchy showing what being first actually means for startups entering new or resegmented markets:

Innovator                      First to develop or patent an idea
Product Pioneer          
 First to have a working model
First Mover                  
 First to sell the product                  47% failure rate
Fast Follower             
  Entered early but not first               8% failure rate

The Race to Fail First

What this means is that first mover advantage (in the sense of literally trying to be the first one on a shelf or with a press release) is not real, and the race to be the first company into a new market can be destructive. Therefore, startups whose mantra is “we have to be first to market” usually lose. What startups lose sight of is there are very few cases where a second, third, or even tenth entrant cannot become a profitable or even dominant player. (The rules are different in the life-sciences arena.)

  • Believing in First Mover Advantage implies you understand your business model, customers problems and the features needed to solve those problems.
  • That’s unlikely.
  • Therefore you’re either going to burn through your cash or pray that the hype can help you can flip your company.
  • None of the market leaders in technology were the first movers

Link

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