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The half truth of the first mover advantage

The competitive advantage gained by being the first to join a new market or develop a new product or service is referred to as first mover advantage. This advantage stems from the pioneering company's ability to create a strong market presence, build brand awareness, and capture a considerable share of the market before competitors emerge. First movers frequently benefit from creating industry standards, gaining client loyalty, and obtaining crucial distribution channels. However, it is crucial to highlight that being a first mover carries dangers, such as the possibility of high initial expenses, uncertainty about market demand, and the prospect of later entrants learning from the pioneer's triumphs and errors.

There are two models that provide more clarity on first mover advantage, Descriptive model and Prescriptive Model. The descriptive model specifies the pathways to having the first mover advantage while the prescriptive model helps realize if it is worth being the first one in that market and what to expect. Let's take a look at what the descriptive model suggests.

According to the descriptive model, there are 4 pathways to the first mover advantage. These pathways do not work in silos, but rather are steps to ensure positive results. The pathways to first-mover advantage are as follows:

  1. Be first in the technology: Make sure that you are the first in using the technology in your product/service in the way you intend to.

  2. Be first in the resources: To ensure the advantage, locking in your supply chain can be a great way to stay ahead of the game when competitors start arriving. 

  3. Increase network benefits and switching costs: Make sure that the benefits you provide have a network effect and increase the switching costs for your customers, in turn locking your customers to you.

  4. You need to be profitable: Market share only has meaning if it brings more than just a customer base. If you sell at a loss, you are basically buying the market. Do not succumb to cutting your profits to make your place in the market.

Once you have made sure to have achieved all four of the above steps in your business model, the next step is to verify if it is worth rushing to gain the first mover advantage.

According to the prescriptive model, there are 2 things to consider when deciding whether to aim for the first mover advantage. These 2 factors are, pace of market growth and the pace of technology evolution. In order to assess where your business model stands, map where you fall. The 4 scenarios are as follows:

  1. Calm Waters: This is a scenario where startups and small businesses can achieve the most success. Although the market growth is slow, so is the evolution of technology. This is also a space where bigger fishes generally don’t enter since it isn’t a quick buck or a big one at that, but if a startup manages to make good on the 4 pathways mentioned in the descriptive model, can reap long term success and solid grounding in the market.

  2. Tech Leads: In order to survive in this scenario, you will require deep pockets to keep spending on research and development. A company that depends on only one product and doesn’t have a larger product mix, will end up losing money beyond barely reaching breakeven. A scenario like this provides a temporary advantage since market growth is slow while the technology keeps evolving rapidly and can very easily make your product/service obsolete. 

  3. Market Leads: This is a space best suited for larger companies or ones that already have a strong brand visibility. Since the market growth is high, the demand in this space rises very quickly and small companies can often not keep up with the demand.

  4. Rough Waters:  This one is a knife fight and more often than not, not worth it. Although the market growth is fast, so is the evolution of technology which makes it an extremely vulnerable market to be in.

The advantages of pursuing the first mover advantage in business is not as simple as it seems to many. Despite the added benefits of high customer loyalty, the setting of industry standards and a big brand presence, the environment in which the startup operates influences the importance of having a first mover advantage tremendously, as shown by the prescriptive model. The study of both models suggests that a first mover advantage can easily erode, and lasting success is a function of adaptability, flexibility, constant evolution and readiness across all levels of the organization.


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