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Ideas for Impact

The Myth of the First-Mover Advantage

February 20, 2020 By Nagesh Belludi Leave a Comment

If you’re an entrepreneur entering a new market with a product or service that nobody else offers, you’ll seek the first-mover advantage.

  • You’ll move quickly to get established as a market leader. If your business idea has the potential to succeed, other entrepreneurs are possibly working on it at the same time or will be quick to emulate when they see what you’re doing.
  • You’ll validate your concepts quickly by identifying and partnering with a few enthusiastic “guinea pig” customers who can test your product or service early on and give you feedback regarding what customers really want.
  • You’ll create some barriers (“establish an economic moat” in Warren Buffett-speak) to inhibit other aspirants from entering the market—you’ll secure patents on your intellectual property, lock-in key locations, or negotiate longer-term contracts with customers.

Alas, many first-mover advantages are not sustainable, and many first-movers are as successful as what the superstars will have you believe.

First-to-Market is often First-to-Fail

New ventures have higher failure rates than more established businesses.

Creating market awareness, sustaining market acceptance, fending away aggressive competitors are often easier said than done for many new ventures, not to mention lining up suppliers and distributors. Besides, unless you’re well-capitalized by patient investors, you’re likely to face higher-than-foreseen marketing costs on top of lower-than-anticipated sales.

Instead, if you are the second—or later—entrepreneur to market, you’ll stand a better chance of success by learning from the forerunner’s mistakes. You’ll also earn better credence from your customers, suppliers, distributors, employees, and investors to help create a better product or service.

Idea for Impact: There’s an American adage that “many pioneers died with arrows in their backs.” The best time for an entrepreneur to offer a new product or service is after others have already gotten there and laid some groundwork.

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Filed Under: Mental Models, Sharpening Your Skills, The Great Innovators Tagged With: Creativity, Critical Thinking, Customer Service, Entrepreneurs, Innovation, Luck, Thought Process

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About: Nagesh Belludi [hire] is a St. Petersburg, Florida-based freethinker, investor, and leadership coach. He specializes in helping executives and companies ensure that the overall quality of their decision-making benefits isn’t compromised by a lack of a big-picture understanding.

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