The First Mover Advantage and the Risks of Being a Pioneer

Being the first company to enter a marketplace is certainly connected to success. So much so, that the business world uses a special term for this type of relation – first-mover advantage. In the tech sphere, being the “first” is often considered not only a prerequisite but a guarantee for success. That makes sense – it’s only logical that if you offer something no one else does, then you alone will reap all the benefits…right? Unfortunately, things are not so clear-cut when it comes to comparing those that come first and those that closely follow them.

According to research by Peter Golder and Gerard Tellis, start-ups who are early to a market, but not the first ones, fail at a rate of about 8%. By comparison, the first movers failed 47% of the time. This begs the question – is it truly better to be the trailblazer in a certain field or does this come with a significant amount of risk? Before delving into the nitty-gritty, let’s define the concepts of first movers and the first-mover advantage.

What is First-mover Advantage?

As the name suggests, the term first mover defines companies who enter a certain market before anyone else. They present a product or a service that is one-of-a-kind and fulfills market needs that no one has previously satisfied. The benefits of being a pioneer in a market are so many, that they are described as the first-mover advantage. 

First movers in an industry are almost always followed by competitive companies that attempt to capitalize on the first mover’s success and gain market share. Most often, the first mover has established sufficient market share and a solid enough customer base that it maintains the majority of the market. But this is not obligatory and often depends on various circumstances. Let’s see some of the pros and cons of being first-to-market.

Aspects of the First Mover Advantage

Setting up industry norms

When you’re the first in a market, you have the complete freedom to define your own industry standards. This includes specifics about the product that you’re offering, the distribution, the manufacturing process, and the marketing. 

Brand recognition 

If your business is the first to occupy a specific market space, it is only natural that consumers will grow to associate this market with your brand alone. This will give you the upper hand in brand awareness and if you are able to apply savvy marketing strategies, you will truly establish your company as a household name.

Exclusive Supplier and Retailer Relationships

When you’re the first, you have the power to dictate the rules. That is why a major first-mover advantage is the relationship you will build with suppliers and retailers. Being the first to reach them will help you negotiate terms and exclusive privileges. Moreover, it will give you the opportunity to provide a high-quality product with a convenient distribution. 

Customer Loyalty 

If you’re the first to provide a product or a service, you have a high chance of establishing necessity-driven customer loyalty. Once people find your company and get accustomed to using what you offer, they will likely stick to it even when competition shows up.

First Mover Disadvantages to Avoid

Despite all the benefits, being a pioneer comes with a lot of risks. Let’s review some of them.

People Don’t Know They Need Your Product

Sure, you know that your product is awesome and will better the lives of your customers. But even if you come up with the best product, your efforts to sell it will be unsuccessful if nobody knows they need it. If this is the case, as first to market, your company will likely have to invest a lot of resources in educating potential buyers of the nature of your product and its benefits. This means putting out a lot of content to your communication channels, including articles, explainer videos, tutorials, onboarding materials, and others.

Mixed Messages

One of the most common first-mover problems is not understanding their potential customers. The reason is quite simple – you have no basis on which to make conclusions. Since this market never existed before, you can only make assumptions as to what the target audience is. You can’t clearly define their pain points, what they like, what they respond to the most. Not knowing the customer avatar and its segments means it’s very hard to establish the right message and the right tone. That is why it is essential to start learning about your consumers the moment you enter the market. Waiting on that important step might turn out to be detrimental to your efforts.

Rushing Important Decisions

Your effort to be the first combines with an unclear image of the target avatar often leads to rushed decisions. This can be in your design, sales, quality, and any other department. Unfortunately, these rushed decisions can be hard to bypass later in your company’s life and stifle company growth. So make sure your pioneer ambitions don’t stand in the way of your success.

The Verdict on First-Mover Advantage

Being the first obviously provides you with amazing opportunities. However, these opportunities can be easily wasted if you make the wrong business decisions. So in the end, the first mover advantage depends on preparation, smart business decisions, and good management.