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First Mover Disadvantage

By Ray DePaul

What do Google, Apple, and Facebook have in common? None of them were “first movers” in their core market. With Google, they weren’t even a second mover (you old guys will remember Infoseek and AltaVista). Apple owes BlackBerry a tip of the hat and Facebook should be sending Christmas cards to Friendster and Myspace. But what these iconic companies did do was vastly improve on the first movers’ attempts to create a new market.

A new book titled Originals by Adam Grant officially debunks the myth of first mover advantage. It turns out that 47% of “first movers” fail in the early years while only 8% of “improvers” fail. Given how hard it is to be a first mover, this makes sense to me. I’ve been part of several first mover companies and they all suffer from a few common problems of moving first.

1. No one knows this new category exists.

At RIM, we labeled the first BlackBerry a “wireless handheld”. It wasn’t a wireless phone (it only did email at first). It wasn’t a personal digital assistant like Palm which didn’t do email. It was something brand new. No one was googling “wireless handheld”. No one was doing reviews of the top 5 wireless handhelds. We were on an island by ourselves (which certainly had some advantages).

2. No one knows where to buy your first product.

In the early 2000’s, I was involved in (one of) the first digital home servers. It would serve up movies to any TV in your home. It was part computer and part stereo/AV equipment. Should it be sold at stereo stores or computer stores? Stereo stores knew about video but they didn’t know how to support a computer server in the home. But our target customer of audio/videophiles would never seek out a solution in a computer store. It’s tough to succeed if there is no channel that can sell your product.

3. There’s no point of reference.

Consumers like to compare multiple options so they feel like they are making a wise purchase. And all but the early adopters like to know that others are also purchasing the same product. When most consumers only have the first mover to consider, and it is early in the life of the product, they tend to sit on the sidelines and wait until other products join the category and a clear leader emerges. It doesn’t take long for a first mover to go out of business while the market waits.

4. Investors are nervous about unproven markets.

Investors are more risk-averse than you’d think. When I was raising money for my “first mover” company, we had a lot of interest from investors, but most were reluctant to write a cheque. They just didn’t know if this new market would materialize the way I was saying it would. Then a silicon valley company raised $17M to go after the exact same market. All of a sudden, investors were clamoring to invest in our company. The fact that others were investing in something similar made us more, not less attractive.

But don’t worry, this is all good news. It’s actually really hard to come up with a brand new product category. Now that we know that it’s also really hard to succeed if you’re first, you can turn your attention to how to improve what is already out there. As you experience the world, look for areas that are being pursued by other first movers and ask yourself how you could dramatically improve the experience. How can you leverage the heavy lifting done by the first mover to swoop in and become the leader by being a whole lot better.